Document:

tv10_12ex.htm

Exhibit 10.12

 

 

PURCHASE AND SALE AGREEMENT

 

 

by and between

 

 

SELECT RESOURCES CORPORATION, INC.

 

 

and

 

 

COLUMBIA RIVER CARBONATES

 

 

 

 

Dated as of December 21, 2010

 

 

 

  

  

  

TABLE OF CONTENTS

ARTICLE 1                       Definitions

Section 1.01                           Defined terms

Affiliate

Agreement

Assets

Assumed Liabilities

Assignment of Tidelands Lease ADL-106300

Bill of Sale, Assignment, and Assumption Agreement

Business Day

Calder Mine Business

Certificates of Title

Closing

Closing Date

Code

Deed of Trust

Diesel Spills

Employee Plans

Encumbrance

Environmental Laws

Equipment, Fixtures, and Inventories

ERISA

Governmental Authority

Hazardous Material

Information

Knowledge

Legal Requirements

Letter Agreement

Occupational Safety and Health Laws

Operative Documents

Party; Parties

Permits

Permitted Encumbrances

Person

Personal Property

Preliminary Commitment for Title Insurance

Promissory Note

Purchase Price

Purchaser

Real Property

Release

i  

  

  

Retained Liabilities

Seacal                                                                                                                             

Sealaska

Seller

Taxes

Tidelands Lease ADL-106300

WARN Act

Warranty Deed

Section 1.02                           Construction

ARTICLE 2                       Sale and Purchase

Section 2.01                           Sale and Purchase of Assets

Section 2.02                           Excluded Assets

Section 2.03                           Purchase Price

Section 2.04                           Payment of Purchase Price

Section 2.05                           Liabilities

Section 2.06                           Allocation of Purchase Price

ARTICLE 3                       Representations and Warranties of Seller

Section 3.01                           Organizational Status; Power and Authority

Section 3.02                           Duly Executed

Section 3.03                           No Breach, Etc.

Section 3.04                           Litigation

Section 3.05                           Changes, Etc.

Section 3.06                           Title to Assets

Section 3.07                           Inclusiveness of Assets

Section 3.08                           Certain Operational and Regulatory Matters

Section 3.09                           Brokers

ARTICLE 4                       Representations and Warranties of Purchaser

Section 4.01                           Organizational Status; Power and Authority

Section 4.02                           Duly Executed

Section 4.03                           Financial Arrangements of Purchaser

Section 4.04                           Brokers

Section 4.05                           Due Diligence

ARTICLE 5                       Certain Covenants of the Parties

Section 5.01                           Obligations of Seller Prior To Closing

Section 5.02                           Obligations of Parties Following Closing

ii  

  

  

ARTICLE 6                       Conditions Precedent

Section 6.01                           Closing Conditions

Section 6.02                           Conditions To Obligations of Purchaser

Section 6.03                           Conditions To Obligations of Seller

ARTICLE 7                       Closing

Section 7.01                           Closing

ARTICLE 8                       Termination Prior To Completion of Closing

Section 8.01                           Generally

Section 8.02                           Effect of Termination

ARTICLE 9                       Indemnification; Disclaimer

Section 9.01                           Indemnification

Section 9.02                           Disclaimer

ARTICLE 10                       Default After Closing

Section 10.01                           Default

ARTICLE 11                       [INTENTIONALLY LEFT BLANK]

ARTICLE 12                       Miscellaneous

Section 12.01                           Entire Agreement

Section 12.02                           Modification

Section 12.03                           Extension and Waiver

Section 12.04                           Further Actions

Section 12.05                           Notices

Section 12.06                           Assignment

Section 12.07                           No Third Party Beneficiaries

Section 12.08                           Counterparts

Section 12.09                           Applicable Law

Section 12.10                           Survival

Section 12.11                           Facsimile and Other Signatures

iii  

  

  

 

EXHIBITS, SCHEDULES, and APPENDICES

Exhibit A                Real Property

Exhibit B                Personal Property

Schedule 1:     Certain Equipment, Fixtures, and Inventories

Exhibit C                 Warranty Deed

Exhibit D                 Assignment of Tidelands Lease ADL-106300

Exhibit E                  Bill of Sale, Assignment, and Assumption Agreement

Exhibit F                  Certificates of Title

Appendix 1:            Letter Agreement among Seller and Prior Owners

 

Appendix 2:            Ketchikan Title Agency, Inc.--Preliminary Commitment foir Title Insurance Order No. 28195

 

Appendix 3:            Copies of all documents relating to DEC File 1545.38.001 (Contaminated Sites Program Database Reckey 2004130124601)

 

 

 

 

 

iv  

  

  

PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), effective as of December 21, 2010, by and between SELECT RESOURCES CORPORATION, INC. (“Seller”), a Delaware corporation, and COLUMBIA RIVER CARBONATES, a general partnership (“Purchaser”).

 

WITNESSETH:

 

WHEREAS, Seller owns the “Assets” (as defined below), subject to (1) certain rights of SEALASKA CORPORATION (“Sealaska”), an Alaska regional Native corporation, and SEACAL, LLC (“Seacal”), an Alaska limited liability company, (Sealaska and Seacal jointly and severally are referred to herein as “Prior Owners”) that are the subject of the “Letter Agreement” (as defined below) among Seller and Prior Owners, and (2) the “Deed of Trust” (as defined below) in favor of Sealaska securing the “Promissory Note” (as defined below) on which $1,000,000 remains owing; and

 

WHEREAS, Prior Owners have agreed pursuant to the Letter Agreement to reconvey and release all such rights and the Deed of Trust upon receipt of payment in full of the $1,000,000 that remains due and owing under the Promissory Note; and

 

WHEREAS, Seller desires to sell, and Purchaser desires to purchase, the Assets pursuant to, in accordance with, and in all respects subject to the provisions of this Agreement,

 

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

ARTICLE 1

 

Definitions

 

Section 1.01     Defined terms. As used herein, the following terms have the following meanings:

 

“Affiliate” means, (i) with respect to Seller, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with Select Resources Corporation, Inc. or Tri-Valley Corporation, Inc. (a Delaware corporation that is the parent corporation of Select Resources Corporation, Inc.), and (ii) with respect to Purchaser, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with Bleeck Management, Inc. (an Oregon corporation) or Northwest Carbonates, Inc. (a Delaware corporation). For the purpose of this definition, “control,” when used with respect to any specified Person, means the possession of the power to direct the management or policies of the specified Person, directly or indirectly, whether through the ownership of voting securities, partnership, or limited liability company interests, by contract, or otherwise.

 

AGREEMENT—Page 1 

  

  

  

“Agreement” means this Purchase and Sale Agreement, as the same may be amended or modified in writing by the Parties from time to time.

 

“Assets” means the Real Property and the Personal Property.

 

“Assignment of Tidelands Lease ADL-106300” means an assignment in the form of Exhibit D, to be executed and acknowledged by Seller and Purchaser, and delivered by Seller to Purchaser, pursuant to Sections 7.01(a)(2) and 7.01(b)(2).

 

“Assumed Liabilities” means those liabilities assumed pursuant to Section 2.05(a).

 

“Bill of Sale, Assignment, and Assumption Agreement” means a Bill of Sale, Assignment, and Assumption Agreement in the form of Exhibit E, to be executed and acknowledged by Seller and Purchaser, and delivered by Seller to Purchaser, pursuant to Sections 7.01(a)(3) and 7.01(b)(3).

 

“Business Day” means any day except Saturday, Sunday, and any other day on which banking institutions located in Bakersfield, California, are required or authorized to close.

 

“Calder Mine Business” means the business of owning and operating the Assets.

 

“Certificates of Title” means the Certificates of Title issued for those items of Personal Property for which a certificate of title has been issued by the State of Alaska Department of Motor Vehicles pursuant to AS 28.10.201-28.10.401 (2004) (copies of all of which certificates are attached hereto as Exhibit F), the applications for transfer of which are to be executed, acknowledged, and delivered by Seller pursuant to Sections 7.01(a)(4) and 7.01(b)(4).

 

“Closing” is defined in Section 7.01.

 

“Closing Date” is the date on which Closing is completed.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Deed of Trust” means the deed of trust and security agreement referred to in the Letter Agreement.

 

“Diesel Spills” means the Releases of diesel fuel described in the documents attached hereto as Appendix 3.

 

“Employee Plans” means all “employee benefit plans” as defined by Section 3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D of the Code, and all other bonus, incentive-compensation, deferred-compensation, profit-sharing, stock-option, stock-appreciation-right, stock-bonus, stock-purchase, employee-stock-ownership, savings, severance, change-in-control, supplemental-unemployment, layoff, salary-continuation, retirement, pension, health, life-insurance, disability, accident,

 

AGREEMENT—Page 2

  

  

  

group-insurance, vacation, holiday, sick-leave, fringe-benefit, or welfare plan, and any other employee compensation or benefit plan, agreement, policy, practice, commitment, contract, or understanding (whether qualified or nonqualified, currently effective or terminated, written or unwritten) and any trust, escrow, or other agreement related thereto that (i) is maintained or contributed to by Seller or any other corporation or trade or business controlled by, controlling, or under common control with Seller (within the meaning of Section 414 of the Code or Section 4001(a)(14) or 4001(b) of ERISA) (“ERISA Affiliate”) or has been maintained or contributed to in the last six (6) years by Seller or any ERISA Affiliate, or with respect to which Seller or any ERISA Affiliate has or may have any liability, and (ii) provides benefits or describes policies or procedures applicable to any current or former director, officer, employee, or service provider of Seller or any ERISA Affiliate, or the dependents of any thereof, regardless of how (or whether) liabilities for the provision of benefits are accrued or assets are acquired or dedicated with respect to the funding thereof.

 

“Encumbrance” means any deed of trust, mortgage, pledge, restriction on transfer, assessment, security interest, lien, adverse claim, levy, charge, or other legal or equitable encumbrance of any kind.

 

“Environmental Laws” means any and all Legal Requirements (including common law) pertaining to the protection of human health (as it relates to exposure to Hazardous Materials), the environment (including, without limitation, any generation, use, storage, treatment, Release, or threatened Release of Hazardous Materials into the indoor or outdoor environment), wildlife or natural resources that is in effect in any and all jurisdictions in which Seller is conducting or at any time has conducted business or where the Assets are located, and any binding judicial or administrative interpretation (including, but not limited to, any judicial or administrative order, consent decree, judgment or settlement) thereof, including, without limitation, the Clean Air Act, as amended, the Federal Water Pollution Control Act, as amended, the Rivers and Harbors Act of 1899, as amended, the Oil Pollution Act of 1990, as amended, the Safe Drinking Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act, as amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act, as amended, the Hazardous Materials Transportation Act, as amended, and AS 46.03.822 (2004), as amended.

 

“Equipment, Fixtures, and Inventories” means all buildings, structures, plants, processing facilities, installed equipment, office trailers, office equipment, trailer camps, furnishings, kitchen facilities, pipelines, electric power equipment and facilities, telecommunications equipment and facilities, fuel tanks, waste facilities, docks, mining equipment, crushers, conveyors, trucks, vans, hoppers, trailers, all-terrain vehicles, and other items as are affixed to or situated upon the Real Property or Tidelands Lease ADL-106300 at Closing (but including wherever situated the items described on Schedule 1 attached to

 

AGREEMENT—Page 3

  

  

  

Exhibit B), together with (1) all fuel, tools, and parts held by Seller for or in connection with any of the foregoing, (2) all warranties (if any) and software licenses (if any) respecting any of the foregoing, and (3) all extracted rock or rock products that have been severed from the Real Property and that remain situated on the Real Property or Tidelands Lease ADL-106300 or in storage at Craig Storage on Prince of Wales Island at Closing.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

“Governmental Authority” means any federal, state, local, foreign or other government, any governmental, regulatory, judicial or administrative agency, bureau, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, or any court or governmental tribunal, but does not include Purchaser, Seller, any Affiliates thereof, or any of their respective successors-in-interest.

 

“Hazardous Material” means any substance, material, or waste that, in such quantity or concentration, is or will be regulated under or pursuant to any Environmental Law as hazardous, toxic, a pollutant, contaminant, solid waste, or words of similar meaning, including but not limited to petroleum, petroleum products, petroleum hydrocarbons, petroleum by-products, crude oil and any components, fractions, or derivatives thereof, methyl tertiary butyl ether, ammonia, asbestos or material containing or presumed to contain asbestos, urea formaldehyde, polychlorinated biphenyls, and other halogenated hydrocarbon compounds.

 

“Information” means all of the drill core, rock samples, data, maps, files, and records (whether in written, tabular, electronic, photographic, or other form and wherever situated) relating to any or all of the following: the geology of the Real Property or adjoining or nearby lands; the sampling, drilling, mapping, or other analysis (whether of a geologic, chemical, metallurgical, physical, engineering, environmental, or other nature or type) of the Real Property or adjoining or nearby lands, or of samples obtained therefrom; identification or calculation of reserves or resources; engineering associated with the Assets or the Calder Mine Business; construction of improvements on the Real Property or Tidelands Lease ADL-106300 or otherwise for or in connection with the Calder Mine Business; acquisition and maintenance of title to the Real Property; purchase, operation, maintenance, repair, and replacement of the Equipment, Fixtures, and Inventories; acquisition of, and compliance or noncompliance with, all Permits; the mining, processing, transport, shipping, marketing, and sale of minerals or mineral products derived from the Real Property; and the conduct of reclamation or remediation activities in connection with the Calder Mine Business; excluding, however, (a) any and all emails sent or received by Seller respecting the Assets or the Calder Mine Business and (b) any and all confidential and proprietary reports of Seller respecting the Assets or the Calder Mine Business.

 

AGREEMENT—Page 4

  

  

  

“Knowledge”, when used in the phrases “to Seller’s Knowledge,” “to the Knowledge of Seller” or similar phrases with respect to Seller, means, and shall be limited to, the actual knowledge of the executive officer of Seller or the senior employee of Seller who is responsible for the area of operation of Seller to which such Person’s knowledge relates, and, when used in the phrases “to Purchaser’s Knowledge,” “to the Knowledge of Purchaser” or similar phrases with respect to Purchaser, means, and shall be limited to, the actual knowledge of the executive officer of Purchaser or the senior employee of Purchaser who is responsible for the area of operation of Purchaser to which such Person’s knowledge relates.

 

“Legal Requirements” means any and all applicable (i) laws (common, constitutional, statutory, and administrative, and including but not limited to Environmental Laws), ordinances, regulations, judgments, orders, writs, injunctions, and decrees of any Governmental Authority and (ii) contracts with any Governmental Authority relating to compliance with matters described in (i) above.

 

“Letter Agreement” means that certain letter agreement dated December 1, 2010, among Seller and Prior Owners, a copy of which is attached hereto as Appendix 1.

 

“Occupational Safety and Health Laws” means any and all Legal Requirements (including common law) designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, including the Occupational Safety and Health Act, the Mine Safety and Health Act, and any program, whether governmental or private (such as those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions.

 

“Operative Documents” means this Agreement; the Warranty Deed; the Assignment of Tidelands Lease ADL-106300; the Bill of Sale, Assignment, and Assumption Agreement; and the applications for transfer of the Certificates of Title.

 

“Party” means Seller or Purchaser, as the context requires, and “Parties” means, collectively, Seller and Purchaser.

 

“Permits” means any and all easements, permits, authorizations, determinations, approvals, licenses, exemptions, variances, and orders that are currently in effect and held by Seller in connection with the Assets or the Calder Mine Business.

 

“Permitted Encumbrances” means, with reference to Seller or the Assets:

 

	
  

	
(a)

	
reservations, exceptions, exclusions and limitations set forth in any federal patent, state patent, or other governmental conveyance issued for any of the Real Property;

 

	
  

	
(b)

	
reservations, exceptions, exclusions and limitations set forth in Tidelands Lease ADL-106300;

 

AGREEMENT—Page 5

  

  

  

	
  

	
(c)

	
special exceptions enumerated in the Preliminary Commitment for Title Insurance;

 

	
  

	
(d)

	
liens for Taxes, assessments, and governmental charges not yet delinquent;

 

	
  

	
(e)

	
all Legal Requirements and rights of any Governmental Authority, both generally and under any of the Permits (including but not necessarily limited to the right to consent to any transfer of any of the Assets).

 

“Person” means an individual, corporation, limited liability company, partnership, joint venture, bank, trust, unincorporated organization and/or a government or any department or agency thereof or other entity of any kind.

 

“Personal Property” means all of the following: the Equipment, Fixtures, and Inventories; the Information; the Permits; all rights to any and all proceeds of condemnation or inverse condemnation of any of the Assets; all rights to any and all insurance proceeds for any damage to or destruction or loss of any of the Assets prior to Closing; and all claims of Seller against third parties relating to any of the Assets (whether choate or inchoate, known or unknown, contingent or noncontingent).

 

“Preliminary Commitment for Title Insurance” means that certain Preliminary Commitment for Title Insurance, Order No. 28195, issued by Ketchikan Title Agency, Inc., a copy of which is set out in Appendix 2.

 

“Prior Owners” means Sealaska and Seacal, jointly and severally.

 

“Promissory Note” means the promissory note referred to in the Letter Agreement.

 

“Purchase Price” is defined in Section 2.03.

 

“Purchaser” means Columbia River Carbonates, a general partnership, registered and authorized to transact business in the State of Washington, between Bleeck Management, Inc., an Oregon corporation authorized to transact business in Alaska, and Northwest Carbonates, Inc., a Delaware corporation authorized to transact business in Alaska.

 

“Real Property” means the real property described in Exhibit A.

 

“Release” means any depositing, spilling, leaking, pouring, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, seeping, dumping, or disposing.

 

“Retained Liabilities” means those liabilities retained pursuant to Section 2.05(b).

 

“Seacal” means Seacal, LLC, a single-member member-managed Alaska limited liability company.

 

AGREEMENT—Page 6

  

  

  

“Sealaska” means Sealaska Corporation, an Alaska regional Native corporation.

 

“Seller” means Select Resources Corporation, Inc., a Delaware corporation authorized to transact business in Alaska.

 

“Taxes” means unclaimed property and escheat obligations, taxes, charges, fees, levies, penalties or other assessments imposed by any Governmental Authority, including but not limited to, income, excise, real or personal property, sales, use, ad valorem, value added, environmental, transfer, franchise, payroll, withholding, social security (or similar), gross receipts, license, severance, fuel, production, transportation, stamp, occupation, employment, payroll, unemployment, disability or other taxes, including any interest, penalties or additions attributable thereto, whether disputed or not.

 

“Tidelands Lease ADL-106300” means that certain Tidelands Lease ADL-106300 effective June 1, 1999, and recorded on July 8, 1999, at Book 64, Pages 20-33, Petersburg Recording District, as amended, or its equivalent.

 

“WARN Act” means the Worker Adjustment and Retraining Notification Act or any similar state or local legal requirement.

 

“Warranty Deed” means a Statutory Warranty Deed in the form of Exhibit C, to be executed, acknowledged, and delivered by Seller pursuant to Section 7.01(a)(1).

 

Section 1.02     Construction. As used in this Agreement: (a) the words “hereof,” “herein,” and “hereunder” and derivative or similar words shall refer to this entire Agreement and not to any particular provision of this Agreement; (b) the terms “Article” or “Section” refer to the specified Article or Section of this Agreement; (c) the terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa; (d) the terms “dollars” and “$” shall mean United States dollars; and (e) unless otherwise specified, all references in this Agreement to times of the day shall be to the time in Ketchikan, Alaska  (the place of Closing). No provision of this Agreement will be interpreted in favor of, or against, any Party by reason of the extent to which any such Party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof.

 

ARTICLE 2

 

Sale and Purchase

 

Section 2.01     Sale and Purchase of Assets. Subject to all of the terms and conditions of this Agreement, at the Closing Seller shall sell, transfer, and deliver to Purchaser, and Purchaser (or its designee) shall purchase and accept delivery from Seller of,

 

	
  

	
(a)

	
the Real Property, free and clear of all Encumbrances other than Permitted Encumbrances, and

 

AGREEMENT—Page 7

  

  

  

	
  

	
(b)

	
the Personal Property, free and clear of all Encumbrances other than Permitted Encumbrances.

 

Section 2.02     Excluded Assets. The following assets of Seller are not part of the sale and purchase contemplated hereunder, are excluded from the Assets, and shall remain the property of Seller after the Closing:

 

	
  

	
(a)

	
all cash, cash equivalents, and accounts receivable associated with the Calder Mine Business;

 

	
  

	
(b)

	
all minute books and corporate seals;

 

	
  

	
(c)

	
all personnel records and other records that Seller is required by law to retain in its possession;

 

	
  

	
(d)

	
all claims for refund of Taxes and other governmental charges paid by Seller prior to closing of whatever nature;

 

	
  

	
(e)

	
all rights in connection with and assets of the Employee Plans; and

 

	
  

	
(f)

	
all rights of Seller under this Agreement or any other Operative Document.

 

Section 2.03     Purchase Price. The aggregate purchase price for the Assets shall be $2,500,000 (“Purchase Price”), payable to Seller as described in Section 2.04.

 

Section 2.04     Payment of Purchase Price. Upon execution of this Agreement, Purchaser shall deliver into the trust account of Ketchikan Title Agency, Inc. (the address of which is 57 Main Street, Suite 209, Ketchikan, AK 99901) via wire transfer the sum of $2,500,000. Said amount shall be disbursed by Ketchikan Title Agency, Inc. as follows:

 

	
  

	
(a)

	
$1,000,000 shall be paid to the order of Sealaska via wire transfer upon receipt by Ketchikan Title Agency, Inc. from Sealaska and Seacal of the following documents:

 

	
  

	
(1)

	
an instrument in the form of Exhibit A attached to the Letter Agreement; and

 

	
  

	
(2)

	
both (A) the original Promissory Note and (B) a formal Request for Reconveyance of the Deed of Trust.

 

Upon payment of $1,000,000 to Sealaska as aforesaid, Ketchikan Title Agency, Inc. shall cancel the Promissory Note by marking the same “PAID IN FULL” and shall deliver the cancelled Promissory Note and the Request for Reconveyance to the trustee under the Deed of Trust, so that said trustee may proceed to reconvey and release the Deed of Trust.

 

AGREEMENT—Page 8

  

  

  

 

   (b)           $1,500,000 shall be paid to the order of Seller immediately following

 

	
  

	
(1)

	
receipt from Sealaska of the documents described in Section 2.04(a)(1) and 2.04(a)(2) above,

 

	
  

	
(2)

	
completion of the Closing as described in Section 7.01 below, except that (A) approval of the assignment of the Tidelands Lease need not have been received yet from the State of Alaska Department of Natural Resources, (B) the Permits (if any) need not have been transferred yet (see Section 5.02 below), and (C) new certificates of title need not have been received yet in response to the applications for the transfer of the Certificates of Title delivered at Closing, and

 

	
  

	
(3)

	
confirmation that a policy of title insurance consistent in all respects with the Preliminary Commitment for Title Insurance will be issued to Purchaser (except that the rights of Prior Owners disclosed on the Preliminary Commitment shall not appear as exceptions on the final policy of title insurance).

 

Ketchikan Title Agency, Inc. shall record the executed Warranty Deed received from Seller pursuant to Section 7.01(a)(1) but (i) shall have no obligations respecting the documents received from Seller pursuant to Sections 7.01(a)(2)-7.01(a)(4) except to deliver the same to Purchaser and (ii) shall have no obligations respecting the documents received from Purchaser pursuant to Sections 7.01(b) except to deliver the same to Seller.

 

Section 2.05     Liabilities.

 

(a)      Assumed Liabilities. Purchaser shall assume all unsatisfied obligations to clean up and remediate the Diesel Spills. Except for the liabilities and obligations to be assumed by the Purchaser as set forth herein, the Purchaser will not assume and will not be liable for any liabilities of the Seller, known or unknown, contingent or absolute, accrued or other, and the Assets will be free of all liabilities, obligations, liens, and encumbrances. Without limiting the generality of the foregoing and except as otherwise provided above, the Purchaser will not be responsible for any of the Retained Liabilities.

 

(b)     Retained Liabilities. Seller shall retain each and every liability of Seller, other than those liabilities expressly assumed by Purchaser pursuant to Section 2.05(a), arising out of or relating to the conduct of the Calder Mine Business prior to the completion of Closing, including but not necessarily limited to the following:

 

	
  

	
(i)

	
any liability arising out of or relating to mineral products of Seller sold prior to the completion of Closing;

 

AGREEMENT—Page 9

  

  

  

	
  

	
(ii)

	
any liability for Taxes, including (A) any Taxes arising out of or resulting from Seller’s ownership of the Assets or Seller’s conduct of the Calder Mine Business prior to the completion of Closing, (B) any Taxes arising out of or resulting from the sale of the Assets pursuant to this Agreement (including Taxes on any imputed interest income deemed to be received by Seller pursuant to Section 2.04(c)), and (C) any deferred Taxes of any nature;

 

	
  

	
(iii)

	
any liability under the Employee Plans or relating to payroll, vacation, sick leave, workers’ compensation, unemployment benefits, pension benefits, employee stock option or profit-sharing plans, health care plans or benefits, or any other employee plans or benefits of any kind for Seller’s employees or former employees or both;

 

	
  

	
(iv)

	
any liability under any employment, severance, retention, or termination agreement with any employee of Seller;

 

	
  

	
(v)

	
any liability arising out of or relating to any employee grievance whether or not the affected employees are hired by Purchaser;

 

	
  

	
(vi)

	
any liability arising out of or relating to any Occupational Safety and Health Laws or the WARN Act or the failure to satisfy, meet, or comply with any of the same; and

 

	
  

	
(vii)

	
any liability of Seller under this Agreement or any other Operative Document.

 

Section 2.06     Allocation of Purchase Price. The Purchase Price shall be allocated as follows:

 

	
  

	
(a)

	
$2,180,000 of the $2,500,000 to be paid at Closing pursuant to Section 2.04 shall be allocated to the purchase of the Personal Property;

 

	
  

	
(b)

	
$320,000 of the $2,500,000 to be paid at Closing pursuant to Section 2.04 shall be allocated to the purchase of the Real Property.

 

After completion of the Closing, the Parties shall make consistent use of this allocation for all Tax purposes and in all filings, declarations, and reports with the Internal Revenue Service in respect thereof, including the reports required to be filed under Section 1060 of the Code. Purchaser shall prepare and deliver IRS Form 8594 to Seller within forty-five (45) days after the Closing Date to be filed with the IRS, if said form is required to be filed. In any proceeding related to the determination of any Tax, neither Purchaser nor Seller shall contend or represent that such allocation is not a correct allocation.

 

AGREEMENT—Page 10

  

  

  

ARTICLE 3

Representations and Warranties of Seller

 

Seller represents and warrants to Purchaser on the date of this Agreement and on the Closing Date (unless a representation or warranty speaks as of a different date) as follows:

 

Section 3.01     Organizational Status; Power and Authority. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and is authorized to transact business in the State of Alaska. Seller has all the requisite corporate power and authority to carry on its business as it is now being conducted and to own or lease and operate its properties as, and in the places where, such business now is conducted and where such properties now are owned or leased and operated. Seller has all the requisite corporate power and authority to execute and deliver this Agreement and the other Operative Documents. Seller has all the requisite corporate power and authority to perform its obligations under this Agreement and the other Operative Documents. The execution, delivery, and performance of this Agreement and the other Operative Documents by Seller have been duly authorized by all necessary corporate action on the part of Seller.

 

Section 3.02     Duly Executed. This Agreement has been duly executed and delivered on behalf of Seller and constitutes, and, when executed and delivered at the Closing in accordance with this Agreement, each of the other Operative Documents shall constitute, a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other laws affecting creditors’ rights generally and general principles of equity.

 

Section 3.03     No Breach, Etc. The execution, delivery and performance of this Agreement and the other Operative Documents by Seller and the consummation by Seller of the transactions contemplated hereby and thereby do not and will not result in any conflict with or breach or violation of or default under Seller’s articles of incorporation or bylaws.

 

Section 3.04     Litigation. Except as set forth in Appendix 3, there are no actions, suits, proceedings, orders, investigations, or claims pending or, to Seller’s Knowledge, threatened against the Seller or its property, at law or in equity, or before or by any governmental department, commission, board, bureau, agency, or instrumentality or, to Seller’s Knowledge, any governmental investigations or inquiries; and, to the Knowledge of the Seller, there is no basis for any of the foregoing.

 

Section 3.05     Changes, Etc. Since the date of execution of this Agreement, (i) there has not been any damage, destruction, or loss (whether or not covered by insurance) adversely affecting any of the Assets; and (ii) no event or circumstance has occurred or condition has arisen that has had or is reasonably likely to have a material adverse effect on Seller or any of the Assets.

 

Section 3.06     Title to Assets. Seller has good and marketable title to the Real Property, free and clear of any Encumbrances other than Permitted Encumbrances; provided, however, that all rights of Prior Owners in, to, under, or respecting the Real Property must be eliminated at

 

AGREEMENT—Page 11

  

  

  

Closing. Seller has good title to the Personal Property, free and clear of any Encumbrances other than Permitted Encumbrances; provided, however, that all rights of Prior Owners in, to, under, or respecting the Personal Property must be eliminated at Closing; and provided, further, however, that (a) Seller makes no representations or warranties respecting the good standing of any of the Permits and (b) the disclaimer set forth in Section 9.02 below is incorporated herein. Seller enjoys peaceful and undisturbed possession of the Assets. Except for the Diesel Spills, Seller to its Knowledge has not violated and is not in violation of any provision of any Permit.

 

Section 3.07     Inclusiveness of Assets. The Assets comprise all of the real property or interests therein, buildings, structures, plants, processing facilities, installed equipment, office trailers, office equipment, trailer camps, furnishings, kitchen facilities, pipelines, electric power equipment and facilities, telecommunications equipment and facilities, fuel tanks, waste facilities, docks, mining equipment, crushers, conveyors, trucks, vans, hoppers, trailers, all-terrain vehicles, fuel, tools, parts, supplies, drill core, rock samples, data, maps, files, records, permits, authorizations, determinations, approvals, licenses, exemptions, variances, orders, and other interests and rights (whether choate or inchoate, known or unknown, contingent or noncontingent) held or used by Seller as of the date of execution of this Agreement for or in connection with its conduct of the Calder Mine Business.

 

Section 3.08     Certain Operational and Regulatory Matters.

 

(a)       To the Knowledge of Seller, the Assets are owned and operated, and the Calder Mine Business has been conducted by Seller, except for the Diesel Spills, in compliance with the provisions of the Permits and applicable Legal Requirements.

 

(b)       The estimated cost of cleaning up and remediating the Diesel Spills, as described in Appendix 3, is fair and reasonable.

 

Section 3.09      Brokers. No investment banker, financial advisor, broker, or finder has acted for or on behalf of Seller or any Affiliate of Seller in connection with this Agreement or the transactions contemplated by this Agreement. No investment banker, financial advisor, broker, or finder is entitled to any brokerage or finder’s fee, or to any commission, based in any way on promises, covenants, agreements, arrangements, or understandings made by or on behalf of Seller or any Affiliate of Seller for which Purchaser or Seller has or will have any liabilities or obligations (contingent or otherwise).

 

ARTICLE 4

Representations and Warranties of Purchaser

 

Purchaser represents and warrants to Seller on the date of this Agreement and on the Closing Date (unless a representation and warranty speaks as of a specified date) as follows:

 

Section 4.01      Organizational Status; Power and Authority. Purchaser is a general partnership, registered and authorized to transact business in the State of Washington, of Bleeck Management, Inc., a corporation duly organized, validly existing, and in good standing under the

 

AGREEMENT—Page 12

  

  

  

laws of the State of Oregon and authorized to transact business (but not yet registered) in Alaska, and Northwest Carbonates, Inc., a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and authorized to transact business (but not yet registered) in Alaska.  Bleeck Management, Inc. has all the requisite corporate and partnership power and authority to execute and deliver this Agreement and the other Operative Documents on behalf of Purchaser and to cause Purchaser to perform its obligations under this Agreement and the other Operative Documents. The execution, delivery, and performance of this Agreement and the other Operative Documents by Bleeck Management, Inc.  on behalf of Purchaser have been duly authorized by all necessary corporate action on the part of Bleeck Management, Inc. and Northwest Carbonates, Inc. and all necessary partnership action by Purchaser.

 

Section 4.02      Duly Executed. This Agreement has been duly executed and delivered on behalf of Purchaser and constitutes, and, when and to the extent executed and delivered at the Closing in accordance with this Agreement, each of the other Operative Documents shall constitute, a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other laws affecting creditors’ rights generally and general principles of equity.

 

Section 4.03      Financial Arrangements of Purchaser. Purchaser will have at the Closing adequate sources of funds to enable it to pay that portion of the Purchase Price that will be due and owing hereunder at that time and to effect the transactions contemplated hereby.

 

Section 4.04      Brokers. No investment banker, financial advisor, broker, or finder has acted for or on behalf of Purchaser or any Affiliate of Purchaser in connection with this Agreement or the transactions contemplated by this Agreement. No investment banker, financial advisor, broker, or finder is entitled to any brokerage or finder’s fee, or to any commission, based in any way on promises, covenants, agreements, arrangements, or understandings made by or on behalf of Purchaser or any Affiliate of Purchaser for which Purchaser or Seller has or will have any liabilities or obligations (contingent or otherwise).

 

Section 4.05      Due Diligence. Purchaser has completed to its satisfaction any and all investigations or analyses that it wished to perform respecting the Assets or Seller.

 

ARTICLE 5

Certain Covenants of the Parties

 

Section 5.01      Obligations of Seller Prior To Closing.

 

(a)        Maintenance of Assets. From the date of this Agreement and until the Closing, except as is otherwise approved by Purchaser in writing (which approval shall not be unreasonably withheld or delayed), Seller shall maintain (i) its ownership of the Assets as represented in Article 3 and (ii) the Assets in their present location and condition.

 

(b)        Access and Information. From the date of this Agreement and until the Closing, except as is otherwise approved by Purchaser in writing (which approval shall not be

 

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unreasonably withheld or delayed), Seller shall give to Purchaser and its officers, employees, agents, and representatives appropriate access, at all reasonable times and at Purchaser’s expense, to the Assets, books, files, records, and officers of Seller and its agents, including legal representatives and accountants, as such relate to the Assets and the Calder Mine Business.

 

Section 5.02      Obligations of Parties Following Closing. From time to time after the Closing Date, each Party shall execute and deliver such certificates, agreements, conveyances, assignments, certificates of title, and other documents and take such other actions as may reasonably be requested by the other Party in order to consummate or implement the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the Parties agree that (a) Purchaser shall have primary responsibility for the preparation and filing of all applications and related materials with any Governmental Authority or other Person to obtain any and all approvals or consents required in connection with the transfer of any of the Assets and (b) Seller shall cooperate fully with Purchaser in Purchaser’s efforts to obtain any and all approvals or consents required in connection with the transfer of the Assets. Except as provided for herein below, Purchaser shall bear all of the out-of-pocket costs and expenses (e.g., escrow fees, recording fees, title insurance premiums, or filing fees imposed by any Governmental Authority) incurred by either Party in connection with the transactions contemplated by this Agreement (including but not limited to obtaining any and all approvals or consents required in connection with the transfer of the Assets). Each Party shall be responsible for its own attorneys' fees.

 

ARTICLE 6

Conditions Precedent

 

Section 6.01      Closing Conditions. The respective obligations set forth herein of Purchaser and Seller to consummate the transactions contemplated hereby shall be subject to the fulfillment, on or before the Closing Date, of the conditions set forth in Section 6.02 (in the case of the obligations of Purchaser) and of the conditions set forth in Section 6.03 (in the case of the obligations of Seller). Any of the following conditions may be waived in whole or in part by the Party whose obligation to perform at Closing is subject to such condition.

 

Section 6.02      Conditions to Obligations of Purchaser.

 

(a)        Representations and Warranties of Seller. The representations and warranties of Seller contained in Article 3 shall be accurate in all respects as of the date hereof and as of the Closing Date. Seller shall have duly performed and complied in all material respects with all covenants contained herein that are required to be performed or complied with by it at or before the Closing.

 

(b)        Officer’s Certificate. Seller shall have delivered to Purchaser a certificate, dated the Closing Date and signed by its Chief Executive Officer  certifying, in form reasonably satisfactory to Purchaser and its counsel that, to such officer’s best knowledge and belief, after due inquiry, the conditions set forth in Section 6.02(a) have been fulfilled.

 

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(c)        Actions at Closing. Seller shall have taken the actions to be taken by Seller at the Closing pursuant to Section 7.01(a).

 

Section 6.03      Conditions to Obligations of Seller.

 

(a)        Representations and Warranties of Purchaser. The representations and warranties of Purchaser contained in Article 4 shall be accurate in all respects as of the date hereof and as of the Closing Date. Purchaser shall have duly performed and complied in all material respects with all covenants contained herein that are required to be performed or complied with by it at or before the Closing.

 

(b)        Officer’s Certificate. Bleeck Management, Inc. on behalf of Purchaser shall have delivered to Seller a certificate, dated the Closing Date and signed by its President, certifying, in form reasonably satisfactory to Seller and its counsel that, to such officer’s best knowledge and belief, after due inquiry, the conditions set forth in Section 6.03(a) have been fulfilled.

 

(c)        Actions at Closing. Purchaser shall have taken the actions to be taken by Purchaser at the Closing pursuant to Section 7.01(b).

 

ARTICLE 7

Closing

 

Section 7.01      Closing. The closing of the purchase and sale of the Assets (the “Closing”) shall take place at the offices of Ketchikan Title Agency, Inc. (the address of which is 57 Main Street, Suite 209, Ketchikan, AK 99901), on December 21, 2010, unless another place and date is agreed to in writing by the Parties. The Closing shall be effective for all purposes at 12:01 a.m., Alaska Time, on the Closing Date.

 

	
  

	
(a)

	
At the Closing, the following events shall occur, each of which shall be deemed to have occurred simultaneously with the other events: Seller shall transfer and deliver to Purchaser the Assets by executing, acknowledging (where required), and delivering the following:

 

	
  

	
(1)

	
a Warranty Deed in the form of Exhibit C, conveying to Purchaser all of the Real Property other than the interest of Seller under Tidelands Lease ADL-106300;

 

	
  

	
(2)

	
an Assignment of Tidelands Lease ADL-106300 in the form of Exhibit D, conveying and assigning to Purchaser the interest and contract rights of Seller under Tidelands Lease ADL-106300;

 

	
  

	
(3)

	
a Bill of Sale, Assignment, and Assumption Agreement in the form of Exhibit E, transferring and assigning to Purchaser all of the Personal Property except (A) the rights of Seller under Tidelands Lease

 

AGREEMENT—Page 15

  

  

  

	
  

	
ADL-106300 and (B) those items of Personal Property that may be transferred only by transfer of Certificates of Title therefor;

 

	
  

	
(4)

	
applications for transfer of the Certificates of Title in the form of Exhibit F, transferring to Purchaser all of those items of Personal Property that may be transferred only by transfer of the Certificates of Title therefor.

 

As provided in Section 2.04 above, Ketchikan Title Agency, Inc. shall record the executed Warranty Deed received from Seller pursuant to Section 7.01(a)(1) but shall have no obligations respecting the documents received from Seller pursuant to Sections 7.01(a)(2)-7.01(a)(4) except to deliver the same to Purchaser.

 

	
  

	
(b)

	
At the Closing Purchaser shall accept the transfer and delivery of the Warranty Deed and shall instruct Ketchikan Title Agency, Inc. to record the same.

 

	
  

	
(c)

	
As soon as possible following the Closing, Purchaser shall execute and acknowledge (where required) the following, and shall provide to Seller scanned copies as so executed of the following:

 

	
  

	
(1)

	
an Assignment of Tidelands Lease ADL-106300 in the form of Exhibit D (accepting the conveyance and assignment to Purchaser of the interest and contract rights of Seller under Tidelands Lease ADL-106300 and agreeing to be bound by the provisions of Tidelands Lease ADL-106300);

 

	
  

	
(2)

	
a Bill of Sale, Assignment, and Assumption Agreement in the form of Exhibit E, accepting the transfer and assignment to Purchaser of all of the Personal Property (except (A) Tidelands Lease ADL-106300 and (B) those items of Personal Property that may be transferred only by transfer of Certificates of Title therefor) and assuming the obligations and liabilities described therein; and

 

	
  

	
(3)

	
applications for transfer of the Certificates of Title in the form of Exhibit F, accepting the transfer to Purchaser of those items of Personal Property that may be transferred only by transfer of the Certificates of Title therefor.

 

Ketchikan Title Agency, Inc. shall have no obligations respecting the documents to be executed by Purchaser pursuant to Section 7.01(b) above. Purchaser shall be obligated to see to the filing with the appropriate Governmental Authority the documents described in Section 7.01(b)(1) and the documents described in 7.01(b)(3) above.

 

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ARTICLE 8

Termination Prior to Completion of Closing

 

Section 8.01     Generally. Subject to Section 8.02, this Agreement and the transactions contemplated hereby may be terminated and abandoned at any time prior to the Closing Date, as follows:

 

	
  

	
(a)

	
by mutual consent of Purchaser and Seller, upon such terms as they may agree; or

 

	
  

	
(b)

	
by Purchaser or Seller if (i) there has been a breach of any representation, warranty, covenant, or agreement on the part of Seller (in the case of termination by Purchaser) or on the part of Purchaser (in the case of termination by Seller), which breach (A) will cause any of the conditions set forth in Section 6.02 (in the case of termination by Purchaser) or Section 6.03 (in the case of termination by Seller) not to be satisfied, and (B) shall not have been cured within 20 Business Days following receipt by the breaching party of written notice of such breach from the other party; or (ii) any event shall have occurred which makes it impossible for the conditions set forth in Article 6 hereof to be satisfied, provided that any termination pursuant to this clause (ii) shall not be effective until 20 Business Days after notice thereof is delivered by the Party seeking to terminate to the other Party, and shall be automatically rescinded if (1) such condition is solely for the benefit of the Party receiving such notice and (2) such Party, prior to such 20th Business Day, irrevocably waives satisfaction of such condition based on such event.

 

A Party shall not be allowed to exercise any right of termination pursuant to Section 8.01 if the event giving rise to the termination right shall be due to the willful failure of such Party seeking to terminate this Agreement to perform or observe in any material respect any of the promises, covenants, or agreements hereof to be performed or observed by such Party.

 

Section 8.02     Effect of Termination. If this Agreement is terminated as permitted under Section 8.01, such termination shall be without liability of or to any Party to this Agreement; provided, however, that (a) if such termination shall result from the failure of Seller to fulfill a condition to the performance of Purchaser, from the failure of Seller to perform a covenant of this Agreement, or from a material breach by Seller, then Purchaser shall have and may pursue against Seller any and all rights and remedies available at law or in equity, including but not limited to specific performance, and (b) if such termination shall result from the failure of Purchaser to fulfill a condition to the performance of Seller, from the failure of Purchaser to perform a covenant of this Agreement, or from a material breach by Purchaser, then Seller, as liquidated damages for the same, shall be entitled to receive from Ketchikan Title Agency, Inc. $100,000 of the $2,500,000 paid by Purchaser to Seller as described in Section 2.04 above.

 

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ARTICLE 9

Indemnification; Disclaimer

 

Section 9.01         Indemnification.

 

(a)           Indemnification of Purchaser by Seller. Except to the extent (if at all) prohibited by law, Seller shall defend, indemnify, and save harmless Purchaser or any representative thereof from and against any and all losses, damages, liabilities (other than the Assumed Liabilities), expenses, claims, and demands of whatsoever character, direct or indirect, of third parties arising out of or in any way connected with (1) the ownership of, operation of, or conduct of activities upon, with, or respecting the Assets prior to the Closing Date or (2) any of the Retained Liabilities.

 

(b)           Indemnification of Seller by Purchaser. Except to the extent (if at all) prohibited by law, Purchaser shall defend, indemnify, and save harmless Seller or any representative thereof from and against any and all losses, damages, liabilities (other than the Retained Liabilities), expenses, claims, and demands of whatsoever character, direct or indirect, of third parties arising out of or in any way connected with (1) any of the Assumed Liabilities or  (2) the ownership of, operation of, or conduct of activities upon, with, or respecting the Assets after the Closing Date.

 

Section 9.02        Disclaimer. Except as otherwise expressly provided in this Agreement or in any other Operative Document, PURCHASER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE NATURE, CONDITION, OR SUITABILITY OF ANY OF THE ASSETS FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO

 

	
(A)

	
ANY EXPRESS OR IMPLIED WARRANTY RESPECTING THE CHARACTER, CONDITION, OR QUALITY OF ANY OF THE REAL PROPERTY OR THE QUANTITY OR QUALITY OF ANY MINERALS OR MINERAL PRODUCTS THAT MIGHT BE FOUND THEREON, THEREIN, OR THEREUNDER OR THAT MIGHT BE EXTRACTED THEREFROM,

 

	
(B)

	
ANY EXPRESS OR IMPLIED WARRANTY RESPECTING THE CHARACTER, CONDITION, OR QUALITY OF ANY OF THE PERSONAL PROPERTY,

 

	
(C)

	
ANY EXPRESS OR IMPLIED WARRANTY RESPECTING THE EXISTENCE, SIZE, OR PROFITABILITY—NOW OR IN THE FUTURE—OF ANY INTERNATIONAL, NATIONAL, OR REGIONAL WHOLESALE OR RETAIL MARKET FOR CALCIUM CARBONATE, LIMESTONE, BUILDING STONE, OR OTHER ROCK PRODUCTS,

 

	
(D)

	
ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY,

 

AGREEMENT—Page 18

  

  

  

	
(E)

	
ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,

 

	
(F)

	
ANY EXPRESS OR IMPLIED WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,

 

	
(G)

	
ANY EXPRESS OR IMPLIED WARRANTY OF FREEDOM FROM DEFECTS, WHETHER KNOWN OR UNKNOWN,

 

	
(H)

	
ANY EXPRESS OR IMPLIED WARRANTY RESPECTING (1) THE SUFFICIENCY OF ANY PERMIT, OR THE PERMITS COLLECTIVELY, FOR THE CONDUCT OF THE CALDER MINE BUSINESS, (2) THE STATUS OF ANY PERMIT, OR (3) THE TRANSFERABILITY OF ANY PERMIT, AND

 

	
(I)

	
ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT,

 

IT BEING THE EXPRESS INTENTION OF PURCHASER AND SELLER THAT THE ASSETS SHALL BE CONVEYED, TRANSFERRED, AND ASSIGNED TO PURCHASER “AS IS” AND “WHERE IS” AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR, AND PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INQUIRIES, INVESTIGATIONS, MARKET ANALYSES, AND INSPECTIONS WITH RESPECT TO THE ASSETS AS PURCHASER DEEMS APPROPRIATE AND PURCHASER WILL ACCEPT THE ASSETS “AS IS” AND “WHERE IS” AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR.

 

ARTICLE 10

Default After Closing

 

Section 10.01       Default. If either Party fails to observe, keep, or perform any provision of this Agreement required to be observed, kept, or performed by such Party after Closing, then a Party aggrieved by such defaulting Party shall have the following options:

 

	
  

	
(a)

	
The Party so aggrieved must notify the defaulting Party in writing that it is in default and the defaulting Party shall have thirty (30) Business Days to cure such default.

 

	
  

	
(b)

	
If the defaulting Party has been notified in writing and remains in default beyond the thirty (30) Business Days, the aggrieved Party shall have the right to pursue any remedy at law or in equity.

 

	
  

	
(c)

	
Notwithstanding any action which an aggrieved Party lawfully takes, the defaulting Party shall be and remain liable for the full performance of all obligations on its part to be performed under this Agreement.

 

AGREEMENT—Page 19

  

  

  

ARTICLE 11

[INTENTIONALLY LEFT BLANK]

 

 

ARTICLE 12

Miscellaneous

 

Section 12.01 Entire Agreement. This Agreement supersedes any and all other agreements, oral or written, among the Parties in respect of the subject matter of this Agreement.

 

Section 12.02 Modification. This Agreement may be modified, amended, or supplemented in any manner and at any time only by a written instrument executed by Purchaser and Seller.

 

Section 12.03 Extension and Waiver. The Parties may, to the extent legally allowed (a) extend the time for the performance of any of the obligations or other acts of the other Parties; (b) waive any inaccuracies by the other Party in the representations and warranties contained herein or in any document delivered pursuant hereto; and (c) waive compliance by the other Party with any of the promises, covenants, agreements, or conditions contained herein. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in a written instrument signed by the Party or Parties to be bound thereby, but such extension, waiver, or failure to insist on strict compliance with an obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of such rights.

 

Section 12.04 Further Actions. From time to time after the Closing Date, each Party shall execute and deliver such other certificates, agreements, conveyances, assignments, certificates of title, and other documents and take such other actions as may reasonably be requested by the other Party in order to consummate or implement the transactions contemplated by this Agreement.

 

Section 12.05 Notices. Any and all notices or other communications required or permitted under this Agreement shall be given in writing and delivered in person or sent by United States certified mail, postage prepaid, return receipt requested, by Express Mail, by FedEx, or by facsimile transmission to the address of such Party set forth below.

 

If to Purchaser:

 

Columbia River Carbonates

Attention: Reed L. Sherar

P.O. Box 2350

300 North Pekin Road

Woodland, WA  98674

	
  

	
Telephone No.:

	
(360) 225-6505

	
  

	
Facsimile No.:

	
(360) 225-5082

 

AGREEMENT—Page 20

  

  

  

    If to Seller:   

 

Select Resources Corporation, Inc.

Attention: James G. Bush, President

4550 California Avenue, Suite 600

Bakersfield, California  93309

	
  

	
Telephone No.:

	
(661) 864-0500

	
  

	
Facsimile No.:

	
(661) 864-0600

 

Any such notice shall be effective upon the day of receipt or, if faxed, on the next Business Day. Any Party may, by notice so delivered, change its address for notice purposes hereunder.

 

Section 12.06 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned, by operation of law or otherwise, by any Party without the prior written consent of the other Party; provided, however, (i) Purchaser may assign its right to purchase the Assets to any Person that is an Affiliate of Purchaser but no such assignment shall affect Purchaser’s obligations hereunder, (ii) in the event of any such assignment by a Party by operation of law without the consent of the other Party as required above, such other Party may consent to such assignment after it has occurred and, in such event, this Agreement and all the provisions hereof shall be binding upon the Person receiving such assignment by operation of law.

 

Section 12.07 No Third Party Beneficiaries. Nothing in this Agreement shall entitle any third party (including but not limited to Sealaska) to any claim, cause of action, remedy, or right of any kind, it being the intent of the Parties that this Agreement shall not be construed as a third party beneficiary contract.

 

Section 12.08 Counterparts. This Agreement may be executed in multiple counterparts, all of which shall constitute one and the same instrument.

 

Section 12.09 Applicable Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Alaska without giving effect to any choice or conflict of law provision or rule (whether of the State of Alaska or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Alaska.

 

Section 12.10 Survival. All representations, warranties, covenants, and agreements made in this Agreement or in any exhibit, schedule, certificate, or agreement delivered in accordance with this Agreement will survive any investigation by or on behalf of any party, the execution and delivery of this Agreement, and the consummation of the transactions contemplated by this Agreement.

 

Section 12.11 Facsimile or Other Signatures. Facsimile or other forms of electronically copied signed documents, and retransmission of any signed facsimile or other forms of electronically copied signed documents, will be the same as delivery of an original, except that the parties

 

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acknowledge that the instruments to be delivered pursuant to Section 7.01 must be originals and that Ketchikan Title Agency, Inc. must receive an original of the Warranty Deed to be delivered pursuant to Section 7.01(a)(1) in order for Closing to be completed. At the request of any party, the parties will confirm any electronically copied or transmitted signature by signing an original document.

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written.

 

	
  

	
SELLER:

	
SELECT RESOURCES CORPORATION, INC.,

	
  

	
a Delaware corporation

By: /s/ Maston N. Cunningham                                                                    

Name:  Maston N. Cunningham

Title:    Chief Executive Officer

	
  

	
PURCHASER:

	
COLUMBIA RIVER CARBONATES,

	
  

	
a general partnership, registered and authorized to transact business in the State of Washington, of Bleeck Management, Inc., an Oregon corporation authorized to transact business in Alaska, and Northwest Carbonates, Inc., a Delaware corporation authorized to transact business in Alaska

By:           Bleeck Management, Inc.

By:  /s/ Joerg A. Bleeck                                                         

Name:  Joerg A. Bleeck                                                          

Title:    President                                                         

AGREEMENT—Page 22

  

  

  

	
STATE OF CALIFORNIA                           )

	
                                                                         ) ss.

	
COUNTY OF KERN                                      )

THIS CERTIFIES that on the 21st day of December, 2010, at Bakersfield, California, the foregoing instrument was acknowledged before me by Maston N. Cunningham, Chief Executive Officer of SELECT RESOURCES CORPORATION, INC., a Delaware corporation, on behalf of said corporation.

GIVEN UNDER MY HAND and official seal the day and year last above written.

 

 

                                              ____________________________________________

                                              Notary Public in and for  _________________________

                                              Residing at ___________________________________

                                              My Commission expires__________________________     

	
STATE OF WASHINGTON                         )

	
  

	
) ss.

	
COUNTY OF COWLITZ                               )

THIS CERTIFIES that on the 21st day of December, 2010, at Woodland, Washington the foregoing instrument was acknowledged before me by Joerg A. Bleeck, President of BLEECK MANAGEMENT, INC., an Oregon corporation that is a general partner in COLUMBIA RIVER CARBONATES, a general partnership, registered and authorized to transact business in the State of Washington, on behalf of said corporation acting on behalf of said general partnership.

GIVEN UNDER MY HAND and official seal the day and year last above written.

 

 

                                              __________________________________________

                                              Notary Public in and for _______________________

                                              Residing at _________________________________

                                              My Commission expires _______________________

AGREEMENT—Page 23

  

  

  

EXHIBIT A

Real Property

The following parcels of property situated in the Petersburg Recording District, First Judicial District, State of Alaska:

 

PARCEL 1:

 

Those certain patented placer mining claims known as Log Cabin No. 1 (also known as Marble Creek No. 1) and Marble Creek No. 7, being more particularly described in that certain U.S. Mineral Certificate No. 81 [GLO No. 36664] from the United States of America to Elmer F. Cassel dated June 2, 1903, and recorded on December 21, 1903, in Ketchikan Recording District in Volume 1 of Mining Records at Page 269, as follows: U.S. Mineral Survey 542;

 

PARCEL 2:

 

That certain patented placer mining claim known as Log Cabin No. 2, being more particularly described in that certain U.S. Mineral Certificate No. 82 [GLO No. 45969] from the United States of America to Alaska Marble Company dated July 31, 1907, and recorded on May 18, 1908, in Ketchikan Recording District in Volume "C" of Deeds at Page 733, as follows: U.S. Mineral Survey 701;

 

PARCEL 3:

 

That certain patented placer mining claim known as Prince of Wales No. 21, being more particularly described in that certain U.S. Patent No. 706742 from the United States of America to Alaska Marble Company dated September 15, 1919, and recorded on May 30, 1920, in Ketchikan Recording District in Volume "I" of Deeds at Page 9, as follows: U.S. Mineral Survey 1050;

 

PARCEL 4:

 

Those certain patented placer mining claims known as Prince of Wales Nos. 14, 15, 18, 19 and 20, being more particularly described in that certain U.S. Patent No. 683720 from the United States of America to Alaska Marble Company dated June 6, 1919, and recorded on May 30, 1920, in Ketchikan Recording District in Volume "I" of Deeds at Page 3, as follows: U.S. Mineral Survey 1051;

 

EXHIBIT A—Page 1

  

  

  

PARCELS 5A, 5B, 5C, 5D, 5E, 5F, 5G, 5H, and 5I:

 

TRACTS A, B, C, D, E, F, G, H, and I, Alaska State Land Survey No. 96-48 [ASLS 960048], within protracted Sections 2 and 3, Township 66 South, Range 77 East, Copper River Meridian, according to the plat thereof filed on September 15, 2004, as Plat No. 2004-26, Ketchikan Recording District;

 

Together with all rights, titles, and interests appurtenant thereto or to any part thereof (including but not limited to access rights and water rights).

 

	
  

	
**********

 

All of the foregoing enumerated parcels are situated generally within Sections 1, 2, 3, 10, 11, and 12, Township 66 South, Range 77 East, Copper River Meridian.

 

 

EXHIBIT A—Page 2

  

  

  

EXHIBIT B

Personal Property

All of the following:

 

	
(1)

	
all of the Equipment, Fixtures, and Inventories.

 

	
(2)

	
all of the Information.

 

	
(3)

	
all of the Permits.

 

	
(4)

	
all rights to any and all proceeds of condemnation or inverse condemnation of any of the Assets.

 

	
(5)

	
all rights to any and all insurance proceeds for any damage to or destruction or loss of any of the Assets prior to Closing.

 

	
(6)

	
all claims of Sealaska Corporation or Seacal, LLC or Seller against third parties relating to any of the Assets (whether choate or inchoate, known or unknown, contingent or noncontingent).

 

	
  

	
**********

 

For purposes of this Exhibit B (describing the Personal Property), the following terms have the following meanings:

 

"Assets" means the Real Property and the Personal Property.

 

"Calder Mine Business" means the business of owning and operating the Assets.

 

"Closing" means the date of execution of the instrument to which this Exhibit B is attached.

 

"Equipment, Fixtures, and Inventories" means all buildings, structures, plants, processing facilities, installed equipment, office trailers, office equipment, trailer camps, furnishings, kitchen facilities, pipelines, electric power equipment and facilities, telecommunications equipment and facilities, fuel tanks, waste facilities, docks, mining equipment, crushers, conveyors, trucks, vans, hoppers, trailers, all-terrain vehicles, and other items as are affixed to or situated upon the Real Property or Tidelands Lease ADL-106300 at Closing (but including wherever situated the items described on Schedule 1 attached to Exhibit B), together with

 

EXHIBIT B—Page 1

  

  

  

(1) all fuel, tools, and parts held by Seller for or in connection with any of the foregoing, (2) all warranties (if any) and software licenses (if any) respecting any of the foregoing, and (3) all extracted rock or rock products that have been severed from the Real Property and that remain situated on the Real Property or Tidelands Lease ADL-106300 or in storage at Craig Storage on Prince of Wales Island at Closing.

 

"Information" means all of the drill core, rock samples, data, maps, files, and records (whether in written, tabular, electronic, photographic, or other form and wherever situated) relating to any or all of the following: the geology of the Real Property or adjoining or nearby lands; the sampling, drilling, mapping, or other analysis (whether of a geologic, chemical, metallurgical, physical, engineering, environmental, or other nature or type) of the Real Property or adjoining or nearby lands, or of samples obtained therefrom; identification or calculation of reserves or resources; engineering associated with the Assets or the Calder Mine Business; construction of improvements on the Real Property or Tidelands Lease ADL-106300 or otherwise for or in connection with the Calder Mine Business; acquisition and maintenance of title to the Real Property; purchase, operation, maintenance, repair, and replacement of the Equipment, Fixtures, and Inventories; acquisition of, and compliance or noncompliance with, all Permits; the mining, processing, transport, shipping, marketing, and sale of minerals or mineral products derived from the Real Property; and the conduct of reclamation or remediation activities in connection with the Calder Mine Business; excluding, however, (a) any and all emails sent or received by Seller respecting the Assets or the Calder Mine Business and (b) any and all confidential and proprietary reports of Seller respecting the Assets or the Calder Mine Business.

 

"Permits" means any and all easements, permits, authorizations, determinations, approvals, licenses, exemptions, variances, and orders that are currently in effect and held by Seller in connection with the Assets or the Calder Mine Business.

 

"Real Property" means the real property described in Exhibit A.

 

"Tidelands Lease ADL-106300" means that certain Tidelands Lease ADL-106300 effective June 1, 1999, and recorded on July 8, 1999, at Book 64, Pages 20-33, Petersburg Recording District, as amended, or its equivalent.

 

 

[SCHEDULES AND ADDITIONAL EXHIBITS OMITTED]

 

EXHIBIT B—Page 2tv10_13ex.htm

EXHIBIT 10.13

AGREEMENT OF PARTNERSHIP

TVC OPUS I DRILLING PROGRAM, L.P.

AS AMENDED

This Agreement Of Partnership (the "Agreement") dated May 16, 2002, is made by and among Tri-Valley Corporation, a Delaware corporation ("TVC" or the "Managing Partner" when acting in its capacity as Managing Partner of the Partnership), F. Lynn Blystone, a resident of Bakersfield, California (the "Organizational Partner"), and those persons who execute or adopt this Agreement or counterparts hereof as Investor Partners and become such (herein called the "Investor Partners"). In consideration of the mutual covenants and agreements contained herein, the parties hereto do hereby agree as follows:

ARTICLE 1

FORMATION OF PARTNERSHIP

 

1.01.  Formation. Subject to the provisions of this Agreement, the parties hereto do hereby form a limited partnership (herein called the "Partnership") pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act.

 

1.02.  Name. The name of the Partnership shall be TVC Opus I Drilling Program, L.P. Subject to all applicable laws, the business of the Partnership may be conducted under such other name or names (including the name of the Managing Partner) as the Managing Partner shall determine to be necessary or desirable. The Managing Partner shall cause to be filed on behalf of the Partnership such partnership or assumed or fictitious name certificate or certificates or similar instruments as may from time to time be required by law.

 

1.03.  Business. The business of the Partnership shall be the following: (a) to become a party to the Program Agreement; (b) to acquire Leases from TVOG and its Affiliates and from third parties in accordance with the terms of the Program Agreement; (c) to explore, drill, develop, operate, and dispose of such Leases; (d) to produce, collect, store, treat, deliver, market, sell, or otherwise dispose of oil, gas, and related minerals from such Leases; and (e) to take all such actions which may be incidental thereto as the Managing Partner may determine. The Partnership may also purchase or acquire equipment, processing facilities, and other property associated with such Leases and acquire interests in and invest in joint ventures and other partnerships (including affiliated joint ventures or affiliated partnerships) or other entities (including corporations) that hold or are formed to acquire Leases in Prospects if, in the judgment of the Managing Partner, such acquisitions or investments are necessary or desirable to the acquisition by the Partnership of Leases in Prospects or the drilling and completion of wells thereon. In addition, the Partnership may participate in any other type of transaction relating to Leases or Prospects or the drilling and completion of wells thereon if the economic effect of such transactions is the same as the ownership of such Leases or Prospects by the Partnership.

 

1.04.  Principal Office. The location of the principal place of business of the Partnership shall be 5555 Business Park South, Suite 200, Bakersfield, California 93309. The Managing Partner, at any time and from time to time, may change the location of the Partnership's principal place of business and may establish such additional place or places of business of the Partnership

 

  

  

  

 

as the Managing Partner shall determine to be necessary or desirable, provided notice thereof is given to the Investor Partners within 30 days of such change or establishment. The registered office of the Partnership in the State of Delaware shall be at Corporation Trust Center, 1209 Orange Street, Wilmington, County of Newcastle, Delaware, and its registered agent for service of process on the Partnership at such registered office shall be Corporation Trust Corporation.

 

1.05.  Names and Addresses of Partners. TVC is the sole Managing Partner of the Partnership and its address is 5555 Business Park South, Suite 200, Bakersfield, California 93309. The Organizational Partner's name is F. Lynn Blystone and his address is 5555 Business Park South, Suite 200, Bakersfield, California 93309. Upon admission of Investor Partners to the Partnership, the Organizational Partner will withdraw from the Partnership and his contribution to the capital of the Partnership will be returned without interest. The name and business, residence, or mailing address of each Investor Partner will be maintained in the Partnership records. The date upon which each such person became an Investor Partner shall be the date set forth in Partnership records. The address of each Investor Partner for the purpose of receiving notices and all other communications hereunder shall be the address shown in the Subscription Agreement executed by such Investor Partner or such other address as may be supplied by such Investor Partner to the Managing Partner in the manner specified in Section 11.01.

 

1.06.  Term. The Partnership shall commence upon the completion of filing for record of an initial Certificate of Limited Partnership for the Partnership in accordance with the Delaware Act and shall continue until terminated in accordance with ARTICLE 9.

 

1.07.  Filings. Upon the request of the Managing Partner, the parties hereto shall immediately execute and deliver all such certificates and other instruments conforming hereto as shall be necessary for the Managing Partner to accomplish all filing, recording, publishing, and other acts appropriate to comply with all requirements for the formation and operation of a limited partnership under the laws of the State of Delaware and for the formation, qualification, and operation of a limited partnership (or a partnership in which the Investor Partners have limited liability) in all other jurisdictions where the Partnership shall propose to conduct business.

 

1.08.  Title to Partnership Property. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually, shall have any ownership of such property. The Partnership shall hold its assets in its own name, except that its interests in Leases may be held in the name of the Program Manager as contemplated by the Program Agreement.

 

1.09.  Conversion of General Partner Interests into Limited Partner Interests. Each General Partner may convert their Interests to Limited Partner Interests by notifying the Managing Partner in writing of their desire to do so and by executing any consents, agreements or other documents as may reasonably required by the Managing Partner to accomplish such conversion.  As soon as practicable after the completion of the Partnership's drilling activities, the Interests held by the General Partners will be converted to Limited Partner Interests. In order to accomplish such conversion, the Managing Partner will (a) file an amended certificate of limited partnership with the Secretary of State of the State of Delaware removing the General Partners as general partners of the Partnership and (b) take such other actions as are necessary or appropriate to accomplish conversion of the General Partner Interests held by the General Partners to Limited Partner Interests.

 

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Notwithstanding the foregoing, the Managing Partner shall not be obligated to cause the conversion of the General Partner Interests held by the General Partners to Limited Partner Interests, or may delay such conversion, if the Managing Partner determines that such conversion at that time would not be in the best interests of the Investor Partners or the Partnership; provided that if the Managing Partner determines that such conversion would not be in the best interests of the Investor Partners or the Partnership, the insurance coverage limits, including umbrella policy limits, will not be reduced unless such coverage becomes unobtainable or is only available at premiums which are prohibitively more expensive than the premiums now being paid for such policies; and provided further, that the Managing Partner shall not be obligated to file amendments to the certificate of limited partnership with the Secretary of State of the State of Delaware removing General Partners as general partners of the Partnership more often than semi-annually, during June and December of each year. If conversion is so delayed, the Managing Partner will continue to have the power and authority to cause such conversion at any time during the term of the Partnership if the Managing Partner determines that conversion is in the best interests of the General Partners and the Partnership.  Upon filing the amended certificate of limited partnership reflecting the conversion of the General Partner Interests held by General Partners to Limited Partner Interests, the conversion will be effective and thereafter each General Partner will have the rights and obligations of a Limited Partner and will be entitled to limited liability to the extent provided by the Delaware Act; provided that those General Partners will remain liable to the Partnership for their proportionate shares of Partnership obligations and liabilities arising prior to the conversion of their General Partner Interests to Limited Partner Interests.

 

ARTICLE 2

DEFINITIONS AND REFERENCES

 

2.01.  Defined Terms. When used in this Agreement and unless the context otherwise requires, the following terms shall have the respective meanings set forth below:

 

a.  "Administrative Costs" shall mean all customary and routine expenses incurred by the Managing Partner or its Affiliates for the conduct of the administration of the Partnership or the Drilling Program, including: legal, finance, accounting, secretarial, travel, office rent, telephone, data processing, and other items of a similar nature.

 

b.  "Adjusted Capital Account" shall mean the capital account maintained for each Partner as provided in Section 7.01.c as of the end of each fiscal year, (1) increased by (A) an amount equal to such Partner's allocable share of the Partnership's Minimum Gain, as computed on the last day of such fiscal year in accordance with Treasury Regulations Section 1.704-2(g), and (B) the amount of Partnership indebtedness allocable to such Partner under Section 752 of the Code with respect to which such Partner is personally liable, and (2) reduced by (A) depletion deductions reasonably expected to be allocated to such Partner in subsequent years and charged to such Partner's capital account as provided in Section 7.01.c, (B) the amount of all losses and deductions reasonably expected to be allocated to such Partner in subsequent years under Section 704(e)(2) or 706(d) of the Code and Treasury Regulations Section 1.751-1(b)(2)(ii), and (3) the amount of all distributions reasonably expected to be made to such Partner to the extent that they exceed offsetting increases in such Partner's capital account that are reasonably expected to occur during (or prior to) the year in which such distributions are reasonably expected to be made.

 

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c.  "Affiliate" shall mean with respect to another person, (1) any person directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of or equity interests in such other person; (2) any person 10% or more of whose outstanding voting securities or equity interests are directly or indirectly owned, controlled, or held with power to vote by such other person; (3) any person directly or indirectly controlling, controlled by, or under common control with such other person; (4) any employee, officer, director, or partner of such other person; and (5) any company for which any such officer, director, or partner acts in any such capacity. For purposes of this Agreement an Affiliate of TVC shall include Affiliated Programs.

 

d.  "Affiliated Program" shall mean a drilling, producing property, income, royalty, or other program (whether in the form of a partnership, joint venture, or otherwise) for or of which the Managing Partner or an Affiliate thereof serves as manager or managing partner or acts in a similar capacity.

 

e.  "Agreement" shall mean this Agreement of Partnership, as amended from time to time.

 

f.  "Capital Contribution" shall mean for any particular Partner the total dollar amount of the contribution to the capital of the Partnership made by such Partner.

 

g.  "Capital Contributions" shall mean the aggregate amount of the Capital Contribution paid by all Partners to the Partnership.

 

h.  "Capital Expenditures" shall mean those costs associated with property acquisition and the drilling and completion of oil and gas wells which are generally accepted as capital expenditures pursuant to the provisions of the Code.

 

i.  “Closing Date” means the earlier of (i) the date that subscriptions for 100 interests have been accepted, (ii) the date that TVC declares the offering terminated, or (iii) December 31, 2005, unless TVC decides to extend the offering in its sole discretion.

 

j.  "Code" shall mean the Internal Revenue Code of 1986, as amended.

 

k.  "Delaware Act" shall mean the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, and any successor to such act.

 

l.  "Direct Costs" shall mean all actual and necessary costs directly incurred for the benefit of the Drilling Program and generally attributable to the goods and services provided to the Drilling Program by parties other than the Managing Partner or its Affiliates. Direct costs shall not include any cost otherwise classified as Organization and Offering Expenses, Administrative Costs, Operating Costs, or Lease Acquisition Costs. Direct Costs include Reporting and Legal Expenses and may include the cost of services provided by the Managing Partner or its Affiliates if such services are provided pursuant to written contracts and in compliance with the terms set forth under Section 5.10 hereof.

 

m.   "Drilling Program" shall mean the drilling program to be conducted by the Partnership, TVC, and TVOG pursuant to the Program Agreement and the rights, interests, and properties of TVC and the Partnership under or subject to the Program Agreement.

 

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n.  "General Partner" shall mean each person who executes or adopts this Agreement or a counterpart hereof as a General Partner and is accepted by the Managing Partner as such and any person who becomes a substituted General Partner in accordance with the terms hereof. General Partner shall not include the Managing Partner except to the extent that the Managing Partner owns General Partner Interests or fraction thereof.

 

o.  "General Partner Interest" shall mean a General Partner's unit of interest in the Partnership representing a $1,000,000 Capital Contribution.

 

p.  "Horizon" shall mean a zone of a particular formation; that part of a formation of sufficient porosity and permeability to form a petroleum reservoir.

 

q.  "Independent Expert" shall mean a person with no material relationship to the Managing Partner or its Affiliates who is qualified and who is in the business of rendering opinions regarding the value of oil and gas properties based upon the evaluation of all pertinent economic, financial, geologic, and engineering information available to the Managing Partner.

 

r.  "Interest" shall mean an Investor Partner's unit of interest in the Partnership representing a $1,000,000 Capital Contribution.

 

s.  "Investor Partners" shall mean the General Partners and the Limited Partners and shall not include the Managing Partner, except to the extent that the Managing Partner owns Interests or fractions thereof.

 

t.  "Lease" shall mean an oil and gas lease or an oil, gas, and mineral lease; a Working Interest; an interest (including certain non-consent interest) arising under a pooling order or operating agreement; an interest acquired under a farmout; operating rights under governmental tracts; a mineral interest, royalty, or other interest in and to oil, gas, and related hydrocarbons (or a contractual right to acquire or earn such an interest) or an undivided interest therein or portion thereof (including those covering only certain Horizons or depths), together with all easements, permits, licenses, servitudes, and rights-of-way situated upon or used or held for future use in connection with the exploration, development, or operation of such interest.

 

u.  "Lease Acquisition Costs" shall mean, when used to describe the costs of any Lease, the sum of (1) all monetary consideration paid or given for such Lease to a non-Affiliate of the Managing Partner, including but not limited to lease bonuses and advance rentals paid to a non-Affiliate of the Managing Partner, (2) all costs of lease acquisition and title examination, including but not limited to curing or defending title, title insurance or examination costs, brokerage commissions, the fees and wages of landmen and lease brokers and their expenses, filing fees, recording costs, transfer taxes, and like charges paid in connection with the acquisition of such Lease, (3) all delay rentals and other similar payments and ad valorem taxes paid with respect to such Lease, (4) such portion as may be allocated to such Lease in accordance with generally accepted accounting principles and industry standards of all reasonable, necessary, and costs and expenses of TVOG or its Affiliates for geological, geophysical, seismic, land, engineering, drafting, accounting, legal, and other like services together with related administrative and general overhead costs involved in lease acquisition and Prospect evaluation including such costs and expenses which could otherwise be classified hereunder as Administrative Costs, (5) such portion as may be allocated to such Lease in accordance with generally accepted accounting principles and industry standards of all costs and expenses

 

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incurred in the acquisition of farmouts, subleases, pooling orders, or other oil and gas interests, and (6) interest and points actually incurred on funds borrowed to pay any of the costs and expenses described in clauses (1) through (5) above calculated from the date of their incurrence until the date of their reimbursement by the Drilling Program at the time a Lease is acquired by the Drilling Program.

 

v.  "Limited Partner" shall mean each person who executes or adopts this Agreement or a counterpart hereof as a Limited Partner and is accepted by the Managing Partner as such and any person who becomes a substituted Limited Partner in accordance with the terms hereof. Limited Partner shall not including the Managing Partner, except to the extent that the Managing Partner owns Limited Partner Interests.

 

w.  "Limited Partner Interest" shall mean a Limited Partner's unit of interest in the Partnership representing a $1,000,000 Capital Contribution.

 

x.  "Majority in Interest" shall mean, with respect to any agreement or vote of the Investor Partners, Investor Partners whose combined Interests, at the time of determination thereof, exceed 50% of the total Interests held of record by Investor Partners who are eligible to participate in such agreement or vote.

 

y.  "Managing Partner" shall mean TVC which will serve as the initial managing partner of the Partnership, and any person who becomes a substituted Managing Partner in accordance with the terms hereof.

 

z.  "Minimum Gain" shall mean the amount of gain that would be realized by the Partnership if it disposed of (in a taxable transaction) all Partnership properties which are subject to non-recourse liabilities of the Partnership in full satisfaction of such liabilities, computed in accordance with the provisions of Treasury Regulations Section 1.704-2(b)(2).

 

aa.  "Operating Agreement" shall mean a Model Form Operating Agreement based upon the American Association of Petroleum Landmen Form 610-1989 and among the other attached exhibits thereto, an accounting procedure for joint operations issued by the Council of Petroleum Accountants Societies of North America, each of which containing modifications that are customary and usual for the geographic area in which the Partnership intends to conduct operations.

 

bb.  "Operating Costs" shall mean all expenditures made and costs incurred in producing and marketing oil and gas from completed wells, including, in addition to labor, fuel, repairs, hauling, materials, supplies, utility charges, and other costs incident to or therefrom, ad valorem and severance taxes, insurance and casualty loss expense, and compensation to well operators or others for services rendered in conducting such operations.

 

cc.  "Organizational Partner" shall mean F. Lynn Blystone, a resident of Bakersfield, California, who has agreed to serve as an initial limited partner.

 

dd.  "Partners" shall mean the Managing Partner and the Investor Partners.

 

ee.  "Person" shall refer to any natural person, partnership, corporation, association, trust, or other legal entity.

 

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ff.  "Program Agreement" shall mean the Program Agreement by and among the Partnership, TVOG, and TVC.

 

gg.  "Program Manager" shall mean TVOG and any person who becomes the successor Program Manager in accordance with the Program Agreement.

 

hh.  "Program Well" shall mean any oil and gas well in which the Participants have an interest pursuant to the Program Agreement.

 

ii.  "Prospect" shall mean an area covering lands which, in the opinion of the Program Manager, contains subsurface structural or stratigraphic conditions making it susceptible to the accumulation of oil or gas in commercially productive quantities at one or more Horizons. The area, which may be different for different Horizons, shall be designated by the Program Manager in writing prior to the conduct of Partnership operations and shall be enlarged or contracted from time to time on the basis of subsequently acquired information to define the anticipated limits of the associated oil and gas reserves and to include all acreage encompassed therein. A "Prospect" with respect to a particular Horizon may be limited to the minimum area permitted by state law or local practice, whichever is applicable, to protect against drainage from adjacent wells if the well to be drilled by the Partnership is to a Horizon containing proved reserves.

 

jj.  "Reconstituted Partnership" shall mean the Partnership, as reconstituted by a Majority in Interest of the Investor Partners pursuant to Section 9.03.

 

kk.  "Reporting and Legal Expenses" shall mean all third party accounting fees, costs, and expenses associated with obtaining audits of books and records, third party engineering fees, costs, and expenses associated with annual reserve reports and third party attorney's fees and other legal fees, costs, and expenses associated with matters that are attributable to the Drilling Program's or the Partnership's business.

 

ll.  "Securities Act" shall mean the Securities Act of 1933, as amended.

 

mm.  "Sharing Ratio" shall mean for any Partner the proportion obtained by dividing (1) the amount of such Partner's Capital Contribution to the Partnership by (2) the sum of all Capital Contributions paid by the Partners to the Partnership; provided that in the event of an assignment (voluntarily, by operation of law or this Agreement, or otherwise) by an Investor Partner of Interests in the Partnership (other than an assignment solely of an interest in distributions of Partnership revenues), the Sharing Ratio of such Investor Partner shall be proportionately reduced, based upon the number of Interests assigned compared to the total number of Interests owned by such Investor Partner prior to such assignment, and the assignee of such Interests shall succeed to a proportionate share of the Sharing Ratio of his assignor that is attributable to the Interests transferred to such assignee.

 

nn.  "Simulated Basis" shall have the meaning assigned to such term in subsection 7.01.c.

 

oo.  "Simulated Depletion" shall have the meaning assigned to such term in subsection 7.01.c.

 

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pp.  "Simulated Gain" shall have the meaning assigned to such term in subsection 7.01.c.

 

qq.  "Simulated Loss" shall have the meaning assigned to such term in subsection 7.01.c.

 

rr.  "Sponsor" shall mean any person directly or indirectly instrumental in organizing, wholly or in part, the Partnership, or any person who will manage or is entitled to manage or participate in the management or control of the Partnership. "Sponsor" includes the Managing Partner and any other person who actually controls or selects any person who controls 25% or more of the exploratory, developmental, or producing activities of the Partnership, or any segment thereof, even if that person had not entered into a contract at the time of formation of the Partnership. "Sponsor" does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of the Interests. Whenever the context of this Agreement so requires, the term "Sponsor" shall be deemed to include Affiliates of the person deemed to be a Sponsor.

 

ss.  "Subscription Agreement" shall mean, with respect to an Investor Partner, the subscription agreement executed and delivered by such Investor Partner in connection with his subscription to purchase Interests and containing certain representations, warranties, covenants, and agreements of such Investor Partner.

 

tt.  "Super Majority in Interest" shall mean, with respect to any agreement or vote of Investor Partners, Investor Partners whose combined Interests, at the time of the determination thereof, exceed 66% of the total Interests held by Investor Partners who are eligible to participate in such agreement or vote.

 

uu.  "TVC" shall mean Tri-Valley Corporation, a Delaware corporation.

 

vv.  "TVOG" shall mean Tri-Valley Oil and Gas Co., Inc., a California corporation.

 

ww.  "Working Interest" shall mean an interest in an oil and gas leasehold which is subject to some portion of the costs of development, operation, or maintenance.

 

2.02.  References and Titles. All references in this Agreement to articles, sections, subsections, and other subdivisions refer to corresponding articles, sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine, and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.

 

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ARTICLE 3

CAPITALIZATION

 

 

3.01.  Capital Contributions of Investor Partners. Each subscriber shall be accepted as an Investor Partner only after (a) such subscriber has deposited or has had deposited on its behalf in a segregated account at Merrill Lynch, Pierce, Fenner & Smith, Inc., Beverly Hills, California, or a federally insured institution designated by TVC, the full amount of the Capital Contribution of such subscriber in cash and (b) the Managing Partner has approved and accepted the Subscription Agreement executed by such subscriber. By executing and delivering the Subscription Agreement, upon its acceptance, each Investor Partner shall be irrevocably committed to contribute to the capital of the Partnership the amount stated in such Investor Partner's Subscription Agreement as the Capital Contribution of such Investor Partner. There is no minimum offering amount or minimum investment; once the Managing Partner has approved and accepted the Subscription Agreement of a Subscriber, the Subscriber's investment in the Partnership shall be irrevocable.

 

3.02.  Contributions of Managing Partner. The Managing Partner shall not be required to make any contribution to the capital of the Partnership. Although the Managing Partner is liable under applicable laws for the debts and obligations of the Partnership, all such debts and obligations shall be paid or discharged first with Partnership assets (including insurance proceeds) before the Managing Partner shall be obligated to pay or discharge any such debt or obligation with its personal assets.

 

3.03.  Return of Contributions. Except as otherwise provided in this Agreement, no interest shall accrue on any Capital Contributions to the Partnership. No Partner shall have the right to withdraw or to be repaid any capital contributed by such Partner except as otherwise specifically provided in this Agreement or required by law.

 

3.04.  Additional Contributions. No Investor Partner shall be required or obligated (a) to contribute any capital to the Partnership other than as provided in Section 3.01 hereof or (b) to lend any funds to the Partnership. The Interests are nonassessable; however, General Partners are liable, in addition to their Capital Contributions, for Partnership obligations and liabilities represented by their ownership of interests as general partners, in accordance with the Delaware Act.

 

3.05.  Additional Wells.  The Partnership has been organized for the principal purpose of drilling, re-entering, recompleting and testing up to 18 prospects containing up to 26 well locations, as described in Exhibit A to the Offering Memorandum.  TVOG, as operator, will designate areas of mutual interest ("AMI") in and around the various projects commencing with the date of formation of the Partnership and ending December 31, 2007.  If TVOG or its affiliates determines that any prospect within the AMI should be developed in addition to the prospects named in Exhibit A to the Offering Memorandum, it will offer Investor Partners individually (and not as Investor Partners) the opportunity to participate in such additional operations, on the terms provided in Article VI of the joint operating agreement for each such prospect and AMI.

 

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ARTICLE 4

ALLOCATIONS AND DISTRIBUTIONS

 

 

4.01.  Allocation Among Partners. Except as provided in Section 4.02 below, each Partner shall share Partnership items of costs, expenditures, deductions (other than depletion), credits, income, revenues, gain, loss, and distributions allocated, charged, or credited to the Partners hereunder in accordance with the proportion that the Sharing Ratio of such Investor Partner bears to the aggregate Sharing Ratios of all Partners.

 

4.02.  Allocations.

 

a. Except as provided in subsections b through h below, all costs and revenues (including without limitation, revenues derived by the Partnership from, and distributed to the Partnership by, the Drilling Program) of the Partnership and all items of income, gain, amount realized, loss, deduction, recapture, and credit for purposes of any applicable federal, state, or local income tax law, rule, or regulation shall be allocated to the Partners in accordance with their respective Sharing Ratio.

 

b. All costs incurred by the Partnership in connection with the performance of any special services requested by a Partner and any tax deductions relating thereto shall be allocated 100% to the Partner requesting such services.

 

c. All interest income directly or indirectly resulting from the investment of the Investor Partners' Capital Contributions following the payment thereof to the Partnership shall be allocated 100% to the Investor Partners, and shall be allocated among such Investor Partners proportionately based on each Investor Partner's respective cash contributions actually paid to the Partnership.

 

d. This subsection d shall apply to allocation of costs incurred with respect to Program Wells that are begun prior to the Closing Date.

 

i.  If the Partnership executes an Operating Agreement and incurs Lease Acquisition costs and drilling, testing and development costs for a Program Well prior to the Closing Date, all Lease Acquisition, drilling, testing and development costs incurred with respect to that well shall be allocated to those Investor Partners who have become Investor Partners on or before the date that the Operating Agreement for that Program Well is executed.  All such costs shall be allocated among the Investor Partners pro rata according to the amounts of their Capital Contributions, as a percentage of the total amount of Capital Contributions to the Partnership on the date the Operating Agreement is executed.

 

ii.  The Partnership shall establish a sub-capital account for each Investor Partner who is allocated costs of Program Wells prior to the Closing Date.  All amounts paid from each Investor Partner's capital account on account of Program Wells prior to the Closing Date shall be deducted from such Investor Partner's capital account and credited to the Investor Partner's sub-capital account, and each Investor Partner's pro rata share of all expenses and costs associated with the development of the Program Well will be allocated to his sub-capital account.

 

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iii.  If the Partnership executes second and subsequent Operating Agreements with respect to additional Program Wells prior to the Closing Date, Investor Partners' funds will be invested, and their capital accounts will be charged, as follows:

 

A.  First, all Investor Partners for whom sub-capital accounts have previously been established on account of prior Program Wells shall have the amounts remaining in their capital accounts (after deduction of all amounts previously allocated to their sub-capital account) charged with the costs and expenses of the second or subsequent well, on a first-in, first-out basis, until the amounts remaining in each of those Investor Partners' capital accounts, unallocated among Program Wells, is reduced to zero, and such amounts will be credited to their sub-capital accounts.

 

B.  If, after funds have been allocated from the capital accounts of all Investor Partners whose capital accounts are allocated to Program Wells pursuant to subsection A, any unallocated expenses remain with respect to a second or subsequent Program Well, sub-capital accounts shall be established for the remaining Investor Partners who have made Capital Contributions on or prior to the date of execution of the Operating Agreement for such second or subsequent Program Well, and their capital accounts shall be charged, and their sub-capital accounts will be credited, with the amounts required for Lease Acquisition, drilling, testing and development of the second or subsequent well, pro rata according to the amounts of their Capital Contributions, as a percentage of the total amount of Capital Contributions to the Partnership by all such Investor Partners on the date the Operating Agreement is executed.

 

iv.  The following example illustrates the operation of the allocation of Program Well costs contemplated by this subsection d.  Suppose that the following investments and Program Wells are made prior to the Closing Date:

 

A.  On June 1, investors A, B, C and D make Capital Contributions of $1,000,000 each.

 

B.  On June 15, the Partnership executes an Operating Agreement for Well I, with a total cost for turnkey drilling and for completion of $3,000,000.

 

C.  On July 1, investors E, F and G make Capital Contributions of $3,000,000 each.

 

D.  On July 15, the Partnership executes an Operating Agreement for Well II, with a a total cost for turnkey drilling and for completion of $2,500,000.

 

In this example, investors A, B, C and D will bear all costs of Well I according to their pro rata share of Capital Contributions on June 15 (25% each).  Thus, each of them will have $750,000 allocated to their individual sub-capital accounts for Well I, and $250,000 will remain unallocated in their capital account.  On July 15, each of investors A, B, C and D (who invested on the same date) will have the remaining funds left in their capital accounts allocated to their

 

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sub-capital accounts for expenditure on Well II ($250,000 each).  The remaining $1,500,000 to be expended on Well II will be allocated among investors E, F and G according to their pro rata share of Capital Contributions that have not previously been allocated to any investor's sub-capital account ($500,000 each).

 

e.  If any allocations of costs are made prior to the Closing Date pursuant to subsection d, then Lease Acquisition, drilling, testing and development costs incurred after the Closing Date shall be allocated among Investor Partners pro rata according to the amounts of their remaining in their capital accounts after deduction of amounts allocated to each Investor Partner's sub-capital accounts, as a percentage of the aggregate amount remaining in all capital accounts of all Investor Partners.

 

f.  Cost and percentage depletion deductions and the gain or loss on the sale or other disposition of property the production from which is or would be (in the case of nonproducing properties) subject to depletion (herein sometimes called "depletable property") shall be computed separately by the Partners rather than the Partnership. For purposes of making such computations the Partnership's adjusted basis in each depletable property shall be allocated under Section 613A(c)(7)(D) of the Code to the Partners in accordance with their respective Sharing Ratio. The amount realized on the sale or other disposition of each such property shall be allocated to the Partners in proportion to each Partner's respective share of the revenues from the sale or other disposition of such property provided for in subsection a. For purposes of allocating amounts realized upon any such sale or disposition which are deemed to be received for federal income tax purposes and which are attributable to Partnership indebtedness or indebtedness to which the depletable property is subject at the time of such sale or disposition, such amounts shall be allocated in the same manner as Partnership revenues used for the repayment of such indebtedness would have been allocated under subsection h.

 

g.  Notwithstanding any other provision of this Section 4.02 to the contrary, if during any taxable year of the Partnership the allocation of any loss or deduction (net of any income or gain) to any Partner (the "Deficit Partner") would cause or increase a deficit balance in the Deficit Partner's Adjusted Capital Account as of the end of such taxable year, only the amount of such loss or deduction that reduces the balance to zero shall be allocated to the Deficit Partner and the remaining loss or deduction shall be allocated to the Partners whose Adjusted Capital Accounts have positive balances remaining at such time in proportion to such positive balances. After any such allocation, any Partnership income or gain (or amount realized in excess of Simulated Basis) that would otherwise be allocated to the Deficit Partner for any fiscal year under this Section 4.02 which is in excess of the cash distributions to the Deficit Partner for such fiscal year shall be allocated instead to the Partners to whom the Deficit Partner's share of losses and deductions were allocated under the preceding sentence until the amount of such income or gain (or amount realized) so allocated equals the amount of loss or deduction previously so allocated to such other Partner.

 

h.  Notwithstanding the foregoing provisions of this Section 4.02, prior to making any other allocation under this Section 4.02, the Partnership shall allocate the following items of income to the Partners:

 

i.  Pursuant to Section 1.704-2(f) of the Treasury Regulations (relating to minimum gain chargebacks), if there is a net decrease in Minimum Gain for such year (or if there was a net decrease in Minimum Gain for a prior fiscal year and the 

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Partnership did not have sufficient amounts of profit during prior years to allocate among the Partners under this subsection i, then items of Partnership income or revenue shall be allocated, before any other allocation is made pursuant to the preceding provisions of this Section 4.02 for such year, to each Partner in an amount equal to such Partner's share of the net decrease in such minimum gain (as determined under Section 1.704-2(g)(2) of the Treasury Regulations).

 

ii.  Pursuant to Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations (relating to "qualified income offsets"), items of Partnership income or revenue shall be allocated, before any other allocation is made pursuant to the preceding provisions of this Section 4.02 for such year, among the Partners with deficit balances in their Adjusted Capital Accounts (as determined, after giving effect to all adjustments attributable to the allocations provided for in subsection i hereof and as increased by any amounts which such Partner is deemed obligated to restore under Sections 1.704-1 and 1.704-2 of the Treasury Regulations but before giving effect to any adjustment attributable to other allocations provided for in succeeding provisions of this Section 4.02) in amounts and the manner sufficient to eliminate such deficit balances as quickly as possible.

 

4.03. Distributions.

 

a.  All interest earned by the Partnership on invested assets may be distributed periodically to the Partners at such time or times as the Managing Partner shall in its discretion determine.

 

b.  At least quarterly, cash funds of the Partnership (other than interest as described in subsection a above, borrowed funds, if any, and Capital Contributions) which the Managing Partner reasonably determines are not needed for the payment of existing or anticipated Partnership obligations and expenditures shall be distributed to the Partners. Cash funds of the Partnership to be distributed to the Partners shall be distributed to the Partners in the same respective percentages as the revenues from which such cash funds are derived are allocated to such Partners pursuant to Section 4.02 (after deducting therefrom the costs charged to such Partners pursuant to Section 4.02). In addition to restrictions set forth in Section 5.02.a, in no event, shall funds be advanced or borrowed for purposes of distributions, if the amount of such distributions would exceed the Partnership's accrued and received revenues for the previous four quarters, less paid and accrued operating costs with respect to such revenues. The determinations of such revenues and costs shall be made in accordance with generally accepted accounting principles consistently applied. Cash distributions from the Partnership to the Managing Partner shall only be made in conjunction with distributions to Investor Partners and only out of funds properly allocated to the Managing Partner's account.

 

c.  Any distribution in liquidation of a Partner's interest in the Partnership other than pursuant to Section 8.03, Section 9.03, or Section 9.04 shall be in an amount of cash or fair market value of property equal to the positive capital account balance of such Partner at the time his interest is liquidated, after such capital account balance has been adjusted in accordance with Section 7.1(c) and the applicable Treasury Regulations under Section 704(b) of the Internal Revenue Code and shall be made by the later of (i) the end of the Partnership taxable year in which such liquidation occurs or (ii) 90 days after the date of such liquidation. No Partner

 

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with a deficit balance in his or its capital account after a distribution in liquidation of such Partner's interest in the Partnership shall be liable to the Partnership for such deficit balance.

 

d.  In the event an amount of Partnership funds equal to the total Capital Contributions of the Partners has not been expended or committed for expenditure within 36 months after the admission of the Investor Partners to the Partnership, the Managing Partner shall distribute, as a return of capital, to the Partners, proportionately in accordance with their respective Sharing Ratios as of the date of the Investor Partners' admission to the Partnership, the amount of such unexpended and uncommitted Partnership funds (together with a proportionate amount of the Management Fees), after deducting therefrom an amount that the Managing Partner reasonably determines will be equal to the operating capital to be required by the Partnership that will not be provided by anticipated revenues from Partnership operations.

 

4.04.  Allocations on Transfers. In the event of an assignment of a Partner's interest in the Partnership pursuant to ARTICLE 8, deductions, credits, and income of the Partnership for federal, state, and local income tax purposes shall, unless otherwise required by applicable Treasury Regulations, be allocated between the assignor and assignee based on the number of days of the year during which each party owned such interest.

 

ARTICLE 5

MANAGEMENT

 

5.01.  Power and Authority of Managing Partner. The Partners hereby designate TVC as the Managing Partner of the Partnership and, except as provided by Section 5.02 and elsewhere in this Agreement and except as otherwise provided by applicable law, hereby delegate to the Managing Partner full and exclusive power and authority on behalf of the Partnership to manage, control, administer, and operate the properties, business, and affairs of the Partnership and to do or cause to be done any and all acts deemed by the Managing Partner to be necessary or appropriate thereto. The scope of such power and authority shall encompass all matters in any way connected with such business or incident thereto, including without limitation, the power and authority:

 

a.  To enter into the Program Agreement and to purchase or otherwise acquire on behalf of the Partnership Leases as provided in the Program Agreement;

 

b.  To purchase or otherwise acquire other real or personal property of every nature considered necessary or appropriate to carry on and conduct the business of the Partnership;

 

c.  To borrow monies for the business of the Partnership and from time to time to draw, make, execute, and issue promissory notes and other negotiable or nonnegotiable instruments and evidences of indebtedness; to secure the payment of the sums so borrowed and to mortgage, pledge, or assign in trust all or any part of the property of the Partnership; to assign any monies owing or to be owing to the Partnership; and to engage in any other means of financing customary in the oil and gas industry; provided that any such financing shall provide that the lender has recourse only against Partnership assets and not against any Investor Partner individually;

 

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d.  To enter into any agreement for the sharing of profits, joint venture, or partnership with any person, firm, corporation, or government or agency thereof engaged in any business or transaction in which the Partnership is authorized to engage, or any business or transaction capable of being conducted, so as to directly or indirectly benefit the Partnership, and to cause the obligations of the Partnership thereunder to be performed;

 

e.  To explore and prospect by geological, geophysical, or other methods for the location of anomalies or other indications favorable to the accumulation of oil and gas, including specifically the power to contract with third parties for such purposes;

 

f.  To maintain, explore, develop, operate, manage, and defend Partnership property and to drill, test, plug and abandon or complete and equip, rework, and recomplete any number of wells on Partnership Leases for the production of oil and gas located thereunder, and to contract with third parties for such purposes, to carry out a program or programs of secondary recovery on Partnership property, and to do any and all other things necessary or appropriate to carry out the terms and provisions of this Agreement which would or might be done by a normal and prudent operator in the exploration, development, operation, and management of its own property, including without limitation, making consent or non-consent elections under any applicable joint operating agreement;

 

g.  To enter into and execute leases, drilling contracts, farmout agreements, farmin contracts, dry and bottom hole and acreage contribution letters, participation agreements, and any other agreements customarily employed in the oil and gas industry in connection with the acquisition, sale, exploration, development, or operation of oil and gas properties, agreements as to rights-of-way and any and all other instruments or documents considered by the Managing Partner to be necessary or appropriate to carry on and conduct the business of the Partnership, for such consideration and on such terms as the Managing Partner in its sole discretion may determine, and to cause the obligations of the Partnership thereunder to be performed;

 

h.  To sell the production accruing to the Leases acquired by the Partnership and to execute gas sales contracts, casinghead gas contracts, transfer orders, division orders, or any other instruments in connection with the sale of production from the Partnership's interest in any property;

 

i.  To farmout, sell, assign, convey, or otherwise dispose of, for such consideration and upon such terms and conditions as the Managing Partner in its sole discretion may determine, all or any part of the Partnership property, any interest therein, or any interest payable therefrom, and in connection therewith to execute and deliver such deeds, assignments, and conveyances containing such warranties as the Managing Partner may determine;

 

j.  To employ on behalf of the Partnership agents, employees, managers, consultants, accountants, lawyers, geologists, geophysicists, engineers, landmen, clerical help, and such other assistance and services as the Managing Partner may deem proper and to pay therefor such remuneration and compensation as the Managing Partner may deem reasonable and appropriate;

 

k.  To purchase, lease, rent, or otherwise acquire or obtain the use of machinery, equipment, tools, materials, and all other kinds and types of real or personal property that may in any way be deemed necessary, convenient, or advisable in connection with carrying

 

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on the business of the Partnership, and to incur expenses for travel, telephone, telegraph, insurance, and for such other things, whether similar or dissimilar, as may be deemed necessary or appropriate for carrying on and performing the business of the Partnership;

 

l.  To pay delay rentals, shut-in royalty payments, property taxes, and any other amounts necessary or appropriate to the maintenance or operation of any Partnership property;

 

m.  To make and enter into such agreements and contracts with such parties and to give such receipts, releases, and discharges with respect to any and all of the foregoing and any matters incident thereto as the Managing Partner may deem advisable or appropriate;

 

n.  To procure and maintain in force such insurance as the Managing Partner shall deem prudent to serve as protection against liability for loss and damage which may be occasioned by the activities to be engaged in by the Partnership and the Managing Partner on behalf of the Partnership;

 

o.  To pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend, or compromise on behalf of the Partnership, upon such terms as the Managing Partner may determine and upon such evidence as they may deem sufficient, any obligation, suit, liability, cause of action, or claim, including a suit or claim for taxes, in favor of or against the Partnership;

 

p.  To quitclaim, assign, convey, surrender, release, or abandon any Partnership property with or without consideration therefor;

 

q.  To make such classifications, determinations, and allocations as the Managing Partner may deem advisable, having due regard for any relevant generally accepted accounting principles;

 

r.  To enter into soliciting dealer agreements and to perform all of the Partnership's obligations thereunder, to issue and sell Interests pursuant to the terms and conditions of this Agreement and the Subscription Agreements, to accept and execute on behalf of the Partnership Subscription Agreements, and to admit original and substituted Investor Partners;

 

s.  To take such action as may be necessary for the safekeeping of all funds and assets of the Partnership, whether or not within the Managing Partner's control and to employ, or permit another person to employ, such funds or assets in any manner except for the exclusive benefit of the Partnership; and

 

t.  To take such other actions, execute and deliver such other documents, and perform such other acts as may be deemed by the Managing Partner to be appropriate to carry out the business and affairs of the Partnership.

 

In accomplishing all of the foregoing and except as otherwise provided in this Agreement, the Managing Partner may, in its sole discretion, use its own personnel, properties, and equipment or those of any of its Affiliates; or the Managing Partner may hire or rent those of third parties and may employ on a temporary or continuing basis outside accountants, attorneys, consultants, and

 

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others on such terms as the Managing Partner deems advisable. No person, firm, or corporation dealing with the Partnership shall be required to inquire into the authority of the Managing Partner to take any action or make any decision.

 

5.02.  Certain Restrictions on Managing Partner's Power and Authority. Notwithstanding any other provisions of this Agreement to the contrary, the Managing Partner shall not have the power or authority to, and shall not do, perform, or authorize any of the following:

 

a.  Borrow any money in the name or on behalf of the Partnership or otherwise do any of the acts or things provided in subsection 5.01.c if the total amount of the borrowings or financings then outstanding made by the Managing Partner on behalf of the Partnership (including the amount outstanding under the Partnership's reimbursement obligation under Section 5.06 would exceed an amount equal to 20% of the Capital Contributions of the Investor Partners; provided, however, that the terms of any such financing shall provide that the lender has recourse only against Partnership assets and not against any Investor Partner individually; provided further, that the Managing Partner may borrow monies in the name and on behalf of the Partnership even if the Capital Contributions of the Partners have not yet been fully expended or committed for expenditure;

 

b.  Except for a sale of all or substantially all of the assets of the Partnership by the Managing Partner acting in its capacity as liquidator made in connection with the liquidation and termination of the Partnership as such is contemplated in Section 9.04, without having first received the prior consent of a Majority in Interest of the Investor Partners, sell all or substantially all of the assets of the Partnership other than in the ordinary course of business;

 

c.  Without having first received the prior consent of a Majority in Interest of the Investor Partners, assign the rights or obligations of the Partnership, or, except as otherwise provided in the Program Agreement, consent to the assignment by the Managing Partner or any Affiliate thereof of its rights or obligations under the Program Agreement, prior to the substantial completion of the drilling activities of the Partnership;

 

d.  Without having first received the prior consent of a Majority in Interest of the Investor Partners, agree to the termination or amendment of the Program Agreement or waive any rights of the Partnership thereunder, except for amendments to the Program Agreement which the Managing Partner believes are necessary or advisable to ensure that the Program Agreement conforms with any changes in or modifications to the Code or do not adversely affect the Investor Partners in any material respect;

 

e.  Guarantee in the name or on behalf of the Partnership the payment of money or the performance of any contract or other obligation of any other person;

 

f.  Bind or obligate the Partnership with respect to any matter outside the scope of the Partnership business;

 

g.  Use the Partnership name, credit, or property for other than Partnership purposes;

 

h.     Take any action, or permit any other person to take any action, with respect to the assets or property of the Partnership which does not primarily benefit the Partnership, including without limitation, the commitment of future production or the utilization of funds of the Partnership as compensating balances for its own benefit;

 

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i.  Benefit from any arrangement for the marketing of oil and gas production or other relationships affecting the property of the Managing Partner and the Partnership, unless such benefits are fairly and equitably apportioned among the Managing Partner and Affiliates thereof and the Partnership;

 

j.  Invest Partnership funds in the securities of another person except in the following instances:

 

i.  investments in working interests or undivided lease interests made in the ordinary course of the Partnership's business;

 

ii.  temporary investments made in compliance with Section 7.03;

 

iii.  investments involving less than 5% of program capital which are a necessary and incidental part of a property acquisition transaction; and

 

iv.  investments in entities established solely to limit the Partnership's liabilities associated with the ownership or operation of property or equipment, provided, in such instances duplicative fees and expenses shall be prohibited; or

 

k. Take any action that will:

 

i.  cause the Partnership to participate in any other partnership or joint venture that will result in a duplication or unreasonable increase in the amount of costs and expenses of the Partnership;

 

ii.  Substantively alter the fiduciary and contractual relationship between the Managing Partner and the Investor Partners as such exists pursuant to this Agreement; or

 

iii.  diminish the voting rights hereunder of the Investor Partners.

 

5.03.  Services of Managing Partner. During the existence of the Partnership, the Managing Partner shall devote such time and effort to the Partnership business as may be necessary to promote adequately the interests of the Partnership and the mutual interests of the Partners; however, it is specifically understood and agreed that the Managing Partner shall not be required to devote full time to Partnership business, and the Managing Partner and its Affiliates may at any time and from time to time engage in and possess interests in other business ventures of any and every type and description, independently or with others, including without limitation, the acquisition, ownership, exploration, development, operation, and management of oil and gas properties for themselves and other persons and the organization and management of other partnerships and joint ventures similar to the Partnership, and neither the Partnership nor any Investor Partner shall by virtue of this Agreement or the law of partnership opportunity have any right, title, or interest in or to such independent ventures. It is specifically recognized that the Managing Partner and its Affiliates are currently engaged in the exploration for and production of oil and gas both for their account and for others, and nothing herein contained shall be deemed to prevent any of them from continuing such activities, individually, jointly with others, or as a

 

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part of any other partnership or joint venture to which any of them is or may become a party, in any locale, and in fields or areas of operation in which the Partnership may likewise be active, or from dealing with the Partnership as an independent party, nor as requiring any of them to permit the Partnership to participate in any such operations in which any of them may be interested and each Investor Partner hereby waives, relinquishes, and renounces any such right or claim of participation. However, except as otherwise provided herein, the Managing Partner and any of its Affiliates may pursue business opportunities that are consistent with the Partnership's investment objectives for their own account only after they have determined that such opportunity either cannot be pursued by the Partnership because of insufficient funds or because it is not appropriate for the Partnership under the existing circumstances.

 

5.04.  Liability of Managing Partner and Its Affiliates. Neither the Managing Partner nor any of its Affiliates shall have any liability to the Partnership or to any Partner for any loss suffered by the Partnership which arises out of any action or inaction performed or omitted by the Managing Partner or such Affiliate, if the Managing Partner in good faith has determined, as of the time of the conduct or omission, that the course of conduct or omission was in the best interests of the Partnership, the Managing Partner or such Affiliate was acting on behalf of or performing services for the Partnership, and that such conduct or omission did not constitute negligence or misconduct.

 

5.05.  Indemnification of Managing Partner and Its Affiliates.

 

a.  The Partnership shall indemnify the Managing Partner and its Affiliates against any losses, judgments, liabilities, expenses, and settlements sustained or incurred by the Managing Partner or such Affiliate as a result of any threatened, pending, or completed claim, action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such a claim, action, suit, or proceeding, and any inquiry or investigation that could lead to such a claim, action, suit, or proceeding and which in any such case relates or which otherwise arises from or is attributable to any acts, omissions, or operations performed or omitted by the Managing Partner or its Affiliates acting on behalf of or performing services for the Partnership that are within the scope of its authority as set forth in this Agreement or the Program Agreement or which otherwise relates to the activities and business affairs of the Partnership; provided that the Managing Partner has determined in good faith, as of the time of the conduct or omission, that the conduct or omission was in the best interests of the Partnership and that the conduct or omission did not constitute negligence or misconduct.

 

b.  Notwithstanding anything to the contrary contained in Sections 5.04 and 5.05a, neither the Managing Partner, its Affiliates, nor any person acting as a broker-dealer shall be indemnified by the Partnership for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities laws violations as to the particular indemnitee and the court approves indemnification of the litigation costs, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee and the court approves indemnification of the litigation costs, or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made.

 

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c.  The Partnership may purchase and maintain insurance on behalf of the Managing Partner and its Affiliates against any liabilities asserted against or expenses incurred by the Managing Partner and its Affiliates in connection with Partnership or Drilling Program activities, provided that the Partnership shall not incur the cost of that portion of any insurance, which insures the Managing Partner or its Affiliates against any liability with respect to which the Managing Partner and its Affiliates are denied indemnification under the provisions of Sections 5.04 and 5.05; provided, however, that nothing contained herein shall preclude the Partnership from purchasing and paying for such types of insurance including extended coverage liability and casualty and workers' compensation, as would be customary for any person owning comparable assets and engaged in a similar business, or from naming the Managing Partner and its Affiliates as additional insured parties thereunder, provided, that the naming of such additional insured parties does not add to premiums payable by the Partnership.

 

d.  The termination of any claim, action, suit, or proceeding by judgment, order, settlement, conviction, or a plea of nolo contendere or its equivalent does not alone establish that a person seeking indemnification under this Section 5.05 is disqualified. Any person who is determined to be not entitled to indemnification under this Section 5.05 may petition a court of competent jurisdiction for a determination that in view of all facts and circumstances that such person is fairly and equitably entitled to indemnity and the Partnership shall provide such indemnity as may be determined proper by such court; provided, however, that the court has determined that such person has met the standard set forth in subsection a above.

 

e.  Legal fees and expenses and other costs incurred as a result of a claim described in subsection a shall be paid by the Partnership from time to time in advance of the final disposition of such claim if: (i) the claim relates to the performance or non-performance of duties or services by the Managing Partner or its Affiliates on behalf of the Partnership; (ii) the claim is initiated by a third party who is not an Investor Partner, or the claim is initiated by an Investor Partner and a court of competent jurisdiction specifically approves such advancement; and (iii) the Managing Partner or such Affiliate undertakes to repay the advanced funds to the Partnership, together with the applicable legal rate of interest thereon, in the event it is later determined that the Managing Partner or such Affiliate is not entitled to indemnification under the provisions of subsection a.

 

f.  To the extent that the Managing Partner or its Affiliates are successful on the merits or in defense of any claim, issue, or matter therein, the Partnership shall indemnify the Managing Partner or its Affiliates, against the expenses, including attorneys' fees, actually incurred by the Managing Partner or such Affiliate in connection therewith.

 

g.  The indemnification provided by this Section 5.05 shall continue as to the Managing Partner and its Affiliates in the event it ceases to be a managing partner of the Partnership with respect to claims relating to the period in which the Managing Partner was a managing partner of the Partnership and such indemnification shall inure to the benefit of the successors and assigns of the Managing Partner and such Affiliates.

 

h.  The indemnification provided by this Section 5.05 shall be made, and shall be recoverable by the Managing Partner or its Affiliates, only out of the tangible net assets of the Partnership and not from the Investor Partners.

 

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                 5.06.      Reporting and Legal Expenses. The Partnership shall reimburse the Program Manager and the Managing Partner and its Affiliates for its share of the Reporting and Legal Expenses incurred by the Program Manager, the Managing Partner, or any Affiliate thereof in managing and conducting the business and affairs of the Drilling Program or of the Partnership, as applicable. The Reporting and Legal Expenses reimbursed by the Partnership shall be determined by the party seeking reimbursement in good faith and as being reasonable for such party. Such reimbursements shall be made periodically throughout the term of the Partnership.

 

5.07.  Administrative Costs. The Partnership shall reimburse the Program Manager and the Managing Partner and its Affiliates for all Administrative Costs and other costs and expenses incurred by the Program Manager, the Managing Partner, or any Affiliate thereof in managing and conducting the business and affairs relating to the Partnership's interest in the Drilling Program or of the Partnership, as applicable, including expenses incurred in providing or obtaining such professional, technical, administrative, and other services and advice as the Program Manager, the Managing Partner, or such Affiliates may deem necessary or desirable. The general, administrative, and other costs reimbursed by the Partnership shall be determined by the party seeking reimbursement in good faith and as being reasonable for such party. The amount of Administrative Costs that are to be reimbursed by the Partnership shall be determined and allocated to the Partnership and its Drilling Program on a basis conforming with generally accepted accounting principles and must be supported in writing as to the application thereof and as to the amount charged. Such reimbursements shall be made periodically throughout the term of the Partnership. Such reimbursement obligation shall also apply to all Administrative Costs incurred by the Program Manager, the Managing Partner or any of its Affiliates on behalf of the Partnership or the Drilling Program from the beginning of the calendar year in which the Partnership is formed to the date of the admission of the Investor Partners. Regardless of the actual amount of Administrative Costs incurred by the Managing Partner or Program Manager in connection with the affairs of a Partnership, during any particular calendar year the total amount of Administrative Costs allocable to the Partnership shall not exceed the greater of (a) 3.5% of the Partnership's gross revenues from the sale of oil and natural gas production during such year (calculated without any deduction for Operating Costs or other costs and expenses) or (b) the sum of $50,000 plus .25% of the Capital Contributions of the Investor Partners to the Partnership. The above limitation on Administrative Costs shall not be applicable to Administrative Costs otherwise allocable to the Partnership which are extraordinary and non-recurring or to the fixed overhead fee chargeable by an operator of Program Wells including the fixed overhead fee chargeable under the Operating Agreement by TVC with respect to the Program Wells operated by the Program Manager. No portion of the salaries of the directors or of the executive officers of TVC or TVOG may be reimbursed as Administrative Costs during the drilling phase of initial test wells.

 

5.08.  Management Fee.  As compensation for its efforts in organizing and sponsoring the Partnership, the Partnership shall pay a management fee to the Managing Partnersin the amount of five percent (5%) of the gross proceeds of the offering of Interests.

 

5.09.  Reimbursement of Offering Costs; Finders' Fees.  The Partnership shall reimburse the Managing Partner for its actual costs incurred in creating the Partnership and offering the Interests for sale to the Investor Partners, including filing fees, legal, accounting, printing and other direct selling expenses.  The Partnership shall not pay any sales commissions in connection with the sale of Interests; however, the Partnership is authorized to pay finders' fees of up to twelve percent (12%) of the gross proceeds of the sale of interests to independent third parties for introducing prospective investors to the Managing Partner and its Affiliates.

 

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5.10.  Restrictions on Certain Transactions.

 

a.  The Partnership may enter into contracts and agreements with the Managing Partner and its Affiliates for the rendering of services and the sale, rental, or lease of supplies and equipment, provided that (i) such entity is engaged, independently of the Drilling Program and as an ordinary and ongoing business, in the business of rendering such services or selling or leasing such equipment and supplies to a substantial extent to other persons in the industry in addition to programs in which the Managing Partner or its Affiliates have an interest and (ii) the amount of the compensation, price, or rental that can be charged to the Partnership therefor must be no less favorable to the Partnership than that generally available (at the time the relevant contract or agreement was entered into) from unrelated third parties in the area engaged in the business of rendering comparable services or selling, renting, or leasing comparable equipment and supplies which could reasonably be made available to the Partnership. If the Managing Partner or its Affiliate is not engaged in the business as required by clause (i) of this subsection, then such compensation, price, or rental shall be the cost of such services, equipment, or supplies to such entity, or the competitive rate which could be obtained in the area, whichever is less. In addition, any drilling services rendered by the Managing Partner or its Affiliates to the Partnership shall be billed on a per foot, per day, or per hour rate, or some combination thereof. All services for which the Managing Partner or its Affiliates are to receive compensation shall be embodied in written contracts which precisely describe the services to be rendered and all compensation to be paid. Advance payments to the Managing Partner are prohibited, except where necessary to secure tax benefits of prepaid drilling costs. All contracts between the Partnership and the Managing Partner or its Affiliates shall be terminable by the Partnership (by a vote or written consent of a Majority in Interest of the Investor Partners) without penalty upon 60 days' written notice.

 

b.  The Partnership may borrow money on a non-recourse basis from the Managing Partner or any of its Affiliates, provided that on any loans made available by the Managing Partner or any of its Affiliates to the Partnership, the Managing Partner or such Affiliate shall not receive interest in excess of the lesser of (i) the maximum rate permitted by applicable law or (ii) the effective interest rate then being paid by the Managing Partner or such Affiliate for similar type borrowings. In no event shall any such loan bear interest in excess of the amount which would be charged to the Partnership (without reference to the Managing Partner's financial abilities or guaranties) by independent third parties for the same purpose. In connection with any loans to the Partnership by the Managing Partner or its Affiliates, the Managing Partner or its Affiliates shall not receive points or other financing charges or fees, regardless of the amount.

 

c.  The Partnership shall acquire in certain instances interests in Prospects from the Managing Partner or its Affiliates on the terms and conditions set forth in the Program Agreement.

 

d.  No Partnership Leases shall be farmed out by the Partnership unless the Managing Partner, exercising the standard of care of a normal and prudent operator in the management of its own property, shall determine that either (i) the Partnership lacks sufficient funds for the drilling of a well on such Lease and cannot obtain suitable alternative financing for such drilling, (ii) the Lease has been downgraded by events occurring after the acquisition thereof by the Partnership pursuant to the Program Agreement so that the drilling of a well on such Lease would no longer be desirable for the Partnership, (iii) drilling on such Lease would

 

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result in an excessive concentration of Partnership funds, creating in the opinion of the Managing Partner undue risk to the Partnership and the Investor Partners, or (iv) the best interests of the Partnership would be served by such farmout or other disposition. The Partnership may enter into a farmout agreement (in the capacity as either farmor or farmee) with the Managing Partner, any of its Affiliates, provided that the Managing Partner, exercising the standards of a normal and prudent operator in the management of its own property, shall determine that the farmout is in the best interests of the Partnership and that the terms of any such farmout are consistent with and in any case no less favorable to the Partnership than those utilized in the same geographic area for similar arrangements. The Partnership's ability to enter into a farmout agreement with the Managing Partner or an Affiliate thereof is subject to the same restrictions as its ability to purchase property from or sell property to the Managing Partner or an Affiliate thereof as provided in subsections c and f, respectively.

 

e.  The Partnership shall make no loans to the Managing Partner or its Affiliates.

 

f.  The Partnership may sell or transfer its Leases to the Managing Partner or its Affiliates, including Affiliated Programs, only pursuant to a transaction which is fair and reasonable to the Partnership.

 

g.  No rebates or give-ups may be received by the Managing Partner or any Affiliate, nor may the Managing Partner or any Affiliate participate in any reciprocal business arrangements which do not primarily benefit the Partnership.

 

h.  Neither the Managing Partner, nor any Affiliate thereof, including an Affiliated Program, shall be permitted to sell, transfer, or convey any Lease to the Partnership, directly or indirectly, except pursuant to a transaction which is fair and reasonable to the Partnership.

 

i.  If the Partnership participates in other partnerships or joint ventures (multi-tier arrangements), the terms of any such arrangements shall not result in the circumvention of any of the requirements or prohibitions contained in this Partnership Agreement, including the following:

 

i.  there will be no duplication or increase in the Managing Partner's compensation, Partnership expenses, or other fees and costs;

 

ii.  there will be no substantive alteration in the fiduciary and contractual relationship between the Managing Partner and the Investor Partners; and

 

iii.  there will be no diminishment in the voting rights of the Investor Partners.

 

5.11.  Restriction on Voting Interests Held by Managing Partner. Interests owned by the Managing Partner or its Affiliates shall have full voting rights under this Agreement, provided that during the time period that TVC or an Affiliate thereof is serving as the Managing Partner of the Partnership any Interests owned by TVC or its Affiliates which in the aggregate represent more than 20% of the total Interests held by Investor Partners shall not have any voting rights under this Agreement and shall not be counted for voting purposes or for purposes of

 

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determining a quorum. In addition, none of the Interests owned by the Managing Partner or its Affiliates shall be counted for voting purposes or for purposes of determining a quorum or have any voting rights under this Agreement concerning the removal of the Managing Partner or any transaction between the Partnership and the Managing Partner or its Affiliates.

 

5.12.  Tax Elections. The Managing Partner shall make the following elections on behalf of the Partnership:

 

a.  to elect, in accordance with Section 263(c) of the Code and applicable regulations and comparable state law provisions, to deduct as an expense all intangible drilling and development costs with respect to productive and nonproductive wells and the preparation of wells for the production of oil or gas;

 

b.  to elect the calendar year as the Partnership's fiscal year;

 

c.  to elect the accrual method of accounting;

 

d.  to elect, in accordance with Section 709(b) of the Code and applicable regulations and comparable state law provisions, to amortize and deduct organization expenses (as such term is defined in Section 709 of the Code) over a period of 60 months beginning with the month in which the Partnership begins business; and

 

e.  to elect with respect to such other federal, state, and local tax matters as the Managing Partner deems advantageous to the Partnership; provided that no election shall be made by the Partnership in accordance with Section 754 of the Code and applicable regulations and comparable state law provisions without the consent of the Managing Partner, the granting or denying of which consent shall be in its sole and absolute discretion.

 

5.13.  Tax Matters Partner. The Managing Partner shall be designated the tax matters partner (in this Section 5.03 called the "TMP") as defined in Section 6231(a)(7) of the Code with respect to operations conducted by the Partners pursuant to this Agreement. The TMP is authorized to take such actions and to execute and file all statements and forms on behalf of the Partnership which may be permitted or required by the applicable provisions of the Code or Treasury Regulations issued thereunder, and the Investor Partners will take all other action that may be necessary or appropriate to effect the designation of the Managing Partner as the TMP. In the event of an audit of the Partnership's income tax returns by the Internal Revenue Service, the TMP may, at the expense of the Partnership, retain accountants and other professionals to participate in the audit. All expenses incurred by the TMP in its capacity as such shall be expenses of the Partnership and shall be paid by or reimbursed to the TMP from Partnership funds.

 

ARTICLE 6

RIGHTS AND OBLIGATIONS OF INVESTOR PARTNERS

 

6.01.  Rights of Investor Partners. In addition to any other rights specifically set forth herein, all Investor Partners shall have the right to: (a) have the Partnership books kept at the principal place of business of the 

 

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Partnership and upon adequate written notice at all reasonable times inspect and, at such Investor Partner's expense, copy any of them personally or through a representative; (b) have on demand true and full information of all things affecting the Partnership and a formal account of Partnership affairs, whenever permitted by law; and (c) have dissolution and winding up by decree of court as provided for in the Act.

 

6.02.  Access to and Confidentiality of Partnership Records.  Each Investor Partner shall during the term of the Partnership have the right, after adequate notice, during normal business hours at the offices of the Partnership to obtain from the Managing Partner for any purpose reasonably related to the Investor Partner's interest as an Investor Partner:

 

a.  True and full information regarding the status of the business and financial condition of the Partnership;

 

b.  Promptly after becoming available, a copy of the Partnership's federal, state and local income tax returns for each year;

 

c.  A copy of any written partnership agreement and certificate of limited partnership and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which the Partnership agreement and any certificate and all amendments thereto have been executed;

 

d.  True and full information regarding the amount of cash and a description or statement of the agreed value of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a partner; and

 

e.  Other information regarding the affairs of the Partnership as is just and reasonable.

 

The Managing Partner may refuse for a reasonable period of time to grant a Investor Partner access to such data and information and studies, maps, evaluations, and reports which the Managing Partner (a) has agreed to keep confidential or (b) determines in good faith should be kept confidential considering the interests of the Partnership and each of its Partners.  The Managing Partner may require a requesting Investor Partner to execute a confidentiality agreement as a condition of providing any information requested pursuant of this Section in order to protect the Partnership's confidential information and trade secrets.

 

6.03.  Return of Capital Contribution. No Investor Partner shall be entitled to (a) withdraw from the Partnership except upon assignment by an Investor Partner of his Interests and the substitution of such Investor Partner's assignee as a substituted Investor Partner of the Partnership in accordance with Section 8.01 or as required by law, or (b) the return of his Capital Contribution except (i) as otherwise provided in this Agreement or as required by law, (ii) to the extent, if any, that distributions made pursuant to the express terms of this Agreement may be considered as such by law or by unanimous agreement of the Partners, or (iii) upon dissolution of the Partnership, and then only to the extent expressly provided for in this Agreement and as permitted by law.

 

6.04.  Meetings. Meetings of the Partners may be called by the Managing Partner at any time and from time to time or may be called by Investor Partners whose combined Sharing Ratios equal at least 50%. The Managing Partner shall, within 15 days after its receipt of a written request for any such call by Investor Partners for a Partners' meeting, give all Investor Partners written notice of the time, place, and purpose of such meeting. The meeting shall 

 

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be held at a reasonable time and place on a date not less than 30 nor more than 60 days after the date of the mailing of such notice; provided that the date for notice of such a meeting may be extended for a period of up to 60 days, if in the opinion of the Managing Partner such additional time is necessary to permit preparation of proxy or information statements or other documents required to be delivered in connection with such meeting by the Securities and Exchange Commission, state securities administrators or other regulatory authorities. The Partners may conduct any Partnership business at such meeting which is permitted under this Agreement and is specified in such notice. Investor Partners may vote in person or by proxy at any such meeting, and the presence in person or by proxy of a Majority in Interest of the Investor Partners shall be necessary to constitute a quorum for the transaction of business at such meeting.

 

6.05.  Voting Rights of Investor Partners. Except as otherwise provided in Section 8.03.a, any vote, consent, approval, election, or other action by the Investor Partners on or with respect to any Partnership matter (including, without limitation, those matters set forth in Sections 5.02.b, 5.01.d, 9.01.b, 9.03.a and 11.02) shall be duly and validly made only if made by a Majority in Interest of the Investor Partners (without the necessity for the concurrence by the Managing Partner), and in the event of any such vote, consent, approval, or election, each Investor Partner that does not vote for, consent to, approve of, or elect with respect to such matter hereby agrees to be bound by the decision of a Majority in Interest of the Investor Partners and hereby approves such matter to the extent such approval is required for such matter to be effective under the Delaware Act or any other applicable law, rule, or regulation.

 

6.06.  Conduct of Meeting. The Managing Partner shall have full power and authority concerning the manner of conducting any meeting of the Investor Partners or solicitation of consents in writing, including without limitation, the determination of persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of Section 6.04, the conduct of voting, the validity and effect of any proxies, votes, or consents, and the determination of any controversies, votes, or challenges arising in connection with or during the meeting or voting. The Managing Partner shall designate a person to serve as chairman of any meeting and shall further designate a person to take the minutes of any meeting, in either case, including without limitation, a partner or a director or an officer of the Managing Partner. All minutes shall be kept with the records of the Partnership maintained by the Managing Partner. The Managing Partner may make such other regulations consistent with applicable law and this Agreement as it may deem advisable concerning the conduct of any meeting of the Investor Partners or solicitation of consents in writing, including regulations in regard to the appointment of proxies, the appointment and duties of inspectors of votes and consents, the submission and examination of proxies and other evidence of the right to vote, and the revocation of consents in writing.

 

6.07.  General Partners Not Agents. Pursuant to Section 5.01 the General Partners have elected to delegate to the Managing Partner authority to manage, control, and administer and operate the property, business, and affairs of the Partnership. Each General Partner agrees that no General Partner or group of General Partners constituting less than a Majority in Interest may cause the Managing Partner on behalf of the Partnership to act as agent for the Partnership, execute documents on behalf of the Partnership, convey Partnership property, or take any other

 

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action binding on the Partnership. Each General Partner further agrees that in no circumstance will a Partner other than the Managing Partner have the right to act as agent for the Partnership, execute documents on behalf of the Partnership, convey Partnership property, or take any other action binding on the Partnership. Any General Partner who takes action contravening this Section 6.07 agrees to indemnify the Partnership and all other Partners from any loss, liability, or expense caused by such action.

 

6.08.  Liabilities of Partners.

 

a.  Pursuant to the Delaware Act, the General Partners are liable jointly and severally for all liabilities and obligations of the Partnership. Notwithstanding the foregoing, as among themselves, the General Partners hereby agree that each shall be solely and individually responsible only for his pro rata share (based on Capital Contributions made) of the liabilities and obligations of the Partnership, and any General Partner who incurs liability in excess of his pro rata share shall be entitled to contribution from the other General Partners. Pursuant hereto, the Managing Partner further agrees to indemnify each General Partner for any and all Partnership-related obligations and liabilities otherwise allocable to or paid by such General Partner which are in excess of such General Partner's share of the Partnership's undistributed assets. Under no circumstances shall any Partner be required to indemnify the Managing Partner, except to the extent of such Partner's (i) Capital Contribution and (ii) share of Partnership assets.

 

b.  The Partnership may purchase and maintain insurance on behalf of all Partners against any liabilities asserted against or expenses incurred by the Partners in connection with Partnership activities, provided that the Partnership shall not incur the costs of that portion of such insurance, if any, which insures the Managing Partner for any liability with respect to which the Managing Partner is denied indemnification under the provisions of this Agreement. Such insurance may be in such amounts as the Managing Partner shall determine is sufficient to protect the Partners from the maximum amount of such liabilities and expenses.

 

ARTICLE 7

BOOKS, RECORDS, CAPITAL ACCOUNTS, REPORTS, AND BANK ACCOUNTS

 

7.01.  Books, Records, and Capital Accounts.

 

a.  The Managing Partner shall keep just and true records and books of account with respect to the operations of the Partnership and shall maintain and preserve during the term of the Partnership and for four years thereafter all such records, books of account, and other relevant Partnership documents. The Managing Partner shall maintain for at least six years all records necessary to substantiate the fact that Interests were sold only to purchasers for whom such Interests were suitable. Such books shall be maintained at the principal place of business of the Partnership and shall be kept on the accrual method of accounting.

 

b.  Any records maintained by the Partnership in the regular course of its business, including the names and addresses of Investor Partners, books of account and records of Partnership proceedings, may be kept on or be in the form of 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. An alphabetical list of the names, addresses, and business telephone numbers of the Investor Partners of the Partnership along with the number of Interests held by each of them (the "participant list") shall

 

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be maintained as a part of the books and records of the Partnership and shall be available for the inspection by any Investor Partner or his designated agent at the principal office of the Partnership upon the request of the Investor Partner. The participant list shall be updated at least quarterly to reflect changes in the information contained therein. A copy of the participant list shall be mailed to any Investor Partner requesting the participant list within ten days of the request. The copy of the participant list shall be printed in alphabetical order, on white paper, in a readily readable type size (in no event smaller than 10-point type). A reasonable charge for copy work may be charged by the Partnership. The purposes for which an Investor Partner may request a copy of the participant list include, without limitation, matters relating to voting rights under the Partnership Agreement and the exercise of Investor Partners' rights under federal proxy laws. If the Managing Partner of the Partnership neglects or refuses to exhibit, produce, or mail a copy of the participant list as requested, the Managing Partner shall be liable to any Investor Partner requesting the list for the costs, including attorneys' fees, incurred by that Investor Partner for compelling the production of the participant list, and for actual damages suffered by any Investor Partner by reason of such refusal or neglect. It shall be a defense that the actual purpose and reason for the requests for inspection or for a copy of the participant list is to secure the list of Investor Partners or other information for the purpose of selling such list or information or copies thereof, or of using the same for a commercial purpose other than in the interest of the applicant as an Investor Partner relative to the affairs of the Partnership. The Managing Partner may require the Investor Partner requesting the participant list to represent that the list is not requested for a commercial purpose unrelated to the Investor Partner's interest in the Partnership. The remedies provided hereunder to Investor Partners requesting copies of the participant list are in addition to, and shall not in any way limit, other remedies available to Investor Partners under federal law or the laws of any state.

 

c.  An individual capital account shall be maintained by the Partnership for each Partner as provided below:

 

i.  The capital account of each Partner shall, except as otherwise provided herein, be (A) credited by such Partner's Capital Contributions when made, (B) credited by the fair market value of any property contributed to the Partnership by such Partner (net of liabilities secured by such contributed property that the Partnership is considered to assume or take subject to under Section 752 of the Code), (C) credited with the amount of any item of taxable income or gain and the amount of any item of income or gain exempt from tax allocated to such Partner, (D) credited with the Partner's share of Simulated Gain as provided in subsection 7.01cii, (E) debited by the amount of any item of tax deduction or loss allocated to such Partner, (F) debited by the Partner's share of Simulated Depletion and Simulated Loss as provided in Section 7.01cii, (G) debited by such Partner's allocable share of expenditures of the Partnership not deductible in computing the Partnership's taxable income and not properly chargeable as Capital Expenditures, including any non-deductible book amortizations of capitalized costs, and (H) debited by the amount of cash or the fair market value of any property distributed to such Partner (net of liabilities secured by such distributed property that such Partner is considered to assume or take subject to under Section 752 of the Code).  Immediately prior to any distribution of property by the Partnership that is not pursuant to a liquidation of the Partnership, the Partners' capital accounts shall be adjusted by (A) assuming that the distributed assets were sold by the Partnership for cash at their respective fair market values as of the date of distribution by the Partnership and (B) crediting or debiting each Partner's capital account with its respective share of the hypothetical gains or losses resulting from such assumed sales determined in the same manner as gains or losses provided for under Sections 4.02 and 7.01cii for actual sales of such properties.

 

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ii.  The allocation of basis prescribed by Section 613A(c)(7)(D) of the Code and each Partner's separately computed depletion deductions shall not reduce such Partner's capital account, but such Partner's capital account shall be decreased by an amount equal to the product of the depletion deductions that would otherwise be allocable to the Partnership in the absence of Section 613A(c)(7)(D) of the Code (computed without regard to any limitations which theoretically could apply to any Partner) times such Partner's percentage share of the adjusted basis of the property with respect to which such depletion is claimed (herein called "Simulated Depletion").  The Partnership's basis in any oil or gas property as adjusted from time to time for the Simulated Depletion allocable to all Partners (and where the context requires, each Partner's allocable share thereof) is herein called "Simulated Basis." No Partner's capital account shall be decreased, however, by Simulated Depletion deductions attributable to any depletable property to the extent such deductions exceed such Partner's remaining Simulated Basis in such property. Upon the sale or other disposition of an interest in a depletable property, each Partner's capital account shall be credited with the gain ("Simulated Gain") or debited with the loss ("Simulated Loss") determined by subtracting from his allocable share of the amount realized on such sale or disposition his Simulated Basis, as adjusted by Simulated Depletion.

 

iii.  Adjustments of basis of Partnership property provided for under Sections 734 and 743 of the Code and comparable provisions of state law (resulting from an election under Section 754 of the Code or comparable provisions of state law) and elections by individual Partners under Section 59(e)(4) of the Code to capitalize and amortize such Partner's share of intangible drilling and development costs shall not affect the capital accounts of the Partners, and the Partners' capital accounts shall be debited or credited pursuant to the terms of this Section 7.01 as if no such election had been made, unless otherwise required by applicable Treasury Regulations.

 

iv.  Capital accounts shall be adjusted, in a manner consistent with this Section 7.01, to reflect any adjustments in items of Partnership income, gain, loss, or deduction that result from amended returns filed by the Partnership or pursuant to an agreement by the Partnership with the Internal Revenue Service or a final court decision.

 

v.  In the case of property contributed to the Partnership by a Partner, the Partners' capital accounts shall be debited or credited for items of depreciation, cost recovery, Simulated Depletion, amortization, and gain or loss with respect to such property computed in the same manner as such items would be computed if the adjusted tax basis of such property were equal to its fair market value on the date of its contribution to the Partnership, in lieu of the capital account adjustments provided above for such items, all in accordance with Treasury Regulations Section 1.704-1(b)(2) (iv)(g).

 

vi.  It is the intention of the Partners that the capital account of each Partner be kept in the manner required under Treasury Regulations Section 1.704-1(b)(2)(iv). To the extent any additional adjustment to the capital accounts is required by such regulation, the Managing Partner is hereby authorized to make such adjustment after notice to the General Partners.

 

vii.     In accordance with Code Section 704(c) and the related Treasury Regulations, income, gain, loss, and deduction with respect to any property contributed to

 

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the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its fair market value at the time of contribution, pursuant to the provisions of Treasury Regulations Section 1.704-3, as reasonably applied by the Managing Partner using the traditional method with curative allocations as provided in Treasury Regulations Section 1.704-3(c).

 

7.02.  Reports. The Managing Partner shall deliver to each Investor Partner the following financial statements and reports at the times indicated below:

 

a.  Semi-annually within 45 days after the end of the first half of each fiscal year and annually within 90 days after the end of each fiscal year, financial statements, including a balance sheet and statements of income, Partners' equity, and cash flow, all of which shall be prepared in accordance with generally accepted accounting principles.

 

b.  Annually by March 15 of each year or as soon thereafter as is reasonably possible, a report containing such information as may be needed to enable each Investor Partner to prepare and file his federal income tax return and any required state income tax return.

 

c.  Daily during any period when the Partnership is participating in the drilling, testing and completing wells in which it has an interest until the end of such activity, status reports to each Investor Partner on the drilling, testing and completing of any well for which such operations are ongoing.

 

d.  Such other reports and financial statements as the Managing Partner shall determine from time to time.

 

7.03.  Bank Accounts. The Managing Partner shall cause one or more accounts to be maintained in a state or federally chartered bank or savings and loan association, which accounts shall be used for the payment of the expenditures incurred by the Managing Partner in connection with the business of the Partnership, and in which shall be deposited any and all receipts of the Partnership. All such amounts shall be and remain the property of the Partnership and shall be received, held, and disbursed by the Managing Partner for the purposes specified in this Agreement. There shall not be deposited in any of said accounts any funds other than funds belonging to the Partnership, and no other funds shall in any way be commingled with such funds. The Managing Partner may invest Partnership funds which they deem untimely or inappropriate to use or commit for Partnership purposes or to distribute to the Partners in such United States Treasury Bills, other short-term governmental obligations or bank certificates of deposit or other certificates, securities or evidences of indebtedness on such terms and for such security, if any, as they may deem necessary or desirable. The Managing Partner shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership, whether or not in the Managing Partner's possession or control, and shall not employ or permit another to employ such funds or assets in any manner except for the benefit of the Partnership.

 

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ARTICLE 8

ASSIGNMENT AND PURCHASE OF INTERESTS;

SUBSTITUTION

 

 

8.01.  Assignments by Investor Partners.

 

a.  The interest of any Investor Partner in the Partnership shall be assignable, in whole or in part, subject to the following:

 

i.  No such assignment shall be made if, in the opinion of counsel to the Partnership, such assignment would cause the termination of the Partnership for federal income tax purposes under Section 708 of the Code or might result in a change in the status of the Partnership to a "publicly traded partnership" within the meaning of Section 7704 of the Code, unless the Managing Partner consents to such assignment, or if in the opinion of counsel to the Partnership such assignment may not be effected without registration under the Securities Act of 1933, as amended, or would result in the violation of any applicable state securities laws;

 

ii.  The Partnership shall not be required to recognize any such assignment until the instrument conveying such interest has been delivered to the Managing Partner for recordation on the books of the Partnership;

 

iii.  Unless an assignee becomes a substituted Investor Partner in accordance with the provisions set forth below, such assignee shall not be entitled to any of the rights granted to an Investor Partner hereunder, other than the right to receive all or part of the share of the profits, losses, cash distributions, or returns of capital to which his assignor would otherwise be entitled;

 

iv.  except by will, intestate succession, or gift or, in unusual circumstances when consented to by the Managing Partner, the assigning Investor Partner (A) may not assign fewer than a whole Interest  to any person other than the Partnership, the Managing Partner, an Affiliate thereof, or a third person designated by the Managing Partner in its sole discretion, unless such Investor Partner owns less than a whole Interest  and transfers all his Interest to one person, and (B) must retain at least a whole Interest, in the event fewer than all such Investor Partner's Interests are assigned to any person other than the Partnership, Managing Partner, an Affiliate thereof, or a third person designated by the Managing Partner in its sole discretion; and

 

v.  The assignor shall notify the Managing Partner of such assignment and provide the Managing Partner with such information regarding the transferee and the transfer (including without limitation, the name, address, and taxpayer identification number of the transferor and transferee and the date of the transfer) as is required under Section 6050K of the Code (if the transfer is a sale or exchange described in Section 751(a) of the Code) and Section 6112 of the Code (relating to tax shelter investor lists) and Treasury Regulations promulgated thereunder by the Internal Revenue Service in the manner and at the time prescribed by law.

 

An assignment by an Investor Partner in violation of clause (i) or clause (ii) of this subsection a shall be void and ineffectual and shall not bind the Partnership or any other

 

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Partner. The assignee of an Investor Partner's interest in the Partnership shall pay all costs and expenses incurred by the Partnership in connection with such assignment, which costs and expenses shall not be less than $50. In the discretion of the Managing Partner, such costs and expenses may be collected out of revenues otherwise allocable to such assignee under this Agreement.

 

b.  An assignee of the interest of an Investor Partner, or any portion thereof if permitted hereunder, shall become a substituted Investor Partner entitled to all the rights of an Investor Partner if, and only if:

 

i.  The assignor gives the assignee such right;

 

ii.  The Managing Partner consents to such substitution, the granting or denying of which consent shall be in the Managing Partner's sole and absolute discretion;

 

iii.  The assignee pays to the Partnership all costs and expenses incurred in connection with such substitution; including without limitation, costs incurred in amending filings referred to in Section 1.07, which costs and expenses, in the discretion of the Managing Partner, may be collected out of revenues otherwise allocable to such substituted Investor Partner under this Agreement;

 

iv.  The assignee executes and delivers such instruments, in form and substance satisfactory to the Managing Partner, as the Managing Partner may deem necessary or desirable to effect such substitution and to confirm the agreement of the assignee to be bound by all of the terms and provisions of this Agreement; and

 

v.  The assignee delivers to the Managing Partner a written representation as to each of the matters set forth in the Subscription Agreement.

 

The consent of the Investor Partners shall not be required for admission to the Partnership of a substituted Investor Partner who meets the above requirements. The Partnership and the Managing Partner shall be entitled to treat the record owner of any Partnership interest as the absolute owner thereof in all respects, and shall incur no liability for distributions of cash or other property made in good faith to such record owner until such time as a written assignment of such interest has been received and accepted by the Managing Partner and recorded on the books of the Partnership. In no event shall any Partnership interest, or any portion thereof, be sold, transferred, or assigned to a minor or incompetent or any other person not qualified to become an Investor Partner hereunder, and any such attempted sale, transfer, or assignment shall be void and ineffectual and shall not bind the Partnership or the Managing Partner. Unless an assignee becomes a substituted Investor Partner, any assignment by the assigning Investor Partner of the right to receive Partnership distributions shall not release such Investor Partner of any obligations connected with the interest in the Partnership being assigned. In no event shall any purported transfer, by operation of law or otherwise, require the accounting by the Managing Partner to more than one person with respect to the Partnership interest transferred unless the transfer is consented to by the Managing Partner in accordance with the foregoing and the Partnership interest transferred represents a whole number of Interests owned by the Investor Partner. The effective date of any assignment shall be the

 

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date on which all of the prerequisites to the assignment specified in this Section 8.1 have been met. The Partnership will amend its records at least once each calendar quarter to effect the substitution of substituted partners. In the case of assignments where the assignee does not become a substituted Investor Partner, the Partnership shall recognize the assignment not later than the last day of the calendar month following receipt of the notice of assignment and the required documentation.

 

8.02.  Assignment by Managing Partner.

 

a.  The interest of the Managing Partner in the Partnership shall not be assignable, in whole or in part, except in the event of the following assignments:

 

i.  A disposition by the Managing Partner of all or any portion of its Partnership interest to one or more Affiliates of the Managing Partner that agree to assume all or a proportionate part of the obligations of the Managing Partner with respect to such interest in the Partnership;

 

ii.  A disposition by the Managing Partner of all or any part of its Partnership interest to one or more persons that have as the result of a merger, consolidation, corporate reorganization, or other transaction acquired all or substantially all of the assets of the Managing Partner and have assumed the obligations of the Managing Partner hereunder; or

 

iii.  An assignment or transfer by the Managing Partner of all or any portion of its Partnership interest by way of mortgage, pledge, or charge as security for an advance of monies to it, provided that the mortgagee or pledgee shall hold such interest subject to all of the terms of this Agreement.

 

b.  In the event of a disposition, assignment, or transfer referred to in clause (i) or clause (ii) of subsection a, such successor, assignee, or transferee shall be and become a substituted Managing Partner and shall continue the business of the Partnership without the occurrence of any dissolution and the assigning Managing Partner shall be released from all of its obligations thereafter arising hereunder; and each Investor Partner (and any person who hereafter becomes a substituted Investor Partner by his execution, adoption, or acceptance of this Agreement) does hereby consent to the admission of such successor, assignee, or transferee as a substituted Managing Partner to the extent required by the Delaware Act and to the continuance of the business of the Partnership by such substituted Managing Partner, and authorizes the Managing Partner or substituted Managing Partner to ratify on his behalf pursuant to the power of attorney granted in Section 10.02 such Investor Partner's consent to the admission of the new Managing Partner as a Managing Partner of the Partnership.

 

c.  The Partnership shall take such actions as the Managing Partner in its sole discretion deems necessary or appropriate to effect or facilitate a disposition, assignment, or transfer referred to in Section 8.2(a), including without limitation, providing notice thereof to the Investor Partners and entering into appropriate escrow arrangements; provided, however, that no such disposition, assignment, or transfer (in the absence of the bankruptcy, withdrawal, removal, or dissolution of a Managing Partner) shall result in dissolution of the Partnership.

 

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d.  Except as otherwise provided in subsection b, Section 8.03 or Section 9.03, no assignee or transferee of a Managing Partner shall become a substituted Managing Partner without the written consent of all of the Investor Partners.

 

8.03.  Removal of Managing Partner.

 

a.  A Super Majority in Interest of the Investor Partners shall have the right to remove the Managing Partner only for acts of gross negligence or intentional misconduct in managing the affairs of the Partnerhsip and, in such event, to elect and substitute a new Managing Partner. In such event, the removed Managing Partner shall be required to offer to sell a minimum of 20% of, and shall have the right to offer to sell up to the remaining 80% of, its interest in the Partnership to the new Managing Partner for cash at a price and on such other terms and conditions as are mutually agreeable to the new Managing Partner. If after the new Managing Partner and the removed Managing Partner have agreed on the amount of the removed Managing Partner's Partnership interest that is to be sold to and purchased by the new Managing Partner (which agreement must be reached within 10 days of the removal of the Managing Partner), such parties are unable to agree within 10 days on the purchase price of such interest, the new Managing Partner and the removed Managing Partner shall select a mutually agreeable Independent Expert to determine such purchase price. Such Independent Expert, in determining such price, shall take into account appropriate discount factors in light of the risk of recovery of the oil and gas reserves attributable to the Partnership. The closing of the purchase of such Partnership interest shall take place at the office of the removed Managing Partner within 15 days following the agreement upon or determination of the purchase price for the interest to be acquired by the new Managing Partner, or at such other time or place as the removed Managing Partner and the new Managing Partner may agree upon in writing. In the event the new Managing Partner agrees to purchase less than all of the offered interest of the removed Managing Partner in the Partnership, the removed Managing Partner shall have the right to have distributed to it in kind such Partnership assets and properties attributable to the Partnership interest not purchased by the new Managing Partner as it would have been entitled to receive if the Partnership were dissolved and terminated pursuant to Section 9.4 at such time. The removed Managing Partner shall cause, to the extent legally possible, all of its contractual rights, obligations, and duties as Managing Partner of the Partnership to be assigned to the new Managing Partner, and the new Managing Partner shall continue the business of the Partnership without the occurrence of any dissolution and shall accept all responsibilities of the removed Managing Partner and make arrangements satisfactory to the removed Managing Partner to release it from and indemnify it against personal liability for any Partnership indebtedness and liabilities. This Agreement shall thereafter be duly amended to delete the removed Managing Partner and to name the new Managing Partner. Each Investor Partner (and any person who hereafter becomes a substituted Investor Partner by his execution, adoption, or acceptance of this Agreement) hereby consents to the admission of the new Managing Partner as the substituted Managing Partner and to the continuance of the business of the Partnership by such substituted Managing Partner, and authorizes such Managing Partner to certify on his behalf pursuant to the power of attorney granted in Section 10.02 such Investor Partner's consent to the admission of such new Managing Partner as the Managing Partner of the Partnership and to execute any amendments to this Agreement required for such purpose. If, under the laws of any jurisdiction to which the Partnership or this Agreement is subject, the removal or withdrawal of the Managing Partner pursuant to this subsection results in the Partnership being dissolved, then the Partnership shall be deemed dissolved and reconstituted. Each Investor Partner (and any person

 

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who hereafter becomes a substituted Investor Partner by his execution, adoption, or acceptance of this Agreement) hereby consents to the continuation or reconstitution of the Partnership pursuant to this subsection and authorizes the substituted Managing Partner to certify on his behalf pursuant to the power of attorney granted in Section 10.02, such Investor Partner's consent to the continuation or reconstitution of the Partnership and to execute any amendments to this Agreement required for such purpose.

 

ARTICLE 9

DISSOLUTION, RECONSTITUTION, LIQUIDATION, AND TERMINATION

 

9.01.  Dissolution. The Partnership shall be dissolved upon the occurrence of any of the following:

 

a.  December 31, 2040;

 

b.  the vote at a duly held meeting or consent in writing of a Majority in Interest of the Investor Partners at any time;

 

c.  the sale, disposition, or termination of all or substantially all of the Leases then owned by the Partnership;

 

d.  the bankruptcy, insolvency, or dissolution (except dissolution as a consequence of merger, consolidation, recapitalization, or other reorganization effected in accordance with Section 8.02) of the Managing Partner or the occurrence of any other event which would permit a trustee or receiver to acquire control of the property or affairs of the Managing Partner; provided that neither the Managing Partner's filing of a voluntary petition or answer seeking reorganization or similar relief under bankruptcy law, nor the Managing Partner's reorganization or obtaining similar relief under such law shall cause the dissolution of the Partnership;

 

e.   the adjudication of insolvency or bankruptcy of the Partnership, or an assignment by the Partnership for the benefit of creditors;

 

f.  the withdrawal or retirement of the Managing Partner; or

 

g.  except as otherwise provided in this Section 9.01, the occurrence of any other event which, under the laws of the State of Delaware, causes the dissolution of a limited partnership.

 

The death, retirement, insanity, legal disability, insolvency, dissolution, or withdrawal of any Investor Partner will not result in the dissolution or termination of the Partnership, and, upon the occurrence of any such event, the estate, personal representative, guardian, or other successor in interest of any such Investor Partner or the Investor Partner, as the case may be, (i) will continue to be liable for all of the debts and obligations of such Investor Partner pursuant to this Agreement, (ii) may become a substituted Investor Partner only pursuant to the provisions of Section 8.01, (iii) may transfer the Partnership interest of such Investor Partner only pursuant to the provisions of ARTICLE 8 hereof, and (iv) will not have any right to withdraw the Capital Contribution of such Investor Partner except as expressly set forth in Section 9.03 of this Agreement.

 

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                 9.02       Covenant Not to Withdraw. Except as permitted by subsection 9.03.c, each Partner covenants and agrees that it shall not cause the dissolution of the Partnership by its voluntary withdrawal therefrom, either directly, by dissolution or by any other voluntary act, provided that the Managing Partner may withdraw upon the later to occur of (i) the completion of a Partnership's primary drilling activities under the Drilling Program and (ii) the fifth anniversary of the date that Investor Partners were admitted to the Partnership. In order to exercise its right of withdrawal, the Managing Partner must give the Investor Partners at least 120 days' advance written notice. In the event the Managing Partner assigns its interest in the Partnership to a person who becomes a substituted Managing Partner of the Partnership pursuant to Section 8.02, the subsequent dissolution of the old Managing Partner shall not terminate the Partnership and shall not be deemed to constitute a breach or violation of the covenant contained in this Section 9.02.

 

9.03.  Reconstitution.

 

a.  In addition to the other rights and remedies the Investor Partners may have hereunder or otherwise, in the event the Managing Partner withdraws or retires from the Partnership (directly or as a result of the events causing dissolution under Section 9.01.e) and such withdrawal or retirement causes dissolution of the Partnership, a Majority in Interest of the Investor Partners, acting at a meeting of the Investor Partners to be held within 90 days following receipt of written notice of such event from the Managing Partner, shall be entitled to reconstitute the Partnership (the Partnership, as reconstituted, is referred to herein as the "Reconstituted Partnership") and elect and substitute a new Managing Partner (which may be the retiring Managing Partner). Such new Managing Partner shall be entitled to acquire the Partnership interest of the retiring Managing Partner on the same basis and in the same manner as is set forth in Section 8.03. In connection with such acquisition the actions described in Section  8.03 shall be taken by the new Managing Partner and the retiring Managing Partner, and each Investor Partner (and any person who hereafter becomes a substituted Investor Partner by his execution, adoption, or acceptance of this Agreement) hereby consents to the admission of such new Managing Partner as a substituted Managing Partner of the Partnership in the same manner, and with the same effect, as consent is provided by the Investor Partners in Section  8.03. The retiring Managing Partner will pay all expenses concerning the valuation of its Partnership Interest and expenses associated with transferring management control incurred as a result of its withdrawal or retirement from the Partnership.

 

b.  In the event a Majority in Interest but less than all of the Investor Partners elect to reconstitute the Partnership pursuant to this Section 9.03, the Partners' capital accounts shall be adjusted by (i) assuming the sale of all assets of the Partnership for cash at their respective fair market values (as determined by an appraiser selected by the new Managing Partner) and the payment of all Partnership debts and liabilities as of the date of the reconstitution of the Partnership and (ii) debiting or crediting each such capital account (other than the new Managing Partner's capital account, but including the retiring Managing Partner's capital account (to the extent that the retiring Managing Partner's Partnership interest was not purchased by the new Managing Partner pursuant to subsection a above)) with its respective share of the hypothetical gains or losses resulting from such assumed sales and the hypothetical deductions or losses, if any, resulting from the assumed payment of such debts and liabilities in the same manner as such capital account would be debited or credited on the actual sales of such assets and the actual payment of such debts and liabilities.

 

 

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The new Managing Partner shall then sell for cash an amount of Partnership oil and gas properties having a fair market value (as determined by such appraiser) equal to the fair market value (so determined) of all Partnership oil and gas properties times the ratio of the aggregate of the positive capital account balances, as so adjusted, of the Investor Partners that have not elected to reconstitute the Partnership and the retiring Managing Partner (to the extent that the retiring Managing Partner's Partnership interest was not purchased by the new Managing Partner pursuant to subsection a above) to the positive capital account balances, as so adjusted, of all Partners. The new Managing Partner shall then distribute such cash to the Investor Partners that have elected not to reconstitute the Partnership and to the Managing Partner (to the extent provided above) in proportion to the positive balances of their respective capital accounts, as so adjusted. Such distribution shall take place by the later of (i) the end of the Partnership taxable year in which the reconstitution occurs or (ii) 90 days after the date of such reconstitution. Neither the retiring Managing Partner nor any Investor Partner that has elected not to reconstitute the Partnership shall be liable to the Partnership or any other Partner for the amount of any deficit balance in his or its capital account after a distribution in liquidation of his or its interest in the Partnership.

 

Notwithstanding the foregoing, the retiring Managing Partner shall have the right to elect to receive a distribution in kind of oil and gas properties having a fair market value (as determined by such appraiser) equal to the fair market value (so determined) of all Partnership oil and gas properties times the ratio of the positive balance in its capital account, adjusted as provided above, to the positive capital account balances, as so adjusted, of all Partners, subject to an obligation to become a party to the Program Agreement and any operating agreements to which such properties are subject. Any interest in Partnership properties distributed to the retiring Managing Partner shall be subject to such liens, encumbrances, and restrictions as affect the properties on the date of such distribution and will be subject to and operated in accordance with the operating agreements then in effect.

 

All gain, loss, and amounts realized on the sale of Partnership oil and gas properties by the new Managing Partner to provide cash for distribution to such Investor Partners and to the retiring Managing Partner shall be allocated to such Investor Partners and the retiring Managing Partner in the same proportions as the proceeds of such sale are distributed; provided that if the retiring Managing Partner or any Investor Partner elects to receive a distribution of Partnership properties in kind, all gain, loss, and amounts realized on such sales shall be allocated solely to the Partners receiving cash in the same proportions as the proceeds of such sale are distributed.

 

The new Managing Partner, on behalf of the Investor Partners that have elected to form the Reconstituted Partnership, shall retain for the benefit of the Reconstituted Partnership all oil and gas properties of the Partnership remaining after the distribution provided for above, and all other Partnership assets, and the Reconstituted Partnership shall assume all debts and liabilities of the Partnership. The Partnership oil and gas properties retained by the Reconstituted Partnership shall be subject to such liens, encumbrances, and restrictions as affect such properties on the date of the reconstitution of the Partnership and will be subject to and operated in accordance with the operating agreements then in effect. If the amount of property as of the date of the reconstitution of the Partnership is not sufficient to satisfy the positive balances in all of the Partners' capital accounts, as so adjusted, Partnership property shall be sold (or distributed) and retained by the new Managing Partner in the manner described above in proportion to the positive balances of the Partners' respective capital accounts.

 

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c.  In the event an Investor Partner withdraws from the Partnership, the remaining Investor Partners hereby agree that the Partnership is to be reconstituted immediately. The remaining Investor Partners hereby authorize the Managing Partner to take such action as the Managing Partner deems necessary or appropriate to effect such reconstitution and to continue the business of the Partnership without interruption, including use by the Managing Partner of the power of attorney granted by each remaining Investor Partner pursuant to Section 10.02 to execute on behalf of each such remaining Investor Partner any amendments to this Agreement required for such purpose. The withdrawing Investor Partner will pay all expenses incurred as a result of his withdrawal from the Partnership. The withdrawing General Partner shall remain subject as a General Partner with respect to any liabilities or obligations of the Partnership arising prior to such withdrawal. Upon withdrawal from the Partnership, a General Partner is entitled to continue to receive any distributions to which he is otherwise entitled under this Agreement for the period prior to his withdrawal; however, such General Partner shall not be entitled to receive the fair value of his interest in the Partnership as of the date of such withdrawal based upon his right to share in distributions from the Partnership, and neither the Partnership nor the Managing Partner has any obligation to repurchase any interest in the Partnership from the withdrawing General Partner. The withdrawing General Partner will no longer be entitled to receive any distributions nor shall such General Partner have any rights as an Investor Partner under this Agreement. The Sharing Ratios will be recalculated among the Investor Partners without regard to the withdrawing General Partner's Capital Contribution.

 

d.  In the event the Partnership is reconstituted pursuant to subsection c, the Partners' capital accounts shall be adjusted by (i) assuming the sale of all assets of the Partnership for cash at their respective fair market values (as determined by the Managing Partner or an appraiser selected by the Managing Partner) and the payment of all Partnership debts and liabilities as of the date of the reconstitution of the Partnership and (ii) debiting or crediting each such capital account with its respective share of the hypothetical gains or losses resulting from such assumed sales and the hypothetical deductions or losses, if any, resulting from the assumed payment of such debts and liabilities in the same manner as such capital account would be debited or credited on the actual sales of such assets and the actual payment of such debts and liabilities.

 

e.  The distribution of cash or property to the Investor Partners that have elected not to reconstitute the Partnership in accordance with the provisions of this Section 9.03 shall constitute a complete return to each such Investor Partner of his Capital Contributions, to which each Investor Partner (and any person who hereafter becomes a substituted Investor Partner by his execution, adoption or acceptance of this Agreement) hereby consents, and a complete distribution to such Investor Partner of his interest in the Partnership and all Partnership property, and no such Investor Partner shall have any recourse against the new or the retiring Managing Partner, the Reconstituted Partnership or any other Investor Partner if the cash or property so distributed or received shall be insufficient to return in full his Capital Contributions.

 

f.  In the event of the bankruptcy of a General Partner which pursuant to the Delaware Act results in the dissolution of the Partnership, each of the remaining Partners hereby agrees that the Partnership shall be reconstituted immediately, and authorizes the Managing Partner to take the actions described in subsection c above. The trustee, receiver, or other successor in interest of the bankrupt General Partner (i) will continue to be liable for all of the debts and obligations of such General Partner pursuant to this Agreement, (ii) may become a

 

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substituted General Partner only pursuant to the provisions of Section 8.01, (iii) may transfer the Partnership interest of such General Partner only pursuant to the provisions of ARTICLE 8 hereof, and (iv) will not have any right to withdraw the Capital Contribution of such General Partner except as expressly set forth in Section 9.04 of this Agreement.

 

9.04.  Liquidation and Termination. Upon dissolution of the Partnership (unless it is reconstituted in accordance with Section 9.03), no further business shall be conducted except for the taking of such action as shall be necessary for the winding up of the affairs of the Partnership and the distribution of its assets to the Partners. The Managing Partner shall act as liquidator or may appoint in writing one or more liquidators who shall have full authority to wind up the affairs of the Partnership and make final distribution as provided herein; provided, however, that, if the Managing Partner is not able to serve as liquidator and does not appoint a liquidator within a reasonable time after dissolution, the liquidator shall be a person selected in writing by a Majority in Interest of the Investor Partners. The liquidator shall proceed diligently to wind up the affairs of the Partnership and make final distribution as provided herein. Until final distribution, the liquidator shall continue to operate the Partnership properties with all of the power and authority of the Managing Partner. The liquidator is hereby authorized to take the following action without the further consent or joinder of any Partner:

 

a.  As promptly as possible after dissolution and again after completion of the liquidation and termination of the Partnership, the liquidator shall cause a proper accounting to be made of the Partnership's assets, liabilities, and operations through the last day of the month in which the dissolution or termination occurs.

 

b.  The liquidator shall pay all of the debts and liabilities of the Partnership (including all expenses incurred in liquidation) or otherwise make adequate provision therefor (including but not limited to the establishment of a cash escrow fund for contingent liabilities in such amount and for such term as the liquidator may determine). To the extent cash required for this purpose is not otherwise available, the liquidator may sell assets of the Partnership for cash.

 

c.  After making payment or provision for all debts and liabilities of the Partnership, the liquidator shall sell all properties and assets of the Partnership for cash as promptly as is consistent with obtaining the best price therefor. All gain, loss and amount realized on such sales shall be allocated to the Partners as provided in this Agreement, and the capital accounts of the Partners shall be adjusted accordingly. The liquidator shall then distribute the proceeds of such sales to the Partners to satisfy any positive balances in their capital accounts, as so adjusted.

 

d.  Notwithstanding subsection c, in the event of a dissolution and liquidation of the Partnership pursuant to an exchange or tender offer, the liquidator may, after making provision for all debts and liabilities of the Partnership, first adjust the capital account of each Partner by (i) assuming the sale of all remaining assets of the Partnership for cash at their respective fair market values (as determined by the liquidator in a manner consistent with the terms of such exchange or tender offer) as of the date of the dissolution of the Partnership and (ii) debiting or crediting each such capital account with such Partner's respective share of the hypothetical gains or losses resulting from such assumed sales in the same manner as such capital account would be debited or credited on the actual sales of such assets. If such exchange or tender offer is conducted pursuant to a disposition of all or substantially all of the assets of the Partnership or is otherwise binding on the Partners, the liquidator shall distribute all securities or other assets received from the disposition of the Partnership assets to the Partners proportionately based on the

 

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Partners' positive capital account balances, as so adjusted.

 

In the event of an exchange or tender offer that is not binding upon all Partners, the liquidator shall then exchange for securities offered in the exchange or tender offer oil and gas properties having a fair market value (as determined by the liquidator as provided above) equal to the sum of the positive balances in the capital accounts, as so adjusted, of the Partners who elect to accept the exchange or tender offer. The liquidator shall then distribute such securities to such accepting Partners on a basis reflecting the Partners' respective positive balances, as so adjusted. The Managing Partner shall have, with respect to its Interests, the right to elect to receive a distribution in kind of Partnership oil and gas properties having a fair market value (as determined by the liquidator as provided above) equal to the positive balance in its capital account, adjusted as provided above. The liquidator shall then sell the remaining property and distribute to the Investor Partners who elect not to accept the exchange or tender offer all remaining cash in amounts proportionate to any positive balances in such Partners' capital accounts, as so adjusted. All gain, loss and amount realized on the sale of Partnership oil and gas properties by the liquidator to provide cash for distribution to such Investor Partners shall be allocated to such Investor Partners in the same proportions as the proceeds of such sale are distributed.

 

e.  Any distributions to the Partners in liquidation of the Partnership shall be made by the later of (i) the end of the taxable year in which the liquidation (as such term is defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(g)) occurs, or (ii) 90 days after the date of such liquidation. No Partner with a deficit balance in his or its capital account after such distribution shall be liable to the Partnership or any other Partner for the amount of such deficit balance.

 

f.  Notwithstanding the foregoing, if upon dissolution of the Partnership any Partner shall be indebted to the Partnership as a result of the failure to make a Capital Contribution required under this Agreement or otherwise, the liquidator shall retain such Partner's share of cash or property that would otherwise be distributed and apply such cash or property and the income therefrom to the liquidation of such indebtedness and the cost of the operation of such assets during the period of such liquidation; provided, if the amount of such indebtedness has not been liquidated pursuant to the above procedure or otherwise paid by such Partner within six months of the dissolution of the Partnership, the liquidator may sell all or any portion of such property at a public or private sale for what is in the sole judgment of the liquidator the best price obtainable. The proceeds of such sale shall be applied to the liquidation of the indebtedness then owing by such Partner, and the balance of such proceeds, if any, shall be distributed to such Partner.

 

g.  The liquidator shall comply with any requirements of the Delaware Act and all other applicable laws pertaining to the winding up of the affairs of the Partnership and the final distribution of its assets. The distribution of cash or property to the Partners in accordance with the provisions of this Section shall constitute a complete return to the Partners of their Capital Contributions and a complete distribution to the Partners of their interests in the Partnership and all Partnership property, and no Partner shall have any recourse against the Managing Partner or any other Partner if the cash so distributed shall be insufficient to return in full his Capital Contributions.

 

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ARTICLE 10

REPRESENTATIONS AND WARRANTIES OF THE MANAGING PARTNER AND POWER OF ATTORNEY

 

10.01.  Representations and Warranties of the Managing Partner. The Managing Partner hereby represents, warrants, and agrees as follows:

 

a.  The organization and operation of the Partnership are and will continue to be in accordance with all applicable state statutes related to limited partnerships.

 

b.  No election will be made by the Partnership to be excluded from the provisions of Subchapter K of Chapter 1 of Subtitle A of the Code.

 

c.  The Managing Partner now has and will continue to have substantial assets (in addition to its interest in the Partnership) which can be reached by creditors of the Partnership and is acting and will continue to act as Managing Partner on its own behalf and in no way merely as the agent of the Investor Partners.

 

10.02.  Power of Attorney. Each Investor Partner by his execution or adoption of this Agreement or a counterpart hereof irrevocably constitutes and appoints the Managing Partner or its authorized agents and successors, each with full power of substitution, the agent and attorney-in-fact of each Investor Partner in the name, place, and stead of such Investor Partner to do any act necessary or, in the opinion of the Managing Partner, appropriate to qualify the Partnership to do business under the laws of any jurisdiction in which it is necessary to file any instrument in writing in connection with such qualification, and to make, execute, swear to, verify, acknowledge, amend, file, record, deliver, and publish any instrument or document which may be necessary or appropriate to carry out the provisions of this Agreement, including without limitation, (a) a counterpart of this Agreement and a certificate of limited partnership, (b) upon conversion of the General Partner Interests in accordance with Section 1.09 any amended certificate of limited partnership or amendments to any certificate of limited partnership required or permitted to be filed or recorded under the statutes relating to limited partnerships under the laws of any jurisdiction in which the Partnership shall engage or seek to engage in business, (c) a counterpart of any amendment to this Agreement for the purpose of (i) converting the General Partner Interests to Limited Partner Interests as contemplated by Section 1.09, or (ii) admitting any substituted Managing Partner or original or substituted Investor Partner or effecting any amendment of this Agreement permitted to be made solely by the Managing Partner pursuant to Section 9.03 and 11.02, (d) a counterpart of this Agreement or any amendment hereto for the purpose of filing or recording such counterpart in any jurisdiction in which the Partnership may own property or transact business, (e) all certificates and other instruments necessary to qualify or continue the Partnership as a limited partnership or a partnership wherein the Limited Partners have limited liability, in the jurisdictions where the Partnership may own property or be doing business, (f) any fictitious or assumed name certificate required or permitted to be filed by or on behalf of the Partnership, (g) any other instrument which is now or which may hereafter be required by law to be filed for or on behalf of the Partnership which does not increase the obligations of the Investor Partners, (h) any offers to lease, Leases, assignments, and requests for approval of assignments, statements of citizenship, interest and holdings, and any other instruments or communications now or hereafter required or permitted to be filed on behalf of

 

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 the Partnership or the several Partners of the Partnership in their capacities as such under any law relating to the leasing of government land for oil and gas exploration or production, (i) an authorized certificate or other instrument evidencing the dissolution or termination of the Partnership when such shall be appropriate, in each jurisdiction in which the Partnership shall own property or do business, (j) all ballots, consents, approvals, or certificates and other instruments appropriate or necessary, in the judgment of the Managing Partner, to make, evidence, give, confirm, or certify any vote, consent, approval, election, agreement, or other action which is made or given hereunder or which is deemed to be made or given hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the judgment of the Managing Partner, to effectuate the terms or intent of this Agreement, and all amendments to this Agreement giving effect to, implementing, adopting or reflecting any such vote, consent, approval, election, agreement, or other action; provided, however, that when any such vote, consent, approval, election, agreement, or other action may be made or given only by a Majority in Interest of the Investor Partners, the Managing Partner may exercise the power of attorney granted in this clause (j) only after a Majority in Interest of the Investor Partners has so acted, and (k) any other instruments necessary to conduct the operations of the Partnership which do not increase the obligations of the Investor Partners, and to perform any other duty or function necessary to conduct the business and operations of the Partnership pursuant hereto. The existence of such power of attorney shall not preclude execution of any such instrument by an Investor Partner individually on any such matter. The power of attorney granted herein is irrevocable and shall survive the assignment or transfer by an Investor Partner of all or any part of his interest in the Partnership and, being coupled with an interest, shall survive the death, incompetency, incapacity, dissolution or termination of any Investor Partner. Any person dealing with the Partnership may conclusively presume and rely upon the fact that any instrument executed by such agent and attorney-in-fact is authorized, valid and binding without further inquiry.  This Agreement shall be controlling in the event of any conflict between the terms and provisions of this Agreement and any document executed, filed or recorded by the Managing Partner pursuant to the power of attorney granted herein.

 

ARTICLE 11

MISCELLANEOUS

 

11.01.  Notices. All notices, elections, demands, or other communications required or permitted to be made or given pursuant to this Agreement shall be in writing and shall be considered as properly given or made if given by (i) personal delivery, (ii) expedited delivery service with proof of delivery, (iii) registered or certified United States mail, postage prepaid, or (iv) prepaid telegram, telex, or telecopier facsimile (provided that such telegram, telex, or telecopier facsimile is confirmed by expedited delivery service or by mail in the manner previously described), sent to the respective addresses specified in Section 1.05, and shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of delivery at the address and in the manner provided herein. Any Investor Partner may change his address by giving notice in writing to the Managing Partner of his new address, and the Managing Partner may change its address by giving notice in writing of its new address to the Investor Partners.

 

11.02.  Amendment. In addition to the right of the Managing Partner to amend this Agreement as provided below, any change, modification, or amendment to this Agreement shall be effective if made by an instrument in writing duly executed by a Majority in Interest of the Investor Partners. Notwithstanding the foregoing, with respect to any change, modification, or amendment to this Agreement which would (a) increase the liability or duties of any of the Partners, (b) change the contributions required of any of the Partners, (c) provide for any

 

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reallocation of profits, losses, or deductions to the detriment of a Partner, (d) establish any new priority in one or more Partners as to the return of Capital Contributions or as to profits, losses, deductions, or distributions to the detriment of a Partner, or (e) cause the Partnership to be taxed as a corporation, such change, modification or amendment shall not be binding on such Partner unless contained in a written instrument duly executed by such Partner. With respect to any change, modification, or amendment to this Agreement which would change the name of the Partnership or the location of the principal place of business of the Partnership or of the Managing Partner, admit new or substituted Investor Partners, modify the Managing Partner's interest in the Partnership as the result of a transfer of a portion thereof pursuant to Section 8.02, Section 8.03 or Section 9.03, or cure any ambiguity, formal defect, or omission or correct or supplement any provision contained herein that may be inconsistent with any other provision contained herein, any change, modification or amendment which the Managing Partner determines does not adversely affect the Investor Partners in any material respect, and any change, modification, or amendment which the Managing Partner believes is necessary or advisable to ensure that the Partnership is not and will not be treated as an association taxable as a corporation for federal income tax purposes or to conform with changes in applicable tax law (provided such changes do not have a material adverse effect on the Investor Partners), and any other changes, modifications, or amendments similar to any one or more of the foregoing, such change, modification, or amendment may be contained in a written instrument executed solely by the Managing Partner, provided that the Managing Partner notifies the Investor Partners of such change, modification, or amendment

 

11.03.  Partition. Each of the Partners hereby irrevocably waives for the term of the Partnership any right that such Partner may have to maintain any action for partition with respect to Partnership property.

 

11.04.  Entire Agreement. This Agreement, the Program Agreement, the Joint Operating Agreements entered with respect to each prospect, and the Subscription Documents executed by the Investor Partners constitute the full and complete agreement of the parties hereto with respect to the subject matter hereof, and supersedes all previous oral and written and all contemporaneous oral negotiations, commitments, writings, and understandings.  In the event of a conflict between the provisions of the is Agreement, the Program Agreement or the Joint Operating Agreements entered with respect to each prospect, the provisions of the respective Joint Operating Agreements will control the terms of all such agreements.

 

11.05.  Severability. Every provision in this Agreement is intended to be severable. If any term or provision hereof is determined to be invalid, illegal, or unenforceable for any reason whatsoever, such invalidity, illegality, or unenforceability shall not affect the validity, legality, and enforceability of the remainder of this Agreement.

 

11.06.  No Waiver. The failure of any Partner to insist upon strict performance of a covenant hereunder or of any obligation hereunder, irrespective of the length of time for which such failure continues, shall not be a waiver of such Partner's right to demand strict compliance in the future. No consent or waiver, express or implied, to or of any breach or default in the performance of any obligation hereunder shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder.

 

11.07.  Evidence of Interest. At the sole option of the Managing Partner, an Interest may be evidenced by a certificate in a form approved by the Managing Partner. The Managing Partner 

 

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shall not be required to issue any such certificates, and, if such certificates are issued to any Investor Partner, the Managing Partner shall not be required to issue similar certificates to all Investor Partners.

 

11.08.  Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted, construed, and enforced in accordance with the laws of the State of Delaware, except that (a) any laws of the State of Delaware regarding choice or conflicts of law shall not be applied if the result would be the application of a procedural or substantive law of another state or other jurisdiction and (b) certain rights of the Investor Partners may be governed by the laws of their state of residence.

 

11.09.  Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and assigns; provided, however, that no Partner may sell, assign, transfer, or otherwise dispose of all or any part of his rights or interest in the Partnership or under this Agreement except as provided in ARTICLE 8.

 

11.10.  Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute but one and the same document. The signature of any Investor Partner on the Subscription Documents shall constitute the execution of this Agreement by such Investor Partner.

 

In witness whereof, the parties hereto have executed this Agreement as of the day and year first above written.

Tri-Valley Corporation, Managing Partner

By:   /s/ F. Lynn Blystone

         F. Lynn Blystone, President

 

        Organizational Partner

        /s/ F. Lynn Blystone

        F. Lynn Blystone, Organizational Partner

 

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