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EXHIBIT 4.2
BENTON OIL & GAS
COMBINATION PARTNERSHIP 1989-1
LIMITED PARTNERSHIP
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TABLE OF CONTENTS
Page
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ARTICLE I. NAME AND PRINCIPAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV. CAPITAL OF THE PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Determination of Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Simulated Depletion Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
D. Interest on Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V. COSTS CHARGED TO PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Partnership Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C. Other Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
D. Loss on Sale of Partnership Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI. ALLOCATION OF REVENUES AND DISTRIBUTIONS OF CASH . . . . . . . . . . . . . . . . . . . . . . . 8
A. Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
B. Cash Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
C. Allocations Among Participants and Co-Managing General Partners . . . . . . . . . . . . . . . 9
ARTICLE VII. ELECTIONS AND ALLOCATION OF DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VIII. APPLICATION OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IX. TERM AND CONVERSION OF GENERAL PARTNER UNITS . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE X. RIGHTS AND OBLIGATIONS OF BENTON AND EPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XI. COMPENSATION OF BENTON AND EPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XII. PROTECTION OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XIII. RELATED PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XIV. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XV. RIGHTS, AUTHORITY AND LIABILITIES OF PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . 22
A. Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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B. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
C. Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
D. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XVI. WITHDRAWAL OF BENTON OR EPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
A. Events Requiring Consent of All Partners to Avoid Withdrawal . . . . . . . . . . . . . . . . 24
B. Events Not Causing Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XVII. DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XVIII. ASSESSMENTS AND BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XIX. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XX. TAX MATTERS PARTNER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XXI. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
A. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
B. Binding Nature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
C. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
D. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
E. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
F. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
G. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
H. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
I. Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
J. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
K. Evidence of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
L. Certificate of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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BENTON OIL & GAS
COMBINATION PARTNERSHIP 1989-1
LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
This is an Agreement of Limited Partnership (the "Agreement"), made and
entered into as of September 1, 1989, by and among Benton Oil & Gas Company, a
Delaware corporation ("Benton"), and Energy Partners Corporation, a California
corporation ("EPC"), as "Co-Managing General Partners," and all other persons
who are parties to this Agreement by execution of this Agreement or a
Subscription Agreement (herein so called), or as assignees or transferees of
such persons (collectively, the "Subscribers" or the "Participants").
W I T N E S S E T H :
In consideration of the premises and mutual covenants herein
contained, the parties do hereby form a partnership (the "Partnership") under
and pursuant to the California Revised Uniform Limited Partnership Act, upon
the terms and conditions hereinafter set forth.
ARTICLE I. NAME AND PRINCIPAL OFFICE
(A) The business of the Partnership shall be conducted under the
name "Benton Oil & Gas Combination Partnership 1989-1 Limited Partnership."
(B) The principal office of the Partnership and the address of EPC
shall be 5151 Shoreham Place, Suite 250, San Diego, California 92122-3991,
provided that Benton or EPC may change the address of the principal office of
the Partnership and of EPC by giving notice to all Partners. EPC may maintain
such other offices for the Partnership as it may deem necessary or advisable.
(C) The address of each Participant shall be that stated on that
Participant's Subscription Agreement or assignment document, subject to written
notice of change given by the Participant to Benton.
ARTICLE II. DEFINITIONS
AFFILIATE. An "Affiliate" of Benton or EPC means: (a) any person
directly or indirectly owning, controlling, or holding, with power to vote, 10%
or more of the outstanding voting securities of Benton or EPC; (b) any person,
10% or more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held, with the power to vote, by Benton or EPC; (c) any
person directly or indirectly controlling, controlled by, or under common
control with Benton or EPC; (d) any officer or director of Benton or EPC or
their Affiliates; (e) any entity for which Benton or EPC or their officers and
directors acts in the capacity of an officer, director or general partner.
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ASSESSMENTS. Additional amounts of capital which may be required by
the Partnership to be paid by a Participant in addition to his Subscription.
BENTON. Benton Oil & Gas Company, a Co-Managing General Partner.
CASING POINT. "Casing Point" means the point in time in the drilling
of a well when total depth has been reached, appropriate tests have been made
and a decision must be made to run and set production casing or production
liner, as the case may be, and a decision to commence attempting to complete
the well is made or the well is plugged and abandoned.
COMPLETION COSTS. "Completion Costs" means, as to any well, all those
costs incurred after Casing Point. Generally, these costs include all costs,
liabilities and expenses, whether tangible or intangible, necessary to complete
a well and bring it into production, including installation of service
equipment, tanks, and other materials necessary to enable the well to deliver
production.
COST. When used in connection with selling undeveloped leases and
other interests to the Partnership or providing for the drilling of a
Partnership well by Benton, EPC and their Affiliates, "Cost" shall mean the sum
of (1) the amounts paid by Benton, EPC or their Affiliates to unaffiliated
third parties for the property, including bonuses; (2) title insurance or title
examination costs, brokers' commissions, filing fees, recording costs, transfer
taxes, if any, and like charges in connection with the acquisition of the
property; (3) delay rentals and ad valorem taxes paid with respect to the
property to the date of its transfer to the Partnership; (4) interest on funds
used to acquire or maintain the property; (5) equipment, drilling, seismic and
all other usual costs for the acquisition and development of a property or
having a well drilled; and (6) a portion of Benton's, EPC's or their
Affiliates' reasonable, necessary and actual direct expenses for geological,
geophysical, seismic, engineering, drafting, accounting, legal and other like
services, including a share of compensation of employees or officers, allocated
to the property in accordance with generally accepted and customary industry
practices, and screening costs paid to third parties for geological,
geophysical and seismic evaluations of Benton's, EPC's or their Affiliates'
lease inventory, to the extent such evaluations condemn the acreage prior to
selection for the Partnership. Delay rentals, ad valorem taxes, interest on
funds used to acquire or maintain properties and direct expenses will not be
included in "Cost" when such expenses were incurred by Benton, EPC or their
Affiliates in connection with the past drilling of wells which are not
producers of sufficient quantities of oil or gas to make commercially
reasonable their continued operation, or when such expenses, as enumerated in
subsections (3) and (4) hereof, were incurred more than 36 months prior to the
purchase of the property interest by the Partnership. When used with respect
to services, "Cost" means the reasonable, necessary and actual expenses
incurred by Benton, EPC or their Affiliates on behalf of the Partnership in
providing such services, determined in accordance with generally accepted and
customary industry practices. Except as otherwise indicated or as the context
requires, "cost" means the price paid by Benton, EPC or their Affiliates in a
fair or arm's length transaction.
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DEVELOPMENT WELL. A well drilled as an additional well to the same
reservoir as other producing wells on a lease, or drilled on an offset lease
usually not more than one location away from a well producing from the same
reservoir.
DIRECT EXPENSES. Those third party expenses which are directly
attributable to the Partnership. These expenses include the costs of outside
accounting and auditing services, reserve and engineering reports, legal fees
and other third party expenses where such other third party costs would not be
incurred except for the requirements imposed by the terms of the Partnership
Agreement.
EPC. Energy Partners Corporation, a California corporation, a
Co-Managing General Partner.
ESCROW AGENT.A bank which will act as escrow agent to hold the
subscription amounts of all investors prior to the Offering Termination Date
for the Partnership.
EXPLORATORY WELL. A well drilled either in search of a new and as yet
undiscovered pool of oil or gas, or to extend greatly the limits of a field
under development.
GENERAL AND ADMINISTRATIVE EXPENSES. Those reasonable and necessary
expenses incurred by Benton, EPC and their Affiliates for administering the
Partnership including, without limitation, computer use costs, accounting and
legal fees, geological and engineering costs, office rent, telephone expenses,
secretarial salaries, the cost of printing and mailing reports to the
Participants and reimbursement of the out-of-pocket operating costs (including
employee costs and a fair allocation of general office overhead computed on a
cost basis) of Benton, EPC and their Affiliates which pertain to Partnership
business. All overhead costs shall be allocated in accordance with generally
accepted industry standards, subject to annual independent audit.
GENERAL PARTNER. A person or entity who executes the Subscription
Agreement and the Partnership Agreement as a General Partner and/or any person
who becomes a substitute General Partner in accordance with the terms of such
Partnership Agreement.
JOINT AND SEVERAL LIABILITY. Joint liability is liability in which
co-obligors must all be joined as co-defendants in any action, whereas joint
and several liability is where a claimant against the Partnership, at his
option, may sue any one or more of the obligors, in this case, the General
Partners.
LIMITED PARTNER. A person or entity who executes the Subscription
Agreement and the Partnership Agreement as a Limited Partner and/or any person
who becomes a substitute Limited Partner in accordance with the terms of such
Partnership Agreement.
LOWER RISK WELL. A well which is lower risk than an Exploratory Well
due to its location in an area having a history of proven hydrocarbon
production and to its (a) being controlled seismically, (b) being controlled
through subsurface geology, or (c) proximity to existing, producing wells.
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MANAGING GENERAL PARTNER. Benton or EPC, each of whom is a Co-Managing
General Partner of the Partnership.
NET PROCEEDS. The Proceeds, less the sum of Sales Commissions,
Organizational Expenses, the first year General and Administrative Costs and
Partnership Working Capital.
OFFERING TERMINATION DATE. The date on which the offering of Units
described in the Memorandum terminates with regard to the Partnership;
specifically, July 31, 1989 (subject to an extension of up to 30 days).
ORGANIZATION AND OFFERING EXPENSES. All costs of organizing and
selling the Partnership, including, but not limited to, underwriting
commissions (including fees of underwriters' attorneys), expenses for printing,
mailing, and other expenses of qualification of the sale of securities under
federal and state law, including taxes and fees, accountants' and attorneys'
fees and other front-end fees.
PARTICIPANT. Each person or entity holding any number of Units in the
Partnership, whether such individual owns these Units as a General Partner or
as a Limited Partner. The term "Participant" also includes Benton and EPC to
the extent they purchase interests on the same basis as other Participants and
to the extent of their 1% capital contributions.
PARTNERSHIP. The partnership formed pursuant to the offering described
in this Memorandum; specifically, Benton Oil & Gas Combination Partnership
1989-1 Limited Partnership.
PARTNERSHIP AGREEMENT. The Limited Partnership Agreement to be entered
into by and among Benton, EPC and the Participants, in respect of the
Partnership.
PARTNERSHIP WELLS. The wells to be drilled by this Partnership, and
includes Development Wells, Lower Risk Wells and Exploratory Wells.
PARTNERSHIP WELL COSTS. The Costs of (a) acquiring leases, performing
geological, geophysical and seismic tests on leasehold property, drilling,
testing, completing or equipping wells, including geological and engineering
services, whether provided by Benton or third parties, (b) constructing and/or
purchasing facilities and equipment such as pumping units, storage facilities
and separators which are necessary for the operation of a well, (c)
constructing gathering lines from each well to a gas transmission pipeline in
the area, and (d) abandoning a well prior to commercial production.
Partnership Well Costs do not include the costs of operating such wells or
Direct Expenses or General and Administrative Expenses of operating the
Partnership.
PROCEEDS. The amount paid by all Subscribers for Units in the
Partnership, including amounts paid by Benton or EPC for Units, and amounts
paid by Benton and EPC as capital contributions to the Partnership.
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PROSPECT. An area in which the Partnership owns or intends to own one
or more oil and gas interests, which is geographically defined on the basis of
geological data by Benton and which is reasonably anticipated by Benton to
contain at least one reservoir.
PROVEN PRODUCING PROPERTIES. Properties acquired by the Partnership
which are currently producing oil and/or gas.
RECOMPLETION WELLS; REWORK WELLS. Wells purchased by the Partnership,
in which the Partnership intends to recomplete so as to enhance their oil
and/or gas production either by completing to a shallower or deeper formation,
refracing, or any other method designed to enhance oil and/or gas revenues, in
the discretion of the Co-Managing General Partners.
SELLING COMMISSIONS. Selling Commissions of 9% of the Subscriptions of
the Participants.
SUBSCRIBER. The investor who executes a Subscription Agreement and
becomes a Participant, at such time as the Subscription is accepted by EPC.
SUBSCRIPTION AGREEMENT. The instrument executed by a Subscriber which
also constitutes execution of the Partnership Agreement upon acceptance of the
Subscription Agreement by EPC.
SUBSCRIPTIONS. Monies paid by Subscribers as initial capital
contributions to the Partnership.
UNITS. Units of assessable preformation partnership interest in the
Partnership, and such interests after formation of the Partnership, each
representing an original capital contribution of $5,000 to the Partnership.
ARTICLE III. PURPOSE
The sole purpose and ordinary business of the Partnership shall be to
explore for oil and gas, to acquire undeveloped and Proven Producing Properties
and other interests, to drill Exploratory, Developmental and Lower Risk Wells,
to acquire and recomplete existing wells, to dispose of properties, and to
conduct all other operations relating to the exploration, production and sale
of oil and gas as Benton deems to be in the best interest of the Partnership,
including the sale of all or substantially all of the Partnership's assets. It
is expected that Partnership operations will be undertaken primarily in the
state waters of Texas and offshore Louisiana, but the Partnership may
participate in other areas of the country, at the discretion of the Co-Managing
General Partners.
ARTICLE IV. CAPITAL OF THE PARTNERS
A. CAPITAL CONTRIBUTIONS
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(1) Each Participant has made a capital contribution to
the Partnership in cash equal to the amount set forth in the
Subscription Agreement submitted to EPC by the Participants and
accepted by EPC. A Participant's interest in the Partnership,
including his interest in undistributed profits, will be subject to
the debts of the Partnership.
(2) Benton and EPC will make a capital contribution to the
Partnership as required to pay their share of costs as provided in
Article V hereof, and in return for such payments, Benton, EPC and
other General Partners shall be entitled to share in all items of
income, gain, loss, deduction or credit allocated to the respective
Partners as provided in Article VI.
(3) Benton and EPC will make a capital contribution as a 1%
General Partner if no other Participants subscribe for general
partnership units. Otherwise, Benton and EPC will make no capital
contribution for their interest.
(4) Each investor is subject to assessments in the amount
of up to 25% of the amount of their original capital contribution.
B. DETERMINATION OF CAPITAL ACCOUNTS
A single capital account shall be maintained for each Partner (or
transferee of a Partner, which transferee shall have the capital account of his
transferor, as of the effective date of the transfer). The capital account for
each Partner will be determined based on the Regulations regarding maintenance
of capital accounts promulgated under {704(b) of the Internal Revenue Code.
Generally, these Regulations provide that capital accounts of Partners shall be
increased by (1) the amount of money contributed by a partner to the
partnership, (2) the fair market value of property contributed by a partner to
the partnership, (3) allocation to a partner of partnership income and gain (or
items thereof), and (4) interest earned on Subscriptions after formation of the
Partnership. Capital accounts will be decreased by (1) the amount of money
distributed to a Partner by the Partnership, (2) the fair market value of
property distributed to a Partner by the Partnership, (3) allocations of
Partnership loss and deduction (or items thereof), and (4) organizational and
syndication costs which are not amortized.
In the event of a distribution in kind of any property, the capital
accounts of the Partners shall first be adjusted to reflect the manner in which
the unrealized income, gain, or loss inherent in the property (which has not
been previously reflected in capital accounts) would be allocated among the
Partners if there were a taxable disposition of the property at its fair market
value.
C. SIMULATED DEPLETION ACCOUNT
Solely for purposes of maintaining capital accounts, depletion with
respect to oil and gas properties shall be computed at the Partnership level.
The Partnership shall compute a simulated depletion allowance on each oil or
gas property using the percentage depletion method. The Partnership's
simulated depletion allowance shall reduce the Partners' capital accounts in
the
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same proportion as such Partners (or their predecessors in interest) were
allocated adjusted basis with respect to such property. The aggregate capital
account adjustments for simulated depletion allowances with respect to an oil
or gas property shall not exceed the Partnership's adjusted tax basis in such
property. Upon the taxable disposition of an oil or gas property by the
Partnership, the Partnership's simulated gain or loss shall be determined by
subtracting its simulated adjusted basis in such property from the amount
realized from such disposition. (The Partnership's simulated adjusted basis in
an oil and gas property is determined in the same manner as adjusted tax basis
except that simulated depletion allowances are taken into account instead of
actual depletion allowances.) Any resultant simulated gain shall be allocated
to the Partners in the same manner as that portion of the amount realized from
such disposition which exceeds the Partnership's simulated adjusted basis in
such property is allocated to such Partners and shall increase such Partners'
capital accounts accordingly. Any resultant simulated loss shall be allocated
to the Partners in proportion to the Partners' allocable shares of the total
amount realized from the disposition of such property that represents recovery
of the Partnership's simulated adjusted basis in such property, and shall
reduce such Partners' capital accounts accordingly.
D. INTEREST ON CAPITAL
No interest shall be paid on the capital account of or capital
contributed by any Partner either before or after the time repayment should be
made.
ARTICLE V. COSTS CHARGED TO PARTNERS
The accounts of the Partners shall be charged as follows for items
expended by the Partnership, provided that costs paid out of assessments shall
only be charged to Partners who paid such assessments:
A. PARTNERSHIP COSTS
All Partnership Well Costs, including completion costs, costs of
Recompletion Wells, costs of acquiring Proven Producing Properties, geological,
geophysical and seismic costs and Organization and Offering Expenses shall be
allocated one hundred percent (100%) to the Participants.
B. OPERATING COSTS
The expenses of operating Partnership wells are to be shared in the
same ratio that revenues are shared in such wells, pursuant to paragraph A of
Article VI. In addition, operating costs shall include the costs of
recompleting Partnership Wells.
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C. OTHER COSTS
All costs which are not otherwise specifically
provided for in Article V(A) above, including, but not limited to General and
Administrative and Direct Expenses, shall be allocated one hundred percent
(100%) to the Participants.
Costs charged to Participants and the Co-Managing General Partners
will be allocated among the Participants as provided below in paragraph C of
Article VI.
D. LOSS ON SALE OF PARTNERSHIP ASSETS
If the Partnership sells any oil and gas property at a price which is
less than its undepleted cost, the Partnership shall allocate the loss on such
sale to the Partners in the ratio of their remaining undepleted bases in such
property at the time of sale.
If the Partnership sells any asset, other than an oil and gas property,
at a price which is less than its undepreciated cost, the Partnership shall
allocate the loss on such sale to the Partners who bore the cost of such asset.
ARTICLE VI. ALLOCATION OF REVENUES AND DISTRIBUTIONS OF CASH
A. REVENUES
All Partnership Revenues from Proven Producing Properties shall be
allocated one hundred percent (100%) to the Participants. All Partnership
Revenues from Recompleted Wells shall be allocated seventy-five percent (75%)
to the Participants and twenty-five percent (25%) to the Co-Managing General
Partners. All Partnership revenues from Partnership Wells shall be allocated
sixty-five percent (65%) to the Participants and thirty-five percent (35%) to
the Co-Managing General Partners. For Partnership purposes, "Revenues" shall
mean funds received by the Partnership from all sources, except capital
contributions, borrowings, assessments and interest on subscriptions, whether
occurring during the term of the Partnership or occurring as part of any plan
of dissolution and liquidation of the Partnership. Provided, however, that the
portion of the revenues generated by the taxable disposition of a Partnership
oil and gas property that represents recovery of its simulated adjusted tax
basis therein will be allocated to the Partners in the same proportion such
Partners (or their predecessors in interest) were allocated the basis of such
property pursuant to paragraph C of Article IV. Provided further, that the
portion of the revenues generated by the taxable disposition of a Partnership
asset, other than an oil and gas property, equal to the Partnership's adjusted
tax basis in such property shall be allocated to the Partners in the same
proportion that the Partners bore the cost of such asset.
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B. CASH DISTRIBUTIONS
(1) The Partnership expects to distribute quarterly, or on a more
current basis if so determined by the Co-Managing General Partners, amounts to
the Participants equal to approximately the difference between revenues
allocated to the respective Partners as provided in this Article, and costs
charged to the Partners as provided in Article V. This provision shall not,
however, serve as a limitation on Benton's right to retain, pledge or use so
much of the revenues or other assets of the Partnership, including amounts
required to eliminate any capital deficit of the Partners, to conduct
additional operations of the Partnership, to establish reserves for anticipated
expenditures, or to repay any amounts borrowed by the Partnership to finance
the conduct of such operations.
(2) Upon the sale of any Partnership property at a gain, a
Partner's share of any gain may be applied to reduction of any deficits in
capital accounts of Partners caused by distribution in excess of their share of
Partnership profits and losses.
C. ALLOCATIONS AMONG PARTICIPANTS AND CO-MANAGING GENERAL PARTNERS
All allocations of income, gain, loss and deduction to the
Participants as a class shall be allocated among the Participants based on the
ratio of their respective paid capital contributions, including assessments.
Expenses and other costs paid from assessments shall be allocated only to those
Partners who paid the assessment. All allocations of income, gain, loss,
deduction and all capital contributions and assessments to the Co-Managing
General Partners will be divided 80% to Benton and 20% to EPC.
ARTICLE VII. ELECTIONS AND ALLOCATION OF DEDUCTIONS
For purposes of federal income taxes, and appropriate state or
local income taxes, the following allocations shall be made:
A. To the extent permitted by law, all income, gain, losses and
deductions shall be allocated to the party who has been charged with the
expenditures or credited with the revenues giving rise to such deductions or
income; and to the extent permitted by law, such party shall be entitled to
such deductions and income in computing taxable income or tax liabilities to
the exclusion of any other party.
B. The basis of Partnership properties for purposes of Code
Section 613A(c)(7)(D) shall be allocated in the same ratio as Partnership Costs
are allocated.
C. Notwithstanding the foregoing, however, production required to
be allocated for the purpose of computing the depletion deduction (including
percentage depletion in excess of the depletable basis of the property) shall
be allocated in the ratio in which the related revenues are shared.
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D. All tax credits and tax credit recapture shall be allocated in
the ratio in which revenues are shared at the time the expenditure giving rise
to such tax credit arises.
E. The Partnership shall make an election to deduct intangible
drilling and development costs on its federal income tax return in accordance
with the option granted by the Internal Revenue Code of 1986. No election
shall be made by the Partnership to be excluded from the application of the
provisions of Subchapter K of the Internal Revenue Code of 1986.
F. In the event of the transfer of an interest in the Partnership,
or in the event of the distribution of property to any party hereto, the
Partnership may (but is not required to) file an election in accordance with
the applicable Treasury Regulations to cause the basis of the Partnership's
assets to be adjusted for federal income tax purposes as provided by {{734 and
743 of the Internal Revenue Code of 1986.
G. Notwithstanding any other provision of this Article VII, if the
capital accounts of all Participants are not equal and if any allocation of
loss or deduction to a Partner would reduce such Participant's capital account
balance below zero or would increase the negative balance in such Participant's
capital account at a time when another Participant has a positive capital
account balance, as determined at the close of the period in respect of which
the loss or deduction, as the case may be, is to be allocated, such excess
shall instead be allocated pro rata to Participants having positive capital
account balances until such capital account balances are reduced to zero;
provided, however, that in no event shall there be a reallocation of any item
of income, gain, loss or deduction allocated among the Partners pursuant to
this Agreement for prior years.
Notwithstanding any other provision of this Article VII, if any
allocation of loss or deduction would cause the capital account balances of any
Participant to be negative (or would increase the negative balance of a
Participant's capital account) at a time when no other Participant has a
positive capital account balance, such loss or deduction shall instead be
allocated to the Co-Managing General Partners.
For purposes of determining a Participant's capital account balance
under this Paragraph G, distributions made prior to or contemporaneous with any
allocation to a Participant shall be reflected in such Participant's capital
account prior to making such allocation to such Participant. For purposes of
this paragraph G, a Partner's capital account shall be reduced for:
(1) Adjustments that, as of the end of each Partnership
year, reasonably are expected to be made to such Partner's capital
account under paragraph (b)(2)(iv)(k) of Treas. Reg. {1.704-1 for
depletion allowances with respect to oil and gas properties of the
Partnership, and
(2) Allocations of loss and deduction which, as of the end
of such year, are reasonably expected to be allocated to such Partner
pursuant to Code Section 704(e)(2), Code Section 706(d) and Treas.
Reg. {1.751-1(b)(2)(ii), and
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(3) Distributions that, as of the end of such year,
reasonably are expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's capital account that
reasonably are expected to occur during (or prior to) the Partnership
taxable years in which such distributions reasonably are expected to
be made.
For purposes of determining the amount of expected distributions and
expected capital account increases described in (3) above: (i) the rule set
forth in Treas. Reg. {1.704-1(b)(2)(iii)(c) concerning the presumed value of
Partnership property shall apply, and (ii) gross income or items of income or
gain allocated to a Partner pursuant to paragraph H hereof shall be taken into
account. For purposes of this paragraph G and paragraph H, a Partner's
capital account shall be increased to the extent that such Partner is obligated
to fund deficits in such Partner's capital account upon liquidation of the
Partnership (or is treated as obligated to so restore such deficits pursuant to
Treas. Reg. {1.704-1(b)(2)(ii)(c)).
H. In the event any Partners unexpectedly receive any adjustments,
allocations, or distributions described in Treas. Reg.{1.704-1(b)(2)(ii)(d)(4),
1.704(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) so as to cause a deficit, or
increase a deficit, in the Partner's capital account, items of Partnership
income and gains shall be specially allocated to such Partners in an amount and
manner sufficient to eliminate the deficit balances in their capital accounts
created by such adjustments, allocations, or distributions as quickly as
possible. Any special allocations of income, gain, loss or deduction pursuant
to paragraph G and this paragraph H shall be taken into account in computing
subsequent allocations of income, gain, loss and deduction pursuant to this
Article VII, so that the net amount of any items so allocated and the income,
gain, loss and deduction and all other items allocated to each Partner pursuant
to this Article VII shall, to the extent possible, be equal to the net amount
that would have been allocated to each such Partner pursuant to the provisions
of this Article VII if the reallocations provided in paragraphs G and H had not
occurred.
ARTICLE VIII. APPLICATION OF PROCEEDS
All Net Proceeds will be used solely for the conduct of Partnership
operations.
In view of the fact that any Partnership activities will not commence
until sales are closed and Partnership operations commence, Benton and EPC
reserve the right to change the estimated allocation of Proceeds, as described
below, in the best interest of the Partnership. However, it is anticipated
that the Net Proceeds will be applied by the Partnership, on the basis of
approximately the following percentages:
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ACTIVITY--ASSUMING THE MINIMUM PERCENTAGE OF NET
AMOUNT OFFERED IS RAISED: PROCEEDS
Acquisition of Producing Properties . . . . . . . . . . . . . . . . . . . 100.0%
ACTIVITY--ASSUMING THE MAXIMUM
AMOUNT OFFERED IS RAISED:
Acquisition of Producing Properties . . . . . . . . . . . . . . . . . . . 48.0%
Recompletion of Wells . . . . . . . . . . . . . . . . . . . . . . . . . 23.5%
Geological, Geophysical and Seismic Costs . . . . . . . . . . . . . . . . 12.0%
Drilling and Completion of Partnership Wells . . . . . . . . . . . . . . 16.5%
Notwithstanding the foregoing, Benton and EPC reserve the right to
vary substantially the percentage of Net Proceeds allocated towards the various
activities described above, depending upon the total amount of Proceeds raised
by Benton, EPC and others from offerings which will raise funds to participate
on the same Prospects as that anticipated to be acquired, developed or reworked
by this Partnership.
ARTICLE IX. TERM AND CONVERSION OF GENERAL PARTNER UNITS
A. The term of the Partnership will commence on the date of
execution of this Agreement, and will continue until December 31, 2039, and will
terminate at such earlier time as all of the interests and properties acquired
for the Partnership have been fully depleted, disposed of, sold or abandoned,
unless sooner terminated as set forth in Article XV or XVII of this Agreement.
The calendar year is the Partnership's fiscal year, subject to change
by Benton and EPC.
B. As soon as practicable after the completion of the
Partnership's drilling activity, and subject to the receipt of the opinion of
counsel described below, the General Partner Units shall be converted to
Limited Partner Units. Such conversion shall occur automatically upon
compliance with this section. All other rights and obligations under this
Agreement shall not be affected by such conversion. Prior to any such
conversion, Benton and EPC shall obtain an opinion of tax counsel to the
Partnership to the effect that such conversion would not result in any material
adverse federal tax consequences to the Partnership or the General Partners. In
order to accomplish such conversion, Benton and EPC will (i) amend this Limited
Partnership Agreement with such changes therein or amendments thereto as are
deemed appropriate by Benton and EPC and that do not adversely affect the
General Partners, (ii) file an amended Certificate of Limited Partnership with
the Secretary of State for the State of California and (iii) take such other
actions as are necessary or appropriate to accomplish conversion of the General
Partner interests. Notwithstanding the foregoing, Benton and EPC shall not be
obligated to cause
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conversion of the Partnership or may delay such conversion if Benton
and EPC or their tax counsel determine that conversion at that time would not
be in the best interests of the General Partners.
ARTICLE X. RIGHTS AND OBLIGATIONS OF BENTON AND EPC
A. Benton and EPC shall be the Co-Managing General Partners of the
Partnership and as such shall conduct, direct and exercise full control over
all activities of the Partnership. Generally, Benton shall be primarily
responsible for all of the Partnership's oil and gas activities and EPC shall
be primarily responsible for all the Partnership's administrative activities.
In order to carry out the purposes of the Partnership as set forth in Article
III of this Agreement all Participants agree that Benton and EPC have the
rights and obligations set forth below.
(1) Benton may purchase or sell any oil and gas interest
and may execute on behalf of the Partnership any and all documents or
instruments of any kind which Benton may deem appropriate in carrying
out the interests of the Partnership, including, but without
limitation, deeds, assignments, leases, subleases, operating
agreements, farmout agreements, unitization agreements, pooling
agreements, sales contracts, gas sales contracts, transportation
contracts, division orders, transfer orders, or other marketing
agreements, documents or instruments of any kind or character or
amendments thereto, which relate to the affairs of the Partnership;
(2) EPC shall maintain complete and accurate books of
account for the Partnership; said books shall be kept at the principal
office of the Partnership and shall be open to inspection after
reasonable notice and request by any Partner or his authorized
representative, at his own expense, at any time during the ordinary
business hours;
(3) Within one hundred twenty (120) days after the end of
the fiscal year, EPC shall provide each Participant on an annual
basis, commencing at the end of the second full year of Partnership
operations, an independent petroleum engineer's appraisal of the
status of the properties;
(4) EPC shall provide each Participant with an annual
report (copies of which, together with a report on oil and gas
reserves and a tax information report, shall be furnished to
appropriate state securities administrators, as required) within
ninety (90) days after the close of the Partnership's fiscal year,
containing the following information:
(a) Financial statements, including the balance
sheet and statements of operations, Partners' equity and
changes in financial position, prepared in accordance with
generally accepted accounting principles and accompanied by an
auditor's report containing the opinion of an independent
certified public accountant;
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(b) A description of each Prospect in which the
Partnership owns an interest, including the cost, location,
number of acres under lease and interest owned by the
Partnership, except that succeeding reports will contain only
material changes from the preceding report;
(c) A summary itemization by type and/or
classification of the total fees, reimbursements and
compensation paid by the Partnership, or indirectly on behalf
of the Partnership, to Benton, EPC, or their Affiliates during
the period; and
(d) A schedule reflecting the total Partnership
costs, and where applicable, the costs pertaining to each
Prospect, the costs paid by Benton and the costs paid by the
Participants, the total Partnership revenues, the revenues
received or credited to Benton, and the revenues received or
credited to the Participants during the period;
(5) EPC shall furnish a report to each Participant by March 15 of
each year, containing such information as EPC deems necessary for the proper
presentation of federal income tax returns;
(6) EPC shall maintain, at the principal office of the
Partnership, copies of the Partnership's federal, state and local income tax
returns and reports for the three (3) most recent years;
(7) Benton will purchase, at the expense of the Partnership,
liability and other insurance to protect the Partnership's properties and
business;
(8) Benton and EPC may enter into any agreement for the borrowing
of money from a commercial bank or other lending institution for payment of
expenses of drilling and completion activities on wells started with Proceeds
and for payment of General and Administrative Expenses, including the purchase
and lease of oil and gas properties or equipment, and are authorized to assign
any portion of, or all of, the Partnership's properties and revenues therefrom
for the purpose of securing any such borrowed money; provided, however, that
such borrowing shall not exceed, in principal amount, twenty-five percent (25%)
of the Proceeds plus all paid assessments and providedthat in no event will the
lender have the election to convert its position as creditor into an equity
interest in the Partnership or in Benton, EPC or in any of their Affiliates;
(9) Benton and EPC may, in the sole exercise of their discretion,
make unsecured loans and advances to the Partnership at Benton's and EPC's
interest cost and may otherwise borrow money and assign to the lender
Partnership properties and production therefrom as security; and, provided
further, that the interest on loans and advances made by Benton and EPC or
their Affiliates shall not exceed the amounts which
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would be charged by unrelated banks (without regard to financial
abilities or guarantees) on comparable loans for the same purpose, and no fees,
points or other financing charges will be charged to the Partnership by Benton,
EPC or their Affiliates;
(10) In the states where the Partnership conducts activities, EPC
may file any necessary instruments required to qualify the Partnership to do
business in the particular state as a Limited Partnership, or to cause the
limited partnership status of the entity to be recognized;
(11) Benton may cause title to Partnership property to be held in
the name of Benton or an Affiliate, or the Partnership or a nominee chosen by
Benton; provided, that if property is held in the name of Benton, an Affiliate
or a nominee, an unrecorded assignment to the Partnership shall be made and
maintained in the Partnership's files and, provided further, that if it is
prohibited from making an assignment of record, the Partnership will enter into
an agreement with the record owner indicating that the properties are being
held for the benefit of the Partnership and are not subject to the debts,
obligations or liabilities of Benton or its Affiliates;
(12) Benton and EPC may admit Participants or substituted
Participants without the consent of other Participants; provided, that any
transferee of a Unit will receive a right to share in the profits and capital
of the Partnership but will not be a substituted Participant without the prior
written consent of Benton and EPC and, provided further, that Benton and EPC
will withhold their written consent in the event that it has reasonably
determined in its sole discretion that such substitution could have an adverse
effect on the business activities or the legal or tax status of the
Partnership, under either state or federal law;
(13) Benton and EPC may admit one or more additional managing
general partners which may become a successor entity to Benton and EPC and take
action which would have the effect of providing an additional and/or a
successor managing general partner, if the holders of a majority of the Units
outstanding approve; provided, however, that such approval of the holders of
Units shall not be necessary if the additional managing general partner
proposed by Benton or EPC is (1) an Affiliate of Benton or EPC; (2) an entity
with which Benton or EPC has merged; or (3) a person or entity that has
purchased all or substantially all the assets of Benton or EPC;
(14) EPC may call for a vote of the Participants to be taken on the
items set forth in Article XV;
(15) EPC may cause the investment of Partnership funds in
short-term liquid securities until the expenditure of such funds is necessary
in connection with Partnership activities;
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(16) EPC and Benton may amend the Agreement, including amending the
Agreement to alter the Partnership's form so that it becomes a different type
of business entity, for business and tax reasons, subject to the provisions of
Article XV;
(17) EPC and Benton may do any and all things necessary or
appropriate in order to accomplish the purpose of the Partnership, subject to
the provisions of this Agreement;
(18) EPC and Benton may conduct other oil and gas drilling and
acquisition programs or income programs which may commence prior to, during or
subsequent to the Partnership;
(19) Benton may purchase assets from the Partnership in connection
with a dissolution of the Partnership, at a price which is the greater of the
then fair market value (which term shall mean the value of the assets as
determined by an independent oil an gas engineer) or the highest bona fide
offer for such assets by a third party, if any, regardless of any difference
between such fair market value and the original cost to the Partnership of such
assets (subject to the approval of a majority in interest of the Participants
if the asset represents five percent (5%) or more of the value of the assets of
the Partnership);
(20) EPC may make any and all elections for purposes of federal,
state or local income taxes that it deems appropriate; and
(21) Benton and EPC may submit a partnership claim or liability to
arbitration or reference, assign the Partnership property and trust for
creditors or on the assignee's promise to pay the debts of the partnership,
confess a judgment or dispose of the goodwill of the Partnership for adequate
consideration.
B. Benton and EPC shall have no authority on behalf of the Partnership or
themselves to:
(1) Do any act in contravention of this Agreement;
(2) Use Partnership property or commingle any Partnership bank
accounts or monies with funds of Benton, EPC or their Affiliates, or to make
advances to Benton, EPC or its Affiliates, except where necessary to secure tax
benefits of prepaid drilling and completion costs, and in no event will such
advances include non-refundable payments for capital completion costs prior to
the time that a decision is made that the well warrants such equipment;
(3) Take any action with respect to Partnership assets or property
which does not primarily benefit the Partnership, including, among other
things, the utilization of Partnership funds as compensating balances for their
own benefit, and the commitment of future production if not in the best
interests of the Partnership;
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(4) Make any loans of Partnership funds to Benton, EPC or their
Affiliates;
(5) Make or institute any marketing arrangements or other
relationships affecting the property of the Partnership where the benefits are
not fairly and equitably apportioned according to the respective interests of
all parties; or
(6) Knowingly enter into any arrangements involving working
interests in any oil and gas property which commit the working interest to be
held in an entity which limits the liability of the Participants as to the
working interest so as to cause the working interest to be considered a passive
activity so that losses from the working interest may only offset passive
activity income as set forth in Section 469 of the Code.
C. The following prohibitions and restrictions shall be applicable to
Benton:
(1) If Benton sells, transfers or conveys all or any portion of a
lease to the Partnership, Benton must, at the same time, sell, transfer, or
convey to the Partnership an equal proportionate interest in all its other
leases in the same Prospects. If Benton or any Affiliate of Benton
subsequently proposes to acquire a lease on a Prospect in which that
Partnership owns an interest, or on a Prospect abandoned by the Partnership
within one (1) year preceding such proposed acquisition, Benton or its
Affiliate shall offer to the Partnership an equivalent interest in such lease
as the Partnership had in the Prospect before the proposed acquisition, or
before the abandonment; and, if cash or financing is not available to enable
the Partnership to acquire such interest, neither Benton nor any of its
Affiliates shall acquire the lease. For the purposes of this paragraph, the
term "Affiliate" shall not include another partnership whether the interest of
the Benton is identical to, or less than, Benton's interest in the Partnership.
The restrictions described in this paragraph cease with regard to the
Partnership five (5) years after the Partnership's formation. The geological
limits of the Prospect shall be enlarged or contracted on the basis of
subsequently acquired geological data to define the productive limits of a
reservoir, and must include all of the acreage determined by the subsequent
data to be encompassed by such reservoir; provided, however, that the
Partnership shall not be required to expend additional funds unless they are
available from the initial capitalization of the Partnership or if Benton
believes it is prudent to borrow for the purpose of acquiring such additional
acreage. If the geological limits of a Prospect, as so enlarged, encompass any
interest held by Benton or an Affiliate, that interest will be sold to the
Partnership in accordance with the provisions of this Article;
(2) A sale, transfer, or conveyance to the Partnership of less
than all of the ownership of Benton or its Affiliates in any portion of a lease
(the "Subject Portion") is prohibited unless the interest retained by Benton or
its Affiliates is a working interest, the respective obligations of Benton or
its Affiliates and the Partnership to pay costs with respect to the Subject
Portion are proportionate to their respective working interests after the
transfer, and Benton's or its Affiliates' interest in the revenues does not
exceed any amount proportionate to its retained working interest. Benton or
its Affiliates may not
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retain any overrides or other burdens on the Subject Portion, and may
not enter into any Farmout arrangements with respect to its retained interest,
except to nonaffiliated third parties or other partnerships sponsored by
Benton. For the purposes of this paragraph, the term "Affiliate" shall not
include another partnership where the interest of Benton is identical to, or
less than, Benton's interest in the Partnership.
(3) Purchases and sales of leases among oil and gas partnerships
sponsored by Benton are prohibited except for transactions between the
Partnership and another partnership for which Benton or any of its Affiliates
acts as sponsor, whereby a lease is transferred in exchange for the
transferee's obligation to conduct oil and gas drilling activities on such
lease, or the property is operated pursuant to a joint venture among such
partnerships, which are permitted only if the respective obligations and
revenue sharing of all parties to the transaction are substantially the same
and the compensation arrangement of Benton and any Affiliate is the same in the
Partnership and each such partnership or, if different, the aggregate
compensation of Benton and its Affiliates therefrom does not exceed the lowest
compensation Benton and its Affiliates would have received through any one of
the relevant partnerships, taking into consideration varying participation by
Benton or its Affiliates.
(4) Partnership funds may not be used to prove up adjacent
properties in any Prospect belonging to Benton or its Affiliates.
(5) Benton and its Affiliates (other than other public or private
partnerships and programs) are not permitted to purchase any producing leases
from the Partnership, but this prohibition will not prohibit the purchase by
Benton or an Affiliate of such producing leases in connection with a
dissolution or sale of substantially all of the assets. If any non-producing
lease is to be purchased from the Partnership by Benton or its Affiliates, such
purchase must be at the higher of its fair market value or the cost of such
lease to the Partnership.
(6) Benton and its Affiliates (excluding partnerships in which
Benton's interest is equal to or less than its interest in the Partnership) may
not acquire, retain, or drill for their own account any oil and gas interest on
any Prospect in which the Partnership has an interest, except as permitted by
the terms of clause (2), above. This restriction also continues for one (1)
year after abandonment as to any Prospect by the Partnership. If a Prospect is
enlarged by reason of subsequently obtained geological data to include an
interest held by Benton or its Affiliates, a portion of the interest shall be
sold to the Partnership concerned in accordance with the terms of clause A.,
above.
(7) Benton may never profit by drilling in contravention of its
fiduciary obligation to the Partners. All services provided to the Partnership
by Benton or its Affiliates will be embodied in a written contract which
precisely describes the services to be rendered and all compensation to be
paid.
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ARTICLE XI. COMPENSATION OF BENTON AND EPC
Benton maintains a staff of geologists, engineers and land personnel
who are responsible for screening and acquisition of leases and for conducting
drilling and producing operations. The costs incurred in maintaining these
departments, including salaries of personnel, are allocable in part to the
Partnership's activities and are included in Partnership Costs. Such costs
shall be paid or reimbursed by the Partnership out of Proceeds or revenues.
Benton and EPC will be reimbursed for an allocable portion of actual
General and Administrative Expenses, which will be paid as incurred and which
includes actual and necessary costs of their offices, including office
overhead, salaries, telephone, secretarial, travel, costs of accounting
services and other costs and expenses not directly related to a specific
Partnership activity. Such expense reimbursement is estimated not to exceed
three percent (3%) of the Subscriptions during the first twelve (12) months of
operations. These reimbursements will be subject to audit on an annual basis.
As set forth in Article VI, Benton and EPC will share in Partnership
revenues in an amount in excess of their contribution to Partnership costs. The
Participants consent to the receipt by Benton, EPC and their Affiliates of the
benefits and profits set forth in this Article.
ARTICLE XII. PROTECTION OF THE PARTIES
In any threatened, pending or completed action, suit or proceeding to
which the Co-Managing General Partners were or are a party or is threatened to
be made a party by reason of the fact that they were or are a Co-Managing
General Partner of the Partnership (other than an action by or in the right of
the Partnership) involving any alleged cause of action for damages arising from
the performance of oil and gas activities, including exploration, development,
completion, operation, or other activities relative to management and
disposition of oil and gas properties or production from such properties, the
Partnership will indemnify the Co-Managing General Partners against expenses,
including attorneys' fees, judgments and amounts paid in settlement actually
and reasonably incurred by them in connection with such action, suit or
proceeding if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the Partnership, and provided
that their conduct does not constitute negligence, misconduct, or a breach of
their fiduciary obligations to the Participants. The termination of any
action, suit or proceeding by judgment, order or settlement shall not, of
itself, create a presumption that Benton or EPC did not act in good faith and
in a manner which they reasonably believed to be in or not opposed to the best
interests of the Partnership.
In any threatened, pending or completed action or suit by the
Partnership in the right of the Partnership, to which a Co-Managing General
Partner was or is a party or is threatened to be made a party, involving an
alleged cause of action by a Participant(s) for damages arising from the
activities of a Co-Managing General Partner in the performance of management of
the internal affairs of the Partnership as prescribed by this Agreement, the
Partnership will indemnify
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the Co-Managing General Partner against expenses, including attorneys'
fees, actually and reasonably incurred by it in connection with the defense or
settlement of such action or suit if it acted in good faith and in a manner it
reasonably believed to be in or not opposed to the best interests of the
Partnership, as specified in this paragraph, except that no indemnification
shall be made in respect of any claim, issue or matter as to which a
Co-Managing General Partner shall have been adjudged to be liable for
negligence, misconduct, or breach of fiduciary obligation in the performance of
its duty to the Partnership unless and only to the extent that the court in
which such action or suit was brought shall determine upon application, that,
despite the adjudication of liability, but in view of all circumstances of the
case, a Co-Managing General Partner is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
To the extent that a Co-Managing General Partner has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to above, or in defense of any claim, issue or matter therein, the Partnership
shall indemnify a Co-Managing General Partner against the expenses, including
attorneys' fees, actually and reasonably incurred by it in connection
therewith. Any such indemnification of a Co-Managing General Partner shall be
prohibited unless the Co-Managing General Partner has determined in good faith
that the course of conduct which caused the loss or liability was in the best
interest of the Partnership; that such liability or loss was not the result of
negligence or misconduct by a Co-Managing General Partner; and that
indemnification of a Co-Managing General Partner or its Affiliates will not be
allowed for any liability imposed by judgment, and costs associated therewith,
including attorneys' fees, arising from or out of violation of state or federal
securities laws associated with the offer and sale of Partnership Units.
Indemnification will be allowed for settlements and related expenses of a
lawsuit alleging securities law violations, and for expenses incurred in
successfully defending such lawsuits, provided that a court either: (a)
approves the settlement and finds indemnification of the settlement and related
costs should be made or (b) approves indemnification of litigation costs if a
successful defense is made.
Any indemnification, unless ordered by a court, shall be made by the
Partnership only as authorized in the specific case and only upon a
determination by independent legal counsel in a written opinion that
indemnification of a Co-Managing General Partner is proper in the circumstances
because a Co-Managing General Partner has met the applicable standard of
conduct set forth above.
The indemnification of a Co-Managing General Partner shall be limited
to and recoverable only out of the assets of the Partnership and not against
any Limited Partner or General Partner and indemnification of the Co-Managing
General Partners as to a third party is only with respect to such loss,
liability or damage not otherwise compensated for by insurance carried for the
benefit of the Partnership.
The Partnership may not incur the cost of that portion of insurance
which insures a Co-Managing General Partners from any liability as to which the
Co-Managing General Partner is prohibited from being indemnified under this
Article.
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The Participants hereby agree that each shall be solely and
individually responsible only for their pro rata share of the liabilities and
obligations of the Partnership, and any Participant who incurs liability in
excess of his pro rata share shall be entitled to contribution from the other
Participants. Pursuant thereto, each Co-Managing General Partner further
agrees to indemnify each Participant from paying any liabilities or obligations
of the Partnership in excess of such Participant's capital contribution.
Furthermore, although the Participants may be personally liable for the
liabilities and obligations of the Partnership, all such liabilities and
obligations shall be paid or discharged first with Partnership assets
(including insurance proceeds) before the Participants shall be obligated to
pay or discharge any liability or obligation with their personal assets.
ARTICLE XIII. RELATED PARTIES
Benton and EPC and their Affiliates or related persons or entities may
be engaged or employed by the Partnership to render or perform services for the
Partnership and/or may sell property of any kind or description to it, or may
otherwise engage in transactions with the Partnership. All such engagements,
employments and other transactions shall not be invalidated by reason of any
such relationships so long as such person is engaged, independently of the
Partnership and as an ongoing business in rendering such services or selling
such equipment and supplies to a substantial extent to other persons and such
prices and terms are not higher than those normally charged in the same
geographic area by unaffiliated persons or companies dealing at arm's length.
If the person is not engaged in business as provided above, then the price of
such services shall be the cost of such services, equipment or supplies to such
person or the competitive rate in the geographical area, whichever is less.
Benton or EPC may be presently conducting or may conduct in the future other
oil and gas income, drilling and acquisition programs which may commence during
or subsequent to this Partnership. All contracts entered into between the
Partnership, Benton, EPC and their Affiliates or related persons or entities
shall be terminated without penalty on not less than thirty (30) days' written
notice by the Partnership or on sixty (60) days' written notice by Benton, EPC
or their Affiliates.
The leases transferred to the Partnership by Benton or its Affiliates
shall be sold at Cost unless Benton believes that the appraised value is
substantially lower than Cost. In such a case the value of the lease will be
determined by an independent appraiser and sold at the lower of Cost or
appraised value.
ARTICLE XIV. RESTRICTIONS ON TRANSFERABILITY
No Participant shall have the power to sell, assign or transfer his
interest in the Partnership or to cause a transferee to become a substitute
Participant except upon the written consent of Benton and EPC. Each
Participant specifically agrees to the admission of any substitute Participant
as a Partner when consented to by Benton and EPC. Benton and EPC shall review
any proposed transfer and shall withhold their consent in the event they
reasonably determine, in their sole discretion, that such substitution could
have an adverse effect on the
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business activities or the legal or tax status of the Partnership or
the remaining partners under either state or federal law.
Benton and EPC may sell, assign, transfer, pledge or encumber all or
any portion of their rights to receive revenues as a Managing General Partner
under this Partnership Agreement; provided, however, that the assignment of
such revenue interest shall not affect Benton's and EPC's other rights and
obligations pursuant to this Agreement.
In addition to the restrictions upon substitution of an additional
Participant, a Participant may not sell his rights to profits and capital in
the Partnership without furnishing Benton and EPC with a copy of the offer to
buy such interest and giving Benton and EPC the prior right for a period of ten
(10) days after receipt of written notice, to purchase such interest on the
terms contained in such offer. In the event Benton and EPC do not exercise
their prior right to purchase such interest in profits and capital within a ten
(10) day period or notify the Participant that such right will not be
exercised, the Participant shall have the right to sell his interest in profits
and capital for a period of forty-five (45) days. Thereafter, the Participant
shall not sell any part of his interest in profits and capital without again
offering the same to Benton and EPC. A transferee of a Participant's right to
profits and capital who is not admitted as a Participant is not entitled to any
of the rights of a Participant. A transferee Participant has no greater right
to terminate the Partnership than his transferor.
In no event shall any assignee or transferee hold less than one Unit
except by gift or operation of law.
ARTICLE XV. RIGHTS, AUTHORITY AND
LIABILITIES OF PARTICIPANTS
A. RIGHTS
By a majority vote of the outstanding Units, the Participants shall
have the right to:
(1) Remove Benton, EPC and/or any successor Managing
General Partner; terminate all contracts between the Partnership and
Benton, EPC and their Affiliates; allow Benton, EPC or their
Affiliates to remove all of their property interests in the
Partnership; and select a substitute managing general partner or
additional general partner to continue the business of the
Partnership;
(2) Amend the Agreement, subject to the written consent of
Benton and EPC concerning matter affecting their interests in profits,
losses, credits and property;
(3) Terminate the Partnership;
(4) Approve the sale or exchange of all or substantially
all of the assets; and/or
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(5) Approve the admission of an additional general partner
proposed to be admitted as a Managing General Partner by Benton and EPC,
subject to the right of Benton and EPC to admit certain parties as
general partners without the consent of the Participants, as provided
in paragraph 13 of Article X.
Either the Participants, upon the written request of ten percent (10%)
of the outstanding Units, or Benton or EPC can cause a vote to be taken with
respect to the matters referred to above. Notice of a meeting of the
Participants will be mailed to the Participants within ten (10) days of the
receipt of such written notice unless compliance with federal or state laws or
regulations requires additional time. A meeting will be held within sixty (60)
days of the mailing of the notice. The presence, in person or by proxy, of the
holders of a majority of the Units outstanding shall constitute a quorum and
Participants may vote in person or by proxy at any such meeting. If a quorum
shall not be present or represented at any meeting, a majority of the holders
of Units entitled to vote at the meeting, who are present in person or
represented by proxy, may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At any reconvening of an adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which could
have been transacted at the original meeting if a quorum had been present or
represented. No matters that would constitute taking part in control of the
Partnership by the Participants shall be considered at any meeting. In order
to facilitate the above rights, each Participant shall have a right to receive
by mail the complete list of names, addresses and interests of all other
Participants, upon written request to EPC.
Any action that may be taken at a meeting of the Participants may be
taken without a meeting if a consent in writing setting forth the action so
taken is signed by Participants owning not less than the minimum Units that
would be necessary to authorize or take such action at a meeting at which all
the Participants were present and voted. Prompt notice of the taking of action
without a meeting shall be given to the Participants who have not consented in
writing.
Benton and EPC shall have the right to amend the Agreement; provided,
that the Agreement shall not be amended by Benton and EPC in any material
respect which would adversely affect the rights of the Participants except by
the affirmative vote of not less than a majority of the outstanding amount of
Partnership interests.
In the event that the Participants vote to remove Benton or EPC and
substitute a new Managing General Partner pursuant to Paragraph A of this
Article, the Partnership or the new Managing General Partner shall purchase the
entire interest of Benton or EPC, including their interest in capital and
revenues on an assumed dissolution basis, at a price determined by mutual
agreement or by independent appraisal by a petroleum engineer selected by
mutual agreement. Such purchase shall provide for payment in full, or
assignment to Benton or EPC of a direct interest in each Partnership asset
and/or liability equal to their then interest in revenue and capital as
determined above. Such payment or assignment shall occur at the time of
amendment of the Agreement and substitution of the new Managing General
Partner.
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B. AUTHORITY
No Participant has the power to manage or conduct Partnership business,
to act in the ordinary course of business for the Partnership or to sign for or
to bind the Partnership or any of its Partners and no such actions will be
considered to have been authorized by the other Partners.
C. LIABILITY
No Limited Partner shall be personally liable for any of the debts of
the Partnership or any of the losses thereof; provided, however, that the
amount committed by him to the capital of the Partnership, any return thereof,
and his interest in the Partnership's undistributed profits shall be subject to
liability. Additionally, a Limited Partner may be liable for wrongfully
distributed profits and interest on distributions in return of capital.
A Partner receives a return of his contribution to the extent that a
distribution to him reduces his share of the fair value of the net assets of
the Partnership below the value, as set forth in the Certificate of Limited
Partnership, of his contribution that has not been distributed to him. If a
Limited Partner receives the return of any part of his contribution without
violation of this Agreement or the California Revised Uniform Limited
Partnership Act, he shall be liable to the Partnership for one (1) year after
the return for the amount of the returned contributions but only to the extent
necessary to discharge the Partnership's liabilities to creditors who extended
credit to the Partnership during the period the contribution was held by the
Partnership. If a Limited Partner receives the return of any part of his
contribution in violation of this Agreement or the California Revised Uniform
Limited Partnership Act, he shall be liable to the Partnership for six (6)
years after the return for the amount of the contribution wrongfully returned.
D. MISCELLANEOUS
No Participant has any right of repayment of his contributions to the
Partnership except as provided in Articles VI and XVII. Participants will
share in losses as provided in Articles V and VII and will share in profits as
provided in Article VI. Further, the Participants have no right to vote on any
Partnership matters except as set forth in this Agreement. Participants agree
that they will not request a decree of dissolution from a court until a
majority vote of the outstanding Units of Participants has approved such
decree.
ARTICLE XVI. WITHDRAWAL OF BENTON OR EPC
A. EVENTS REQUIRING CONSENT OF ALL PARTNERS TO AVOID WITHDRAWAL
Except as approved by the specific written consent of all Partners at
the time, Benton, EPC or any other General Partner shall cease to be a General
Partner of the Partnership upon the happening of any of the following events of
withdrawal: (1) Benton, EPC or a General Partner withdrawing from the
Partnership by giving one hundred twenty (120) days written notice to the other
Partners, provided that the Partnership has completed its Proven Producing
Property
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acquisition, Recompletion Well activities and drilling of Partnership
Wells, and provided that the withdrawing Partner pays all expenses incurred as
a result of its withdrawal; (2) Benton, EPC or a General Partner is removed as
a General Partner in accordance with the terms of the Agreement; (3) in the
case of a General Partner who is a natural person, the death or adjudication of
incompetency of a General Partner; (4) in the case of a General Partner who is
acting as a General Partner by virtue of being a trustee of a trust, the
termination of the trust, but not merely the substitution of a new trustee; (5)
in the case of a General Partner which is a separate partnership, the
dissolution and commencement of winding up of the partnership; (6) in the case
of Benton, EPC or a General Partner that is a corporation, the dissolution of
the corporation or the revocation of its charter; (7) in the case of an estate,
the distribution by the fiduciary of the estate's entire interest in the
Partnership; or (8) in the case of a General Partner that is any other legal
entity, the cessation of the legal existence of the legal entity.
Upon withdrawal, a General Partner other than Benton or EPC shall
retain all rights to its proportionate share of revenues and capital, but shall
cease to have any vote or engage in any other activities as a General Partner.
The withdrawing General Partner will have the right to transfer his interest
subject to provisions of Article XIV hereof.
B. EVENTS NOT CAUSING WITHDRAWAL
Neither Benton, EPC nor any other General Partner shall cease to be a
general partner of the Partnership upon the happening of any of the following
events: (1) Benton, EPC or a General Partner makes an assignment for the
benefit of creditors; (2) Benton, EPC or a General Partner files a voluntary
petition in bankruptcy; (3) Benton, EPC or a General Partner is adjudicated
bankrupt or insolvent; (4) Benton, EPC or a General Partner files a petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation; (5) Benton, EPC or a General Partner files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against it in any proceeding of a type described in (4), above; (6)
Benton, EPC or a General Partner seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of Benton, EPC or a General
Partner or of all or any substantial part of Benton's, EPC's or a General
Partner's properties; or (7) one hundred twenty (120) days have elapsed after
the commencement of any proceeding against Benton, EPC or a General Partner
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation and the
proceeding has not been dismissed; or within ninety (90) days after the
appointment, without Benton's, EPC's or a General Partner's consent or
acquiescence, of a trustee, receiver or liquidator of Benton, EPC or a General
Partner or of all or any substantial part of its properties, the appointment is
not vacated or stayed, or within ninety (90) days after the expiration of such
a stay, the appointment is not vacated.
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ARTICLE XVII. DISSOLUTION
A. The parties specifically agree that the retirement,
resignation, expulsion, death, incompetency, bankruptcy, insolvency,
dissolution, withdrawal, conveyance of the interest of a Participant, or
admission of a new partner, or express decision of a Participant shall not
dissolve the Partnership. In such event, the heir, legal representative,
successor or assign of such Participant, as the case may be, shall become an
assignee of such Participant's interest. Such assignee shall not have the
rights of a substituted Participant, unless, with the approval of EPC, such
heir, legal representative, successor or assign shall execute an addendum to
this Agreement, agreeing to be bound by all of the terms and conditions hereof,
and to assume all of the obligations of the deceased or incapacitated
Participant hereunder. When a Participant dies or retires and the business is
continued, the Participant or his estate has no right to require the
Partnership or the remaining Participants to make an evaluated purchase of his
Partnership interest.
B. If, notwithstanding the intent of the Partners as set forth in
A., above, any event listed in A. results in the dissolution of the
Partnership, such dissolution shall be considered in contravention of the
Agreement, and the Partnership shall be continued or reconstituted. In the
event that the Partnership is dissolved, despite the intention of the Partners,
through any acts pursuant to A., above, the Partners agree that EPC may take
any action which it deems necessary or appropriate to continue the Partnership
or to reform the Partnership on terms as identical as possible to this
Agreement. In the event that EPC causes a continuation or reformation of the
Partnership, the liability of all Partners will be deemed to continue
uninterrupted.
C. The following actions shall cause a dissolution of the
Partnership, provided that Benton or EPC cannot take any voluntary action to
cause dissolution between the time it receives notice from the Participants of
their intent to remove a Co-Managing General Partner and the completion of the
voting and the actions, if any, authorized by the voting:
(1) The transfer or assignment of the entire interest of
Benton or EPC unless a remaining Managing General Partner agrees to
continue the Partnership;
(2) The written vote or consent by Participants
representing a majority of the outstanding Units and as further
provided by Article XV;
(3) The conduct of the Partnership becoming unlawful;
(4) The disposition of all or substantially all of the
assets of the Partnership;
(5) The expiration of the term of the Partnership as
provided in Article IX;
(6) An event of withdrawal or expulsion of Benton and EPC,
unless at the time there is at least one other Partner who carries on
the business of the Partnership; provided, that the Partnership is not
dissolved and is not required to be wound up by
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reason of any event of withdrawal if, within ninety (90) days after the
withdrawal, all remaining parties agree in writing to continue the
business of the Partnership and to the appointment of one or more
managing general partners if necessary or desired; or
(7) The entry of a decree of judicial dissolution.
Any dissolution caused by an event other than those
events listed above as causes of dissolution will be considered a dissolution
in contravention of this Agreement.
D. Upon dissolution and winding up of the Partnership, all of the
assets of the Partnership may be liquidated, and all Partnership assets shall
be applied in the following order:
(a) To creditors, including Partners who are
creditors, to the extent permitted by law, in satisfaction of
liabilities of the Partnership other than liabilities for
distributions to Partners; then
(b) To Partners and former Partners in satisfaction
of their rights to interim distributions or distributions upon
withdrawal; then
(c) To Partners, to the extent of positive capital
accounts, first for the return of their capital account
balances and, secondly, respecting their Partnership
interests, in the proportions in which they then share in cash
distributions.
With respect to the distributions made in liquidation, Partners who are
not otherwise creditors shall not have the status of and be entitled to the
remedies available to a creditor of the Partnership. In the event of a
distribution of assets in kind, all assets to be distributed to the
Participants shall be distributed to an independent trustee for all of the
Participants who shall hold title for the benefit of such Participants, collect
and distribute to such Participants all of the net income from such properties
and/or sell such properties as such independent trustee deems to be in the best
interests of the Participants and at the expense of such Participants. The
independent trustee shall operate the liquidating trust arrangement for so long
as is necessary to sell or exchange Partnership Assets for cash on terms which
the trustee deems to be in the best interest of the Participants.
In the event the liabilities of the Partnership exceed its assets upon
liquidation, the Partners must contribute funds to the Partnership in the ratio
of their negative capital accounts until negative capital accounts are
eliminated. In the event any Partner fails to make the required contribution,
Benton agrees to pay the amounts required and no Participant shall have any
liability for the amounts not contributed by other Participants.
Upon termination of the Partnership, a statement shall be prepared by
the certified public accountant employed by the Partnership setting forth the
assets and liabilities of the Partnership and the distribution of cash or
property of the Partnership as prescribed above, and a copy of such statement
shall be furnished to each Partner within ninety (90) days after completion of
winding up of Partnership business.
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For purposes of the liquidation of Partnership assets, the discharge of
its liabilities, and the distribution of the remaining funds and/or assets
among the Partners as above described, in the event that all Partnership
property is not sold, or in the sole discretion of Benton cannot be sold so
that distributions in kind to the Partners are appropriate or necessary, Benton
and EPC shall cause all Partnership assets to be appraised by a competent,
qualified appraiser. Any excess of fair market value, as evidenced by such
appraisal, over book value of any Partnership assets and any excess of book
value over such fair market value of any Partnership assets shall be deemed
gains or losses of the Partnership, as the case may be, and subject to the
provisions of Articles V and VI, above, Benton and EPC shall have the authority
on behalf of the Partnership to sell, convey, exchange, buy back, or otherwise
transfer the assets of the Partnership upon such terms and conditions as it
determines appropriate subject to the terms of this Agreement. A reasonable
time shall be allowed for the orderly liquidation of the assets of the
Partnership to minimize normal losses of the liquidation period. Any return of
all or any portion of the contributions by a Partner to the capital of the
Partnership shall be made solely from or out of Partnership assets and Benton
and EPC shall not be personally liable for any such return.
ARTICLE XVIII. ASSESSMENTS AND BORROWINGS
The Partners are subject to the payment of one or more assessments as
additional capital contributions to the Partnership. No assessment shall be
made, however, unless and until all original Proceeds have been expended or
committed. The failure of one or more Participants to pay any assessment does
not result in personal liability, but will result in the dilution of such
Participants' interest in all Partnership revenues and costs. A Participant's
interest in the Participants' share of Partnership revenues is based on the
ratio that the sum of his Subscription and paid assessments bears to the total
sum of all Participants' Subscriptions and assessments paid by all Participants
(including Benton and EPC to the extent they pay non-consenting Participants'
shares of assessments). The failure of a Participant to pay his share of an
assessment will reduce this ratio accordingly, as of the closing of the
pre-assessment or assessment period. Costs paid out of assessments will be
allocated only to those Partners who paid such assessment. If one or more
Participants fail to pay such assessment, Benton and EPC may contribute the
nonconsenting Participants' shares of such assessment, at their election, which
will proportionately increase the interest of Benton and EPC in all Partnership
revenues and costs, on the same basis as if Benton and EPC were a Participant.
If the Participants fail to pay an amount equal to at least fifty percent (50%)
of the total assessment requested, Benton and EPC have the option of either
returning to the Participants all assessments contributed, or contributing the
non-consenting Participants' shares of such assessment. If the amount
contributed by the Participants equals or exceeds fifty percent (50%) of the
assessment requested, Benton and EPC may contribute all or a portion of the
non-consenting Participants' shares of such assessment and also may reduce the
Partnership's participation in the Prospect for which the assessment was made
by entering into a farmout agreement with respect to such Prospect. The
cumulative amount of assessments shall not exceed twenty-five percent (25%) of
the Proceeds of the Partnership.
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After the Partnership has expended or committed its Proceeds for
property acquisitions and drilling operations, Benton and EPC may finance
necessary additional operations by Partnership assessments, use of Partnership
revenues, or borrowings. Assessments may be levied by Benton and EPC only for
the purpose of conducting subsequent operations on Prospects upon which
evaluation had begun during the Partnership's initial operation or on leases
sufficiently related to such Prospects as to merit, in the Co-Managing General
Partners' judgment, additional operations to fully develop those Prospects or
to acquire additional undeveloped leases located on the geological feature or
features of Prospects owned by the Partnership in order to fully develop and
protect its Prospects.
Benton and EPC will give written notice to each Participant of the
nature and purpose of any assessment, the Participant's proportionate share of
the estimated costs, and the effect of the Participant's not participating in
the assessment. A Participant may elect to participate in an assessment by
notifying Benton and EPC of his intention to participate and sending the
requested payment by mail within twenty (20) days after Benton and EPC mail the
written assessment notice, unless such period is extended by Benton and EPC.
Any Participant shall be deemed to have refused to participate in any
assessment by notifying Benton and EPC of his election not to participate or by
failure to pay his share of the assessment when due. In the event that the
proportionate interests of the Partners change by reason of assessments, solely
for the purpose of allocating costs and revenues, there shall be an interim
closing of the Partnership financial books immediately upon closing of the
assessment period, with all allocations made as of the date of the interim
closing according to the interests of the Partners immediately prior to payment
of the assessments. The pre-assessment or assessment period closes on the last
day established by Benton and EPC for the payment of an assessment by the
Participants.
Benton intends to develop the Partnership's Prospects fully through the
initial Proceeds and assessments. However, no assurance can be made that such
funds will be sufficient. If such funds are not sufficient, the Partnership
may borrow the necessary funds, may farm out the undeveloped portion of certain
Prospects, or may sell or abandon certain undeveloped leases.
ARTICLE XIX. POWER OF ATTORNEY
The Participants constitute and appoint Benton and EPC and their
successors and assigns, with full power of substitution, as their true and
lawful representative and attorney-in-fact in their name, place and stead to
make, execute, and sign a partnership agreement which admits the Participants
as such to the Partnership, any amendments thereof required by law and all such
other instruments, documents and certificates or amendments thereto which may
from time to time be required by the laws of the United States of America, the
State of California or any other state in which the Partnership shall determine
to do business, or any political subdivision or agency thereof, to effectuate,
implement and continue the valid subsisting existence of the Partnership. Such
representative and attorney-in-fact shall not, however, have any right, power
or authority to amend or modify this Agreement when acting in such capacities
except when the amendment is made pursuant to Article XV.
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ARTICLE XX. TAX MATTERS PARTNER
EPC is designated as the "Tax Matters Partner" as referred to in
{6231(a)(7)(A) of the Internal Revenue Code of 1986, as amended. As Tax
Matters Partner, EPC shall:
A. Receive notice of the beginning of administrative proceedings
by the Internal Revenue Service at the Partnership level;
B. Receive notice of the final Partnership administrative adjustment
resulting from any Internal Revenue Service administrative proceedings;
C. Keep all Partners informed of all administrative and judicial
proceedings as to proposed adjustments at the Partnership level;
D. Have authority to enter into a settlement agreement with the
Internal Revenue Service with respect to determination of Partnership tax items
which shall bind all other Partners who have not received notice of the
proceedings from the Internal Revenue Service and who have not filed a
statement with the Secretary of Treasury providing that the Tax Matters Partner
shall not have authority to bind the Partner, which settlement may be on such
terms as the Tax Matters Partner shall determine in its sole discretion to be
in the best interests of the Partners as a class;
E. Have authority to commence judicial action for readjustment of
Partnership items included in a notice of final Partnership administrative
adjustment, with the appropriate court and the Partnership items to be
contested selected at the sole discretion of the Tax Matters Partner, or to
elect not to commence such action at its sole discretion;
F. Have authority in its sole discretion to intervene on behalf of
the Partnership in any judicial action commenced by any other Partner as to
Partnership tax matters;
G. Have authority in its sole discretion to file a request with
the Internal Revenue Service for an administrative adjustment, as a substituted
Partnership return, or otherwise, and to request judicial review on behalf of
the Partnership as to any part of a request for administrative adjustment not
allowed by the Internal Revenue Service;
H. Have authority in its sole discretion to enter into an
agreement with respect to all Partners to extend the period for assessing any
tax which is attributable to any Partnership item (and no other person shall be
authorized to enter into such an agreement);
I. Upon receipt of a notice of the beginning of administrative
proceedings from the Internal Revenue Service, to furnish to the Internal
Revenue Service the name, address, profit interest and taxpayer identification
number of each Partner in the Partnership during the applicable Partnership tax
year, and such revised or additional information as may be required by law; and
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J. Conform to any tax administrative requirements as may be placed
on the Tax Matters Partner by Treasury Regulations as to income tax adopted
after the formation of the Partnership.
ARTICLE XXI. MISCELLANEOUS PROVISIONS
A. NOTICES
Except as elsewhere provided herein, any notice to Benton which shall
be given in connection with the business of this Partnership shall be duly
given if written and addressed and delivered by mail or wire to Benton Oil &
Gas Company, 2151 Alessandro Drive, Suite 120, Ventura, California 93001, to
Energy Partners Corporation, 5151 Shoreham Place, Suite 250, San Diego,
California 92122-3991. The effective date of notice given shall be the date it
is received by Benton or EPC.
Notices to a Participant shall be considered given if addressed and
sent by mail or wire to the Participant at the address shown on the
Subscription Agreement or assignment document.
B. BINDING NATURE
This Agreement shall be binding upon the parties hereto, their
successors, heirs, devisees, assigns, legal representatives, executors, and
administrators.
C. ENTIRE AGREEMENT
This Agreement and the Subscription Agreement contain the entire
understanding between the parties and supersede any prior understanding or
agreements between them respecting the subject matter. There are no
representations, arrangements, understandings or agreements, oral or written,
relating to the subject matter of this Agreement and the Subscription
Agreement, except those fully expressed herein or therein.
D. SEVERABILITY
If any provision of this Agreement shall be held to be invalid, such
holding shall not in any way whatsoever affect the validity of the remainder of
this Agreement.
E. COUNTERPARTS
Several copies of this Agreement may be executed. All executed copies
constitute one Agreement, binding on all parties, even though all parties have
not executed the original or the same copy.
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F. GOVERNING LAW
This Agreement has been executed and will be partially performed in the
State of California. All questions concerning this Agreement and performance
hereunder shall be judged and resolved in accordance with the laws of
California.
G. AMENDMENTS
Amendments may be made to this Agreement as provided under Articles X
and XV herein. Amendments shall be reduced to writing and, if required,
consented to by the Partners pursuant to Article XV.
H. CAPTIONS
The captions of the several articles and paragraphs of this Agreement
are not part of the context thereof, are only guides or labels to assist in
locating or reading the several provisions thereof and shall be ignored in
construing it.
I. EXECUTION
Execution of the Subscription Agreement or acceptance of the assignment
of Units was or will be deemed an execution of this Agreement on the date that
the person becomes a Participant, which will occur when EPC accepts the
Subscription Agreement or the assignment. Execution of the Subscription
Agreement or acceptance of the assignment of Units constitutes authorization
under Article XIX for Benton to file any certificate containing the names of
Subscribers or assignees as Participants, general partners and limited
partners.
J. PARTIES
The parties form this Partnership pursuant to the California Revised
Uniform Limited Partnership Act, as modified by the terms and conditions of
this Agreement. If any provision in this Agreement shall be held to be
invalid, such holding shall not in any way whatsoever affect the validity of
the remainder of this Agreement or affect the intent of the parties to continue
the Partnership pursuant to and make the Partnership subject to a statute
corresponding to the California Revised Uniform Limited Partnership Act.
K. EVIDENCE OF SALES
Materials used in connection with the sale of Units in this Partnership
will be retained by EPC for at least four (4) years after the beginning of
Partnership operations.
L. CERTIFICATE OF LIMITED PARTNERSHIP
A Certificate of Limited Partnership, as required by the California
Revised Uniform Limited Partnership Act, will be filed in the office of the
Secretary of State and in such other
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places as may be required by law. The Certificate of Limited
Partnership shall provide that information required under the law and such
additional information as may be needed to effectuate the terms of this
Agreement. Such other filings may be made as required to permit the
Partnership to transact business in other jurisdictions.
IN WITNESS WHEREOF, Benton, EPC, and the Participants have executed
this Partnership Agreement, effective on the date first above written.
BENTON OIL & GAS COMPANY, as PARTICIPANTS
Co-Managing General Partner By: Energy Partners Corporation as Attorney-
in-Fact, pursuant to Article XIX and
the Subscription Agreement for the
Participants listed on Exhibit A
By:
-----------------------------
A. E. Benton, President By:
----------------
Michael J. Greer
ENERGY PARTNERS CORPORATION, President
as Co-Managing General Partner
By:
------------------
Michael J. Greer
President
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