Carl J.D. Bauman and Margaret A. Bauman - Page 10

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          subject to credits from actual production.  The first two minimum           
          annual royalty payments were to consist of a cash payment and a             
          promissory note.  All remaining payments were to consist of                 
          individual promissory notes.  The first 3 notes were to be                  
          denoted as “recourse” notes, while the remaining 17 notes were to           
          be considered “nonrecourse” notes.  The first note was to be                
          executed on the date the lease was created, and each subsequent             
          note was to be delivered to JAD on the same date of each                    
          successive year.  This payment pattern was to continue for the              
          shorter of 20 years or the life of the lease.  The following                
          table depicts the manner in which the offering materials                    
          presented the discharge of the annual royalty payments:                     


          Source          1980             1981         1982        1983-99           
          Cash        $750,000     $250,000         --            --                  
          Recourse    9,250,200    9,750,000       $10,000,000                        
          note                                                                        
          Nonrecourse                                                                 
          notes     ---         ---        ---      $10,000,000                       
                                                                 (each)               
                                                                                      
          Total       10,000,000   10,000,000        10,000,000   170,000,000         


               The partnership agreement was structured such that the $29             
          million in notes issued by the limited partners to purchase the             
          partnership units represented the limited partners’ personal                
          liability for the first three annual notes of the partnership for           






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