AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-............
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OFFSHORE ENERGY DEVELOPMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 1311
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0509791
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1400 WOODLOCH FOREST DRIVE DAVID B. STRASSNER
SUITE 200 OFFSHORE ENERGY DEVELOPMENT
THE WOODLANDS, TEXAS 77380 CORPORATION
(713) 364-0033 1400 WOODLOCH FOREST DRIVE, SUITE 200
THE WOODLANDS, TEXAS 77380
(713) 364-0033
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA AND TELEPHONE
CODE, OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT
EXECUTIVE OFFICES) FOR SERVICE)
------------------------
COPIES TO:
JOHN R. BRANTLEY T. MARK KELLY
BRACEWELL & PATTERSON, L.L.P. ALAN P. BADEN
711 LOUISIANA STREET, SUITE 2900 VINSON & ELKINS L.L.P.
HOUSTON, TEXAS 77002-2781 2300 FIRST CITY TOWER
(713) 221-1301 1001 FANNIN
HOUSTON, TEXAS 77002-6760
(713) 758-2222
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value $47,570,900 $16,404
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</TABLE>
(1) Includes shares that the Underwriters may purchase to cover over-allotments,
if any, and is estimated pursuant to Rule 457(o) solely for the purpose of
calculating the registration fee. See "Underwriting."
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION, DATED , 1996
3,182,000 SHARES
[LOGO]
OFFSHORE ENERGY DEVELOPMENT CORPORATION
Common Stock
Of the 3,182,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), offered hereby (the "Offering"), 3,000,000 shares are being sold by
Offshore Energy Development Corporation, a Delaware corporation (the "Company"
or "OEDC"), and 182,000 shares are being sold by certain of the selling
stockholders named herein (the "Selling Stockholders"). Prior to this Offering,
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price for the Common Stock will be between $
and $ per share. See "Underwriting" for information relating to the factors to
be considered in determining the initial public offering price. The Company will
not receive any of the proceeds from the sale of the shares offered by the
Selling Stockholders. See "Principal and Selling Stockholders."
The Company is applying for inclusion of the Common Stock on the NASDAQ
National Market under the symbol "OEDC."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING
PUBLIC DISCOUNT(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share........................................................................... $ $
- ----------------------------------------------------------------------------------------------------------------------------
Total(3)............................................................................ $ $
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PROCEEDS
PROCEEDS TO TO SELLING
COMPANY(2) STOCKHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
Per Share........................................................................... $ $
- ----------------------------------------------------------------------------------------------------------------------------
Total(3)............................................................................ $ $
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and certain of the Selling Stockholders have granted to the
several Underwriters an option for 30 days to purchase up to an additional
477,300 shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover overallotments, if any. If such option is
exercised in full, the Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ , $ , and $ ,
respectively. See "Underwriting" and "Principal and Selling Stockholders."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about October
, 1996.
------------------------
MORGAN KEEGAN & COMPANY, INC. PRINCIPAL FINANCIAL SECURITIES, INC.
The date of this Prospectus is , 1996
OFFSHORE ENERGY DEVELOPMENT CORPORATION
Maps of Gulf of Mexico Properties and Gathering System
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OVERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED HEREIN, THE
INFORMATION CONTAINED IN THIS PROSPECTUS (I) GIVES EFFECT TO THE COMBINATION
(THE "COMBINATION") OF CERTAIN OPERATIONS DESCRIBED UNDER "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
OVERVIEW" AND (II) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO THE
"COMPANY" OR "OEDC" SHALL MEAN OFFSHORE ENERGY DEVELOPMENT CORPORATION AND THE
CORPORATIONS AND PARTNERSHIPS CONSOLIDATED THEREIN, AND THEIR RESPECTIVE
PREDECESSORS, ON A COMBINED BASIS. CERTAIN TERMS USED HEREIN RELATING TO THE OIL
AND GAS INDUSTRY ARE DEFINED IN THE "GLOSSARY OF CERTAIN OIL AND GAS TERMS"
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Offshore Energy Development Corporation is engaged in the acquisition,
exploration, development, production, gathering and marketing of natural gas in
the U.S. Gulf of Mexico. As of January 1, 1996, OEDC had estimated net proved
natural gas reserves of 20.3 Bcfe attributable to 12 gross (7.90 net) wells
offshore Alabama and Louisiana. The Company has interests in 16 undeveloped
lease blocks with an average working interest of 72%. The Company plans to
connect five existing wells with proved reserves to production platforms and to
drill 10 exploratory prospects on these blocks by the end of 1997. The Company's
budget for these activities, including any additional development work, is $36
million. In addition, the Company is currently negotiating a potential joint
venture with a subsidiary of a major oil company, pursuant to which OEDC will
evaluate proprietary 3-D seismic data to identify prospects for joint
exploration and development by the parties on 46,000 contiguous acres covering
portions of 17 lease blocks in the Gulf of Mexico. Of this total, 15,000 acres
are currently leased by the Company or the major oil company. See "Business and
Properties -- Oil and Gas Exploration and Development."
The Company developed and operates the Dauphin Island Gathering System
("DIGS") as a 95-mile non-jurisdictional pipeline system offshore Alabama with a
current capacity of 400 MMcf/d. The DIGS is the primary open-access gas
gathering system in federal waters serving the Mobile, Viosca Knoll and Destin
Dome areas of the Gulf of Mexico. In early 1996, the Company sold all but a one
percent general partnership interest in Dauphin Island Gathering Partners
("DIGP"), the partnership that owns the DIGS, for a profit of $10.8 million. The
Company continues to operate the DIGS and, pursuant to an incentive management
arrangement, its one percent interest in DIGP will increase to 15% when the
Company's partners receive the return of their investment plus a 10% rate of
return, subject to certain other conditions ("DIGP Payout"). The Company and its
DIGS partners, subsidiaries of MCN Corporation ("MCN") and PanEnergy Corp
("PanEnergy"), recently announced a planned 65-mile extension of the DIGS to
gather new production that currently lacks adequate transportation outlets. An
additional planned 1997 expansion of the DIGS would create separate dry gas and
wet gas gathering systems with a combined capacity of approximately 900 MMcf/d.
See "Business and Properties -- Downstream Activities -- Natural Gas Gathering."
In August 1996, the Company entered into an agreement to form a partnership
with MCN and PanEnergy for the construction and development of a natural gas
liquids ("NGL") plant onshore Alabama. This plant, which is expected eventually
to have a capacity of 750 MMcf/d, would be the first NGL plant in Alabama
available for processing existing Mobile Bay production and would be available
to process additional volumes from the Main Pass and Viosca Knoll areas of the
Gulf of Mexico. The total cost of this plant is estimated at $76 million. The
Company will initially have a one percent interest in the partnership and an
option to purchase up to an additional 32 1/3% interest in the partnership
during the first three years of plant operations See "Business and Properties --
Downstream Activities -- Natural Gas Liquids Plant."
The Company has historically financed its operations in part by developing
projects and selling them at a profit. As a result of this strategy, since 1991
the Company has recorded pretax profit of approximately $16.8 million from gains
on the sale of assets and its results of operations. Since January 1995, the
Company has not sold any of its producing properties and has increased its
estimated proved reserves by
over 300%. The Company intends to use the proceeds of this Offering to further
pursue a strategy of reserve growth.
BUSINESS STRATEGY
The Company's objective is to enhance stockholder value through sustained
growth in revenue, earnings and operating cash flow from increases in natural
gas and oil reserves and production, and development of related downstream
projects. With proceeds from this Offering, borrowings under available credit
facilities and internally generated cash flow, the Company believes that it will
have the capital resources necessary to develop and retain its interests in all
currently planned projects. The Company intends to achieve its objective by
pursuing the following key strategies:
o DEVELOP AND EXPAND PROSPECT INVENTORY. The Company believes that its
reserve growth will come primarily from drilling activity rather than
through acquisitions of producing reserves. The Company has accumulated
21,304 gross (18,570 net) producing acres with additional exploitation
potential plus 86,400 gross (62,600 net) undeveloped acres. Joint ventures,
other strategic alliances and acquisitions of acreage with development
potential are being pursued in order to generate additional post-1997
drilling inventory.
o CAPITALIZE ON INTEGRATED NATURAL GAS OPERATIONS. OEDC has operations in all
phases of the production, gathering, and marketing of natural gas. OEDC
believes this integrated approach has provided the Company access to
information not otherwise widely available regarding regional reserve
development; flexibility in achieving favorable volumes and prices on gas
sales; the opportunity to initiate downstream projects on terms attractive
to the Company; and diversification of revenue streams.
o DEVELOP STRATEGIC ALLIANCES. The Company intends to continue to form
strategic alliances with substantial energy companies, which have
historically given the Company access to the financial strength, property
inventories, marketing presence and other resources of such companies. The
Company has traditionally managed projects with strategic partners from
conceptualization through planning, implementation and operation. The
Company has successfully managed joint developments with affiliates of
major energy companies, such as British Petroleum, Enron Corp., Tenneco,
Inc., MCN, Amoco Corporation, Mobil Corporation and PanEnergy.
o ACTIVELY MANAGE DRILLING RISK. The Company primarily targets geophysically
defined gas prospects with associated hydrocarbon indicators. The Company
uses computer aided exploration analysis and proprietary, high resolution
2-D and 3-D seismic data to better determine the likelihood of encountering
hydrocarbons and more closely estimate the extent of reservoirs. During the
drilling of wells, the Company utilizes computer aided drilling analysis to
correlate data from technologies such as measurement while drilling and
magnetic resonance imaging logging tools to improve its accuracy in
defining and evaluating oil and gas reservoirs. As a result of this
approach, the Company has completed 21 of the 22 wells it has drilled since
1988.
o PURSUE OPERATING EFFICIENCIES. The Company generally initiates and manages
projects and prefers to maintain majority ownership in order to improve
project returns. The Company has reduced the time between capital
expenditure and revenue generation by the use of refurbished platforms and
equipment, off-the-shelf designs and components, and by simultaneously
conducting exploration and construction. The Company has also reduced
development costs by the cluster development of neighboring properties and
the use of slim hole and splitter technology. The Company is committed to
maintaining low operating overhead by outsourcing many technical and field
functions, rather than developing in-house capabilities.
o MAINTAIN GEOGRAPHIC FOCUS. The Company has focused its exploration and
development efforts in a relatively concentrated area of the Gulf of
Mexico. This geographic focus has enabled the Company to build and utilize
a base of geological, geophysical, engineering and production experience in
its focus areas. The Company believes this discipline enhances its ability
to identify, evaluate and prioritize drilling prospects and other ancillary
business opportunities in its area of operations.
THE OFFERING
Common Stock to be sold by the 3,000,000(1) shares
Company............................
Common Stock to be sold by certain
Selling Stockholders............... 182,000 shares(2)
Common Stock to be outstanding after
the Offering....................... 8,051,885 shares(3)
Use of Proceeds...................... Of the net proceeds to the Company from
this Offering, up to $14 million will be
used to repay an affiliate of Enron
Corp. all amounts advanced to finance a
five-well drilling and development
program and to fund the additional
development of such wells; $12 million
will be used to redeem preference units
in a subsidiary; and the balance will be
used for working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed NASDAQ National Market OEDC
Symbol.............................
- ------------
(1) Does not include up to 75,000 shares that may be sold by the Company
pursuant to the Underwriters' overallotment option.
(2) Does not include up to 402,300 shares that may be sold by certain of the
Selling Stockholders pursuant to the Underwriters' overallotment option.
(3) Does not include 722,600 shares subject to employee stock options, of which
96,280 are presently exercisable.
------------------------
The principal executive offices of the Company are located at 1400 Woodloch
Forest Drive, Suite 200, The Woodlands, Texas 77380, and its telephone number is
(713) 364-0033.
SUMMARY COMBINED FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth certain combined historical financial data
for the Company as of and for each of the periods indicated. The financial data
for each of the three years ended December 31, 1995, and the financial data for
the six months ended June 30, 1996, are derived from the audited financial
statements of the Company. The financial data for the six months ended June 30,
1995 are derived from the Company's unaudited financial statements. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements included elsewhere in this Prospectus. The results for the
six months ended June 30, 1996 are not necessarily indicative of results for the
full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA
Income:
<S> <C> <C> <C> <C> <C>
Exploration and production......... $ 1,744 $ 5,513 $ 6,169 $ 1,859 $ 5,549
Pipeline and marketing............. 358 358 (167) (49) 345
Equity in earnings (loss) of equity
in investments................... (255) (3) 497 315 23
Gain on sales of oil and gas
properties or partnership
investments, net................. -- 13,655 -- -- 10,661
--------- --------- --------- ----------- ---------
Total income................ 1,847 19,523 6,499 2,125 16,578
--------- --------- --------- ----------- ---------
Expense:
Operations and maintenance......... 570 1,410 1,876 922 876
Exploration charges................ 32 2,231 405 153 421
Depreciation, depletion and
amortization..................... 355 2,112 5,501 1,598 2,876
Abandonment expense................ 59 2,735 84 13 216
General and administrative......... 1,725 2,359 2,192 1,155 1,155
--------- --------- --------- ----------- ---------
Total expense............... 2,741 10,847 10,058 3,841 5,544
--------- --------- --------- ----------- ---------
Earnings (loss) before interest and
taxes.............................. (894) 8,676 (3,559) (1,716) 11,034
Interest expense and preference
payments........................... (960) (2,606) (2,499) (989) (1,162)
Interest income and other............ (225) 316 123 229 (65)
--------- --------- --------- ----------- ---------
Income (loss) before income taxes.... (2,079) 6,386 (5,935) (2,476) 9,807
Income tax benefit (expense)......... -- (27) 21 10 (13)
--------- --------- --------- ----------- ---------
Net income (loss).................... $ (2,079) $ 6,359 $ (5,914) $ (2,466) $ 9,794
========= ========= ========= =========== =========
EBITDA(1)............................ $ (539) $ 10,788 $ 1,942 $ (118) $ 13,910
STATEMENT OF CASH FLOWS DATA
Net cash provided by (used in)
operating activities............... $ (1,546) $ 1,574 $ (1,069) $ (533) $ 941
Net cash provided by (used in)
investing activities............... $ (10,017) $ 21,807 $ (16,787) $ (11,263) $ 9,769
Net cash provided by (used in)
financing activities............... $ 14,381 $ (18,965) $ 10,153 $ 4,933 $ (9,843)
<CAPTION>
AS OF JUNE 30, 1996
------------------------------------------------------------
PRO FORMA PRO FORMA
BALANCE SHEET DATA HISTORICAL COMBINED FOR COMBINATION(2) AS ADJUSTED(4)
------------------- ------------------ ---------------
<S> <C> <C> <C>
Working capital (deficit)............ $(1,012) $ (1,012)
Total assets......................... $24,551 $ 24,551
Long-term debt, excluding current
maturities......................... -$- $-- --
Redeemable preference units.......... $12,000 $ 12,000 --
Total stockholders'/partners'
equity............................. $ 5,971 $ 4,034(3)
</TABLE>
- ------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization) is
presented here to provide additional information about the Company's
operations. EBITDA should not be considered as an alternative to net income,
as an indicator of the Company's operating performance or as an alternative
to cash flows as a better measure of liquidity.
(2) Gives effect to the Combination as if it had occurred on June 30, 1996.
(3) Prior to the Combination, the Company's operating partnerships were exempt
from United States federal income taxes. The pro forma data reflects a
deferred tax liability of $1,937,000 for the federal income tax expense that
would have been recorded in prior years had such entities not been exempt
from paying such income taxes.
(4) Sets forth the pro forma for Combination capitalization of the Company, as
adjusted to give effect to the sale of 3,000,000 shares of Common Stock in
the Offering and the application of the net proceeds therefrom as described
in "Use of Proceeds."
SUMMARY COMBINED OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA (NET)
Natural gas equivalent (Mcfe)(1)... 672,838 3,685,681 3,667,701 1,021,641 2,528,002
AVERAGE SALES PRICE
Natural gas (per Mcfe)(2).......... $2.59 $1.50 $1.68 $1.82 $2.20
EXPENSE (PER MCFE):
Lease operating.................... $0.85 $0.38 $0.51 $0.90 $0.35
Depreciation, depletion and
amortization.................... $0.53 $0.57 $1.50 $1.56 $1.14
General and administrative, net.... $2.56 $0.64 $0.60 $1.13 $0.46
</TABLE>
- ------------
(1) The Company had immaterial amounts of condensate (oil) production during
such years.
(2) Prices include the effects of hedging transactions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities."
SUMMARY COMBINED RESERVE DATA
The following table summarizes the estimates of the Company's pro forma net
proved natural gas reserves as of December 31, 1995 and the present value
attributable to those reserves at such date assuming the Combination had been
consummated on that date. Such information has been derived from a reserve
report prepared by Ryder Scott Company. All calculations of estimated reserves
have been made in accordance with the rules and regulations of the Securities
and Exchange Commission, and, except as otherwise indicated, give no effect to
federal or state income taxes otherwise attributable to estimated future cash
flow from the sale of oil and gas. The present value of estimated future net
revenue has been calculated using a discount factor of 10%. See "Risk Factors --
Uncertainty of Estimates of Reserves and Future Net Revenue" and "Business and
Properties -- Oil and Gas Exploration and Development -- Natural Gas Reserves"
and "Experts."
AS OF DECEMBER 31, 1995
-----------------------
(DOLLARS IN THOUSANDS)
Natural gas (MMcfe).................. 20,339
Estimated Future Net Revenue
(Before Income Taxes).............. $32,116
Present Value of Estimated Future Net
Revenue
(Before Income Taxes; Discounted at
10%)............................... $26,731
RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE
PURCHASERS SHOULD GIVE CAREFUL CONSIDERATION TO THE SPECIFIC FACTORS SET FORTH
BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE
PURCHASING THE COMMON STOCK OFFERED HEREBY.
VOLATILITY OF NATURAL GAS AND OIL PRICES
Income generated from the Company's operations is highly dependent upon the
price of, and demand for, natural gas and oil. The markets for natural gas and
oil historically have been volatile and are likely to continue to be volatile in
the future. Prices for natural gas and oil are subject to wide fluctuation in
response to relatively minor changes in the supply of and demand for natural gas
and oil, market uncertainty and a variety of additional factors that are beyond
the control of the Company. These factors include the level of consumer product
demand, weather conditions, domestic and foreign governmental regulations, the
price and availability of alternative fuels, political conditions in the Middle
East, the foreign supply of natural gas and oil, the price of foreign imports
and overall economic conditions. In addition, sales of and demand for natural
gas and oil have historically been seasonal in nature, which may lead to
substantial differences in cash flow at various times throughout the year. It is
impossible to predict future natural gas and oil price movements with any
certainty. Declines in natural gas and oil prices may materially adversely
affect the Company's financial condition, liquidity and results of operations.
Lower natural gas and oil prices also may reduce the amount of the Company's
natural gas and oil that can be produced economically. In order to reduce its
exposure to price risks in the sale of its natural gas and oil, the Company
enters into hedging arrangements from time to time. The Company's hedging
arrangements apply to only a portion of its production and provide only limited
price protection against fluctuations in the natural gas and oil markets. See
" -- Effects of Price Risk Hedging" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Hedging Activities."
REPLACEMENT OF RESERVES
The Company's future success depends upon its ability to find, develop or
acquire additional reserves of natural gas and oil that are economically
recoverable. The estimated proved reserves of the Company generally will decline
as reserves are depleted, except to the extent that the Company conducts
successful exploration or development activities or acquires properties
containing proved reserves, or both. The rate of decline depends on reservoir
characteristics. The Gulf of Mexico, where the Company currently has all of its
proved reserves, is characterized by relatively steep decline rates. The Company
may in the future drill wells in other offshore or onshore locations with
similar production decline characteristics. In order to increase reserves and
production, the Company must continue drilling programs or undertake other
replacement activities. The Company's current strategy includes increasing its
reserve base through the exploitation of its existing properties, exploration
and development of its undeveloped acreage position in the Gulf of Mexico, and
identification of new drilling prospects through joint ventures with larger
producers. There can be no assurance, however, that the Company's strategy will
result in significant additional reserves or that the Company will have
continuing success drilling productive wells at its historical finding and
development costs. See "Business and Properties -- Oil and Gas Exploration and
Development -- Natural Gas Reserves."
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUE
There are numerous uncertainties inherent in estimating natural gas and oil
reserves and their estimated values, including many factors beyond the control
of the Company. The reserve data set forth in this Prospectus represents only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of natural gas and oil that cannot be measured in an
exact manner. Estimates of economically recoverable gas and oil reserves and of
future net revenue necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, and assumptions concerning the effects of
regulation by governmental agencies, future oil and gas prices, future operating
costs, severance and excise taxes, development costs and
8
workover and remedial costs, all of which may vary considerably from actual
results. For these reasons, estimates of the economically recoverable quantities
of natural gas and oil attributable to any particular group of properties,
classifications of such reserves based on risk of recovery, and estimates of the
future net revenue expected therefrom prepared by different engineers or by the
same engineers at different times may vary substantially and such reserve
estimates may be subject to downward or upward adjustment based upon such
factors. Actual production, revenue and expenditures with respect to the
Company's reserves will likely vary from estimates, and such variances may be
material. See "Business and Properties -- Oil and Gas Exploration and
Development -- Natural Gas Reserves."
Approximately 26% of the Company's total proved reserves at January 1, 1996
were undeveloped, which are by their nature less certain. Recovery of such
reserves will require significant capital expenditures. The reserve data
included in this Prospectus assumes that substantial capital expenditures by the
Company will be required to develop such reserves. No assurance may be given
that the estimated costs are accurate, that development will occur as scheduled,
that the Company will have the capital resources necessary to make the
expenditures assumed, or that the results will be as estimated. See "Business
and Properties -- Oil and Gas Exploration and Development -- Natural Gas
Reserves."
The present value of estimated future net revenue referred to in this
Prospectus should not be construed as the current market value of the estimated
natural gas and oil reserves attributable to the Company's properties. In
accordance with applicable requirements of the Securities and Exchange
Commission ("Commission"), the estimated discounted future net revenue from
proved reserves are generally based on prices and costs as of the date of the
estimate, whereas actual future prices and costs may be materially higher or
lower. Actual future net revenue also will be affected by factors such as the
amount and timing of actual production, supply and demand for natural gas and
oil, curtailments or increases in consumption by gas purchasers and changes in
governmental regulations or taxation. The timing of actual future net revenue
from proved reserves, and their actual present value, will be affected by the
timing of both the production and the incurrence of expenses in connection with
development and production of natural gas and oil properties. In addition, the
calculation of the estimated present value of the future net revenue using a 10%
discount rate as required by the Commission is not necessarily the most
appropriate discount factor based on interest rates in effect from time to time
and risks associated with the Company's reserves or the natural gas and oil
industry in general.
EXPLORATION AND DEVELOPMENT RISKS
Exploration and development of natural gas and oil involve a high degree of
risk that no commercial production will be obtained or that the production will
be insufficient to recover drilling and completion costs. The cost of drilling,
completing and operating wells is often uncertain and cost overruns in offshore
operations can adversely affect the economics of a project. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
Furthermore, completion of a well does not assure a profit on the investment or
a recovery of drilling, completion and operating costs.
HISTORICAL OPERATING LOSSES
The Company has sustained losses in two of the past three years as a result
of its decision to finance its operations in part through the sale of
properties. Due to limited capital resources, the Company historically has grown
by acting as a developer of projects that it subsequently sold at a profit. This
resulted in significant variances in year to year income, with the Company
sustaining losses during years in which it incurred the expenses of project
development and achieving net income during years when the projects were sold.
No assurance may be given that the Company will be profitable in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and the related notes
thereto included elsewhere herein.
9
WORKING CAPITAL DEFICITS
The Company had working capital deficits of $1,011,953 and $12,834,262 at
June 30, 1996 and December 31, 1995, respectively. These deficits are the result
of the Company's decision to finance its acquisitions of capital assets and
property development in part through short-term, project-specific borrowings and
vendor financings. The Company may incur working capital deficits in the future,
and no assurance may be given that the Company will be able to obtain the
financing necessary to fund any such deficits. See " -- Substantial Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development, and production of
oil and natural gas reserves. Historically, the Company has financed these
expenditures through vendor financings, short term borrowings from commercial
banks and other industry lenders and project financing in separate partnerships
with equity investors, as well as cash generated from operations, including the
sale of projects. The Company believes that the net proceeds of this Offering,
bank borrowings and funds generated from operations will be sufficient to fund
its growth strategy through 1997. If the Company experiences operating
difficulties or if oil and gas prices decline and reduce income, however, the
Company may be required to obtain additional financing to fund its operations.
No assurance may be given that such financing will be available, and if it is
not available, the Company may be required to curtail its drilling and other
projects.
The Company has entered into an agreement to form a partnership to
construct, own and operate an onshore NGL plant. The Company will have the
option to increase its interest in the partnership. The exercise of its option
to increase its interest in such partnership will require substantial capital in
addition to the amounts being raised in this Offering. No assurance may be given
that the financing necessary to exercise the Company's option will be available
or, if available, will be on terms that are acceptable to the Company. See
"Business and Properties -- Downstream Activities -- Natural Gas Liquids
Plant."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company has been and will continue to be highly
dependent on the Company's founders, Messrs. David B. Strassner, Douglas H.
Kiesewetter and R. Keith Anderson, and certain other senior management
personnel. The partnership agreements relating to the DIGS and to the Company's
drilling programs with affiliates of Enron contain change of control provisions
that would be triggered by the failure of any two of Messrs. Strassner, Anderson
or Kiesewetter to be actively involved in the management and operations of such
entities. In the case of DIGP, the occurrence of such an event prior to the
earlier of DIGP Payout or February 28, 2001 would prevent the Company's interest
in the partnership from increasing above its current one percent level. See
"Business and Properties -- Downstream Activities -- Natural Gas
Gathering -- Current Operations." In the case of the Enron partnerships, the
occurrence of such an event would give Enron the right to fix a price at which
the Company would be required to either purchase all of Enron's interest in the
partnerships or sell all the Company's interest in the partnership to Enron. In
addition, the Company's loan agreement with Union Bank of California, N.A.,
provides that it is an event of default under such loan agreement if any two of
Messrs. Strassner, Anderson, Kiesewetter or Matthew T. Bradshaw cease to be
actively involved in the management and operation of the Company for any reason
other than his death or disability. Accordingly, loss of the services of any of
the foregoing individuals could have a material adverse effect on the Company's
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Financing
Activities." Messrs. Strassner, Kiesewetter and Anderson have agreed with the
Company that, prior to the earlier of DIGP Payout or February 28, 2001 they will
not voluntarily (i) cease to be actively involved as the management of and in
the operation of DIGP to substantially the same degree as he was involved in
such management and operation on July 1, 1996, or (ii) reduce their respective
ownership interest in the Company following the Company's initial public
offering by 75% or more. Each of Messrs. Strassner, Anderson and Kiesewetter are
also subject to agreements limiting their ability to
10
compete with the Company for a one year period after they cease to be employed
by the Company. See "Management -- Certain Transactions."
AVAILABILITY OF EQUIPMENT AND PERSONNEL
The recent increase in drilling activity in the Gulf of Mexico has
increased the demand for drilling vessels, supply boats and personnel
experienced in offshore operations. The Company has recently experienced
difficulty in obtaining certain services from vendors. No assurance may be given
that such services, equipment and personnel will be available in a timely
manner, or that the cost thereof will not increase. See "Business and
Properties -- Oil and Gas Exploration and Development -- Operating Procedures
and Risks."
FERC REGULATION RISKS
The transportation and sale for resale of natural gas in interstate
commerce are regulated by the Federal Energy Regulatory Commission ("FERC")
pursuant to the Natural Gas Act of 1938 ("NGA") and the Natural Gas Policy Act
of 1978 ("NGPA"). The FERC also regulates interstate natural gas
transportation rates and service conditions, which affect the marketing of
natural gas produced by the Company, as well as the net revenue received by it
for sales of natural gas. The DIGS is subject to regulation of its gathering
operations under the Outer Continental Shelf Lands Act ("OCSLA"), which
requires the DIGS to provide gas producers on the Outer Continental Shelf
("OCS") with open and non-discriminatory access to its gathering system and to
charge non-discriminatory rates.
The Company, as the managing partner in DIGP, operates the DIGS as a gas
gatherer exempt from FERC's jurisdiction under the NGA. In February 1996, FERC
issued a Statement of Policy concerning gas gathering on the OCS in which FERC
reaffirmed that its "modified primary function" test was the appropriate test
to use in determining whether a gas pipeline operating on the OCS is subject to
its NGA jurisdiction as an interstate transporter or exempt from such
jurisdiction as a gatherer. The Company believes that the DIGS, including its
planned extension and expansion, meets the criteria of the modified primary
function test and is exempt from FERC jurisdiction under the NGA. However, DIGP
has not sought a formal declaration from FERC confirming its status as an exempt
gatherer, and no assurance may be given that the FERC would concur with the
Company's view.
A determination that the DIGS is subject to FERC's NGA jurisdiction would
require that DIGP comply with the FERC's regulations applicable to interstate
transporters of natural gas, including rate regulation, accounting and reporting
requirements. While favorable market-based rates are possible under the FERC
regulations, FERC frequently imposes less favorable cost-of-service rates. The
imposition of cost-of-service rates by FERC would be likely to reduce DIGP
revenue. In addition, FERC's regulations would impose administrative costs on
DIGP. These costs, however, would be recoverable in rates and thus should not
materially adversely affect the profitability of DIGP. See "Business and
Properties -- Government Regulation -- Natural Gas Marketing, Gathering and
Transportation."
As a one percent owner of DIGP, the impact of FERC cost of service rate
regulation under the NGA would not be material to the Company. Such regulation,
however, could delay the Company's receipt of the 14% DIGP interest which it
will earn when DIGP Payout occurs. Furthermore, any revenue reduction would
diminish the value of the Company's 15% interest in DIGP after giving effect to
DIGP Payout.
LITIGATION RISKS
The Company is a defendant in a suit filed in 1995 alleging that the idea,
design and location of the DIGS as an intrastate gas gatherer regulated by the
FERC under Section 311 of the NGPA was a confidential trade secret owned by the
plaintiffs, which had been revealed to the Company during confidential
discussions in furtherance of a proposed joint venture. The plaintiffs also
allege, among other things, misrepresentations by the Company regarding its
intention to form a joint venture, breach of an oral agreement to form a joint
venture and breach of fiduciary duties. The plaintiffs are seeking "millions of
dollars in profits" as actual damages and are also seeking the award of an
unspecified amount of punitive damages. The Company has denied the plaintiffs'
allegations, raised various affirmative defenses, and is
11
vigorously defending this litigation. Discovery is currently ongoing and a trial
date has not been set. An adverse decision in this litigation could have a
material adverse effect on the Company. See "Business and
Properties -- Litigation."
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to risks inherent in the oil and gas
industry and the gas pipeline industry, such as blowouts, cratering, explosions,
uncontrollable flows of crude oil, natural gas or well fluids, fires, pollution
and other environmental risks. These risks could result in substantial losses to
the Company due to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. Moreover, offshore operations are subject to a variety of
operating risks peculiar to the marine environment, such as hurricanes and other
adverse weather conditions, to more extensive governmental regulation, including
regulations that may, in certain circumstances, impose strict liability for
pollution damage, and to interruption or termination of operations by
governmental authorities based on environmental or other considerations. See
"Business and Properties -- Governmental Regulation." The Company utilizes
general and limited partnerships with others in conducting its oil and gas and
pipeline operations. As the general partner of these entities, the Company is
responsible for all of the liabilities of such entities, even though it owns
less than all of the equity interests therein.
The Company maintains insurance of various types to cover its operations,
including general liability insurance, general partner liability insurance, and
operator's extra expense insurance, among others. No assurance may be given that
the Company will be able to maintain adequate insurance in the future at rates
the Company considers reasonable. The occurrence of a significant event not
fully insured or indemnified against could materially and adversely affect the
Company's financial condition and results of operations. Pollution and
environmental risks generally are not fully insurable. See " -- Environmental,
Health and Safety Regulation and Risks" and "Business and Properties -- Oil
and Gas Exploration and Development -- Operating Procedures and Risks."
ENVIRONMENTAL, HEALTH AND SAFETY REGULATION AND RISKS
The Company's operations are subject to extensive and developing federal,
state and local laws and regulations relating to environmental, health and
safety matters. Permits, registrations and other authorizations are required for
the operation of the DIGS and certain of the Company's facilities and for its
oil and gas exploration, production, gathering and marketing activities. These
permits, registrations and authorizations are subject to revocation,
modification and renewal. Governmental authorities have the power to enforce
compliance with these regulatory requirements, the provisions of required
permits, registrations or other authorizations, and lease conditions, and
violations are subject to civil and criminal penalties, including fines,
injunctions, technical requirements or any combination thereof. Failure to
obtain or maintain a required permit may also result in the imposition of civil
and criminal penalties. Third parties may have the right to sue to enforce
compliance or to participate in the revocation, modification, amendment or
renewal of required permits. Further, the imposition of stricter requirements of
environmental or health and safety laws and regulations affecting the Company's
business or more stringent interpretation of, or enforcement policies with
respect to, such laws and regulations, could adversely affect the Company.
The discharge of oil, gas or other pollutants into the air, soil or water
may give rise to liabilities to governments and third parties and may require
the Company to incur costs to remedy any such discharges. Oil, gas and other
pollutants may be discharged in many ways, including from a well or drilling
equipment at a drill site, leakage from pipelines or other gathering or
transportation facilities, leakage from storage tanks and sudden discharges
resulting from damage to or explosions at oil or gas wells or other facilities.
Discharged hydrocarbons and other pollutants may migrate through soil to water
supplies or adjoining properties, giving rise to additional liabilities. A
variety of federal and state laws and regulations govern the environmental
aspects of oil and gas exploration, production, gathering and transportation and
may, in addition to other laws and regulations, impose liability in the event of
discharges (whether or not
12
accidental), failure to notify the proper authorities of a discharge and other
failures to comply with those laws and regulations. Environmental laws may also
affect the costs of the Company's acquisitions of oil and gas properties. The
Company does not believe that its environmental, health and safety risks are
materially different from those of comparable companies engaged in similar
businesses. Nevertheless, no assurance can be given that requirements of
environmental, health and safety laws and regulations will not, in the future,
result in a curtailment of production or a material increase in the costs of
production, development, exploration or gathering or otherwise adversely affect
the Company's operations and financial condition. Pollution and similar
environmental risks generally are not fully insurable. See "Business and
Properties -- Governmental Regulation -- Environmental Matters."
The operations of the DIGS are subject to regulation by the United States
Department of Transportation ("DOT") under the Natural Gas Pipeline Safety Act
of 1969, as amended ("NGPSA"). Under this statute DOT regulates the design,
installation, testing, construction, operation and management of DIGS' pipeline
facility. The NGPSA requires any entity that owns or operates pipeline
facilities to comply with applicable safety standards, to establish and maintain
inspection and maintenance plans and to comply with such plans.
Proposed legislation is pending before the U.S. Congress that would amend
NGPSA. Among other things, the proposed legislation, if enacted, would establish
a national "one-call" notification system regarding pipeline violations,
increase frequency for pipeline inspections, and increase civil and criminal
penalties for violations of pipeline safety requirements. Although the Company
cannot predict whether such legislative proposals will be enacted or the effect,
if any, such legislation might have on DIGP's operations, depending on the
provisions of any new legislation ultimately enacted the Company could be
required to incur increased costs associated with the operation of DIGS. The
Company believes the operations of the DIGS comply in all material respects
under the NGPSA.
COMPETITION
The oil and gas industry and the natural gas gathering industry are highly
competitive. The Company encounters competition from other oil and gas companies
in all areas of its oil and gas operations, including the acquisition of leases
and producing properties. The DIGS encounters strong competition from regulated
and unregulated gas pipelines in the acquisition of gathering commitments. The
Company's competitors include major integrated oil and natural gas companies,
natural gas pipeline companies and numerous independent oil and natural gas
companies, individuals and drilling and income programs. Many of its competitors
are large, well-established companies with substantially larger operating staffs
and greater capital resources than the Company's and which, in many instances,
have been engaged in the energy business for a much longer time than the
Company. Such companies may be able to offer more attractive rates for natural
gas gathering commitments and to pay more for productive oil and natural gas
properties and exploratory prospects, and to define, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources permit. The Company's ability to acquire additional
properties, discover reserves and acquire additional natural gas gathering
commitments in the future will be dependent upon its ability to evaluate and
select suitable properties and to consummate transactions in a highly
competitive environment. See "Business and Properties -- Oil and Gas
Exploration and Development -- Competition" and "Business and
Properties -- Downstream Activities -- Natural Gas Gathering -- Competition."
MARKETABILITY OF PRODUCTION
The marketability of the Company's production depends in part upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities. Most of the Company's natural gas is delivered
through gas gathering systems and gas pipelines that are not owned by the
Company. Federal and state regulation of oil and natural gas production and
transportation, tax and energy policies, changes in supply and demand and
general economic conditions all could adversely affect the Company's ability to
produce and market its oil and gas. If market factors were to change
dramatically, the financial impact on the Company could be substantial. The
availability of markets and the volatility of
13
product prices are beyond the control of the Company and represent a significant
risk. See "Business and Properties -- Oil and Gas Exploration and
Development -- Marketing."
EFFECTS OF PRICE RISK HEDGING
Part of the Company's business strategy is to reduce its exposure to the
volatility of natural gas prices by hedging a portion of its production. As of
June 30, 1996, approximately 66% of Ryder Scott's estimate of the Company's
expected production from proved producing wells for the third and fourth
quarters of 1996 is hedged. For calendar 1997, approximately 31% of Ryder
Scott's estimate of the Company's expected production from proved producing
wells is hedged. The Company's credit facility with Union Bank of California,
N.A. ("Union Bank") requires the Company to maintain its hedging contracts in
effect as of August 28, 1996 and to enter, prior to December 1, 1996, into
contracts covering an additional 0.7 Bcf of natural gas. No assurance can be
given as to the financial effect on the Company of these requirements. By
replacing the right to receive the market price for its production with a right
to receive the differences in the market price and the fixed hedge price,
hedging will prevent the Company from receiving the full advantage of increases
in crude oil or natural gas prices above the fixed amount specified in the
hedge. In addition, significant reductions in production at times when the
market price exceeds the price fixed in the hedge transaction could require the
Company to make payments under the hedge agreements even though such payments
are not offset by sales of production. The occurrence of such an event could
have a material adverse effect on the Company's financial conditions and results
of operation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Hedging Activities."
RISKS OF PURCHASING INTERESTS IN PRODUCING PROPERTIES
Although the Company currently emphasizes reserve growth through drilling
on its existing properties, it expects to make acquisitions of producing
properties from time to time. It generally will not be feasible for the Company
to review all records of every property it purchases. However, even an in-depth
review of all records may not necessarily reveal existing or potential problems,
nor will it permit a buyer to become familiar enough with the properties to
assess fully their deficiencies and capabilities. Evaluation of future
recoverable reserves of natural gas and oil, which is an integral part of the
property selection process, depends upon evaluation of existing geological,
engineering and production data, some or all of which may prove to be unreliable
or not indicative of future performance. See " -- Uncertainty of Estimates of
Reserves and Future Net Revenue." To the extent the seller does not operate the
properties, obtaining access to properties and records may be more difficult.
Even when problems are identified, the seller may not be willing or financially
able to give contractual protection against such problems, and the Company may
decide to assume environmental and other liabilities in connection with acquired
properties. See "Business and Properties -- Oil and Gas Exploration and
Development -- Title to Properties."
CONTROL BY PRINCIPAL STOCKHOLDERS
After the Offering, Natural Gas Partners, L.P. ("NGP") and the founders
of the Company, Messrs, Strassner, Kiesewetter and Anderson, will beneficially
own in the aggregate approximately 52% of the outstanding Common Stock. If such
stockholders should agree to act together with respect to the voting of their
Common Stock, they would be able to elect the board of directors or determine
the outcome of other matters requiring stockholder action without the
concurrence of any other stockholder. See " -- Certain Anti-takeover
Provisions" and "Principal and Selling Stockholders."
DILUTION
Purchasers of shares of Common Stock in this Offering will experience
immediate and substantial dilution. See "Dilution."
NO PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the shares of
the Common Stock. Although the Company is applying for inclusion of the Common
Stock on the NASDAQ National Market, there can be no assurance that an active
trading market for such shares will develop or be sustained. The initial public
14
offering price for the Common Stock has been determined by negotiations among
the Company and the Underwriters, and may not be indicative of the market price
of the Common Stock after this Offering. See "Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain provisions
which may have the effect of delaying, deferring or preventing a change in
control of the Company. These provisions, among other things, provide for a
classified Board of Directors with staggered three-year terms, impose certain
procedural requirements on stockholders of the Company who wish to make
nominations for elections of directors or propose other actions at stockholders'
meetings and authorize the Board of Directors to fix the rights and preferences
of the shares of a series of preferred stock without stockholder approval. Any
series of preferred stock is likely to be senior to the Common Stock with
respect to dividends, liquidation rights and, possibly, voting. The ability to
issue preferred stock could have the effect of discouraging unsolicited
acquisition proposals. See "Description of Capital Stock -- Certain Provisions
of the Company's Charter and Bylaws and Delaware Law." The Company's employee
stock option plan contain provisions that allow for, among others, the
acceleration of vesting or payment awards granted under such plan in the event
of a "change of control," as defined in such plan. See "Management -- 1996
Stock Awards Plan." Certain of the Company's partnership agreements and its
credit facility with Union Bank contain provisions that impose adverse
consequences on the Company if its key officers are removed or sell 75% or more
of their respective ownership interests in the Company following this Offering.
See " -- Dependence on Key Personnel."
SHARES ELIGIBLE FOR FUTURE SALE
The Company, each of its directors and executive officers and NGP each have
agreed not to dispose of any shares of Common Stock for a period of 180 days
from the date of this Prospectus without the consent of Morgan Keegan & Company,
Inc. Following such period, a total of 4,869,885 shares of Common Stock will be
eligible for resale after the satisfaction of the two-year holding period and
the volume and other requirements of Rule 144 under the Securities Act of 1933,
as amended ("Securities Act"). In addition, options to purchase a total of
722,600 shares of Common Stock will have been granted as of the completion of
this Offering to members of the Company's management, 96,280 shares of which are
presently exercisable, and all of which would be issued pursuant to a
registration statement on Form S-8 and become freely tradeable, subject in
certain cases to the provisions of Rule 144 other than the holding period. The
Company has entered into a Registration Rights Agreement (the "Registration
Rights Agreement") with NGP (including certain affiliates) and Messrs.
Strassner, Kiesewetter and Anderson. Under the Registration Rights Agreement,
after one year following the completion of this Offering, the holders of at
least 35% of the shares held by NGP (including certain affiliates) and Messrs.
Strassner, Kiesewetter and Anderson may require the Company to register shares
held by such persons under applicable securities laws. In addition, the
Registration Rights Agreement entitles NGP (including certain affiliates) and
Messrs. Strassner, Kiesewetter and Anderson and, for two years after the
effective date of the Company's initial registration statement under the
securities laws, certain other stockholders, to include shares held by them in
certain registrations under applicable securities laws initiated by the Company.
See "Management -- Certain Transactions."
No prediction may be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for sale could have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception of
the availability of shares for sale, could adversely affect the prevailing
market price of the Common Stock and could impair the Company's ability to raise
capital through the future sale of its equity securities. See "Shares Eligible
for Future Sale."
15
USE OF PROCEEDS
The net proceeds to the Company from this Offering (assuming a public
offering price of $ ) are estimated to be approximately $ million. Of such
net proceeds, (i) up to $14 million will be used to repay funds advanced by an
affiliate of Enron Capital & Trade Resources, Inc. ("ECT" and such affiliate
is referred to as the "ECT Affiliate"), a subsidiary of Enron, to South
Dauphin II Limited Partnership ("SDPII"), a partnership managed by the
Company, to fund a five-well drilling and development program, and to complete
the development of such wells, (ii) $12 million will be used to redeem from an
affiliate of NGP all of the outstanding mandatorily redeemable partnership
preference units of OEDC Partners, L.P., a subsidiary of the Company, and (iii)
the balance will be used for working capital and other general corporate
purposes, including funding a portion of the Company's 1996 and 1997 capital
expenditures budget. The Company will not receive any of the proceeds paid to
the Selling Stockholders.
The Company and the ECT Affiliate formed SDPII in June 1996 to finance the
drilling and development of five wells. The ECT Affiliate has agreed to
contribute 85% of the partnership capital contributions in exchange for an 85%
interest in SDPII's net cash flow (100% until a minimum payment schedule has
been satisfied) until it has received the return of its investment plus a 15%
rate of return, at which time its interest reduces to 25%. The financing is
nonrecourse to the Company's other assets. The Company's interest in SDPII will
increase from 15% to 75% contemporaneously with the decrease in the ECT
Affiliate's interest. The Company intends to prepay the amounts due to the ECT
Affiliate from this Offering. Under the terms of the partnership agreement, the
repayment of the ECT Affiliate through funds obtained from this Offering rather
than operations will require the payment to the ECT Affiliate of an additional
sum equal to ten percent (10%) of the amount outstanding plus five percent (5%)
of the unused portion of the ECT Affiliate's commitments.
Pursuant to the terms of the Amended and Restated Agreement of Limited
Partnership of OEDC Partners, L.P. dated July 31, 1995, the partnership is
required to redeem one-half of the partnership's preference units issued to an
affiliate of NGP no later than December 31, 1997 and the balance no later than
December 31, 1998. The aggregate redemption price of all of the preference units
is $12 million. The Company will utilize $12 million of the net proceeds of the
Offering to redeem all of the outstanding preference units. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financing Activities -- OEDC
Partners, L.P. Preference Units."
DIVIDEND POLICY
The Company does not intend to pay dividends. The Company currently intends
to retain its capital for the operation and expansion of its business. The
Company's loan agreement with Union Bank prohibits the payment of dividends by
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Financing
Activities -- Credit Facility."
16
DILUTION
As of June 30, 1996, the net tangible book value (total tangible assets
less total liabilities) of the Company, was approximately $ million, or
$ per share of Common Stock, assuming completion on that date of the
Combination described elsewhere herein. After giving effect to the receipt of
$ million of estimated net proceeds from this Offering (net of estimated
underwriting discounts and commissions and offering expenses and assuming a
public offering price of $ per share), the pro forma net tangible book value
of the Common Stock outstanding at June 30, 1996 would have been $ per
share, representing an immediate increase in net tangible book value of $
per share to the existing stockholders and an immediate dilution of $ per
share (the difference between the initial public offering price and the net
tangible book value per share after this Offering) to persons purchasing Common
Stock at the initial public offering price. The following table illustrates such
per share dilution:
Assumed initial public offering price
per share.......................... $
---------
Pro forma net tangible book
value per share before this
Offering....................... $ .74
---------
Increase in net tangible book
value per share attributable to
the sale of Common Stock in
this Offering..................
---------
Pro forma net tangible book value per
share after giving effect to this
Offering........................... $
---------
Dilution in pro forma net tangible
book value to the purchasers of
Common Stock offered hereby........ $
=========
The foregoing computations do not include 722,600 shares of Common Stock
issuable upon exercise of outstanding management stock options at an average
exercise price of $ , per share. See "Management -- 1996 Stock Awards
Plan -- Grants." Assuming the exercise of all such options, the net tangible
book value per share before this Offering would be $ , the pro forma net
tangible book value per share after this Offering would be $ and the
dilution per share to new investors would be $ .
17
CAPITALIZATION
The following table sets forth (i) the historical combined capitalization
of the Company as of June 30, 1996, (ii) the pro forma capitalization of the
Company as of June 30, 1996 after giving effect to the issuance of 5,051,882
shares of Common Stock in the Combination, and a one time non-cash charge of
$1,937,000 to establish a deferred tax liability upon consummation of the
Combination, and (iii) the pro forma capitalization of the Company as of June
30, 1996, as adjusted to give effect to the sale of 3,000,000 shares of Common
Stock in the Offering and the application of the net proceeds therefrom as
described in "Use of Proceeds." This table should be read in conjunction with
the Company's financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL FOR AS
COMBINED COMBINATION ADJUSTED(1)
----------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt (excluding current
maturities)........................ $-- $-- $--
Redeemable preference units.......... 12,000 12,000 --
Stockholders'/partners' equity....... 5,672
Common Stock......................... -- 50
Additional paid-in capital........... 91 3,776
Retained earnings.................... 208 208
----------- --------------- ------------
Total stockholders'/partners'
equity............................. $ 5,971 $ 4,034 $
----------- --------------- ------------
Total capitalization................. $17,971 $16,034 $
=========== =============== ============
</TABLE>
- ------------
(1) After this Offering the Company will have (i) 10,000,000 shares of Common
Stock authorized and 8,051,885 shares issued and outstanding and (ii)
1,000,000 shares of preferred stock, $.01 par value per share, authorized,
none of which will be issued or outstanding.
18
SELECTED COMBINED FINANCIAL DATA
The following table sets forth selected combined historical financial data
for the Company as of and for each of the periods indicated. The financial data
for each of the four years ended December 31, 1995, and the financial data for
the six months ended June 30, 1996, are derived from the audited financial
statements of the Company. The financial data for the year ended December 31,
1991 and for the six months ended June 30, 1995 are derived from the Company's
unaudited financial statements. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's financial statements included elsewhere in
this Prospectus. The results for the six months ended June 30, 1996 are not
necessarily indicative of results for the full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
------------ --------- --------- --------- --------- ------------ ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Income:
Exploration and production....... $ 5,298 $ 2,116 $ 1,744 $ 5,513 $ 6,169 $ 1,859 $ 5,549
Pipeline and marketing........... -- 886 358 358 (167) (49) 345
Equity in earnings (loss) of
equity investments............. -- -- (255) (3) 497 315 23
Gain on sales of oil and gas
properties or partnership
investments, net............... -- -- -- 13,655 -- -- 10,661
------------ --------- --------- --------- --------- ------------ ---------
Total income................ 5,298 3,002 1,847 19,523 6,499 2,125 16,578
------------ --------- --------- --------- --------- ------------ ---------
Expense:
Operations and maintenance....... 919 745 570 1,410 1,876 922 876
Exploration charges.............. -- 36 32 2,231 405 153 421
Depreciation, depletion and
amortization................... 1,915 1,941 355 2,112 5,501 1,598 2,876
Abandonment expense.............. -- -- 59 2,735 84 13 216
General and administrative....... 561 785 1,725 2,359 2,192 1,155 1,155
------------ --------- --------- --------- --------- ------------ ---------
Total expense............... 3,395 3,507 2,741 10,847 10,058 3,841 5,544
------------ --------- --------- --------- --------- ------------ ---------
Earnings (loss) before interest and
taxes.............................. 1,903 (505) (894) 8,676 (3,559) (1,716) 11,034
Interest income (expense) and other:
Interest expense and preference
payments....................... (805) (975) (960) (2,606) (2,499) (989) (1,162)
Interest income and other........ 35 (63) (225) 316 123 229 (65)
------------ --------- --------- --------- --------- ------------ ---------
Total interest income
(expense) and other....... (770) (1,038) (1,185) (2,290) (2,376) (760) (1,227)
------------ --------- --------- --------- --------- ------------ ---------
Income (loss) before income taxes.... 1,133 (1,543) (2,079) 6,386 (5,935) (2,476) 9,807
Income tax benefit (expense)......... -- -- -- (27) 21 10 (13)
------------ --------- --------- --------- --------- ------------ ---------
Net income (loss).................... $ 1,133 $ (1,543) $ (2,079) $ 6,359 $ (5,914) $ (2,466) $ 9,794
============ ========= ========= ========= ========= ============ =========
EBITDA............................... $ 3,818 $ 1,436 $ (539) $ 10,788 $ 1,942 $ (118) $ 13,910
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
------------ --------- --------- --------- --------- ------------ ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Property, plant and equipment,
net............................ $ 5,517 $ 14,146 $ 23,626 $ 9,599 $ 20,108 $ 18,989 $ 17,301
Total assets..................... $ 6,236 $ 16,828 $ 30,952 $ 20,035 $ 25,170 $ 24,858 $ 24,551
Total long term debt (less
current portion)............... $ 30 $ -- $ -- $ 5,969 $ -- $ 10,922 $ --
Redeemable preference units...... $ -- $ 6,500 $ 6,500 $ 6,500 $ 12,000 $ 6,500 $ 12,000
Stockholders'/partners' equity
(deficit)...................... $ 1,952 $ 971 $ (1,091) $ 2,192 $ (3,822) $ (263) $ 5,971
</TABLE>
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Combined Financial Statements and Notes thereto and other financial information
included elsewhere in this Prospectus.
OVERVIEW
The Company was formed in 1996 for the purpose of becoming the holding
company for OEDC Partners, L.P. and OEDC, Inc. pursuant to the terms of an
Agreement and Plan of Reorganization dated August , 1996 (the "Combination").
Under the terms of the Combination, the Company will (i) acquire all of the
outstanding capital stock of OEDC, Inc. previously owned by Messrs. Strassner,
Kiesewetter, Anderson and Bradshaw (including certain of his family members) and
by NGP, (ii) acquire by merger 50% of the common limited partnership units of
OEDC Partners, L.P. from the Texas corporation having the same name as the
Company, and (iii) acquire 50% of the common units of OEDC Partners, L.P. held
by the partners of NGP and certain of its employees. The Company will be the
surviving corporation in the merger. As a result of the change in the form of
the business resulting from the Combination, the Company will incur a charge of
$1,937,000 to record a deferred tax liability reflecting the excess of the
pre-Combination tax deductions for intangible drilling costs over the amount of
their depreciation for financial statement purposes. The Combination will be
consummated contemporaneously with the closing of this Offering.
The Company's predecessor commenced operations in 1988 and drilled one well
per year through 1992. From 1993 through 1995, the Company drilled five to seven
gross wells per year, initiating and managing over $125 million in capital
projects in gas exploration, production and gathering and retaining an average
interest of 50% in these projects. Project funding came initially from private
placements and later from NGP, mezzanine financing sources and partnerships and
other arrangements with industry participants. The Company's growth was
constrained by its lack of financial resources, requiring the Company to develop
projects utilizing short-term vendor financing and other borrowings and to sell
its interests in the projects it initiated at a profit rather than retain them.
This resulted in the Company sustaining losses in years when it incurred the
project expenses and gains in the years when the interests in the projects were
sold. During 1993 and 1995, the Company sustained losses resulting from the
expense incurred in forming a property development partnership with a subsidiary
of Enron and the expense associated with development expenditures on its Mobile
959/960 cluster, respectively, while net income was recorded in 1994 and the
first half of 1996 as the result of gains on the sale of properties from the
Enron partnership and all but one percent of the Company's interest in DIGP,
respectively.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
INCOME. Total income for the Company increased $14,453,254 (680%) from
$2,124,860 in the six months ended June 30, 1995 to $16,578,114 in the six
months ended June 30, 1996. Natural gas revenue increased $3,689,736 (198%) from
$1,859,093 in the six months ended June 30, 1995 to $5,548,829 in the six months
ended June 30, 1996, primarily as a result of an increase in production volumes
from 1.02 Bcfe during the 1995 period to 2.53 Bcfe during the 1996 period. The
increase in production volumes was attributable to completion of the Company's
South Timbalier 162 B-7 well, which occurred in October 1995. New production
from the South Timbalier 162 B-7 well was partially offset by normal production
declines experienced at the Mobile 959/960 cluster. Average natural gas prices
(inclusive of hedging) were $1.82 per Mcfe compared to $2.20 per Mcfe in the six
months ended June 30, 1995 and 1996, respectively.
In the six months ended June 30, 1996, the Company's pipeline and marketing
income increased $393,452 (807%) compared to the six months ended June 30, 1995
due to the increase in January 1996 of the monthly management fee that the
Company earns for operating the DIGS from $5,800 to $44,650 per month. Prior to
January 1, 1996, the Company performed similar functions for minimal
remuneration as a 25% partner in DIGP. See " -- Liquidity and Capital Resources
- -- Cash Flow from Operations." The Company experienced marketing charges during
the first half of 1996 and 1995 as a result of unused firm
20
transportation charges in the Mobile area. These charges were more than offset
by marketing revenue from the South Timbalier B-7 well in the first half of
1996.
Equity earnings in DIGP decreased by $291,367 (92%) for the six months
ended June 30, 1996 as compared to the same period in 1995 due to the decrease
in the Company's ownership of DIGP from 25% to one percent.
During the first six months of 1996, the Company consummated the sale of
all but a one percent general partnership interest in DIGP, resulting in a gain
of $10,826,938 net to the Company. The gain on this sale was partially offset by
a $165,505 loss the Company realized on the sale of a non-producing lease block
that no longer fit within the Company's development plans.
EXPENSE. Total expense increased $1,703,246 (approximately 44%) from
$3,841,658 in the first half of 1995 to $5,544,904 in the first half of 1996.
Operations, maintenance and insurance expense was essentially flat between
the two periods. The Company's depreciation, depletion and amortization expenses
("DD&A") increased approximately 80% from $1,597,913 in the six months ended
June 30, 1995 to $2,876,566 in the six months ended June 30, 1996. The DD&A
charge for the first six months of 1995 was $1.56 per Mcfe compared to $1.14 per
Mcfe for the same period in 1996. The larger DD&A charge per Mcfe for the first
half of 1995 was the result of higher reserve finding costs in the Mobile
959/960 cluster. In addition, the South Timbalier 162 B-7 well commenced
production in the fourth quarter of 1995 and had relatively low finding costs,
which reduced the average DD&A charge per Mcfe.
The Company's abandonment expense increased by $202,962 from $13,159 during
the six months ended June 30, 1995 to $216,121 for the same period in 1996. The
expense for 1996 consisted of a $68,944 accrual associated primarily with the
South Timbalier 162 property and actual abandonment expense of $147,177 recorded
during the period relating to the settlement of a dispute regarding the
previously abandoned Eugene Island 163 property.
INTEREST EXPENSE AND PREFERENCE PAYMENTS. Interest and preference payment
expense increased $172,944 (17%) from $989,188 in the first half of 1995 to
$1,162,132 in the first half of 1996 primarily as a result of the purchase by
NGP of additional preference units in OEDC Partners, L.P.
In the six months ended June 30, 1995, interest of $623,688 was paid to the
ECT Affiliate under a combined term and revolving credit facility. Borrowings
under the term facility bore interest at a fixed rate of 15% per annum, and
borrowings under the revolving credit facility bore interests at a floating rate
equal to 2.5% above the applicable prime rate. During the first quarter of 1996,
such term facility was repaid and amounts outstanding under the revolving credit
facility were reduced by 50%. This reduced interest charges during the first six
months of 1996 by $219,271 (35%). The reduction in interest expense from such
credit facility was partially offset by $142,715 in additional first quarter
interest charges, most of which related to the delayed settlement of hedging
agreements.
In the first half of 1995, preference payments to NGP totaled $292,500,
representing a nine percent coupon on all preference units outstanding. In the
first half of 1996, preference payments to NGP were $540,000, reflecting
additional preference units purchased by NGP in August 1995.
NET INCOME (LOSS). The Company incurred a net loss of $2,466,329 in the
first half of 1995 compared to net income of $9,793,125 in the first half of
1996. The net income for the first six months of 1996 was primarily attributable
to the gain realized by the Company on the sale of all but a one percent
interest in DIGP and the absence of any comparable transaction in the prior
period.
1995 COMPARED TO 1994
INCOME. Total income decreased $13,024,987 (67%) from $19,523,092 in 1994
to $6,498,105 in 1995. Natural gas revenue increased $656,095 (12%), primarily
as a result of increased natural gas prices, while production volumes in 1995
decreased slightly from 3.69 Bcfe in 1994 to 3.67 Bcfe produced in 1995. Normal
production declines were largely offset by the addition of the South Timbalier
162 B-7 well
21
in October 1995. The average natural gas price received (inclusive of hedging)
in 1994 was $1.50 per Mcfe compared to $1.68 in 1995, representing a 12%
increase.
The Company's pipeline and marketing income decreased $525,615 from 1994 to
1995 as a result of decreased pipeline construction activity and marketing
charges due to unused firm transportation charges in the Mobile area.
Equity earnings in DIGP increased from a loss of $2,779 in 1994 to positive
earnings of $496,979 in 1995 as a result of increased throughput in the DIGS.
The Company sold its interest in the Mobile 822 cluster during second
quarter 1994 at a gain of $13,655,225, which was the primary reason the Company
reported net income in 1994 as compared to its net loss in 1995.
EXPENSE. Total expense decreased $789,661 (7%) from $10,847,851 in 1994 to
$10,058,190 in 1995. Operations and maintenance charges increased by $465,955
(33%) from $1,410,231 in 1994 to $1,876,186 in 1995. In 1995 two new properties,
the Mobile 959/960 cluster and the South Timbalier B-7, were brought on
production, while in 1994 no new properties were brought on production. The
start-up of these wells resulted in additional expense for personnel,
transportation and supplies.
Exploration charges decreased by $1,826,513 (82%) from $2,231,349 in 1994
to $404,836 in 1995, due principally to the Company recording a dry hole charge
of $1,585,872 relating to the Viosca Knoll 79 well and the absence of a similar
charge in 1995. Expense relating to seismic data acquisition and processing
declined by $558,641 from $645,477 in 1994 to $86,836 in 1995. During 1995, the
Company paid $318,000 in lease rentals on acreage acquired in 1994.
In 1994, seismic work was being done on the Mobile 959/960 cluster, while
in 1995 no new projects were being developed that involved new seismic
expenditure. The South Timbalier 162 3-D seismic was contributed to the Company
by Amoco in exchange for an option for Amoco to participate in drilling
prospects generated from that 3-D seismic survey.
The Company's DD&A expense increased $3,388,722 (160%) from $2,112,350 in
1994 to $5,501,072 in 1995 as a result of the commencement of production of the
Mobile 959/960 cluster, which had a higher finding cost per Mcfe than the
Company's reserves producing in 1994. The DD&A charge in 1994 was $.57 per Mcfe
compared to $1.50 Mcfe in 1995.
Abandonment expense declined $2,651,034 (97%) from $2,735,253 in 1994 to
$84,219 in 1995 as the result of a charge of $2,264,743 relating to the
abandonment of the Company's Eugene Island 163 platform in 1994. This platform
was not able to resume production because of water encroachment in the wellbore
during a routine shut-in due to a hurricane. Other abandonment charges and
accruals were approximately $470,510 in 1994.
INTEREST EXPENSE AND PREFERENCE PAYMENTS. In 1994, the Company made
preference payments of $1,430,722 to affiliates of Enron to meet non-recurring
partnership obligations. Of this amount, $1,300,000 was a non-cash capital
account adjustment compensating Enron for the cost of capital advanced to DIGP.
In 1994, the Company paid $585,000 in preference payments to NGP, which
represents a nine percent coupon on NGP's preference units. This increased to
$847,500 in 1995, due to NGP's purchase of additional preference units in August
1995.
The $1,168,222 decrease in preference payments from 1994 to 1995 was offset
by an increase in interest charges in 1995 of approximately the same amount. In
1994, the Company paid the ETC Affiliate $349,673 in interest under a term and
revolving credit facility, as compared to $774,445 and $801,618 under the term
and revolver portions of the credit facility, respectively, in 1995. The term
portion of the credit facility was used to partially fund the Company's
development in the Mobile 959/960 cluster and bore interest at a rate of 15% per
annum. The revolver was used for general corporate purposes and bore interest at
a rate equal to the applicable prime rate plus 2.5%. In 1994, NGP provided the
Company a short-term working capital bridge facility. Borrowings under the NGP
facility bore interest at 15% per annum and
22
$175,000 was paid to NGP during 1994 under this facility. This loan was repaid
in 1994. In 1995, the Company incurred $75,000 in miscellaneous interest
charges.
NET INCOME (LOSS). The Company recorded 1994 net income of $6,359,516
compared to a net loss of $5,914,299 in 1995 as a result of the 1994 sale of its
interest in the partnership owning the Mobile 822 cluster.
1994 COMPARED TO 1993
INCOME. Income increased $17,676,361 (957%) from $1,846,731 in 1993 to
$19,523,092 in 1994. Natural gas revenue increased $3,768,030 (216%) from
$1,744,466 during 1993 to $5,512,496 in 1994, due primarily to increased
production, which was partially offset by lower average natural gas prices.
Natural gas production increased by 3.01 Bcfe (449%) from 0.67 Bcfe in 1993 to
3.68 Bcfe in 1994 as a result of an increase in the Company's interest in the
partnership owning the Mobile 822 cluster from 20% to 80%, and as a result of
having three more months of production from that cluster in 1994. In addition,
the Company added production in 1994 from three new wells drilled during that
year. The price the Company received for natural gas sales (inclusive of
hedging) decreased 42% from $2.59 per Mcfe in 1993 to $1.50 per Mcfe in 1994.
The equity loss in DIGP decreased from $255,493 in 1993 to a loss of $2,779
in 1994 as a result of increased throughput in the DIGS.
The Company sold its interest in the Mobile 822 cluster during second
quarter of 1994 at a gain of $13,655,225, which resulted in the Company
recording net income of $6,359,516 in 1994 compared to a net loss of $2,079,166
in 1993.
EXPENSE. Total expense increased $8,107,155 (296%) from $2,740,696 in 1993
to $10,847,851 in 1994. Operations, maintenance and insurance cost increased by
$840,064 (147%) from $570,167 in 1993 to $1,410,231 in 1994. Cost directly
relating to lease operating expense increased $577,000 (109%) from $526,802 in
1993 to $1,103,557 in 1994, due to the increased scope of production operations
primarily at the Mobile 822 cluster. Insurance costs increased from $19,738 in
1993 to $232,927 in 1994 and operations consulting costs increased from $23,627
in 1993 to $73,747 in 1994 as a result of the above noted expanded scope of
operations during 1994.
Exploration charges increased $2,199,000 from $32,349 in 1993 to $2,231,349
in 1994. The relatively low costs in 1993 represented seismic related costs of
$19,526 and delay rentals of $12,823. Seismic expense increased significantly in
1994 to $645,477 due to seismic acquisition and analysis expenses incurred in
connection with the Company's participation in Minerals Management Service
("MMS") lease auctions during 1994 and expense associated with defining drilling
prospects. In addition, the Company incurred dry hole expense in 1994 of
$1,585,872 relating to the Viosca Knoll 79 well.
DD&A increased by $1,757,733 (496%) from $354,617 in 1993 to $2,112,350 in
1994. The increase in DD&A in 1994 was primarily the result of increased
ownership in the partnership owning the Mobile 822 cluster coupled with
increased production from three additional wells drilled and connected to such
cluster. The DD&A charge in 1993 was $0.53 per Mcfe compared to $0.57 per Mcfe
in 1994.
Abandonment expense increased $2,676,133 from $59,120 in 1993 to $2,735,253
in 1994, primarily as a result of write down and abandonment charge of
$2,264,743 incurred in 1994 relating to the abandonment of the Company's Eugene
Island 163 platform. This platform was not able to resume production because of
water encroachment in the wellbore during a routine shut-in due to a hurricane.
Other abandonment charges and accruals were $470,510 in 1994.
General and administrative expense increased $634,225 (37%) from $1,724,443
in 1993 to $2,358,668 in 1994. The increase during 1994 was primarily
attributable to additional payroll and consulting expenses associated with the
increase in the Company's scope of operations during 1994 relative to 1993.
INTEREST EXPENSE AND PREFERENCE PAYMENTS. The Company's total interest and
preference payment expense increased $1,646,035 (172%) from $959,635 in 1993 to
$2,605,670 in 1994. In 1993, preference payments to NGP totaled $731,250,
representing coupon payments on preference units outstanding during
23
1993. Preference payment expense to NGP in 1994 was $585,000. In 1994, the
Company made preference payments of $1,430,722 to affiliates of Enron to meet
non-recurring partnership obligations. Of this amount, $1,300,000 was a non-cash
capital account adjustment compensating Enron for the cost of capital advanced
to DIGP.
In 1993, NGP provided the Company a short-term credit facility that bore
interest at 15% per annum. Interest expense under this facility was $180,748 in
1993, and the loan (including interest of $175,000) was repaid in 1994. In 1993,
the Company also incurred interest expense of $47,637 relating to the initial
development of the DIGS. In addition, during 1994 the Company entered into a
lease/purchase transaction involving a natural gas compressor with an imputed
interest rate of 11% per annum, which resulted in interest charges of $65,275.
In 1994, the Company paid the ECT Affiliate $349,673 in interest under a term
and revolving credit facility. The term portion of the credit facility was used
to partially fund the Company's development in the Mobile 959/960 cluster and
bore interest at a fixed rate of 15% per annum. The revolving credit facility
was used for general corporate purposes and bore interest at a floating rate
equal to 2.5% above the applicable prime rate.
The Company's other expense was $225,566 in 1993, consisting of a write off
of capitalized costs associated with a gas storage project.
Interest income in 1993 was $73,198 compared to $218,295 in 1994 as a
result of larger cash balances following the sale of the Mobile 822 cluster in
1994.
NET INCOME (LOSS). The Company incurred a net loss of $2,079,166 in 1993
compared to net income of $6,359,516 in 1994. The loss in 1993 was the result of
the Company incurring cost during the development phase of the Mobile 822
cluster prior to the receipt of revenues from that cluster.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY
The Company's main source of liquidity historically has been short-term,
project-specific debt and equity and vendor financings. The large early debt
service demands of these financings have created periodic liquidity strains on
the Company. The Company reduced its cash position by $9,842,767 due to
financing activities during the first half of 1996, which consisted primarily of
repayment of the ECT Affiliate term facility for the development of Mobile
959/960 cluster and the repayment of $2,500,000 of the ECT Affiliate revolving
credit facility. During the first half of 1995, the Company realized net
proceeds of $4,932,819 from financing activities, which represented borrowings
under such term credit facility for the development of Mobile 959/960 cluster.
In the future the Company intends to finance its capital expenditures out of
funds generated from operations, the proceeds of this Offering and bank
borrowings.
The second largest source of liquidity has been the profitable sale of
assets which the Company has developed. The Company received net cash of
$9,768,774 from investing activities in the first half of 1996 as compared to
utilizing $11,263,337 in investing activities during the first half of 1995. The
1996 cash inflow was the result of selling all but one percent of the Company's
interest in DIGP and selling a non-strategic lease block. This was partially
offset by investments in properties and a contribution to DIGP to repay its
nonrecourse liabilities. The 1995 investment outflows consisted primarily of
development activities on the Mobile 959/960 cluster.
WORKING CAPITAL
The Company had a working capital deficit of $1,011,953 as of June 30, 1996
as compared to a working capital deficit of $2,221,211 at June 30, 1995. The
Company periodically has experienced substantial working capital deficits. The
Company has incurred substantial expenditures for the acquisition and
development of capital assets either on vendor open accounts payable or under
short-term financings. The Company has been able to refinance the accounts
payable balances by including them in longer-term project financings. In
addition, the Company's properties have usually generated sufficient cash within
12 months to repay the investments therein. Thus, capital investments in
properties have converted to cash or generated borrowing capacity rapidly enough
to finance the Company's working capital deficits.
24
CASH FLOW FROM OPERATIONS
Discretionary cash flow is a measure of performance that is useful for
evaluating exploration and production companies. It is derived by adjusting net
income or loss to eliminate the non-cash effects of exploration expenses,
depletion, depreciation, amortization and non-recurring charges, if applicable.
This measure represents the amount that is available for capital expenditures,
debt service and repayment and dividend payments.
During the six months ended June 30, 1996, the Company generated
discretionary cash flow of $2,143,906. This compares to a deficit of $862,215
during the same period in 1995. The improvement in 1996 was due primarily to new
production from the South Timbalier 162 B-7 well. While improved gas prices also
contributed to the increase in discretionary cash flow, the impact was
diminished by a decrease in exploration and production revenue attributable to
hedging activities in 1996 and by an increase in exploration and production
revenue attributable to hedging activities in 1995. This is consistent with the
Company's hedging program to moderate fluctuations in cash flows and thereby
enable the Company to cover its fixed obligations despite fluctuations in
commodity prices.
Discretionary cash flow during the first six months of 1996 was also
increased by the Company's receipt of management fees the Company began to earn
as the operator of DIGP, which contributed almost $268,000 of operating cash
flow in that period. Prior to January 1, 1996, the Company performed similar
functions for minimal remuneration as a 25% partner in DIGP. The terms of the
sale by the Company of all but a one percent general partnership interest in
DIGP provided for compensation to the Company for its services as operator. This
fee has been increased to $330,000 for the second half of 1996.
FINANCING ACTIVITIES
The Company's capital budget provides for $36 million in expenditures
before the end of 1997. The Company believes that the proceeds of this Offering,
borrowings under the credit facility described below and cash flows generated
from operations will be sufficient to fund these budgeted expenditures. However,
no assurance may be given as to the adequacy of these sources. See "Risk Factors
- -- Substantial Capital Requirements."
CREDIT FACILITY. The Company has a two-year line of credit with Union Bank
of California, N.A. Borrowing under the line of credit may not exceed at any
time the lesser of $10 million or a borrowing base (computed with reference to
the Company's oil and gas reserves) as determined by the bank in its sole
discretion. The borrowing base will be determined at least semiannually. At
August 28, 1996, the borrowing base was $6,250,000 and $2,633,606 was
outstanding under this facility. The borrowing base will be reduced by $312,500
per month for 12 months commencing September 30, 1996, by $250,000 per month for
the succeeding six months and by $166,667 per month for the final six months of
the agreement, unless changed by the bank at the time of a borrowing base
redetermination. Borrowings under this facility bear interest at a rate equal
to, at the Company's option, either the bank's reference rate plus 1% or LIBOR
plus 2.5%, with an effective rate of interest at August 28, 1996 of 7.84%.
The credit facility contains restrictive covenants imposing limitations on
the incurrence of indebtedness, the sale of properties, payment of dividends,
mergers or consolidations, capital expenditures, transactions with affiliates,
making loans, and investments outside the ordinary course of business. The
facility requires that the Company maintain at the subsidiary level certain
minimum financial ratios, including a current ratio of at least 1:1, and an
interest coverage ratio of 2.5:1. In addition, the weighted average maturity of
indebtedness incurred on ordinary terms to vendors, suppliers and others
supplying goods and services to the Company in the ordinary course of business
may not exceed 60 days. The loan agreement, in addition to customary default
provisions, provides that it is an event of default if either (i) a person or
group (other than Messrs. Strassner, Kiesewetter, Anderson and Bradshaw and
their respective family members, and NGP), owns beneficially more than 50% of
the Company's voting capital stock outstanding, or (ii) any two of Messrs.
Strassner, Kiesewetter, Anderson and Bradshaw cease to be actively involved in
the management and operation of the Company for any reason other than his death
or disability. The credit facility requires the Company to maintain its hedging
contracts in effect as of August 28, 1996
25
and to enter into, prior to December 1, 1996, hedging contracts covering an
additional 0.7 Bcf of natural gas.
Indebtedness under the credit facility is secured by a first lien upon
substantially all of the properties owned by OEDC Exploration and Production,
L.P. and by the pledge of the Company's limited partnership interests in SDP and
SDPII and its general partnership interest in DIGP. All assets not subject to a
lien in favor of the lender are subject to a negative pledge, with certain
exceptions.
SOUTH DAUPHIN II LIMITED PARTNERSHIP. The Company and the ECT Affiliate
formed SDPII to fund the development of five wells and the related
infrastructure. The ECT Affiliate and the Company fund 85% and 15%,
respectively, of the drilling and development cost. The financing of SDPII is
nonrecourse to the Company's other assets. Pursuant to the terms of the
partnership agreement, the ECT Affiliate will receive 85% of the net cash flows
from the subject wells (provided a minimum payment schedule is met) until it has
been repaid all of its original investment plus a 15% pre-tax rate of return
("Payout"). Once Payout has occurred, the ECT Affiliate's interest will decrease
to 25% and the Company's interest will increase to 75%. The Company has the
option to prepay the ECT Affiliate's investment and accelerate the ownership
change. If such repayment is from financing activities instead of cash flow from
operations, the Company is required to make an additional payment to the ECT
Affiliate equal to 10% of the ECT Affiliate's net investment (funds advanced
less distributions received) and five percent of the unfunded portion of the ECT
Affiliate's commitment. The Company intends to use a portion of the proceeds of
this Offering to repay such obligations and, accordingly, will incur the
additional charges. See "Use of Proceeds."
The SDPII partnership agreement also provides that the failure of any two
of Messrs. Strassner, Kiesewetter and Anderson to be actively involved in the
management and operations of SDPII constitutes a change of control of such
partnership. In such event, the agreement gives the ECT Affiliate the right to
fix a price at which the Company would be required to elect to either purchase
the ECT Affiliate's interest in the partnership or sell all of the Company's
interest in the partnership to the ECT Affiliate. See "Risk Factors --
Dependence Upon Key Personnel."
OEDC PARTNERS, L.P. PREFERENCE UNITS. NGP currently owns 120,000 preference
units in OEDC Partners, L.P. having a stated value of $100 per unit. The Company
is required to pay a nine percent per annum preference payment on all such units
outstanding. Preference payments are made on a quarterly basis. The preference
units carry a mandatory redemption of 60,000 units on December 31, 1997, and the
remaining 60,000 units are mandatorily redeemable on December 31, 1998. The
preference units are a general obligation of the Company and are subordinated to
all senior debt. If preference payments are not made as scheduled on a quarterly
basis, the coupon rate increases from nine percent to 15 percent per annum. The
Company will redeem all of the outstanding preference units with a portion of
the proceeds from this Offering. See "Use of Proceeds."
HEDGING ACTIVITIES
The Company uses financial futures to hedge its natural gas production.
These activities increased revenue by $622,295 in 1995 and $481,545 in 1994.
During the first six months of 1996, however, Company revenue were reduced by
$822,475 as a resulting of its hedging position. The hedging program in place
for the first half of 1996 was structured to ensure a minimum level of cash flow
from production to service fixed obligations such as debt service and general
and administrative expenses.
In a typical hedge transaction, the Company will have the right to receive
from the counterparty to the hedge the excess of the fixed price specified in
the hedge over a floating price based on a market index, multiplied by the
quantity hedged. If the floating price exceeds the fixed price, the Company is
required to pay the counterparty this difference multiplied by the quantity
hedged. The Company is required to pay the difference between the floating price
and the fixed price (when the floating price exceeds the fixed price) regardless
of whether the Company has sufficient production to cover the quantities
specified in the hedge.
The Company hedges through use of financial contracts, the settlement value
of which is determined by the average closing price of the last three trading
days of the NYMEX contract ("NYMEX Price") as compared to the Company's fixed
price. If the fixed price is higher than the NYMEX Price, then the
26
Company is paid the difference in price multiplied by the volumes hedged; and if
the fixed price is lower than the NYMEX Price, then the Company pays the
difference in price multiplied by the hedged volume.
As of June 30, 1996, approximately 66% of Ryder Scott's estimate of the
Company's expected production from proved producing wells for the third and
fourth quarters of 1996 is hedged at a weighted average price of $2.379. For
calendar 1997, approximately 31% of Ryder Scott's estimate of the Company's
expected production from proved producing wells is hedged at a weighted average
price of $2.233. The counter-party to all of the Company's hedge positions is
ECT. Although hedging reduces the Company's susceptibility to declines in the
sales prices of its natural gas production, it also prevents the Company from
receiving the full benefit of any increases in the sales prices of such
production. Further, significant reductions in production at times when the
Company's production is hedged could require the Company to make payments under
the hedge agreements in the absence of offsetting income. See "Risk Factors --
Effects of Price Risk Hedging." The Company's credit facility with Union Bank
requires the Company to maintain certain hedging positions. See " -- Liquidity
and Capital Resources -- Credit Facility."
CAPITAL EXPENDITURES AND FUTURE OUTLOOK
Prior to the end of 1997, the Company anticipates spending approximately
$36 million to drill 10 gross (8.6 net) wells, connect five existing wells with
proved reserves to production platforms and develop related infrastructure on
acreage leased by the Company. The potential dry hole cost included in this
capital expenditure schedule is approximately $10 million. The Company plans to
continue its strategy of cluster development pursuant to which new wells will
utilize common infrastructure to reduce overall development cost. The Company
plans to fund these future capital expenditures from proceeds of this Offering,
borrowings under the credit facility and operating cash flow. The Company
estimates that these sources will be sufficient to meet its financial
obligations to fund its planned drilling and development activities through the
end of 1997, PROVIDED, that (i) there are no significant decreases in gas prices
beyond current levels or anticipated seasonal lows, (ii) there are no
significant decreases in gas production from existing properties other than
declines in production currently anticipated based on engineering estimates of
the decline curves associated with such properties and (iii) drilling costs do
not significantly increase from drilling costs recently experienced by the
Company. See "Risk Factors -- Volatility of Natural Gas and Oil Prices" and " --
Availability of Equipment and Personnel."
In the event the cash flows from the Company's operating activities, credit
available under its credit facility with Union Bank and the proceeds from the
Offering are not sufficient to fund development costs, or results from drilling
are not as successful as anticipated, the Company will either curtail its
drilling or seek additional financing to assist in its drilling activities. No
assurance may be given that the Company will be able to obtain such additional
financing. See "Risk Factors -- Substantial Capital Requirements."
The Company intends to continue its efforts to acquire additional acreage
if and when these opportunities become available. Any such acquisition or
related drilling on such acquisition could require additional borrowings under
the credit facility with Union Bank, or additional debt or equity financing. No
assurance may be given that the Company will be able to obtain such additional
capital. See "Risk Factors -- Substantial Capital Requirements."
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and cash flow are affected by changing
oil and gas prices. Increases in oil and gas prices often result in increased
drilling activity, which in turn increases the demand for and cost of
exploration and development. Thus, increased prices may generate increased
revenue without necessarily increasing profitability. These industry market
conditions have been far more significant determinants of Company earnings than
have macroeconomic factors such as inflation, which has had only minimal impact
on Company activities in recent years. While it is impossible to predict the
precise effect of changing prices and inflation on future Company operations,
the short-lived nature of the Company's gas reserves makes it more possible to
match development costs with predictable revenue streams than would long-lived
reserves. No assurance can be given as to the Company's future success at
reducing the impact of price changes on the Company's operating results.
27
ACCOUNTING MATTERS
The Company uses the successful efforts method of accounting for its oil
and gas properties. This results in the capitalization of certain exploration
charges and expensing of dry hole costs. The Company uses the units of
production method to depreciate its producing properties.
In January 1996, the Company adopted the provisions of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS 121 requires the Company to review its oil and gas
properties whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable, and recognize a loss if
such recoverable amounts are less than the carrying amount. There have been no
impairment losses recognized as of June 30, 1996, but any future losses would be
included in depletion, depreciation, amortization and impairment in future
accounting periods.
On October 23, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company adopted this standard in 1996 and will disclose the pro forma net
income/(loss) and earnings/(loss) per share amounts assuming the fair value
method was adopted on January 1, 1995 in its financial statements as of and for
the year ended December 31, 1996. The adoption of this standard will not impact
the Company's consolidated results of operations or financial position.
28
BUSINESS AND PROPERTIES
THE COMPANY
Offshore Energy Development Corporation is engaged in the acquisition,
exploration, development, production, gathering and marketing of natural gas in
the U.S. Gulf of Mexico. As of January 1, 1996, the Company had estimated net
proved natural gas reserves of 20.3 Bcfe on eight federal lease blocks and 12
gross (7.90 net) wells offshore Alabama and Louisiana. The Company has interests
in 16 undeveloped lease blocks with an average working interest of 72%, where it
is scheduled to connect five existing wells with proved reserves to production
platforms and to drill 10 exploratory prospects by the end of 1997. The
Company's budget for these activities, including any additional development
work, is $36 million. In addition, the Company is currently negotiating a
potential joint venture with a subsidiary of a major oil company, pursuant to
which the Company will evaluate proprietary 3-D seismic to identify prospects
for joint exploration and development by the parties on 46,000 contiguous acres
covering portions of 17 lease blocks in the Gulf of Mexico. Of this total,
15,000 acres are currently leased by the Company or the major oil company. See
"-- Oil and Gas Exploration and Development."
The Company developed and operates the Dauphin Island Gathering System
("DIGS"), a 95-mile pipeline system offshore Alabama with a current capacity of
400 MMcf/d operated as a non-jurisdictional gathering system. The DIGS is the
primary open-access gas gathering system in federal waters serving the Mobile,
Viosca Knoll and Destin Dome areas of the Gulf of Mexico. In early 1996, the
Company sold all but a one percent general partnership interest in DIGP, the
partnership that owns the DIGS, for a profit of $10.8 million. The Company
continues to operate the DIGS and, pursuant to an incentive management
arrangement, its one percent interest in DIGP will increase to 15% when DIGP
Payout occurs. The Company and its DIGS partners, subsidiaries of MCN and
PanEnergy, recently announced a planned 65-mile extension of the DIGS to gather
new production that currently lacks adequate transportation outlets. An
additional planned 1997 expansion would create a dry gas gathering system and a
wet gas gathering system with a combined capacity of approximately 900 MMcf/d.
See "-- Downstream Activities -- Natural Gas Gathering."
In August 1996, the Company entered into an agreement to form a partnership
with MCN and PanEnergy for the construction and development of a NGL plant
onshore Alabama. This plant, which is expected eventually to have a capacity of
750 MMcf/d, would be the first NGL plant in Alabama available for processing
existing Mobile Bay production and would be available to process additional
volumes from the Main Pass and Viosca Knoll areas of the Gulf of Mexico. The
total cost of this plant is estimated at $76 million. The Company will initially
have a one percent interest in the partnership and an option to purchase during
the first three years of plant operations up to an additional 32 1/3% interest
in the partnership. See "-- Downstream Activities -- Natural Gas Liquids Plant."
OIL AND GAS EXPLORATION AND DEVELOPMENT
GENERAL
In its oil and gas exploration and development activities, the Company
emphasizes several operating strategies. By controlling operations on its
properties, the Company attempts to reduce development costs and the time
between development expenditures and initial production. By focusing its
exploration and development efforts geographically and geologically and
employing appropriate technology, the Company attempts to reduce exploration
risk. By building strategic alliances, the Company aims to complement the
strengths of the major Gulf of Mexico producers with its creativity, focus,
flexibility and lower overhead costs. An important component of the Company's
development strategy is the development of several proximate blocks in clusters
to avoid duplication of expense in production infrastructure. The principal
areas in which the Company conducts development activities are the Central Gulf
of Mexico offshore Louisiana, including the South Timbalier area, and offshore
Alabama, including the Mobile and Viosca Knoll areas.
29
OIL AND GAS PROPERTIES
SOUTH TIMBALIER
In 1988, the Company led several partners in an acquisition from Shell of a
producing property, South Timbalier 162 ("STIM 162"). The property is located
about 45 miles offshore due south of New Orleans in approximately 125 feet of
water. The Company sold its interest in the platform and the then producing
portion of the property in 1990 but retained the right to explore and develop
the approximately 4,000 undeveloped acres in the block.
In 1990, the Company identified and drilled a bright spot on the retained
acreage to a total depth of approximately 7,000 feet, encountering two pay
horizons. The well, known as the B-6 well, was dually completed as a gas well.
The Company constructed and installed an unmanned platform and production
facility with a capacity of 25 MMcf/d, known as the B Platform, and laid a two
mile flowline to the nearby interstate pipeline. The adequacy of the Company's
engineering and construction capabilities was confirmed when this platform
sustained only minimal damage from Hurricane Andrew in 1992. The original B-6
well ceased production in 1993 due to mechanical problems. The Company intends
to attempt to repair problems in the lower completion of this well to restore
production and is evaluating the potential use of artificial formation
fracturing technology to improve the productive capability of the well.
In response to a proposal from the Company, Amoco Corporation agreed to
make its seismic data available to OEDC in exchange for an option for a 25%
non-operated participation in any prospects generated by OEDC from that 3-D
survey. The Company, using Amoco proprietary 3-D seismic, has identified
drilling prospects and drilled and completed two wells on STIM 162 in the past
twelve months. The first well, known as the B-7 well, was a directional well
drilled from the B Platform to a bottom-hole location west of the B-6 well
having a 7,500 foot total vertical depth. The B-7 well commenced production
immediately following completion of the well at an initial rate of 10 MMcf/d.
The second well, known as the B-8 well, was a directional well drilled from the
B Platform to a bottom-hole location east of the B-6 well having a 7,000 foot
total vertical depth. The Company anticipates production from the B-8 well to
commence in September 1996.
MOBILE AND VIOSCA KNOLL
GENERAL. In 1990, the Company began examining the potential for exploration
activity in the Mobile and Viosca Knoll ("VK") areas of offshore Alabama.
Potential gas reservoirs in this area can be defined geophysically with bright
spots and are characterized by productive sands which are generally highly
porous and permeable, allowing the potential for high deliverabilities. The
total cost of drilling and development in these areas is low in comparison to
other offshore developments because of the shallow water and reservoir depths.
In addition, the expected finding costs per Mcf are low in these areas compared
to other onshore and offshore developments because of the ratio of total
drilling and development costs to the expected recoverable reserves. Finally,
gas production from these areas historically has been sold at a premium to gas
produced from other Gulf Coast and Mid-Continent areas because of the proximity
of the Mobile and VK areas to Northeast and Florida gas markets.
During the 1980's, substantial shallow gas reserves had been drilled in the
Mobile and VK areas but none of the reserves had been placed on production
because there was no public-access pipeline system to gather the gas to onshore
markets. Moreover, fragmented ownership of the reservoirs among multiple
producers discouraged development. In light of these factors, the Company
decided to acquire significant acreage in the areas and to create a gas
gathering system to solve the marketability problem. See "-- Downstream
Activities -- Natural Gas Gathering."
MOBILE 822 CLUSTER. In 1990-1993, the Company acquired leaseholds covering
about 25,000 acres (5 contiguous blocks) in state and federal waters two to nine
miles south of central Dauphin Island, the barrier island due south of Mobile,
Alabama. These blocks formerly had 15 owners and four different operators. This
aggregation of properties became the basis for the Company's first cluster
development. Prior to drilling, the Company shot proprietary, high resolution,
high density seismic over its prospects. By controlling the acquisition and
processing parameters on this data instead of following the historical practice
30
of relying on regional data shot for much deeper horizons, the Company was able
to focus on the specific zones of interest and correlate data effectively among
blocks.
In 1993, the Company drilled eight wells with 13 completions on these
blocks and constructed a four-pile platform in 45 feet of water at Mobile 822
with production and compression facilities to handle up to 50 MMcf/d of gas.
Initial production commenced 90 days after spudding the first 822 well. The
Company set caissons at four remote locations and laid flowlines from those
wells to the central platform. Three of these cluster wells were drilled in the
state waters of Alabama under rigorous environmental scrutiny, including zero
discharge regulations. One reservoir was beneath a shipping fairway
necessitating the Company's first horizontal well.
The Mobile 822 cluster cost approximately $35 million to develop and
produced about $9 million in income before it was sold in 1994 for $50 million.
Favorable gas prices and the need for capital to pursue new projects made the
sale attractive to the Company. The Company recorded $13.65 million in profits
from the sale transaction after repaying development financing and dividing the
sale proceeds with minority interest owners.
MOBILE 959/960 CLUSTER. In late 1994, the Company acquired an undivided 50%
interest in Mobile 959/960 just east of the Mobile Bay entrance and south of
Fort Morgan peninsula. Drilling for production from these blocks was problematic
because the seismic data was poor due to unfavorable sea floor conditions and
because much of the reserve potential was in the shipping fairways where
drilling was prohibited. The Company drilled six highly deviated or horizontal
wells to target sands at around 2,000 feet subsea. Three of the wells had bottom
hole locations with lateral displacements over three times the vertical depth.
Several of these wells were drilled as high deliverability wells with large
tubing programs and long horizontal completions in the pay sands. The Company
constructed a manned, four-pile platform at Mobile 959 in 60 feet of water with
30 MMcf/d in production and compression capacity. The Company constructed a
three-pile platform at Mobile 960 and a flowline from the platform to the
production platform in Mobile 959. The Company now owns a 100% working interest
in the property and is currently producing about eight MMcf/d from four
wellbores with additional proved reserves behind pipe.
The Company has acquired ownership percentages (ranging from 15% to 100%)
in five blocks in offshore Alabama east of Mobile 959/960 and is the operator of
all five blocks. The Company believes that all five blocks may be developed from
the Mobile 959/960 platforms making use of excess platform capacity and avoiding
an expensive duplication of infrastructure. Four of the blocks (Mobile 830,
Pensacola 881, Destin Dome 1 and Destin Dome 2) have proved reserves
attributable to four wellbores drilled by a former operator of these leases.
These wells are in 45 to 100 feet of water and are temporarily abandoned
awaiting the installation of caissons, connection of the wells to the surface
and construction of flowlines to the platform at Mobile 960. The Company has
commenced the regulatory filings necessary for these activities. The Company has
identified a seismic anomaly on the fifth block, VK 38, through use of a
regional seismic grid. It has shot its own proprietary seismic on this block and
is currently evaluating its drilling potential.
PROPOSED VK CLUSTERS. The Company owns 11 additional lease blocks
(encompassing over 63,000 acres) on which it has identified 10 geophysically
defined Miocene exploratory prospects and one proved undeveloped location that
it is scheduled to drill and develop by the end of 1997 at a collective cost of
approximately $34 million. A portion of the proceeds of this Offering will be
used for the drilling and development of these prospects. See "-- The Company"
and "Use of Proceeds." These 11 lease blocks are located in VK, 30 to 50 miles
south of coastal Alabama. The Company intends to develop these prospects, which
are geologically on trend with other producing reservoirs in the area, in four
additional production clusters. The Company is the operator of all the blocks
and holds a working interest on these blocks ranging from 75% to 100%.
Phase one of this development involves the connection of one proved
undeveloped well and the drilling of 10 exploratory wells in 100-120 foot water
depths to test target sands at depths ranging from 1,000-2,500 feet. The Company
expects drilling to be completed by the end of 1997. Caissons will be set on all
commercial wells, except one location that will be the site of an unmanned
platform with appropriate
31
production and compression facilities. Operating personnel would be shared with
the Mobile 959 platform, where production would be monitored remotely through an
electronic communication system. The Company believes that this plan will help
to avoid expensive duplication of lease operating costs and infrastructure on
these blocks. Flowlines would connect all wells to production platforms where
they will interconnect to the DIGS.
In developing these clusters, the Company intends to utilize vertical holes
drilled by slim hole techniques in order to reduce costs. As a result, the wells
will be physically constrained to a maximum production rate of five MMcf/d.
Although these wells, if successful, will be capable of lower production rates
than are possible in conventional wells, the Company's anticipated cost to drill
and complete these wells is less than the cost of conventional wells.
Four of the 10 exploratory wells are targeted for drilling on the eastern
cluster. The Company has an agreement to share a nearby Enron Oil and Gas
("EOG") platform with EOG acting as contract operator for the Company with
respect to processing and compressing gas. The Company will pay EOG for the use
of its facilities and personnel. The Company would have about 15 MMcf/d of
production capacity on the EOG platform and the same remote well monitoring
capability as on other properties.
The western cluster has one well that was drilled and temporarily abandoned
by a prior operator. One of the 10 exploratory wells is targeted for drilling on
this cluster. The existing well has been completed in a 2,400 foot sand and
awaits the installation of a caisson structure and a flowline to a platform for
processing and compression. The Company is evaluating the prospect and will
decide whether to drill the additional well before year end 1996. Discussions
are in progress with neighboring operators about use of their platforms and
facilities to handle any gas that may be produced from the existing well and any
wells drilled on the prospect. The Company expects to finalize a suitable
development plan before year end 1996. These two leases will expire by the end
of 1996 if the MMS is not given satisfactory evidence of progress toward
commercial production.
At the southern cluster, the Company is discussing a combined development
with EOG involving EOG's two proved undeveloped blocks nearby. Two of the ten
exploratory wells are targeted for drilling on this cluster. The Company and EOG
have preliminarily scheduled concurrent development of the blocks in the first
half of 1997. The Company anticipates that production from the blocks would be
flowed to the EOG platform near the eastern cluster for gathering.
Three of the ten exploratory wells are targeted for drilling on the center
cluster. In addition, the Company anticipates constructing the unmanned platform
on this cluster. Drilling commenced on the first of these three wells in August
1996 and the Company anticipates that all three will be drilled by the end of
1996.
The drilling and development of the proposed VK clusters is subject to all
the risks associated with oil and gas operations. No assurance may be given that
the drilling of these wells will be completed or that delays and increased costs
will not reduce the attractiveness of these wells. Further, if the wells are
completed, no assurance may be given that the wells will be a commercial
success. See "Risk Factors -- Exploration and Development Risks."
VK 24 DEVELOPMENT. The Company acquired VK 24 in 1993 as a producing
property. The development is located due south of Pascagoula, Mississippi and
production has declined to 800 Mcfe/d with produced water. The Company has
recently evaluated a proprietary high resolution seismic grid over the property
and has identified an updip proved undeveloped drilling location. The Company
has applied for regulatory permits to drill this new location and, if the
permits are issued, drilling is expected to commence in the fourth quarter of
1996. The Company intends to drill this well from an existing braced caisson
which, if the well is successful, will allow production to commence immediately
upon completion. The Company has budgeted approximately $1.0 million for
expenditure on this well prior to the end of 1996. The drilling and development
of VK 24 is subject to all of the risks associated with oil and gas operations,
and no assurance may be given that drilling operations will be completed or that
the well will be a commercial success. See "Risk Factors -- Exploration and
Development Risks."
32
OTHER DRILLING PROSPECTS
Other potential drilling prospects have been identified on the Company's
acreage, including prospects at deeper depths than those at which the Company
has historically operated. A detailed analysis of these prospects has not been
undertaken, and evaluation of these prospects is in the preliminary stage. The
Company will use the results of its planned drilling and development program to
assist in the evaluation of these additional prospects. No assurance may be
given that the Company ultimately will attempt to drill any of these prospects
or, if it does so, that such drilling would be successful.
PROPOSED JOINT VENTURE
The Company and a major oil company have had a joint development
arrangement in the Gulf of Mexico since late 1995, and the two companies have
recently discussed expanding that relationship. The Company and this major oil
company recently entered into an agreement for the purpose of generating
drilling prospects in South Timbalier. Pursuant to this agreement, the Company
will be given exclusive access for a one-year term to proprietary 3-D seismic
data base covering 46,000 acres for the purpose of identifying and prioritizing
exploitation potential in the area. The Company would, in turn, provide 5,760
acres of 3-D seismic in an area to which the major oil company does not have
access. The Company would be provided the first opportunity to participate with
the major oil company in the development of any prospects generated using such
seismic data. This agreement provides the Company with the opportunity to
participate in the development of properties that would otherwise be unavailable
to it on a cost effective basis.
NATURAL GAS RESERVES
The following table sets forth estimates of the Company's (i) proved
natural gas reserves at January 1, 1996, which were prepared by Ryder Scott
Company, independent petroleum engineers, in accordance with regulations
promulgated by the Commission and (ii) present value of proved reserves of
natural gas at January 1, 1996. The price used in the table below was based on
the price of natural gas at December 31, 1995, with consideration of price
changes only to the extent provided by contractual arrangements in effect as of
such date. As of December 31, 1995, the price of natural gas was $2.02 per Mcfe.
Additional information concerning the Company's natural gas reserves is included
in the Supplemental Financial Information accompanying the Notes to Consolidated
Financial Statements included elsewhere in this Prospectus. See "Risk Factors --
Uncertainty of Estimates of Reserves and Future Net Revenue."
NATURAL GAS RESERVE INFORMATION
AS OF
DECEMBER 31, 1995
--------------------
(DOLLARS IN
THOUSANDS)
Net Proved Reserves (MMcfe):
Developed producing............. 12,504
Developed nonproducing.......... 2,536
Undeveloped..................... 5,299
--------------------
Total proved............... 20,339
====================
Present Value of Estimated Future Net
Revenue:
Developed producing............. $ 17,430
Developed nonproducing.......... 2,691
Undeveloped..................... 6,610
--------------------
Total proved............... $ 26,731
====================
33
PRODUCTION, PRICE AND COST HISTORY
The following table sets forth the Company's natural gas production, the
average sales price, the production (lifting) costs and amortization
attributable to the Company's properties during each of the three years ended
December 31, 1995 and during the six months ended June 30, 1996.
NATURAL GAS PRODUCTION,
AVERAGE SALES PRICE AND PRODUCTION COSTS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------- JUNE 30,
1993 1994 1995 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net natural gas production
(MMcfe)(1)......................... 673 3,686 3,668 2,528
Average sales price (per Mcfe)(2).... $ 2.59 $ 1.50 $ 1.68 $ 2.20
Production (lifting) costs (per
Mcfe).............................. $ 0.85 $ 0.38 $ 0.51 $ 0.35
DD&A (per Mcfe)...................... $ 0.53 $ 0.57 $ 1.50 $ 1.14
</TABLE>
- ------------
(1) The Company had immaterial amounts of condensate (oil) production during
such years.
(2) Prices include the effects of hedging transactions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Hedging Activities."
Prices for natural gas have historically been subject to substantial
seasonal fluctuation as demand for natural gas is generally highest during
winter months. Recently, however, demand has been less subject to seasonal
fluctuation as a result of the unbundling and open access of transportation and
storage.
DEVELOPMENT, PRODUCTION AND PRODUCTIVE WELLS
The following table shows the Company's net productive and dry exploratory
and development wells drilled during each of the three years ended December 31,
1995 and during the six months ended June 30, 1996.
DRILLING ACTIVITY
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
------------------------------- JUNE 30,
1993 1994 1995 1996
--------- --------- --------- ----------
Exploratory
Net productive wells....... 4.0 5.12 3.59 --
Net dry holes.............. -- 0.8 -- --
Development
Net productive wells....... -- -- -- --
Net dry holes.............. -- -- -- --
--------- --------- --------- ----------
4.0 5.92 3.59 --
========= ========= ========= ==========
Subsequent to June 30, 1996 the Company drilled 1.34 net productive
exploratory wells, no net exploratory dry holes, and no net development wells.
The following table sets forth the Company's ownership interest in
leaseholds as of June 30, 1996. The leases in which the Company has an interest
are for varying primary terms and many require the payment of delay rentals to
continue the primary terms. The leases may be surrendered by the Company at any
time by notice to the lessors, by the cessation of production or by failure to
make timely payment of delay rentals.
34
LEASEHOLD INTERESTS
<TABLE>
<CAPTION>
DEVELOPED(1) UNDEVELOPED
------------------------ ------------------------
GROSS ACRES NET ACRES GROSS ACRES NET ACRES
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Offshore Alabama..................... 11,560 11,522 86,429 62,587
Offshore Louisiana................... 3,984 2,440 -- --
Offshore Mississippi................. 5,760 4,608 -- --
----------- --------- ----------- ---------
Total........................... 21,304 18,570 86,429 62,587
=========== ========= =========== =========
</TABLE>
- ------------
(1) Acres spaced or assignable to productive wells.
As of June 30, 1996, the Company owned interests in 12 gross (7.90 net)
productive gas wells (including producing wells and wells capable of
production). One of these wells has multiple completions.
OPERATING PROCEDURES AND RISKS
The Company generally seeks to be named as operator for wells in which it
has acquired a significant interest and currently operates 100% of its material
holdings. As operator, the Company is able to exercise substantial influence
over development and enhancement of a well, and supervises operation and
maintenance activities on a day-to-day basis. The Company does not conduct the
actual drilling of wells on properties for which it acts as operator. Drilling
operations are conducted by independent contractors engaged and supervised by
the Company. The Company employs supervisory personnel, but contracts with
appropriate outside specialists (such as petroleum geologists, geophysicists,
engineers and petrophysicists) who attempt to improve production rates, increase
reserves, and/or lower the cost of operating its oil and gas properties. The
Company thus hopes to have specialized resources applied to the solution of each
nonroutine operation it faces without incurring overhead charges for such
services when they are not needed.
The Company's reliance upon others for drilling, exploration and other
services requires that it schedule such activities when these services are
available. When drilling activity in the Gulf of Mexico is high, competition for
available equipment and personnel increases and may make it more difficult to
complete projects in a timely manner. Recently, exploration and development
activity has increased in the Gulf of Mexico and has increased the demand for
drilling vessels, supply boats and personnel experienced in offshore operations.
As a result, the Company has experienced difficulty in obtaining certain
services from vendors that are necessary to implement its growth strategy. The
inability to obtain required services could adversely affect the Company's
ability to complete its scheduled projects in a timely manner. See "Risk Factors
- -- Availability of Equipment and Personnel."
The Company's operations are subject to all of the risks normally incident
to the exploration for and the production of oil and gas, including blowouts,
craterings, explosions, pipe failure, casing collapse, oil spills and fires,
each of which could result in severe damage to or destruction of oil and gas
wells, production facilities or other property, and personal injuries. In
addition, the Company's oil and gas operations are located in an area that is
subject to tropical weather disturbances, some of which can be severe enough to
cause substantial damage to facilities and possible interruptions in production.
The oil and gas exploration business is also subject to environmental hazards,
such as oil spills, gas leaks, and ruptures and discharges of toxic substances
or gases that could expose the Company to substantial liability due to pollution
or other environmental damage. The Company maintains comprehensive insurance
coverage, including general liability in an amount not less than $35 million,
general partner liability, operator's extra expenses, physical damage on certain
assets, employer's liability, automobile, workers' compensation and loss of
production income insurance. The Company believes that its insurance is adequate
and customary for companies of a similar size engaged in comparable operations,
but losses could occur for uninsurable or uninsured risks or in amounts in
excess of existing insurance coverage. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at rates
considered reasonable. Additionally, as general partner of limited partnerships,
and as managing general partner of its
35
general partnerships, the Company is solely responsible for the day-to-day
conduct of the partnerships' affairs and accordingly has liability for expenses
and liabilities of such partnerships.
ABANDONMENT COSTS
The Company establishes reserves, exclusive of salvage value, to provide
for the eventual abandonment of its offshore wells and platforms. Historically,
the actual cost to the Company of physically abandoning its wells has been
largely offset by the proceeds from the sale of the salvaged equipment. There
can be no assurance that an active secondary market in used equipment will
continue to exist at the time that properties are abandoned, or that the
regulatory and other costs of abandoning offshore properties will not increase.
See Note 1 of Notes to Combined Financial Statements.
The Company carries a $3 million area-wide abandonment bond with the MMS,
which is secured by restricted cash balances on deposit at a commercial bank.
The sum on deposit is currently $1.4 million and will increase over time to $3
million. Bond premiums decline as the amount of the security deposit increases,
and the Company receives all interest earned on the security deposit. The MMS is
empowered to require supplemental abandonment bonds under appropriate
circumstances. While the cost to the Company of these supplemental bonds to date
has not been material, no assurance may be given that the amounts thereof will
not increase, or that the availability thereof may be restricted.
MARKETING
Most of the Company's natural gas is delivered through gas gathering
systems and gas pipelines that are not owned by the Company. Space on such
gathering systems is occasionally limited and at times unavailable due to
repairs or improvements being made to such facilities or due to such space being
utilized by other gas shippers with priority agreements. While the Company has
not experienced any inability to market its natural gas, if space is restricted
or is unavailable, the Company's cash flow from the affected properties could be
adversely affected.
Substantially all of the Company's natural gas is sold at current market
prices, under short term contracts (one year or less) providing for variable or
market sensitive prices. Sales to ECT accounted for approximately 80% of revenue
in 1994 and 1995 and during the first six months of 1996. However, due to the
availability of other markets, the Company does not believe that the loss of ECT
or any other single customer would adversely affect the Company's results of
operations. The Company utilizes forward sales contracts and commodity swaps to
achieve more predictable cash flow and to reduce its exposure to fluctuations in
gas prices. As of June 30, 1996, the Company had future sales and swap contracts
for 2.44 Bcf of gas maturing over an eight month period. As of that date, the
weighted average price of gas under the agreements currently in place was $2.31
per Mcf. The Company accounts for its commodity swaps as hedging activities and,
accordingly, gains or losses are included in oil and gas revenue for the period
production was hedged. See "Risk Factors -- Effects of Price Risk Hedging."
The income generated by the Company's operations is highly dependent upon
the prices of, and demand for, oil and natural gas. The price received by the
Company for its oil and natural gas production depends on numerous factors
beyond the Company's control. See "Risk Factors -- Volatility of Natural Gas
and Oil Prices."
The Company sells its gas from the Mobile and Viosca Knoll areas pursuant
to a long term sales contract with ECT coterminous with the life of the
reserves, subject to earlier termination by the Company in certain events. The
price of gas sold pursuant to this contract is market sensitive and is
considered favorable by the Company. The Mobile outlet for the Company's gas is
downstream of the Louisiana pipeline bottlenecks and is close to major East
Coast gas consumers. Although the net-back price historically received by the
Company for its gas production has been less than the Henry Hub price due to
gathering and transportation charges, such price historically has been higher
than prices received by other Gulf Coast and Mid-Continent producers. As the
market for natural gas changes, no assurance may be given that this premium will
continue to be available.
36
COMPETITION
The oil and gas industry is highly competitive in all its phases. The
Company encounters strong competition from many other oil and gas producers in
the acquisition of economically desirable producing properties and exploratory
drilling prospects, and in obtaining equipment and labor to operate and maintain
its properties. Many of the Company's competitors are large well-established
companies with substantially larger operating staffs and greater capital
resources than the Company. Such competitors may be able to pay more for
productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will depend upon its ability to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment. See "Risk Factors
- -- Competition."
TITLE TO PROPERTIES
The Company has obtained title opinions on substantially all of its
producing properties and believes it has satisfactory title to all of its
producing properties in accordance with standards generally accepted in the oil
and gas industry. The Company's properties are subject to customary royalty
interests, liens incident to operating agreements, liens for current taxes and
other burdens which the Company believes do not materially interfere with the
use of or affect the value of such properties. Substantially all of the
Company's producing properties are subject to a lien in favor of Union Bank of
California, N.A. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." The
title investigation performed by the Company prior to acquiring undeveloped
properties is thorough but less rigorous than that conducted prior to drilling,
consistent with industry standards. The MMS must approve all transfers of record
title or operating rights on its respective leases. The MMS approval process can
in some cases delay the requested transfer for a significant period of time.
DOWNSTREAM ACTIVITIES
NATURAL GAS GATHERING
OVERVIEW
In 1990, the Company recognized the potential for development of an
independent gas gathering system to serve the rapidly developing offshore
Alabama area in which significant reserves of natural gas had been discovered in
the shallow Miocene and deep Norphlet formations. The Company believed that
these reserves would become available for commitment to a gathering system, but
FERC regulatory issues, perceived environmental problems and high capital costs
had discouraged others from the development of a system through Mobile Bay.
Obtaining the commitment of a volume of reserves sufficient to support the cost
of constructing and operating the gathering system was key to its development,
and the Company believed that the commitment could be obtained sequentially to
support the incremental construction of the gathering system. The Company
identified gas reserves located near the central and western end of Dauphin
Island, the barrier island south of Mobile, which would support this incremental
development. Because these reserves were located both north and south of the
island, gathering the gas south of the island required the construction of a
4,000 foot horizontal bore under the island. In 1991, the Company executed a
construction agreement with a subsidiary of British Petroleum to connect its
field south of the Company's Mobile 90 field with a gathering line owned by
Atlantic Richfield Company north of Dauphin Island. To accommodate future
development, the Company installed three 12 3/4 lines under the island (one to
service initial needs and two for system expansion). Despite the perceived
engineering uncertainty associated with a water-to-water boring of the required
length, the first stage of the DIGS was completed before the end of 1991.
In 1993, the Company and a non-regulated Enron subsidiary formed DIGP to
construct and operate a 20 3/4 pipeline to directly connect the DIGS to the
interstate pipeline transportation network and enable the full utilization of
the three 12 3/4 pipes under the island. This segment was completed in May 1993,
creating direct outlets to the Transcontinental Gas Pipe Line Corporation
("Transco") and Koch Industries interstate
37
pipeline systems. In 1994, Florida Gas Transmission Company sponsored an
expansion of the Mobile segment of the Transco pipeline in exchange for capacity
ownership therein, establishing a direct interconnect with the Florida Gas
system. DIGP added Tenneco Gas Inc. as a partner in 1994 and expanded the system
to connect numerous newly developing supply sources in the Mobile and Viosca
Knoll offshore areas. This construction activity brought the DIGS to its current
95 mile, "inverted Y" configuration, consisting of 20 3/4, 12 3/4 and 8 3/4
pipe. In early 1996, a nonregulated subsidiary of MCN purchased a 99% interest
in DIGP, buying out the interests of Tenneco and Enron and all but a one percent
general partnership interest held by the Company. In mid-1996, MCN sold a 40%
interest in the partnership to a subsidiary of PanEnergy.
CURRENT OPERATIONS
After the purchase of 99% of DIGP, MCN retained the Company to manage and
operate the system. The Company is responsible for all commercial activities, as
well as all supervisory, administrative, technical, maintenance, and gas control
services necessary to the operation of the DIGS with the exception of certain
financial functions, which are performed by MCN. For performing these services,
the Company is paid a monthly management fee of $55,000 and the Company's
partnership interest will increase from one percent to 15% when DIGP Payout
occurs. No assurance may be given that DIGP Payout will occur. The DIGP
partnership agreement provides that the Company may be removed as manager of the
DIGS at any time for gross negligence or willful misconduct that results in
material economic loss to DIGP, at any time after February 28, 2001 for failure
to operate the DIGS in accordance with sound and prudent practices in the
pipeline industry, or without cause following the earlier to occur of DIGP
Payout or February 28, 2003.
Under the terms of the DIGP partnership agreement, a change of control
occurs (i) upon the failure of any two of Messrs. Strassner, Kiesewetter and
Anderson to be actively involved in the management and operation of the general
partner of DIGP to substantially the same degree as they are presently involved
(other than as a result of their death) or (ii) if any two of Messrs. Strassner,
Kiesewetter and Anderson sells more than 75% of their ownership in the Company
after this Offering. A change of control prior to the earlier of DIGP Payout or
February 28, 2001 would prevent the Company's interest in DIGP from increasing
above its current one percent general partnership interest, and a change of
control at any time would result in removal of the Company as manager of the
DIGS.
The DIGS has a design pressure of 1440 psi and a maximum operating pressure
of 1250 psi. It has an estimated throughput capacity of up to 400 MMcf/d,
depending on where gas enters the system, which could be expanded with looping
and onshore compression. The DIGS is currently gathering an average of 200
MMcf/d. Although no assurances may be given, the Company believes that
additional volumes expected to be contributed to the system, when combined with
new production from the proposed southern extension of the DIGS, will have the
system operating at a level approaching its current capacity before the end of
1997.
Customers on the system currently include Chevron U.S.A. Inc., Union Oil
Company of California, BP Exploration & Oil, Inc., Bechtel Energy Partners,
Ltd., SCANA Hydrocarbons, Inc., Chieftain International (U.S.) Inc., Santa Fe
Energy Resources, Inc., Legacy Resources Company, Excel Resources, Inc., EOG and
the Company. Most commitments of gas are reserve life commitments with minimum
monthly production requirements. Several of the contracts are term contracts
with guaranteed payments on throughput volumes. Since the contracts permit
producers to shut in production due to market conditions in only very limited
circumstances, the Company expects the cash flow of the system to be consistent
and relatively predictable.
Field operations are handled from a DIGP field office in Coden, Alabama.
DIGP employees at that location monitor the system, calibrate sales meters
offshore monthly and perform light maintenance and repair tasks. The sales
meters are linked by satellite communications to DIGP's home office in The
Woodlands, Texas, where they are continuously monitored as part of the gas
control function.
The Company is responsible for the design and implementation of all new
construction on the DIGS. Design activity and field supervision has historically
been performed by independent engineering and
38
consulting firms, subject to supervision by Company personnel. The Company is
paid a construction supervision fee slightly in excess of one percent of all new
construction costs.
EXTENSIONS AND EXPANSIONS
DIGP is contractually obligated to build approximately 10 miles of 129 line
to connect a production platform operated by EOG (VK 124) and one operated by
the Company (VK 121) to the DIGS. Although both lines are expected to be
operational before the end of 1996, construction projects are subject to delays
beyond the control of the Company and no assurance may be given as to the timing
of the completion of this project.
DIGP has announced plans to construct a 65 mile, 249 diameter pipeline
extension from Mobile Block 73 (where the DIGS has a pigging platform) to
connect new supply sources in the east Main Pass area, utilizing existing DIGS
capacity. In 1997, it is anticipated that the DIGS system will be reconfigured
to serve the differing gathering needs of area producers into a dry gas system
and a wet (I.E., including gas liquids) gas system each of which will be
operated separately by DIGP. The Company anticipates that the wet system will
have a design pressure of 2,200 psi and a maximum operating pressure of 1,800
psi. The reconfiguration would be accomplished by the construction of a 249 line
from Mobile 73 to a site near DIGP's existing meter site at Coden, Alabama. At
that site, the new wet gas system would connect to the NGL plant proposed for
construction by the Company, MCN and PanEnergy (see " -- Natural Gas Liquids
Plant" ) and with the interstate pipeline systems. This second construction
phase would increase combined capacity of the two systems to 900 MMcf/d. DIGP's
preliminary budget for the 1996-97 expansion and reconfiguration of the system
is approximately $75 million, of which the Company's share would be one percent,
or approximately $750,000.
DIGP has the right of first refusal to gather one company's gas production
from its discoveries in the offshore Destin area. These volumes are tentatively
scheduled to come to market in the year 2000. Public data would indicate that
there is the potential for substantial natural gas production from this area.
DIGP will be evaluating the feasibility of an eastward expansion to collect this
gas over the next two to three years. No assurance may be given that this
project will be undertaken or successfully completed.
COMPETITION
The gas gathering industry is highly competitive in all its phases. The
Company encounters strong competition from many other gas pipelines, both
regulated and nonregulated, in acquiring gathering commitments. Many of these
competitors possess substantial financial resources and may be able to offer
gathering services for productive oil and natural gas properties at prices DIGP
would consider noncommercial. Because the volumes controlled by individual
producers may be substantial, they have the ability to stimulate the competitive
process by attempting to induce pipeline companies to build systems in direct
competition to the DIGS. This is particularly true in the Main Pass area into
which DIGP is currently expanding, since it is entering a new area with
significant uncommitted reserves and several large pipeline companies within
reasonable reach of expansions into this area. See "Risk Factors --
Competition."
The Company believes, however, that the location of the DIGS outlet to the
interstate grid downstream of existing pipeline bottlenecks in Louisiana gives
the Company a competitive advantage. The Mobile Bay delivery point is
geographically the closest of any major Gulf Coast gas producing area to major
East Coast markets, resulting in higher net back prices. During peak demand
times in the past, Mobile prices have been at a significant premium to those in
other domestic producing regions. No assurance may be given that such positive
differentials will continue in the future. In addition, Mobile area gas has not
been curtailed during periods when the upstream infrastructure in Texas and
Louisiana experiences capacity constraints due to excessive demand. Several of
DIGP's competitors route their offshore gas to the Mississippi River delta area
of Louisiana, where market prices and reliability are less favorable.
NATURAL GAS LIQUIDS PLANT
The Company has recently entered into an agreement to form a partnership
with MCN and PanEnergy to construct, own and operate a natural gas liquids
processing plant onshore in south Alabama. The plant
39
would extract liquifiable hydrocarbons from natural gas prior to delivery of the
natural gas to the interstate system. Much of the gas produced in Mobile Bay,
Viosca Knoll and Main Pass has a high gas liquids content. As no gas processing
facility is currently available in Southern Alabama to process the Mobile,
Viosca Knoll and Main Pass gas, producers effectively lose the potential
additional value associated with the liquifiable hydrocarbons in their natural
gas production. With the new plant, the producers will be able to achieve a
higher total price for the sale of their gas and make attachment to the DIGS
more desirable because it will be the only system that will deliver their gas in
proximity to the liquids plant.
The partnership will initially be owned 49.5% by each of MCN and PanEnergy
and one percent by the Company. The Company will acquire from MCN and PanEnergy
for $200,000 an option to buy an additional 32 1/3% partnership interest for
three years after the inception of plant operations at 32 1/3% of the
depreciated book value of the plant (using 25 year straight line depreciation)
increased by a 12% annual simple interest factor. The Company will be required
to obtain financing in order to exercise the option to increase its interest,
and while the Company anticipates that such financing will be available, no
assurance may be given in this regard. See "Risk Factors -- Substantial Capital
Requirements." PanEnergy, which is one of the largest liquids processors in the
country, will construct and operate the project for the partners. In addition,
PanEnergy's recently consummated marketing arrangement with Mobil may allow
PanEnergy to direct additional volumes to the NGL plant. No commitments have
been received and no assurances may be given by PanEnergy with respect to these
volumes. Preliminary estimates by the partners are that this will be a $76
million construction project, which the Company expects to be operational in
mid-1997.
OTHER FACILITIES
The Company currently leases approximately 8,433 square feet of office
space in The Woodlands, Texas, where its administrative offices are located. The
Company also owns a field office in Coden, Alabama.
EMPLOYEES
As of June 30, 1996, the Company leased 17 employees from a corporation
owned by a director of the Company, none of whom were represented by any labor
union. See "Management -- Certain Transactions." These individuals will become
employees of the Company as of the completion of the Combination. The Company
also utilizes the services of independent contractors to perform various field
and other services. The Company considers its relations with its personnel to be
satisfactory.
GOVERNMENTAL REGULATION
GENERAL
Domestic development, production and sale of oil and gas are extensively
regulated at both the federal and state levels. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion, frequently
increasing the regulatory burden. Numerous departments and agencies, both
federal and state, have issued rules and regulations applicable to the oil and
gas industry and its individual members, compliance with which is often
difficult and costly and some of which carry substantial penalties for the
failure to comply. The regulatory burden on the natural gas and oil industry
increases the Company's cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently expanded,
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations.
REGULATION OF NATURAL GAS AND OIL EXPLORATION AND PRODUCTION
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring permits for the drilling of wells, maintaining bonding
requirements in order to drill or operate wells, and regulating the location of
wells, the method of drilling and casing wells, the surface use and restoration
of properties upon which wells are drilled and the plugging and abandonment of
wells. The Company's operations are also subject to various conservation laws
and regulations that regulate the size of drilling and spacing units or
proration units and
40
the density of wells which may be drilled and unitization or pooling of oil and
gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In addition, state conservation laws
establish maximum rates of production from natural gas and oil wells, generally
prohibit the venting or flaring of natural gas and impose certain requirements
regarding the ratability of production. The effect of these regulations is to
limit the amounts of natural gas and oil the Company can produce from its wells,
and to limit the number of wells or the locations at which the Company can
drill.
Legislation currently pending in Texas would revise the current method by
which maximum allowable production for natural gas wells is determined in Texas
in a manner that might impose additional restrictions on the level of
production. Generally, state-established allowables have been influenced by
overall natural gas market supply and demand in the United States, as well as
the specific "nominations" for natural gas from the parties who produce or
purchase gas from the field and other factors deemed relevant by the agency. The
Company cannot predict whether further changes will be made in how these states
set allowables or what impact, if any, such further changes might have.
NATURAL GAS MARKETING, GATHERING AND TRANSPORTATION
Federal legislation and regulatory controls in the United States have
historically affected the price of the natural gas produced by the Company and
the manner in which such production is marketed. The transportation and sale for
resale of natural gas in interstate commerce are regulated by the FERC pursuant
to the NGA and the NGPA. The maximum selling prices of natural gas were formerly
established pursuant to regulation. However, on July 26, 1989, the Natural Gas
Wellhead Decontrol Act of 1989 ("Decontrol Act") was enacted, which terminated
wellhead price controls on all domestic natural gas on January 1, 1993 and
amended the NGPA to remove completely by January 1, 1993 price and nonprice
controls for all "first sales" of natural gas, which will include all sales by
the Company of its own production. Consequently, sales of the Company's natural
gas currently may be made at market prices, subject to applicable contract
provisions. The FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act.
The FERC also regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
natural gas. Since the latter part of 1985, the FERC has endeavored to make
interstate natural gas transportation more accessible to gas buyers and sellers
on an open and nondiscriminatory basis. The FERC's efforts have significantly
altered the marketing and pricing of natural gas. Commencing in April 1992, the
FERC issued Order Nos. 636, 636-A and 636-B (collectively, "Order No. 636 "),
which, among other things, require interstate pipelines to "restructure" their
services to provide transportation separate or "unbundled" from the pipelines'
sales of gas. Also, Order No. 636 requires interstate pipelines to provide
open-access transportation on a basis that is equal for all gas supplies. Order
No. 636 has been implemented through negotiated settlements in individual
pipeline services restructuring proceedings. In many instances, the result of
Order No. 636 and related initiatives have been to substantially reduce or
eliminate the interstate pipelines' traditional role as wholesalers of natural
gas in favor of providing only storage and transportation services. The FERC has
issued final orders in virtually all pipeline restructuring proceedings, and has
now commenced a series of one year reviews to determine whether refinements are
required regarding the implementation by individual pipelines of Order No. 636.
In July 1996, the United States Court of Appeals for the District of Columbia
Circuit largely upheld Order No. 636.
The Company operates the DIGS as a gas gatherer exempt from the FERC's
jurisdiction under the NGA. In February 1996, the FERC issued a Statement of
Policy concerning gas gathering on the OCS. The FERC reaffirmed its so-called
"modified primary function" test as appropriate to determine whether a gas
pipeline operating on the OCS is subject to its jurisdiction as an interstate
transporter or exempt from its jurisdiction as a gatherer. The modified primary
function test examines several criteria, including (1) the length and diameter
of the pipeline; (2) the location of wells along all or part of the pipeline
system; (3) the location of compressors and processing plants on the system; (4)
the extension of the pipeline beyond the central point in the field, (5) the
pipeline's geographic configuration; and (6) the operating pressure of the
41
line. Other factors (E.G., the business of the pipeline's owners) may also be
examined. In its Statement of Policy, FERC stated for the first time it would
presume that pipeline operations in OCS water depths of 200 meters or greater
were exempt gathering facilities, up to the point of potential connection with
an interstate pipeline.
The DIGS is subject to regulation of its gathering operations under the
OCSLA. This statute requires the DIGS, among other things, to provide OCS gas
producers with open and non-discriminatory access to its gathering system and to
charge non-discriminatory rates. The Company believes that the DIGS, including
its planned extension, meets the criteria of the modified primary function test
and is exempt from FERC jurisdiction under the NGA. However, neither the Company
nor DIGP has sought a formal declaration from the FERC confirming its status as
an exempt gatherer, and no assurance may be given that the FERC would concur
with the Company's view. A determination that the DIGS is subject to FERC's
jurisdiction would require that the Company comply with FERC regulation. The
Company does not believe such a determination would have a material adverse
effect on the Company's operations. See "Risk Factors -- FERC Regulation Risks."
Although Order No. 636 does not regulate natural gas production operations,
and the Company believes Order No. 636 is not applicable to DIGP's gathering
operations, the FERC has stated that Order No. 636 is intended to foster
increased competition within all phases of the natural gas industry. It is
unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company and its natural gas
marketing efforts. Although Order No. 636 could provide the Company with
additional market access and more fairly applied transportation services rates,
terms and conditions, it could also subject the Company to more restrictive
pipeline imbalance tolerances and greater penalties for violation of those
tolerances. The Company does not believe, however, that it will be affected by
any action taken with respect to Order No. 636 materially differently than other
natural gas producers and marketers with which it competes.
The FERC has recently announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner for setting
rates for new interstate pipeline construction, the manner in which interstate
pipeline shippers may release interstate pipeline capacity under Order No. 636
for resale in the secondary market, and the use of market-based rates for
interstate gas transmission. While any resulting FERC action would affect the
Company only indirectly, the FERC's stated intention is to further enhance
competition in natural gas markets.
Much of the Company's gas production is gathered by DIGP. To the extent
FERC regulation results in a gathering rate reduction on the DIGS, the Company
could benefit from a reduction of the gathering rates for its production. The
benefits to the Company of any such reduction could mitigate any loss suffered
by the Company as a result of FERC jurisdiction of the DIGS.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective, or their effect, if any, on the operations of
the Company or DIGP. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future.
OFFSHORE LEASING
The Company conducts certain operations on federal oil and gas leases,
which the MMS administers. The MMS issues such leases through competitive
bidding. These leases contain relatively standardized terms and require
compliance with detailed MMS regulations and orders pursuant to the OCSLA, which
are subject to change by the MMS. For offshore operations, lessees must obtain
MMS approval for exploration, development and production plans prior to the
commencement of such operations. In addition to permits required from other
agencies (such as the Coast Guard, the Army Corps of Engineers and the
Environmental Protection Agency), lessees must obtain a permit from the MMS
prior to the commencement of drilling. The MMS has promulgated regulations
requiring offshore production facilities located on the OCS to meet
42
stringent engineering and construction specifications, and has recently proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. The MMS also has issued
regulations restricting the flaring or venting of natural gas, and has recently
proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the MMS has
promulgated other regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities. To cover the
various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that the Company can obtain bonds or other
surety in all cases. See "-- Environmental Matters."
OIL SALES AND TRANSPORTATION RATES
Sales of crude oil, condensate and gas liquids by the Company are not
regulated and are made at market prices. The price the Company received from the
sale of these products is affected by the cost of transporting the products to
market. Effective as of January 1, 1995, the FERC implemented regulations
establishing an indexing system for transportation rates for oil pipelines,
which would generally index such rates to inflation, subject to certain
conditions and limitations. These regulations could increase the cost of
transporting crude oil, liquids and condensate by pipeline. These regulations
are subject to pending petitions for judicial review. The Company is not able to
predict with certainty what effect, if any, these regulations will have on it,
but other factors being equal, the regulations may tend to increase
transportation costs or reduce wellhead prices for such commodities.
SAFETY REGULATION
The Company's gathering operations are subject to safety and operational
regulations relating to the design, installation, testing, construction,
operation, replacement, and management of facilities. Pipeline safety issues
have recently been the subject of increasing focus in various political and
administrative arenas at both the state and federal levels. In addition, the
major federal pipeline safety law is subject to change this year as it is
considered for reauthorization by Congress. For example, federal legislation
addressing pipeline safety issues has been introduced, which, if enacted, would
establish a federal "one call" notification system. Additional pending
legislation would, among other things, increase the frequency with which certain
pipelines must be inspected, as well as increase potential civil and criminal
penalties for violations of pipeline safety requirements. The Company believes
its operations, to the extent they may be subject to current gas pipeline safety
requirements, comply in all material respects with such requirements. The
Company cannot predict what effect, if any, the adoption of this or other
additional pipeline safety legislation might have on its operations, but the
industry could be required to incur additional capital expenditures and
increased costs depending upon future legislative and regulatory changes. See
"Risk Factors -- Environmental, Health and Safety Regulation and Risks."
ENVIRONMENTAL MATTERS
The Company's oil and natural gas exploration, development, production and
pipeline gathering operations are subject to stringent federal, state and local
laws governing the discharge of materials into the environment or otherwise
relating to environmental protection. Numerous governmental departments, such as
the Environmental Protection Agency ("EPA"), issue regulations to implement and
enforce such laws, which are often difficult and costly to comply with and which
carry substantial civil and criminal penalties for failure to comply. These laws
and regulations may require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentrations of various
substances that can be released into the environment in connection with
drilling, production and pipeline gathering activities, limit or prohibit
drilling activities on certain lands lying within wilderness, wetlands, frontier
and other protected areas, require some form of remedial action to prevent
pollution from former operations, such as plugging abandoned wells, and impose
substantial liabilities for pollution resulting from the Company's operations.
In addition, these laws, rules and regulations may restrict the rate of oil and
natural gas production below the rate that would otherwise exist. The regulatory
burden on the oil and gas industry increases the cost of
43
doing business and consequently affects its profitability. Changes in
environmental laws and regulations occur frequently, and any changes that result
in more stringent and costly waste handling, disposal or clean-up requirements
could adversely affect OEDC's operations and financial position, as well as the
oil and gas industry in general. While management believes that OEDC is in
substantial compliance with current applicable environmental laws and
regulations and the Company has not experienced any material adverse effect from
compliance with these environmental requirements, there is no assurance that
this will continue in the future.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances at the site where the
release occurred. Under CERCLA, such persons may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the release of hazardous substances or other
pollutants into the environment. Furthermore, although petroleum, including
crude oil and natural gas, is exempt from CERCLA, at least two courts have ruled
that certain wastes associated with the production of crude oil may be
classified as "hazardous substances" under CERCLA and thus such wastes may
become subject to liability and regulation under CERCLA. State initiatives to
further regulate the disposal of oil and natural gas wastes are also pending in
certain states, and these various initiatives could have a similar impact on the
Company.
The Oil Pollution Act ("OPA") requires persons responsible for "offshore
facilities" to establish $150 million in financial responsibility to cover
environmental cleanup and restoration costs likely to be incurred in connection
with an oil spill in the waters of the United States. On August 25, 1993, the
MMS published an advance notice of its intention to adopt a rule under OPA that
would define "offshore facilities" to include all oil and gas facilities that
have the potential to affect "waters of the United States." Since the term "
waters of the United States" has been broadly defined to include the waters of
the Gulf of Mexico, where the Company has its operations, the Company would
become subject to the financial responsibility rule if it is adopted as
proposed. Although the proposed rule would permit financial responsibility to be
established through a variety of means, the Company cannot predict the final
form of any financial responsibility rule that may be adopted. No assurance may
be given as to the Company's ability to comply if the rule were to be adopted in
the form originally proposed. In May 1995, however, the U.S. House of
Representatives passed a bill that would lower the financial responsibility
requirements applicable to offshore facilities to $35 million (the current
requirement under OCSLA). The House bill would allow the limit to be increased
to $150 million if a formal risk assessment indicates the increase is warranted.
In November 1995, the U.S. Senate adopted similar, but slightly different
legislation. Like the House bill, the Senate bill would reduce the level of
financial responsibility required under OPA to $35 million, and would also allow
the financial responsibility limit to be increased to $150 million if the higher
level was justified. However, the Senate bill would not preempt higher state
requirements for financial responsibility. House and Senate conferees must still
meet to resolve differences between the two bills before a bill can be approved
by both houses and presented to the President. The Administration has indicated
support for changes to the OPA financial responsibility requirements. Whether
these legislative efforts will reduce the OPA financial responsibility
requirements applicable to the Company cannot be determined at this time. In any
event, the impact of any final rule is not expected to be any more burdensome to
the Company than it will be to other similarly situated companies involved in
oil and gas exploration and production.
OPA imposes a variety of additional requirements on "responsible parties"
for vessels or oil and gas facilities related to the prevention of oil spills
and liability for damages resulting from such spills in waters of the United
States. The "responsible party" includes the owner or operator of an onshore
facility, pipeline, or vessel or the lessee or permittee of the area in which an
offshore facility is located. OPA assigns
44
liability to each responsible party for oil spill removal costs and a variety of
public and private damages from oil spills. While liability limits apply in some
circumstances, a party cannot take advantage of liability limits if the spill is
caused by gross negligence or willful misconduct or resulted from violation of a
federal safety, construction or operating regulation. If a party fails to report
a spill or to cooperate fully in the cleanup, liability limits likewise do not
apply. OPA establishes a liability limit for offshore facilities (including
pipelines) of all removal costs plus $75 million. Few defenses exist to the
liability for oil spills imposed by OPA. OPA also imposes other requirements on
facility operators, such as the preparation of an oil spill contingency plan.
Failure to comply with ongoing requirements or inadequate cooperation in a spill
event may subject a responsible party to civil or criminal enforcement actions.
In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operational standards may apply to OCS vessels, rigs,
platforms, pipelines, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.
The Federal Water Pollution Control Act ("FWPCA") imposes restrictions and
strict controls regarding the discharge of produced waters and other oil and gas
wastes into navigable waters. Permits must be obtained to discharge pollutants
to state and federal waters. The FWPCA and analogous state laws provide for
civil, criminal and administrative penalties for any unauthorized discharges of
oil and other hazardous substances in reportable quantities and, along with the
OPA, may impose substantial potential liability for the costs of removal,
remediation and damages. State water discharge regulations and the federal
(NPDES) permits prohibit or are expected to prohibit within the next year the
discharge of produced water and sand, and some other substances related to the
oil and gas industry, to coastal waters. Although the costs to comply with zero
discharge mandates under federal or state law may be significant, the entire
industry will experience similar costs and the Company believes that these costs
will not have a material adverse impact on the Company's financial conditions
and operations. Some oil and gas exploration and production facilities are
required to obtain permits for their storm water discharges. Costs may be
incurred in connection with treatment of wastewater or developing storm water
pollution prevention plans.
The Resource Conservation and Recovery Act ("RCRA"), as amended, generally
does not regulate most wastes generated by the exploration and production of oil
and gas. RCRA specifically excludes from the definition of hazardous waste
"drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy." However, these wastes may be regulated by EPA or state agencies as
solid waste. Moreover, ordinary industrial wastes, such as paint wastes, waste
solvents, laboratory wastes, and waste compressor oils, may be regulated as
hazardous waste. Pipelines used to transfer oil and gas may also generate some
hazardous wastes. Although the costs of managing solid and hazardous waste may
be significant, the Company does not expect to experience more burdensome costs
than similarly situated companies involved in oil and gas exploration and
production.
The Clean Air Act Amendments of 1990 required the EPA to promulgate
regulations for the control of air pollution from certain OCS sources. Those
regulations impose requirements on operators of affected OCS facilities,
including the possible need to obtain operating permits. Monitoring, reporting,
notification, inspections, compliance requirements, and other provisions may
also apply to OCS facilities. Failure to comply with these regulations will
subject a facility to civil or criminal enforcement actions.
LITIGATION
The Company is a defendant in a suit styled H. E. (GENE) HOLDER, JR. AND
DAN H. MONTGOMERY V. OFFSHORE ENERGY DEVELOPMENT CORPORATION, which was filed in
1995 alleging that the idea, design, and location of the DIGS as an intrastate
gas gatherer regulated by the FERC under Section 311 of the NGPA was a
confidential trade secret owned by the plaintiffs which had been revealed to the
Company during confidential discussions in furtherance of a proposed joint
venture. The plaintiffs further allege that the
45
Company made misrepresentations regarding its intention to form a joint venture
with the plaintiffs in order to obtain the confidential information and to
induce the plaintiffs into executing a confidentiality agreement which
thereafter prevented plaintiffs from further pursuing the project independently.
The plaintiffs also allege that the Company orally agreed to form a joint
venture and that the Company breached its fiduciary duties to the plaintiffs. As
a consequence, the plaintiffs allege "millions of dollars in profits" as actual
damages and also seek the award of unspecified punitive damages, attorneys'
fees, pre- and post-judgment interest, and costs of suit.
The Company denies the plaintiffs' allegations and is vigorously defending
this matter. The Company has raised the affirmative defenses of statute of
frauds, statute of limitations, laches, waiver and estoppel, and plans to file a
motion for summary judgment on its defenses. Discovery is ongoing in the case
and a trial date has not been set. While a decision adverse to the Company in
this litigation could have a material adverse effect on the Company's financial
condition and results of operation, the Company does not believe that the final
resolution of this case will result in a material liability to the Company.
46
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
David B. Strassner................... 38 President and Class I Director
Douglas H. Kiesewetter............... 43 Executive Vice President, Chief Operating
Officer and Class II Director
R. Keith Anderson.................... 42 Vice President and Class III Director
Joseph L. Savoy, Jr.................. 45 Vice President -- Engineering
Matthew T. Bradshaw.................. 30 Vice President and Treasurer
David R. Albin....................... 37 Class III Director
R. Gamble Baldwin.................... 73 Class I Director
G. Alan Rafte........................ 42 Class II Director
</TABLE>
DAVID B. STRASSNER has served as President and a director of the Company
since the Company's formation in January 1988. For two years prior to forming
the Company, Mr. Strassner was an independent explorationist specializing in the
Gulf of Mexico. For five years prior to that time, Mr. Strassner was a
geophysicist employed by Amoco Production Company. Mr. Strassner is a director
of Gulf Coast Bank and Trust, New Orleans, Louisiana, and God's World
Publications, Asheville, North Carolina. Mr. Strassner holds a B.S. degree in
Geology from the University of North Carolina at Chapel Hill.
DOUGLAS H. KIESEWETTER has served as Executive Vice President, Chief
Operating Officer and a director of the Company since the Company's formation in
January 1988. From June 1984 through October 1987, Mr. Kiesewetter was an
executive officer of Cartrex Corporation, a high technology company in the
computer media business co-founded by Mr. Kiesewetter. Serving as Chief
Financial Officer for the first year, Mr. Kiesewetter thereafter served as
President of the start-up company. Mr. Kiesewetter also has served as Chairman
(1979 to present) of Christian Community Foundation, a charitable foundation
founded by Mr. Kiesewetter, and as President (1975 - present) of CSA Financial
Services, an international consulting firm founded by Mr. Kiesewetter, initially
specializing in financial planning for closely-held businesses and high net
worth individuals and since 1987 operating as an employee leasing company from
which the Company obtained its employees prior to this Offering. Mr. Kiesewetter
has a B.A. in History from Emory University and an M.B.A. from North Texas State
University.
R. KEITH ANDERSON has served as Vice President and a director of the
Company since 1989. Prior to that time Mr. Anderson served as Vice President
(1988-1989) of Endevco, Inc. in charge of managing an independent marketing
division, and as President, Chief Executive Officer and a director (1987-1988)
of Stellar Gas Company, an independent natural gas marketer founded by Mr.
Anderson. For two years prior to that, Mr. Anderson served as Business Manager
of Hadson Gas Systems Corporation, a start-up natural gas marketer. From 1979
through 1984 Mr. Anderson served in various capacities for Texas Oil and Gas.
Mr. Anderson holds a B.B.A. from Texas Tech University and a J.D. from the
Pepperdine University School of Law.
JOSEPH L. SAVOY, JR. has served as Vice President of Engineering since May
1994. Mr. Savoy began his career with Amoco Production Company, where he worked
in drilling, completions, operations, reservoir engineering and construction.
From March 1989 to May 1994 Mr. Savoy was Chief Engineer for Operators and
Consulting Services, Inc., a firm providing contract consulting services to the
oil and gas industry, where he was assigned in 1991 to work on the Company's
account. Mr. Savoy has more than twenty years experience in the oil and gas
business, and holds a B.S. degree from the University of Southwestern Louisiana.
47
MATTHEW T. BRADSHAW joined the Company in 1994 and serves as Vice President
of Finance. Prior to joining the Company, he worked as an energy banker from
1990 to 1992 with Hibernia Bank and from 1992 to 1993 with First National Bank
of Commerce, each in New Orleans, Louisiana. Mr. Bradshaw has a B.S. degree from
Auburn University and an M.B.A. from Baylor University.
DAVID R. ALBIN has been a director of the Company since September 1992.
Since November 1988, Mr. Albin has been a limited partner of G.F.W. Energy, L.P.
(" GFW" ), which in turn serves as general partner of NGP, an investment fund
organized to make equity-related investments in the North American oil and gas
industry. Since November 1988, Mr. Albin has been responsible for the management
of NGP's portfolio. He is a member/manager of the limited liability companies
which are the general partners of Natural Gas Partners II, L.P. ("NGP II" )
and Natural Gas Partners III, L.P. ("NGP III" ). From December 1984 until
November 1988, Mr. Albin was employed by Bass Investment Limited Partnership,
where he was also responsible for portfolio management.
R. GAMBLE BALDWIN has been a director of the Company since September 1992.
Since November 1988, he has been the general partner of GFW. He is also a
member/manager of NGP II and NGP III, and is active in the management of both.
From 1974 until November 1988, Mr. Baldwin was a Managing Director of The First
Boston Corporation, an investment banking firm, specializing in all aspects of
the natural gas business. Mr. Baldwin has been a member of the International
Advisory Board of Creditanstalt Bankverein, Vienna, Austria, since 1994, and a
director of Coflexip Stena Offshore, a provider of industrial technology
oilfield equipment and service, since 1993.
G. ALAN RAFTE was elected to the Board of Directors of the Company in
August 1996. For more than the past five years, Mr. Rafte has been a partner in
the law firm of Bracewell & Patterson, L.L.P., specializing in energy law and
finance. Mr. Rafte holds a Bachelor of Arts degree from Syracuse University and
a J.D. from Emory Law School.
The Company's Certificate of Incorporation provides for a Board of
Directors of not less than six nor more than nine, divided into three classes
having as equal a number of directors as practicable. The members of each class
generally serve three-year staggered terms with one class to be elected at each
annual meeting of stockholders. The terms of the Class I, II and III directors
expire at the Company's 1997, 1998 and 1999 annual meetings, respectively. The
Company's executive officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors.
The Board of Directors has established audit and compensation committees.
The Audit Committee currently consists of Messrs. Baldwin and Rafte, neither of
whom is an employee of the Company. The Audit Committee will review the general
scope of the audit conducted by the Company's independent auditors, the fees
charged therefor and matters relating to the Company's internal control systems.
In performing its functions, the Audit Committee will meet separately with
representatives of the Company's independent auditors and with representatives
of senior management.
The Compensation Committee currently consists of Messrs. Albin and Rafte,
neither of whom is an employee of the Company. The Compensation Committee will
administer the Company's 1996 Stock Option Plan, and in this capacity will make
all option grants or awards to Company employees, including executive officers,
under such plans. In addition, the Compensation Committee is responsible for
making recommendations to the Board of Directors with respect to the
compensation of the Company's President and its other executive officers, and is
responsible for the establishment of policies dealing with various compensation
and employee benefit matters for the Company.
Directors currently receive no compensation for serving on the Board of
Directors. Upon completion of this Offering, each director who is not also an
officer or employee of the Company will receive an annual fee in cash of $15,000
per year for service on the Board. The amounts payable to Messrs. Albin and
Baldwin will be paid to NGP pursuant to a Financial Advisory Services Agreement.
See "-- Certain Transactions."
48
1996 STOCK AWARDS PLAN
The Company recently adopted the Offshore Energy Development Corporation
1996 Stock Awards Plan (the "1996 Stock Awards Plan"). The 1996 Stock Awards
Plan is intended to provide key employees with an opportunity to acquire a
proprietary interest in the Company and additional incentive and reward
opportunities based on the profitable growth of the Company and to aid the
Company in attracting and retaining outstanding personnel. The 1996 Stock Awards
Plan provides for the granting of options (either incentive stock options within
the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), or options that do not constitute incentive stock options
("nonqualified stock options")), restricted stock awards, stock appreciation
rights, performance awards, and phantom stock awards, or any combination
thereof. The 1996 Stock Awards Plan covers an aggregate of 835,000 shares of
Common Stock (subject to certain adjustments in the event of stock dividends,
stock splits and certain other events).
GRANTS. Effective as of the closing of this Offering, the Company will have
granted options to purchase 540,000 shares at an exercise price equal to the
public offering price. In addition, effective as of the closing of this
Offering, the Company will exchange certain outstanding nonqualified stock
options, which were granted prior to the adoption of the 1996 Stock Awards Plan
and have an exercise price of $3.61 per share, for an aggregate of 182,600
options having the same exercise price under the 1996 Stock Awards Plan.
ADMINISTRATION. The 1996 Stock Awards Plan is administered by the
Compensation Committee. The Compensation Committee has the power to determine
which employees will receive an award, the time or times when such award will be
made, the type of the award and the number of shares of Common Stock to be
issued under the award or the value of the award. Only persons who at the time
of the award are key employees of the Company or of any subsidiary of the
Company are eligible to receive award under the 1996 Stock Awards Plan.
OPTIONS. The 1996 Stock Awards Plan provides for two types of options:
incentive stock options and nonqualified stock options. The Compensation
Committee will designate the key employees to receive the options, the number of
shares subject to the options, and the terms and conditions of each option
granted under the 1996 Stock Awards Plan. The term of any option granted under
the 1996 Stock Awards Plan shall be determined by the Compensation Committee;
provided, however, that the term of any incentive stock option cannot exceed ten
years from the date of the grant and any incentive stock option granted to an
employee who possesses more than 10% of the total combined voting power of all
classes of stock of the Company or of its subsidiary within the meaning of
Section 422(b)(6) of the Code must not be exercisable after the expiration of
five years from the date of grant. No option may be exercised earlier than six
months from the date of grant. The exercise price per share of Common Stock of
options granted under the 1996 Stock Awards Plan will be determined by the
Compensation Committee; provided, however, that an incentive stock exercise
price cannot be less than the fair market value of a share of Common Stock on
the date such option is granted (subject to adjustments). Further, the exercise
price of any incentive stock option granted to an employee who possesses more
than 10% of the total combined voting power of all classes of stock of the
Company or of its subsidiaries within the meaning of Section 422(b)(6) of the
Code must be at least 110% of the fair market value of the share at the time
such option is granted. The exercise price of options granted under the 1996
Stock Awards Plan will be paid in full in a manner prescribed by the
Compensation Committee. The 1996 Awards Plan permits holders of options, with
approval of the Compensation Committee, to relinquish all or any part of the
unexercised portion thereof in exchange for replacement options under certain
circumstances.
RESTRICTED STOCK AWARDS. Pursuant to a restricted stock award, shares of
Common Stock will be issued or delivered to the employee at any time the award
is made without any cash payment to the Company, except to the extent otherwise
provided by the Compensation Committee or required by law; provided, however,
that such shares will be subject to certain restrictions on the disposition
thereof and certain obligations to forfeit such shares to the Company as may be
determined in the discretion of the Compensation Committee. The restrictions on
disposition may lapse based upon (a) the Company's
49
attainment of specific performance targets established by the Compensation
Committee that are based on (i) the price of a share of Common Stock, (ii) the
Company's earnings per share, (iii) the Company's income, (iv) the income of a
business unit of the Company designated by the Committee, (v) the return on
stockholders' equity achieved by the Company, or (vi) the Company's pre-tax cash
flow from operations, (b) the grantee's tenure with the Company, or (c) a
combination of both factors. The Company retains custody of the shares of Common
Stock issued pursuant to a restricted stock award until the disposition
restrictions lapse. An employee may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of such shares until the expiration of the
restriction period. However, upon the issuance to the employee of shares of
Common Stock pursuant to a restricted stock award, except for the foregoing
restrictions, such employee will have all the rights of a stockholder of the
Company with respect to such shares, including the right to vote such shares and
to receive all dividends and other distributions paid with respect to such
shares.
STOCK APPRECIATION RIGHTS. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination thereof)
equal to the number of stock appreciation rights exercised by the holder
multiplied by the excess of the fair market value of Common Stock on the
exercise date over the stock appreciation rights' exercise price. Stock
appreciation rights may or may not be granted in connection with the grant of an
option and no stock appreciation right may be exercised earlier than six months
from the date of grant. A stock appreciation right may be exercised in whole or
in such installments and at such time as determined by the Compensation
Committee.
PERFORMANCE AND PHANTOM STOCK AWARDS. The 1996 Stock Awards Plan permits
grants of performance awards and phantom stock awards, which may be paid in
cash, Common Stock, or a combination thereof as determined by the Compensation
Committee. Performance awards granted under the 1996 Stock Awards Plan will have
a maximum value established by the Compensation Committee at the time of the
grant. A grantee's receipt of such amount will be contingent upon satisfaction
by the Company, or any subsidiary, division or department thereof, of future
performance conditions established by the Compensation Committee prior to the
beginning of the performance period. Such performance awards, however, are
subject to later revisions as the Compensation Committee deems appropriate to
reflect significant unforeseen events or changes. A performance award will
terminate if the grantee's employment with the Company terminates during the
applicable performance period except as otherwise provided by the Compensation
Committee at the time of grant. Phantom stock awards granted under the 1996
Stock Awards Plan are awards of Common Stock or rights to receive amounts equal
to share appreciation over a specific period of time. Such awards vest over a
period of time or upon the occurrence of a specific event(s) (including, without
limitation, a change of control) established by the Compensation Committee,
without payment of any amounts by the holder thereof (except to the extent
required by law) or satisfaction of any performance criteria or objectives. A
phantom stock award will terminate if the grantee's employment with the Company
terminates during the applicable vesting period or, if applicable, the
occurrence of a specific event(s), except as otherwise provided by the
Compensation Committee at the time of grant. In determining the value of
performance awards or phantom stock awards, the Compensation Committee must take
into account the employee's responsibility level, performance, potential, other
awards under the 1996 Stock Awards Plan, and other such consideration as it
deems appropriate. Such payment may be made in a lump sum or in installments as
prescribed by the Compensation Committee. Any payment made in Common Stock will
based upon the fair market value of the Common Stock on the payment date.
50
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation provided by the Company in 1995 to its President and each other
person serving as an executive officer during 1995 who earned $100,000 or more
in combined salary and bonus during such year (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------- ---------- ---------- ------------
David B. Strassner, President........ $ 125,000(2) $ -- $ --
Douglas H. Kiesewetter, Executive
Vice
President and Chief Operating
Officer............................ 125,000(2) -- --
R. Keith Anderson, Vice President.... 125,000(2) -- --
Joseph L. Savoy, Vice President...... 112,000(2) -- --
- ------------
(1) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for each executive officer.
(2) Subsequent to the completion of this Offering, Messrs. Strassner,
Kiesewetter, Anderson and Savoy will receive annual salaries of $175,000,
$175,000, $175,000 and $125,000, respectively.
CERTAIN TRANSACTIONS
Prior to this Offering, all of the Company's employees were provided by CSA
Financial Services, Inc. ("CSA"). CSA is wholly owned by Douglas H. Kiesewetter,
Executive Vice President, Chief Operating Officer and a director of the Company.
The employees were provided to the Company by CSA at cost. The Company made
payments to CSA aggregating $855,491, $1,064,818 and $1,197,281 during 1993,
1994 and 1995, respectively. The Company believes that its arrangement with CSA
was on terms no less favorable than could be obtained from an unaffiliated third
party. This arrangement will be terminated upon completion of the Combination
and consummation of this Offering.
The Company and NGP are parties to a Financial Advisory Services Agreement
effective as of April 1, 1996 pursuant to which the Company has engaged NGP to
serve as financial advisor with respect to the public offering process. The
agreement expires on earlier of (i) the dissolution of OEDC Partners, L.P., and
(ii) the later of (y) the date that representatives of NGP no longer serve on
the board of directors of the Company, and (z) the second anniversary of the
closing date of the first issuance of securities by the Company in a public
offering. In consideration of its services NGP receives an annual fee of $15,000
for each representative of NGP that serves on the board of directors of the
Company (currently two), and an annual fee of $30,000 commencing as of the date
of consummation of the first issuance of securities by the Company and
continuing for a two-year period. Consequently, for a two-year period after
completion of this Offering NGP will be paid $60,000 per year.
From 1993 through the first six months of 1996, the Company made preference
payments of $2,703,750 to NGP in respect of the Preference Units in OEDC
Partners, L.P. held by NGP. The Company will redeem all of the outstanding
Preference Units with the proceeds of this Offering. See "Use of Proceeds." In
addition, in 1993 and 1994 the Company made interest payments of $355,748 to NGP
under a short-term credit facility that was repaid in 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
Certain contracts to which the Company or its affiliated partnerships are a
party require the continued employment of certain of the Company's senior
executives. See "Risk Factors -- Dependence Upon Key Personnel," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Financial Activities" and "Business --
Downstream Activities -- Natural Gas Gathering -- Current Operations."
51
The Company has entered into the Registration Rights Agreement with NGP
(including certain affiliates) and Messrs. Strassner, Kiesewetter and Anderson.
Pursuant to the Registration Rights Agreement, on three separate occasions
commencing on the first anniversary of the effective date of the Company's
initial registration statement under the securities laws, the holders of at
least 35% of the shares of Common Stock held by NGP (including certain
affiliates) and Messrs. Strassner, Kiesewetter and Anderson may require the
Company to register shares held by them under applicable securities laws
provided that the shares to be registered have an estimated aggregate offering
price to the public of at least $3,000,000. However, if after two such
registrations, NGP continues to own shares of Common Stock, NGP may require the
Company to effect the third such registration regardless of its percentage
ownership. The Registration Rights Agreement also provides that NGP and Messrs.
Strassner, Kiesewetter and Anderson (and, for two years after the effective date
of the Company's initial registration statement under the securities laws,
certain other stockholders) have "piggyback" registration rights pursuant to
which such persons may include shares of Common Stock held by them in certain
registrations initiated by the Company; provided that, in an underwritten
registered offering, if the underwriters determine that the number of shares
requested to be included in the registration exceeds the number that the
underwriters believe can be sold, the Company will be given first priority and
the persons requesting piggyback registration will be allowed to include shares
pro rata based on the number of shares each such person requested to be
included.
The Registration Rights Agreement provides for customary indemnity by the
Company in favor of persons including shares in a registration pursuant to the
Registration Rights Agreement, and by such persons in favor of the Company, with
respect to information to be included in the relevant registration statement.
Each of Messrs. Strassner, Kiesewetter and Anderson has entered into an
Affiliates Agreement that provides that (i) during such person's employment with
the Company, such person shall engage in oil and gas activities solely for the
benefit of the Company and shall devote no more than 10% of such person's time
to other commercial activities, (ii) after the termination of such person's
employment with the Company, such person will not promote, participate in the
development of, or consult or work in any capacity on any prospect, lease,
project or business opportunity in which the Company has an economic interest or
for a period of one year following such termination is evaluating for
investment, and (iii) information received by such persons relating to the
business, operations and prospects of the Company must be kept confidential.
Messrs. Strassner, Kiesewetter and Anderson have agreed with the Company
that, prior to the earlier of DIGP Payout or February 28, 2001, they will not
voluntarily (i) cease to be actively involved as the management of and in the
operation of DIGP to substantially the same degree as he was involved in such
management and operation on July 1, 1996, or (ii) reduce their respective
ownership interest in the Company following the Company's initial public
offering by 75% or more.
52
PRINCIPAL AND SELLING STOCKHOLDERS
A total of 182,000 shares of Common Stock is being sold hereby by certain
of the Selling Stockholders, assuming no exercise of the Underwriters'
overallotment option. R. Keith Anderson, a Vice President and a director of the
Company, is selling 45,500 shares. Gaylen J. Byker, a Vice President and a
director of the Company from 1992 to 1995, when he ceased to be actively
involved in the business of the Company, is selling 136,500 shares. The Selling
Stockholders will bear the underwriting discount applicable to the shares sold
by them, and will indemnify the Underwriters, each other and any other Selling
Stockholders from certain liabilities, including liabilities under the
Securities Act.
The following table sets forth certain information as of August 28, 1996,
giving effect to the Combination, concerning all stockholders who may sell
shares in this Offering, the persons known by the Company to be beneficial
owners of more than five percent of the Company's outstanding Common Stock, the
members of the Board of Directors of the Company, the Named Executive Officers
listed in the Summary Compensation Table above and all directors and executive
officers of the Company as a group. Except as otherwise noted, each stockholder
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------------------------------------------------------
NUMBER OF SHARES PERCENT
------------------------------------ ------------------------------------
NAME OF BENEFICIAL OWNER BEFORE OFFERING AFTER OFFERING(1) BEFORE OFFERING AFTER OFFERING(1)
- ------------------------------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
David B. Strassner(2)................ 816,978(3) 816,978 16.17% 10.15%
Douglas H. Kiesewetter(2)............ 606,656(4) 606,656 12.01% 7.53%
R. Keith Anderson(2)................. 387,536(5) 342,036 7.67% 4.25%
Joseph L. Savoy, Jr.(2).............. 69,720(6) 69,720(6) 1.36% *
Matthew T. Bradshaw(2)............... 33,226(7) 33,226(7) * *
David R. Albin(8).................... 2,457,900(9) 2,457,900 48.65% 30.53%
R. Gamble Baldwin(10)................ 2,438,825(11) 2,438,825 48.28% 30.29%
G. Alan Rafte........................ 0 0 * *
All Executive Officers and Directors
as a Group (eight persons)......... 4,410,091 4,364,591 85.66% 53.57%
Natural Gas Partners, L.P.(10)....... 2,400,750 2,400,750 47.52% 29.82%
Gaylen J. Byker(12).................. 279,544 143,044 5.53% 1.78%
The Christian Community Foundation... 50,298 50,298 * *
</TABLE>
- ------------
* Less than one percent
(1) Assumes that the Underwriters' overallotment option is not exercised. The
Company and Messrs. David B. Strassner and Douglas H. Kiesewetter (for his
own account and as trustee for the benefit of his mother and sister), the
President and Executive Vice President of the Company, respectively, Mr.
Anderson (for his own account and as trustee for the benefit of his
grandmother, mother and father), NGP and The Christian Community Foundation
have granted the Underwriters an option to purchase 75,000, 68,250, 48,850,
34,000, 201,150 and 50,050 additional shares of Common Stock, respectively,
to cover overallotments, if any. If the Underwriters' overallotment option
is exercised in full Messrs. Strassner, Kiesewetter and Anderson will own
748,728, 557,806 and 308,036 shares, respectively, representing 9.21%,
6.86% and 3.79%, respectively, of the 8,126,885 shares that would be
outstanding. Under such circumstances, NGP would own 2,199,600 shares
representing 27.07% of the Common Stock outstanding, resulting in Mr. Albin
beneficially owning 2,256,750 shares, or 27.77%, and Mr. Baldwin
beneficially owning 2,237,675 shares, or 27.53%. The Christian Community
Foundation would own 248 shares, less than one percent of the shares
outstanding. If the overallotment option is exercised in part, shares will
be purchased pro rata from the Company and the Selling Stockholders selling
shares to cover overallotments.
(2) The address of Messrs. Strassner, Kiesewetter, Anderson, Savoy and Bradshaw
is c/o the Company, 1400 Woodloch Forest Drive, Suite 200, The Woodlands,
Texas 77380.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
53
(3) Includes (i) 737,298 shares held in trust by Mr. Strassner and his spouse
for their benefit and (ii) 79,680 shares held by Mr. Strassner's spouse as
custodian for their minor children. Excludes 120,000 shares of Common
Stock, issuable on the exercise of certain options, none of which are
presently exercisable.
(4) Includes (i) 518,344 shares held in trust by Mr. Kiesewetter and his spouse
for their benefit, (ii) 33,200 shares held by Mr. Kiesewetter's spouse as
custodian for their minor children, (iii) 11,952 shares held in trust by
Mr. Kiesewetter for the benefit of his sister, and (iv) 43,160 shares held
in trust by Mr. Kiesewetter for the benefit of his mother. Excludes 120,000
shares of Common Stock issuable on the exercise of certain options, none of
which are presently exercisable.
(5) Includes (i) 343,380 shares held by Mr. Anderson, (ii) 21,248 shares held
by Mr. Anderson's spouse as trustee for their minor children, (iii) 7,636
shares held in trust by Mr. Anderson for the benefit of his grandmother,
(iv) 7,636 shares held in trust by Mr. Anderson for the benefit of his
mother, and (v) 7,636 shares held in trust by Mr. Anderson for the benefit
of his father. Excludes 120,000 shares issuable on the exercise of certain
options which are not presently exercisable.
(6) Includes 69,720 shares issuable on the exercise of certain presently
exercisable options. Excludes 86,480 shares issuable on the exercise of
certain options.
(7) Includes (i) 6,666 shares held by Mr. Bradshaw and his spouse and (ii)
26,560 issuable on the exercise of certain presently exercisable options.
Excludes 79,840 shares issuable upon the exercise of certain options which
are not presently exercisable.
(8) The address of Mr. Albin is 100 North Guadalupe Street, Suite 205, Santa
Fe, New Mexico 87501.
(9) Includes (i) 28,575 shares held by Mr. Albin, (ii) 28,575 shares held in
trust for Mr. Albin, and (iii) 2,400,750 shares held by Natural Gas
Partners, L.P., a limited partnership in which Mr. Albin serves as general
partner.
(10) The address of Mr. Baldwin and Natural Gas Partners, L.P. is 115 East
Putnam Ave., Greenwich, Connecticut 06830.
(11) Includes (i) 38,075 shares held by Mr. Baldwin and (ii) 2,400,750 shares
held by Natural Gas Partners, L.P., a limited partnership in which Mr.
Baldwin serves as general partner.
(12) The address of Mr. Byker is 3201 Burton Street, S.E., Grand Rapids,
Michigan 49546.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $0.01 per share ("Common Stock") and 1,000,000 shares of
Preferred Stock, par value $0.01 per share. Upon completion of the Combination
and this Offering, 8,051,885 shares of Common Stock and no shares of preferred
stock will be issued and outstanding. The following summary is qualified by
reference to the Certificate of Incorporation of the Company (the
"Certificate"), which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of common stockholders
and do not have cumulative voting rights. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefore, subject to any preferential
dividend rights of holders of outstanding Preferred Stock. See "Dividend
Policy." Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after payment of all debts and other liabilities, subject to
the prior rights of any outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix and determine variations in the
designations,
54
preferences, and relative, participating, optional or other special rights
(including, without limitation, special voting rights to receive dividends or
assets upon liquidation, rights of conversion into Common Stock or other
securities, redemption provisions and sinking fund provisions) between series
and between the Preferred Stock or any series thereof and the Common Stock, and
the qualifications, limitations or restrictions of such right; and the shares of
Preferred Stock or any series thereof may have full or limited voting powers, or
be without voting powers.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction in
that some or a majority of the stockholders might believe to be in their best
interest or in which stockholders might receive a premium for their stock over
the then market price for such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the regulations of any
exchange or interdealer quotation system on which its Common Stock is listed or
included for trading.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS AND DELAWARE LAW
Certain provisions of the Certificate and the Company's Bylaws are intended
to enhance the likelihood of continuity and stability in the Board of Directors
of the Company and in its policies, but might have the effect of delaying or
preventing a change in control of the Company and may make more difficult the
removal of incumbent management even if such transactions could be beneficial to
the interest of stockholders. Set forth below is a description of such
provisions:
NUMBER AND CLASSIFICATION OF DIRECTORS; REMOVAL. The Certificate provides
that the number of directors of the Company shall be not less than six nor more
than nine. The Certificate provides that the Board of Directors is divided into
three classes of two or three directors serving staggered terms. One class is
elected at each annual stockholders' meeting to serve for a three-year term. The
classification of directors has the effect of making it more difficult than it
would be without classification to change the composition or gain control of the
Board of Directors. At least two stockholders' meetings, instead of one, are
required to effect a change in the majority control of the Board of Directors,
except in the event of vacancies resulting from removal for cause. Under the
Delaware General Corporation Law and the Certificate, directors serving on a
classified board may be removed by the stockholders only for cause by the vote
of 80% of the shares entitled to vote.
FILLING VACANCIES; STOCKHOLDER MEETINGS. The Board of Directors of the
Company, acting by a majority of the directors then in office, may fill any
vacancy or newly created directorship. The Company's Bylaws provide that special
meetings of stockholders may be called only by the President or by a majority of
the directors.
ADVANCE NOTICE PROVISIONS. The Bylaws of the Company impose certain
procedural requirements on stockholders of the Company who wish to make
nominations for elections of directors or propose other action to be taken at
the annual meeting of the Company's stockholders. The requirements include,
among other things, the timely delivery to the Company's Secretary of notice of
the nomination or proposal and (i) evidence of the stockholder's status as such,
(ii) the number of shares the stockholder beneficially owns, (iii) a list of the
persons with whom the stockholder is acting in concert, and (iv) the number of
shares beneficially owned by such persons. The Bylaws provide that failure to
follow the required procedures renders the nominee or proposal ineligible to be
voted upon by the stockholders at the meeting.
55
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS. Delaware law authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of a
director's fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them. Absent
the limitations authorized by Delaware law, directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Certificate limits the liability of directors of
the Company to the Company or its stockholders (in their capacity as directors
but not in their capacity as officers) to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the director derived an improper personal
benefit.
The inclusion of this provision in the Certificate may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders. The
Company's Bylaws provide for indemnification to the Company's officers and
directors and certain other persons with respect to certain matters, and the
Company has entered into indemnification agreements with its executive officers
and its directors providing for indemnification with respect to certain matters.
DELAWARE LAW. The Company is a Delaware corporation and is subject to
Section 203 of the Delaware General Corporation Law. In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person become an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of the stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
become an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any person
becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is KeyCorp
Shareholder Services, Inc.
56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 8,051,885 shares of
Common Stock outstanding. The shares sold in this Offering will be freely
tradeable without restriction or further registration, except for shares owned
by "affiliates" of the Company (as such term is defined under the Securities
Act) which may be sold subject to the resale limitations of Rule 144 promulgated
under the Securities Act ("Rule 144"). The remaining 4,869,885 outstanding
shares constitute "restricted securities" within the meaning of Rule 144. Such
shares must be held for two years before they may be resold pursuant to Rule
144, unless the resale of such shares is made pursuant to an effective
registration statement under the Securities Act or another exemption from
registration is available. The Company has entered into the Registration Rights
Agreement with NGP (including certain affiliates) and Messrs. Strassner,
Kiesewetter and Anderson. Pursuant to the Registration Rights Agreement, one
year after the effective date of the Company's initial registration statement
under the securities laws these persons are entitled to demand that the resale
of the Common Stock held by them be registered. In addition, these and certain
other shareholders have the right to include shares held by them in registration
statements filed by the Company (other than registration statements filed with
respect to employee benefit plans and business combinations). See "Management --
Certain Transactions."
Generally, Rule 144 provides that beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned "restricted" securities for at least two years, including a
person who may be deemed an "affiliate" of the Company, as the term "affiliate"
is defined under the Securities Act, is entitled to sell in "brokers'
transactions" or in transactions directly with a "market maker", within any
three-month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock on any national securities exchange and/or
over-the-counter market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company would be entitled to sell such shares under Rule 144 without regard to
the volume, public information, manner of sale or notice provisions and
limitations described above, once a period of at least three years has elapsed
since the later of the date the shares were acquired from the Company or from an
"affiliate" of the Company.
There are currently outstanding options to purchase 722,600 shares of
Common Stock under the 1996 Stock Awards Plan. After this Offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act to
register the shares of Common Stock issuable upon exercise of such options.
Accordingly, such shares will be freely tradeable by holders who are not
affiliates of the Company and, subject to the volume and manner of sale
limitations of Rule 144, by holders who are affiliates of the Company.
Prior to this Offering, there has been no public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that future sales of shares or the availability of shares for sale will have on
the market price for Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception of
the availability of shares for sale, could adversely affect the prevailing
market price of the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities.
57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company and the Underwriters named below (the "Underwriting Agreement"), the
Company has agreed to sell to each of such Underwriters named below, and each of
such Underwriters, for whom Morgan Keegan & Company, Inc. and Principal
Financial Securities, Inc. are acting as representatives, has severally agreed
to purchase from the Company, the respective number of shares of Common Stock
set forth opposite its name below.
NUMBER OF
SHARES
UNDERWRITER OF COMMON STOCK
- ------------------------------------- ---------------
Morgan, Keegan & Company, Inc........
Principal Financial Securities,
Inc..................................
---------------
Total........................... 3,182,000
===============
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares of Common Stock
offered hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may allow, a concession not in excess of $ per share to certain brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company and certain of the Selling Stockholders have granted the
Underwriters an option exercisable for 30 days after the date of this Prospectus
to purchase up to an aggregate of 477,300 additional shares of Common Stock
solely to cover overallotments, if any. See "Principal and Selling
Stockholders." If the Underwriters exercise their overallotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by each of them, as shown in the table above, bears to the
3,182,000 shares of Common Stock.
The Company and all of its officers and directors and NGP have agreed,
during the period beginning from the date of this Prospectus and continuing to
and including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of any securities of the Company
(other than, with respect to the Company, pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the shares of the Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
the Common Stock without the prior consent of the representatives.
The representatives of the Underwriters have informed the Company that the
Underwriters do not expect sales to accounts over which the Underwriters
exercise discretionary authority to exceed five percent of the total number of
shares of Common Stock offered by them.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be negotiated
between the Company and the representatives of the Underwriters. Among the
factors to be considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions, are current and
historical oil and gas prices, current and prospective conditions in the supply
and demand for oil and natural gas, reserve and production quantities for the
Company's oil and natural gas properties, the history of, and prospects for, the
industry in
58
which the Company operates, the price earnings multiples of publicly traded
common stocks of comparable companies, the cash flow and earnings of the Company
and comparable companies in recent periods and the Company's business potential
and cash flow and earnings prospects.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Bracewell & Patterson, L.L.P., Houston, Texas. G. Alan
Rafte, a director of the Company, is a partner in Bracewell & Patterson, L.L.P.
Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Underwriters by Vinson & Elkins L.L.P.,
Houston, Texas.
EXPERTS
The balance sheet of Offshore Energy Development Corporation as of July 24,
1996 and the combined financial statements of OEDC, Inc. and OEDC Partners, L.P.
as of December 31, 1995 and 1994 and June 30, 1996 and for each of the years in
the three-year period ended December 31, 1995 and for the six-month period ended
June 30, 1996, have been included in the Prospectus and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
Information relating to the estimated proved reserves of natural gas at
January 1, 1996 and the related estimates of future net cash flows and present
values thereof included herein have been derived from an engineering report
prepared by Ryder Scott Company, and are included herein in reliance upon the
authority of such firm as experts in petroleum engineering.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Commission a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offer and sale of
Common Stock pursuant to this Prospectus. This Prospectus, filed as a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement or the exhibits and schedules thereto in accordance
with the rules and regulations of the Commission and reference is hereby made to
such omitted information. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document filed as an exhibit to the
Registration Statement are summaries of the terms of such contract, agreement or
document and are not necessarily complete. Reference is made to each such
exhibit for a more complete description of the matters involved and such
statements shall be deemed qualified in their entirety by such reference. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission at 7 World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
This Registration Statement was filed with the Commission electronically. The
Commission maintains a site on the World Wide Web that contains documents filed
with the Commission electronically. The address of such site is
http://www.sec.gov, and the Registration Statement may be inspected at such
site. For further information pertaining to the Common Stock offered by this
Prospectus and the Company, reference is made to the Registration Statement.
The Company intends to furnish holders of its Common Stock annual reports
containing audited consolidated financial statements as well as quarterly
reports containing unaudited consolidated financial statements for the first
three quarters of each fiscal year.
59
GLOSSARY OF CERTAIN OIL AND GAS TERMS
The following terms, when used in this Prospectus, have the meanings
ascribed to them below. All volumes of natural gas referred to herein are stated
at the legal pressure base of the state or area where the reserves exist and at
60 degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
BCF. Billion cubic feet.
BCFE. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
COMPLETION. The installation of permanent equipment for the production of
oil or gas.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable
to producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
DRY HOLE OR WELL. A well found to be incapable of producing either oil or
gas in sufficient quantities to justify completion as an oil or gas well.
EXPLORATORY WELL. A well drilled to find and produce oil or gas in another
reservoir or to extend a known reservoir.
FIELD. An area consisting of single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may be,
in which a working interest is owned.
HORIZONTAL DRILLING. A drilling technique that permits the operator to
contact and intersect a larger portion of the producing horizon than
conventional vertical drilling techniques and can result in both increased
production rates and greater ultimate recoveries of hydrocarbons.
MCF. One thousand cubic feet.
MCF/D. One thousand cubic feet per day.
MCFE. One thousand cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
MMBTU. One million British thermal units.
MMCF. One million cubic feet.
MMCF/D. One million cubic feet per day.
MMCFE. One million cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells.
OIL. Crude oil and condensate.
PRESENT VALUE. When used with respect to oil and gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
PRODUCTIVE WELL. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
PROVED DEVELOPED PRODUCING RESERVES. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
60
PROVED DEVELOPED NONPRODUCING RESERVES. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
PROVED UNDEVELOPED LOCATION. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required from recompletion.
RECOMPLETION. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
RESERVOIR. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
ROYALTY INTEREST. An interest in an oil and gas property entitling the
owner to a share of oil or gas production free of costs of production.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
UPDIP. A higher point in the reservoir.
WORKING INTEREST. The operating interest which gives the owner the right
to drill, produce and conduct operating activities on the property and a share
of production.
WORKOVER. Operations on a producing well to restore or increase
production.
61
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Unaudited Pro Forma Financial
Information of Offshore Energy
Development Corporation............ F-2
Unaudited Pro Forma Consolidated
Balance Sheet.................. F-3
Notes to Unaudited Pro Forma
Consolidated Balance Sheet..... F-4
Balance Sheet of Offshore Energy
Development Corporation
Independent Auditors' Report.... F-5
Balance Sheet as of July 24,
1996........................... F-6
Notes to Balance Sheet.......... F-7
Combined Financial Statements of
OEDC, Inc. and OEDC Partners, L.P.
Independent Auditors' Report.... F-8
Combined Balance Sheets as of
December 31, 1995 and 1994 and
June 30, 1996 and
1995 (Unaudited).............. F-9
Combined Statements of
Operations for Years Ended
December 31, 1995, 1994 and
1993 and for the Six Month
Periods Ended June 30, 1996 and
1995 (Unaudited)............... F-10
Combined Statements of
Stockholders'/Partners' Equity
as of December 31, 1995, 1994
and 1993 and June 30, 1996..... F-11
Combined Statements of Cash
Flows for Years Ended December
31, 1995, 1994 and
1993 and for the Six Month
Periods Ended June 30, 1996 and
1995 (Unaudited)............... F-12
Notes to Combined Financial
Statements..................... F-13
F-1
OFFSHORE ENERGY DEVELOPMENT CORPORATION
(A NEWLY FORMED DELAWARE CORPORATION)
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of June 30, 1996 is
presented to show the pro forma effects of the consummation of the Combination,
through exchange, by Offshore Energy Development Corporation, of the common
stock of OEDC, Inc. and the partners' interest in OEDC Partners, L.P. for common
stock in the Company as described on page 20 in the Prospectus.
The unaudited pro forma consolidated balance sheet is provided for
information purposes only. The unaudited pro forma consolidated balance sheet is
prepared assuming that the Combination was consummated as of June 30, 1996.
The unaudited pro forma consolidated balance sheet and the pro forma
adjustments have been prepared on the basis of generally accepted accounting
principles and are based upon available information and certain assumptions and
estimates described in the notes to the unaudited pro forma consolidated balance
sheet that management of the Company believes are reasonable. The unaudited pro
forma consolidated balance sheet is not necessarily indicative of what the
Company's financial position would have been had the Combination occurred on the
date indicated. In addition, future results may vary significantly from the
results reflected in such financial statements due to production, price and cost
changes, agreements and other factors.
The unaudited pro forma consolidated balance sheet is based upon the
historical combined balance sheet of OEDC, Inc. and OEDC Partners, L.P. and
should be read in conjunction with their audited combined financial statements
and the related notes thereto which are included elsewhere in this Prospectus.
F-2
OFFSHORE ENERGY DEVELOPMENT CORPORATION
(A NEWLY FORMED DELAWARE CORPORATION)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
OEDC, INC. OFFSHORE
OFFSHORE AND ENERGY
ENERGY OEDC PARTNERS, L.P. DEVELOPMENT
DEVELOPMENT (HISTORICAL PRO FORMA CORPORATION
CORPORATION COMBINED) ADJUSTMENTS PRO FORMA
----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........... $ 30 $ 1,577,455 $ $ 1,577,485
Accounts receivable -- trade, net... -- 1,239,298 1,239,298
Accounts receivables -- affiliate... -- 97,343 97,343
Accounts receivable -- other........ -- 1,254,508 1,254,508
Prepaids and other assets........... -- 340,466 340,466
--- ------------------- ----------- -----------
Total current assets........... 30 4,509,070 -- 4,509,100
Oil and gas properties -- at cost
(successful efforts method)......... -- 26,230,131 26,230,131
Other property and equipment.......... -- 342,657 342,657
Accumulated depreciation, depletion
and amortization.................... -- (9,271,502) (9,271,502)
--- ------------------- ----------- -----------
-- 17,301,286 -- 17,301,286
Investments in affiliates and
others.............................. 508,477 508,477
Investments in certificates of
deposits, restricted................ 1,938,950 1,938,950
Deferred and other assets............. -- 293,251 293,251
--- ------------------- ----------- -----------
Total Assets................... $ 30 $24,551,034 $ -- $24,551,064
=== =================== =========== ===========
LIABILITIES AND STOCKHOLDERS'/PARTNERS'
EQUITY
Current Liabilities
Accounts payable.................... $ -- $ 1,916,911 $ $ 1,916,911
Payable to affiliate................ -- 21 21
Capital lease payable -- current.... -- 177,543 177,543
Accrued liabilities................. -- 926,548 926,548
Current portion of long-term debt... -- 2,500,000 2,500,000
--- ------------------- ----------- -----------
Total current liabilities...... -- 5,521,023 -- 5,521,023
Deferred tax liability................ -- 13,130 1,937,000(A) 1,950,130
Capital lease payable -- noncurrent... -- 740,512 740,512
Reserve for abandonment............... -- 305,402 305,402
--- ------------------- ----------- -----------
Total Liabilities.............. -- 6,580,067 1,937,000 8,517,067
Redeemable preference units........... -- 12,000,000 12,000,000
Partners' equity...................... -- 5,672,207 (1,937,000)(A) --
(3,735,207)(B)
Stockholders' equity
Class A common stock, $.01 par
value; authorized 6,000 shares;
issued 6,000 shares............... -- 60 (60)(B) --
Class B common stock, $.01 par
value; authorized 6,000 shares;
issued 6,000 shares............... -- 60 (60)(B) --
Common stock -- Offshore Energy
Development Corporation, $.01 par
value; authorized 10,000,000
shares; issued and outstanding
5,051,885 shares.................. -- -- 50,519(B) 50,519
Additional paid-in capital.......... 30 90,843 (90,843)(B) 3,775,681
3,775,651(B)
Retained earnings................... -- 207,797 207,797
--- ------------------- ----------- -----------
Total Stockholders'/Partners
Equity....................... 30 5,970,967 (1,937,000) 4,033,997
Commitments and contingencies.........
--- ------------------- ----------- -----------
Total Liabilities and
Stockholders'/Partners' Equity...... $ 30 $24,551,034 $ -- $24,551,064
=== =================== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
F-3
OFFSHORE ENERGY DEVELOPMENT CORPORATION
(A NEWLY FORMED DELAWARE CORPORATION)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated balance sheet has been
prepared assuming the Combination was consummated as of June 30, 1996.
2. PRO FORMA ADJUSTMENTS
The unaudited pro forma consolidated balance sheet reflects the following
pro forma adjustments related to the consummation of the Combination.
(A) To record the estimated deferred tax liability recognized by OEDC
Partners, L. P. and expensed to its operations as required in
instances when OEDC Partners, L.P., a partnership, becomes subject to
federal income taxes through inclusion in Offshore Energy Development
Corporation's federal tax returns. The deferred tax liability relates
primarily to the excess of book basis over tax basis of oil and gas
properties.
(B) To record the issuance of 5,051,882 shares of common stock of Offshore
Energy Development Corporation in the combination for the exchange of
OEDC, Inc. common stock and the OEDC Partners, L.P. partners' equity.
F-4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Offshore Energy Development Corporation:
We have audited the accompanying balance sheet of Offshore Energy
Development Corporation as of July 24, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above, presents fairly, in
all material respects, the financial position of Offshore Energy Development
Corporation as of July 24, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
August 23, 1996
F-5
OFFSHORE ENERGY DEVELOPMENT CORPORATION
(A NEWLY FORMED DELAWARE CORPORATION)
BALANCE SHEET
JULY 24, 1996
Assets
Cash............................ $ 30
=========
Stockholders' Equity
Preferred Stock, $.01 par value,
1,000,000 shares authorized,
none issued or outstanding..... $ --
Common Stock, $.01 par value,
10,000,000 shares authorized, 3
shares issued and
outstanding.................... --
Additional paid-in capital...... 30
---------
Total Stockholders'
Equity....................... $ 30
=========
See accompanying notes to balance sheet.
F-6
OFFSHORE ENERGY DEVELOPMENT CORPORATION
(A NEWLY FORMED DELAWARE CORPORATION)
NOTES TO BALANCE SHEET
JULY 24, 1996
1. ORGANIZATION AND BUSINESS PURPOSE
Offshore Energy Development Corporation (the Company) is a Delaware
corporation formed on July 24, 1996 for the purpose of acquiring the common
stock of OEDC, Inc. and the partners' interests in OEDC Partners, L.P. (the
Combination).
In completing the Combination, the Company expects to issue 5,051,882
shares of common stock to the stockholders of OEDC, Inc. and the partners of
OEDC Partners, L.P.
As a condition to the Combination, the Company expects to initiate a public
issuance of 3,000,000 shares of common stock.
2. STOCKHOLDERS' EQUITY
The Board of Directors of the Company is empowered, without approval of
stockholders, to cause shares of preferred stock to be issued in one or more
series. The Board of Directors is authorized to fix and determine variations in
designations, preferences and relative, participating, optional or other special
rights and the limitations or restrictions of such rights and voting powers. No
preferred stock has been issued at July 24, 1996.
Holders of common stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of common
stockholders. The common stock does not have cumulative voting rights. Holders
of common stock are entitled to receive dividends, if any, as may be declared by
the Board of Directors out of funds legally available therefore, subject to any
preferential dividend rights of holders of outstanding preferred stock.
3. KEY EMPLOYEE STOCK PLAN
The Company has established a stock awards plan (the "1996 Stock Awards
Plan") pursuant to which options to purchase up to 835,000 shares of common
stock will be available for grants. The 1996 Stock Awards Plan provides for the
granting of incentive options, nonqualified stock options, restricted stock
awards, stock appreciation rights, performance awards and phantom stock awards,
or any combination thereof. Options to purchase 722,600 shares of common stock
will be outstanding and subject to vesting requirements. Of such, options to
purchase 182,000 shares of common stock will be exchanged for options issued by
Offshore Energy Development Corporation (an S-Corporation) prior to 1995 at a
fair value exercise price of $3.61. The quantity and price of the options have
been adjusted for the effect of the Combination. The exercise price of the
balance of the options to purchase 722,600 shares of common stock will be at the
initial public offering price.
F-7
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OEDC, Inc.
The Partners
OEDC Partners, L.P.:
We have audited the accompanying combined balance sheets of OEDC, Inc. and
OEDC Partners, L.P. as of December 31, 1995 and 1994 and as of June 30, 1996,
and the related combined statements of operations, stockholders'/partners'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995 and for the six-month period ended June 30, 1996. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of OEDC, Inc.
and OEDC Partners, L.P. as of December 31, 1995 and 1994 and as of June 30,
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995 and for the six-month
period ended June 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in note 1 to the combined financial statements, the Companies
adopted the provisions of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of in 1996.
KPMG Peat Marwick LLP
Houston, Texas
August 23, 1996
F-8
OEDC, INC.
AND
OEDC PARTNERS, L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 8,413,782 $ 710,306 $ 1,550,389 $ 1,577,455
Accounts receivable -- trade,
net............................ 174,776 1,660,193 338,558 1,239,298
Accounts
receivables -- affiliate....... 844,537 653,068 1,589,228 97,343
Accounts receivable -- other..... 72,968 38,930 531,577 1,254,508
Prepaids and other assets........ 115,486 27,484 47,683 340,466
------------ ------------ ----------- ------------
Total current assets........ 9,621,549 3,089,981 4,057,435 4,509,070
Oil and gas properties -- at cost
(successful efforts method)...... 10,434,526 26,153,845 21,191,736 26,230,131
Other property and equipment....... 218,775 329,923 325,320 342,657
Accumulated depreciation, depletion
and amortization................. (1,053,960) (6,376,095) (2,528,321) (9,271,502)
------------ ------------ ----------- ------------
9,599,341 20,107,673 18,988,735 17,301,286
Investments in affiliates and
others........................... (473,603) 245,783 104,473 508,477
Investments in certificates of
deposits, restricted............. 820,170 1,378,601 1,295,232 1,938,950
Deferred and other assets.......... 467,828 348,347 412,237 293,251
------------ ------------ ----------- ------------
Total Assets................ $ 20,035,285 $ 25,170,385 $24,858,112 $ 24,551,034
============ ============ =========== ============
LIABILITIES AND
STOCKHOLDERS'/PARTNERS' EQUITY
Current Liabilities:
Accounts payable................. $ 2,480,924 $ 3,136,223 $ 4,533,356 $ 1,916,911
Payable to affiliate............. 725 1,124 12,131 21
Capital lease
payable -- current............. 36,960 168,168 160,102 177,543
Abandonment reserve.............. 292,425 -- -- --
Federal income taxes payable..... 3,705 -- -- --
Accrued liabilities.............. 569,331 357,766 142,285 926,548
Current portion of long-term
debt........................... 1,430,772 12,260,962 1,430,772 2,500,000
------------ ------------ ----------- ------------
Total current liabilities... 4,814,842 15,924,243 6,278,646 5,521,023
Long-term debt..................... 5,969,228 -- 10,921,579 --
Deferred tax liability............. 23,018 -- -- 13,130
Capital lease
payable -- noncurrent............ 308,805 831,692 918,056 740,512
Reserve for abandonment............ 227,305 236,608 502,833 305,402
------------ ------------ ----------- ------------
Total Liabilities........... 11,343,198 16,992,543 18,621,114 6,580,067
Redeemable preference units........ 6,500,000 12,000,000 6,500,000 12,000,000
Stockholders'/partners' equity
(deficit)
Partners' equity (deficit)
Natural Gas Partners........... (788,375) (2,379,279) (788,375) 2,418,042
Offshore Energy Development
Corporation................. 2,821,184 (1,543,154) 379,137 3,254,165
------------ ------------ ----------- ------------
Total Partners' Equity
(Deficit)................. 2,032,809 (3,922,433) (409,238) 5,672,207
Stockholders' equity
Class A common stock, $.01 par value; authorized 6,000 shares; issued
6,000 shares (1995) and 600 shares
(1994)...................... 6 60 6 60
Class B common stock, $.01 par
value; authorized 6,000
shares; issued 6,000 shares
(1995 and 1994)............. 60 60 60 60
Additional paid-in capital..... 90,843 90,843 90,843 90,843
Retained earnings.............. 68,369 9,312 55,327 207,797
------------ ------------ ----------- ------------
Total
Stockholders'/Partners'
Equity (Deficit).......... 2,192,087 (3,822,158) (263,002) 5,970,967
------------ ------------ ----------- ------------
Commitments and contingencies......
Total Liabilities and
Stockholders'/Partners'
Equity.................... $ 20,035,285 $ 25,170,385 $24,858,112 $ 24,551,034
============ ============ =========== ============
</TABLE>
See accompanying notes to combined financial statements.
F-9
OEDC, INC.
AND
OEDC PARTNERS, L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income:
Exploration and production....... $ 1,744,466 $ 5,512,496 $ 6,168,591 $ 1,859,093 $ 5,548,829
Pipeline and marketing........... 357,758 358,150 (167,465) (48,771) 344,681
Equity in earnings (loss) of
equity investments............. (255,493) (2,779) 496,979 314,538 23,171
Gain on sales of oil and gas
properties or partnership
investments, net............... -- 13,655,225 -- -- 10,661,433
------------ ------------ ------------ ----------- ------------
Total Income................ 1,846,731 19,523,092 6,498,105 2,124,860 16,578,114
------------ ------------ ------------ ----------- ------------
Expenses:
Operations and maintenance....... 570,167 1,410,231 1,876,186 921,642 875,934
Exploration charges.............. 32,349 2,231,349 404,836 153,353 421,368
Depreciation, depletion and
amortization................... 354,617 2,112,350 5,501,072 1,597,913 2,876,566
Abandonment expense.............. 59,120 2,735,253 84,219 13,159 216,121
General and administrative....... 1,724,443 2,358,668 2,191,877 1,155,591 1,154,915
------------ ------------ ------------ ----------- ------------
Total Expenses.............. 2,740,696 10,847,851 10,058,190 3,841,658 5,544,904
------------ ------------ ------------ ----------- ------------
Earnings (losses) before interest and
taxes.............................. (893,965) 8,675,241 (3,560,085) (1,716,798) 11,033,210
Interest Income (Expense) and Other:
Interest expense and preference
payments....................... (959,635) (2,605,670) (2,498,563) (989,188) (1,162,132)
Interest income and other........ (225,566) 316,668 122,974 229,612 (64,823)
------------ ------------ ------------ ----------- ------------
Total Interest Income
(Expense) and Other....... (1,185,201) (2,289,002) (2,375,589) (759,576) (1,226,955)
------------ ------------ ------------ ----------- ------------
Income (Loss) Before Income Taxes.... (2,079,166) 6,386,239 (5,935,674) (2,476,374) 9,806,255
Income Tax Benefit (Expense)......... -- (26,723) 21,375 10,045 (13,130)
------------ ------------ ------------ ----------- ------------
Net Income (Loss).................... $ (2,079,166) $ 6,359,516 $ (5,914,299) $(2,466,329) $ 9,793,125
============ ============ ============ =========== ============
Pro forma net income (loss) data
(unaudited)
Net income (loss) as reported.... $ (5,914,299) $ 9,793,125
Pro forma adjustment for federal
income tax benefit (expense)....... 2,188,291 (3,623,456)
------------ ------------
Pro forma net income (loss).......... $ (3,726,008) $ 6,169,669
------------ ------------
Pro forma net income (loss) per
common share....................... $ (0.74) $ 1.22
============ ============
Pro forma weighted average of common
shares outstanding................. 5,051,885 5,051,885
============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-10
OEDC, INC.
AND
OEDC PARTNERS, L.P.
COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY
<TABLE>
<CAPTION>
PARTNERS' EQUITY (DEFICIT) STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------- --------------------------------
OFFSHORE ENERGY TOTAL ADDITIONAL RETAINED
DEVELOPMENT NATURAL GAS PARTNERS' COMMON PAID-IN EARNINGS
CORPORATION PARTNERS EQUITY STOCK CAPITAL (DEFICIT)
--------------- ----------- ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1993...................... $ 1,008,912 $ (119,805 ) $ 889,107 $ 66 $ 90,843 $(9,153)
Adjustments to assets contributed at
September 1, 1992.................. 17,555 -- 17,555 -- -- --
Net loss............................. (2,060,686) -- (2,060,686) -- -- (18,480)
--------------- ----------- ---------- ------ ---------- --------
December 31, 1993.................... (1,034,219) (119,805 ) (1,154,024) 66 90,843 (27,633)
Capital distributions................ (2,408,111) (668,570 ) (3,076,681) -- -- --
Net income........................... 6,263,514 -- 6,263,514 -- -- 96,002
--------------- ----------- ---------- ------ ---------- --------
December 31, 1994.................... 2,821,184 (788,375 ) 2,032,809 66 90,843 68,369
Capital distributions................ (100,000) -- (100,000) -- -- --
Issuance of common stock, 5,400
shares............................. -- -- -- 54 -- --
Net loss............................. (4,264,338) (1,590,904 ) (5,855,242) -- -- (59,057)
--------------- ----------- ---------- ------ ---------- --------
December 31, 1995.................... (1,543,154) (2,379,279 ) (3,922,433) 120 90,843 9,312
Net income........................... 4,797,319 4,797,321 9,594,640 -- -- 198,485
--------------- ----------- ---------- ------ ---------- --------
June 30, 1996........................ $ 3,254,165 $2,418,042 $5,672,207 $120 $ 90,843 $207,797
=============== =========== ========== ====== ========== ========
</TABLE>
TOTAL
STOCKHOLDERS'/
PARTNERS'
EQUITY (DEFICIT)
----------------
January 1, 1993...................... $ 970,863
Adjustments to assets contributed at
September 1, 1992.................. 17,555
Net loss............................. (2,079,166)
----------------
December 31, 1993.................... (1,090,748)
Capital distributions................ (3,076,681)
Net income........................... 6,359,516
----------------
December 31, 1994.................... 2,192,087
Capital distributions................ (100,000)
Issuance of common stock, 5,400
shares............................. 54
Net loss............................. (5,914,299)
----------------
December 31, 1995.................... (3,822,158)
Net income........................... 9,793,125
----------------
June 30, 1996........................ $5,970,967
================
See accompanying notes to combined financial statements.
F-11
OEDC, INC.
AND
OEDC PARTNERS, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... $(2,079,166) $ 6,359,516 $(5,914,299) $(2,466,329) $ 9,793,125
Adjustments to reconcile net income
(loss) to cash provided
by (used in) operations
Depreciation, depletion and
amortization.................... 422,074 2,234,000 5,652,841 1,643,010 2,954,580
Abandonment expense............... 59,120 2,735,253 84,219 13,159 68,944
Gain on sales, net................ -- (13,655,225) -- -- (10,661,433)
Dry hole expense.................. -- 1,585,872 -- -- --
Transfer of partnership equity
interest........................ -- 1,300,000 41,126 -- --
Equity in (earnings) loss of
equity investments, net......... 255,493 2,779 (496,979) (314,538) (23,171)
Change of interest in limited
partnerships.................... (491,593) 25,864 344,590 262,483 (1,269)
Deferred taxes.................... -- 23,018 (23,018) -- 13,130
Changes in assets and liabilities:
Accounts receivable............. (597,441) 537,383 (1,399,497) (953,816) 976,843
Deferred and other assets....... (104,410) (72,381) 134,016 (380,312) (1,528,034)
Accounts payable................ 535,673 443,173 719,648 2,090,514 (1,220,361)
Accrued liabilities............. 454,115 54,839 (211,565) (427,046) 568,788
----------- ----------- ----------- ----------- -----------
Total adjustments........... 533,031 (4,785,425) 4,845,381 1,933,454 (8,851,983)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities.......... (1,546,135) 1,574,091 (1,068,918) (532,875) 941,142
INVESTING ACTIVITIES
Investment in equity interests........ 1,442,908 (192,474) (263,534) (263,537) (252,678)
Short term investments................ -- 50,000 -- -- --
Cash paid under net profits
interest............................ -- (32,440) -- -- --
Proceeds from the sales of properties
and other investments............... -- 40,289,309 -- -- 11,340,093
Note receivable....................... (246,030) 246,030 -- -- --
Restricted investments in certificates
of deposit.......................... (220,500) (134,682) (558,431) (506,722) (560,349)
Acquisition of property and
equipment........................... (10,993,011) (18,418,340) (15,965,301) (10,493,078) (758,292)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities.......... (10,016,633) 21,807,403 (16,787,266) (11,263,337) 9,768,774
FINANCING ACTIVITIES
Capital contributions................. 17,555 -- -- 11,240 --
Capital distributions................. -- (3,076,681) (100,000) -- --
Proceeds from issuance of redeemable
preference units.................... -- -- 5,500,000 -- --
Proceeds (payment) of note payable to
partner............................. 2,000,000 (2,000,000) -- -- --
Proceeds from borrowings.............. -- 7,400,000 8,291,492 6,291,493 --
Principal payments on borrowings...... -- -- (3,430,530) (1,339,142) (9,760,962)
Fees paid to acquire financing........ -- (560,003) -- -- --
Proceeds from (settlement of)
production payment.................. 12,414,604 (20,237,945) -- -- --
Principal payments on capital lease... (51,299) (490,513) (108,254) (30,772) (81,805)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities.......... 14,380,860 (18,965,142) 10,152,708 4,932,819 (9,842,767)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents.............. 2,818,092 4,416,352 (7,703,476) (6,863,393) 867,149
Cash and cash equivalents balance,
beginning of period................. 1,179,338 3,997,430 8,413,782 8,413,782 710,306
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents balance, end
of period........................... $ 3,997,430 $ 8,413,782 $ 710,306 $ 1,550,389 $ 1,577,455
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
interest........................ $ 785,862 $ 353,809 $ 1,760,571 $ 830,078 $ 307,762
=========== =========== =========== =========== ===========
Cash paid during the period for
income taxes.................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
Supplemental disclosure of non-cash
activities
Capital lease acquisition......... $ 406,921 $ 256,553 $ 762,349 $ 763,164 $ --
Net contribution to affiliate..... 13,692 -- -- -- --
Issuance of stock................. -- -- 54 -- --
</TABLE>
See accompanying notes to combined financial statements.
F-12
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION
The stockholders of OEDC, Inc. (Inc.) and the partners of OEDC Partners,
L.P. (Partners) have agreed to consummate a combination through the exchange of
their interests for shares of common stock of a newly formed entity, Offshore
Energy Development Corporation (OEDC). The stockholders and partners hold
interests in both Inc. and Partners. OEDC will serve as the parent company of
Inc. and Partners.
OEDC intends to initiate a public issuance of approximately 30% of its
authorized common stock (the Offering) as a condition to consummation of the
Combination.
The combined financial statements include the accounts of Inc. and Partners
(combined as the Company). The combined financial statements are presented due
to the commonality of the stockholders and partners of Inc. and Partners.
Partners' investments in associated oil and gas partnerships are accounted for
using the proportionate consolidation method, whereby Partners' proportionate
share of each oil and gas partnerships' assets, liabilities, revenues, and
expenses is included in the appropriate classifications in Partners' financial
statements. Investments in non-oil and gas partnerships where the Company has
ownership interests of less than 50% are accounted for on the equity method, all
investments with ownership interests less than 20% are accounted for on the cost
method. All of the Company's material intercompany accounts and transactions
have been eliminated in the combination.
ORGANIZATION
OEDC, INC. Inc. was formed on August 31, 1992 for the purpose of investing
in certain partnerships involved in drilling, producing, marketing, transporting
and storing oil and gas. Inc.'s only significant assets are its general
partnership interests.
Inc. accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
reporting basis and tax basis of Inc.'s assets and liabilities. Deferred tax
assets are also recognized for the tax effect of operating loss carryforwards
and other tax credit carryforwards available to Inc. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Total deferred tax assets are reduced by a valuation
allowance to an amount that in management's judgment is more likely than not to
be realized as a future tax benefit.
OEDC PARTNERS, L.P. Partners was formed on August 31, 1992 for the purpose
of investing in certain partnerships involved in drilling, producing, marketing,
transporting and storing oil and gas. On the date of formation, Offshore Energy
Development Corporation (an S-Corporation) and Natural Gas Partners (NGP),
contributed net assets approximating $1,496,000 and $6,380,000, including cash
of approximately $6,375,000, in exchange for 99,000 common units and 100,000
preference units, respectively. These contributions were recorded by Partners at
the partners' historical cost.
Partners' partnership agreement was amended effective July 31, 1995. In
accordance with the amended partnership agreement, NGP's interest in Partners
subsequent to the amendment consists of 99,000 common units and 120,000
preference units. At December 31, 1997 Partners is required to redeem 50% of the
preference units outstanding at a rate of $100 per unit. At December 31, 1998
Partners is required to redeem all remaining preference units outstanding at a
rate of $100 per unit. Under the partnership agreement, Partners pays NGP a 9%
coupon on the preference units outstanding. Partners is scheduled to make the
following preference payments in equal quarterly installments: $1,080,000 in
1996; $1,080,000 in 1997; and
F-13
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
$540,000 in 1998. If the preference payments are not made according to schedule,
the rate of preference increases from 9% per annum to 15% per annum and any
distributions by Partners are first applied to preference payments in arrears.
If more than two preference payments are not made as scheduled, NGP becomes
entitled to certain voting rights in Partners.
Partners is not subject to federal income taxes. Income and losses earned
by Partners are passed through to its partners on the basis of the earnings
ratio established in the partnership agreement.
UNAUDITED PRO FORMA COMBINED INFORMATION
Pro forma net income (loss) at June 30, 1996 and December 31, 1995,
respectively, reflects federal income taxes that would have been recorded had
Partners been subject to such taxes. Such amounts have been included in the
statements of operations pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) for instances when a partnership becomes subject
to federal income taxes. Pro forma net income (loss) per common share is
presented giving effect to the number of shares outstanding subsequent to the
exchange of stockholders' equity of Inc. and partners' equity of Partners for
5,051,882 common shares of OEDC.
CASH AND CASH EQUIVALENTS
Short-term investments with an original maturity of three months or less
are considered cash equivalents and are classified as such in the accompanying
statements of cash flows. Cash and cash equivalents consist of cash on hand and
investments in short-term government securities at cost, which approximates
market.
OIL AND GAS PROPERTIES
Oil and gas properties are accounted for on the successful efforts method
whereby costs, including lease acquisition and intangible drilling costs
associated with exploration efforts which result in the discovery of proved
reserves and costs associated with development wells, whether or not productive,
are capitalized. Gain or loss is recognized when a property is sold or ceases to
produce and is abandoned. Capitalized costs of producing oil and gas properties
are amortized using the unit-of-production method based on units of proved
reserves for each property.
The costs of unproved leaseholds are capitalized pending the results of
exploration efforts. Significant unproved leasehold costs are assessed
periodically, on a property-by-property basis, and a loss is recognized to the
extent, if any, that the cost of the property has been impaired. Exploratory dry
holes, geological and geophysical charges and delay rentals are expensed as
incurred. Costs to operate and maintain wells and equipment and to lift oil and
gas to the surface are expensed as incurred.
Estimated future expenditures for abandonment and dismantlement costs are
charged to operations using the unit-of-production method based upon estimates
of proved oil and gas reserves for each property.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121). SFAS No. 121
requires that an impairment loss be recognized whenever the carrying amount of
an asset exceeds the sum of the estimated future cash flows (undiscounted) of
the asset. Under SFAS No. 121, the Company performed its impairment review of
proved oil and gas properties on a depletable unit basis. For any depletable
unit determined to be impaired, an impairment loss equal to the difference
between the carrying value and the fair value of the depletable unit will be
immediately recognized. Fair value, on a depletable unit basis, was estimated to
be the present value of expected future
F-14
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
cash flows computed by applying estimated future oil and gas prices, as
determined by management, to estimated future production of oil and gas reserves
over the economic lives of the reserves. No such impairment was recognized as a
result of the adoption of SFAS No. 121.
Prior to January 1, 1996, the Company determined the impairment of proved
oil and gas properties on a world-wide basis. Using the world-wide basis, if the
net capitalized costs exceeded the estimated future undiscounted after-tax net
cash flows from proved oil and gas reserves using period-ending pricing, such
excess would be charged to expense. No such charge was required at December 31,
1995, 1994 or 1993.
REVENUE RECOGNITION
The Company uses the sales method of accounting for natural gas imbalances.
Under the sales method, the Company recognizes revenues based on the amount of
gas sold to purchasers, which may differ from the amounts to which the Company
is entitled based on its interests in the properties. Gas balancing obligations
as of December 31, 1995 1994 and 1993 and as of June 30, 1996, were not
significant.
NATURAL GAS HEDGING ACTIVITIES
The Company periodically enters into natural gas price swaps with third
parties to hedge against potential adverse effects of fluctuations in future
prices for the Company's anticipated production volumes based on current
engineering estimates. The natural gas price swaps qualify as hedges and
correlate to natural gas production; therefore any gains or losses will be
recorded when the related natural gas production has been delivered. Gains and
losses on closed natural gas swap agreements will be deferred and amortized over
the original term of the agreement. Should the natural gas price swaps cease to
become recognized as a hedge, subsequent changes in value will be recorded in
the Statement of Operations. While the swaps are intended to reduce the
Company's exposure to declines in the market price of natural gas, they may
limit the Company's gain from increases in the market price. The swap agreements
also expose the Company to credit risk to the extent the counterparty is unable
to perform under the agreement.
OTHER PROPERTY AND EQUIPMENT
Other property and equipment consists of furniture, office equipment and
automobiles which are depreciated on a straight-line basis over the estimated
useful life of the assets of five to seven years.
DEFERRED AND OTHER ASSETS
The June 30, 1996 and December 31, 1995 and 1994 balances primarily
consists of financing fees incurred in securing a long-term note payable. The
financing fees are being amortized over the life of the loan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses approximates fair value
because of the short-term maturity of these instruments.
The carrying value of the outstanding debt at June 30, 1996 and at December
31, 1995 and 1994 approximates fair value as this debt bears interest at rates
which approximate current market rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect certain reported
F-15
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements. Certain amounts of reported revenues and
expenses are also affected by these estimates and assumptions. Actual results
could differ from those estimates.
2. INVESTMENTS
AFFILIATES
Through Dauphin Island Gathering Company, L.P. (DIGCO), a partnership
wholly-owned by Inc. and Partners, the Company has an investment in Dauphin
Island Gathering Partners (DIGP) that is accounted for using the equity method.
This investment includes undistributed earnings (losses) of approximately
$23,000 in 1996, $497,000 in 1995, $(3,000) in 1994 and $(255,000) in 1993.
On January 14, 1993, the Company entered into a Texas general partnership
with Enron Gas Gathering, Inc. (EGGI), a wholly-owned subsidiary of Enron Corp.,
to form DIGP to which the Company contributed the Dauphin Island Gathering
System (DIGS) together with certain permits, contracts, accrued income and
liabilities with a net book value of $13,692. The Company serves as operator of
DIGP's pipeline facilities. Under the DIGP partnership agreement, income is to
be allocated on the basis of 80% to EGGI and 20% to the Company until such time
as EGGI has recouped its investment together with a specified rate of return, as
defined. After such time, both income and losses will be allocated equally to
EGGI and to the Company.
On March 25, 1994, DIGP entered into a contribution agreement with Tenneco
Gas, Inc. (Tenneco), whereby Tenneco contributed $19 million in cash, contracts
and material to DIGP in exchange for a 50% interest in DIGP. The remaining 50%
interest was split evenly between the Company and EGGI.
Also, in 1994, the Company transferred $1,300,000 of its partners' capital
in DIGP to EGGI. The Company and EGGI agreed that the transfer resulted in EGGI
realizing the recoupment of its investment as of September 30, 1994. Beginning
October 1, 1994, income and losses were allocated 50% to Tenneco, 25% to EGGI
and 25% to the Company.
In 1995, DIGP recorded an $82,252 transfer of partners' capital from the
Company and EGGI to Tenneco to reflect the proper allocation of state sales and
use tax relating to material purchased prior to March 25, 1994 by DIGP to
construct DIGS. The transfer was split evenly between the Company and EGGI. As a
result, the Company transferred $41,126 of its partners' capital in DIGP to
Tenneco.
In 1996, the Company sold approximately 96% of its remaining interest in
DIGP to a subsidiary of MCN Investment Corporation (MCN) thereby reducing its
interest in DIGP to 1%. The Company continues to operate DIGS and, pursuant to
an incentive management arrangement, its one percent interest in DIGP will
increase to 15% when MCN receives the return of its investment plus a 10% rate
of return, subject to certain other conditions.
F-16
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
Summarized financial data of DIGP as of December 31, 1995, 1994 and 1993
and for the years then ended follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Current assets.......................... $ 1,492,855 $ 3,496,164 $ 1,963,998
Long-term assets........................ 19,112,141 51,714,521 58,172,859
-------------- -------------- --------------
Total assets....................... $ 20,604,996 $ 55,210,685 $ 60,136,857
============== ============== ==============
Current liabilities..................... $ 1,744,302 $ 6,702,506 $ 9,689,455
Long-term liabilities................... 8,244,290 18,461,633 18,375,242
Partners' capital....................... 10,616,404 30,046,546 32,072,160
-------------- -------------- --------------
Total liabilities and partners'
capital.......................... $ 20,604,996 $ 55,210,685 $ 60,136,857
============== ============== ==============
Revenues................................ $ 2,007,780 $ 4,482,987 $ 9,526,215
Operating expenses...................... (2,535,848) (4,299,971) (7,500,601)
-------------- -------------- --------------
Net income (loss).................. $ (528,068) $ 183,016 $ 2,025,614
============== ============== ==============
The Company's share of net income
(loss)................................ $ (264,034) $ 29,661 $ 506,403
============== ============== ==============
</TABLE>
Summarized financial data for the six-month period ending and as of June
30, 1996 is not presented since the Company's ownership interest in DIGP is not
material to its current operations.
The Company has approximately $250,000 invested in Asia-Pacific Refinery
Investment, L.P. (APRI), representing a 13% limited partnership interest. APRI
is involved in the construction and operation of a refinery unit and is
currently in the final stages of compiling a financing group to generate the
additional funds necessary to begin construction of the refinery. The Company
has no responsibility to provide additional funds to APRI. The refinery will be
constructed in Houston and transported to Papua New Guinea. APRI has already
purchased the necessary refinery site in Papua New Guinea. The refinery is
expected to begin operations in 1997. The Company also has a $4,109 investment
in the Salach Partnership (Salach). Salach was formed to participate in the
acquisition of on-shore undeveloped leases. Salach's operations have been, and
are expected to be, insignificant to the Company.
3. LONG-TERM DEBT
In 1994, the Company obtained a credit facility from Joint Energy
Development Investments Limited Partnership totaling $16,000,000. The
$16,000,000 includes a revolving credit loan for $7,500,000 and a term loan for
$8,500,000 made available to the Company upon request. The outstanding principal
balance of each revolving credit loan accrues interest at a varying rate per
annum that is 2.5% per annum above the prime lending rate (8.25% at June 30,
1996). The outstanding principal amount of each term loan bears interest from
the date made until the due date at a rate of 15% per annum. Under the debt
agreement, principal repayments are to begin on or before March 20, 1995 for the
term loan. Amounts outstanding under the revolving loan are due in full in
August 1996. The current portion of the term loan is determined based on the
terms set forth in the agreement. At June 30, 1996 and December 31, 1995, the
Company had borrowed $2,500,000 and $5,000,000, respectively, against the
revolving loan. At June 30, 1996 there are no amounts outstanding under the term
loan and at December 31, 1995 there is $7,260,962 outstanding against the term
loan. As the revolving loan is payable in full in August 1996, the entire
balance is classified as short-term at June 30, 1996 and December 31, 1995.
F-17
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
The debt is collateralized by the Company's investments in oil and gas
properties. The debt agreement contains restrictions on working capital and
tangible net worth. In addition, the agreement restricts the assumption of
additional debt and the sale of oil and gas properties.
The Company is currently negotiating a credit facility with a third party
lending institution and plans to use the proceeds to pay its outstanding debt
balance and finance future development of oil and gas properties.
4. ABANDONMENT OF OIL AND GAS OF PROPERTIES
Oil and gas properties at December 31, 1993 included capitalized costs
associated with the Company's interest in Eugene Island Block 163 which was
damaged by Hurricane Andrew.
After evaluating the potential results from a workover of the well, the
Company allowed its lease on the Eugene Island Block 163 to expire in 1994. All
property costs and accumulated depletion and depreciation were written off in
1994, resulting in an abandonment charge of $2,108,743. As of December 31, 1994,
$292,425 had been accrued for final abandonment costs which were incurred in
1995.
5. NATURAL GAS HEDGING
During 1996, the Company entered into natural gas price swap agreements
with Enron Capital & Trade Resources. The Company's exploration and production
revenues were decreased by approximately $822,000 in 1996 as a result of the
swap agreements. At June 30, 1996, the Company had the following commitments
under swap agreements:
VOLUME FIXED PRICE
TIME PERIOD (MMBTU) ($/MMBTU)
- ------------------------------------- --------- ------------
August 1996.......................... 260,000 $1.849
September 1996....................... 290,000 2.512
October 1996......................... 280,000 2.482
November 1996........................ 270,000 2.482
December 1996........................ 260,000 2.544
January 1997......................... 260,000 2.537
February 1997........................ 250,000 2.428
March 1997 to September 1997......... 60,000 2.009
October 1997 to December 1997........ 50,000 2.009
The natural gas price swap agreement for July 1996 production was closed
prior to June 30, 1996. Recognition of the related decrease in exploration and
production revenues of approximately $206,000 has been deferred and is currently
recorded as a deferred item in prepaids and other assets in the balance sheet at
June 30, 1996. At June 30, 1996, the Company estimates the cost of unwinding
these positions to be approximately $679,000.
During 1995 and 1994, the Company entered into natural gas price swap
agreements with Enron Capital & Trade Resources and Enron Risk Management
Services Corporation, respectively. During 1995 and 1994, the Company's
exploration and production revenues were increased by approximately $622,000 and
$482,000, respectively, as a result of the swap agreements.
F-18
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
6. SALE OF INVESTMENT IN PARTNERSHIP AND OIL AND GAS PROPERTIES
During 1996, the Company sold approximately 96% of its interest in DIGP to
MCN. The Company received net proceeds of approximately $10,800,000 from MCN
resulting in a gain of approximately $10,800,000. The Company will continue to
operate DIGP and retain a 1% ownership interest. (See note 2)
The Company sold a group of properties effective June 1, 1994, to Scana
Petroleum Resources Inc., for net proceeds of approximately $40,000,000,
resulting in a gain of approximately $13,700,000.
7. CAPITAL LEASE
During 1994, the Company entered into a capital lease agreement for a
compressor unit. The compressor, with a net book value at June 30, 1996 of
approximately $915,000, is the security for the lease. The agreement calls for
monthly payments of $22,614 including interest at a basic annual rate of 11%.
Total future minimum lease obligations at June 30, 1996 are as follows:
YEAR ENDED
DECEMBER 31,
- ---------------
1996............................... $ 135,684
1997............................... 271,368
1998............................... 271,368
1999............................... 271,368
2000............................... 22,614
----------
Total future minimum lease
obligations........................ 972,402
Less amounts representing interest... 54,347
----------
Present value of future minimum lease
payments........................... 918,055
Less current installments of
obligation under capital lease..... 177,543
----------
Obligations under capital leases,
excluding current installments..... $ 740,512
==========
8. RELATED PARTY TRANSACTIONS
OPERATOR FEES
The Company, as operator of the Dauphin Island Gathering System, is
entitled to charge certain fees to DIGP attributable to the pipeline operations.
For the six-month period ending June 30, 1996, the Company charged $281,337 in
operator fees to DIGP, of which $57,087 is a receivable at June 30, 1996. In
1995, the Company charged $139,544 in operator's fees and construction overhead
fees to DIGP, of which $65,569 is a receivable at December 31, 1995. In 1994,
the Company charged $338,221 in operator's fees and construction overhead fees
to DIGP, of which $90,162 is a receivable at December 31, 1994.
RECEIVABLE FROM AFFILIATE
At June 30, 1996, the Company had affiliated receivables from DIGP and the
Company's officers of $38,338 and $1,864, respectively, for expenses paid by the
Company on behalf of DIGP and the officers. Also at June 30, 1996, the Company
had a receivable from NGP in the amount of $54 for the purchase of the Company's
common stock in 1995.
Also at June 30, 1996, the Company had a receivable from Enron Capital &
Trade Resources (ECT) for $1,234,401 for development costs paid by the Company
on behalf of ECT. This receivable is included in the accounts receivable from
others balance at June 30, 1996.
F-19
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
At December 31, 1995, the Company had affiliated receivables from DIGP of
$585,732, representing expenses paid by the Company on behalf of the affiliates
and accrued interest charged to DIGP for its outstanding payable balance due to
the Company at a rate commensurate with DIGP's long-term borrowing rate. The
interest charged is in accordance with the DIGP Partnership Agreement. Also at
December 31, 1995, the Company had a receivable from NGP in the amount of $54
for the purchase of the Company's common stock and $1,713 from the Company's
officers for expenses paid by the Company on behalf of the officers.
At December 31,1994, the Company had affiliated receivables of $752,669
from DIGP, and $1,706 from the Company's officers for expenses paid by the
Company on behalf of the affiliates and officers.
PAYABLE TO AFFILIATES
At June 30, 1996, the Company had an affiliated payables of $21 to officers
of the Company for expenses paid by the officers on behalf of the Company.
At December 31, 1995, the Company had affiliated payables $725 to DIGP and
$399 to officers of the Company for expenses paid by DIGP and the officers on
behalf of the Company.
At December 31, 1994, the Company had an affiliated payable of $725 to DIGP
representing expenses paid by DIGP on behalf of the Company.
PREFERENCE PAYMENTS
Preference payments totaling $540,000, $847,500, $585,000 and $731,250 were
paid to NGP during the six-month period ending June 30, 1996 and during the
annual periods ending December 31, 1995, 1994 and 1993 respectively.
During 1994, the Company made a $130,722 preference payment to Enron
Finance Corporation (EFC) to complete EFC's recoupment of its investment in an
oil and gas partnership participated in by both EFC and the Company. Upon EFC's
recoupment of its initial investment in the partnership, the income (loss)
sharing ratio between EFC and the Company was restructured.
OTHER
One of the majority shareholders of the Company is also the majority
shareholder of CSA Financial Services (CSA). CSA provides, on a contractual
basis, all Company operating personnel. The Company reimburses CSA for actual
payroll costs plus burden.
9. INCOME TAXES
As discussed in Note 1, Inc. accounts for income taxes under the asset and
liability method.
Income tax expense (benefit) relating to Inc.'s pretax operating results
for the six-month period ended June 30, 1996 and the years ended December 31,
1995, 1994 and 1993 consists of:
<TABLE>
<CAPTION>
1993 1994 1995 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Current federal expense................. $ -- $ 3,705 $ 1,643 $ --
Deferred federal expense (benefit)...... -- 23,018 (23,018) 13,130
--------- --------- ---------- ---------
$ -- $ 26,723 $ (21,375) $ 13,130
========= ========= ========== =========
</TABLE>
Income and tax expense (benefit) is different from expected tax expense at
34% due to the increase in valuation allowance and the effects of progressive
tax rates.
F-20
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
Tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1996 and at
December 31, 1995 and 1994 are presented below:
1994 1995 1996
--------- ---------- ---------
Net operating loss carry forwards....... $ -- $ 54,706 $ 74,645
--------- ---------- ---------
Total gross deferred tax assets.... -- 54,706 74,645
Valuation allowance................ -- (22,864) --
--------- ---------- ---------
Net deferred tax assets............ -- 31,842 74,645
--------- ---------- ---------
Investments in partnerships, principally
due to
differences in book and tax bases..... 23,018 31,842 87,775
--------- ---------- ---------
Total gross deferred tax
liabilities...................... 23,018 31,842 87,775
--------- ---------- ---------
Net deferred tax liability.... $ 23,018 $ -- $ 13,130
========= ========== =========
There was a valuation allowance of $22,864 for deferred tax assets as of
January 1, 1996. The change in the total valuation allowance for the six-months
ended June 30, 1996 was a decrease of $22,864.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Accordingly, a valuation allowance was established
at December 31, 1995. The net deferred tax asset primarily relates to net
operating loss carryforwards which will begin to expire in 2010 if not
previously utilized. At June 30, 1996, Partners' tax basis in oil and gas
operations is approximately $11,462,000.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has a noncancelable operating lease for its office space which
will expire on September 30, 1998. The Company will be required to make future
payments in connection with the lease agreement as follows for the years ended:
1996.................................... $ 53,804
1997.................................... 116,976
1998.................................... 87,732
----------
$ 258,512
==========
Rent expense was $115,698, $82,583 and $35,639 in 1995, 1994 and 1993,
respectively and $56,845 for the six-month period ended June 30, 1996.
OTHER
The Company is a defendant in a suit filed in 1995 alleging that the idea,
design and location of DIGS was a confidential trade secret owned by the
plaintiffs which had been revealed to the Company during confidential
discussions in furtherance of a proposed joint venture. The plaintiffs allege
"millions of dollars in profits" as actual damages and also seek unspecified
punitive damages, attorneys' fees, pre- and post-judgment interest and costs of
the suit.
The Company denies the plaintiffs' allegations and is vigorously defending
this matter. The Company has raised the affirmative defenses of statute of
frauds, statute of limitations, laches, waiver and estoppel, and plans to file a
motion for summary judgment on its defenses. Discovery is ongoing in the case
and a
F-21
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
trial date has not been set. While a decision adverse to the Company in this
litigation could have a material adverse effect on the Company's financial
condition and results of operation, the Company does not believe that the final
resolution of this case will result in a material liability to the Company.
The Company is involved in other various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
During 1995 and 1994 and for the first six months of 1996, approximately
80% of the Company's natural gas sales were to a single customer. However, due
to the availability of other markets, the Company does not believe that the loss
of this single customer would adversely affect the Company's results of
operations.
11. SUPPLEMENTAL OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
RESERVE QUANTITY INFORMATION
Total proved and proved developed oil and gas reserves of the Company's
properties at December 31, 1995 have been estimated by an independent petroleum
engineer in accordance with guidelines established by the SEC. Total proved and
proved developed oil and gas reserves at December 31, 1994 and 1993 have been
estimated by the Company in accordance with guidelines established by the SEC.
All reserves are based on economic and operating conditions existing at the
respective year end. The future net cash flows from the production of these
proved reserve quantities were computed by applying current prices of oil and
gas, at each period end, (with consideration of price changes only to the extent
provided by contractual arrangements) to estimated future production of proved
oil and gas reserves less the estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves. All of
the Company's properties are located onshore in the United States or offshore in
the Gulf of Mexico in federal or state waters.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
DECEMBER 31,
------------------------------
1994 1995
-------------- --------------
Proved properties.................... $ 1,074,431 $ 22,234,125
Unproved properties.................. 9,360,095 3,919,720
-------------- --------------
10,434,526 26,153,845
Accumulated depreciation, depletion,
and amortization................... (932,338) (6,210,210)
-------------- --------------
$ 9,502,188 $ 19,943,635
============== ==============
F-22
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Acquisition of properties:
Proved.......................... $ 3,477,431 $ 2,173,901 $ 1,850,000
Unproved........................ -- 2,422,080 --
Exploration costs.................... 32,349 2,231,349 404,836
Development costs.................... 7,980,263 14,070,818 13,876,703
-------------- -------------- --------------
$ 11,490,043 $ 20,898,148 $ 16,131,539
============== ============== ==============
</TABLE>
RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
------------ -------------- --------------
<S> <C> <C> <C>
Revenues............................. $ 1,744,466 $ 5,512,496 $ 6,168,591
Lifting costs:
Lease operating expense......... 570,167 1,410,231 1,876,186
------------ -------------- --------------
1,174,299 4,102,265 4,292,405
General operating expense............ (202,966) (388,097) (423,742)
Exploration charges.................. (32,349) (2,231,349) (404,836)
Depreciation, depletion, and
amortization....................... (354,617) (2,112,350) (5,501,072)
Abandonment of oil and gas
properties......................... (59,120) (2,735,253) (84,219)
------------ -------------- --------------
Results of operations from producing
activities......................... $ 525,247 $ (3,364,784) $ (2,121,464)
============ ============== ==============
</TABLE>
F-23
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
RESERVE QUANTITY INFORMATION
GAS
(MCF)
--------------
Year Ended December 31, 1993:
Proved Developed and Undeveloped
Reserves:
Beginning of year.......... 309,260
Purchases of reserves in
place................... 22,756,762
Sales of reserves in
place................... --
Revisions of previous
estimates............... 1,539,460
Extensions and
discoveries............. --
Production................. (672,838)
--------------
End of year................ 23,932,644
==============
Year Ended December 31, 1994:
Proved Developed and Undeveloped
Reserves:
Beginning of year.......... 23,932,644
Purchases of reserves in
place................... --
Sales of reserves in
place................... (19,849,128)
Revisions of previous
estimates............... 4,315,561
Extensions and
discoveries............. --
Production................. (3,685,681)
--------------
End of year................ 4,713,396
==============
Year Ended December 31, 1995:
Proved Developed and Undeveloped
Reserves:
Beginning of year.......... 4,713,396
Purchases of reserves in
place................... 5,299,000
Sales of reserves in
place................... --
Revisions of previous
estimates............... 8,718,305
Extensions and
discoveries............. 5,223,000
Production................. (3,667,701)
--------------
End of year................ 20,286,000
==============
Proved Developed Reserves:
December 31, 1993............... 23,932,644
December 31, 1994............... 4,713,396
December 31, 1995............... 14,987,000
==============
F-24
OEDC, INC.
AND
OEDC PARTNERS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994 AND 1993
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Future cash inflows..................... $ 50,182,689 $ 6,719,617 $ 46,879,461
Future development costs................ (258,771) (138,771) (7,173,990)
Future production costs................. (8,165,645) (1,935,929) (7,589,878)
-------------- -------------- --------------
Future net cash inflows................. 41,758,273 4,644,917 32,115,593
10% annual discount..................... (6,434,319) (694,423) (5,384,440)
-------------- -------------- --------------
Standardized measure of discounted
future
net cash inflows...................... $ 35,323,954 $ 3,950,494 $ 26,731,153(1)
============== ============== ==============
</TABLE>
(1) The earnings of the Company are not subject to corporate income taxes as the
Company is a combination of predominantly non-taxpaying entities. Once the
Company consummates the proposed Combination, it will become a taxable
corporation. The estimated pro forma income taxes discounted at 10%, are
approximately $6,400,000 as of December 31, 1995, resulting in estimated pro
forma discounted future net cash flows of approximately $20,331,153 as of
December 31, 1995.
PRINCIPAL SOURCES OF CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Standardized measure of discounted
future
net cash flows,
Beginning of year.................. $ 417,298 $ 35,323,954 $ 3,950,494
Purchases of reserves in
place...................... 13,768,699 -- 3,318,239
Sales of reserves in place.... -- (36,329,095) --
Revisions of previous quantity
estimates less related
costs...................... 2,519,201 6,034,804 17,051,312
Extensions and discoveries
less
related costs.............. -- -- 6,678,479
Net changes in prices and
production costs........... 88,121 (3,500,358) 3,655,966
Acquisition/development costs
incurred during period and
changes in estimated future
development costs.......... 16,862,824 5,530,947 (1,329,510)
Sales of oil and gas produced
during period, net of
lifting costs.............. (1,174,299) (4,102,265) (4,292,405)
Accretion of discount......... 41,730 3,532,395 395,049
Other......................... 2,800,380 (2,539,888) (2,696,471)
-------------- --------------- --------------
Standardized measure of discounted
future
net cash flows, end of year........... $ 35,323,954 $ 3,950,494 $ 26,731,153
============== =============== ==============
</TABLE>
12. SUBSEQUENT EVENT
Subsequent to June 30, 1996, the Company entered into an agreement to form
a partnership with MCN and PanEnergy Corp (PanEnergy) to construct, own and
operate a natural gas liquids processing plant onshore in south Alabama. The
partnership will initially be owned 49.5% by each of MCN and PanEnergy and one
percent by the Company. The Company expects to acquire an option to purchase an
additional 32 1/3% partnership interest for three years after inception of plant
operations.
F-25
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 16
Dividend Policy...................... 16
Dilution............................. 17
Capitalization....................... 18
Selected Combined Financial Data..... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business and Properties.............. 29
Management........................... 47
Principal and Selling Stockholders... 53
Description of Capital Stock......... 54
Shares Eligible for Future Sale...... 57
Underwriting......................... 58
Legal Matters........................ 59
Experts.............................. 59
Available Information................ 59
Glossary of Certain Oil and Gas
Terms.............................. 60
Index to Financial Statements........ F-1
------------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,182,000 SHARES
[LOGO]
OFFSHORE ENERGY
DEVELOPMENT CORPORATION
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MORGAN KEEGAN & COMPANY, INC
PRINCIPAL FINANCIAL
SECURITIES, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses incurred by the Company in connection with
this Offering are as follows:
Securities and Exchange Commission
registration fee................... $ 16,404
National Association of Securities
Dealers, Inc. filing fee........... $ 5,257
NASDAQ listing fee................... $ *
Printing and engraving expenses...... $ *
Legal fees and expenses of counsel
for the Company.................... $ *
Accounting fees and expenses......... $ *
Blue sky filing fees and expenses
(including legal fees and
expenses).......................... $ *
Transfer Agent fees.................. $ *
Miscellaneous........................ $ *
Total........................... $ *
- ------------
* To be supplied by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or 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 the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
II-1
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145 of the DGCL, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 of the DGCL (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b). Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (2) if there are no such
directors or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of the Company provides that a director
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director except in the instance of (i) a breach of
the duty of loyalty to the Company or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) liability under of Section 174 of the DGCL, or (iv) receipt of an
improper benefit.
BYLAWS
Section 8.1 of the Company's Bylaws makes mandatory the indemnification of
and advancement of expenses to officers and directors of the Company to the
fullest extent permitted by the DGCL.
INDEMNITY AGREEMENTS
The Company is party to indemnity agreements with all of its executive
officers and directors, a copy of the form of which is filed as an Exhibit to
this Registration Statement. The agreement provides, among other things, that
the Company shall indemnify an officer or director when he is a party or
threatened to be a
II-2
party to an action, suit or proceeding by reason of the fact that he is or was a
director or officer of the Company. The Company shall indemnify such director or
officer against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action or
proceeding. In any event, no indemnification shall be made if the officer or
director is adjudged liable to the Company.
UNDERWRITING AGREEMENT
Certain provisions of the Underwriting Agreement provide for the
indemnification of the directors and officers of the Company in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 26, 1996, the Company issued one share of Common Stock to each of
Messrs. David B. Strassner, Douglas H. Kiesewetter and R. Keith Anderson in
consideration of $10.00 per share. Such issuance was exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act as a
transaction by the issuer not involving any public offering.
Contemporaneously with the completion of the Offering, the Company will
consummate the Combination described in the Prospectus included in this
Registration Statement pursuant to the Agreement and Plan of Reorganization
dated as of August 30, 1996 (the "Reorganization Agreement") by and among the
Company, Offshore Energy Development Corporation, a Texas corporation
("Offshore Texas"), OEDC, Inc., the shareholders of OEDC, Inc., and certain
holders of common units (the "Common Units") representing limited partner
interests in OEDC Partners, L.P. The Reorganization Agreement provides that (i)
the shareholders of OEDC, Inc. will transfer all of their shares of stock in
OEDC, Inc. to the Company in exchange for a total of 99,000 shares of Common
Stock of the Company, (ii) certain holders of Common Units will transfer 99,000
Common Units to the Company in exchange for a total of 2,475,000 shares of
Common Stock of the Company, and (iii) Offshore Texas will be merged with and
into the Company with the shareholders of Offshore Texas receiving a total of
2,477,882 shares of Common Stock of the Company. The transactions contemplated
by the Reorganization are subject to consummation of the sale of Common Stock in
this Offering. The issuance of shares of Common Stock of the Company pursuant to
the Reorganization Agreement is exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act, based on the limited number
of persons involved in the Combination, their individual net worths and their
pre-existing relationships with each other and the Company's predecessors.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS:
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
*1 -- Form of Underwriting Agreement by and between the Underwriters and the Company.
2 -- Agreement and Plan of Reorganization dated August 30, 1996 by and among the Company,
Offshore Energy Development Corporation, a Texas corporation, OEDC, Inc., Natural Gas
Partners, L.P., NGP-OEDC Holdings, L.P., David B. Strassner, Douglas H. Kiesewetter, R.
Keith Anderson, Matthew T. Bradshaw, Taft and Nancy Bradshaw, R. Gamble Baldwin, David R.
Albin, Donald Shore, Trustee of the Albin Income Trust, John S. Foster, Kenneth A. Hersh,
Bruce B. Selkirk, III, John C. Goff, and Agnes Denise Darraugh.
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
*4 -- Form of Certificate representing shares of Common Stock.
*5 -- Opinion of Bracewell & Patterson, L.L.P. as to the legality of the securities being
registered.
II-3
10.1 -- Agreement of Limited Partnership of South Dauphin Partners, Ltd. dated March 2, 1993
between OEDC Exploration and Production, L.P. and Enron Finance Corp.
10.2 -- Agreement Regarding Partnership dated as of May 18, 1993 by and between OEDC Exploration
and Production, L.P. and Enron Finance Corp.
10.3 -- Amendment No. 1 to Agreement of Limited Partnership of South Dauphin Partners, Ltd. dated
August 10, 1993.
10.4 -- Amendment No. 2 to Agreement of Limited Partnership of South Dauphin Partners, Ltd. dated
October 1, 1993.
10.5 -- Amendment No. 3 to Agreement of Limited Partnership of South Dauphin Partners, Ltd. dated
December 21, 1993.
10.6 -- Amendment No. 4 to Agreement of Limited Partnership of South Dauphin Partners, Ltd. dated
March 30, 1994.
10.7 -- Amendment No. 5 to Agreement of Limited Partnership of South Dauphin Partners, Ltd. dated
August 30, 1996.
10.8 -- Fourth Amended and Restated General Partnership Agreement of Dauphin Island Gathering
Partners dated as of July 1, 1996 among MCNIC Mobile Bay Gathering Company, PanEnergy
Dauphin Island Company and Dauphin Island Gathering Company, L.P.
10.9 -- Agreement for Purchase and Sale dated January 31, 1996 by and between Dauphin Island
Gathering Company, L.P. and Pipeline & Processing Group, Inc.
10.10 -- Performance Guaranty dated February 28, 1996 by OEDC Partners, L.P. in favor of MCNIC
Mobile Bay Gathering Company.
10.11 -- Agreement of Limited Partnership of South Dauphin II Limited Partnership dated July 25,
1996 by and between OEDC Exploration and Production, L.P. and Joint Energy Development
Investments Limited Partnership.
10.12 -- Binding Term Sheet to form General Partnership related to NGL Processing Facility dated
June 30, 1996 by and among Pipeline & Processing Group, Inc., PanEnergy Field Services,
Inc. and Dauphin Island Gathering Company, L.P.
10.13 -- Purchase Agreement dated July 31, 1995 by and among Offshore Texas, OEDC, Inc., OEDC
Partners, L.P., Beacon Gas Storage Co., L.P., Dauphin Island Gathering Company, L.P.,
Beacon Natural Gas Company, L.P., OEDC Exploration & Production, L.P. and NGP-OEDC
Holdings, L.P.
10.14 -- Credit Agreement dated August 28, 1996 between OEDC Exploration and Production, L.P.,
OEDC, Inc., OEDC Partners, L.P., the Company, Dauphin Island Gathering Company, L.P. and
Union Bank of California, N.A.
10.15 -- Guaranty dated August 28, 1996 by Dauphin Island Gathering Company L.P. in favor of Union
Bank of California, N.A.
10.16 -- Guaranty dated August 28, 1996 by OEDC, Inc. in favor of Union Bank of California, N.A.
10.17 -- Guaranty dated August 28, 1996 by Offshore Energy Development Corporation in favor of
Union Bank of California, N.A.
10.18 -- Guaranty dated August 28, 1996 by OEDC Partners, L.P. in favor of Union Bank of
California, N.A.
10.19 -- Amended and Restated Excess Gas Purchase Contract dated June 7, 1995 by and among OEDC
Exploration and Production, L.P., South Dauphin Partners, Ltd. and Enron Capital & Trade
Resources, Inc.
10.20 -- Amended and Restated Guaranty Agreement dated March 30, 1994 by OEDC Partners, L.P. in
favor of Enron Finance Corp., Enron Reserve Acquisition Corp., Enron Gas Marketing, Inc.
and Cactus Hydrocarbon III Limited Partnership.
10.21 -- Area of Interest Agreement dated May 18, 1993 between OEDC Exploration and Production,
L.P. and Enron Finance Corp.
10.22 -- Offshore Energy Development Corporation 1996 Stock Awards Plan.
10.23 -- Form of Incentive Stock Option Agreement.
10.24 -- Form of Nonqualified Stock Option Agreement (new option).
10.25 -- Form of Nonqualified Stock Option Agreement (replacement option).
II-4
10.26 -- Registration Rights Agreement by and between the Company, Natural Gas Partners, L.P.,
David B. Strassner, Douglas H. Kiesewetter and R. Keith Anderson.
10.27 -- Stockholders Agreement by and between the Company, Natural Gas Partners, L.P., David B.
Strassner, Douglas H. Kiesewetter and R. Keith Anderson.
10.28 -- Form of Affiliates Agreement by and between OEDC Partners, L.P., OEDC, Inc., Natural Gas
Partners, L.P., David B. Strassner, Douglas H. Kiesewetter, R. Keith Anderson and Gaylen
J. Byker.
10.29 -- Form of Amendment to Affiliates Agreement by and between the Company, OEDC Partners, L.P.,
OEDC, Inc., Natural Gas Partners, L.P., David B. Strassner, Douglas M. Kiesewetter and
Gaylen J. Byker.
*10.30 -- Form of Indemnity Agreement by and between the Company and each of its directors and
executive officers.
10.31 -- Financial Advisory Services Agreement dated as of April 1, 1996 between OEDC Partners,
L.P. and Natural Gas Partners, L.P.
10.32 -- Amendment dated August 30, 1996 to Financial Advisory Services Agreement between OEDC
Partners, L.P. and Natural Gas Partners, L.P.
10.33 -- Agreement of Management Stockholders dated August 30, 1996 by and among the Company and
David B. Strassner, Douglas M. Kiesewetter and R. Keith Anderson.
21 -- Subsidiaries of the Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Bracewell & Patterson, L.L.P. (included in the opinion to be filed as Exhibit 5
to this Registration Statement).
23.3 -- Consent of Ryder Scott Company.
24 -- Power of Attorney (included on the signature pages to this Registration Statement).
27 -- Financial Data Schedule.
</TABLE>
- ------------
* To be supplied by Amendment.
II-5
(B) FINANCIAL STATEMENT SCHEDULES
No schedules for which provision is made in Regulation S-X of the
Commission are required under the related instructions or are inapplicable.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497)(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
OFFSHORE ENERGY DEVELOPMENT CORPORATION HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN, THE CITY OF HOUSTON AND STATE OF TEXAS ON AUGUST 30, 1996.
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By: ________DAVID B. STRASSNER_______
DAVID B. STRASSNER
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of David B. Strassner and Douglas H. Kiesewetter, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
to file the same, together with all exhibits thereto and their documents in
connection therewith, with the Securities and Exchange Commission, to sign any
and all applications, registration statements, notices and other documents
necessary or advisable to comply with the applicable state securities
authorities, granting unto said attorneys-in-fact and agents or any of them, or
their or his substitutes or substitute, full power and authority to perform and
do each and every act anything necessary and advisable as fully to all intents
and purposes as he might or could perform and do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
INDICATED CAPACITIES ON AUGUST 30, 1996.
SIGNATURE POSITIONS
- ------------------------ -------------------------------------------------
DAVID B. STRASSNER President and Director (principal
DAVID B. STRASSNER executive officer)
DOUGLAS H. KIESEWETTER Executive Vice President, Chief
DOUGLAS H. KIESEWETTER Operating Officer and Director
(principal accounting officer)
R. KEITH ANDERSON Vice President and Director
R. KEITH ANDERSON
R. GAMBLE BALDWIN Director
R. GAMBLE BALDWIN
DAVID R. ALBIN Director
DAVID R. ALBIN
G. ALAN RAFTE Director
G. ALAN RAFTE
II-7
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is entered
into as of the 30th day of August, 1996 by and among Offshore Energy Development
Corporation, a Delaware corporation ("Offshore Delaware"), Offshore Energy
Development Corporation, a Texas corporation ("Offshore Texas"), OEDC, Inc., a
Texas corporation ("OEDC"), Natural Gas Partners, L.P., a Delaware limited
partnership ("NGP"), NGP-OEDC Holdings, L.P., a Texas limited partnership
("Holdings"), David B. Strassner ("Strassner"), Douglas H. Kiesewetter
("Kiesewetter"), R. Keith Anderson ("Anderson"), Matthew T. Bradshaw, Taft and
Nancy Bradshaw, R. Gamble Baldwin ("Baldwin"), David R. Albin ("Albin"), Donald
Shore, trustee of the Albin Income Trust (the "Albin Trust"), John S. Foster
("Foster"), Kenneth A. Hersh ("Hersh"), Bruce B. Selkirk, III ("Selkirk"), John
C. Goff ("Goff") and Agnes Denise Darraugh ("Darraugh").
R E C I T A L S
WHEREAS, NGP is the owner of all of the issued and outstanding shares of
Class A Common Stock, par value $.01 per share (the "Class A Stock"), of OEDC
(which consists of 6,000 shares), and Strassner, Kiesewetter, Anderson, Matthew
T. Bradshaw and Taft and Nancy Bradshaw (collectively, the "Class B
Shareholders") are the owners of all of the issued and outstanding shares of
Class B Common Stock, par value $.01 per share (the "Class B Stock"), of OEDC
(which consists of 6,000 shares), and the shares of Class A Stock and Class B
Stock held by NGP and the Class B Shareholders, respectively, constitute all of
the issued and outstanding capital stock of OEDC; and
WHEREAS, OEDC is the sole General Partner, owning a one percent general
partner interest, of OEDC Partners, L.P., a Texas limited partnership (the
"Partnership"); and
WHEREAS, NGP, Baldwin, Albin, the Albin Trust, Foster, Hersh, Selkirk,
Goff and Darraugh (collectively, the "Unitholders"), in the aggregate, own
99,000 Common Units representing limited partner interests in the Partnership
(the "Common Units"); and
WHEREAS, Offshore Texas owns 99,000 Common Units, being all of the
Common Units not owned by the Unitholders; and
WHEREAS, NGP, the Class B Shareholders, the Unitholders and Offshore
Texas desire to consolidate in Offshore Delaware their interests in OEDC and the
Partnership by means of the Exchange (as defined herein) and the Merger (as
defined herein) (the Exchange, the Merger are and the Redemption (as defined
herein) are referred to collectively herein as the "Reorganization"); and
WHEREAS, Holdings is the owner of all of the Preference Units (as
defined in the Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of July 31, 1995 (the "Partnership Agreement")); and
WHEREAS, Offshore Delaware desires to cause the Preference Units to be
redeemed and Holdings desires to receive cash in redemption of the Preference
Units; and
WHEREAS, the parties hereto intend that Section 351(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), will apply to the Exchange and
that the Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
THE EXCHANGE
1.1 EXCHANGE OF CLASS A STOCK. At the Closing, (as defined in Section
5.2), NGP shall transfer to Offshore Delaware all of the shares of Class A Stock
held by it. Such transfer shall be effected by delivery to Offshore Delaware of
the certificate or certificates representing such shares, together with a duly
executed Transfer Letter (as defined below). In exchange for such transfer, at
the Closing, Offshore Delaware shall issue to NGP 8.25 shares of Offshore
Delaware's Common Stock, par value $.01 per share (the "Offshore Delaware Common
Stock"), for each share of Class A Stock transferred to Offshore Delaware.
Offshore Delaware shall cause a certificate or certificates representing the
shares of Offshore Delaware Common Stock issued to NGP pursuant to this Section
1.1 to be delivered at the Closing. The transactions contemplated by this
Section 1.1 and Sections 1.2 and 1.3 are referred to collectively herein as the
"Exchange." As used herein, "Transfer Letter" means a letter pursuant to which a
person transferring securities to Offshore Delaware pursuant hereto transfers
such securities and makes certain customary ownership and securities law
representations and warranties to Offshore Delaware and Offshore Delaware
represents to such transferring person that the shares of Offshore Delaware
Common Stock being issued to such person are duly authorized and validly issued.
1.2 EXCHANGE OF CLASS B STOCK. At the Closing, each of the Class B
Shareholders shall transfer to Offshore Delaware all of the shares of Class B
Stock held by such Class B Shareholder. Such transfer shall be effected by
delivery to Offshore Delaware of the certificate or certificates representing
such shares, together with a duly executed Transfer Letter. In exchange for such
transfer, at the Closing, Offshore Delaware shall issue to each Class B
Shareholder 8.25 shares of Offshore Delaware Common Stock for each share of
Class B Stock transferred to Offshore Delaware. Offshore Delaware shall cause
certificates representing the shares of Offshore Delaware Common Stock issued to
the Class B Shareholders pursuant to this Section 1.2 to be delivered at the
Closing.
1.3 EXCHANGE OF COMMON UNITS. At the Closing, each of the Unitholders
shall transfer to Offshore Delaware all of the Common Units held by such
Unitholder. Such transfer shall be effected by delivery to Offshore Delaware of
a duly executed Transfer Letter. In exchange for such transfer, at the Closing,
Offshore Delaware shall issue to each Unitholder 25 shares of Offshore Delaware
Common Stock for each Common Unit transferred to Offshore Delaware. Offshore
Delaware shall cause certificates representing the shares of Offshore Delaware
Common Stock issued to the Unitholders pursuant to this Section 1.3 to be
delivered at the Closing.
ARTICLE II
THE MERGER
2.1 THE MERGER. On the Closing Date (as defined in Section 5.2 and
contemporaneously with the consummation of the Exchange), Offshore Texas shall
be merged (the "Merger") with and into Offshore Delaware on the terms and
subject to the conditions set forth in the Plan of Merger by and between
Offshore Texas and Offshore Delaware, as amended by an Amendment to Plan of
Merger dated August 30, 1996 (the "Plan of Merger"). A copy of the Plan of
Merger is attached hereto as Exhibit A and incorporated herein by reference.
ARTICLE III
REDEMPTION OF PREFERENCE UNITS
3.1 REDEMPTION OF PREFERENCE UNITS. At the Closing, Offshore Delaware
shall cause the Partnership (i) to make distributions to Holdings in the amount
of $12,000,000 in redemption of all outstanding Preference Units and in early
satisfaction in full of the Partnership's obligations under Section 2.2(e) of
the Partnership Agreement and (ii) to pay to Holdings the amount of all accrued
but unpaid Preference Payments (as defined in the Partnership Agreement) as of
the Closing Date, calculated pursuant to Section 4.3(b) of the Partnership
Agreement (the "Redemption"). Holdings agrees to accept such amounts as
redemption for the Preference Units.
ARTICLE IV
CONDITIONS TO THE REORGANIZATION
4.1 CONDITIONS TO THE REORGANIZATION. The obligations of the parties
hereto to consummate the Reorganization are subject to the satisfaction on or
before the Closing Date of the following conditions:
(a) Offshore Delaware shall contemporaneously with the Closing
complete a registered, underwritten public offering of Offshore Delaware Common
Stock on terms satisfactory to Offshore Delaware in its sole discretion (the
"Offering"); and
(b) To the extent that the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act") is applicable to the transactions
contemplated herein, all waiting periods (and any extensions thereof) applicable
to this Agreement and the proposed transactions under the HSR Act shall have
expired or been terminated.
ARTICLE V
MISCELLANEOUS
5.1 CONSENT OF OEDC. OEDC hereby consents to the transactions
contemplated hereby pursuant to which Offshore Delaware will become the owner of
all of the Common Units and to the substitution of Offshore Delaware as a
Limited Partner (as defined in the Partnership Agreement) of the Partnership in
accordance with Section 9.2 of the Partnership Agreement.
5.2 CLOSING. The closing of the Reorganization (the "Closing") shall
occur on the date and at the time and place as the closing of the Offering
occurs, and the date on which the Closing occurs shall be the "Closing Date."
5.3 CERTAIN REPRESENTATIONS. Except as otherwise provided in this
Section 5.3, NGP, each of the Class B Shareholders, and each of the Unitholders
represent and warrant that they have no plan or intention to sell, transfer or
otherwise dispose of the shares of Offshore Delaware Common Stock received by
them in the Reorganization. Except as otherwise provided in this Section 5.3, to
the best knowledge of the management of Offshore Texas, there is no plan or
intention on the part of the shareholders of Offshore Texas to sell, transfer or
otherwise dispose of the shares of Offshore Delaware Common Stock received by
them in the Reorganization. Notwithstanding the foregoing, the parties hereto
acknowledge that NGP, certain of the Class B Shareholders and certain of the
shareholders of Offshore Texas intend to sell shares of Offshore Delaware Common
Stock received by them in the Reorganization in the Offering, but that such
shares will be less than 20% of the total number of shares of Offshore Delaware
Common Stock issued to them in the Reorganization.
5.4 LOCK-UP AGREEMENTS. NGP and the parties to this Agreement who,
following the consummation of the Reorganization, will be officers or directors
of Offshore Delaware agree to execute an agreement in form and substance
satisfactory to the underwriters of the Offering pursuant to which such persons
will be prohibited from selling, transferring or otherwise disposing of shares
of Offshore Delaware Common Stock for a period of 180 days following the
consummation of the Offering.
5.5 TERMINATION. This Agreement may be terminated at any time by the
mutual consent in writing of all of the parties hereto or by any such party if
the Reorganization shall not have been consummated by December 31, 1996.
5.6 MODIFICATION OR AMENDMENT. Subject to applicable law, at any time
prior to the Closing, this Agreement may be modified or amended by the mutual
consent in writing of all of the parties hereto.
5.7 WAIVER OF CONDITIONS. The conditions to the parties' obligations to
consummate the Reorganization may be waived in whole or in part, to the extent
permitted by applicable law, by the mutual consent in writing of all of the
parties hereto.
5.8 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
5.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflict of laws thereof.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above.
OFFSHORE ENERGY DEVELOPMENT
CORPORATION (DELAWARE)
BY: /s/ DOUGLAS H. KIESEWTTER
Douglas H. Kiesewetter
Executive Vice President
OFFSHORE ENERGY DEVELOPMENT
CORPORATION (TEXAS)
BY: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Executive Vice President
OEDC, INC.
BY: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Executive Vice President
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its general
partner
BY: /s/ DAVID R. ALBIN
David R. Albin
Authorized Representative
NGP-OEDC HOLDINGS, L.P.
BY: Natural Gas Partners, L.P.,
its general partner
BY: G.F.W. Energy, L.P., its
general partner
BT: /s/ DAVID R. ALBIN
David R. Albin
Authorized Representative
/s/ DAVID B. STRASSNER
DAVID B. STRASSNER
/s/ DOUGLAS H. KIESEWETTER
DOUGLAS H. KIESEWETTER
/s/ R. KEITH ANDERSON
R. KEITH ANDERSON
/s/ MATTHEW T. BRADSHAW
MATTHEW T. BRADSHAW
TAFT AND NANCY BRADSHAW
/s/ TAFT BRADSHAW
Taft Bradshaw
/s/ NANCY BRADSHAW
Nancy Bradshaw
R. GAMBLE BALDWIN
DAVID R. ALBIN
DONALD SHORE, TRUSTEE OF THE
ALBIN INCOME TRUST
JOHN S. FOSTER
KENNETH A. HERSH
BRUCE B. SELKIRK, III
JOHN C. GOFF
AGNES DENISE DARRAUGH
By: Natural Gas Partners, L.P.,
attorney-in-fact
By: G.F.W. Energy, L.P., its general
partner
BY: /s/ DAVID R. ALBIN
David R. Albin
Authorized Representative
EXHIBIT A
PLAN OF MERGER
This Plan of Merger ("Plan") is by and between Offshore Energy
Development Corporation, a Texas corporation ("Offshore Texas"), and Offshore
Energy Development Corporation, a Delaware corporation ("Offshore Delaware").
Offshore Texas and Offshore Delaware are sometimes referred to together herein
as the "Constituent Corporations."
ARTICLE I
THE MERGER; THE SURVIVING CORPORATION
1.1 THE MERGER. Subject to the terms and conditions of this Plan, at the
Effective Time (as defined in Section 1.4), Offshore Texas shall be merged with
and into Offshore Delaware (the "Merger"), and the separate corporate existence
of Offshore Texas shall thereupon cease. Offshore Delaware shall be the
surviving corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and shall continue to be governed by the General
Corporation Law of the State of Delaware (the "DGCL") and the separate corporate
existence of Offshore Delaware, with all the rights, privileges, powers and
franchises of each of the Constituent Corporations, shall continue unaffected by
the Merger. The Merger shall have the effects specified in the Texas Business
Corporation Act (the "TBCA") and the DGCL.
1.2 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation and the Bylaws of Offshore
Delaware in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation and Bylaws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the DGCL.
1.3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Offshore Delaware immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors and officers of the
Surviving Corporation until their respective successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
1.4 CLOSING; EFFECTIVE TIME. Subject to Article III of this Plan, the
closing of the Merger (the "Closing") shall take place on such date and at such
time and place as the parties hereto may agree. The date on which the Closing
occurs shall be the "Closing Date." On the Closing Date, Offshore Texas and
Offshore Delaware shall cause a Certificate or Articles of Merger to be properly
executed and filed with the Secretaries of State of the States of Delaware and
Texas in accordance with the DGCL and the TBCA. The Merger shall be effective at
such time (the "Effective Time")
as the Certificate or Articles of Merger have been duly filed with the
Secretaries of State of the States of Delaware and Texas.
1.5 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds, bills
of sale, assignments or assurances or any other actions or things are necessary,
desirable or proper to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its rights, title or interest in, to or under any of the
rights, properties or assets of either of the Constituent Corporations acquired
or to be acquired by the Surviving Corporation as a result of or in connection
with the Merger or otherwise to carry out the purposes of this Plan, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the Constituent
Corporations or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such actions and things as may be
necessary, desirable or proper to vest, perfect or confirm any and all right,
title and interest in, to or under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Plan.
ARTICLE II
CONVERSION OR CANCELLATION OF SHARES
2.1 OFFSHORE TEXAS COMMON STOCK. At the Effective Time, each share of
common stock, no par value, of Offshore Texas (the "Offshore Texas Common
Stock") outstanding immediately prior to the Effective Time (other than shares
then held in the treasury of Offshore Texas, which shall be canceled and retired
without any payment therefor, and shares with respect to which statutory
dissenters' rights have been exercised) shall be converted, by virtue of the
Merger and without any action on the part of the holder thereof, into the right
to receive 165 shares of common stock, par value $.01 per share, of Offshore
Delaware (the "Offshore Delaware Common Stock"). All shares of Offshore Texas
Common Stock that are so converted into the right to receive shares of Offshore
Delaware Common Stock shall cease to be outstanding, shall be canceled and
retired and shall cease to exist, and each holder of a certificate formerly
representing any such shares (an "Offshore Texas Certificate") shall thereafter
cease to have any rights with respect to such shares except the right to receive
shares of Offshore Delaware Common Stock pursuant to this Section 2.1 upon
surrender of such Offshore Texas Certificate in accordance with Section 2.3.
2.2 OFFSHORE DELAWARE COMMON STOCK. At the Effective Time, each share of
Offshore Delaware Common Stock outstanding immediately prior to the Effective
Time shall remain outstanding and unchanged.
-2-
2.3 EXCHANGE OF OFFSHORE TEXAS COMMON STOCK FOR OFFSHORE DELAWARE COMMON
STOCK. At or following the Effective Time, each holder of an Offshore Texas
Certificate (other than holders of Offshore Texas Certificates representing
shares held in the treasury of Offshore Texas or shares as to which statutory
dissenters' rights have been exercised) shall deliver to the Surviving
Corporation at the Closing or at the Surviving Corporation's principal executive
offices, such Offshore Texas Certificate and a duly executed letter of
transmittal containing certain customary representations and warranties for use
in effecting the surrender of the Offshore Texas Certificate. Upon receipt of an
Offshore Texas Certificate and a duly executed letter of transmittal, the
Surviving Corporation shall issue to the record holder of the shares of Offshore
Texas Common Stock formerly represented by such Offshore Texas Certificate a
certificate representing the number of shares of Offshore Delaware Common Stock
into the right to receive which the shares of Offshore Texas Common Stock
represented by such Offshore Texas Certificate shall have been converted
pursuant to Section 2.1. Any Offshore Texas Certificate so surrendered to the
Surviving Corporation shall forthwith be canceled. A holder of shares of
Offshore Texas Common Stock whose Offshore Texas Certificate or Certificates
have been lost or destroyed may nevertheless receive the shares of Offshore
Delaware Common Stock into the right to receive which the shares of Offshore
Texas Common Stock represented by such Offshore Texas Certificate or
Certificates shall have been converted pursuant to Section 2.1, provided that
such holder delivers to the Surviving Corporation a statement certifying such
loss or destruction and providing for reasonably satisfactory indemnification of
the Surviving Corporation against any loss or expense it may incur as a result
of such lost or destroyed Offshore Texas Certificate being thereafter
surrendered to the Surviving Corporation. After the Effective Time and until
surrendered in accordance with the provisions of this Section 2.3, each Offshore
Texas Certificate (other than Offshore Texas Certificates representing shares
held in the treasury of Offshore Texas or shares with respect to which statutory
dissenters' rights have been exercised) shall represent, for all purposes, only
the right to receive shares of Offshore Delaware Common Stock pursuant to
Section 2.1.
2.4 DISSENTING SHARES. If required by the TBCA, but only to the extent
so required, shares of Offshore Texas Common Stock that are outstanding
immediately prior to the Effective Time and that are held by holders who have
properly exercised dissenters' rights with respect thereto in accordance with
the TBCA will not be converted into the right to receive shares of Offshore
Delaware Common Stock in accordance with Section 2.1, and holders of such shares
shall be entitled to receive payments therefor as prescribed by the TBCA unless
and until such holders fail to perfect or effectively withdraw or otherwise lose
their rights to such payment under the TBCA. If, after the Effective Time, any
such holder fails to perfect or effectively withdraws or otherwise loses his or
her rights to such payment, such shares of Offshore Texas Common Stock will
thereupon be treated as if they had been converted into, at the Effective Time,
the right to receive shares of Offshore Delaware Common Stock in accordance with
Section 2.1.
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2.5 OPTIONS. Any options to purchase Offshore Texas Common Stock issued
by Offshore Texas that remain unexercised at the Effective Time shall be
converted into options to purchase the number of shares of Offshore Delaware
Common Stock into which the shares of Offshore Texas Common Stock issuable on
the exercise of such options would have been converted pursuant to Section 2.1
hereof had such options been exercised immediately prior to the Effective Time,
and the exercise price of such options shall be appropriately adjusted to
reflect the rate of conversion of shares of Offshore Texas Common Stock into
Offshore Delaware Common Stock set forth in Section 2.1.
ARTICLE III
CONDITIONS TO CLOSING
3.1 CONDITIONS TO CLOSING. The consummation of the Merger shall be
subject to fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Plan shall have been approved by the shareholders of
Offshore Texas in accordance with the TBCA and the Articles of
Incorporation and Bylaws of Offshore Texas;
(b) This Plan shall have been approved by the stockholders of
Offshore Delaware in accordance with the DGCL and the Certificate of
Incorporation and Bylaws of Offshore Delaware;
(c) All consents or approvals from any person or entity required
to permit the consummation of the Merger shall have been obtained;
(d) Offshore Delaware, the shareholders of OEDC, Inc., a Texas
corporation ("OEDC"), and the partners (other than Offshore Texas) of
OEDC Partners, L.P., a Texas limited partnership (the "Partnership"),
shall have entered into a definitive Agreement and Plan of
Reorganization (the "Reorganization Agreement") which shall incorporate
this Plan and pursuant to which Offshore Delaware shall become the
owner, directly or indirectly, of all of the common equity of OEDC and
the Partnership, and the shareholders of OEDC and the partners (other
than Offshore Texas and OEDC) of the Partnership shall become
stockholders of Offshore Delaware;
(e) Offshore Delaware shall have completed a registered,
underwritten public offering of Offshore Delaware Common Stock, on terms
satisfactory to it in its sole discretion, contemporaneously with the
Effective Time; and
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(f) Such conditions as may be set forth in the Reorganization
Agreement shall have been fulfilled.
ARTICLE IV
MISCELLANEOUS
4.1 TERMINATION. This Plan may be abandoned at any time prior to the
Effective Time, regardless of whether a vote by the shareholders of Offshore
Texas or the stockholders of Offshore Delaware on this Plan has occurred, by the
mutual consent in writing of Offshore Texas and Offshore Delaware by action of
their respective boards of directors.
4.2 AMENDMENT; WAIVER. To the extent permitted by law, this Plan may be
amended, and the conditions to the consummation of the Merger contained herein,
other than the conditions contained in Sections 3.1(d) and 3.1(e), may be
waived, at any time prior to the Effective Time, by the mutual consent in
writing of Offshore Texas and Offshore Delaware by action of their respective
boards of directors.
-5-
AMENDMENT TO PLAN OF MERGER
This Amendment to Plan of Merger ("Amendment") is by and between
Offshore Energy Development Corporation, a Texas corporation ("Offshore Texas"),
and Offshore Energy Development Corporation, a Delaware corporation ("Offshore
Delaware"). Reference is made to the Plan of Merger (the "Plan") previously
approved by the Boards of Directors of Offshore Texas and Offshore Delaware
providing for the merger of Offshore Texas with and into Offshore Delaware.
The Plan is hereby amended by replacing the first sentence of Section
2.1 of the Plan with the following:
At the Effective Time, each share of common stock, no par value, of
Offshore Texas (the "Offshore Texas Common Stock") outstanding
immediately prior to the Effective Time (other than shares then held in
the treasury of Offshore Texas, which shall be canceled and retired
without any payment therefor, and shares with respect to which statutory
dissenters' rights have been exercised) shall be converted, by virtue of
the Merger and without any action on the part of the holder thereof,
into the right to receive 166 shares of common stock, par value $.01 per
share, of Offshore Delaware (the "Offshore Delaware Common Stock").
In witness of the approval of such amendment by the respective Boards of
Directors of Offshore Texas and Offshore Delaware, Offshore Texas and Offshore
Delaware have caused this Amendment to be executed as of the 30th day of August,
1996.
OFFSHORE ENERGY DEVELOPMENT
CORPORATION (Texas)
By: /s/ DOUGLAS H. KIESEWETTER
Name: Douglas H. Kiesewetter
Title: Executive Vice President
OFFSHORE ENERGY DEVELOPMENT
CORPORATION (Delaware)
By: /s/ DOUGLAS H. KIESEWETTER
Name: Douglas H. Kiesewetter
Title: Executive Vice President
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
OFFSHORE ENERGY DEVELOPMENT CORPORATION
ARTICLE I
The name of the corporation is Offshore Energy Development Corporation.
ARTICLE II
The registered office of the corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
The total number of shares of stock which the corporation shall have
authority to issue is 11,000,000 shares, of which 1,000,000 shares are to be
Preferred Stock, par value $0.01 per share ("Preferred Stock"), and 10,000,000
shares are to be Common Stock, par value $0.01 per share ("Common Stock").
(a) Subject to the rights of the holders of any series of
Preferred Stock as set forth in any resolution adopted by the Board of Directors
pursuant to Section (b) of this Article IV, the authorized number of shares of
any class or classes of stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law of the State of Delaware or any
corresponding provision hereinafter enacted.
-1-
(b) Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors, each of said series to be distinctly designated. The voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, of each such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of
shares of Preferred Stock that shall constitute, such series, which number
(except where otherwise provided by the Board of Directors in the resolution
establishing such series) may be increased or decreased (but not below the
number of shares of such series then outstanding) from time to time by like
action of the Board of Directors;
(2) The rights in respect of dividends, if any, of such
series of Preferred Stock, the extent of the preference or relation, if any, of
such dividends to the dividends payable on any other class or classes or any
other series of the same or other class or classes of capital stock of the
corporation and whether such dividends shall be cumulative or noncumulative;
(3) The right, if any, of the holders of such series of
Preferred Stock to convert the same into, or exchange the same for, shares of
any other class or classes or of any other series of the same or any other class
or classes of capital stock of the corporation, and the terms and conditions of
such conversion or exchange;
(4) Whether or not shares of such series of Preferred
Stock shall be subject to redemption, and the redemption price or prices and the
time or times at which, and the terms and conditions on which, shares of such
series of Preferred Stock may be redeemed;
(5) The rights, if any, of the holders of such series of
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding-up of the corporation or in the event of any merger or consolidation of
or sale of assets by the corporation;
-2-
(6) The terms of any sinking fund or redemption or
repurchase or purchase account, if any, to be provided for shares of such series
of Preferred Stock;
(7) The voting powers, if any, of the holders of any
series of Preferred Stock generally or with respect to any particular matter,
which may be less than, equal to or greater than one vote per share, and which
may, without limiting the generality of the foregoing, include the right, voting
as a series of Preferred Stock as a class, to elect one or more directors of the
corporation generally or under such specific circumstances and on such
conditions, as shall be provided in the resolution or resolutions of the Board
of Directors adopted pursuant hereto, including, without limitation, in the
event there shall have been a default in the payment of dividends on or
redemption of any one or more series of Preferred Stock; and
(8) Such other powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, as the Board of Directors shall determine.
ARTICLE V
With respect to (i) the merger or consolidation of the corporation, (ii)
the sale, lease or exchange of all or substantially all of the property and
assets of the corporation, or (iii) the dissolution of the corporation, to the
extent, and only to the extent, that the vote of the outstanding shares of
capital stock of the corporation or any class thereof is required for such
action, the affirmative vote of the holders of record of outstanding shares
representing at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of the outstanding shares of capital stock of the corporation or such
class thereof shall be required to take such action, notwithstanding the fact
that a lesser percentage of such voting power may be specified by the General
Corporation Law of the State of Delaware.
ARTICLE VI
The name and mailing address of the incorporator are as follows:
Charles H. Still, Jr.
711 Louisiana Street, Suite 2900
Houston, TX 77002-2781
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation.
-3-
ARTICLE VII
(a) CLASSIFIED BOARD. The directors of the corporation shall be
divided into three classes, with respect to the time that they severally hold
office, as nearly equal in number as possible, with the initial term of office
of the first class of directors (the "Class I Directors") to expire at the 1997
annual meeting of holders of capital stock of the corporation, the initial term
of office of the second class of directors (the "Class II Directors") to expire
at the 1998 annual meeting of holders of capital stock of the corporation and
the initial term of office of the third class of directors (the "Class III
Directors") to expire at the 1999 annual meeting of holders of capital stock of
the corporation. Commencing with the 1997 annual meeting of holders of capital
stock of the corporation, directors elected to succeed those directors whose
terms have thereupon expired shall be elected for a term of office to expire at
the third succeeding annual meeting of holders of capital stock of the
corporation after their election. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain or
attain, if possible, the equality of the number of directors in each class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. If such equality is not possible, the increase or decrease
shall be apportioned among the classes in such a way that the difference in the
number of directors in any two classes shall not exceed one.
(b) REMOVAL OF DIRECTORS. Subject to the rights of the holders of
any class of capital stock of the corporation (other than the common stock) then
outstanding, (i) any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause, by the affirmative vote of the
holders of record of outstanding shares representing at least eighty percent
(80%) of the voting power of all the shares of capital stock of the corporation
then entitled to vote generally in the election of directors, voting together as
a single class, and (ii) any director may be removed from office at any time,
but only for cause, by the affirmative vote of a majority of the entire Board of
Directors.
(c) VACANCIES. Subject to the rights of the holders of any class
of capital stock of the corporation (other than the common stock) then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from the death, resignation, retirement, disqualification, removal
from office or other cause shall be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the entire Board
of Directors shall shorten the term of any incumbent director.
-4-
(d) NUMBER OF DIRECTORS. Subject to the rights of the holders of
any class of capital stock of the corporation (other than the common stock), the
number of directors constituting the entire Board of Directors shall be not less
than six nor more than nine. Subject to the rights of the holders of any class
of capital stock of the corporation (other than the common stock), the specific
number of directors constituting the entire Board of Directors shall be
authorized from time to time exclusively by the affirmative vote of a majority
of the entire Board of Directors. As used in this Certificate of Incorporation,
the term "entire Board of Directors" means the total authorized number of
directors that the corporation would have if there were no vacancies.
(e) INITIAL DIRECTORS. The names and mailing addresses of the
persons who are to serve as directors until the annual meetings of the holders
of capital stock of the corporation at which the initial terms of office of the
respective classes of directors expire or until their successors are elected and
qualify are:
NAME MAILING ADDRESS
Class I Directors:
David B. Strassner 1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
R. Gamble Baldwin 115 E. Putnam Avenue
Greenwich, Connecticut 06830
Class II Directors:
Douglas H. Kiesewetter 1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
G. Alan Rafte 711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
-5-
Class III Directors:
R. Keith Anderson 1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
David R. Albin 100 North Guadalupe, Suite 205
Santa Fe, New Mexico 87501
ARTICLE VIII
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors is expressly authorized and
empowered to adopt, amend and repeal the Bylaws of the corporation, subject to
the power of the stockholders of the corporation to adopt, amend or repeal any
bylaw made by the Board of Directors.
ARTICLE IX
Unless and except to the extent that the bylaws of the corporation shall
so require, the election of directors of the corporation need not be by written
ballot.
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation existing hereunder with
respect to any act or omission occurring prior to such amendment, modification
or repeal.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power; provided, that the affirmative vote of the holders of record of
outstanding shares representing at least eighty percent (80%) of the voting
power of all of the shares of capital stock of the corporation then entitled to
vote generally in the election
-6-
of directors, voting together as a single class, shall be required to amend,
alter, change or repeal any provision of, or to adopt any provision or
provisions inconsistent with, this Article XI or Article VII of this Certificate
of Incorporation unless such amendment, alteration, repeal or adoption of any
inconsistent provision or provisions is declared advisable by the Board of
Directors by the affirmative vote of at least seventy-five percent (75%) of the
entire Board of Directors, notwithstanding the fact that a lesser percentage of
such voting power or of the entire Board of Directors may be specified by the
General Corporation Law of the State of Delaware; and further provided, that the
affirmative vote of the holders of record of sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the shares of capital stock of the
corporation then entitled to vote on an action described in Article V of this
Certificate of Incorporation, voting together as a single class, shall be
required to amend, alter, change or repeal any provision of, or to adopt any
provision or provisions inconsistent with, such Article V.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does hereby make and file this
Certificate of Incorporation, hereby declaring and certifying that the facts
herein stated are true, and accordingly has hereunto set the incorporator's hand
this 24th day of July, 1996.
/S/ CHARLES H. STILL, JR.
Charles H. Still, Jr.
-7-
EXHIBIT 3.2
BYLAWS
OF
OFFSHORE ENERGY DEVELOPMENT CORPORATION
A Delaware Corporation
Date of Adoption
July 25, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Article 1
Offices
Section 1.1. Registered Office........................................1
Section 1.2. Other Offices............................................1
Article 2
Stockholders
Section 2.1. Quorum; Adjournment of Meetings.........................1
Section 2.2. Annual Meetings..........................................2
Section 2.3. Special Meetings.........................................2
Section 2.4. Record Date..............................................2
Section 2.5. Notice of Meetings.......................................3
Section 2.6. Stockholder List.........................................3
Section 2.7. Proxies..................................................3
Section 2.8. Voting; Election; Inspectors.............................4
Section 2.9. Conduct of Meetings......................................5
Section 2.10. Notifications of Nominations and Proposed
Business.................................................5
Section 2.11. Treasury Stock...........................................6
Section 2.12. Action Without Meeting...................................6
Article 3
Board of Directors
Section 3.1. Power....................................................7
Section 3.2. Classified Board.........................................7
Section 3.3. Removal of Directors.....................................7
Section 3.4. Vacancies................................................7
Section 3.5. Number of Directors......................................8
Section 3.6. Quorum; Voting...........................................8
Section 3.7. Place of Meetings; Order of Business.....................8
Section 3.8. First Meeting............................................8
Section 3.9. Regular Meetings.........................................8
Section 3.10. Special Meetings.........................................9
Section 3.11. Compensation.............................................9
i
Section 3.12. Action Without a Meeting; Telephone Conference
Meeting..................................................9
Section 3.13. Approval or Ratification of Acts or Contracts
by Stockholders..........................................9
Article 4
Committees
Section 4.1. Designation; Powers.....................................10
Section 4.2. Procedure; Meetings; Quorum.............................10
Section 4.3. Substitution and Removal of Members; Vacancies..........10
Article 5
Officers
Section 5.1. Number, Titles and Term of Office.......................11
Section 5.2. Powers and Duties of the President......................11
Section 5.3. Vice Presidents.........................................11
Section 5.4. Secretary...............................................12
Section 5.5. Assistant Secretaries...................................12
Section 5.6. Treasurer...............................................12
Section 5.7. Assistant Treasurers....................................12
Section 5.8. Action with Respect to Securities of Other
Corporations............................................12
Section 5.9. Delegation..............................................13
Article 6
Capital Stock
Section 6.1. Certificates of Stock...................................13
Section 6.2. Transfer of Shares......................................13
Section 6.3. Ownership of Shares.....................................13
Section 6.4. Regulations Regarding Certificates......................14
Section 6.5. Lost or Destroyed Certificates..........................14
Article 7
Miscellaneous Provisions
Section 7.1. Fiscal Year.............................................14
Section 7.2. Corporate Seal..........................................14
Section 7.3. Notice and Waiver of Notice.............................14
Section 7.4. Facsimile Signatures....................................15
ii
Section 7.5. Reliance upon Books, Reports and Records................15
Section 7.6. Application of Bylaws...................................15
Article 8
Indemnification of Officers and Directors
Section 8.1. Indemnification.........................................15
Section 8.2. Claims and Defenses.....................................16
Section 8.3. Nonexclusivity..........................................17
Section 8.4. Insurance...............................................17
Article 9
Amendments
Section 9.1. Amendments.............................................17
iii
BYLAWS
OF
OFFSHORE ENERGY DEVELOPMENT CORPORATION
Article 1
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the Corporation
which is required by the State of Delaware to be maintained in the State of
Delaware shall be the registered office named in the Certificate of
Incorporation of the Corporation, or such other office as may be designated from
time to time by the Board of Directors in the manner provided by law.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article 2
STOCKHOLDERS
SECTION 2.1. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise required
by law or provided in the Certificate of Incorporation of the Corporation or
these Bylaws, (i) the holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at any meeting of stockholders for the transaction of
business, (ii) in all matters other than election of directors, the affirmative
vote of the holders of a majority of such stock so present or represented at any
meeting of stockholders at which a quorum is present shall constitute the act of
the stockholders, and (iii) where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy shall constitute a quorum entitled to take
action with respect to that vote on that matter and the affirmative vote of the
majority of the shares of such class or classes present in person or represented
by proxy at the meeting shall be the act of such class. The stockholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, subject to the provisions of clauses (ii) and (iii) above.
1
Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
Notwithstanding the other provisions of the Certificate of Incorporation
of the Corporation or these Bylaws, the chairman of the meeting or the holders
of a majority of the issued and outstanding stock, present in person or
represented by proxy and entitled to vote thereat, at any meeting of
stockholders, whether or not a quorum is present, shall have the power to
adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at such meeting. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally called.
SECTION 2.2. ANNUAL MEETINGS. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the State of Delaware), on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of stockholders.
SECTION 2.3. SPECIAL MEETINGS. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, special meetings of the
stockholders for any purpose or purposes may be called at any time by the
President or by a majority of the Board of Directors at such time and at such
place as may be stated in the notice of the meeting. Business transacted at a
special meeting shall be confined to the purpose(s) stated in the notice of such
meeting.
SECTION 2.4. RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix a date as
the record date for any such determination of stockholders, which record date
shall not precede the date on which the resolutions fixing the record date are
adopted and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting of stockholders, nor more
than sixty (60) days prior to any other action to which such record date
relates.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given or, if in accordance
2
with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose (other than
consenting to corporate action in writing without a meeting) shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
For the purpose of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the State of Delaware or at its principal place of business. If the Board of
Directors does not fix the record date, and prior action by the Board of
Directors is necessary, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
SECTION 2.5. NOTICE OF MEETINGS. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Board of Directors, calling the meeting to each stockholder entitled to vote
thereat not less than ten (10) nor more than sixty (60) days before the date of
the meeting. Such notice may be delivered either personally or by mail. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholder's address as it appears
on the records of the Corporation.
SECTION 2.6. STOCKHOLDER LIST. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stockholder list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
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SECTION 2.7. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting, who shall decide all questions touching upon
the qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
SECTION 2.8. VOTING; ELECTION; INSPECTORS. Unless otherwise required by
law or provided in the Certificate of Incorporation of the Corporation, each
stockholder shall on each matter submitted to a vote at a meeting of
stockholders have one vote for each share of the stock entitled to vote which is
registered in his name on the record date for the meeting. For the purposes
hereof, each election to fill a directorship shall constitute a separate matter.
Shares registered in the name of another corporation, domestic or foreign, may
be voted by such officer, agent or proxy as the bylaws (or comparable body) of
such corporation may determine. Shares registered in the name of a deceased
person may be voted by the executor or administrator of such person's estate,
either in person or by proxy.
All voting, except as required by the Certificate of Incorporation of
the Corporation or where otherwise required by law, may be by a voice vote;
provided, however, upon request of the chairman of the meeting or upon demand
therefor by stockholders holding a majority of the issued and outstanding stock
present in person or by proxy at any meeting a stock vote shall be taken. Every
stock vote shall be taken by written ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the procedure established for the
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meeting. All elections of directors shall be by written ballots, unless
otherwise provided in the Certificate of Incorporation of the Corporation.
At any meeting at which a vote is taken by written ballots, the chairman
of the meeting may appoint one or more inspectors, each of whom shall subscribe
an oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation of the
Corporation, cumulative voting for the election of directors shall be
prohibited.
SECTION 2.9. CONDUCT OF MEETINGS. The meetings of the stockholders shall
be presided over by the President, or, if the President is not present, by a
Vice President, or, if no Vice President is present, by a chairman elected at
the meeting. The Secretary of the Corporation, if present, shall act as
secretary of such meetings, or, if the Secretary is not present, an Assistant
Secretary shall so act; if neither the Secretary or an Assistant Secretary is
present, then a secretary shall be appointed by the chairman of the meeting.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in order.
SECTION 2.10. NOTIFICATIONS OF NOMINATIONS AND PROPOSED BUSINESS.
Subject to the rights of holders of any class of capital stock of the
Corporation (other than the common stock), nominations for the election of
directors and proposals for business to be brought before any stockholder
meeting may be made by the Board of Directors or by any stockholder entitled to
vote in the election of directors generally. However, any such stockholder may
nominate one or more persons for election as directors at a meeting or propose
business to be brought before a meeting, or both, only if such stockholder has
given timely notice in proper written form of his intent to make such nomination
or nominations or to propose such business. To be timely, a stockholder's notice
must be delivered to or mailed and received by the Secretary of the Corporation
not later than sixty (60) days prior to such meeting. To be in proper written
form, a stockholder's notice to the Secretary shall set forth:
(i) the name and address of the stockholder who intends to
make the nominations or propose the business and, in the case of
nominations for the election of directors, of the person or persons to
be nominated;
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(ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or propose the
business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been
nominated or the matter been proposed by the Board of Directors; and
(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
A nomination of any person or proposal of any business not made in
compliance with the foregoing procedures shall not be eligible to be voted upon
by the stockholders at the meeting.
SECTION 2.11. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 2.11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
SECTION 2.12. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, any action permitted or
required by law, the Certificate of Incorporation of the Corporation or these
Bylaws to be taken at a meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein
6
unless, within sixty (60) days of the earliest dated consent delivered in the
manner required by this Section to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Prompt notice of the taking of corporate action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Article 3
BOARD OF DIRECTORS
SECTION 3.1. POWER. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, and, subject to the
restrictions imposed by law or the Certificate of Incorporation of the
Corporation, the Board of Directors may exercise all the powers of the
Corporation. Unless otherwise provided in the Certificate of Incorporation of
the Corporation, directors need not be stockholders or residents of the state of
Delaware.
SECTION 3.2. CLASSIFIED BOARD. The directors of the Corporation shall be
divided into three classes, with respect to the time that they severally hold
office, as nearly equal in number as possible, with the initial term of office
of the first class of directors to expire at the 1997 annual meeting of holders
of capital stock of the Corporation, the initial term of office of the second
class of directors to expire at the 1998 annual meeting of holders of capital
stock of the Corporation and the initial term of office of the third class of
directors to expire at the 1999 annual meeting of holders of capital stock of
the Corporation. Commencing with the 1997 annual meeting of holders of capital
stock of the Corporation, directors elected to succeed those directors whose
terms have thereupon expired shall be elected for a term of office to expire at
the third succeeding annual meeting of holders of capital stock of the
Corporation after their election. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain or
attain, if possible, the equality of the number of directors in each class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. If such equality is not possible, the increase or decrease
shall be apportioned among the classes in such a way that the difference in the
number of directors in any two classes shall not exceed one.
SECTION 3.3. REMOVAL OF DIRECTORS. Subject to the rights of the holders
of any class of capital stock of the corporation (other than the common stock)
then outstanding, (i) any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause, by the affirmative vote of
the holders of record of outstanding shares representing at least eighty percent
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(80%) of the voting power of all the shares of capital stock of the corporation
then entitled to vote generally in the election of directors, voting together as
a single class, and (ii) any director may be removed from office at any time,
but only for cause, by the affirmative vote of a majority of the entire Board of
Directors.
SECTION 3.4. VACANCIES. Subject to the rights of the holders of any
class of capital stock of the Corporation (other than the common stock) then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from the death, resignation, retirement, disqualification, removal
from office or other cause shall be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the entire Board
of Directors shall shorten the term of any incumbent director.
SECTION 3.5. NUMBER OF DIRECTORS. Subject to the rights of the holders
of any class of capital stock of the Corporation (other than common stock), the
number of directors constituting the entire Board of Directors shall be not less
than six nor more than nine. Subject to the rights of the holders of any class
of capital stock of the corporation (other than the common stock), the specific
number of directors constituting the entire Board of Directors shall be
authorized from time to time exclusively by the affirmative vote of a majority
of the entire Board of Directors.
SECTION 3.6. QUORUM; VOTING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, a majority of the number of
directors fixed in accordance with Section 3.1 shall constitute a quorum for the
transaction of business of the Board of Directors and the vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 3.7. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from time
to time determine. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
President or by the Board of Directors.
SECTION 3.8. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which
8
a quorum shall be present, held after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
SECTION 3.9. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the President, or in the President's absence, by another officer
of the Corporation. Notice of such regular meetings shall not be required.
SECTION 3.10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, or, on the written request of any two
directors, by the Secretary, in each case on at least twenty-four (24) hours'
personal, written, telegraphic, cable or wireless notice to each director. Such
notice, or any waiver thereof pursuant to Article 7, Section 7.3 hereof, need
not state the purpose or purposes of such meeting, except as may otherwise be
required by law or provided for in the Certificate of Incorporation of the
Corporation or these Bylaws. Meetings may be held at any time without notice if
all the directors are present or if those not present waive notice of the
meeting in writing.
SECTION 3.11. COMPENSATION. Directors and members of standing committees
may receive such compensation as the Board of Directors from time to time shall
determine to be appropriate and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the Board of Directors.
SECTION 3.12. ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the Certificate of Incorporation of the
Corporation, any action required or permitted to be taken at any meeting of the
Board of Directors or any committee designated by the Board of Directors may be
taken without a meeting if all members of the Board of Directors or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
Such consent shall have the same force and effect as a unanimous vote at a
meeting, and may be stated as such in any document or instrument filed with the
Secretary of State of the state of incorporation of the Corporation.
Unless otherwise restricted by the Certificate of Incorporation of the
Corporation, subject to the requirement for notice of meetings, members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of such Board of Directors or committee,
as the case may be, by means of a conference telephone connection or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
9
SECTION 3.13. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
STOCKHOLDERS. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and, unless otherwise provided in the
Certificate of Incorporation of the Corporation, any act or contract that shall
be approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, unless otherwise provided in the Certificate of
Incorporation of the Corporation, any such act or contract may be approved or
ratified by the written consent of stockholders holding a majority of the issued
and outstanding shares of capital stock of the Corporation entitled to vote, and
such consent shall be as valid and binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
Article 4
COMMITTEES
SECTION 4.1. DESIGNATION; POWERS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, with
each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee shall have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation of the
Corporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing these Bylaws or adopting new
bylaws for the Corporation. Any such designated committee may authorize the seal
of the Corporation to be affixed to all papers which may require it. In addition
to the above, such committee or committees shall have such other powers and
limitations of authority as may be determined from time to time by the Board of
Directors.
SECTION 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the Board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct
10
of business by the Board of Directors, shall apply as nearly as may be possible.
At every meeting of any such committee, the presence of a majority of all the
members thereof shall constitute a quorum, except as provided in Section 4.3 of
this Article 4, and the affirmative vote of a majority of the members present
shall be necessary for the adoption by it of any resolution.
SECTION 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS; VACANCIES. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
Article 5
OFFICERS
SECTION 5.1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a President, a Treasurer, a Secretary and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, a Chairman of the Board, one or more Vice
Presidents, any one or more of whom may be designated Executive Vice President
or Senior Vice President, a Vice Chairman of the Board, one or more Assistant
Secretaries and one or more Assistant Treasurers). Each officer shall hold
office for annual terms of office until such officer's successor shall be duly
elected and shall qualify or until such officer's death or until such officer
shall resign or shall have been removed. Any number of offices may be held by
the same person, unless the Certificate of Incorporation of the Corporation
provides otherwise. Except for the Chairman of the Board and the Vice Chairman
of the Board, no officer need be a director.
SECTION 5.2. POWERS AND DUTIES OF THE PRESIDENT. The President shall be
the chief executive officer of the Corporation. Subject to the control of the
Board of Directors and the Executive Committee (if any), the President shall
have general executive charge, management and control of the properties,
business and operations of the Corporation with all such powers as may be
reasonably incident to such responsibilities; may agree upon and execute all
leases, contracts, evidences of indebtedness and other obligations in the name
of the Corporation and may sign all certificates for shares of capital stock of
the Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
President by the Board of Directors. The President shall preside at all meetings
of the stockholders and of the Board of Directors.
11
SECTION 5.3. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board, the President or the Vice Chairman of the Board of the Corporation. Each
Vice President shall have such other powers and duties as from time to time may
be assigned to such Vice President by the Board of Directors, the Chairman of
the Board, the President or the Vice Chairman of the Board.
SECTION 5.4. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all certificates
for shares of capital stock of the Corporation; shall have charge of the
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board,
the President, the Vice Chairman of the Board or any Vice President; and shall
in general perform all acts incident to the office of Secretary, subject to the
control of the Board of Directors, the Chairman of the Board, the President, the
Vice Chairman of the Board or any Vice President.
SECTION 5.5. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the Board of Directors, the President, any
Vice President or the Secretary. The Assistant Secretaries shall exercise the
powers of the Secretary during that officer's absence or inability or refusal to
act.
SECTION 5.6. TREASURER. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the President or any Vice President. The Treasurer shall perform all acts
incident to the position of Treasurer, subject to the control of the Board of
Directors or the President; and the Treasurer shall, if required by the Board of
Directors, give such bond for the faithful discharge of the Treasurer's duties
in such form as the Board of Directors may require.
SECTION 5.7. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of
12
Directors, the President, any Vice President or the Treasurer. The Assistant
Treasurers shall exercise the powers of the Treasurer during that officer's
absence or inability or refusal to act.
SECTION 5.8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President, together
with the Secretary or any Assistant Secretary, shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of security holders of or with respect to any action of security holders
of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
SECTION 5.9. DELEGATION. For any reason that the Board of Directors may
deem sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
Article 6
CAPITAL STOCK
SECTION 6.1. CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation of the Corporation, as
shall be approved by the Board of Directors. Every holder of stock represented
by certificates shall be entitled to have a certificate signed by or in the name
of the Corporation by the President and the Secretary of the Corporation
representing the number of shares (and, if the stock of the Corporation shall be
divided into classes or series, certifying the class and series of such shares)
owned by such stockholder which are registered in certified form; provided,
however, that any of or all the signatures on the certificate may be facsimile.
The stock record books and the blank stock certificate books shall be kept by
the Secretary or at the office of such transfer agent or transfer agents as the
Board of Directors may from time to time determine. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile signature
or signatures shall have been placed upon any such certificate or certificates
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued by the Corporation, such certificate may nevertheless be
issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue. The stock
certificates shall be consecutively numbered and shall be entered in the books
of the Corporation as they are issued and shall exhibit the holder's name and
number of shares.
SECTION 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly
13
authorized attorneys or legal representatives upon surrender and cancellation of
certificates for a like number of shares. Upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
SECTION 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
SECTION 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate theretofore issued by it which is alleged to
have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
Article 7
MISCELLANEOUS PROVISIONS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January of each year.
SECTION 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds, and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may, if
the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contract or
other documents. Duplicates of the seal may be kept for use by any Assistant
Secretary.
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SECTION 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the Certificate of Incorporation of the Corporation
or under the provisions of these Bylaws, said notice shall be deemed to be
sufficient if given (i) by telegraphic, cable or wireless transmission
(including by telecopy or facsimile transmission) or (ii) by deposit of the same
in a post office box or by delivery to an overnight courier service company in a
sealed prepaid wrapper addressed to the person entitled thereto at such person's
post office address, as it appears on the records of the Corporation, and such
notice shall be deemed to have been given on the day of such transmission or
mailing or delivery to courier, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation of the Corporation or under any of the provisions of these Bylaws,
a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person, including without limitation a director, at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors, or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation of the Corporation or
these Bylaws.
SECTION 7.4. FACSIMILE SIGNATURES. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
SECTION 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
SECTION 7.6. APPLICATION OF BYLAWS. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of the
state of Delaware, or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law, and shall in all other respects be in full force and
effect.
15
Article 8
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 8.1. INDEMNIFICATION. Each person who was, is or is threatened
to be made a named defendant or respondent in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is or was an officer or director of the Corporation or is or was serving at
the request of the Corporation as an officer or director or in a similar
capacity with another corporation or other entity, whether the basis of such
proceeding is alleged action in an official capacity as an officer or director
or in any other capacity while serving as an officer or director, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith, and such indemnification shall continue as to a person
who has ceased to be an officer or director and shall inure to the benefit of
his or her heirs, executors and administrators. Further, the Corporation shall
pay the expenses (including attorneys' fees) incurred by an officer or director
in defending any proceeding, the subject matter for which indemnification is
sought herewith, in advance of its final disposition; provided, however, that,
if the General Corporation Law of the State of Delaware requires, the payment of
such expenses incurred by an officer or director in his or her capacity as an
officer or director (and not in any other capacity in which service was or is
rendered by such person while an officer or director, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of such proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such officer or director, to
repay all amounts so advanced if it shall ultimately be determined that such
officer or director is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of officers and directors.
SECTION 8.2. CLAIMS AND DEFENSES. If a claim under Section 8.1 of this
Article 8 is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible
16
under the General Corporation Law of the State of Delaware for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
SECTION 8.3. NONEXCLUSIVITY. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 8.4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
Article 9
AMENDMENTS
SECTION 9.1. AMENDMENTS. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation, subject to
the right of the stockholders entitled to vote with respect thereto to amend or
repeal such Bylaws as adopted or amended by the Board of Directors.
17
EXHIBIT 10.1
================================================================================
AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTH DAUPHIN PARTNERS LTD.
================================================================================
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF SOUTH DAUPHIN PARTNERS LTD.,
A TEXAS LIMITED PARTNERSHIP
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINITIONS........................................... 1
1.02 OTHER DEFINITIONS............................................. 8
ARTICLE II
ORGANIZATION
2.01 FORMATION..................................................... 8
2.02 NAME.......................................................... 9
2.03 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL
OFFICE IN THE UNITED STATES; OTHER OFFICES.................... 9
2.04 PURPOSES...................................................... 9
2.05 CERTIFICATE; FOREIGN QUALIFICATION............................ 9
2.06 TERM.......................................................... 10
2.07 MERGER OR CONSOLIDATION....................................... 10
ARTICLE III
PARTNERS REPRESENTATIONS AND DISPOSITIONS OF INTERESTS
3.01 INITIAL PARTNERS.............................................. 10
3.02 CERTAIN REPRESENTATIONS AND WARRANTIES........................ 10
3.03 RESTRICTIONS ON THE DISPOSITION OF AN INTEREST................ 11
3.04 ADDITIONAL PARTNERS........................................... 14
3.05 INTERESTS IN A PARTNER........................................ 15
3.06 WARRANTY AS TO NET WORTH OF GENERAL PARTNER................... 15
-i-
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.01 INITIAL CONTRIBUTIONS AND MANDATORY OPERATIONS................ 15
4.02 SUBSEQUENT CONTRIBUTIONS FOR ACTIVITIES ON
PARTNERSHIP PROPERTY.......................................... 17
4.03 OPPORTUNITIES IN THE AREA OF INTEREST......................... 18
4.04 RETURN OF CONTRIBUTIONS....................................... 18
4.05 ADVANCES BY THE GENERAL PARTNER............................... 18
4.06 CAPITAL ACCOUNTS.............................................. 18
4.07 PERSONAL LIABILITY............................................ 21
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.01 ALLOCATION FOR CAPITAL ACCOUNT PURPOSES....................... 21
5.02. INCOME TAX ALLOCATIONS........................................ 24
5.03 ALLOCATIONS - TRANSFERS OF INTERESTS.......................... 26
5.04 DISTRIBUTIONS................................................. 27
5.05 DETERMINATION OF PAYOUT....................................... 27
ARTICLE VI
MANAGEMENT AND OPERATION
6.01 MANAGEMENT OF PARTNERSHIP AFFAIRS............................. 28
6.02 MAJOR DECISIONS............................................... 30
6.03 COSTS AND EXPENSES............................................ 31
6.04 NATURE OF RELATIONSHIP........................................ 33
6.05 INDEMNIFICATION............................................... 33
6.06 POWER OF ATTORNEY............................................. 33
ARTICLE VII
OPTION TO CONVERT TO A NET PROFITS INTEREST
7.01 NET PROFITS INTEREST.......................................... 34
7.02 SPECIAL WITHDRAWAL............................................ 35
7.03 BUY-SELL RIGHT................................................ 35
-ii-
ARTICLE VIII
RIGHTS OF OTHER PARTNERS
8.01 INFORMATION................................................... 36
8.02 LIMITATIONS................................................... 36
8.03 MEETINGS...................................................... 36
8.04 LIMITED LIABILITY............................................. 37
ARTICLE IX
TAXES
9.01 TAX RETURNS................................................... 37
9.02 TAX ELECTIONS................................................. 37
9.03 TAX MATTERS PARTNER........................................... 38
ARTICLE X
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.01 MAINTENANCE OF BOOKS.......................................... 38
10.02 REPORTS....................................................... 38
10.03 OTHER REPORTS................................................. 39
10.04 BANK ACCOUNTS................................................. 40
ARTICLE XI
WITHDRAWAL, BANKRUPTCY, REMOVAL, ETC.
11.01 WITHDRAWAL, BANKRUPTCY, ETC. OF MANAGING GENERAL PARTNER...... 40
11.02 REMOVAL OF MANAGING GENERAL PARTNER........................... 41
11.03 CONVERSION OF INTEREST........................................ 42
11.04 BANKRUPT PARTNERS............................................. 42
ARTICLE XII
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.01 DISSOLUTION................................................... 43
12.02 LIQUIDATION AND TERMINATION................................... 43
12.03. RESTORATION OF DEFICIT CAPITAL ACCOUNT....................... 45
12.04 CANCELLATION OF CERTIFICATE................................... 45
-iii-
ARTICLE XIII
GENERAL PROVISIONS
13.01 CONFIDENTIALITY............................................... 45
13.02 NOTICES....................................................... 46
13.03 ENTIRE AGREEMENT; SUPERSEDURE................................. 46
13.04 EFFECT OF WAIVER OR CONSENT................................... 46
13.05 AMENDMENT OR MODIFICATION..................................... 46
13.06 BINDING EFFECT; JOINDER OF ADDITIONAL PARTIES................. 46
13.07 CONSTRUCTION.................................................. 47
13.08 FURTHER ASSURANCES............................................ 47
13.09 DEEMED ASSENT................................................. 47
13.10 WAIVER OF CERTAIN RIGHTS...................................... 47
13.11 COUNTERPARTS.................................................. 47
13.12 ARBITRATION................................................... 48
Exhibit A - Area of Interest
Exhibit B - Description of Property Contributed as Partnership Property
Exhibit C - Form of Net Profits Interest
Exhibit D - Insurance
Exhibit E - Accounting Procedure
-iv-
AGREEMENT OF LIMITED PARTNERSHIP
OF SOUTH DAUPHIN PARTNERS LTD.,
A TEXAS LIMITED PARTNERSHIP
This Agreement of Limited Partnership (this "Agreement") is made and
entered into as of March 2, 1993, by and among the Partners.
For and in consideration of the mutual covenants, rights, and
obligations set forth herein, the benefits to be derived therefrom, and other
good and valuable consideration, the receipt and the sufficiency of which each
Partner acknowledges and confesses, the Partners agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINITIONS. As used herein, the following terms have the
following respective meanings:
"Abandonment Costs" shall mean the actual costs of plugging and
abandoning any wells that are located on Partnership Property and have
produced oil and gas, or either of them, in commercial quantities, the
costs of dismantling and salvaging any platforms, pipelines, other
facilities and structures on Partnership Property and all other costs
associated with the restoration of Partnership Property in accordance
with applicable law (including, if applicable, the rules and regulations
of the Minerals Management Service of the United States Department of
the Interior), net of estimated salvage value of any salvageable
equipment or personalty.
"Abandonment Cost Reserve Account" shall have the meaning
attributed to it in Section 6.03.
"Act" means the Texas Revised Limited Partnership Act and any
successor statute, as amended from time to time.
"Adjusted Capital Account" means the Capital Account maintained
for each Partner as of the end of each fiscal year of the Partnership,
(a) increased by any amounts that such Partner is obligated to restore
under the standards set by Treasury Regulation Section
1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by
(i) the amount of all deductions in respect of depletion that, as of the
end of the fiscal year, are expected to be made to such Partner's
Capital Account in respect of the oil and gas properties of the
Partnership, (ii) the amount of all losses and deductions that, as of
the end of such fiscal year, are reasonably expected to be allocated to
such Partner in subsequent years under Sections 704(e)(2) and
-1-
706(d) of the Code and Treasury Regulation Section 1.751-1(b)(2)(ii),
and (iii) the amount of all distributions that, as of the end of such
fiscal year, are reasonably expected to be made to such Partner in
subsequent years in accordance with the terms of this Agreement or
otherwise to the extent they exceed offsetting increases to such
Partner's Capital Account that are reasonably expected to occur during
(or prior to) the year in which such distributions are reasonably
expected to be made (other than increases as a result of a minimum gain
chargeback pursuant to Section 5.01(e)(i) or 5.01(e)(ii)). The foregoing
definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of
which has been adjusted pursuant to Section 4.06(d)(i) or 4.06(d)(ii).
Once an Adjusted Property is deemed distributed by, and recontributed
to, the Partnership for federal income tax purposes upon a termination
thereof pursuant to Section 708 of the Code, such property shall
thereafter constitute a Contributed Property until the Carrying Value of
such property is subsequently adjusted pursuant to Section 4.06(d)(i) or
4.06(d)(ii).
"Affiliate" shall mean any Person directly or indirectly
controlling, controlled by or under common control with another Person.
As used in this definition of "Affiliate" and in Section 7.02, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of another
Person, whether through the ownership of voting securities, partnership
interests, by contract or otherwise; and without limiting the foregoing
it shall be deemed that the ownership of more than 50% of the voting
securities, partnership interests or percentage interest of another
Person shall be deemed to meet such control test.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to
the provisions of Section 5.01.
"Agreed Value" of any Contributed Property means the fair market
value of such property or other consideration at the time of
contribution as agreed by the Partners.
"Agreement" has the meaning given it in the introductory
paragraph hereof.
"Area of Interest" means that area shown on the plat attached
hereto as Exhibit A covering waterbottoms in state and federal waters
offshore and adjacent to the States of Louisiana, Mississippi, Alabama
and Florida.
"Area of Interest Agreement" means the Area of Interest Agreement
dated as of March 3, 1993 between OEDC Exploration & Production, L.P.
and Enron Finance Corp.
-2-
"Bankrupt Partner" means any Partner (whether a General Partner
or a Limited Partner) with respect to which an event of the type
described in section 4.02(a)(4) or (5) of the Act shall have occurred,
subject to the lapsing of any period of time therein specified.
"Before Payout Partnership Percentages" means the respective
percentages set forth below, as same may be changed or amended from
time-to-time.
OEDC Exploration and Production L.P.,
as a General Partner 1%
OEDC Exploration and Production L.P.,
as a Limited Partner 19%
Enron Finance Corp., as a Limited
Partner 80%
"Business Day" means any day other than a Saturday, a Sunday, or
a holiday on which banks in the State of Texas are authorized by law to
close.
"Capital Account" means the capital account maintained for a
Partner pursuant to Section 4.06.
"Capital Contribution" means any cash, cash equivalents or the
Net Agreed Value of Contributed Property that a Partner contributes to
the Partnership.
"Carrying Value" means (a) with respect to a Contributed
Property, the Agreed Value of such property reduced (but not below zero)
by all depreciation, depletion, amortization and cost recovery
deductions charged to the Partners' Capital Accounts in respect of such
Contributed Property, and (b) with respect to any other Partnership
property, the adjusted basis of such property for federal income tax
purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections
4.06(d)(i) and 4.06(d)(ii) and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties.
"Certificate" means the Certificate of Limited Partnership of the
Partnership, as it may be amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, and any successor
statute, as amended from time to time.
"Contributed Property" means each property or other asset, but
excluding cash, contributed to the Partnership (or deemed contributed to
the Partnership on termination and
-3-
reconstitution thereof pursuant to Section 708 of the Code). Once the
Carrying Value of a Contributed Property is adjusted pursuant to Section
4.06(d), such property shall no longer constitute a Contributed
Property, but shall be deemed an Adjusted Property.
"Curative Allocation" means any allocation of an item of income,
gain, deduction, loss or credit pursuant to the provisions of Section
5.01(f)(vii).
"Deemed After-Tax Return" means the sum of (a) the cumulative
cash distributions received by Enron Finance Corp. from the Partnership
reduced by the product of (i) Enron Finance Corp.'s cumulative share of
Partnership income and gain as determined for federal income tax
purposes and (ii) the Deemed Tax Rate, (b) Enron Finance Corp.'s
cumulative share of any Partnership deductions and losses as determined
for federal income tax purposes multiplied by the Deemed Tax Rate, and
(c) Enron Finance Corp.'s share of any tax credits of the Partnership.
"Deemed Tax Rate" means the maximum federal and applicable state
income tax rates imposed on domestic corporations, as such rates may
change from time to time under the Code and applicable state law, after
giving effect to any federal income tax deductions available to Enron
Finance Corp. by its payment of applicable state income taxes
attributable to its share of Partnership taxable income.
"Dispose," "Disposing," or "Disposition" means a sale,
assignment, transfer, exchange, mortgage, pledge, grant of a security
interest, or other disposition or encumbrance, or an agreement to
accomplish any of the foregoing.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Excess Gas Contract" means the Excess Gas Contract between the
Partnership and Enron Reserve Acquisition Corp. dated March 3, 1993.
"Gathering Agreement" means the Gathering Agreement between the
Partnership and Dauphin Island Gathering Partners dated March 3, 1993.
"General Interest Rate" means a rate equal to the lesser of (a)
one and one-half (1 1/2) percentage points above a varying rate per
annum that is equal to the interest rate publicly quoted by Chemical
Bank N.A. from time to time as its prime commercial or similar reference
interest rate, with adjustments in such varying rate to be made on the
same date as any change in such rate, and (b) the maximum rate permitted
by applicable law.
"General Partner" means any Person executing this agreement as of
the date hereof as a general partner or hereafter admitted to the
Partnership as a general partner as herein
-4-
provided, but shall not include any Person who has ceased to be a
general partner in the Partnership.
"Independent Petroleum Engineer" means Raymond S. Hansen Company,
Inc. or any other reputable knowledgeable third party petroleum
engineering firm designated by the Managing General Partner and
acceptable to Enron Finance Corp.
"Limited Partner" means any Person executing this Agreement as of
the date hereof as a limited partner or hereafter admitted to the
Partnership as a limited partner as herein provided, but shall not
include any Person who has ceased to be a limited partner in the
Partnership.
"Managing General Partner" means OEDC Exploration & Production,
L.P. or any other Person designated as Managing General Partner pursuant
to the provisions hereof.
"Mandatory Operations" shall have the meaning set forth in
Section 4.01.
"Net Agreed Value" means, (a) in the case of any Contributed
Property, the Agreed Value of such property reduced by any liabilities
either assumed by the Partnership upon such contribution or to which
such property is subject when contributed, and (b) in the case of any
property distributed to a Partner by the Partnership, the Partnership's
Carrying Value of such property (as adjusted pursuant to Section
4.06(d)(ii)) at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution, in either
case, as determined under Section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any,
of the Partnership's items of income and gain for such taxable period
over the Partnership's items of loss and deduction for such taxable
period. The items included in the calculation of Net Income shall be
determined in accordance with Section 4.06(b) and shall not include any
items allocated under Sections 5.01(c),(d) and (e). Once an item of
income, gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to a Required Allocation or a
Curative Allocation, Net Income or Net Loss, whichever the case may be,
shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction for such taxable period
over the Partnership's items of income and gain for such taxable period.
The items included in the calculation of Net Loss shall be determined in
accordance with Section 4.06(b) and shall not include any items
allocated under Sections 5.01(c),(d) and (e). Once an item of income,
gain, loss or deduction that has been included in the initial
computation of Net Loss is subjected to a Required Allocation or a
-5-
Curative Allocation, Net Income, or Net Loss, whichever the case may be,
shall be recomputed without regard to such item.
"Nonrecourse Deductions" means any and all items of loss,
deduction or expenditures (described in Section 705(a)(2)(B) of the
Code) that, in accordance with the principles of Treasury Regulation
Section 1.704-2(b), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"Partner" means any General Partner or Limited Partner and
"Partners" means collectively all of the General Partners (if more than
one) and Limited Partners.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth
in Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with
the principles of Treasury Regulation Section 1.704-2(i), are
attributable to a Partner Nonrecourse Debt.
"Partnership" has the meaning given it in Section 2.01.
"Partnership Minimum Gain" means that amount determined in
accordance with the principles of Treasury Regulation Section
1.704-2(d).
"Partnership Percentages" means the respective percentages as set
forth below, as same may be changed or amended from time to time:
OEDC Exploration & Production
L.P., as a General Partner 1%
OEDC Exploration & Production
L.P., as a Limited Partner 79%
Enron Finance Corp., as a
Limited Partner 20%
-6-
"Partnership Property" means all real, personal and mixed
property owned by the Partnership from time to time.
"Payout" means the earlier to occur of (i) the point in time when
the Deemed After- Tax Return equals 150% of the Capital Contributions
theretofore made by Enron Finance Corp. to the Partnership (other than
under Section 4.01(e)) or (ii) the point in time when the Deemed After
Tax Return equals the greater of (A) the Capital Contributions
theretofore made by Enron Finance Corp. to the Partnership (other than
under Section 4.01(e)) plus 1.978% per month on all such Capital
Contributions theretofore made by Enron Finance Corp. to the
Partnership, or (B) 112.5% of all Capital Contributions theretofore made
by Enron Finance Corp. to the Partnership (other than under Section
4.01(e)).
"Person" means any individual, natural person, corporation, joint
venture, partnership, limited partnership, trust, estate, business
trust, association, governmental entity or any other entity.
"Production and Delivery Agreement" means that certain Agreement
so styled dated March 3, 1993 between the Partnership and Enron Reserve
Acquisition Corp.
"Production Payment Purchase Agreement" shall mean that certain
Purchase and Sale Agreement between the Partnership, on the one hand,
and Enron Reserve Acquisition Corp., on the other hand, dated as of
March 3, 1993 covering the sale of the Production Payment, and the other
documents and instruments executed in connection therewith.
"Production Payment" means the Production Payment in and to the
Partnership Property as more particularly described in the Production
Payment Purchase Agreement.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to
such property or asset.
"Required Allocations" means any allocation (or limitation
imposed on any allocation) of an item of income, gain, deduction or loss
pursuant to Sections 5.01(f)(i)-(vi) such allocations being directly or
indirectly required by the Treasury Regulations promulgated under
Section 704(b) of the Code.
"Simulated Basis" shall mean the Carrying Value of any oil and
gas property (as defined in section 614 of the Code).
-7-
"Simulated Depletion Allowance" shall mean a depletion allowance
computed in accordance with federal income tax principles (as if the
Simulated Basis of the property were its adjusted tax basis) and
computed in the manner specified in Treasury Regulation Section
1.704-1(b)(2)(iv)(k)(2). For purposes of computing the Simulated
Depletion Allowance with respect to any property, the Simulated basis of
such property shall be deemed to be the Carrying Value of such property,
and in no event shall such allowance, in the aggregate, exceed such
Simulated Basis.
"Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of
(a) the fair market value of such property as of such date (as
determined under Section 4.06(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to
Section 4.06(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of
(a) the Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.06(d) as of such date) over
(b) the fair market value of such property as of such date (as
determined under Section 4.06(d)).
1.02 OTHER DEFINITIONS. Other terms defined herein have the meanings so
given them.
ARTICLE II
ORGANIZATION
2.01 FORMATION. Upon first proper filing of the Certificate as described
in Section 2.05, the Persons executing this Agreement as of the date hereof
hereby form a limited partnership (the "Partnership") for the purposes
hereinafter set forth under and pursuant to the Act.
2.02 NAME. The name of the Partnership shall be "South Dauphin Partners
Ltd." and all Partnership business shall be conducted in such name or such other
name or names that comply with applicable law as the Managing General Partner
may designate from time to time.
2.03 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE IN THE UNITED
STATES; OTHER OFFICES. The registered office and the principal office of the
Partnership in the State of Texas shall be at such place as the Managing General
Partner may designate from time to time which shall initially be at the
corporate office of the General Partner. The registered agent for service of
process on the Partnership in the State of Texas or any other jurisdiction shall
be such Person or Persons as the Managing General Partner may designate from
time to time. The Partnership shall maintain records at its principal office as
required by section 1.07 of the Act. The Partnership may have such other offices
as the Managing General Partner may designate from time to time.
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2.04 PURPOSES. The purposes of the Partnership are to own certain
interests in oil and gas leases in the Area of Interest, conduct the Mandatory
Operations thereon, to sell the Production Payment therefrom to Enron Reserve
Acquisition Corp., to enter into and comply with the Gathering Agreement and the
Excess Gas Contract, to acquire, own and operate other properties as may be
acquired by the Partnership pursuant to the provisions hereof and to otherwise
engage in any other business or activity that now or hereafter may be necessary,
incidental, proper, advisable, or convenient to accomplish the foregoing
purposes (including, without limitation, obtaining financing therefor as
contemplated hereby) and that is not forbidden by the laws of the jurisdictions
in which the Partnership engages in such business or is not otherwise prohibited
hereby.
2.05 CERTIFICATE; FOREIGN QUALIFICATION. Immediately following the
execution hereof, the Managing General Partner shall execute and cause to be
filed with the Secretary of State of Texas a Certificate containing information
required by the Act and such other information as the Managing General Partner
may deem appropriate. Prior to conducting business in any jurisdiction other
than Texas, the Managing General Partner shall cause the Partnership to comply,
to the extent such matters are reasonably within the control of the Managing
General Partner, with all requirements necessary to qualify the Partnership as a
foreign limited partnership (or a partnership in which the Limited Partners have
limited liability) in such jurisdiction and to qualify the Partnership with the
United States Minerals Management Service to own and hold oil and gas leases on
the outer continental shelf of the Gulf of Mexico. Upon the request of the
Managing General Partner, each Partner shall execute, acknowledge, swear to, and
deliver all certificates and other instruments conforming with this Agreement
that are necessary or appropriate to form, qualify, continue, and terminate the
Partnership as a limited partnership under the laws of the State of Texas and to
qualify, continue, and terminate the Partnership as a foreign limited
partnership (or a partnership in which the Limited Partners have limited
liability) in all other jurisdictions in which the Partnership may conduct
business, and to this end the Managing General Partner may use the power of
attorney described in Section 6.06.
2.06 TERM. The Partnership shall commence on the date the Certificate
first is properly filed with the Secretary of State of Texas and shall continue
in existence until its business and affairs are wound up following dissolution
automatically at the close of Partnership business on December 31, 2013, or such
earlier time as this Agreement may specify or permit. The Partnership shall
conduct no business until the Certificate shall have been filed with the
Secretary of State of Texas.
2.07 MERGER OR CONSOLIDATION. The Partnership may merge or consolidate
with or into another business entity, or enter into an agreement to do so, only
with the prior written consent of all Partners.
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ARTICLE III
PARTNERS REPRESENTATIONS AND DISPOSITIONS OF INTERESTS
3.01 INITIAL PARTNERS. The initial General Partner and Limited Partners
of the Partnership are the Persons named herein who are executing this Agreement
as of the date hereof as General Partner and Limited Partners, respectively,
each of whom is hereby admitted to the Partnership as a General Partner or a
Limited Partner, or both, as the case may be.
3.02 CERTAIN REPRESENTATIONS AND WARRANTIES. Each Partner hereby
represents and warrants to the Partnership and each other Partner that (a) if
such Partner is a corporation, it is duly organized, validly existing, and in
good standing under the laws of the state of its incorporation and is duly
qualified and in good standing as a foreign corporation in the jurisdiction of
its principal place of business (if not incorporated therein), and if a General
Partner, in the State of Texas, (b) if such Partner is a partnership or other
entity, it is duly formed, validly existing, and (if applicable) in good
standing under the laws of the state of its formation, and if required by law is
duly qualified to do business and (if applicable) in good standing in the
jurisdiction of its principal place of business (if not formed therein) and, if
a General Partner, in the State of Texas, and the representations and warranties
in clauses (a) and (b) are true and correct with respect to each partner (other
than limited partners), or other member thereof, (c) if such Partner is not a
natural person, such Partner has delivered to the Managing General Partner true
and correct copies of its certificate or articles of incorporation, by-laws,
certificate of limited partnership, partnership agreement, and other
organizational documents, (d) such Partner has full corporate, partnership, or
other applicable power and authority to enter into this Agreement and to perform
its obligations hereunder and all necessary actions by the board of directors,
shareholders, partners, or other Persons necessary for the due authorization,
execution, delivery, and performance of this Agreement by such Partner have been
duly taken, and such authorization, execution, delivery, and performance do not
conflict with any other agreement or arrangement to which such Partner is a
party or by which it is bound, (e) if such Partner is not a natural person, all
equity interests in such Partner have been duly and validly issued and such
issuance has complied in all respects with applicable federal and state
securities laws, (f) all property contributed to the Partnership by such Partner
has been duly and lawfully acquired and will be contributed to the Partnership
without any liens or encumbrances (other than those the Partnership has agreed
to assume or to take such property subject to), and (g) such Partner is
acquiring its interest in the Partnership for investment purposes and not with a
view to distribution thereof. In addition, the General Partner warrants,
covenants and agrees that, except for the representation given pursuant to
Section 3.01(p) thereof, all of the representations, warranties, covenants and
agreements of the Partnership contained in the Production Payment Purchase
Agreement are true and correct in all material respects and that no condition,
event or circumstance exists which would cause any of the covenants, agreements,
representations or warranties in the Production Payment Purchase Agreement, or
any documents executed or delivered in connection therewith, to be untrue in any
material respect, including those which, through the passage of time, would be
untrue based upon circumstances, events or conditions existing or contemplated
on the date hereof.
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3.03 RESTRICTIONS ON THE DISPOSITION OF AN INTEREST.
(a) Except as specifically provided in this Section 3.03 or
elsewhere in this Agreement, no Disposition of an interest in the
Partnership shall be effected without the consent of all Partners. Any
attempted Disposition by a Partner of an interest or right, or any part
thereof, in or in respect of the Partnership other than in accordance
with this Agreement shall be, and is hereby declared, null and void ab
initio.
(b) Subject to the provisions of subsections (c), (d) and (e) of
this Section 3.03, Enron Finance Corp. (so long as it is a Limited
Partner) may transfer all or part of its interest in the Partnership at
any time to an Affiliate (other than Enron Oil & Gas Company or Engasco
Corp.) or to any other Person that is managed by either Enron Finance
Corp. or any of its Affiliates. For purposes of the immediately
preceding sentence "manage" means to direct and control the day to day
activities of a Person, to have the power to bind such Person by action
(such as the execution of documents) and to otherwise possess powers
similar to those of the Managing General Partner of the Partnership,
notwithstanding that certain authority may lie in the Person managed.
After Payout, subject to the provisions of subsections (c), (d) and (e)
of this Section 3.03, OEDC Exploration & Production L.P., may transfer
all or part of its limited partnership interest (but not its interest as
a General Partner) at any time to an Affiliate. After Payout and the
complete satisfaction of the Production Payment, the Managing General
Partner may transfer its general partnership interest in the Partnership
to a party that, in the sole discretion of all other Partners, is a
qualified, experienced, prudent operator in the offshore Gulf of Mexico
area and is capable of serving as the Managing General Partner and
carrying out the duties set out herein in compliance with this
Agreement. Any Partner may grant all or any portion of its right to
receive distributions hereunder or mortgage, pledge or encumber its
interest in the Partnership to any Person; however, any such assignment
of distributions or pledge, mortgage or encumbrance shall not release
the Partner(s) so acting from any of its obligations hereunder and shall
not have the effect of granting or assigning to any assignee or
lienholder or creditor of such Partner any interest in the Partnership
or any Partnership Property. After Payout, subject to the provisions of
Article VII hereof, or unless otherwise permitted by the foregoing
provisions of this Section 3.03(b), any Partner shall have the right to
Dispose of its interest in the Partnership (other than as a mortgage,
pledge, grant of security interest or assignment of the right to
distributions), but only after satisfaction of the following conditions:
(i) The Partner desiring to sell its interest shall give notice to the
other Partners of its desire to sell, the price (which must be presented in
terms of a cash price) for which it would be willing to dispose of its interest
in the Partnership together with all other particulars concerning the proposed
sale. The other Partners shall have a prior and preferential right for a period
of fifteen (15) days from the receipt of such notice within which to elect to
purchase the selling Partner's interest in the Partnership on the terms offered.
If more than one Partner exercises such right,
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the Partners desiring to buy the interest shall purchase the interest in
proportion to their respective interests in the Partnership. If no arrangement
is consummated pursuant to this subparagraph (i), then the following provision
shall apply;
(ii) If no arrangement is consummated pursuant to subparagraph (i) above,
the party desiring to sell its interest in the Partnership may solicit offers
from third parties. After the receipt of a bona fide third party offer, the
selling Partner shall again give notice to the other Partners of the price
(which must be presented as a cash price) at which such Partner has made
arrangements to sell its interest, together with all particulars thereof
including the name of the offeror. The other Partners shall have a prior and
preferential right for a period of fifteen (15) days from the receipt of such
notice within which to exercise their right to purchase such selling Partner's
interest on the same terms and conditions of the third party offer. If this
right is exercised by more than one Partner, the purchasing Partner(s) shall
share the purchased interest in the proportions that the interest of each bears
to the total interest of all purchasing parties. In lieu of the exercise of this
preferential right, the parties receiving such notice from the selling Partner
may elect to sell their respective interests along with the selling Partner to
the third party (or to any other Partner who exercises its preferential right in
accordance with the foregoing provisions) on the same terms and conditions that
the selling Partner proposes to sell its interest, subject to adjustment of the
consideration received in accordance with the difference between the size of
interests of the selling Partner and the interest(s) of the other Partner(s)
desiring to sell along with the selling Partner. The Partner selling its
interest to a third party must therefore provide that a condition of the sale
includes a requirement that if the foregoing preferential right is not exercised
but instead other Partners desire to dispose of their respective interests to
such third party, the purchasing third party must purchase the interest of any
other Partners wishing to sell on the same terms and conditions.
(iii) If neither (i) nor (ii) above is elected by the non-selling
Partner(s), the Partner not selling may elect to avail itself of the provisions
of Article VII if the conditions otherwise set forth therein have been
satisfied.
(c) The Partnership shall not recognize for any purpose any
purported Disposition of an interest in the Partnership or distributions
therefrom unless and until the provisions of this Section 3.03 shall
have been satisfied; and with respect to all Dispositions (other than as
a mortgage, pledge, grant of security interest or assignment of the
right to distributions) there shall have been delivered to the Managing
General Partner a document (i) executed by both the Partner effecting
such Disposition and the Person (including other Partners) to which such
interest is Disposed, (ii) including the notice address of and the
written acceptance by any Person to be admitted to the Partnership of
all the terms and provisions of this Agreement and an agreement by such
Person to perform and discharge timely all of the obligations and
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liabilities in respect of the interest being obtained, (iii) setting
forth the Partnership Percentage of the Partner effecting such
Disposition and the Person to which such interest is Disposed after such
Disposition (which together shall total the Partnership Percentage of
the Partner effecting such Disposition prior thereto), and (iv)
containing a representation and warranty that such Disposition was made
in accordance with all applicable laws and regulations (including
securities laws) and, if the Person to which such interest is Disposed
is to be admitted to the Partnership, a representation and warranty by
such Person that the representations and warranties in Section 3.02 are
true and correct with respect to such Person. Each such Disposition and,
if applicable, admission shall be effective as of the first day of the
calendar month immediately succeeding the month in which the Managing
General Partner shall receive such notification of Disposition and the
other requirements of this Section 3.03 shall have been met; provided,
however, that if there shall be only one General Partner and as a result
of such Disposition such General Partner would cease to be a General
Partner, such transferee shall be deemed admitted as a General Partner
immediately prior to such cessation.
(d) Notwithstanding any provision of this Agreement to the
contrary, the right of any Partner to Dispose of an interest in the
Partnership or distributions therefrom or of any Person to be admitted
to the Partnership in connection therewith shall not exist or be
exercised unless (i) either (A) the interest in the Partnership or
distributions therefrom subject to such Disposition or admission shall
have been registered under the Securities Act of 1933, as amended, and
any applicable state securities laws or (B) the Partnership shall have
received a favorable opinion of the Partnership's legal counsel or of
other legal counsel acceptable to the Managing General Partner to the
effect that such Disposition or admission is exempt from registration
under such laws and (ii) the Partnership shall have received a favorable
opinion of the Partnership's legal counsel or of other legal counsel
acceptable to the Managing General Partner to the effect that such
Disposition or admission would not result (A) when added to the total of
all other sales, assignments, or other Dispositions within the preceding
twelve (12) months, in the Partnership's being considered to have
terminated within the meaning of section 708 of the Code or (B) in the
Partnership being treated as an association taxable as a corporation for
federal income tax purposes.
(e) All costs (including, without limitation, the legal fees
incurred in connection with the obtaining of the legal opinions referred
to in Section 3.03(e)) incurred by the Partnership in connection with
any Disposition or admission of a Person to the Partnership pursuant to
this Section 3.03 shall be borne and paid by the Partner effecting such
Disposition and any Person admitted to the Partnership in connection
therewith within ten (10) days after the receipt by any such Person of
the Partnership's invoice for the amount due.
3.04 ADDITIONAL PARTNERS. Additional Persons may be admitted to the
Partnership as General Partners or Limited Partners and additional interests in
the Partnership may be issued to existing Partners by unanimous consent of all
Partners, but not otherwise, on such terms and
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conditions as may be determined by all Partners at the time of such admission;
provided that if a transfer of an interest is effected pursuant to any of the
foregoing provisions of Section 3.03, the transferee shall be admitted as a
Partner. Such admission or issuance shall specify the Partnership Percentages
applicable thereto and may provide for the creation of different classes or
groups of Limited Partners or General Partners and having different rights,
powers, and duties. The creation of any new class or group shall be reflected in
an amendment hereto indicating such different rights, powers, and duties, and
such amendment need be executed only by the Managing General Partner, provided
consent thereto has been obtained from all Partners. Any such admission must
otherwise comply with the provisions of Section 3.03(d)(i) and (ii), and shall
not be effective until such new Partner shall have executed and delivered to the
Managing General Partner a document including such new Partner's notice address,
acceptance of all the terms and provisions of this Agreement, an agreement to
perform and discharge timely all of its obligations and liabilities hereunder,
and a certification that the representations and warranties in Section 3.02 are
true and correct with respect to such new Partner.
3.05 INTERESTS IN A PARTNER. No Partner that is not a natural person
shall cause or permit an interest, direct or indirect, in itself to be Disposed
of such that, on account of such Disposition, (a) the Partnership would be
considered to have terminated within the meaning of section 708 of the Code, or
(b) the Partnership would become an association taxable as a corporation for
federal income tax purposes. Further, if OEDC Exploration & Production L.P., or
any successor Affiliate, (i) becomes owned more than 50% by Natural Gas Partners
L.P. or any Affiliate of Natural Gas Partners L.P. or suffers an aggregate
change in the equity securities of all owners thereof of more than 50%, then the
other Partners shall have the rights set forth in Article VII.
3.06 WARRANTY AS TO NET WORTH OF GENERAL PARTNER. For the purpose of
assuring that the Partnership will at all times be characterized as a
partnership under the Code, the General Partner represents and warrants that it
will, at all times during the term of the Partnership, have a net worth, the
fair market value of which will not be less than the minimum net worth as would
be required of the General Partner pursuant to REVENUE PROCEDURE 89-12 in order
to enable the Partnership to obtain a ruling from the Internal Revenue Service
to the effect that the Partnership would be characterized as a partnership under
the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.01 INITIAL CONTRIBUTIONS AND MANDATORY OPERATIONS. Contemporaneously
with the commencement of the Partnership, each Partner shall make the Capital
Contributions to the Partnership described for such Partner as follows:
(a) OEDC Exploration & Production L.P. shall contribute, all
those certain interests in the oil and gas leases and appurtenant rights
described in Exhibit B attached hereto and made a part hereof for all
purposes, and OEDC Exploration & Production L.P.,
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as a General Partner and a Limited Partner, shall have credited to its
respective Capital Accounts $29,849.00 and $2,358,099.00, respectively.
In addition OEDC Exploration & Production L.P. shall contribute cash
and/or credits under existing contractual commitments relating to such
property equal to $1,200,000 to be used in Mandatory Operations. The
Partnership hereby assumes all of the obligations of OEDC Exploration &
Production, L.P. with respect to such leases, rights, and contractual
commitments arising under the contracts and agreements described on
Exhibit B. In addition, should the cash contributed by all of the
Partners under this Section 4.01 be insufficient to discharge and pay
all costs, expenses and liabilities relating to Mandatory Operations,
OEDC Exploration & Production, L.P. shall contribute sufficient cash, at
the time required in the normal course of business, to complete and
fulfill all Mandatory Operations hereunder which, when added to all
other cash and/or credits under existing contractual commitments (but
not property) contributed by OEDC Exploration & Production, L.P., does
not exceed $2 million. Further, OEDC Exploration & Production, L.P.
shall contribute sufficient cash to the Partnership to pay and bear all
of the legal expenses required to acquire Partnership Property and to
negotiate and document this Agreement and the Production Payment
Purchase Agreement, whether incurred by the General Partner or Limited
Partners, or any of their Affiliates in connection therewith, together
with all fees payable under the Production Payment Purchase Agreement.
(b) Enron Finance Corp. shall contribute, in increments of at
least $500,000.00, a total of $4,500,000 in cash to the Partnership upon
presentation by the Managing General Partner of third party invoices
together with invoices of the operator for the agreed operator
overheads, but in either case evidencing or relating to obligations that
have not been previously paid or discharged arising from the Mandatory
Operations.
(c) If any Partner fails to timely contribute all or any part of
any initial mandatory Capital Contributions set forth in Sections
4.01(a) and (b), then the non-defaulting Partner may thereupon elect to
expel the defaulting Partner from the Partnership and reduce such
defaulting Partner's interest in the Partnership to zero without further
compensation and such defaulting Partner shall be deemed to have
withdrawn from the Partnership pursuant to the provisions of Article XI,
regardless of whether it is a General or Limited Partner.
(d) The "Mandatory Operations" shall comprise the following
operations on Partnership Property:
(i) the drilling to approximately 2,700' and, if deemed
commercial by the Managing General Partner in its good faith
judgment, acting as a prudent operator, completing the Mobile
Block 91 OEDC No. 1 Well in one or both of the projected 2,000'
and 2,700' reservoirs as a dual completion, and
(ii) the drilling to approximately 2,700' and, if deemed
commercial by the Managing General Partner in its good faith
judgment, acting as a prudent operator,
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completing the Mobile Block 822 OEDC No. 1 Well in one or more of
the projected 2,050', 2,230' and/or 2,400' reservoirs, and
(iii) completing the Mobile Bay Block 90 Flash No. 1 Well in
the projected 2,230' reservoir, and
(iv) installing platforms, compression and other facilities
necessary to produce the above wells and reservoirs and
delivering gas therefrom to a connecting point with the proposed
Dauphin Island Gathering System operated by Dauphin Island
Gathering Partners.
(e) If the Partners make the maximum amount of initial Capital
Contributions pursuant to Sections 4.01(a) and (b) and same are
insufficient to pay the Mandatory Operations and all organizational
expenses of the Partnership, the Managing General Partner shall
immediately notify all of the Partners. OEDC Exploration & Production
L.P. shall have the option of contributing cash to the Partnership as
may be necessary to allow the Partnership to pay for the completion of
the Mandatory Operations. If OEDC Exploration & Production L.P. does not
elect to make such contributions, the Managing General Partner shall
give notice to all Partners of such fact and shall estimate the amounts
needed to complete such Mandatory Operations together with all
information related thereto including any opportunities for vendor
non-recourse financing of such needs. The other Partners shall have five
(5) Business Days within which to elect to contribute additional cash as
required to complete the Mandatory Operations. If such other Partners do
not elect to make additional Capital Contributions to the Partnership to
pay for the completion of the Mandatory Operations, the General Partner
shall have the right to obtain financing on behalf of the Partnership
from service suppliers and vendors (on a nonrecourse basis) for such
operations but only if such financing is on a non-recourse basis, is
expressly subordinated to the Production Payment (on terms satisfactory
to the holder thereof) and does not otherwise adversely affect the
ability of the Partnership to meet its obligations (including those
under the Production Payment) as they come due. In no event shall any
such third party financing exceed $1,200,000. However, in the event
Enron Finance Corp. elects to contribute additional sums in accordance
with the notice from the Managing General Partner that additional funds
are needed to complete the Mandatory Operations, then Payout shall be
deferred beyond the time otherwise set forth in the definition of Payout
until such time as Enron Finance Corp. has received, in addition to the
amounts required for Payout, an amount equal to the funds contributed
pursuant to the foregoing provisions of this Section 4.01(e) plus a
1.978% monthly Deemed After Tax Return thereon. If Enron Finance Corp.
makes any additional Capital Contributions pursuant to this Section
4.01(e), its Partnership Percentage otherwise set forth herein after
Payout, shall be increased by one percentage point for each $200,000 so
contributed by Enron Finance Corp. and the Partnership Percentage of
OEDC Exploration & Production, L.P., as a Limited Partner, shall be
decreased by the same
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percentage; and appropriate adjustments shall be made to the allocation
provisions of Article V to give effect to the foregoing provisions.
4.02 SUBSEQUENT CONTRIBUTIONS FOR ACTIVITIES ON PARTNERSHIP PROPERTY.
Should the Managing General Partner deem it advisable or necessary to conduct
additional operations on Partnership Property beyond Mandatory Operations and
after Payout (other than normal continuing operations in connection with
existing wells, equipment and property including without limitation workovers or
recompletions as long as the funds therefor are available as provided in Section
5.04(a)), the Managing General Partner shall notify each Partner of the need for
Capital Contributions pursuant to this Section 4.02, which notice shall include
a statement in reasonable detail of the proposed uses of such Capital
Contributions and a date (which shall be no earlier than the fifth Business Day
following each Partner's receipt of such notice) before which such Capital
Contributions shall be made. If all Partners agree to make such Capital
Contributions, same shall be made in proportion to their respective Partnership
Percentages existing at the time of such contributions. However, should one or
more of the Partners elect not to make such additional contributions, then, at
the option of the remaining Partners, they may make such Capital Contributions
necessary for the Partnership to conduct such work or activity specified in the
Managing General Partner's notice. After such contribution has been made and
such work has been conducted, there shall be allocated to the contributing
Partners all of the income, revenue, gain, loss, cost, expense, deduction and
credit from the wells or properties on which the said funds are expended until
the contributing Partners receive, by way of cash distributions attributable to
the said special allocations, an amount equal to (a) 300% of the amount
contributed to the extent that the amounts were expended working on existing
wells or drilling new wells, and (b) 150% of the amount contributed to the
extent that such sums were utilized in fixtures or equipment.
4.03 OPPORTUNITIES IN THE AREA OF INTEREST. Should the Managing General
Partner or any Affiliate of the Managing General Partner have the opportunity to
acquire or obtain an interest in any oil and gas leasehold, well or production
in the Area of Interest, whether by acquisition, farmout, participation with
another party or otherwise, it shall comply with the Area of Interest Agreement.
4.04 RETURN OF CONTRIBUTIONS. No Partner shall be entitled to the return
of any part of its Capital Contributions or to be paid interest in respect of
either its capital account or any Capital Contribution made by it. No unrepaid
Capital Contribution shall be deemed or considered to be a liability of the
Partnership or of any Partner. No Partner shall be required to contribute or to
lend any cash or property to the Partnership to enable the Partnership to return
any Partner's Capital Contributions to the Partnership.
4.05 ADVANCES BY THE GENERAL PARTNER. At any time after the Mandatory
Operations are completed, should the Partnership not have sufficient cash to pay
its ongoing obligations as they come due, the Managing General Partner shall
advance such funds for or on behalf of the Partnership. Each such advance shall
constitute a loan from the Managing General Partner to the Partnership which
loan shall bear interest from the date of the advance until the date of
repayment at the General Interest
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Rate. All such advances shall be repaid out of 80% of the next available cash
that would have otherwise been distributed to the Partners from the Partnership
in accordance with Section 5.04.
4.06 CAPITAL ACCOUNTS.
(a) The Partnership shall maintain for each Partner a Capital
Account in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the
cash amount or the Net Agreed Value of all Capital Contributions made by
such Partner to the Partnership pursuant to this Agreement and (ii) all
items of Partnership income and gain (including, without limitation,
income and gain exempt from tax) computed in accordance with Section
4.06(b) and allocated to such Partners pursuant to Section 5.01, and
decreased by (x) the amount of cash or Net Agreed Value of all actual
and deemed distributions of cash or property made to such Partner
pursuant to this Agreement and (y) all items of Partnership deduction
and loss computed in accordance with Section 4.06(b) and allocated to
such Partner pursuant to Section 5.01.
(b) For purposes of computing the amount of any item of income,
gain, loss or deduction to be reflected in the Partners' Capital
Accounts, the determination, recognition and classification of any such
item shall be the same as its determination, recognition and
classification for federal income tax purposes (including, without
limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Except as otherwise provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction
shall be made without regard to any election under Section 754 of the Code which
may be made by the Partnership and, as to those items described in Section
705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such
items are not includable in gross income or are neither currently deductible nor
capitalized for federal income tax purposes.
(ii) Any income, gain or loss attributable to the taxable disposition of
any Partnership property (including any property subject to depletion under
Section 611 of the Code) shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(iii) In accordance with the requirements of Section 704(b) of the Code, any
deductions for depreciation, cost recovery, depletion or amortization
attributable to any Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the Partnership were equal
to the Agreed Value of such property. Upon an adjustment pursuant to Section
4.06(d) to the Carrying Value of any Partnership property subject to
depreciation, cost recovery,
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depletion or amortization, any further deductions for such depreciation, cost
recovery, depletion or amortization attributable to such property shall be
determined as if the adjusted basis of such property were equal to the Carrying
Value of such property immediately following such adjustment.
(c) A transferee of an interest in the Partnership shall succeed
to a pro rata portion of the Capital Account of the transferor relating
to the Partnership interest transferred; provided, however, that, if the
transfer causes a termination of the Partnership under Section
708(b)(1)(B) of the Code, the Partnership's properties shall be deemed
to have been distributed in liquidation of the Partnership to the
Partners (including any transferee of an interest in the Partnership
that is a party to the transfer causing such termination) pursuant to
Section 12.02 and recontributed by such Partners to the reconstituted
Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 4.06(d)(ii) and such Carrying Values
shall then constitute the Agreed Values of such properties upon such
deemed contribution to the reconstituted Partnership. The Capital
Accounts of such reconstituted Partnership shall be maintained in
accordance with the provisions of this Section 4.06.
(d) (i) In accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), upon a Partner's contribution to the Partnership of cash
or properties in exchange for an interest in the Partnership, the Capital
Accounts of all Partners and the Carrying Values of all Partnership properties
shall, immediately prior to such issuance, be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to the Partnership
properties, as if such Unrealized Gain or Unrealized Loss had been recognized on
an actual sale of each such property immediately prior to such issuance and had
been allocated to the Partners at such time pursuant to Section 5.01. In
determining such Unrealized Gain or Unrealized Loss, the fair market value of
all Partnership assets (including, without limitation, cash or cash equivalents)
immediately prior to the issuance of an interest in the Partnership shall be
determined by the Managing General Partner, with the approval of all of the
Limited Partners, using such reasonable methods of valuation as they may adopt.
(ii) In accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to
a Partner of any Partnership property (other than a distribution of cash that is
not in redemption or retirement of an interest in the Partnership), the Capital
Accounts of all Partners and the Carrying Value of such Partnership property
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such Unrealized
Gain or Unrealized Loss had been recognized in a sale of such property
immediately prior to such distribution for an amount equal to its fair market
value, and had been allocated to the Partners, at such time, pursuant to Section
5.01. In determining such Unrealized Gain or Unrealized
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Loss, the fair market value of each such distributed property as of any date of
determination shall be determined by the Managing General Partner, with the
approval of all of the Limited Partners, using such reasonable methods of
valuation as they may adopt.
4.07 PERSONAL LIABILITY. No Limited Partner shall have any personal
liability whatever, whether to the Partnership, to any of the Partners or to the
creditors of the Partnership, for the debts of the Partnership or any of its
losses beyond (i) the amount of its Capital Contributions and (ii) as may be
provided in the Act or by the laws of any jurisdiction in which the Partnership
may conduct operations. In no event will any Limited Partner (or any successor
in interest of a Limited Partner, as such) be required to make any capital or
other contribution to the Partnership upon or following dissolution thereof
solely by reason that there is a deficit balance in the Capital Account of such
Limited Partner (or successor in interest).
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.01 ALLOCATION FOR CAPITAL ACCOUNT PURPOSES. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnerships' items of income, gain, loss and deduction
(computed in accordance with Section 4.06(b)) shall be allocated among the
Partners in each taxable year as provided hereinbelow.
(a) Net Income for each taxable period shall be allocated as
follows:
(i) First, 100% to the General Partner until the aggregate Net Income
allocated to the General Partner pursuant to this Section 5.01(a)(i) for the
current and each prior taxable year is equal to the Net Losses allocated to the
General Partner pursuant to Section 5.01(b)(v);
(ii) Second, 100% to the Enron Finance Corp. until the aggregate Net Income
allocated to Enron Finance Corp. pursuant to this Section 5.01(a)(ii) for the
current and each prior taxable year is equal to the Net Losses allocated to
Enron Finance Corp. pursuant to Section 5.01(b)(iv).
(iii) Third, 100% to the Partners other than Enron Finance Corp. until the
aggregate Net Income allocated to such Partners pursuant to their Section
5.01(a)(iii) for the current and each prior taxable year is equal to the Net
Losses allocated to such Partners pursuant to Section 5.01(b)(iii);
(iv) Fourth, prior to Payout, 100% to the Partners in accordance with their
Before Payout Partnership Percentages; and
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(v) Fifth, after Payout, 100% to the Partners in the ratio of their
Partnership Percentages.
(b) Net Losses for each taxable period shall be allocated as
follows:
(i) First, 100% to the Partners in accordance with their Partnership
Percentages until the Net Losses allocated pursuant to this Section 5.01(b)(i)
for the current and each prior taxable year is equal to the Net Income allocated
to such Partners pursuant to Section 5.01(a)(v) for all previous years;
(ii) Second, 100% to the Partners in accordance with their Before Payout
Partnership Percentages until the Net Losses allocated pursuant to this Section
5.01(b)(ii) for the current and each prior taxable year is equal to the Net
Income allocated to such Partners pursuant to Section 5.01(b)(iv) for all
previous years;
(iii) Third, 100% to the Partners other than Enron Finance Corp. in the
ratio of their Adjusted Capital Account balances to the extent of such balances;
(iv) Fourth, 100% to Enron Finance Corp. to the extent of its Adjusted
Capital Account balance; and
(v) Fifth, 100% to the General Partner.
(c) The Simulated Depletion Allowance with respect to each
separate oil and gas property (as defined in section 614 of the Code)
shall be treated as a deduction of the Partnership and shall be
allocated on the books of the Partnership among the Partners in the same
proportion in which the Partners (or their predecessors in interest)
were allocated the adjusted tax basis of such property under Section
5.02(b).
(d) For each taxable year, gross income in an amount equal to any
addition to the Abandonment Cost Reserves Account shall be allocated to
the Partners in accordance with their Partnership Percentages.
(e) Income gain, losses, deductions and credits arising from
subsequent operations funded by the Partners in a ratio other than their
Partnership Percentages shall be allocated to the Partners in the manner
described in Section 4.02.
(f) Notwithstanding any other provisions of this Section 5.01,
the following special allocations shall be made for each taxable period:
(i) Notwithstanding any other provision of this Section 5.01, if there is
a net decrease in Partnership Minimum Gain during any Partnership taxable
period, each
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Partner shall be allocated items of Partnership income and gain for such period
(and, if necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Section 1.704-2(f)(6),(g)(2), and (j)(2)(i). For purposes of
this Section 5.01(f), each Partner's Capital Account shall be determined and the
allocation of income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 5.01(f) with
respect to such taxable period. This Section 5.01(f)(i) is intended to comply
with the Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Notwithstanding the other provisions of this Section 5.01 (other than
(i) above), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
during any Partnership taxable period, any Partner with a share of Partner
Nonrecourse Debt Minimum Gain at the beginning of such taxable period shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in Treasury
Regulation Section 1.704-2(i)(4) and (j)(2)(ii). For purposes of this Section
5.01(f) each Partner's Adjusted Capital Account balance shall be determined, and
the allocation of income and gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this Section 5.01, other
than (i) above, with respect to such taxable period. This Section 5.01(f)(ii) is
intended to comply with the chargeback of items of income and gain requirement
in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Except as provided in (i) and (ii) above, in the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) items of
Partnership income and gain shall be specifically allocated to such Partner in
an amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulation, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as quickly as
possible unless such deficit balance is otherwise eliminated pursuant to (i) or
(ii) above.
(iv) Nonrecourse Deductions for any taxable period shall be allocated to
the Partners in accordance with their Partnership Percentages.
(v) Partner Nonrecourse Deductions for any taxable period shall be
allocated 100% to the Partner that bears the Economic Risk of Loss with respect
to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulation Section 1.704-2(i). If more
than one Partner bears the Economic Risk of Loss with respect to a Partner
Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall
be allocated
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between or among such Partners in accordance with the ratios in which they share
such Economic Risk of Loss.
(vi) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Sections 734(b) or 743(b) of the Code is required,
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such provisions.
(vii) Notwithstanding any other provision of this Section 5.01 other than
the Required Allocations, the Required Allocations shall be taken into account
in making the Agreed Allocations so that, to the extent possible, the net amount
of items of income, gain, loss and deduction allocated to each Partner pursuant
to the Required Allocations and Agreed Allocations, together, shall be equal to
the net amount of such items that would have been allocated to each such Partner
under the Agreed Allocations if the Required Allocations and the related
Curative Allocations have not otherwise been provided for in this Section 5.01.
5.02. INCOME TAX ALLOCATIONS.
(a) Except as provided in this Section 5.02, each item of income,
gain, loss and deduction of the Partnership for federal income tax
purposes shall be allocated among the Partners in the same manner as
such items are allocated for book purposes under Section 5.01.
(b) The deduction for depletion with respect to each separate oil
and gas property (as defined in section 614 of the Code) shall, in
accordance with section 613A(c)(7)(D) of the Code, be computed for
federal income tax purposes separately by the Partners rather than the
Partnership. Except as provided in Section 5.02(d), for purposes of such
computation, the proportionate share of the adjusted tax basis of each
oil and gas property allocated among the Partners shall be determined in
accordance with the following principles:
(i) In the case of a property acquired in whole or in part with funds
contributed by the Partners, to the Partners proportionate to the manner in
which the Partners contributed the funds.
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(ii) In the case of a property acquired or developed with proceeds of
Partnership borrowings or reinvestment of Partnership earnings prior to Payout,
to the Partners in accordance with their Before Payout Partnership Percentages.
(iii) In all other cases to the Partners in accordance with their
Partnership Percentages at the time.
Each Partner, with the assistance of the Managing General Partner, shall
separately keep records of its share of the adjusted tax basis in each
separate oil and gas property, adjust such share of the adjusted tax
basis for any cost or percentage depletion allowable with respect to
such property and use such adjusted tax basis in the computation of its
cost depletion or in the computation of its gain or loss on the
disposition of such property by the Partnership. Upon the request of the
General Partner, each Limited Partner shall advise the General Partner
of its adjusted tax basis in each separate oil and gas property and any
depletion computed with respect thereto, both as computed in accordance
with the provisions of this subsection. The Managing General Partner may
rely on such information and, if it is not provided by the Limited
Partner, may make such reasonable assumptions as it shall determine with
respect thereto.
(c) Except as provided in Section 5.02(d), for the purposes of
the separate computation of gain or loss by each Partner on the sale or
disposition of each separate oil and gas property (as defined in section
614 of the Code), the Partnership's allocable share of the "amount
realized" (as such term is defined in section 1001(b) of the Code) from
such sale shall be allocated for federal income tax purposes among the
Partners as follows:
(i) First, to the extent such amount realized constitutes a recovery of
the Simulated Basis of the property, to the Partners in the same percentages as
the depletable basis of such property was allocated to the Partners pursuant to
Section 5.02(b).
(ii) Second, the remainder of such amount realized, if any, as follows:
(A) In the case of the disposition of a property prior to Payout which
is not made in connection with the sale of all or substantially all of the
assets of the Partnership, to the Partners in accordance with their Before
Payout Partnership Percentages to the Partners.
(B) In the case of the disposition of a property after Payout which is
not made in connection with the sale of all or substantially all of the assets
of the Partnership, to the Partners in accordance with their Partnership
Percentages at the time.
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(C) In the case of the disposition of a property made in connection with
the sale of all or substantially all the assets of the Partnership, in the same
manner in which Net Income is allocated pursuant to Section 5.01(a).
(d) The Partners recognize that with respect to a Contributed
Property and an Adjusted Property, there will be a difference between
the Agreed Value or Carrying Value, as the case may be, of such property
at the time of contribution or revaluation, as the case may be, and the
adjusted tax basis of such property at the time. All items of tax
depreciation, cost recovery, amortization, adjusted tax basis of
depletable properties, amount realized and gain or loss with respect to
such Contributed Properties and Adjusted Properties (referred to as
"Section 704(c) Items") shall be allocated among the Partners to take
into account the disparities between the Carrying Values and the
adjusted tax basis with respect to such properties in accordance with
the provisions of sections 704(b) and 704(c) of the Code and the
Treasury Regulations under those sections; provided, however, that any
tax items not required to be allocated under sections 704(b) or 704(c)
of the Code shall be allocated in the same manner as such gain or loss
would be allocated for book purposes under Section 5.01.
(e) All items of income, gain, loss, deduction and credit
allocated to the Partners in accordance with the provisions hereof and
basis allocations recognized by the Partnership for federal income tax
purposes shall be determined without regard to any election under
section 754 of the Code which may be made by the Partnership; provided,
however, such allocations, once made, shall be adjusted as necessary or
appropriate to take into account the adjustments permitted by sections
734 and 743 of the Code.
5.03 ALLOCATIONS - TRANSFERS OF INTERESTS
(a) For income tax purposes, allocation of costs, revenues,
income, gains, losses, deductions, credits and items of tax preference
of the Partnership, including depletion and depreciation, if applicable,
attributable to any assigned interest shall be prorated between the
assignor and the assignee on the basis of the number of days such
interest was held by each of them during the calendar year or any other
reasonable basis determined by the Managing General Partner which is
consistent with Section 706 of the Code and applicable Treasury
Regulations.
5.04 DISTRIBUTIONS.
(a) From time to time (but at least once each calendar month) the
Managing General Partner shall determine in its reasonable good faith
judgment to what extent (if any) Partnership cash on hand exceeds its
current and anticipated needs for the immediately following three (3)
month period (including, without limitation, for operating expenses,
debt service, and permitted acquisitions). Such determination shall be
made by taking into account cash generated by the Mandatory Operations
and each group of subsequent operations (to the
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extent the Partners participate in subsequent operations on a
non-uniform basis). If such excess shall exist, the Managing General
Partner shall, subject to Section 6.03(b) below and the provisions of
Sections 4.01(e) and 4.05, cause the Partnership to distribute such
excess among the Partners in the following ratios:
(i) For each Fiscal Year or taxable period prior to Payout,
distributable cash shall be distributed among the Partners in
accordance with their respective Before Payout Partnership
Percentages.
(ii) For each fiscal year or taxable period after Payout,
distributable cash shall be distributed among the Partners in
their respective Partnership Percentages.
(iii) Distributions attributable to subsequent operations
shall be distributed among the Partners in the manner set forth
in Section 4.02.
5.05 DETERMINATION OF PAYOUT. When the Managing General Partner
determines, in its good faith judgment that Payout has occurred, it shall give
notice to all other Partners of such fact along with supporting schedules
showing the calculation of Payout, together with such other information as the
Partners may reasonably request. The other Partners shall then have a period of
thirty (30) days from the receipt of the Managing General Partner's notice to
object to the Managing General Partner's calculations or to otherwise
demonstrate to the reasonable satisfaction of the Managing General Partner that
an error has been made in calculating Payout. If no objection is timely made or
if the Managing General Partner can support its calculations (or adjust its
calculations to reflect Payout at some other date), the Partnership shall give
effect to Payout upon the date determined by the Managing General Partner, even
if such date does not coincide with the end of an accounting period.
Notwithstanding the determination of Payout by the Managing General Partner in
accordance with the foregoing provisions, the Managing General Partner shall
recalculate Payout at the end of the tax year during which Payout was determined
to have occurred and after the books for all items necessary to determine Payout
have been closed. If the original determination was in error, adjustments shall
be made to all allocations and distributions previously made to reflect the
final status of the determination of Payout. Nothing in this Section shall
affect the rights of the Partners to audit the Partnership's books as provided
elsewhere herein.
ARTICLE VI
MANAGEMENT AND OPERATION
6.01 MANAGEMENT OF PARTNERSHIP AFFAIRS. Except for situations in which
the approval of the remaining Partners is expressly required by this Agreement
or by non-waivable provisions of applicable law, the Managing General Partner
shall have full, complete, and exclusive authority to manage and control the
business, affairs, and properties of the Partnership, to make all decisions
regarding the same, and to perform any and all other acts or activities
customary or incident to the management of the Partnership's business. The
Managing General Partner shall receive no
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compensation for its services as such but shall be reimbursed for out-of-pocket
costs and expenses incurred in the course of its service hereunder as more fully
set out in Section 6.03. Subject to the provisions contained elsewhere herein,
the Managing General Partner shall make all decisions for the Partnership not
otherwise provided for herein, including, without limitation, the following:
(a) entering into, making, and performing all contracts,
agreements, and other undertakings binding the Partnership as may be
necessary, appropriate, or advisable in furtherance of the purposes of
the Partnership and making all decisions thereunder;
(b) opening and maintaining bank and investment accounts and
drawing checks and other orders for the payment of monies;
(c) maintaining the assets of the Partnership in good order;
(d) collecting all sums due the Partnership;
(e) to the extent that funds of the Partnership are available
therefor, paying as they become due all debts and obligations of the
Partnership;
(f) entering into the Production Payment Purchase Agreement, and
all documents contemplated thereby or attached thereto;
(g) entering into the Gathering Agreement and the Excess Gas
Contract;
(h) selecting, removing, and changing the authority and
responsibility of lawyers, accountants, and other consultants;
(i) obtaining insurance for the Partnership; and
(j) determining distributions of Partnership cash as required in
Section 5.04.
In carrying out its duties hereunder, the Managing General Partner
agrees that except as may be necessary to comply with the Production Payment,
the Gathering Agreement and the Excess Gas Contract (compliance with which shall
take precedence over any contrary provisions hereof) it will or it will cause:
(i) A prudent operating and maintenance program designed to drill
and complete or abandon the Mandatory Operations and all other
operations to be conducted on the Partnership Property as would a
reasonable and prudent operator and in accordance with sound field
practices and otherwise is in accordance with the Production and
Delivery Agreement;
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(ii) The Partnership Property to be maintained and operated for the
production of oil and gas in a good and workmanlike manner and in
accordance with sound field practices, applicable operating agreements,
contracts of development, or similar instruments and, in all material
respects, with all applicable laws, rules, regulations, permits, orders,
or decrees, except those being contested in good faith and by
appropriate proceedings (provided that no forfeiture or loss of the
Partnership Property or any part thereof shall result during the
pendency or in the resolution of such contest), and all Partnership
wells to be produced at the rates set forth in the Production and
Delivery Agreement given in connection with the Production Payment so
long as such agreement is in effect, and thereafter as a prudent
operator (subject, however, to any applicable state and/or federal laws,
rules, and/or regulations governing the amount of oil and gas that may
be produced from a well); provided, however, that nothing contained in
this paragraph shall be deemed to prevent or restrict the Managing
General Partner from electing not to participate in any operations that
are to be conducted under the terms of any operating agreement, unit
operating agreement, contract for development, or similar instrument
affecting or pertaining to Partnership Property (or any portion thereof)
if a prudent operator under the same or similar circumstances would not
do so;
(iii) All rentals and royalties with respect to Partnership Property
to be paid;
(iv) All taxes, assessments, and governmental charges or levies and
all claims asserted or imposed upon the Partnership Property that, if
unpaid, may become a lien upon the Partnership Property to be paid prior
to delinquency;
(v) All machinery, equipment, and facilities of any kind now or
hereafter located on the Partnership Property necessary or useful in the
operation thereof or for the production of oil and gas therefrom, to be
provided and to be kept in good and effective operating condition, and
all repairs, renewals, replacements, additions, and improvements thereof
or thereto needful to such end, to be promptly made, all as would a
reasonable and prudent operator acting in accordance with sound field
practices;
(vi) Notice to be given to all Partners of every material adverse
claim or demand of which made by any Person, affecting the Partnership
Property or of any material proceedings instituted with respect thereto,
and all reasonably necessary and proper steps to be diligently taken to
protect and defend the Partnership Property against any such adverse
claim, demand, or proceeding, all as would a reasonable and prudent
operator;
(vii) The Partnership Property to be kept free and clear of liens,
charges, and encumbrances of every character, other than the Production
Payment and those, if any, consented to by the Partners in writing or
expressly permitted hereby including liens permitted in connection with
the third party financing contemplated by Section 4.01(e); and
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(viii) Insurance of the type and in the amounts not less than those
set forth in Exhibit "D" hereto;
6.02 MAJOR DECISIONS. Except as expressly permitted hereby, the Managing
General Partner, on behalf of the Partnership, shall not at any time, without
the consent of all Partners (unless required pursuant to the terms of the
Production Payment Purchase Agreement, the Production and Delivery Agreement,
the Excess Gas Contract or the Gathering Agreement):
(a) sell, assign, transfer, convey or otherwise dispose of all or
any portion of the Partnership Property,
(b) mortgage, pledge a security interest in and/or deed of trust
with respect to or otherwise collaterally assign Partnership Property or
any Partnership interest therein,
(c) admit any additional or substitute Partner of the
Partnership,
(d) do any act in contravention of this Agreement or outside the
purposes of the Partnership,
(e) except as permitted by Section 4.05, borrow or lend money on
behalf of the Partnership for any purpose or utilize collateral owned by
the Partnership as security for any loan,
(f) become bailor, endorser or surety or knowingly cause or
permit to be done anything whereby the seizure, or attachment of the
Partnership Property is reasonably likely to occur,
(g) utilize Partnership assets, including but not limited to
Partnership Property, in any way for furtherance of personal business
activities unrelated to Partnership business,
(h) assign, transfer or pledge any debt due the Partnership or
release any such debt except upon payment in full,
(i) draw, accept or endorse any bill, exchange or promissory note
on behalf of the Partnership,
(j) make any contract to sell or execute a bill of sale or
similar instrument of any substantial part of the Partnership assets
including but not limited to the Partnership Property, other than
pursuant to the Production Payment Purchase Agreement, the Excess Gas
Contract or other sales of hydrocarbons in the ordinary course of the
Partnership's business,
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(k) incur on behalf of the Partnership any expense reasonably
estimated to cost more than an amount equal to the greater of $25,000.00
or three (3) months' net cash flow of the Partnership,
(l) take any action that would cause a breach of the Production
Payment, the Production and Delivery Agreement, the Excess Gas Contract
or the Gathering Agreement,
(m) sell any Partnership Property for less than its fair value.
No General Partner, other than the Managing General Partner, shall have
the rights and benefits set out in this Article VI to bind or act on behalf of
the Partners or the Partnership.
6.03 COSTS AND EXPENSES.
(a) The Managing General Partner shall bear all legal fees of all
Partners and filing fees and other similar expenses in the organization
and formation of the Partnership, the acquisition of the Partnership
Property, the sale of the Production Payment, the fees payable pursuant
to the Production Payment Purchase Agreement, and all other matters
relating thereto.
(b) In the event that, as of the end of any month, the aggregate
estimated future net cash flow from the Partnership Property, as
estimated by the Independent Petroleum Engineer in such engineer's most
current report, is less than 300% of the aggregate future Abandonment
Costs for all of the Partnership Property, as estimated by the
Independent Petroleum Engineer in the most recent report furnished
pursuant to Section 10.02, the Managing General Partner may place in a
segregated account (the "Abandonment Cost Reserve Account") an amount
equal to no more than fifty percent (50%) of the income of the
Partnership (calculated without taking into account the placing of such
amounts in the Abandonment Cost Reserve Account) for such month. At such
time as the amount in the Abandonment Cost Reserve Account exceeds 125%
of the aggregate estimated future Abandonment Costs for all of the
Partnership Property as a group (as determined by an independent
appraiser acceptable to all Partners), no further amount shall be placed
in such account until such time as the funds in the Abandonment Cost
Reserve Account shall again be less than 125% of said aggregate
estimated future Abandonment Costs. The amounts placed in the
Abandonment Cost Reserve Account shall be placed in certificates of
deposit or United States government securities having maturities not to
exceed thirty (30) days. Any interest accrued thereon shall be retained
in and added to the said Abandonment Cost Reserve Account. At any time,
on or prior to the date which any such Abandonment Costs must be
incurred and the Partnership is required to expend amounts or has
expended amounts for Abandonment Costs on the Partnership Property for
which an Abandonment Cost Reserve Account has been established, there
shall be released from the Abandonment Cost Reserve Account the lesser
of (i) an amount equal to said Abandonment Costs or (ii) the total
amount
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of funds in the Abandonment Cost Reserve Account to pay those amounts to
the Partnership. If less than all of the funds in the Abandonment Cost
Reserve Account are to be released and paid to the Partnership after
there has been incurred and paid all Abandonment Costs relating to all
of the Partnership Property, then the amounts, if any, in the
Abandonment Cost Reserve Account shall be released to the Partnership
and credited to the accounts of the respective Partners.
(c) Except as set forth in Sections 6.03(a) and (b) above, all
charges, costs and expenses incurred by the Partnership or the Managing
General Partner on behalf of the Partnership shall be paid out of
Partnership funds and borne and allocated to the Partners as set forth
elsewhere herein. Specifically, such expenses and charges shall be
limited to those set out in the Accounting Procedure attached hereto and
made a part hereof for all purposes .
6.04 NATURE OF RELATIONSHIP. The Managing General Partner shall conduct
the affairs of the Partnership in the best interests of the Partnership and the
mutual best interests of the Partners, including, without limitation, the
safekeeping and use of all Partnership funds and assets and the use thereof for
the benefit of the Partnership. The Managing General Partner at all times shall
act with integrity and in good faith and utilize all reasonable efforts in all
activities relating to the conduct of the business of the Partnership and in
resolving conflicts of interest. During the existence of the Partnership, the
Managing General Partner shall devote such time and effort to the Partnership
business and operations as shall be necessary to promote fully the interests of
the Partnership and the mutual best interests of the Partners; however, it is
specifically understood and agreed that neither the Managing General Partner nor
any other General Partner shall be required to devote full time to Partnership
business, and (subject to the other express provisions hereof) the Managing
General Partner and each other Partner at any time and from time to time may
engage in and possess interests in other business ventures of any and every type
and description, independently or with others, including ones in competition
with the Partnership, and, except as set out in the Area of Interest Agreement
with no obligation to offer to the Partnership or any other Partner the right to
participate therein.
6.05 INDEMNIFICATION. To the fullest extent permitted by law (including
as permitted by, but subject to the restrictions and procedures of, article 11
of the Act), the Partnership shall indemnify each General Partner and its
respective Affiliates, and their respective officers, employees,
representatives, and agents, and hold them harmless from and against all losses,
costs, liabilities, damages, and expenses (including, without limitation, costs
of suit and attorney's fees) any of them may incur in performing the respective
obligations of a General Partner hereunder and specifically including
negligence, sole negligence, or partial negligence of the indemnitee, and the
Partnership shall advance expenses associated with defense of any action related
thereto; provided, however, that such indemnity shall not apply to actions
constituting gross negligence, willful misconduct or a material breach of any
material provision hereof. Otherwise, each Partner agrees to defend, protect and
indemnify the other Partners, and their Affiliates and their respective
officers, employees,
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representatives and agents and hold them harmless from and against all claims,
demands, suits and causes of action, including reasonable attorneys' fees in
cost of defense which may be asserted by any third party or governmental agency
or entity on account of any breach of the provisions of this Agreement. In
addition, except with respect to the provisions of Section 3.01(p) thereof, the
General Partner agrees to indemnify and hold Enron Finance Corp. harmless from
and against any breach of any representation or warranty contained in the
Production Payment Purchase Agreement, or any document or agreement delivered in
connection therewith, given or made by the Partnership.
6.06 POWER OF ATTORNEY. Each Partner hereby appoints the Managing
General Partner as such Partner's true and lawful attorney-in-fact for the
purpose of executing, swearing to, acknowledging, and delivering all
certificates, documents, and other instruments as may be necessary, appropriate,
or advisable in the judgment of the Managing General Partner in furtherance of
the business of the Partnership or complying with applicable law, including,
without limitation, filings of the type described in Section 2.05. Such power
shall be irrevocable and is coupled with an interest. Upon request by the
Managing General Partner, any Partner shall confirm its grant of such power of
attorney or any use thereof by the Managing General Partner or shall execute,
swear to, acknowledge, and deliver any such certificate, document, or other
instrument.
6.07 CONTRACTS WITH AFFILIATES. The Managing General Partner, on behalf
of the Partnership, may enter into contracts and agreements with any Affiliate
of the Managing General Partner for the rendering of services or the furnishing
of supplies and equipment including without limitation a Gathering Agreement
with Dauphin Island Gathering Partners; provided that the amount of the
compensation, price or rental can be charged to the Partnership therefor must be
no less favorable to the Partnership than those available for unrelated third
parties in the area which are of comparable reputation or standing in the
industry and which are engaged in the business of rendering comparable services
or selling or leasing comparable equipment and supplies. The Managing General
Partner shall provide written notice to all Partners of any such contracts with
its Affiliates.
ARTICLE VII
OPTION TO CONVERT TO A NET PROFITS INTEREST
7.01 NET PROFITS INTEREST. The Partnership, at the option of the
Managing General Partner, shall have the right, upon the satisfaction of certain
conditions as set forth below, to purchase from Enron Finance Corp. its interest
in the Partnership in return for a net profits interest in all Partnership
Property equal to its Partnership Percentage, as same may have been theretofore
adjusted pursuant to Section 4.01(e). The conveyance of such net profits
interest shall be in the form of Exhibit C hereto with such modifications as may
be mutually agreed by the Partners, but shall provide that the "Permitted
Encumbrances" as defined therein shall include any liens, burdens and
encumbrances that shall have been placed upon or permitted against the
Partnership Property in accordance with this Agreement, or as may have been
otherwise agreed by the Partners. The option described in this Section 7.01 may
be exercised by the Managing General Partner at any time within fifteen (15)
days after the occurrence of the event detailed in subparagraph (a) below
together with the satisfaction of
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one or more of the conditions set forth in subparagraphs (b), (c), (d) or (e)
below, such conditions being:
(a) Payout has occurred or has been deemed to occur pursuant to
the remaining provisions hereof,
(b) Enron Finance Corp. has rejected any two financing
opportunities occurring in any consecutive nine (9) month period
pursuant to the Area of Interest Agreement,
(c) The Managing General Partner has solicited the Partners'
interest in selling any material Partnership Property and Enron Finance
Corp. has rejected same.
(d) Enron Finance Corp. proposes to sell its interest to any
Person who is not within the class of persons identified in Section
3.03(b) and the remaining Partners have not elected to acquire Enron
Finance Corp.'s interest in the Partnership nor elected to sell its
interest along with Enron Finance Corp., in either case as set forth in
Section 3.03(b)(i).
(e) Enron Finance Corp. has transferred its interest to one or
more of the class of Persons as permitted in Section 3.03(b), but is no
longer managing such Persons, as management is defined in said Section
3.03(b).
7.02 SPECIAL WITHDRAWAL. Enron Finance Corp., if it is not a General
Partner, shall have the right to withdraw from the Partnership at any time after
Payout in exchange for a net profits interest in all Partnership Property equal
to its Partnership Percentage at the time of withdrawal (as such net profits
interest is described Exhibit C hereto and Section 7.01). Enron shall exercise
such right by giving the Managing General Partner written notice of such
withdrawal. Such withdrawal shall be effective on the first day of the calendar
quarter immediately following the receipt by the Managing General Partner of
such notice.
7.03 BUY-SELL RIGHT. In the event OEDC Exploration & Production L.P. (or
any successor Affiliate) undergoes a change of control, as described in the
second sentence of Section 3.05, Enron Finance Corp. shall have the right, to be
exercised only if it so elects, upon written notice given within thirty (30)
days after it learns of such change of control, to deliver to such Partner an
offer ("Offer") in writing setting forth an offer to either (i) purchase from
such Partner all of its interest in the Partnership for a cash purchase price
("Offer Price") set forth in the Offer, or (ii) sell to such Partner the
interest of Enron Finance Corp. in the Partnership for a cash purchase price
equal to the product obtained by the multiplication of the Offer Price times a
fraction, the numerator of which is the Partnership Percentage of Enron Finance
Corp. and the denominator of which is the Partnership Percentage of such other
Partner. Within twenty-one (21) Business Days after receipt of the Offer, the
Partners receiving such notice shall deliver to Enron Finance Corp. a written
notice ("Acceptance Notice") stating whether it elects to sell its interest in
the Partnership to Enron Finance Corp. pursuant to subsection (i) above, or to
purchase Enron Finance Corp.'s interest in the Partnership
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pursuant to subsection (ii) above. If an Acceptance Notice is not delivered
within such period, it shall be deemed conclusively that the Partner receiving
such notice has elected to sell its interest in the Partnership to Enron Finance
Corp. pursuant to subsection (i) above. The closing of a purchase pursuant to
this Section 7.03 shall be held at the principal office of the Partnership on a
mutually acceptable date not more than sixty (60) days after the date of
delivery of the Offer. At the Closing the following shall occur:
(a) The Selling Partner(s) shall assign to the Buying Partner(s)
the interest of the Selling Partner(s) in the Partnership, free and
clear of all liens, claims, and encumbrances, and shall execute and
deliver to the Partnership all other documents, if any, that may be
required to give effect to the purchase of the Selling Partner's
interest(s) in the Partnership.
(b) The Buying Partner(s) shall pay to the Selling Partner(s), by
cashier's or certified check, the cash purchase price determined
pursuant hereto for the Selling Partner's interest in the Partnership.
(c) The Selling Partner(s) shall be released from (i) liability
for borrowed money or any other recourse or non-recourse debt of the
Partnership, and (ii) all of its other obligations under this Agreement
with the exception of those liabilities which have accrued through the
date of the event causing dissolution of the Partnership, and the Buying
Partner(s) shall indemnify and hold harmless the Selling Partner(s) from
all indebtedness, liabilities, and other obligations of the Partnership
to the extent that such indebtedness and other obligations accrue after
the event causing the Buy-Sell Provisions of this Section 7.03 to come
into effect.
ARTICLE VIII
RIGHTS OF OTHER PARTNERS
8.01 INFORMATION. In addition to the other rights specifically set forth
herein, each Partner shall have access to all information to which such Partner
is entitled to have access pursuant to section 1.07 of the Act under the
circumstances and subject to the conditions therein stated and, in addition,
shall have the right to conduct an audit thereof at such Partner's expense upon
thirty (30) days advance written notice.
8.02 LIMITATIONS. No General Partner (other than the Managing General
Partner) or Limited Partner shall have the authority or power in its capacity as
such to act for or on behalf of the Partnership or any other Partner, to do any
act that would be binding on the Partnership or any other Partner, or to incur
any expenditures on behalf of or with respect to the Partnership. Except as
provided in Section 7.02, no Limited Partner shall have the right or power to
withdraw from the Partnership.
8.03 MEETINGS. From time to time, but at least once each calendar year,
the Managing General Partner, on ten (10) days' prior notice to each member,
shall call a meeting of the Partnership
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and apprise it generally of the business and affairs of the Partnership since
the latest meeting. The Partners may make recommendations to or otherwise advise
and consult with the Managing General Partner regarding the business and affairs
of the Partnership, but nothing in this sentence shall be construed to authorize
the Limited Partners to engage in any action prohibited by Section 8.02.
8.04 LIMITED LIABILITY. No Limited Partner shall be liable for the
losses, debts, liabilities, contracts, or other obligations of the Partnership
except to the extent required by law or otherwise set forth herein.
ARTICLE IX
TAXES
9.01 TAX RETURNS. The Managing General Partner shall cause to be
prepared and filed all necessary federal and state income tax returns for the
Partnership, including making the elections described in Section 9.02. Each
Partner shall furnish to the Managing General Partner all pertinent information
in its possession relating to Partnership operations that is necessary to enable
such income tax returns to be prepared and filed.
9.02 TAX ELECTIONS. The following elections shall be made on the
appropriate returns of the Partnership:
(a) to adopt the calendar year as the Partnership's fiscal year;
(b) to adopt the accrual method of accounting and to keep the
Partnership's books and records on the income-tax method;
(c) if there shall be a distribution of Partnership property as
described in section 734 of the Code or if there shall be a transfer of
a Partnership interest as described in section 743 of the Code, upon
written request of any Partner, to elect, pursuant to section 754 of the
Code, to adjust the basis of Partnership properties;
(d) to amortize the organizational expenses of the Partnership
ratably over a period of sixty (60) months as permitted by section
709(b) of the Code;
(e) to expense intangible drilling and development costs as set
forth in the Code; and
(f) any other election the Managing General Partner may deem
appropriate and in the best interests of the Partners.
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No election shall be made by the Partnership or any Partner to be excluded from
the application of the provisions of subchapter K of chapter 1 of subtitle A of
the Code or any similar provisions of applicable state laws.
9.03 TAX MATTERS PARTNER. The Managing General Partner shall be the "tax
matters partner" of the Partnership pursuant to section 6231(a)(7) of the Code.
The Managing General Partner shall take such action as may be necessary to cause
each other Partner to become a "notice partner" within the meaning of section
6223 of the Code. The Managing General Partner shall inform each other Partner
of all significant matters that may come to its attention in its capacity as tax
matters partner by giving notice thereof within ten (10) Business Days after
becoming aware thereof and, within such time, shall forward to each other
Partner copies of all significant written communications it may receive in such
capacity. The Managing General Partner shall not take any action contemplated by
sections 6222 through 6232 of the Code without the consent of all Partners. This
provision is not intended to authorize the Managing General Partner to take any
action left to the determination of an individual Partner under sections 6222
through 6232 of the Code.
ARTICLE X
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.01 MAINTENANCE OF BOOKS. The books of account for the Partnership
shall be maintained on an accrual basis in accordance with the terms of this
Agreement except that the capital accounts of the Partners shall be maintained
in accordance with Section 4.06. The calendar year shall be the accounting year
of the Partnership.
10.02 REPORTS. On or before the 120th day following the end of each
fiscal year during the term of the Partnership, the Managing General Partner
shall cause each other Partner to be furnished with an audited balance sheet, an
income statement, and a statement of changes in Partners' capital of the
Partnership for, or as of the end of, such year certified by a recognized firm
of certified public accountants. Such financial statements shall be prepared in
accordance with accounting principles generally employed for accrual-basis
records consistently applied (except as therein noted) and shall be accompanied
by a report of such certified public accountants certifying the statements and
stating that (a) their examination was made in accordance with generally
accepted auditing standards and, in their opinion, such financial statements
fairly present the financial position, financial results of operations, and
changes in Partners' capital in accordance with accounting principles generally
employed for cash-basis records consistently applied (except as therein noted)
and (b) in making the examination and reporting on the financial statements
described above, nothing came to their attention that caused them to believe
that (i) the income and revenues were not paid or credited in accordance with
the financial and accounting provisions of this Agreement, (ii) the costs and
expenses were not charged in accordance with the financial and accounting
provisions of this Agreement, or (iii) the Managing General Partner or any other
Partner failed to comply in any material respect with the financial and
accounting provisions of this Agreement, or if they do conclude that the
Managing General Partner or another Partner so failed, specifying the nature and
period of existence of such
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failure. The Managing General Partner also may cause to be prepared or delivered
such other reports as it may deem appropriate. The costs of all such reports
shall be borne by the Partnership.
10.03 OTHER REPORTS.
(a) The Managing General Partner shall furnish quarterly reports
concerning the expediency of any change in methods of treatment or
operation of all or any Partnership wells productive of hydrocarbons,
any new drilling or development, any method of secondary recovery by
repressuring or otherwise, or any other action with respect to
Partnership Property the decision as to which may increase or reduce the
quantity of hydrocarbons ultimately recoverable therefrom, or the rate
of production therefrom.
(b) Monthly, the Managing General Partner shall furnish to the
Partners a report showing the gross production of hydrocarbons from each
well, the gross production of hydrocarbons attributable to the
Partnership Property (including any thereof used in lease operations),
the quantity of hydrocarbons sold for the account of or taken in kind by
the Partnership, the current status of any Gas imbalances, affecting
Partnership Property, the cumulative amount of hydrocarbons remaining to
be delivered therefrom and the number of wells operated, wells drilled
and wells abandoned.
(c) At such times as the Partners, or any of them, may reasonably
request, the Managing General Partner shall furnish to the Partners
copies of surface maps showing property lines and well locations, well
logs, core analysis data, flow and pressure tests, natural gas analysis
and casing programs and other similar information related to the
Partnership Property and the production therefrom.
(d) Annually, on or before each March 15, the Managing General
Partner shall furnish to the other Partners an engineering report,
prepared by the Independent Petroleum Engineer, covering all Partnership
Property, dated as of the end of the preceding calendar year, prepared
in accordance with the customary and generally accepted standards and
practices for petroleum engineers, based on assumptions as to costs,
product prices and similar factors as the Managing General Partner shall
designate from time to time. Such report shall set forth an estimate of
the oil and gas reserves, classified by appropriate categories, a
projection of the rate of production of and net income from such
reserves, a calculation of the present net worth of such income,
discounted at various rates designated from time to time by the Managing
General Partner. Semi-annually, on or before each September 1, the
Managing General Partner shall furnish an update of such report prepared
internally by the Managing General Partner's staff dated as of June 30.
(e) Such other information concerning the business, affairs and
operations of the Partnership as the Limited Partners may request.
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10.04 BANK ACCOUNTS. The Managing General Partner shall establish and
maintain one or more separate accounts for Partnership funds in the Partnership
name at such financial institutions as he may designate. The Managing General
Partner may not commingle the Partnership's funds with the funds of any Partner
or Person.
ARTICLE XI
WITHDRAWAL, BANKRUPTCY, REMOVAL, ETC.
11.01 WITHDRAWAL, BANKRUPTCY, ETC. OF MANAGING GENERAL PARTNER.
(a) Each General Partner covenants and agrees that it will not
withdraw from the Partnership as a General Partner within the meaning of
section 6.02 of the Act. If a General Partner shall so withdraw from the
Partnership in violation of such covenant and agreement, such withdrawal
shall be effective no earlier than the 90th day following notice of such
withdrawal to all other Partners, and the Partnership may recover
damages from such General Partner, including, without limitation, the
reasonable cost of obtaining a replacement of the services that such
General Partner shall have been obligated to perform, and in addition
may (i) pursue any remedies otherwise available under applicable law,
and/or (ii) effect recovery of any of the damages just described by
offsetting those damages against the amount otherwise distributable to
such General Partner.
(b) A General Partner shall not cease to be a General Partner on
the occurrence of an event of the type described in section 4.02(a)(4)
or (7)-(9) of the Act, but shall cease to be a General Partner (and, in
the case of the Managing General Partner, Managing General Partner) on
the 90th day thereafter. A General Partner shall notify each other
Partner that an event of the type described in section 4.02(a)(4)-(10)
of the Act has occurred with respect to it within five (5) Business Days
after such occurrence.
(c) Following any notice pursuant to Section 11.01(a) that the
Managing General Partner shall be withdrawing, or following the
occurrence of an event of the type described in section 4.02(a)(4)-(10)
of the Act with respect to the Managing General Partner (without regard
to the lapse of any time periods therein), the remaining Partners by
written consent may select a new Managing General Partner, which (if not
already a General Partner) shall be admitted to the Partnership as a
General Partner effective immediately prior to the existing Managing
General Partner's ceasing to be a General Partner with such Partnership
Percentage as the Limited Partners making such selection may specify,
but only if such new Managing General Partner, if not already a Partner,
shall have made such Capital Contribution as such Limited Partners may
specify and shall have executed and delivered to the Partnership a
document including such new Managing General Partner's notice address,
acceptance of all the terms and provisions of this Agreement, an
agreement to perform and discharge timely all of its obligations and
liabilities hereunder, and a representation and warranty that the
representation and warranties in Section 3.02 are true and correct with
respect to such new
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Managing General Partner. Notwithstanding the foregoing provisions of
this Section 11.01(c), the right to select such new Managing General
Partner shall not exist or be exercised unless the Partnership shall
have received favorable opinion of the Partnership's legal counsel or of
other legal counsel acceptable to the Limited Partners making such
selection to the effect that such selection and admission will not
result in (a) the loss of limited liability of any Limited Partner or
(b) in the Partnership's being treated as an association taxable as a
corporation for federal income tax purposes. Notwithstanding the
foregoing provisions of this Section 11.01(c), no such new Managing
General Partner shall be admitted (and the existing Managing General
Partner shall continue as such) if the event that permitted the
selection of a new Managing General Partner shall have been an event of
the type described in section 4.02(a)(5) of the Act that with the
passage of time would cause the existing Managing General Partner to
become a Bankrupt Partner but, due to the failure of such situation to
continue, such Managing General Partner does not become a Bankrupt
Partner.
11.02 REMOVAL OF MANAGING GENERAL PARTNER. The Managing General Partner
may be removed upon its gross negligence, willful misconduct or a material
breach of a material provision hereof (and such breach has not been cured or the
Managing General Partner is not pursuing, at its cost a remedy for such breach,
which cure is reasonably obtainable within 60 days), but only with the written
consent of Enron Finance Corp. Any such action for removal also must provide for
the selection of a new Managing General Partner. The new Managing General
Partner so selected shall be admitted to the Partnership as a General Partner
with such Partnership Percentage as the Limited Partners making such selection
may specify, but only if such new Managing General Partner shall have made such
Capital Contribution as such Limited Partners may specify and shall have
executed and delivered to the Partnership a document including such new Managing
General Partner's notice address, acceptance of all the terms and provisions of
this Agreement, an agreement to perform and discharge timely all of its
obligations and liabilities hereunder, and a representation and warranty that
the representation and warranties in Section 3.02 are true and correct with
respect to such new Managing General Partner. Such removal shall be effective
only immediately subsequent to such admission. Notwithstanding the foregoing
provisions of this Section 11.02, the right to remove the Managing General
Partner shall not exist or be exercised unless the Partnership shall have
received a favorable opinion from the Partnership's legal counsel (or other
counsel acceptable to the Limited Partners consenting to such removal) that the
removal of the Managing General Partner and the selection and admission of a new
Managing General Partner will not result in (a) the loss of limited liability of
any Limited Partner or (b) in the Partnership's being treated as an association
taxable as a corporation for federal income tax purposes. Notwithstanding the
foregoing, the removed Managing General Partner shall not be released of any
obligations or liabilities that may have accrued prior to the date of such
removal. The removed Managing General Partner shall deliver unto the newly named
Managing General Partner all of the books, records, files or other data owned by
the Partnership and shall render a final accounting to the newly appointed
Managing General Partner and all such other information as the newly appointed
Managing General Partner may require.
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11.03 CONVERSION OF INTEREST. Immediately upon a Managing General
Partner's ceasing to be Managing General Partner following the admission of a
new Managing General Partner pursuant to Section 11.01(c) or 11.02, the former
Managing General Partner's interest in the Partnership as a General Partner
shall be converted into the interest of a Limited Partner in the Partnership
having the Partnership Percentage equal to the Partnership Percentage of such
former Managing General Partner immediately prior to its ceasing to be a General
Partner, and such Managing General Partner shall be admitted to the Partnership
as a Limited Partner.
11.04 BANKRUPT PARTNERS. If any Partner shall become a Bankrupt Partner,
the Partnership shall have the option, exercisable by notice from the Managing
General Partner (including any newly designated Managing General Partner) to the
Bankrupt Partner (or its representative) after receipt of notice of the
occurrence of the event causing it to become a Bankrupt Partner, to buy, and
upon the exercise of such option the Bankrupt Partner or its representative
shall sell, its interest in the Partnership for an amount determined as follows:
The Bankrupt Partner shall give notice to the other Partners of such event.
Within fifteen (15) days, the other Partners, or any of them electing to do so
in proportion to their respective interests, shall have the prior and
preferential right to buy such Partner's interest in the Partnership. The price
to be paid shall be equal to the fair market value thereof determined by mutual
agreement by the Bankrupt Partner (or its representative) and the Partners who
have exercised such option; provided, however, that if such Persons shall not
agree on such fair market value on or before the 15th day following the exercise
of such option, either such Person, by notice to the other, may require such
determination to be made by an independent appraiser specified in such notice,
but on or before the fifth Business Day following receipt the Person receiving
such notice shall object to such independent appraiser, and such Persons
otherwise fail to agree on an independent appraiser, either such Person may
petition the United States District Judge for the Southern District of Texas
(Houston Division) then senior in service to designate such independent
appraiser; and the determination of such independent appraiser shall be final
and binding on all parties. The costs of appraisal shall be borne equally by the
Bankrupt Partner and the Partners exercising such option. Such fair market value
shall be paid in cash due on closing. The payment to be made to the Bankrupt
Partner or its representative pursuant to this Section 11.04 is, and shall be
conclusively deemed to be, in complete liquidation and satisfaction of all the
rights and interest of the Bankrupt Partner and its representative (and of any
and all Persons claiming by, through, or under the Bankrupt Partner and its
representative) in and in respect of the Partnership, including, without
limitation, any interest in the Partnership, any rights in specific Partnership
property, and any rights against the Partnership and (insofar as the affairs of
the Partnership are concerned) against the Partners and shall constitute a
compromise to which all Partners have agreed pursuant to section 5.02(d) of the
Act. If at the time any Partner shall become a Bankrupt Partner there shall be
only one other Partner, such other Partner shall have all the rights of the
Partnership and the Managing General Partner pursuant to this Section 11.04.
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ARTICLE XII
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.01 DISSOLUTION. The Partnership shall be dissolved and its affairs
shall be wound up upon the first to occur of any of the following:
(a) the written consent of all Partners;
(b) the date set forth in Section 2.06;
(c) a Managing General Partner shall cease to be a General
Partner as described in Section 11.01(b) and no new Managing General
Partner shall have been selected and admitted as provided in Section
11.01(c); or
(d) any other event causing dissolution as described in section
8.01 of the Act (other than an event described in section 4.02(a)(4) or
(7)-(10) of the Act, except as provided in Sections 11.01(b) and
12.01(c));
provided, however, that if an "event of withdrawal" (as defined in section
4.02(a) of the Act) shall occur with respect to any General Partner and at least
one other General Partner shall remain and a Managing General Partner either
shall remain or shall be about to be admitted pursuant to Section 3.03(c),
11.01(c), or 11.02, the Partnership automatically shall be reconstituted and the
remaining General Partner(s) shall, and hereby agree to, carry on the business
of the Partnership.
12.02 LIQUIDATION AND TERMINATION. Upon dissolution of the Partnership,
unless it is reconstituted and continued as provided in Section 12.01, the
Managing General Partner shall act as liquidator or may appoint one or more
other Persons as liquidator; provided, however, that if the Partnership shall be
dissolved on account of an event of the type described in section
4.02(a)(4)-(10) of Act with respect to the Managing General Partner, the
liquidator shall be one or more Persons selected in writing by the owners of a
majority of Partnership Percentages. The liquidator shall proceed diligently to
wind up the affairs of the Partnership and make final distributions as provided
herein. The costs of liquidation shall be borne as a Partnership expense. Until
final distribution, the liquidator shall continue to operate the Partnership
properties with all of the power and authority of the Managing General Partner.
The steps to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator shall cause a proper accounting to be
made by a recognized firm of certified public accountants of the
Partnership's assets, liabilities, and operations through the last day
of the calendar month in which the dissolution shall occur or the final
liquidation shall be completed, as applicable;
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(b) The liquidator shall pay all of the debts and liabilities of
the Partnership (including, without limitation, all expenses incurred in
liquidation and any advances described in Section 4.05) or otherwise
make adequate provision therefor (including, without limitation, the
establishment of a cash escrow fund for contingent liabilities in such
amount and for such term as the liquidator may reasonably determine);
and
(c) All remaining assets of the Partnership shall be distributed
to the Partners as follows:
(i) the liquidator may sell any or all Partnership property,
and any resulting gain or loss from each sale shall be computed
and allocated to the capital accounts of the Partners;
(ii) with respect to all Partnership property that has not
been sold, the fair market value of such property shall be
determined in accordance with Section 11.04 and the capital
accounts of the Partners shall be adjusted to reflect the manner
in which the unrealized income, gain, loss, and deduction
inherent in such property (that has not been reflected in the
capital accounts previously) would be allocated among the
Partners if there were a taxable disposition of such property for
the fair market value of such property on the date of their
distribution; and
(iii) Partnership property shall be distributed among the
Partners in accordance with the positive capital account balances
of the Partners, as determined after taking into account all
capital account adjustments for the taxable year of the
Partnership during which the liquidation of the Partnership
occurs (other than those made by reason of this clause (iii));
and such distributions shall be made by the end of the taxable
year of the Partnership during which the liquidation of the
Partnership occurs (or, if later, on or before the 90th day after
the date of such liquidation).
All distributions in kind to the Partners shall be made subject to the liability
of each distributee for costs, expenses, and liabilities theretofore incurred or
for which the Partnership shall have committed prior to the date of termination
and such costs, expenses, and liabilities shall be allocated to such distributee
pursuant to this Section 12.02. Subject to the provisions of Section 12.03, the
distribution of cash and/or property to a Partner in accordance with the
provisions of this Section 12.02 shall constitute a complete return to the
Partner of its Capital Contributions and a complete distribution to the Partner
of its interest in the Partnership and all the Partnership's property and shall
constitute a compromise to which all Partners have consented within the meaning
of section 5.02(d) of the Act. To the extent that a Partner shall return funds
to the Partnership, it shall have no claim over against any other Partner for
the same.
12.03. RESTORATION OF DEFICIT CAPITAL ACCOUNT. At such time during
liquidation of the Partnership pursuant to Section 12.02 after all assets of the
Partnership have been sold, all liabilities
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and expenses have been paid, all revenues, costs, deductions, expenses, gains
and losses have been allocated, all cash has been distributed, and all
adjustments to the Capital Accounts have been made, if the General Partner then
has a negative balance in its Capital Account, it shall contribute to the
Partnership an amount equal to the lesser of (i) the aggregate positive balance
in the Capital Accounts of the Limited Partners, (ii) an amount necessary to
increase the balance in its Capital Account to zero, or (iii) zero, in the event
the aggregate Capital Account balances of the Limited Partners are zero or
negative. Any amount so contributed shall be distributed as provided in Section
12.02 to the Limited Partners. No Limited Partner shall be obligated to make any
contribution to the Partnership except as required by the Act or as otherwise
provided herein.
12.04 CANCELLATION OF CERTIFICATE. Upon completion of the distribution
of Partnership assets as provided herein, the Partnership shall be terminated,
and the General Partner (or, if there shall be no General Partner, the Limited
Partners) shall cause the cancellation of the Certificate and any other filings
made pursuant to Section 2.05 and shall take such other actions as may be
necessary to terminate the Partnership.
ARTICLE XIII
GENERAL PROVISIONS
13.01 CONFIDENTIALITY. The Partners shall ensure that any information
regarding the business, assets, customers, processes and methods of the
Partnership or the other Partners that it may learn solely in the course of
negotiations for or performance under this Agreement, the Excess Gas Contract,
the Production Payment Purchase Agreement or the Area of Interest Agreement (a)
is treated by it in strict confidence, (b) is not disclosed in any manner to any
person other than an Affiliate (other than Enron Oil & Gas Company or Engasco
Corp.) of a Partner or as may be required by law, and (c) is not used by such
Partner or any of its Affiliates for any purpose other than for the exclusive
benefit of the Partnership or to comply with law or legal process. In addition,
such information may be disclosed by a Partner to a person only if and to the
extent that such information (i) is known to such person prior to learning of it
from the Partner; (ii) is obtained, whether directly or indirectly, by such
person from a source other than such Partner (or any of its Affiliates) that (I)
did not require such person to hold such secrets or information in confidence
and (II) did not limit or restrict such person's use thereof; or (c) becomes
known otherwise than through the Partnership or the Partner (or any of its
Affiliates) seeking to use or disclose such information.
13.02 NOTICES. All notices or requests or consents provided for or
permitted to be given pursuant to this Agreement must be in writing and must be
given by depositing same in the United States mail, addressed to the Person to
be notified, postpaid, and registered or certified with return receipt requested
or by delivering such notice in person to such party. Notices given or served
pursuant hereto shall be effective upon receipt by the Person to be notified.
All notices to be sent to a Partner shall be sent to or made at the addresses as
each Partner may specify by notice to the Managing General Partner. Any notice
to the Partnership shall be given to the Managing General Partner.
-43-
13.03 ENTIRE AGREEMENT; SUPERSEDURE. This Agreement, together with the
Production Payment Purchase Agreement, all documents affixed hereto or thereto,
and all other documents referred to herein or executed in connection herewith
constitutes the entire agreement of the Partners and their Affiliates relating
to the matters contained herein and supersedes all prior contracts or
agreements, whether oral or written.
13.04 EFFECT OF WAIVER OR CONSENT. No waiver or consent, express or
implied, by any Person to or of any breach or default by any Person in the
performance by such Person of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a Person to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such Person of its rights hereunder
until the applicable statute of limitation period has run.
13.05 AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified from time to time only by a written instrument executed by all
Partners; provided, however, that no amendment or modification reducing a
Partner's Partnership Percentage (other than to reflect changes otherwise
provided hereby) shall be effective without such Partner's consent; and provided
further that amendments of the type described in Section 3.04 may be adopted as
therein provided.
13.06 BINDING EFFECT; JOINDER OF ADDITIONAL PARTIES. Subject to the
restrictions on Dispositions set forth herein, this Agreement shall be binding
upon and shall inure to the benefit of the Partners, as well as the respective
successors and assigns of such Partners. All reference herein to any Partner
shall include its respective permitted successors and assigns.
13.07 CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, excluding any conflicts-of-law
rule or principle that might refer the governance or construction of this
Agreement to the laws of another jurisdiction. The headings in this Agreement
are inserted for convenience and identification only and are not intended to
describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provision hereof. Whenever the context requires, the gender of
all words used in this Agreement shall include the masculine, feminine, and
neuter. All references to Articles and Sections refer to articles and sections
of this Agreement, and all references to Exhibits are to Exhibits attached
hereto, each of which is made a part hereof for all purposes. All sums and
amounts payable or to be payable pursuant to the provisions of this Agreement
shall be payable in coin or currency of the United States of America that, at
the time of payment, is legal tender for the payment of public and private debts
in the United States of America. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
-44-
13.08 FURTHER ASSURANCES. In connection with this Agreement, as well as
all transactions contemplated by this Agreement, each Partner agrees to execute
and deliver such additional documents and instruments and to perform such
additional acts as may be necessary or appropriate to effectuate, carry out, and
perform all of the terms, provisions, and conditions of this Agreement and all
such transactions.
13.09 DEEMED ASSENT. The failure of any Person to respond, within the
response period set forth in the request in question (which response period
shall end no earlier than the fifth and no later than the 15th Business Day
following the date on which such Person receives such request as described in
Section 13.02), either in the affirmative or in the negative, to any request it
receives relating to a proposed act in respect of which such Person is entitled
to vote pursuant hereto shall be deemed conclusively for all purposes to be a
vote by such Person in favor of the act set forth in such request; or, if an
option has been granted herein, an election not to exercise such option.
13.10 WAIVER OF CERTAIN RIGHTS. Each Partner irrevocably waives any
right it might have to maintain any action for dissolution of the Partnership or
to maintain any action for partition of the property of the Partnership.
13.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall constitute
one and the same instrument.
13.12 ARBITRATION.
(a) On the request of any Partner, whether made before or after
the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind now existing or hereafter arising between any of
the parties hereto and pertaining to the interpretation of or breach of
this Agreement (a "Dispute") shall be resolved by binding arbitration in
accordance with the terms hereof. Any Partner may, by summary
proceedings, bring an action in court to compel arbitration of any
Dispute.
(b) Any arbitration shall be administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
Section 13.12, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on any
aware rendered by an arbitrator maybe entered in any court having
jurisdiction.
(c) Any arbitration shall be conducted before one arbitrator. The
arbitrator shall be an individual who is knowledgeable in the subject
matter of the Dispute selected by agreement between the Partners. If the
Partners cannot agree on an arbitrator within thirty (30) days after the
request for an arbitration, then any Partner may request the AAA to
select
-45-
an arbitrator. The arbitrator may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion
in the arbitration proceeding.
(d) To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in
Houston, Texas. Arbitrators shall be empowered to impose sanctions and
to take such other actions as the arbitrators deem necessary to the same
extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the arbitrator shall make
specific written findings of fact and conclusions of law. The arbitrator
shall have the power to award recovery of all costs and fees to the
prevailing Partners.
(e) All fees of the arbitrator and any engineer, accountant or
other consultant engaged by the arbitrator, shall be paid by the
Partners according to their Partnership Percentages unless otherwise
awarded by the arbitrator.
WITNESS WHEREOF, the initial Partners have executed this Agreement as of
the date first set forth above.
GENERAL PARTNER: OEDC EXPLORATION &
PRODUCTION, L.P., BY
OEDC, INC., ITS GENERAL PARTNER
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
LIMITED PARTNERS: OEDC EXPLORATION &
PRODUCTION, L.P., BY
OEDC, INC., ITS GENERAL PARTNER
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
-46-
ENRON FINANCE CORP.
By: /s/ C. JOHN THOMPSON
C. John Thompson
Vice President
-47-
EXHIBIT 10.2
AGREEMENT REGARDING PARTNERSHIP
This Agreement is entered into as of the 18th day of May, 1993 by and
between OEDC Exploration & Production, L.P., a Texas limited partnership
("OEDC"), and Enron Finance Corp., a Delaware corporation ("EFC").
Reference is here made for all purposes to that certain Agreement of
Limited Partnership (the "Partnership Agreement") dated March 2, 1993 creating
South Dauphin Partners Ltd., a Texas limited partnership (the "Partnership") of
which each of OEDC and EFC are partners. Except as specifically modified hereby,
capitalized terms used, but not defined, herein shall have the meanings ascribed
to them in the Partnership Agreement.
Since the formation of the Partnership, OEDC has contributed to the
Partnership the properties and rights set forth in the first two sentences of
Section 4.01(a) of the Partnership Agreement; and EFC has made various cash
contributions to the Partnership.
Pursuant to that certain Purchase and Sale Agreement dated March 3, 1993
between the Partnership and Enron Reserve Acquisition Corp. ("ERAC"), as amended
by that certain Closing Agreement of even date herewith (collectively the
"Purchase Agreement"), the Partnership has sold, the Production Payment in and
to certain oil and gas leaseholds owned by the Partnership for the aggregate
consideration of $5,300,000, of which $4,000,000 has been paid to and received
by the Partnership on this date.
The parties hereto desire to make a special distribution of cash to EFC,
as a Limited Partner of the Partnership, and to establish provisions for future
Capital Contributions to the Partnership by OEDC and EFC.
In consideration of the foregoing and in furtherance of the provisions
of the Partnership Agreement, the parties hereto agree as follows:
1. OEDC and EFC agree that the Partnership shall make a special
distribution of cash to EFC on the date hereof in an amount equal to $4,000,000,
being that amount received from ERAC under and pursuant to the Purchase
Agreement as a portion of the purchase price for the Production Payment. For
purposes of paragraph 4.01(b) of the Partnership Agreement, it shall be agreed
and stipulated that EFC contributed to the Partnership $500,000 on April 26,
1993 and $607,552.70 on May 17, 1993, that no other Capital Contributions have
been made by EFC to the Partnership and that EFC shall be obligated to fulfill
its agreement to contribute the remaining portion of its agreed total Capital
Contribution of $4,500,000 in increments of at least $500,000 as set forth in
4.01(b) of the Partnership Agreement with such sums to be credited as Capital
Contributions for all purposes (including without limitation the determination
of Payout) under the Partnership on the dates such
<PAGE>
sums are hereafter contributed. It is also agreed that once EFC fulfills such
obligation, OEDC, as General Partner shall invoice ERAC under the Purchase
Agreement for the remaining portions of the purchase price for the Production
Payment; provided that all sums attributable to such purchase price shall be
invoiced to ERAC no later than December 31, 1993, regardless of the needs of the
Partnership for such cash.
2. Upon the execution hereof, OEDC shall contribute to the Partnership
those amounts set forth in the last sentence of Section 4.01(a). It is also
recognized that the contributions by OEDC pursuant to the fourth sentence of
Section 4.01(a) have not yet been made and OEDC reaffirms its obligation to make
the contributions described therein to the Partnership. On behalf of the
Partnership, OEDC is negotiating to acquire certain overriding royalty interests
in Mobile Bay Blocks 90 and 91 from Thomas E. Clements, Jr. (the "Clements
Override") for a sum of $115,000. If the Clements Override is purchased at such
price, OEDC shall contribute to the Partnership $23,000.00, being its 20% share
of the acquisition costs to be borne by the Partnership for the Clements
Override, with such amount being in addition to all other Capital Contributions
made or to be made by OEDC to the Partnership; and EFC agrees to contribute to
the Partnership the sum of $92,000.00 being EFC's 80% portion of said purchase
price for the acquisition of the Clements Override, with such amount being in
addition to all other Capital Contributions made or to be made by EFC to the
Partnership.
3. If and to the extent the Mandatory Operations are completed prior to
the expenditure of all funds that are contributed by EFC under Section 4.01(b)
of the Partnership Agreement and received by the Partnership from ERAC under the
Purchase Agreement, any excess funds shall be distributed to OEDC and EFC in
accordance with the provisions of Section 5.04 of the Partnership Agreement.
4. Where the terms "Excess Gas Contract", "Area of Interest Agreement"
and "Production and Delivery Agreement" are used in the Partnership Agreement,
all such terms shall refer to those documents dated as of May 18, 1993 and
attached to the Closing Agreement dated May 18, 1993 between the Partnership and
ERAC. The term "Production Payment Purchase Agreement" shall mean the agreement
so designated, as amended by the above-mentioned Closing Agreement. The term
"Gathering Agreement" shall mean that certain Letter Agreement dated January 13,
1993 (the rights under which are now owned by the Partnership) and any gathering
agreement executed by the Partnership and Dauphin Island Gathering Company, L.P.
pursuant thereto.
The parties hereto do hereby ratify the Partnership Agreement, as
modified hereby, and recognize that the Partnership is valid and subsisting and
enforceable in accordance therewith and do hereby reaffirm and restate, as of
the date hereof, all of the representations, warranties, covenants and
agreements set forth therein.
-2-
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first set forth above.
OEDC EXPLORATION &
PRODUCTION, L.P., as a
General Partner and a Limited
Partner of South Dauphin
Partners Ltd., by OEDC, Inc.,
its General Partner
By /s/ GAYLEN J. BYKER
Gaylen J. Byker
Vice President
ENRON FINANCE CORP., as a
Limited Partner of South
Dauphin Partners Ltd.
By /s/ C. JOHN THOMPSON
C. John Thompson
Vice President
-3-
EXHIBIT 10.3
AMENDMENT NO.1 TO
AGREEMENT OF LIMITED PARTNERSHIP
This Amendment No. 1 to Agreement of Limited Partnership (this
"Amendment") is entered into as of the 10th day of August, 1993 by and between
OEDC EXPLORATION & PRODUCTION L.P., a Texas limited partnership ("OEDC") and
ENRON FINANCE CORP., a Delaware corporation ("EFC").
Reference is here made for all purposes to that certain Agreement of
Limited Partnership dated March 2, 1993 creating South Dauphin Partners Ltd., a
Texas limited partnership (the "Partnership"), as modified by that certain
Agreement Regarding Partnership dated May 18, 1993 between OEDC and EFC (such
documents being collectively herein referred to as the "Partnership Agreement").
OEDC and EFC are the only partners in the Partnership. OEDC has acquired the
following oil and gas leases (collectively the "Leases"), which Leases the
parties desire to be contributed to the Partnership:
1. Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G 13975 effective as of July 1, 1993
covering all of Block 866, Mobile Bay, OCS Official Protraction Diagram, NH 16-4
for a gross cash bonus of $152,640.00.
2. Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G 13978 effective as of July 1, 1993
covering all of Block 35, Viosca Knoll, OCS Official Protraction Diagram, NH
16-7 for a gross cash bonus of $161,280.00.
3. Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G 13979 effective as of July 1, 1993
covering all of Block 38, Viosca Knoll, OCS Official Protraction Diagram, NH
16-7 for a gross cash bonus of $181,440.00.
In addition, OEDC has acquired certain seismic information covering the
areas that are subject to the above-described leases for an aggregate amount of
$105,000.00 which has been allocated one-third (or $35,000.00) to each of the
areas covered by the three leases described above. OEDC has also acquired the
Clements Override (as defined in the Partnership Agreement) for a sum of
$115,000.00. Of the above amounts OEDC shall bear 20% and EFC shall bear 80%.
Such sums have been allocated as follows:
<PAGE>
TOTAL EFC (80%) OEDC (20%)
-------- -------- --------
LEASE BONUS
- --------
Viosca Knoll 35 ................ $161,280 $129,024 $ 32,256
Viosca Knoll 38 ................ $181,440 $145,152 $ 36,288
Mobile Bay 866 ................. $152,640 $122,112 $ 30,528
-------- -------- --------
Total .................. $494,360 $396,288 $ 99,072
DELAY RENTAL
- --------
Viosca Knoll 35 ................ $ 17,280 $ 13,824 $ 3,456
Viosca Knoll 38 ................ $ 17,280 $ 13,824 $ 3,456
Mobile Bay 866 ................. $ 17,280 $ 13,824 $ 3,456
-------- -------- --------
Total .................. $ 51,840 $ 41,472 $ 10,368
SEISMIC ACQUISITION
- --------
Viosca Knoll 35 ................ $ 35,000 $ 28,000 $ 7,000
Viosca Knoll 38 ................ $ 35,000 $ 28,000 $ 7,000
Mobile Bay 866 ................. $ 35,000 $ 28,000 $ 7,000
-------- -------- --------
Total .................. $105,000 $ 84,000 $ 21,000
CLEMENTS OVERRIDE
- --------
Total .................. $115,000 $ 92,000 $ 23,000
TOTAL .......................... $767,200 $613,760 $153,440
--------
Pursuant to the Partnership Agreement, OEDC and EFC have of even date
herewith contributed the Leases, the seismic information related thereto, and
the Clements Override to the Partnership. OEDC has assigned the Leases to the
Partnership pursuant to that certain Assignment dated of even date herewith.
Also of even date herewith, EFC has funded to the Partnership as a capital
contribution the amount of $597,009.16 as its share of the Lease Bonus, Delay
Rental, seismic information and Clements Override set forth above. The parties
acknowledge that prior to the date hereof, EFC had made cumulative cash capital
contributions of $4,516,750.84, although it was only obligated under the
Partnership Agreement to contribute $4,500,000.00. Therefore, EFC was credited
the amount of $16,750.84 against the cash capital contribution required of it
hereunder ($613,760.00 - $16,750.84 = $597,009.16). EFC is not obligated to make
any further capital contributions pursuant to the Partnership Agreement or this
Amendment. OEDC has been credited (as of the date of its respective payment
therefor) the amount of $132,440 as its share of the Lease Bonus, Delay Rental
and Clements Override. The parties acknowledge that prior to the date hereof,
OEDC had made cumulative cash capital contributions of $1,975,654.00, of which
$1,843,214.00 had been contributed prior to the payment of its share of the
Lease Bonus, Delay Rental and
-2-
Clements Override set forth above. OEDC is obligated to make future cash capital
contributions to the Partnership of $177,786.00.
In addition, OEDC, on behalf of the Partnership, has agreed to amend
certain agreements between the Partnership and Enron Reserve Acquisition Corp.
("ERAC"). Such amended agreements are evidenced by various documents of even
date herewith, including that certain Letter Agreement attached hereto as
Exhibit "A". Hereafter, where the terms "Production Payment," "Production and
Delivery Agreement" and "Excess Gas Contract" are used in the Partnership
Agreement, all such terms shall refer to those documents, as heretofore amended
and as further amended by the documents attached hereto as Exhibits "B," "C" and
"D," respectively. The term "Gathering Agreement" shall hereafter mean that
certain Gathering Agreement dated effective as of June 30, 1993 between the
Partnership and Dauphin Island Gathering Partners.
Even though the Leases and the Clements Override are contributed to the
Partnership and, thus, are Partnership Property, they are not covered by the
Production Payment Purchase Agreement or the Production and Delivery Agreement
and are not subject to or burdened by the Production Payment. All references to
the Partnership Property vis-a-vis the Production Payment Purchase Agreement,
the Production and Delivery Agreement or the Production Payment shall mean the
Partnership Property set forth in the Partnership Agreement prior to this
Amendment. However, the Leases and the Clements Override are covered by the
Excess Gas Contract; therefore, references to Partnership Property vis-a-vis the
Excess Gas Contract shall include such items.
The parties hereto do hereby ratify the Partnership Agreement, as
modified hereby, and recognize that the Partnership is valid and subsisting and
enforceable in accordance therewith and do hereby reaffirm and restate as of the
date hereof all of the representations, warranties, covenants and agreements set
forth therein, except to the extent that performance of any such agreement has
been completed prior to the date hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first set forth above.
OEDC EXPLORATION & PRODUCTION L.P., as a
General Partner and a Limited Partner of
South Dauphin Partners Ltd., by OEDC, Inc.,
its General Partner
By /s/ GAYLEN J. BYKER
Name Gaylen J. Byker
Title Vice President
-3-
ENRON FINANCE CORP., as a Limited Partner of
South Dauphin Partners Ltd.
By /S/ C. JOHN THOMPSON
C. John Thompson
Vice President
-4-
Exhibit "A" - Letter Agreement
Exhibit "B" - Amendment to Conveyance
Exhibit "C" - Amendment to Production and Delivery Agreement
Exhibit "D" - Amendment to Excess Gas Contract
-5-
EXHIBIT 10.4
AMENDMENT NO. 2 TO
AGREEMENT OF LIMITED PARTNERSHIP
This Amendment No.2 to Agreement of Limited Partnership (this
"Amendment") is entered into as of the 1st day of October, 1993 by and between
OEDC EXPLORATION & PRODUCTION L.P., a Texas limited partnership ("OEDC") and
ENRON FINANCE CORP., a Delaware corporation ("EFC").
Reference is hereby made for all purposes to that certain Agreement of
Limited Partnership dated March 2, 1993 creating South Dauphin Partners Ltd., a
Texas limited partnership (the "Partnership"), as modified by that certain
Agreement Regarding Partnership dated May 18, 1993 and as amended by that
certain Amendment No.1 to Agreement of Limited Partnership dated August 10,
1993, all between OEDC and EFC (such documents being collectively herein
referred to as the "Partnership Agreement").
OEDC, on behalf of the Partnership, has agreed to purchase certain
interests in the following oil and gas lease (the "Lease"):
Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act, bearing the Serial Number OCS-G 6847, dated effective
July 1, 1984, covering all of Block 865, Mobile, OCS Official
Protraction Diagram, NH 16-4, INSOFAR AND ONLY INSOFAR as said operating
rights cover depths above the depth of 3800 feet, as encountered in the
Gulfstar Operating Company OCS-G 6847 Well No.1.
In connection with the purchase of such Lease, OEDC, on behalf of the
Partnership, has agreed to amend certain agreements between the Partnership and
Enron Reserve Acquisition Corp. Such amended agreements are evidenced by various
documents of even date herewith, including (i) that certain Letter Agreement
attached hereto as Attachment "A" (the "Letter Agreement") and the documents
attached thereto as Exhibits A, B and C (I.E. Second Amendment to Conveyance of
Production Payment, Second Amendment to Production and Delivery Agreement, and
Second Amendment to Excess Gas Purchase Contract), (ii) the Third Amendment to
Swap Agreement attached hereto as Attachment "B", (iii) the Second Amendment to
Security Agreement attached hereto as Attachment "C" and (iv) the Amendment to
Guaranty Agreement attached hereto as Attachment "D." Hereafter, where the terms
"Production Payment," "Production and Delivery Agreement" and "Excess Gas
Contract" are used in the Partnership Agreement, all such terms shall refer to
those documents, as heretofore amended and as further amended by Exhibits A, B
and C to the Letter Agreement.
<PAGE>
The parties hereto do hereby ratify the Partnership Agreement, as
modified hereby, and recognize that the Partnership is valid and subsisting and
enforceable in accordance therewith and do hereby reaffirm and restate as of the
date hereof all of the representations, warranties, covenants and agreements set
forth therein, except to the extent that performance of any such agreement has
been completed prior to the date hereof.
IN WITNESS WHEREOF, parties hereto have set their hands as of the date
first set forth above.
OEDC EXPLORATION & PRODUCTION L.P.,
as a General Partner and a Limited
Partner of South Dauphin Partners
Ltd., by OEDC, Inc., its General
Partner
By /S/ GAYLEN J. BYKER
Gaylen J. Byker
Vice President
ENRON FINANCE CORP., as a Limited
Partner of South Dauphin Partners
Ltd.
By /S/ C. JOHN THOMPSON
C. John Thompson
Vice President
Attachment "A" - Letter Agreement
Exhibit "A" - Second Amendment to Conveyance
Exhibit "B" - Second Amendment to Production and Delivery Agreement
Exhibit "C" - Second Amendment to Excess Gas Contract
Attachment "B" - Third Amendment to Swap Agreement
Attachment "C" - Second Amendment to Security Agreement
Attachment "D" - Amendment to Guaranty Agreement
-2-
EXHIBIT 10.5
AMENDMENT NO. 3 TO
AGREEMENT OF LIMITED PARTNERSHIP
This Amendment No. 3 to Agreement of Limited Partnership (this
"Amendment") is entered into as of the 21st day of December, 1993 by and between
OEDC EXPLORATION & PRODUCTION L.P., a Texas limited partnership ("OEDC") and
ENRON FINANCE CORP., a Delaware corporation ("EFC").
Reference is hereby made for all purposes to that certain Agreement of
Limited Partnership dated March 2, 1993 creating South Dauphin Partners Ltd., a
Texas limited partnership (the "Partnership"), as amended by (i) that certain
Agreement Regarding Partnership dated May 18, 1993, (ii) that certain Amendment
No. 1 to Agreement of Limited Partnership dated August 10, 1993 and (iii) that
certain Amendment No. 2 to Agreement of Limited Partnership dated October 1,
1993, all by and between OEDC and EFC (such documents being collectively herein
referred to as the "Partnership Agreement").
The Partnership has acquired the following oil and gas lease:
Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS G-8763, dated effective as of
July 1, 1987 by the United States of America, as lessor, to Atlantic
Richfield Company, as lessee, covering all of Block 24, Viosca Knoll,
OSC Official Protraction Diagram, NH 16-7, containing 5,760 acres, more
or less ("Viosca Knoll Block 24").
Even though such lease has been acquired by the Partnership and, thus,
is Partnership Property, it is not covered by the Production Payment Purchase
Agreement, the Production and Delivery Agreement or the Excess Gas Contract and
is not subject to or burdened by the Production Payment. All references to the
Partnership Property vis-a-vis the Production Payment Purchase Agreement, the
Production and Delivery Agreement, the Excess Gas Contract, or the Production
Payment shall mean Partnership Property set forth in the Partnership Agreement
prior hereto. However, OEDC, on behalf of the Partnership, will enter into an
Excess Gas Purchase Contract with Enron Gas Marketing, Inc. covering Viosca
Knoll Block 24.
OEDC, on behalf of the Partnership, has agreed to amend certain
agreements between the Partnership and Enron Reserve Acquisition Corp. ("ERAC")
or its affiliates, Enron Risk Management Services Corp. and Enron Gas Marketing,
Inc. Such amended agreements are evidenced by various documents of even date
herewith, including (i) a Letter Agreement, the form of which is attached hereto
as Attachment "A" (the "Letter Agreement") and the documents attached thereto as
Exhibits A, B and C (i.e., Third Amendment to Conveyance of Production Payment,
Third
<PAGE>
Amendment to Production and Delivery Agreement, and Third Amendment to Excess
Gas Purchase Contract), (ii) Termination of Swap Agreement, the form of which is
attached hereto as Attachment "B", (iii) Termination of Security Agreement, the
form of which is attached hereto as Attachment "C" (and a termination of the
related Financing Statement) and (iv) Amended and Restated Guaranty Agreement,
the form of which is attached hereto as Attachment "D". Hereafter, where the
terms "Production Payment," "Production and Delivery Agreement" and "Excess Gas
Contract" are used in the Partnership Agreement, all such terms shall refer to
those documents, as heretofore amended and as further amended by Exhibits A, B
and C to the Letter Agreement.
On or before December 31, 1993, OEDC, as Managing General Partner of the
Partnership, shall make (i) a distribution of cash in an amount equal to
$1,542,682.12 to the Partners in accordance with their respective Before Payout
Partnership Percentages, and (ii) a special distribution of cash to EFC in an
amount equal to $5,873,286.16. The parties agree that after such distributions
are made, Payout shall be deemed to have occurred for all purposes as of 11:59
P.M. on December 31, 1993 (regardless of whether such distributions are made
prior to such time) pursuant to the terms of the Partnership Agreement. However,
nothing herein shall alter the provisions of Section 5.05 of the Partnership
Agreement regarding the recalculation of Payout at the end of the tax year and
the subsequent adjustment of allocations and distributions if the original
determination of Payout is in error.
The parties hereto do hereby ratify the Partnership Agreement, as
amended and modified hereby, and recognize that the Partnership is valid,
subsisting and enforceable in accordance therewith and do hereby reaffirm and
restate as of the date hereof all of the representations, warranties, covenants
and agreements set forth therein, except to the extent that performance of any
such agreement has been completed prior to the date hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first set forth above.
OEDC EXPLORATION & PRODUCTION L.P.,
as a General Partner and a Limited
Partner of South Dauphin Partners
Ltd., by OEDC, Inc., its General
Partner
By /S/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
-2-
ENRON FINANCE CORP., as a Limited
Partner of South Dauphin Partners
Ltd.
By /S/ C. JOHN THOMPSON
C. John Thompson
Vice President
-3-
Attachment "A" - Letter Agreement
Exhibit A - Third Amendment to Conveyance
Exhibit B - Third Amendment to Production and Delivery
Agreement
Exhibit C - Third Amendment to Excess Gas Contract
Attachment "B" - Termination of Swap Agreement
Attachment "C" - Termination of Security Agreement
Attachment "D" - Amended and Restated Guaranty Agreement
-4-
EXHIBIT 10.6
AMENDMENT NO. 4 TO
AGREEMENT OF LIMITED PARTNERSHIP
This Amendment No.4 to Agreement of Limited Partnership (this
"Amendment") is entered into as of the 30th day of March, 1994 by and between
OEDC EXPLORATION & PRODUCTION L.P., a Texas limited partnership ("OEDC") and
ENRON FINANCE CORP., a Delaware corporation ("EFC").
Reference is hereby made for all purposes to that certain Agreement of
Limited Partnership dated March 2, 1993 creating South Dauphin Partners Ltd., a
Texas limited partnership (the "Partnership"), as amended by (i) that certain
Agreement Regarding Partnership dated May 18, 1993, (ii) that certain Amendment
No. 1 to Agreement of Limited Partnership dated August 10, 1993, (iii) that
certain Amendment No.2 to Agreement of Limited Partnership dated October 1,1993,
and (iv) that certain Amendment No.3 to Agreement of Limited Partnership dated
December 21, 1993, all by and between OEDC and EFC (such documents being
collectively herein referred to as the "Partnership Agreement"). Capitalized
terms used but not defined herein shall have the meaning set forth in the
Partnership Agreement.
The Partnership has submitted, for the upcoming MMS lease sale, bids for
the leases covering the blocks set forth on Annex I attached hereto, such bids
being in the amounts set forth on Annex I, and has included Partnership funds
with such bids as required by the MMS. The amount of Partnership funds submitted
with the bid for each lease are also set forth on Annex I, with each such amount
representing 20% of the bid amount for such lease (i.e. the lease bonus) (the
"Bid Amount"). If the Partnership is not successful in being awarded a
particular lease, the amount refunded by the MMS for such lease shall be
returned to the Partnership's general account. If the Partnership is successful
in being awarded one or more of such leases (an "Awarded Lease"), OEDC and EFC
agree to the following provisions:
1. A special Capital Contribution shall be made by the Partners in order
for the Partnership to pay to the MMS (i) the remaining 80% of the Bid Amount
for each Awarded Lease and (ii) the first year's rental payment for each such
lease (the "Remaining Amount") and to replenish the Partnership's general
account for the 20% of the Bid Amount that was submitted to the MMS for each
such lease. The amount of the special Capital Contribution thus required to be
made by the Partners shall be hereinafter referred to as the "Contribution
Amount."
2. EFC shall make a cash Capital Contribution of 99% of the Contribution
Amount as a Limited Partner and OEDC shall make a cash Capital Contribution of
1% of such amount as a General Partner. The Partners' Capital Accounts shall be
credited by their respective share of the Contribution Amount.
<PAGE>
3. The Partnership shall convey to EFC, as a distribution, a 2%
overriding royalty interest in and to each of the Awarded Leases, with such
overriding royalty interest being calculated on the same basis as the royalty
interest retained by the United States of America. EFC's Capital Account shall
be debited by an amount equal to 2/83.333 multiplied by the Bid Amount for each
Awarded Lease.
4. In addition to the items listed in Section 6.02 of the Partnership
Agreement, OEDC, on behalf of the Partnership or otherwise, shall not at any
time, without the consent of EFC, (i) conduct or contract for any exploratory
operations on any lease on which a bid has been submitted or, after the leases
have been awarded, on any Awarded Lease, including without limitation any
drilling or seismic operations, (ii) acquire any data from any previous
exploratory operations conducted on any such lease, other than data that it has
already obtained or (iii) acquire any data from any exploratory operations
conducted on blocks adjacent to any such lease.
5. After the Bid Amount and the first year's delay rental have been paid
for each Awarded Lease, all cash available for distribution pursuant to the
Partnership Agreement that arises from or is attributable to the Awarded Leases
in any way ("Lease Cash") shall be distributed 1% to OEDC, as a General Partner,
and 99% to EFC, as a Limited Partner, until such time when the cumulative cash
distributions received by EFC that are attributable to the Awarded Leases equals
the portion of the Contribution Amount made by EFC, pursuant to paragraph 2
above, plus a rate of return on such contribution by EFC ("Lease Payout")
calculated in accordance with the following sentence. Such rate of return shall
be calculated each day based on a daily interest rate of 0.0411% multiplied by
the amount of capital comprising EFC's portion of the Contribution Amount
outstanding on each such day. Thereafter, any Lease Cash shall be distributed in
accordance with the Partnership Percentages.
6. OEDC shall have the option, exercisable on or before December
30,1994, to purchase from the Partnership the Awarded Leases by paying to the
Partnership, on or before such date, an amount in cash sufficient to cause Lease
Payout to occur; provided, however, that if such option is exercised, OEDC must
purchase all of the Partnership's interest in all of the Awarded Leases. OEDC
may extend such option until June 30,1995 by paying to the Partnership, on or
before December 30, 1994, an amount equal to 10% of the Contribution Amount.
Such payment shall promptly be distributed 99% to EFC, as a Limited Partner, and
1% to OEDC, as a General Partner. However, such payment and subsequent
distribution shall not be included in the calculation of Lease Payout.
7. If OEDC does not timely exercise the option provided to it in
paragraph 6 above, EFC shall have the option to cause the Partnership to
distribute the Awarded Leases to it by providing written notice to OEDC, on or
before June 21, 1996, of its election to receive such distribution. No later
than seven (7) days after such notice is provided, OEDC, as Managing
<PAGE>
General Partner of the Partnership, shall (i) execute and deliver to EFC an
assignment of the Awarded Leases and (ii) make a cash distribution to OEDC, as a
General Partner, in an amount equal to 1% of the Contribution Amount. Upon such
distribution, OEDC's Capital Account shall be debited by the amount so
distributed to it and EFC's Capital Account shall be debited by an amount equal
to 99% of the Contribution Amount minus the amount by which its Capital Account
was reduced pursuant to paragraph 3 above.
8. If delay rental payments on the Awarded Leases become due prior to
the time that such leases are purchased by OEDC or distributed to EFC, OEDC
shall make a Capital Contribution of 1% of the delay rental payment amounts and
EFC shall make a Capital Contribution of 99% of such amounts so that such
payments may be timely made. If such contributions are made, the term
"Contribution Amount", as used in paragraphs 5, 6, and 7 shall include the
contributions made pursuant to this paragraph 8.
9. The option granted to the Managing General Partner in Section 7.01 of
the Partnership Agreement to purchase EFC's interest in the Partnership in
return for a net profits interest in all Partnership Property equal to EFC's
Partnership Percentage may not be exercised until the Awarded Leases are (i)
purchased by OEDC as provided in Section 6 hereof, (ii) distributed to EFC as
provided in Section 7 hereof, or (iii) otherwise disposed of by the Partnership
(subject to the consent of all Partners pursuant to Section 6.02(a)).
Section 5.04 is hereby amended by adding a new subsection (b) as
follows:
The Partners recognize that a substantial tax liability may be
incurred by the Partners attributable to the Partnership in future
years, possibly as early as 1996 and/or 1997, and agree that various
measures should be taken to identify the magnitude of such liability on
an ongoing basis and to segregate and accrue funds necessary to
distribute to the Partners so that they can pay such liability when it
is due. Quarterly, the Managing General Partner shall prepare and
furnish to the other Partners an update to the cash flow model
previously prepared by it and furnished to the Partners, which model
shall include future tax liabilities of the Partners attributable to the
Partnership based upon the information available at the time of the
update. The Managing General Partner shall be responsible for managing
cash distributions so that such tax liability may be timely paid and
shall, if necessary and with the consent of the other Partners,
periodically segregate funds otherwise available for distribution into a
separate account so that sufficient funds will be available for
distribution at the time the taxes are due.
Section 5.01(e) is hereby amended, effective as of the formation of the
Partnership, by deleting the same in its entirety and substituting therefor the
following:
(e) (i) Prior to the occurrence of Payout, deductions
attributable to intangible drilling and development costs shall be
allocated 1% to EFC and 99% to the Partners other than EFC. Thereafter,
such deductions shall be allocated in accordance with the Partnership
<PAGE>
Percentages. The deductions allocated to the Partners other than EFC
under this subparagraph (i) shall be allocated among such Partners in
the ratio of their Adjusted Capital Account balances until their
Adjusted Capital Account balances are reduced to zero, and then shall be
allocated entirely to the General Partner.
(ii) Income, gains, losses, deductions and credits arising from
subsequent operations funded by the Partners in a ratio other than their
Partnership Percentages shall be allocated to the Partners (A) with
respect to the Awarded Leases, 99% to EFC and 1% to the General Partner
until Lease Payout and thereafter, in accordance with their Partnership
Percentages, and (B) otherwise, in the manner described in Section 4.02.
OEDC, on behalf of the Partnership, has agreed to amend and/or amend and
restate certain agreements among the Partnership and Enron Reserve Acquisition
Corp. ("ERAC"), Enron Gas Marketing, Inc. and Cactus Hydrocarbon III Limited
Partnership ("Cactus III"), as successor to certain interests of ERAC. Such
agreements are evidenced by various documents of even date herewith, including
(i) a Letter Agreement, the form of which is attached hereto as Attachment "A"
(the "Letter Agreement") and the documents attached thereto as Exhibits A and B
(I.E. Fourth Amendment to Conveyance of Production Payment and Fourth Amendment
to Production and Delivery Agreement (and an amendment of the related Financing
Statements), (ii) an Amended and Restated Guaranty Agreement, the form of which
is attached hereto as Attachment "B" and (iii) a contract or contracts amending
and restating the Excess Gas Contract upon terms to be agreed upon by OEDC and
Enron Gas Marketing, Inc. Hereafter, where the terms "Production Payment,"
"Production and Delivery Agreement" and "Excess Gas Contract" are used in the
Partnership Agreement, all such terms shall refer to those documents, as
heretofore amended and as further amended by Exhibits A and B to the Letter
Agreement and the contract or contracts amending and restating the Excess Gas
Contract.
The $7,250,000 to be paid to the Partnership by Cactus III at the
closing of the transactions contemplated by the Letter Agreement shall be
handled by the Partnership as follows:
(i) Accounts payable that relate to operations previously
performed on the "Subject Interests" (as defined in the Production
Payment Purchase Agreement) shall be paid as same become due and
payable;
(ii) $90,625 shall be used to pay ERAC the "Structuring Fee"
pursuant to the Letter Agreement;
(iii) up to $3,950,000 shall be used to pay the remaining portion
of the capital expenditure requirements set forth in the Production and
Delivery Agreement; and
<PAGE>
(iv) The remaining amount shall be used to conduct the operations
described or referred to on Schedule 1 attached hereto on or before the
respective dates set forth in Schedule 1; provided, however, that if
there are insufficient funds remaining from said $7,250,000 amount, the
Partnership shall nevertheless conduct such operations and shall pay for
same out of monthly cash flow, after monthly operating expenses are
paid.
The parties hereto do hereby ratify the Partnership Agreement, as
amended and modified hereby, and recognize that the Partnership is valid,
subsisting and enforceable in accordance therewith and do hereby reaffirm and
restate as of the date hereof all of the representations, warranties, covenants
and agreements set forth therein, except to the extent that performance of any
such agreement has been completed prior to the date hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first set forth above.
OEDC EXPLORATION & PRODUCTION L.P.,
as a General Partner and a Limited
Partner of South Dauphin Partners
Ltd., by OEDC, Inc., its General
Partner
By /S/ GAYLEN J. BYKER
Gaylen J. Byker
Vice President
ENRON FINANCE CORP., as a Limited
Partner of South Dauphin Partners
Ltd.
By /S/ C. JOHN THOMPSON
C. John Thompson
Vice President
<PAGE>
Schedule 1 - Capital Expenditures
Attachment "A" - Letter Agreement
Exhibit A - Fourth Amendment to Conveyance
Exhibit B - Fourth Amendment to Production and Delivery
Agreement
EXHIBIT 10.7
AMENDMENT NO. 5 TO
AGREEMENT OF LIMITED PARTNERSHIP
This Amendment No. 5 to Agreement of Limited Partnership (this
"Amendment") is entered into as of the 30th day of August, 1996, by and between
OEDC EXPLORATION & PRODUCTION, L.P., a Texas limited partnership ("OEDC") and
ENRON FINANCE CORP., a Delaware corporation ("EFC").
Reference is hereby made for all purposes to that certain Agreement of
Limited Partnership dated March 2, 1993 creating South Dauphin Partners Ltd., a
Texas limited partnership (the "Partnership"), as amended by (i) that certain
Agreement Regarding Partnership dated May 18, 1993, (ii) that certain Amendment
No. 1 to Agreement of Limited Partnership dated August 10, 1993, (iii) that
certain Amendment No. 2 to Agreement of Limited Partnership dated October 1,
1993, (iv) that certain Amendment No. 3 to Agreement of Limited Partnership
dated December 21, 1993 and (v) that certain Amendment No. 4 to Agreement of
Limited Partnership dated March 30, 1994, all by and between OEDC and EFC (such
documents being collectively herein referred to as the "Partnership Agreement").
Capitalized terms used but not defined herein shall have the meaning set forth
in the Partnership Agreement.
1. INTRODUCTION. OEDC and EFC desire to amend the Partnership
Agreement to reflect changes to the change of control provisions.
2. AMENDMENTS.
2.1 SECTION 3.05. Section 3.05 of the Partnership Agreement is
hereby amended by deleting the second sentence of Section 3.05 and substituting
the following in place thereof:
Further, if (i) OEDC Partners, L.P. ceases to own a 99% limited
partnership interest in OEDC, (ii) OEDC, Inc. ceases to own a 1% general
partnership interest in OEDC, or (iii) if any two of David B. Strassner,
Douglas H. Kiesewetter or R. Keith Anderson are not the principal
officers in charge of managing the day-to-day operations of OEDC, then
EFC shall have the rights set forth in Section 7.03.
3. ENTIRE AGREEMENT. Except as expressly set forth in this
Amendment, the Partnership Agreement is in full force and effect.
-1-
4. MULTIPLE COUNTERPARTS. This Amendment may be executed in any
number of counterparts, anyone of which may contain the signature of any party
hereto and all of which, when taken together, shall constitute the fully
executed Amendment.
Executed as of the date first above written.
OEDC EXPLORATION & PRODUCTION, L.P.,
as a General Partner and a Limited
Partner of South Dauphin Partners,
Ltd., by OEDC, Inc., its General
Partner
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
ENRON FINANCE CORP., as a Limited
Partner of South Dauphin Partners,
Ltd.
By: /s/ WYNNE SNOOTS, JR.
Name: Wynne Snoots, Jr.
Title: Vice President
-2-
EXHIBIT 10.8
FOURTH
AMENDED AND RESTATED
GENERAL PARTNERSHIP AGREEMENT
FOR
DAUPHIN ISLAND GATHERING PARTNERS
BETWEEN
MCNIC MOBILE BAY GATHERING COMPANY,
DAUPHIN ISLAND GATHERING COMPANY, L.P.
AND
PANENERGY DAUPHIN ISLAND COMPANY
DATED AS OF JULY 1, 1996
THIS FOURTH AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
("AGREEMENT") is made and entered into as of the 1st day of July, 1996, (the
"EFFECTIVE DATE"), by and among MCNIC MOBILE BAY GATHERING COMPANY, a Michigan
corporation, ("MMBGC"), DAUPHIN ISLAND GATHERING COMPANY, L.P., a Texas limited
partnership, the general partner of which is OEDC, INC., ("DIGC") and PANENERGY
DAUPHIN ISLAND COMPANY, a Delaware corporation ("PDI") all of such parties for
convenience being sometimes hereinafter referred to collectively as the
"PARTNERS" or individually as a "PARTNER".
WITNESSETH:
WHEREAS, DIGC and Enron Gas Gathering, Inc. ("EGGI") executed the
General Partnership Agreement for Dauphin Island Gathering Partners on January
14, 1993 (the "ORIGINAL AGREEMENT"), creating between them a general partnership
under the laws of the State of Texas for the construction, ownership and
operation of a natural gas gathering system and related activities located in
the state and federal waters of Mobile Bay, offshore Alabama.
WHEREAS, on April 18, 1994, DIGC, EGGI and Tenneco Mobile Bay
Gathering Company, a Delaware corporation ("TMBGC") executed the Amended and
Restated General Partnership Agreement (the "FIRST RESTATED AGREEMENT") to amend
the terms of the Original Agreement, to admit TMBGC as a new partner and to
restate the amended terms and conditions on which the Partnership was to be
conducted.
WHEREAS, in connection with the First Restated Agreement, DIGC,
EGGI and TMBGC executed that certain Contribution Agreement dated March 25,
1994, as amended by the First Amendment to Contribution Agreement dated as of
December 31, 1994;
WHEREAS, DIGC, EGGI and TMBGC executed the First Amendment to
Amended and Restated Partnership Agreement on December 31, 1994, to amend
Sections 8.1(g), (k), and (m) of the First Restated Agreement;
WHEREAS, pursuant to separate Agreements of Purchase and Sale
(the "PURCHASE AGREEMENTS"), each dated January 31, 1996, but effective as of
October 1, 1995, MMBGC acquired 96% of the interest of DIGC and all of the
interest of EGGI in the Partnership, and Pipeline & Processing Group, Inc., the
parent of MMBGC ("P&PG") acquired all of the shares of TMBGC;
WHEREAS, contemporaneously with the purchase of the shares of
TMBGC by P&PG, TMBGC was merged into MMBGC with MMBGC as the surviving
corporation;
WHEREAS, in connection with the acquisition of the shares of
TMBGC, an election was made under Section 338 of the Internal Revenue Code of
1986, as amended, to treat the purchase of the stock of TMBGC as an asset
purchase for tax purposes; and
WHEREAS, on February 28, 1996, MMBGC and DIGC amended the terms
of the First Restated Agreement to admit MMBGC as a new Partner and to restate
the amended terms and conditions on which the Partnership is to be conducted
pursuant to the Second Amended and Restated Partnership Agreement (the "SECOND
RESTATED AGREEMENT");
WHEREAS, pursuant to that Agreement of Purchase and Sale dated as
of June 30, 1996 (the "PDI PURCHASE AGREEMENT"), PDI acquired a 35% interest in
the Partnership from MMBGC;
WHEREAS, on June 30, 1996, MMBGC, DIGC and PDI amended the terms
of the Second Amended and Restated Partnership Agreement to admit PDI as a new
Partner and to restate the amended terms and conditions on which the Partnership
is to be conducted pursuant to the Third Amended and Restated General
Partnership Agreement (the "THIRD RESTATED AGREEMENT");
WHEREAS, pursuant to the PDI Purchase Agreement, PDI exercised
its option to acquire an additional 5% Ownership Interest in the Partnership,
effective as of July 1, 1996; and
WHEREAS, MMBGC, DICG and PDI desire to amend the terms of the
Third Restated Agreement to reflect the acquisition of the additional 5%
Ownership Interest in the Partnership by PDI and restate the amended terms and
conditions on which the Partnership is to be conducted;
NOW, THEREFORE, in consideration of the terms and mutual
covenants set forth herein, the parties agree as follows:
ARTICLE 1.
FORMATION OF A PARTNERSHIP
1.1 FORMATION OF PARTNERSHIP. The Partners hereby agree to and do herewith
form a general partnership (the "PARTNERSHIP") under the Texas Revised
Partnership Act (the "PARTNERSHIP ACT") for the limited purposes and scope set
forth herein. Each Partner's interest in the Partnership shall be deemed
personal property for all purposes herein. All
2
real and other property owned by the Partnership shall be deemed owned by the
Partnership as an entity, and no Partner shall individually have any direct
ownership in such property. The "OWNERSHIP INTERESTS" of the Partners in the
Partnership shall be as follows:
(a) PRIOR TO MMBGC PAYOUT AND PDI PAYOUT:
MCNIC Mobile Bay Gathering Company 59.00%
PanEnergy Dauphin Island Company 40.00%
Dauphin Island Gathering Company, L.P. 1.00%
(b) FROM AND AFTER MMBGC PAYOUT BUT BEFORE PDI PAYOUT:
MCNIC Mobile Bay Gathering Company 50.66%
PanEnergy Dauphin Island Company 40.00%
Dauphin Island Gathering Company, L.P. 9.34%
(c) FROM AND AFTER PDI PAYOUT BUT BEFORE MMBGC PAYOUT:
MCNIC Mobile Bay Gathering Company 59.00%
PanEnergy Dauphin Island Company 34.34%
Dauphin Island Gathering Company, L.P. 6.66%
(d) FROM AND AFTER BOTH MMBGC PAYOUT AND PDI PAYOUT:
MCNIC Mobile Bay Gathering Company 50.66%
PanEnergy Dauphin Island Company 34.34%
Dauphin Island Gathering Company, L.P. 15.00%
For purposes of this Agreement, "MMBGC PAYOUT" shall mean the last day
of the earliest calendar month during which (a) the aggregate cash distributions
which MMBGC shall have actually received from the Partnership from (1) revenue
allocated or credited to its account pursuant to Article 7 of this Agreement or
Article 7 of the Second Restated Agreement or Article 7 of the Third Restated
Agreement, (2) the aggregate amount of proceeds received by MMBGC for sales or
other dispositions of its Ownership Interest since February 28, 1996 (when such
Ownership Interest is sold after February 29, 1996, subject to reduction on the
occurrence of MMBGC Payout), less expenses incurred in such sale, and (3) the
aggregate amount of proceeds received by MMBGC, less fourteen percent of any
profit received by MMBGC over MMBGC's original basis (prior to giving effect to
any depreciation or other noncash deductions) in such Ownership Interest sold
(when such Ownership Interest is sold not subject to reduction on the occurrence
of MMBGC Payout), less expenses incurred in such sale, in each case discounted
back from the respective dates
3
such cash distributions were made or the respective dates such proceeds were
received by MMBGC to February 28, 1996, at a rate equal to 10% per annum
compounded monthly shall equal (b) the sum of (1) $78,497,316 plus (2) aggregate
capital contributions made by MMBGC to the Partnership on and after February 28,
1996, discounted back from the respective dates such capital contributions were
made by MMBGC to February 28, 1996, at a rate equal to 10% per annum compounded
monthly.
For purposes of this Agreement "PDI PAYOUT" shall mean the last day of
the earliest calendar month during which (a) the aggregate cash distributions
which PDI shall have actually received from the Partnership from (1) revenue
allocated or credited to its account pursuant to Article 7 or Article 7 of the
Third Restated Agreement, (2) the aggregate amount of proceeds received by PDI
for sales or other dispositions of its Ownership Interest (when such Ownership
Interest is sold subject to reduction on the occurrence of PDI Payout), less
expenses incurred in such sale, and (3) the aggregate amount of proceeds
received by PDI, less fourteen percent of any profit received by PDI over PDI's
original basis (prior to giving effect to any depreciation or other noncash
deductions) in such Ownership Interest sold (when such Ownership Interest is
sold not subject to reduction on the occurrence of PDI Payout), less expenses
incurred in such sale, in each case discounted back from the respective dates
such cash distributions were made or the respective dates such proceeds were
received by PDI to the Effective Date at a rate equal to 10% per annum
compounded monthly shall equal (b) the sum of (1) $36,000,000 plus (2) aggregate
capital contributions made by PDI to the Partnership on and after the Effective
Date discounted back from the respective dates such capital contributions were
made by PDI to the Effective Date at a rate equal to 10% per annum compounded
monthly.
Provided, however, notwithstanding the foregoing, neither MMBGC Payout
nor PDI Payout shall ever occur nor shall ever be deemed to occur if:
(a) Prior to the Payout Date, DIGC is removed as the Managing
Partner because (1) it has performed or failed to perform its duties
under the Agreement in a manner that is grossly negligent or in a manner
that constitutes willful misconduct and (2) such performance or failure
to perform results in a material economic loss or cost to the
Partnership; or
(1) Prior to February 28, 2001, a "DIGC CHANGE OF CONTROL"
occurs. "DIGC CHANGE OF CONTROL" shall mean either (i) the failure
of any two of any of R. Keith Anderson, Douglas H. Kiesewetter or
David Strassner to be actively involved as the management of and in
the operation of DIGC to substantially the same degree as they are
presently involved, or (ii) the current ownership interest of two or
more of R. Keith Anderson, Douglas H. Kiesewetter or David Strassner
4
in OEDC Inc. shall be reduced by 75% or more from their respective
ownership interests on February 28, 1996. Notwithstanding anything
in this SECTION 1.1(B), the death of two or more of Douglas H.
Kiesewetter, R. Keith Anderson and David Strassner does not
constitute a DIGC Change of Control for the purpose of determining
whether MMBGC Payout and PDI Payout has occurred.
1.2 PURPOSE OF PARTNERSHIP. The Partnership is formed for the limited
purpose of constructing, owning and operating (a) the gathering system located
in the state and federal waters of Mobile Bay, offshore Alabama, which gathering
system is more particularly described in EXHIBIT A hereto and (b) subject to
Section 4.10, any expansions or modifications of such gathering system within
the AMI (all of the foregoing is referred to herein as the "GATHERING SYSTEM").
Without limiting the foregoing, the Partners agree that the purpose of the
Partnership shall not include any gas processing or treating activities unless
agreed to in writing by all of the Partners.
1.3 NAME OF PARTNERSHIP. The name of the Partnership shall be Dauphin
Island Gathering Partners. The Partners shall file the required assumed name
certificates. The business and affairs of the Partnership shall be conducted
solely under the name of Dauphin Island Gathering Partners, and such name shall
be used at all times in connection with the business and affairs of the
Partnership.
1.4 PRINCIPAL PLACE OF BUSINESS. The city in which the principal place
of business of the Managing Partner is located is The Woodlands, Texas, which
shall be the principal place of business of the Partnership.
ARTICLE 2.
RESPONSIBILITIES OF THE PARTIES
2.1 RESPONSIBILITIES OF THE PARTIES. Each Partner is responsible for
procuring any and all authorizations which it might individually require for its
participation in the Partnership. The authority of the Partners to conduct
business on behalf of the Partnership is limited to the authority expressly
granted under this Agreement. The Partners represent and warrant that each has
the legal authority to and is not prohibited from entering into the Partnership
and pursuing the business thereof. Except as provided in Sections 4, 4.8 and
4.10 Partner may own and operate and invest in any natural gas gathering or
transmission system not owned or operated by the Partnership wherever located,
compete with the other Partners and the Partnership, and engage in and possess
business interests in ventures of any kind for such Partners exclusive benefit,
and the other Partners shall have no interest therein by virtue of this
Agreement.
5
2.2 REGULATORY COVENANTS.
(a) Each Partner hereby agrees that it will not, and will use all
reasonable efforts to ensure that its Affiliates will not, take any
action or fail to take any action where such action or failure to act
will cause the Gathering System to cease to be a non-jurisdictional
gathering system or cause the Gathering System or any portion or
extension thereof to become subject to the jurisdiction of the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938.
If the non-jurisdictional nature of the Gathering System is challenged
at FERC or if FERC attempts to regulate the fees and/or access to the
Gathering System primarily because of any Partner's participation in
this Partnership or primarily because of the actions or status of any
Affiliate of a Partner, such Partner or Partners shall bear all of the
Partnership's reasonable legal costs expended to defend the
non-jurisdictional status of the Gathering System before FERC; provided,
however, no such Partner or Partners warrants or guarantees the outcome
of such defense.
(b) As used in this Agreement, the term "AFFILIATE" shall mean
any person that directly or indirectly, through one or more
intermediaries, controls, manages or is controlled or managed by or is
under common control with any Partner. The term "PERSON" shall include,
without limitation, an individual, a corporation, a partnership, an
association, a joint stock company and a trust. The term "CONTROL"
(including the terms "CONTROLS", "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means, (1) with respect to a corporation, the ownership
or other control of securities to which are attached more than 50% of
the voting interest of all securities issued by the corporation, (2)
with respect to a partnership, the ownership of more than 50% interest
in the partnership, and (3) with respect to any other person, the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person, by contract or
otherwise.
ARTICLE 3.
MANAGEMENT AND OPERATION OF THE PARTNERSHIP
3.1 MANAGEMENT COMMITTEE.
(a) The management of the Partnership shall be by a committee of
the representatives of the Partners (the "MANAGEMENT COMMITTEE") which
shall have general discretion to manage the affairs, determine and
approve the overall objectives, policies, procedure, methods and actions
of the Partnership, including, but not limited to, the authority to
perform those acts
6
specifically enumerated herein, and the exclusive right to make all
major policy and business development decisions. No Partner shall have
authority to act for, or to assume any obligation or responsibility on
behalf of the Partnership without the prior written approval of the
Management Committee unless otherwise specifically provided herein.
(b) It is hereby understood and agreed by the Partners that the
day-to-day business of constructing, operating, and maintaining the
Gathering System will be delegated to the Managing Partner under the
subsequent provisions of this Article 3.
3.2 ORGANIZATION AND DUTIES OF MANAGEMENT COMMITTEE.
(a) The members of the Management Committee shall consist of one
representative of each Partner. Each Partner shall from time to time
designate, by written notice to the other Partners, its representative
to serve on the Management Committee, and the representative so
designated shall be authorized to vote the Ownership Interest of the
appointing Partner. By like notice, each Partner may designate two
alternate representatives, either of whom shall have authority to act in
the absence of its representative. Any Partner may at any time, by
written notice to the other Partners and to the Partnership, remove its
representative or alternate representative(s) on the Management
Committee and designate a new representative or alternate(s). The
Management Committee representative of each Partner shall be authorized
by such Partner to take any and all actions with respect to the
Partnership and to act on such Partner's behalf with respect to the
Partnership. The resignation or removal of a member of the Management
Committee shall not invalidate any act of such member taken prior to the
giving of written notice of his or her resignation or removal.
(b) The representative of the Managing Partner on the Management
Committee shall be the Chairman of the Management Committee.
(c) Meetings of the Management Committee shall be held at the
principal offices of the Partnership, or such other places as may be
agreed to by its members. The Chairman shall preside at all meetings of
the Management Committee and shall schedule such meetings of the
Management Committee as are necessary to resolve current items of
business with at least two business days advance written notice, which
notice shall include the agenda for the meeting. Any Partner may, with
at least one business day's advance written notice add items to the
agenda for
7
the meeting. If, however, the item of business is construction proposed
by the Managing Partner or a Partner, then the meeting to discuss such
business shall be scheduled with at least 10 days' advance written
notice. Unless agreed to otherwise by all of the members of the
Management Committee, only matters on the agenda provided with the
notice of the meeting (or timely noticed by a Partner) shall be
considered at the meeting. Meetings may be held by conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can clearly hear each other simultaneously.
Any Partner may call a meeting of the Management Committee by notifying
the Chairman of such request and including with such notice any agenda
items to be acted upon at such meeting. The Chairman shall be
responsible for maintaining written minutes of all meetings.
(d) Members of the Management Committee, or their designated
alternates, may attend meetings and vote either in person, by telephone
or other similar communications (confirmed in writing) or through duly
authorized powers of attorney. With respect to each item of business, a
quorum of the Management Committee shall consist of representatives of
two or more Partners that are not Affiliates with more than 50% of the
Ownership Interests (excluding any Partners whose voting rights have
been suspended at such time or are excluded from voting pursuant to the
express provisions hereof).
(e) Actions taken by representatives of the required sum of the
percentage Ownership Interests of the Partners, as specified for
particular actions herein, at a Management Committee meeting at which a
quorum is present, and for which notice either is given or is waived
before or after such meeting by such representatives, shall authorize
action by the Partnership. Each representative shall have a vote equal
to the Ownership Interest percentage of the Partner he or she
represents.
3.3 ACTION REQUIRING MAJORITY APPROVAL. The approval of two or more
members of the Management Committee that are not Affiliates representing 50% or
more of the Ownership Interests which are not excluded from voting under a
specific provision of this Agreement ("MAJORITY APPROVAL") shall be necessary
before any of the following actions can be taken on behalf of the Partnership:
(a) Approving any Project Plan proposed by the Managing Partner
for the construction of additional facilities under ArticleS 4, 4.8 and
any other proposals for extensions or expansions of the Gathering
System.
8
(b) Approving budgets and any revisions thereto submitted by the
Managing Partner pursuant to Articles 4, 4.8 and 5, 5.1.
(c) Adopting a gas curtailment policy and amendments thereto.
(d) Selling, transferring, or leasing any of the material assets
of the Partnership.
(e) Approving any interim and permanent financing agreements that
are non-recourse to the Partners and the Partnership and any amendments
or restructuring thereof, and mortgaging or pledging any of the material
assets of the Partnership in connection therewith.
(f) Exercising any of the other powers granted to the Management
Committee under SECTION or other provisions hereof which (1) are not
specifically enumerated elsewhere herein as requiring less or more than
a Majority Approval, (2) not delegated to the Managing Partner under
SECTION or (3) not delegated to the Finance Partner under Section 3.14.
(g) Selecting a nationally recognized firm of independent
certified public accountants to audit the books of account of the
Partnership as provided by Section 8.2 and selecting outside attorneys
to represent the Partnership (except as provided in Section 3.8).
(h) Selecting from time to time the bank or banks in which the
funds of the Partnership shall be deposited by the Managing Partner, and
approving the investment of available funds.
(i) Approving contracts with vendors for goods or services
involving more than $100,000 during the life of the contract or more
than $20,000 during any one month.
(j) Approving the initiation of litigation or settlement of
disputes involving claims (1) of the Partnership against a third party
which are in excess of $25,000 (including attorneys fees of the
Partnership) or (2) of the Partnership against a Partner (provided that
in the event of a proposed action against a Partner the proposed
defendant Partner shall not be entitled to vote) and approving the
employment of all attorneys representing the Partnership in such
matters.
9
(k) Determining the frequency, form and nature of reports
required from contractors, the Managing Partner and the Finance Partner.
(l) Approving any applications for or the acceptance of any
necessary regulatory approvals.
(m) Subject to Section 3.7, removing the Managing Partner and
selecting a new Managing Partner.
(n) Subject to Section 3.12, removing the Finance Partner and
selecting a new Finance Partner.
(o) Approving, consistent with Article 12, all tax policy matters
regarding the Partnership, including, but not limited to, elections
relating to state and federal income taxes, preparation and filing of
Partnership returns and, subject to EXHIBIT E, the handling of and
participation in tax audits conducted by any governmental entity.
(p) Approving (1) the general form of gathering agreements for
use by the Managing Partner in connection with the Gathering System,
which shall establish both terms of service (including credit
requirements) and rates that are reasonable and not unduly
discriminatory among producers shipping gas through the Gathering System
and which shall be set without regard to a Partner or a Partner's
Affiliates' marketing or gas purchase activities; and (2) any proposals
by the Managing Partner for deviations from such agreements.
(q) Consenting to certain Dispositions as provided in Section
11.1.
3.4 ACTION REQUIRING SUPER MAJORITY APPROVAL. The approval of the member
or members of the Management Committee representing 90% or more of the Ownership
Interests which are not excluded from voting under a specific provision of this
Agreement ("SUPER MAJORITY APPROVAL") shall be necessary before any of the
following actions can be taken on behalf of the Partnership:
(a) Changing the purpose of the Partnership.
(b) Approving the undertaking by a Partner or an Affiliate of a
Partner of a project outside of the Partnership that is prohibited by
the terms of Section 4,4.8, or approving the undertaking by the
Partnership, PDI, an
10
Affiliate of PDI, the DIGC/MMBGC Entity or an Affiliate of the
DIGC/MMBGC Entity, that is prohibited by the terms of Section 4.10.
(c) Approving any interim and permanent financing agreements that
are recourse to the Partners and/or the Partnership and any amendments
or restructuring thereof, and mortgaging or pledging any of the material
assets of the Partnership in connection therewith.
(d) Admitting new partner(s), other than as a result of a
Disposition.
(e) A merger or consolidation of the Partnership with another
entity.
(f) A sale of all of the assets of the Partnership or a sale of a
portion of the assets of the Partnership representing substantially all
the market value of the assets of the Partnership.
3.5 INDEMNIFICATION OF MANAGEMENT COMMITTEE MEMBERS. THE PARTNERSHIP
SHALL DEFEND, INDEMNIFY, HOLD HARMLESS, RELEASE AND DISCHARGE THE MEMBERS OF THE
MANAGEMENT COMMITTEE, INCLUDING THE ALTERNATES, AND MEMBERS OF ANY COMMITTEE
ESTABLISHED BY THE MANAGEMENT COMMITTEE, AGAINST ALL ACTIONS, CLAIMS, DEMANDS,
COSTS AND LIABILITIES ARISING OUT OF THE ACTS (OR FAILURE TO ACT) OF ANY SUCH
PERSONS IN GOOD FAITH WITHIN THE SCOPE OF THEIR AUTHORITY IN THE COURSE OF THE
PARTNERSHIP'S BUSINESS (INCLUDING THE NEGLIGENCE OF SUCH MEMBERS AND
ALTERNATES), AND SUCH PERSONS SHALL NOT BE LIABLE FOR ANY OBLIGATIONS,
LIABILITIES OR COMMITMENTS INCURRED BY OR ON BEHALF OF THE PARTNERSHIP AS A
RESULT OF ANY SUCH ACTS OR FAILURE TO ACT FOR WHICH THEY ARE INDEMNIFIED.
3.6 MANAGING PARTNER. The day-to-day operations of the Partnership and the
Gathering System shall be administered by a managing partner, which shall be a
Partner (the "MANAGING PARTNER"). DIGC is designated as the initial Managing
Partner.
3.7 REMOVAL OR RESIGNATION OF THE MANAGING PARTNER. The Managing Partner
may be discharged of its powers, duties and responsibilities as the Managing
Partner and terminated as follows:
(a) The Management Committee (without the participation of the
member representing the Managing Partner or its Affiliates) may remove
the Managing Partner if the Managing Partner has (1) performed or failed
to
11
perform its duties under this Agreement in a manner that is grossly
negligent or in a manner that constitutes willful misconduct, and such
performance or failure to perform results in a material economic loss or
cost to the Partnership, or (2) at any time after February 28, 2001,
failed to operate the Gathering System in accordance with sound and
prudent practices in the pipeline industry, as follows:
(i) If the Managing Partner agrees to its removal under
this Section 3.7, then such removal shall be accomplished by
written notice from the Management Committee (without the
participation of the member representing the Managing Partner or
its Affiliates) to the Managing Partner which shall state the
name of the successor Managing Partner and the date on which the
successor Managing Partner will assume the responsibilities of
the Managing Partner under this Agreement. The removal shall
become effective on the date that the successor Managing Partner
assumes the duties of the Managing Partner.
(ii) If the Managing Partner does not agree to removal
under this Section 3.7, then the Managing Partner's removal
under this Section shall be accomplished by written notice from
the Management Committee (without the participation of the
member representing the removed Managing Partner or its
Affiliates) to the Managing Partner, after a determination,
pursuant to Section 15.11, of this Agreement or otherwise as the
Partners may agree, that the Managing Partner has (A) acted with
gross negligence or in a manner that constitutes willful
misconduct and such action results in a material economic loss
or cost to the Partnership or (B) following February 28, 2001,
failed to operate the Gathering System in accordance with sound
and prudent practices in the pipeline industry. Such notice
shall state the name of the successor Managing Partner and the
date on which the successor Managing Partner will assume the
responsibilities of the Managing Partner under this Agreement.
The removal shall become effective on the date that the
successor Managing Partner assumes the duties of the Managing
Partner.
(b) The Managing Partner shall be deemed to have resigned if (1)
the Ownership Interest of the Managing Partner and its Affiliates at the
time it is acting as the Managing Partner is reduced by 50% or more, (2)
if DIGC is the Managing Partner, DIGC sells any portion of its Ownership
Interest to any non-Affiliate prior to the occurrence of the later to
occur of MMBGC
12
Payout or PDI Payout, (3) a reduction of the Managing Partner's
Ownership Interest pursuant to Section 5.4 occurs, (4) a Change of
Control occurs with respect to the Managing Partner, or (5) any of the
events described in SectionS 10.3(a), 10.3(b), 10.3(c) or 10.3(d) occur
with respect to the Managing Partner. A "CHANGE OF CONTROL" shall mean
(1) with respect to DIGC, a DIGC Change of Control, and (2) with respect
to any other entity a change of more than 50% (in a single transaction
or series of transactions) in the direct or indirect ownership of such
entity. Promptly after the occurrence of any of such events, the
Management Committee (without the participation of the member
representing the removed Managing Partner or its Affiliates) shall
provide to the Managing Partner a written notice which shall state the
name of the successor Managing Partner and the date on which the
successor Managing Partner will assume the responsibilities of the
Managing Partner under this Agreement. Such resignation shall become
effective on the date that the successor Managing Partner assumes the
duties of the Managing Partner.
(c) DIGC may be removed as the Managing Partner without cause on
the earlier to occur of (1) the later to occur of MMBGC Payout or PDI
Payout or (2) February 28, 2003.
(d) The Managing Partner, substantially contemporaneously with
the submission to the Management Committee of any Operating Budget, may
resign its duties as the Managing Partner by written notice to the
Management Committee. The resignation shall not become effective until
the successor Managing Partner assumes the duties and obligations of the
Managing Partner, which the Partners shall cause to occur not later than
120 days after the submission by the Managing Partner of its
resignation.
(e) In the event the Managing Partner is removed or resigns
pursuant to this Section 3.7, the Managing Partner shall submit to the
Management Committee a final accounting of its operations under this
Agreement. At the request of the Management Committee, the departing
Managing Partner shall take an inventory of all materials relating to
the Gathering System. The departing Managing Partner shall deliver to
the successor Managing Partner all records, reports and data that are in
its possession as the Managing Partner. Upon the delivery of such
records, reports and data, the departing Managing Partner shall be
released and discharged from, and the successor Managing Partner shall
assume, all duties and obligations of the Managing Partner under this
Agreement; provided that any liability of the departing Managing Partner
that accrued prior to the
13
effective date of the change of the Managing Partner shall,
notwithstanding the release or discharge of the departing Managing
Partner, continue to remain a liability of the departing Managing
Partner. The former Managing Partner may retain copies of all such
records, reports and data as the former Managing Partner may require,
which copies will be prepared at the expense of the former Managing
Partner.
(f) If the Managing Partner is removed or resigns pursuant to
this Section 3.7, the Management Committee shall select a successor
Managing Partner by Majority Approval. The vote of the member of the
Management Committee representing the Partner that was removed as the
Managing Partner shall be excluded if such member does not vote or such
member only votes for such removed Managing Partner to succeed itself.
3.8 DUTIES OF THE MANAGING PARTNER. All of the Managing Partner's duties
shall be performed pursuant to an approved budget as provided in Article 6. The
Managing Partner will actively manage and conduct the day-to-day business of the
Partnership, devoting appropriate time and talents to such management so as to
conduct the business of the Partnership in a good and businesslike manner and in
accordance with good and prudent practice within the industry. In connection
therewith, the Managing Partner shall provide supervisory, administrative and
technical services to the Partnership and shall perform such services with the
same degree of diligence and care that it would exercise if the Partnership were
owned solely by the Managing Partner. Unless otherwise specified in this
Agreement, or absent express contrary direction from the Management Committee,
the Managing Partner shall have the responsibility and authority, without the
prior or subsequent approval of the Management Committee, to take or cause to be
taken the following actions for and on behalf of the Partnership:
(a) Perform the day-to-day operations of the Partnership,
including overseeing the operation and maintenance of the Gathering
System and overseeing all construction activities.
(b) Subject to Section 3.17, negotiate and execute gathering
agreements in the form and under terms of service and rates as
substantially approved by the Management Committee under Section 3.3(a),
3.3(p) under which the Partnership will gather gas for third parties
(including the Partners).
(c) Obtain all permits, certificates and licenses necessary for
the operation and maintenance of the Gathering System, and perform the
administrative functions of the Partnership, including, without
limitation, providing legal, accounting (in accordance with Article 8),
engineering,
14
planning, budgeting, reporting and other technical services, and
maintain the records of the Partnership.
(d) Perform or cause to be performed all necessary meter reading
and chart calculations.
(e) Protect and preserve the title and interests of the
Partnership with respect to the Gathering System and other assets owned
by the Partnership.
(f) Enter into pipeline design and construction contracts and
purchase pipe, equipment, rights-of-way and easements for any extensions
and expansions approved by the Management Committee pursuant to Article
4, 4.8 .
(g) Negotiate, enter into and supervise the performance of
contracts other than those contemplated in sECTIONS 3.8(b), 11.1(b) and
3.8(f), and amendments thereto with third parties as may be necessary,
appropriate or advisable in furtherance of the purposes of the
Partnership business.
(h) Attempt in good faith to obtain in any agreement, contract or
other obligation of the Partnership, other than gathering agreements,
provisions limiting the claims of all parties to such instruments to the
assets of the Partnership and expressly waiving any such rights of such
parties to proceed against the Partners individually.
(i) Prepare and timely make such filings with any governmental
authority as may be required to gather gas through the Gathering System.
(j) Maintain the assets of the Partnership in good order and
repair.
(k) Prepare and furnish to governmental regulatory bodies all
reports, statements and information that they may reasonably request or
to which they are legally entitled concerning the Gathering System or
the Partnership.
(l) Execute documents requiring execution by the Partnership
(both those requiring approval of the Management Committee and those not
requiring approval).
15
(m) Initiate, defend, negotiate and otherwise handle claims
against the Partnership or a Partner, the Managing Partner, the Finance
Partner or other person or entity to be indemnified by the Partnership
or claims of the Partnership against third parties, where such claims
(including attorneys' fees to be incurred by the Partnership) are less
than $25,000 in value (including approving employment of all attorneys
representing the Partnership in such matters).
(n) Collect revenues for the Partnership (in accordance with
budgets approved by the Management Committee) and make cash calls on and
distributions to the Partners.
(o) Perform all gas control activities necessary for gas to flow
through the Gathering System in accordance with the gathering,
interconnect and operational balancing agreements entered into or
assumed by the Partnership.
(p) In the event of, or reasonable anticipation of, any
occurrence or condition which might (1) threaten life, property or the
environment, (2) render the Gathering System incapable of continuous
operation, (3) jeopardize the investment of the Partnership in the
Gathering System, or (4) if required in order to comply with law or an
order of a governmental authority with jurisdiction over the Gathering
System, the Managing Partner shall take such steps and incur such
expenses and costs as in its reasonable opinion are required to deal
with such emergency or requirement without being subject to the monetary
spending limits imposed on the Managing Partner herein. The Managing
Partner shall report such an emergency or requirement to the Management
Committee as promptly as possible.
(q) Within sixty (60) days after the end of the calendar year,
make available information necessary to prepare and file all partnership
tax returns.
(r) Prepare capital and operating budgets pursuant to Section
6.1.
(s) Perform such other acts reasonably necessary, appropriate or
advisable to carry out the Managing Partner's duties under this
Agreement to the extent that such acts are not matters to be voted on by
the Management Committee as described in Sections 3.3 or 3.4 or other
provisions hereof or matters delegated to the Finance Partner.
16
3.9 AUTHORIZATION. Subject to the express restrictions and limitations
set forth in this Agreement, the Partnership authorizes the Managing Partner to
perform any and every act and duty and to exercise any and every power of the
Managing Partner as authorized by this Agreement, as follows:
(a) To act in the name of and on behalf of the Partnership.
(b) In the Partnership's name and on its behalf, to make,
execute, acknowledge and deliver all contracts, assignments, and other
agreements, instruments or documents as are contemplated in this
Agreement.
(c) Generally to take and perform any and all actions necessary,
appropriate or convenient to fulfill the obligations and duties of the
Managing Partner as authorized by this Agreement.
3.10 INDEMNIFICATION OF THE MANAGING PARTNER.
(a) THE PARTNERSHIP SHALL DEFEND, INDEMNIFY, HOLD HARMLESS,
RELEASE AND DISCHARGE THE MANAGING PARTNER AND ITS AFFILIATES AND THEIR
OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES HARMLESS, WHEN ACTING AS THE
MANAGING PARTNER, AGAINST ANY AND ALL CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION, WHETHER BASED ON TORT, BREACH OF CONTRACT
OR ANY OTHER LEGAL THEORY (TO THE EXTENT THAT SUCH CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES OF ACTION ARE NOT SATISFIED BY INSURANCE
CARRIED PURSUANT TO THIS AGREEMENT), IN FAVOR OF ANYONE OTHER THAN A
PARTNER, ON ACCOUNT OF TAXES, LIENS, DEBTS, PERSONAL INJURIES, DEATH OR
DAMAGE TO PROPERTY AND ALL OTHER CLAIMS OR DEMANDS OF EVERY CHARACTER
ARISING OUT OF, IN CONNECTION WITH, OR AS AN INCIDENT TO, ANY ACT OR
OMISSION IN CONNECTION WITH THE MANAGING PARTNER'S PERFORMANCE OF ITS
DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT AS THE MANAGING
PARTNER, INCLUDING NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, EXCEPT WHEN SUCH CLAIMS, LOSSES, LIABILITIES, DAMAGES AND
CAUSES OF ACTION ARISE AS A RESULT OF THE MANAGING PARTNER'S PERFORMANCE
OR OMISSION IN ACCORDANCE WITH THE INSTRUCTIONS OF THE MANAGEMENT
COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO THE PRECISE MANNER IN WHICH
THE MANAGING PARTNER IS TO PERFORM THE SPECIFIED TASK) OF THE MANAGING
PARTNER, ITS AFFILIATES, OR THEIR OFFICERS, DIRECTORS, AGENTS OR
EMPLOYEES.
17
(b) AS BETWEEN THE PARTNERSHIP, THE MANAGEMENT COMMITTEE OR ANY
PARTNER AND THE MANAGING PARTNER, THE PARTNERSHIP AGREES TO DEFEND,
INDEMNIFY, HOLD HARMLESS, RELEASE AND DISCHARGE THE MANAGING PARTNER AND
ITS AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, WHEN
ACTING AS THE MANAGING PARTNER, AGAINST ANY CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION ARISING OUT OF OR IN ANY WAY CONNECTED WITH
GAS, CONDENSATE, INERTS OR OTHER MATERIALS GATHERED THROUGH THE
GATHERING SYSTEM, REGARDLESS OF WHETHER SUCH CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES OF ACTION ARISE IN CONNECTION WITH THE
GAS, CONDENSATE, INERTS OR OTHER MATERIALS PRIOR TO DELIVERY INTO,
DURING GATHERING THROUGH OR AFTER DELIVERY FROM THE GATHERING SYSTEM,
AND WHETHER SUCH CLAIMS, LOSSES, LIABILITIES, DAMAGES AND CAUSES OF
ACTION ARISE IN CONNECTION WITH THE NEGLIGENCE (BUT NOT GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT, EXCEPT WHEN SUCH CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION ARISE AS A RESULT OF THE MANAGING PARTNER'S
PERFORMANCE OR OMISSION IN ACCORDANCE WITH THE INSTRUCTIONS OF THE
MANAGEMENT COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO THE PRECISE
MANNER IN WHICH THE MANAGING PARTNER IS TO PERFORM THE SPECIFIED TASK)
OF THE MANAGING PARTNER, ITS AFFILIATES, OR THEIR OFFICERS, DIRECTORS,
AGENTS OR EMPLOYEES.
3.11 THE MANAGING PARTNER'S LIABILITY. THE MANAGING PARTNER, ITS
AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES SHALL NOT BE
LIABLE TO THE PARTNERSHIP OR ANY PARTNER FOR ANY LOSS OR DAMAGE SUFFERED BY THE
PARTNERSHIP OR A PARTNER RESULTING FROM THE PERFORMANCE OF THE MANAGING
PARTNER'S DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT, EXCEPT WHEN AND TO
THE EXTENT THAT SUCH LOSS OR DAMAGE RESULTS FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE MANAGING PARTNER OR ITS AFFILIATES OR THEIR RESPECTIVE
OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES; PROVIDED THAT, WHERE SUCH LOSS OR
DAMAGE ARISES AS A RESULT OF THE MANAGING PARTNER'S PERFORMANCE OR OMISSION IN
ACCORDANCE WITH THE INSTRUCTIONS OF THE MANAGEMENT COMMITTEE GIVEN SPECIFICALLY
WITH RESPECT TO THE PRECISE MANNER IN WHICH THE MANAGING PARTNER IS TO PERFORM
THE SPECIFIED TASK, IT SHALL BE DEEMED THAT SUCH LOSS OR DAMAGE WAS NOT THE
RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE MANAGING PARTNER OR ITS
AFFILIATES OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES.
18
3.12 THE FINANCE PARTNER. Certain of the financial matters of the
Partnership and the Gathering System shall be administered by a Finance Partner,
which shall be a Partner (the "FINANCE PARTNER"). MMBGC is designated as the
initial Finance Partner.
3.13 REMOVAL OR RESIGNATION OF THE FINANCE PARTNER. The Finance Partner
may be discharged of its powers, duties and responsibilities as the Finance
Partner and terminated as follows:
(a) The Management Committee (without the participation of the
member representing the Finance Partner or its Affiliates) may remove
the Finance Partner if the Finance Partner has performed or failed to
perform its duties under this Agreement in a manner that is grossly
negligent or in a manner that constitutes willful misconduct and such
performance or failure to perform results in a material economic loss or
cost to the Partnership as follows:
(1) If the Finance Partner agrees to its removal
under this Section 3.13, then such removal shall be accomplished
by written notice from the Management Committee, (without the
participation of the member representing the Finance Partner or
its Affiliates) to the Finance Partner which shall state the name
of the successor Finance Partner and the date on which the
successor Finance Partner will assume the responsibilities of the
Finance Partner under this Agreement. The removal shall become
effective on the date that the successor Finance Partner assumes
the duties of Finance Partner.
(2) If the Finance Partner does not agree to removal under
this Section 3.13, then the Finance Partner's removal under this
Section shall be accomplished by written notice from the
Management Committee (without the participation of the member
representing the removed Finance Partner or its Affiliates) to the
Finance Partner, after a determination, pursuant to SECTION 15.11
of this Agreement or otherwise as the Partners may agree, that the
Finance Partner has acted with gross negligence or in a manner
that constitutes willful misconduct and such performance or
failure to perform results in a material economic loss or cost to
the Partnership. Such notice shall state the name of the successor
Finance Partner and the date on which the successor Finance
Partner will assume the responsibilities of the Finance Partner
under this Agreement. The removal shall become effective on the
date that the successor Finance Partner assumes the duties of the
Finance Partner.
19
(b) The Finance Partner shall be deemed to have resigned if (1)
the Ownership Interest of the Finance Partner and its Affiliates at the
time it is acting as the Finance Partner is reduced by 75% or more, (2)
a reduction of the Finance Partner's Ownership Interest pursuant to
Section 5.4 occurs, (3) a Change of Control occurs with respect to the
Finance Partner, or (4) any of the events described in Section 10.3(a,
b,c or d) occur with respect to the Finance Partner. Promptly after the
occurrence of any of such events, the Management Committee (without the
participation of the member representing the removed Finance Partner or
its Affiliates) shall provide to the Finance Partner a written notice
which shall state the name of the successor Finance Partner and the date
on which the successor Finance Partner will assume the responsibilities
of the Finance Partner under this Agreement. Such resignation shall
become effective on the date that the successor Finance Partner assumes
the duties of the Finance Partner.
(c) The Finance Partner may resign its duties as the Finance
Partner at any time by written notice to the Management Committee. The
resignation shall not become effective until the successor operator
assumes the duties and obligations of the Finance Partner, which the
Partners shall cause to occur not later than 120 days after the
submission by the Finance Partner of its resignation.
(d) In the event the Finance Partner is removed or resigns
pursuant to this Section 3.13, the Finance Partner shall submit to the
Management Committee a final accounting of its operations under this
Agreement. The departing Finance Partner shall deliver to the successor
Finance Partner all records, reports and data that are in its possession
as the Finance Partner. Upon the delivery of such records, reports and
data, the departing Finance Partner shall be released and discharged
from, and the successor Finance Partner shall assume, all duties and
obligations of the Finance Partner under this Agreement; provided that
any liability of the departing Finance Partner that accrued prior to the
effective date of the change of the Finance Partner shall,
notwithstanding the release or discharge of the departing Finance
Partner, continue to remain a liability of the departing Finance
Partner. The former Finance Partner may retain copies of all such
records, reports and data as the former Finance Partner may require,
which copies will be prepared at the expense of the former Finance
Partner.
(e) If the Finance Partner is removed or resigns pursuant to
this Section 3.13, the Management Committee shall select a successor
Finance Partner by Majority Approval. The vote of the member of the
Management
20
Committee representing the Partner that was removed as the Finance
Partner shall be excluded if such member does not vote or such member
only votes for such removed Finance Partner to succeed itself.
3.14 DUTIES OF THE FINANCE PARTNER. The Finance Partner shall have the
responsibility and authority, without the prior or subsequent approval of the
Management Committee, to take or cause to be taken the following actions for and
on behalf of the Partnership (and shall conduct such activities in a good and
businesslike manner and in accordance with good and prudent practice within the
industry):
(a) Provide and maintain adequate insurance coverage for the
account of the Partnership with a reliable insurance company(s)
authorized to do business in the area of the Gathering System in
accordance with the requirements of Article 13 or notify the Management
Committee promptly of its inability to maintain such insurance coverage.
The Finance Partner shall charge the Partnership for the actual cost of
such insurance.
(b) Maintain the bank accounts of the Partnership, make
distributions to the Partners and pay invoices for expenses accrued by
the Partnership.
(c) Perform the functions of the Finance Partner as described in
the Accounting Procedures.
3.15 INDEMNIFICATION OF THE FINANCE PARTNER.
(a) THE PARTNERSHIP AGREES TO DEFEND, INDEMNIFY, HOLD HARMLESS,
RELEASE AND DISCHARGE THE FINANCE PARTNER AND ITS AFFILIATES AND THEIR
OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES HARMLESS, WHEN ACTING AS THE
FINANCE PARTNER, AGAINST ANY AND ALL CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION, WHETHER BASED ON TORT, BREACH OF CONTRACT
OR ANY OTHER LEGAL THEORY (TO THE EXTENT THAT SUCH CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES OF ACTION ARE NOT SATISFIED BY INSURANCE
CARRIED PURSUANT TO THIS AGREEMENT), IN FAVOR OF ANYONE OTHER THAN A
PARTNER, ON ACCOUNT OF TAXES, LIENS, DEBTS, PERSONAL INJURIES, DEATH OR
DAMAGE TO PROPERTY AND ALL OTHER CLAIMS OR DEMANDS OF EVERY CHARACTER
ARISING OUT OF, IN CONNECTION WITH, OR AS AN INCIDENT TO, ANY ACT OR
OMISSION IN CONNECTION WITH THE FINANCE PARTNER'S PERFORMANCE OF ITS
DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT AS THE
21
FINANCE PARTNER, INCLUDING NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, EXCEPT WHEN SUCH CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION ARISE AS A RESULT OF THE FINANCE PARTNER'S
PERFORMANCE OR OMISSION IN ACCORDANCE WITH THE INSTRUCTIONS OF THE
MANAGEMENT COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO THE PRECISE
MANNER IN WHICH THE FINANCE PARTNER IS TO PERFORM THE SPECIFIED TASK) OF
THE FINANCE PARTNER, ITS AFFILIATES, OR THEIR OFFICERS, DIRECTORS,
AGENTS OR EMPLOYEES.
(b) AS BETWEEN THE PARTNERSHIP, THE MANAGEMENT COMMITTEE OR ANY
PARTNER AND THE FINANCE PARTNER, THE PARTNERSHIP AGREES TO DEFEND,
INDEMNIFY, HOLD HARMLESS, RELEASE AND DISCHARGE THE FINANCE PARTNER AND
ITS AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES
HARMLESS, WHEN ACTING AS THE FINANCE PARTNER, AGAINST ANY CLAIMS,
LOSSES, LIABILITIES, DAMAGES AND CAUSES OF ACTION ARISING OUT OF OR IN
ANY WAY CONNECTED WITH GAS, CONDENSATE, INERTS OR OTHER MATERIALS
GATHERED THROUGH THE GATHERING SYSTEM, REGARDLESS OF WHETHER SUCH
CLAIMS, LOSSES, LIABILITIES, DAMAGES AND CAUSES OF ACTION ARISE IN
CONNECTION WITH THE GAS, CONDENSATE, INERTS OR OTHER MATERIALS PRIOR TO
DELIVERY INTO, DURING GATHERING THROUGH OR AFTER DELIVERY FROM THE
GATHERING SYSTEM, AND WHETHER SUCH CLAIMS, LOSSES, LIABILITIES, DAMAGES
AND CAUSES OF ACTION ARISE IN CONNECTION WITH THE NEGLIGENCE (BUT NOT
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, EXCEPT WHEN SUCH CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES OF ACTION ARISE AS A RESULT OF THE
FINANCE PARTNER'S PERFORMANCE OR OMISSION IN ACCORDANCE WITH THE
INSTRUCTIONS OF THE MANAGEMENT COMMITTEE GIVEN SPECIFICALLY WITH RESPECT
TO THE PRECISE MANNER IN WHICH THE FINANCE PARTNER IS TO PERFORM THE
SPECIFIED TASK) OF THE FINANCE PARTNER, ITS AFFILIATES, OR THEIR
OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES.
3.16 THE FINANCE PARTNER'S LIABILITY. THE FINANCE PARTNER, ITS
AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES SHALL NOT BE
LIABLE TO THE PARTNERSHIP OR ANY PARTNER FOR ANY LOSS OR DAMAGE SUFFERED BY THE
PARTNERSHIP OR A PARTNER RESULTING FROM THE PERFORMANCE OF THE FINANCE PARTNER'S
DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT, EXCEPT WHEN AND TO THE EXTENT
THAT SUCH LOSS OR DAMAGE RESULTS FROM THE
22
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE FINANCE PARTNER OR ITS AFFILIATES
OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES; PROVIDED THAT,
WHERE SUCH LOSS OR DAMAGE ARISES AS A RESULT OF THE FINANCE PARTNER'S
PERFORMANCE OR OMISSION IN ACCORDANCE WITH THE INSTRUCTIONS OF THE MANAGEMENT
COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO THE PRECISE MANNER IN WHICH THE
FINANCE PARTNER IS TO PERFORM THE SPECIFIED TASK, IT SHALL BE DEEMED THAT SUCH
LOSS OR DAMAGE WAS NOT THE RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE FINANCE PARTNER OR ITS AFFILIATES OR THEIR RESPECTIVE OFFICERS, DIRECTORS,
AGENTS OR EMPLOYEES.
3.17 DEVELOPMENT OF PARTNERSHIP BUSINESS BY PDI. PDI shall have the
right, in cooperation with the Managing Partner and subject to the directives of
the Management Committee, to contact and make proposals to third parties with
respect to execution of gathering agreements under which the Partnership will
gather gas. All actions of PDI pursuant to this Section 3.17 shall first be
coordinated with the Managing Partner. Notwithstanding the foregoing, (a) PDI
shall not be authorized and is hereby expressly prohibited from engaging in any
activities (including without limitations marketing) on behalf of the
Partnership relating to the Restricted Area, and (b) except in cases expressly
authorized in writing by the Management Committee, only the Managing Partner
shall be authorized to execute agreements binding the Partnership.
ARTICLE 4.
CONSTRUCTION
4.1 FACILITIES TO BE CONSTRUCTED. From time to time hereafter, the
Partnership may agree to construct such additional facilities as may be approved
by the Management Committee pursuant to Section 3.3.
4.2 PROJECT PLANS. The Managing Partner shall prepare for approval by
the Management Committee a written description of the routing and location of
facilities and the specifications for the design, engineering, materials and
equipment to be used in the construction of subsequent facilities to be
constructed by the Partnership, as well as the estimated costs, estimated
construction schedule and date of completion of the facilities ("PROJECT PLAN").
4.3 CONSTRUCTION BUDGETS AND APPROVALS. With respect to the construction
of any additional facilities, the following procedures shall apply:
(a) If any additional Project Plans are approved by the
Management Committee, the Managing Partner shall submit to the
Management
23
Committee for its approval a budget ("CONSTRUCTION BUDGET") stating the
estimated costs that the Managing Partner expects to incur in connection
with the construction of the additional facilities. The Construction
Budget shall be submitted at least 60 days prior to commencement of
construction of such approved facilities.
(b) A Construction Budget shall set forth the estimated costs and
expenditures by quarterly periods, shall itemize the costs estimated in
the budgets by such individual line items, and shall include such
supporting documentation and data as reasonably requested by the
Management Committee.
(c) Unless otherwise authorized by the Management Committee,
construction costs shall not be incurred for the construction of any
additional facilities until a Construction Budget has been approved by
the Management Committee.
(d) During the progress of any construction, the Managing Partner
shall notify the Management Committee promptly of unsatisfactory
progress or of any occurrence that may cause a substantially higher cost
than was estimated and approved in the applicable budget. If it appears
that (1) the cost of any budgeted item will exceed the budgeted amount
of such item by the greater of 15 percent of the budgeted amount for
that item or $50,000, or (2) an item not contemplated by the applicable
budget has an estimated cost in excess of $50,000, or (3) any aggregate
of items not contemplated by the applicable budget have estimated costs
in excess of $100,000, then any such excess budgeted cost or unbudgeted
cost shall not be incurred without the prior approval of the Management
Committee. This approval may be oral in order to expedite action, but
shall be followed immediately by written approval.
4.4 COSTS AND PAYMENT. The Managing Partner shall keep a full and
accurate account of all costs and expenses incurred in connection with the
planning, design, construction, testing and placing in service of Partnership
facilities in accordance with the Accounting Procedures. The Partnership shall
provide funds for all such costs and expenses of any additional facilities in
accordance with Article 5, 5.1 of this Agreement.
4.5 CONSTRUCTION. The Managing Partner shall direct all activities
necessary to design, construct, test and place in service any additional
facilities authorized by the Management Committee, all of which shall meet the
minimum federal safety standards established by the U.S. Department of
Transportation for pipeline facilities (49 C.F.R. Parts
24
191 and 192). All equipment and materials and third-party contractors, as
required, shall be obtained based on competitive bids. Unless otherwise
specifically authorized in writing by the Management Committee, the Managing
Partner shall require (a) a performance bond payable to the Partnership from the
contractor who actually constructs Partnership facilities, and (b) a payment
bond, each in an amount equal to the contractor's bid for performance of the
construction.
4.6 PERMITS. The Managing Partner shall acquire, or cause to be
acquired, in the name of the Partnership, or for or on its behalf, all permits,
certificates, rights-of-way and state, county and/or federal approvals and
authorizations as may be necessary for the Partnership to construct, own and
operate any approved facilities constructed by the Partnership. Any permits,
certificates, rights of-way, approvals and authorizations acquired by the
Managing Partner in its own name pursuant to this section shall be immediately
assigned to the Partnership.
4.7 INSPECTION AND TESTING. During construction of any Partnership
facilities each Partner shall have the right of access to the construction
site(s) and the right to inspect all phases of the construction work and all
records pertaining thereto at all such times and locations as do not interfere
with such construction. The Managing Partner shall advise each Partner in
writing when installation of all or any portion of the Partnership facilities
has been completed and the date, time and place of any testing of such
Partnership facilities or any portion thereof. Each Partner shall have the
option to be present and witness any and all such testing. Upon completion of
the installation and testing of the Partnership facilities, the Managing Partner
shall provide the Partners with "as built" drawings and data relating to
engineering calculations, specifications, materials and equipment installation
and testing of the Partnership facilities, and an itemized inventory and
documentation of the Partnership facilities.
4.8 CONSTRUCTION OF FACILITIES IN THE AMI.
(a) Except as provided in Section 4.10, none of the Partners
shall (and each Partner shall cause each of its Affiliates not to)
participate, whether directly or indirectly (other than through the
Partnership), in the financing, construction, ownership or operation of
(1) any gathering or transportation system that would gather or
transport gas directly from any blocks within the AMI or (2) any
gathering or transportation system originating outside the AMI that will
interconnect with the Gathering System, unless the Management Committee
approves of a Partner or an Affiliate thereof undertaking the project
outside of the Partnership. The prohibition in the foregoing sentence
shall not apply to pipelines regulated pursuant to the Natural Gas Act
of 1938, as amended and gathering lines as they presently
25
exist owned individually by Centana Gathering Company. This Section
shall not preclude any Affiliate of any Partner whose principal
operations are the exploration for and production of hydrocarbons from
financing, owning, constructing or operating flow lines within the AMI
from a production platform or group of platforms to an existing
gathering system to deliver the gas in which such Affiliate has an
ownership or financing interest and the gas of joint working interest
owners in the same producing properties or from properties, regardless
of ownership, that are being jointly developed with such joint working
interest owners.
(b) As used herein "AMI" shall mean those areas lying east of a
line extending south from the Mississippi - Alabama border commonly
known as the Mobile Area (both federal and state waters), including the
Viosca Knoll North Area, the Destin Dome Area, the Restricted Area, and
the Pensacola Area as is contained within the area described and
outlined on the map attached hereto as EXHIBIT B-1.
4.9 SOLE-RISK OPERATIONS.
(a) In the event that the Management Committee fails to approve
the construction of any additional facilities proposed by any Partner
that gathers gas directly from within the AMI or any extension proposed
by any Partner that connects with the Gathering System not prohibited in
Section 4.10 (in each case, other than any loops, compression facilities
or other construction designed to increase the capacity of the Gathering
System as it exists at the time of the proposal), any Partner (a
"SOLE-RISK PARTNER") may propose to have the Partnership undertake the
proposed construction, operation and maintenance at the sole cost, risk
and expense of the Sole-Risk Partner (the "SOLE-RISK OPERATION") by
providing written notice to the Management Committee within 30 days
after the date that the Management Committee declines to approve such
proposal (or, if a quorum of the Management Committee is not attained on
the date that the Management Committee is scheduled to meet to consider
such proposal, within 30 days after the date that such meeting was
scheduled). No Sole Risk Operation shall be conducted that would
potentially result in the facilities of the Partnership becoming subject
to the jurisdiction of the Federal Energy Regulatory Commission or any
successor regulatory agency under the Natural Gas of 1938, as amended,
or the Natural Gas Policy Act of 1978, as amended.
26
(b) If a project is proposed by any Partner as a Sole-Risk
Project under Section 4.9(a), the Managing Partner shall convene a
meeting of the Management Committee within 15 days after the proposal to
undertake such Sole-Risk Operation to determine (1) an equitable method
to allocate revenues, costs and expenses of the Partnership that are
attributable to the Sole-Risk Operation, (2) terms of gathering services
offered through the Sole- Risk Facilities (other than rates that are
incremental and in addition to the rates charged for gathering on the
then existing Gathering System) and access to the then existing
Gathering System, which shall be substantially the same as terms offered
to other producers who are shippers, and (3) an appropriate reserve for
the abandonment of the Sole-Risk Facilities at the end of its useful
life and the amount and timing of deposits into the reserve (the
"SOLE-RISK ISSUES"). If the Management Committee is unable to agree on
any of the Sole-Risk Issues within 30 days after the date that the
proposal to undertake the Sole Risk Operation is received by the
Management Committee, either any Sole-Risk Partner or any Partner who is
not a Sole-Risk Partner (the latter being referred to herein as the
"NON-CONTRIBUTING PARTNERS") may elect to refer the unresolved issues to
mediation pursuant to Section 4.9(c). If not resolved by the Management
Committee and no Partner elects to initiate mediation, the Sole-Risk
Operation shall not be undertaken. The Sole-Risk Partners may determine
without the input of the Management Committee the rates for gathering
services offered through the Sole-Risk Facilities that are incremental
and in addition to the rates charged for gathering on the then existing
Gathering System.
(c) Within five days after any Partner elects to refer unresolved
Sole-Risk Issues to mediation, the Sole-Risk Partners shall deliver to
the NonContributing Partners a list of five individuals of appropriate
background and experience acceptable to the Sole-Risk Partners to serve
as the mediator. In the event that the Non-Contributing Partners do not
approve of any of the individuals selected by the Sole-Risk Partners
within 10 days after the date that the Sole-Risk Partners deliver to the
Non-Contributing Partners its list of proposed individuals, then either
the Non-Contributing Partners or the Sole- Risk Partners may request the
Chief Judge of the United States District Court in the Southern District
of Texas to appoint a mediator of appropriate background and experience.
The Chairman of the Management Committee shall engage the mediator
selected by the Partners or appointed by the Chief Judge within 10 days
after the mediator is selected or appointed and shall notify the
Partners of the date of engagement. Both the Non-Contributing Partners
and the Sole-Risk Partners shall submit to the mediator within 30 days
after the date that the mediator has been engaged such information as
27
it desires and shall cooperate with the mediator in promptly providing
such additional information as the mediator deems appropriate. The
mediator shall be requested to deliver his decision on the Sole-Risk
Issues submitted to him by the Partners within 60 days after the date
that the mediator has been engaged. The decision of the mediator shall
be final and binding on the Partners and the Partnership. The mediator
may engage accountants, engineers and other consultants as the mediator
deems appropriate. The fees and expenses of the mediator, including the
cost of the consultants engaged by the mediator, shall be (1) shared by
the Sole-Risk Partners and the NonContributing Partners according to
their Ownership Interests if the Sole-Risk Partners confirm their
election to proceed with the Sole-Risk Operation pursuant to Section
4.9(d) below or (2) borne by the Sole-Risk Partners if they do not
confirm their election to proceed with the Sole-Risk Operation pursuant
to Section 4.9(d) below.
(d) Within ten (10) days after the determination by the
Management Committee or the mediator of the Sole-Risk Issues, each Sole-
Risk Partner shall be entitled to confirm its election to undertake the
Sole-Risk Operation under the allocation method selected by either the
Management Committee or the mediator. If none of the Sole-Risk Partners
timely confirms its election, the Sole-Risk Operation shall not be
undertaken. If any Sole-Risk Partner timely confirms its election, the
Sole-Risk Operation shall be undertaken as hereinafter provided and any
Sole-Risk Partner who did not timely confirm its election shall become a
Non-Contributing Partner.
(e) If a Sole-Risk Operation is undertaken, then all Management
Committee decisions with respect to such Sole-Risk Operation (other than
pursuant to Section 4.9(b) or 4.9(h)) shall be made without regard to
the votes of the representatives of the Non-Contributing Partners and
the Managing Partner shall perform its obligations with respect to the
Sole-Risk Operation (and the facilities constructed as a result of such
operations, which shall be referred to herein as the "SOLE-RISK
FACILITIES") as if it were undertaken with the approval of the
Management Committee.
(f) Each Sole-Risk Partner on a proportionate basis (based on the
proportion that the Ownership Interest of each Sole-Risk Partner bears
to the aggregate Ownership Interests of all Sole-Risk Partners) shall
(1) pay all of the additional capital contributions requested by the
Managing Partner for the Sole-Risk Operation (to cover construction
costs and all other costs and expenses in excess of the revenue
attributable to the Sole-Risk Facilities); (2) receive distributions of
all distributable proceeds attributable to the Sole-Risk
28
Facilities except for the amounts set forth in Section 4.9(g); (3) be
allocated all items of income, gain, loss, deduction and credit
attributable to the Sole- Risk Operation except for the amounts set
forth in Section 4.9(g); and (4) be allocated all construction,
operating, maintenance, and general and administrative costs and
expenses attributable to the Sole-Risk Operation (including the funding
of any abandonment reserve account), until the Sole- Risk Partners have
received cash distributions from the Partnership attributable to the
Sole-Risk Operation equal to 150% of the aggregate capital contributions
to the Partnership made by the Sole-Risk Partners with respect to the
Sole-Risk Operation ("SOLE-RISK PAYOUT"). Upon the occurrence of
Sole-Risk Payout, the Managing Partner shall notify all of the
Non-Contributing Partners that Sole-Risk Payout has occurred. Each
NonContributing Partner shall have the option to become a participant in
the Sole- Risk Project by so notifying the Managing Partner on or before
the expiration of thirty (30) days after receipt of the notice that
Sole-Risk Payout has occurred. Failure to timely notify the Managing
Partner shall be deemed an election not to participate in the Sole-Risk
Project. After Sole-Risk Payout, (1) each Sole-Risk Partner and each
Non-Contributing Partner who has elected to participate in the Sole-Risk
Project, on a proportionate basis (based on the proportion that the
ownership interest of each such Partner bears to the aggregate ownership
interest of all such Partners) shall be allocated all costs and expenses
attributable to the Sole-Risk Facilities after Sole-Risk Payout and all
items of income gain, loss, deduction and credit attributable to the
Sole-Risk Facilities after Sole-Risk Payout and (2) all cash proceeds
attributable to the Sole-Risk Facilities after Sole-Risk Payout shall be
distributed to such Sole-Risk Partners and Non-Contributing Partners.
(g) The Partnership shall be entitled to the first five cents
(5(cent)) per mcf of any fees or other payments for gathering services
or other services relating to use of the Sole-Risk Facilities, and each
agreement relating to use of the Sole-Risk Facilities shall provide for
a fee of at least five cents (5(cent)) per mcf.
(h) The Sole-Risk Facilities shall be part of the Gathering
System and shall be managed by the Managing Partner.
(i) In the event the Sole-Risk Partners elect to obtain any
interim or permanent financing for a Sole-Risk Operation, the financing
shall be an obligation of the Sole-Risk Partners and, unless the
Partners otherwise expressly agree, shall not become at any time an
obligation of the Partnership or the Non-Contributing Partners. In
addition, at the request of the Sole-Risk
29
Partners, to secure such financing, the Partnership shall execute such
mortgages and other security instruments granting liens and security
interests on the assets of the Partnership that constitute the Sole-Risk
Facilities if and to the extent that such liens and security interests
terminate and shall be released on the occurrence of Sole-Risk Payout.
(j) With respect to a Sole-Risk Operation, all contracts for the
purchase of goods, materials, supplies and services utilized in
connection with the construction of the Sole-Risk Facilities must
contain a provision that the third-party will have no recourse against
the Partnership, the NonContributing Partners and the Managing Partner
(unless the Managing Partner is a Sole-Risk Partner) and that the
Partnership, the Non-Contributing Partners and the Managing Partner
(unless the Managing Partner is a Sole-Risk Partner) shall have no
obligations under the contracts. The Sole-Risk Partners shall indemnify,
defend and hold harmless the Partnership, the Non-Contributing Partners
and the Managing Partner (unless the Managing Partner is a Sole- Risk
Partner or is otherwise liable under Section 3.11) from all claims,
demands, losses and causes of action attributable to the Sole-Risk
Operation.
(k) All Sole-Risk Facilities shall be constructed, and all
Sole-Risk Operations shall be conducted, in accordance with the quality
requirements and specifications of this Article 4, 4.8.
(l) The Managing Partner shall provide to the Partners by the
close of each month a statement showing the status of each Sole-Risk
Payout as of the end of the previous month.
4.10 RESTRICTED AREA.
(a) Notwithstanding the foregoing, to avoid any potential
conflicts with the obligations of PDI and its Affiliate with respect to
the Restricted Area, except as set forth in Section 4.10(c), neither the
Partnership nor PDI or any Affiliate of PDI, shall participate, whether
directly or indirectly, in the financing, construction, ownership or
operation of (1) any gathering or transportation system that would
gather or transport gas directly from any blocks within the Restricted
Area, or (2) any gathering or transportation system originating outside
the AMI that will interconnect with any gathering system located in the
Restricted Area, unless the Management Committee approves of the
Partnership undertaking such project. The prohibition in the foregoing
sentence shall not apply to pipelines regulated pursuant to the Natural
Gas Act of 1938, as amended, or pipelines, no portion of which will
30
be located within the portion of the AMI, exclusive of the Restricted
Area, permitted to be constructed by PDI and its Affiliates under the
Main Pass Gathering Company partnership agreement, as presently in
effect.
(b) DIGC and MMBGC, any of their respective subsidiaries (other
than the Partnership), any of their respective Affiliates (other than
the Partnership), or any person owned by them jointly in any proportion
(other than the Partnership) (hereinafter referred to as the "DIGC/MMBGC
ENTITY") shall have the right to participate whether directly or
indirectly (other than through the Partnership) in the financing,
construction, ownership or operation of (1) any gathering system that
would gather gas directly from any blocks within the Restricted Area or
(2) any gathering system originating inside the Restricted Area that
would interconnect with the Gathering System.
(c) If the Management Committee does not approve a Project Plan
with a projected in-service date of not later than 180 days after the
date of approval for the extension of the DIGS to the vicinity of Viosca
Knoll Block 385 on or before November 30, 1996, the prohibition
contained in Section 4.10(a), shall no longer apply to PDI and its
Affiliates.
(d) Except for interconnections for gas gathered from the
Restricted Area to the Gathering System, neither the DIGC/MMBGC Entity
nor any Affiliate thereof shall participate, whether directly or
indirectly (other than through the Partnership) in the financing,
construction, ownership or operation of (1) any gathering system that
would gather gas directly from any blocks within the AMI and (2) any
gathering system originating outside the AMI that would interconnect
with the Gathering System, unless the Management Committee approves such
project. The prohibition in the foregoing sentence shall not apply to
pipelines regulated pursuant to the Natural Gas Act of 1938, as amended.
In the event any Affiliate of the DIGC/MMBGC Entity Disposes of
all of its interest in the Partnership or withdraws from the
Partnership, it shall continue to be bound by the provisions of this
Section 4.10(a). In addition, if any member of the DIGC/MMBGC Entity
disposes of any of its interest in the DIGC/MMBGC Entity in the
Restricted Area, it shall be obligated to obtain an agreement from the
transferee in which the transferee assumes and agrees to be bound by the
obligations of the transferring person under this Section 4.10.
31
(e) Notwithstanding any other provision of this Agreement to the
contrary, the participation by a DIGC/MMBGC Entity within the Restricted
Area shall not be grounds to assert any conflict of interest, breach of
fiduciary duty, removal as Managing Partner or Finance Partner, willful
misconduct or gross negligence, breach of confidentiality obligations or
any other breach of an obligation of such person or an Affiliate of such
person under this Agreement and the Partnership and each Partner hereby
expressly waives any claims with respect to the foregoing.
(f) To the extent any claims are asserted against the DIGC/MMBGC
Entity or any Partner (other than PDI) with respect to the participation
by the DIGC/MMBGC Entity in the Restricted Area by Main Pass Gas
Gathering Company or by any partner therein that is based upon PDI being
a Partner in the Partnership, the Partnership shall defend, indemnify,
hold harmless, release and discharge the DIGC/MMBGC Entity, the Affected
Partner (other than PDI) and its Affiliates and their respective
officers, directors, agents and employees harmless from and against any
and all such claims, losses, liabilities, damages and causes of action,
whether based on tort, breach of contract or any other legal theory.
(g) As used herein "RESTRICTED AREA" shall mean that portion of
the Main Pass Area and Viosca Knoll Area as is contained within the area
described and outlined on the map attached hereto as EXHIBIT B-2.
ARTICLE 5.
CAPITAL CONTRIBUTIONS/FINANCING
5.1 CAPITAL CONTRIBUTIONS BY DIGC. DIGC has contributed as of February
28, 1996, $244,197, which was used, in part, as follows:
(a) $11,000 to pay DIGC's 1% share of the amount payable to
Tenneco Gas Gathering Company in connection with the Agreement to Assign
Permit dated February 10, 1996, among Tenneco Gas Gathering Company,
Pipeline & Processing Group, Inc. and the Partnership,
(b) $41,678 to pay outstanding accounts payable,
(c) $185,019 to pay 1% of the amount payable to Swiss Bank under
the Credit Agreement dated June 15, 1993, as amended, and
32
(d) $6,500 to pay DIGC's 1% share of the amount payable to
Preston A. Price, acting for himself and as attorney in fact in
connection with the Assignment of Interests dated February 28, 1996,
among Preston A. Price, et al. and the Partnership.
5.2 CAPITAL CONTRIBUTIONS BY MMBGC. MMBGC has contributed as of
February 28, 1996, $78,497,316, which was used, in part, as follows:
(a) $1,089,000 to pay MMBGC's 99% share of the amount payable to
Tenneco Gas Gathering Company in connection with the Agreement to Assign
Permit dated February 28, 1996, among Tenneco Gas Gathering Company,
Pipeline & Processing Group, Inc. and the Partnership,
(b) $4,126,085 to pay outstanding accounts payable,
(c) $18,316,881 to pay 99% of the amount payable to Swiss Bank
under the Credit Agreement dated June 15, 1993, as amended, and
(d) $643,500 to pay MMBGC's 99% share of the amount payable to
Preston A. Price, acting for himself and as attorney in fact in
connection with the Assignment of Interests dated February 28, 1996,
among Preston A. Price, et al. and the Partnership.
5.3 OTHER CONTRIBUTIONS. In order to meet the cash requirements of the
Partnership in excess of the contributions made pursuant to Sections 5, 5.1 and
5.2 the operating revenues of the Partnership, the Managing Partner with
approval of the Management Committee may make cash calls monthly or at less
frequent intervals on the Partners for required capital contributions by each of
the Partners proportionate to its Ownership Interest. Each cash call made
pursuant to this Section 5.3 shall be in writing and shall contain the following
information:
(a) The total amount of contributions requested from all
Partners.
(b) The amount of contribution required from each Partner,
including the amount required from the Partner to whom the request is
addressed.
(c) The purpose for which the funds are to be applied in
reasonable detail.
33
(d) The date on which payments of the contributions shall be made
by each Partner, which shall be not less than 10 days and not more than
30 days after the date on which the cash call is received by each
Partner.
5.4 FAILURE TO MAKE CONTRIBUTIONS.
(a) If a Partner shall default in any of its obligations under
SECTION to make contributions to the Partnership in accordance with the
terms of any call for such contributions, the Managing Partner shall
immediately notify each of the Partners (a "DEFAULT NOTICE"). If the
contribution has not been made by the defaulting Partner within two
business days after the receipt of the Default Notice, the Managing
Partner shall again notify each of the Partners. Within five business
days after the receipt of the Default Notice, if the default has not
been cured by the payment of the contribution and interest thereon
(calculated as hereinafter provided) (the "DEFAULT AMOUNT"), each of the
non-defaulting Partners may, in its sole discretion, pay to the Managing
Partner its portion (based on the ratio that each non-defaulting
Partner's Ownership Interest bears to the aggregate Ownership Interests
of all non-defaulting Partners participating in such contribution (the
non-defaulting Partners that so elect are herein referenced to as the
"PARTICIPATING PARTNERS") of the Default Amount.
(b) During the continuance of any payment default by any
Partner, the Partner shall not be entitled to receive any cash
distributions and the Participating Partners will share in all cash
distributions that otherwise would have been made to the defaulting
Partner on a proportionate basis based on the ratio that each
Participating Partner's Ownership Interest bears to the aggregate
Ownership Interests of all Participating Partners. The defaulting
Partner shall not be permitted to be represented on the Management
Committee or other committees, and will have its voting rights
suspended, but the defaulting Partner shall continue to be liable for
its obligations as a Partner under this Agreement. If a defaulting
Partner cures its default within the 30-day period described in Section
5.4(.d), by paying to the Partnership the amount of the default and the
interest thereon calculated under SECTION less the amount that was
distributed to the Participating Partners from the amounts that were
otherwise distributable to the defaulting Partner, the amount paid shall
be distributed to the Participating Partners pro rata in accordance with
their Ownership Interests.
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(c) Interest shall accrue on unpaid contributions from the date
that the contribution became payable until the contribution is paid at a
rate equal to the lesser of 15% per annum or the maximum lawful rate.
(d) In the event that a defaulting Partner fails to pay to the
Partnership any portion of the Default Amount as provided herein on or
prior to the 30th day after the due date for the contribution or the
Participating Partners have not received from the amounts that were
otherwise distributable to the defaulting Partner the Default Amount
plus interest thereon as provided herein prior to the 30th day after the
due date for the contribution, the Participating Partners may elect to
(x) continue receiving the benefits of Section 5.4(b) and 5.4(c); or (y)
require the Partnership to reduce the Ownership Interest of the
defaulting Partner, effective on the 31st day after the due date for the
contribution (the "ADJUSTMENT DATE"), to a percentage determined by
multiplying the Ownership Interest of the defaulting Partner (as
determined on the Adjustment Date) by a number equal to one minus a
fraction, the numerator of which is 150% of the Default Amount less the
amounts that have been distributed to the Participating Partners prior
to the adjustment Date that were otherwise distributable to the
defaulting Partner, and the denominator of which is the product of (1)
the Ownership Interest of the defaulting Partner (as determined on the
Adjustment Date) multiplied by (2) the aggregate amount of the Capital
Accounts of all Partners on the Adjustment Date. The adjustment shall
apply separately for each default on a cash call. The Ownership
Interests of the Participating Partners shall be adjusted upward by the
proportion of the amount of the downward adjustment made to the
Ownership Interest of the defaulting Partner.
(e) If the Participating Partners have elected the remedies
provided in Section 5.4(d) , the default to which such election is
related will be deemed to have been cured and the defaulting Partner
will no longer be deemed a non-defaulting Partner for this Section 5.4,
except for purposes of SECTION .
(f) If at anytime or over a course of time, the Ownership
Interest of a Partner is reduced by 75% or more as a result of the
provisions of this Section 5.4, the defaulting Partner shall not be
permitted to be represented on the Management Committee or other
committees and will have its voting rights suspended, but the defaulting
Partner shall continue to be liable for its obligations as a Partner
under this Agreement.
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(g) Notwithstanding the foregoing, the remedies provided in
Section 5.4 are cumulative and are not exclusive, and in the event of a
default by a Partner, the Partnership and the Partners shall be entitled
to all available legal or equitable remedies.
ARTICLE 6.
OPERATING COSTS AND COMPENSATION OF
THE MANAGING PARTNER AND OTHER PARTNERS
6.1 BUDGETS, APPROVALS AND AUTHORIZATIONS.
(a) The budget previously prepared by DIGC for the balance of
1996 estimating the costs and expenses which will be incurred in
connection with the operation and maintenance of the Gathering System
("OPERATING BUDGET") during the balance of the 1996 fiscal year of the
Partnership shall be the initial Operating Budget. On or before October
1 of each year thereafter, the Managing Partner shall prepare and submit
for approval of the Management Committee an Operating Budget estimating
the revenues, costs and expenses which will be received or incurred in
connection with the operation and maintenance of the Gathering System
during the next succeeding fiscal year. The Operating Budgets shall set
forth the estimated costs and expenditures by quarterly periods and
shall itemize the costs estimated in the budgets by such individual line
items as reasonably requested by the Management Committee. All Operating
Budgets shall be updated by the Managing Partner, and the Managing
Partner shall furnish a copy of the updated Operating Budget to each
Partner, on or before the 10th day of the first month of each Calendar
Quarter.
(b) The Management Committee shall notify the Managing Partner of
its approval or disapproval of the Operating Budget within 15 days after
receipt of such budget. If the Management Committee notifies or is
deemed to have notified the Managing Partner of its disapproval of all
or any portion of an Operating Budget, then, until the Management
Committee has approved a revised budget, the Managing Partner is
authorized to incur (1) costs set forth in any line item approved by the
Management Committee and (2) any additional costs in connection with
line items that were not approved by the Management Committee up to an
aggregate amount of not more than the lesser of (x) 50 percent of the
budget that was submitted by the Managing Partner but not approved by
the Management Committee, less the amounts set forth in (1) above, and
(y) the amount of the prior year's budget for such line item. If the
Management Committee fails to notify the Managing Partner
36
in writing of its approval or disapproval of any budget within 15 days
after receipt of such budget or revised budget, then the Management
Committee shall be deemed to have rejected such budget.
(c) If, during the period covered by an approved Operating
Budget, the Managing Partner determines that an adjustment to the
estimated costs set forth in the approved budget is necessary or
appropriate, then the Managing Partner shall submit to the Management
Committee for approval an adjusted budget setting forth such adjusted or
additional line items as are necessary or required. The same procedures
set forth in Section 6.1(a) with regard to the approval of annual
operating and maintenance budgets shall apply to the approval of any
adjusted costs budget, except that the Managing Partner may provide for
a period less than 15 days, but not less than five days, in which the
Management Committee shall approve or disapprove an adjusted budget, and
the Management Committee's approval of an adjusted budget may be oral in
order to expedite action, but such approval shall be followed
immediately with written approval.
(d) The Managing Partner is authorized to incur costs in excess
of the amount budgeted in an approved budget or adjusted budget, and the
Managing Partner is authorized to incur costs in connection with an
unbudgeted item; provided that the Managing Partner may not incur such
excess or unbudgeted costs in a total amount greater than 15 percent of
the total amount set forth in the approved budget or adjusted budget,
without the approval of the Management Committee. In addition, if any
line item variance from the budgeted amount exceeds an amount equal to
the greater of 15 percent of the budgeted cost for that item or $50,000,
or if the cost of an unbudgeted item exceeds the lesser of 15 percent of
the total applicable budget or $50,000, then the Managing Partner shall
advise the Management Committee in the next quarterly budget of any such
variance from the approved budget, and the Managing Partner also shall
provide the Management Committee with an explanation of the reason for
such variance.
6.2 BUSINESS PLAN. Contemporaneously with the submission by the Managing
Partner of the Operating Budget, the Managing Partner shall or shall cause the
Managing Partner to submit a business plan for the next fiscal year and
subsequent two years that includes anticipated new gathering activity for such
years, anticipated revenues for such years, anticipated capital expenditures for
such years, anticipated cash calls during such years, and anticipated cash
distributions during such years.
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6.3 COSTS AND PAYMENT. The Managing Partner shall keep a full and
complete account of all costs and expenses incurred by it in connection with the
operation and maintenance of the Gathering System in accordance with the
procedures attached as EXHIBIT C (the "ACCOUNTING PROCEDURES"). The Partners
shall provide funds for all costs incurred in connection with the operation and
maintenance of the Gathering System in accordance with Article 5, 5.1 of this
Agreement.
6.4 PARTNERS' COOPERATION. Each Partner shall provide such documentation
as is required to perform the accounting set forth in the Accounting Procedures.
6.5 COMPENSATION OF THE MANAGING PARTNER.
(a) The Partnership shall reimburse the Managing Partner for (1)
wages and benefits of certain employees contracted for use by the
Managing Partner in accordance with the Accounting Procedures, (2) for
certain employee expenses and transportation of such employees in
accordance with the Accounting Procedures, and (3) certain Managing
Partner equipment and facilities costs in accordance with the Accounting
Procedures.
(b) The Partnership shall compensate the Managing Partner for
any general and administrative costs (including salaries and benefits
for office personnel) an amount equal to $55,000 per month beginning
July 1, 1996. The reimbursement amount set forth above shall be adjusted
each year with the first adjustment occurring effective on April 1,
1997. The adjustments shall be computed by multiplying the rate
currently in use by the percentage increase in the average weekly
earnings of the Crude Petroleum and Gas Production Workers for the last
calendar year compared to the preceding calendar year as shown by the
Index of Average Weekly Earnings of Crude Petroleum and Gas Field
Production Workers as published by the United States Department of
Labor, Bureau of Labor Statistics. In addition to the foregoing, the
Management Committee may annually revise the fee payable to the Managing
Partner pursuant to Section 6.5(b) if the current fee payable is
materially disproportionate to the services being rendered by the
Managing Partner to the Partnership. The revision shall be effective as
of January 1 of the year following the year in which the Management
Committee elects to revise the fee. In the event the then acting
Managing Partner disagrees with the fee proposed by the Management
Committee, the Partnership shall continue to compensate the Managing
Partner in an amount equal to the prior fee and the dispute shall be
resolved by arbitration as provided in SECTION 15.11. In rendering their
decision, the arbitrators shall consider fees being charged by other
parties under similar circumstances. The fee awarded
38
by the arbitrators shall be applied retrospectively to January of the
year for which the new fee would have been effective and appropriate
payment or reimbursement shall be made by the applicable party.
To the extent that there is a substantial expansion of the gathering
system after the Effective Date, the general and administrative expenses payable
to the Managing Partner shall be augmented as determined by the Management
Committee to compensate the Managing Partner for the additional general and
administrative expenses related to such expansion. In the event the Management
Committee and the Managing Partner are unable to agree on the amount of such
augmentation, such matters shall be referred to arbitration in accordance with
the provisions of SECTION 15.11.
6.6 COMPENSATION OF THE FINANCE PARTNER.
(a) The Partnership shall reimburse the Finance Partner for (1)
wages and benefits of certain employees contracted for use by the
Finance Partner in accordance with the Accounting Procedures, (2) for
certain employee expenses and transportation of such employees in
accordance with the Accounting Procedures, and (3) certain Finance
Partner equipment and facilities costs in accordance with the Accounting
Procedures.
(b) The Partnership shall compensate the Finance Partner for any
general and administrative costs (including salaries and benefits for
office personnel) an amount equal to $5,000 per month from and after the
Effective Date.
ARTICLE 7.
ALLOCATIONS AND DISTRIBUTIONS
7.1 REVENUE DISTRIBUTION.
(a) The Managing Partner shall deposit, or cause to be deposited,
all monies due to the Partnership and payable by third parties in a bank
account of the Partnership. Except as otherwise specifically provided in
this Agreement or in related agreements associated with the financing of
the Partnership, the Finance Partner shall pay, from those monies
received, all expenses accrued by the Partnership on a current basis. At
least monthly, by the last day of each month (commencing the first month
after the receipt by the Partnership of its first revenues), all cash
funds of the Partnership, other than funds provided by capital
contributions which shall not be distributed, that the Management
Committee reasonably determines are not
39
needed for the payment of current Partnership obligations or significant
Partnership expenditures known by the Managing Partner or the Finance
Partner to be payable within the next 90-day period shall be distributed
to the Partners in proportion to their respective Ownership Interests.
(b) The distributions provided in this Section are subject to the
rights of the non-defaulting Partners under SECTION 5.4 to receive the
distributions otherwise payable to a defaulting Partner.
(c) Notwithstanding the foregoing or any other provision
contained in this Agreement, (1) the Partnership may retain such
insurance proceeds and other amounts as the Management Committee shall
reasonably determine are necessary to pay Partnership liabilities and
expenses and to restore, preserve and protect Partnership property upon
the occurrence of an accident, catastrophe or similar event or to comply
with all applicable environmental laws, ordinances, rules and
regulations, and (2) the Partnership may retain amounts, as determined
by the Management Committee, for the purpose of creating a reserve from
which to pay the remainder of (i) the Partnership's share of the
estimated cost of abandoning any facilities owned by the Partnership
minus (ii) the Partnership's share of the estimated fair market value of
any salvageable materials, supplies, equipment and other personal
property or fixtures located on or used in connection with the
Partnership's facilities in excess of the Partnership's share of the
estimated cost of salvage of such items.
(d) All Partnership distributions shall be charged to each
Partner's Capital Account.
7.2 INCOME TAX ALLOCATIONS. Subject to any special allocations required
by Treasury Regulations Sections 1.704-2(b), 1.704-2(i), and 1.704-2(j)(2)(ii),
relating to deductions and gains attributable to Nonrecourse Deductions and
Partner Nonrecourse Deductions (as those terms are defined in such Regulations),
the Partnership's items of income, gain, loss, deduction, and credit shall be
allocated among the Partners in each taxable year (or portion thereof) in the
same ratio in which Profits or Losses are allocated as provided below:
(a) Profits for any taxable year (or portion thereof) shall be
allocated in the same ratio as the Partners are entitled to
distributions from the Partnership under SECTION 4.9 or 7.1(a) hereof.
40
(b) Losses for any taxable year (or portion thereof) shall be
allocated among the Partners in proportion to their respective Ownership
Interests for such taxable year (or portion thereof), except as provided
in SECTION 4.9.
(c) As used herein, "PROFITS" and "LOSSES" mean, for each taxable
year or other period, an amount equal to the Partnership's taxable
income or loss for such year or period, determined in accordance with
Code Section 703(a) (for this purpose, all items of income, gain, loss,
or deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(1) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in
computing Profits and Losses pursuant to this definition of
Profits and Losses shall be added to such income or loss for the
purpose of determining Partner Capital Accounts;
(2) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Profits and Losses pursuant to this definition of
Profits and Losses, shall be subtracted from such income or loss
for the purpose of determining Partner Capital Accounts;
(3) In the event the Gross Asset Value of any Partnership
asset is adjusted as required by the terms of the definition of
Gross Asset Value hereof, the amount of such adjusted shall be
taken into account in accordance with Regulation Section
1.704-1(b) for the purpose of determining Partner Capital
Accounts;
(4) Gain or loss resulting from any disposition of
Partnership assets with respect to which gain or loss is
recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of the property disposed of in
accordance with Regulation Section 1.704-1(b) for the purpose of
determining Partner Capital Accounts, notwithstanding that the
adjusted tax basis of such property differs from its Gross Asset
Value;
41
(5) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such
taxable income or loss, for the purpose of determining Partner
Capital Accounts there shall be taken into account Depreciation
for such Fiscal Year or other period, computed in accordance with
the definition of Depreciation herein;
(6) Notwithstanding any other provision of this definition
of Profits and Losses, any items which are specially allocated
pursuant to this SECTION 7.2 shall not be taken into account in
computing Profits or Losses but shall be taken into account in
computing Partner Capital Accounts.
(d) As used herein, "GROSS ASSET VALUE" means, with respect to
any asset, the asset's adjusted basis for federal income tax purposes,
except as follows:
(1) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market
value of such asset, as determined by the contributing Partner
and the other Partners;
(2) The Gross Asset Values of all Partnership assets shall
be adjusted to equal their respective gross fair market values,
as determined by the Partners, as of the following times: (i) the
acquisition of any additional interest in the Partnership by any
new or existing Partner in exchange for more than a DE MINIMIS
Capital Contribution; (ii) the distribution by the Partnership to
a Partner of more than a DE MINIMIS amount of Partnership assets
as consideration for an interest in the Partnership; and (iii)
the liquidation of the Partnership within the meaning of
Regulations Section 1.704- 1(b)(2)(ii)(g); PROVIDED, however,
that adjustments pursuant to CLAUSES (I) AND (II) hereof shall be
made only with the consent of all the Partners;
(3) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market value
of such asset on the date of distribution, as determined by the
Partnership; and
42
(4) The Gross Asset Value of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)
and SECTION 8.3 hereof.
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
the provisions of this SECTION 7.2(d), such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset
for purposes of computing Profits and Losses.
(e) As used herein, "DEPRECIATION" means, for each taxable year,
or other period, an amount equal to the depreciation, amortization, or
other cost recovery deduction allowable with respect to any asset for
such year or other period, except that if the Gross Asset Value of an
asset differs from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as
the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such
year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the
Partnership.
(f) All items of income, gain, loss, deduction and credit
attributable to any Sole-Risk Operation shall be allocated as provided
in SECTION 4.9.
7.3 CURATIVE AMENDMENT. Notwithstanding any other provision of this
Agreement, the allocations shall affect an allocation for federal income tax
purposes in a manner consistent with Section 704(b) and the regulations
promulgated thereunder. If for any reason the allocations conflict with the
regulations under Section 704(b), the Tax Matters Partner may amend these
provisions to the extent necessary to reflect allocations consistent with the
regulations.
7.4 SECTION 704(C). In accordance with Internal Revenue Code ss. 704(c)
and the Treasury Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Partnership, shall,
solely for tax purposes, be allocated between the Partners so as to take account
of any variation between the adjusted basis to the Partnership for federal
income tax purposes and its fair market value. The
43
Partners agree to use the traditional method with curative allocations under
Regulation Section 1.704-3(c) for this purpose.
7.5 TRANSFERS. The allocation of items of income, gain, loss, deduction
and credit attributable to a partnership interest that is assigned during the
year will be done in accordance with Section 706(d). If more than one method is
permitted, the Tax Matters Partner can determine the method of allocation,
taking into account both the desire to match income and deductions and ease of
administration.
ARTICLE 8.
ACCOUNTING
8.1 FISCAL YEAR. The fiscal year of the Partnership shall be the
calendar year.
8.2 BOOKS OF ACCOUNT. The books of account of the Partnership shall be
kept and maintained, so far as is practicable, at the principal place of
business of the Finance Partner, or at such other place or places as may be
approved by the Management Committee from time to time. The books of account
shall be maintained in accordance with generally accepted accounting principles,
consistently applied, and shall show all items of investment, income and
expense. Each of the Partners shall have reasonable access to the books,
records, data and information of the Partnership (including information
maintained by the Managing Partner and the Finance Partner) at any time during
normal business hours. Monthly statements of income and expense shall be
prepared by the Finance Partner and shall be furnished to the Partners along
with a statement of cash distributions made in accordance with ARTICLE 7. As
soon as practicable, but not later than 90 days following the end of each of the
Partnership's fiscal years, the Finance Partner shall cause to be delivered to
each Partner such federal, state and local income tax returns and such other
accounting tax information and schedules as shall be necessary for the
preparation by each Partner of its income tax returns for such fiscal year. As
soon as practicable, but not later than 120 days following the end of each of
the Partnership's fiscal years, the Finance Partner shall cause to be delivered
to each Partner a profit and loss statement, a statement of cash flows for such
fiscal year, a balance sheet and a statement of each Partner's capital account
as of the end of such fiscal year together with an audit report thereon by a
nationally recognized firm of independent certified public accountants selected
by the Management Committee.
8.3 CAPITAL ACCOUNTS. A capital account ("CAPITAL ACCOUNT") shall be
established and maintained for each Partner. Each Partner's Capital Account
shall be maintained in the following manner:
44
(a) To each Partner's Capital Account there shall be credited
the amount of cash and Gross Asset Value of any asset contributed to the
Partnership by such Partner, such Partner's distributive share of
Profits, any items in the nature of income or gain which are specially
allocated pursuant to SECTION 7.2 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by
any asset of the Partnership distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership asset
distributed to such Partner pursuant to any provision of this Agreement,
such Partner's distributive share of Losses, any items in the nature of
expenses or losses which are specially allocated pursuant to SECTION 7.2,
and the amount of any liabilities of such Partner assumed by the
Partnership or which are secured by any property contributed by such
Partner to the Partnership.
(c) In the event all or a portion of an interest in the
Partnership is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred interest in the
Partnership.
(d) In determining the amount of any liability for purposes of
this definition of Capital Accounts, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts and allocations are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations.
8.4 CAPITAL ACCOUNTS FOR TAX PURPOSES. For income tax purposes, DIGC,
MMBGC and PDI agree that the Capital Accounts of the Partners have been restated
pursuant to the provisions of SECTION 7.2(d) to reflect the value of the Capital
Contributions made by DIGC and MMBGC as of February 28, 1996, and with respect
to PDI the portion of such capital contributions to which it succeeds.
8.5 SURVIVAL OF TAX PROVISIONS. The provisions of this Agreement
relating to tax matters shall survive the termination of this Agreement and the
termination of any Partner's interest in this Partnership and shall remain
binding on the Partner for the period of time
45
necessary to resolve with any federal, state and local tax authorities any tax
matter regarding the Partnership.
8.6 AUDIT. Each Partner shall have the right at any time during and up
to 24 months after the close of any fiscal year, but not more than once in any
12 month period, to audit, examine and make copies of or extracts from the books
of account or any other records of a Partner, the Managing Partner, the Finance
Partner or the Partnership relating to the Partnership pertaining to that fiscal
year. Such right may be exercised during normal business hours through any agent
or employee of a Partner, the Managing Partner or the Finance Partner designated
by the Partner, the Managing Partner or the Finance Partner or by an independent
certified public accountant designated by the Partner, the Managing Partner or
the Finance Partner. Each Partner, the Managing Partner or the Finance Partner
shall bear all expenses incurred in any such examination or audit.
8.7 ACCOUNTING PROCEDURES. The Partners adopt the Accounting Procedures.
ARTICLE 9.
GATHERING SYSTEM CAPACITY
9.1 PARTNERSHIP OWNED CAPACITY. Nothing in this Agreement shall (a)
commit or entitle any Partner or any of its Affiliates to gather gas owned by,
or committed to be sold to, such Partner or Affiliate through the Gathering
System solely by reason of the Partner being a Partner in the Partnership
regardless of the location of such Partner's or Affiliate's owned or controlled
gas reserves or the markets to which such gas is to be delivered, or (b) limit
the availability of gas gathering service only to those producers which are
Partners or Affiliates of Partners. System capacity for gathering shall be made
available pursuant to gathering agreements with various producers to be entered
into by the Managing Partner on behalf of the Partnership pursuant to terms,
conditions and rates set by the Management Committee under SECTION 3.4(___).
ARTICLE 10.
TERM AND TERMINATION
10.1 TERM. The Partnership was formed January 14, 1993, and shall be
deemed to be continuing under the terms of this Agreement as of the Effective
Date. The Partnership shall continue in existence for a primary term of 30 years
from the Effective Date and thereafter for successive periods of one year;
provided, that any Partner may elect to dissolve the Partnership and this
Agreement as of the end of such 30-year period or as of December 31 of each year
after such 30-year period by giving the other Partners written notice of such
election not less than one year prior to the date such termination is to take
effect.
46
10.2 VOTE TO DISSOLVE. By Super Majority Approval, the Partners may
elect to dissolve the Partnership and terminate this Agreement at any time
during the term hereof.
10.3 OTHER REASONS FOR DISSOLUTION. The Partnership shall automatically
and without notice be dissolved upon the happening of any of the following
events (unless all of the unaffected Partners waive the events in CLAUSES (A),
(B), (C) OR (D) in writing):
(a) Proceedings shall be commenced by or against any of the
Partners (or general partner of a Partner) for any relief under any
bankruptcy or insolvency law, or any law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangement,
composition or extension; and, if such proceedings have been commenced
by a person other than a Partner against any Partner (or general partner
of a Partner), such proceeding shall not have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such
stay shall continue in force or such ineffectiveness shall continue)
within 90 days after such proceedings shall have been commenced.
(b) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of a Partner (or general partner of
a Partner) or of a substantial part of a Partner's property, or for the
winding up or liquidation of its affairs, shall have been entered, and
such decree or order shall have remained in force undischarged and
unstayed for a period of 90 days, or any substantial part of the
property of a Partner (or general partner of a Partner) shall be
sequestered or attached and shall not be returned to the possession of
such Partner (or general partner of a Partner) or released from such
attachment within 90 days thereafter.
(c) A Partner (or general partner of a Partner) shall make a
general assignment for the benefit of creditors or shall admit in
writing its inability to pay its debts generally as they become due.
(d) The filing of a certificate of dissolution by a Partner (or
general partner of a Partner) under the laws of the State of its
incorporation or partnership, or the entering of a final order
dissolving any Partner by any court of competent jurisdiction.
(e) The sale or abandonment of all or substantially all of the
Partnership's business and assets.
47
(f) Any event which shall make it unlawful for the business of
the Partnership to be carried on or for the Partners to carry on such
business in partnership.
(g) A Partner withdraws from the Partnership.
10.4 WINDING UP.
(a) Upon a dissolution of the Partnership, the Partners shall
undertake the sale or abandonment of all of the Partnership's business
and assets, and each Partner shall bear its proportionate share (based
on each Partner's Ownership Interest) of all costs and expenses incurred
in connection with winding up the Partnership business and with
abandonment or sale of the Gathering System. In the event of
dissolution, the Managing Partner, or if the Managing Partner caused the
dissolution, then whichever Partner chosen by the Management Committee,
shall be the liquidator of the Partnership. The Management Committee
shall determine, among other things, arrangements with creditors, the
extent to which assets should be sold or distributed in kind and the
amount of any reserve for contingent liability. After the Partnership
shall be dissolved pursuant to the provisions of this ARTICLE 10, the
Managing Partner shall continue to exercise the powers vested in it by
this Agreement and continue to operate the Gathering System in the
normal course to the extent appropriate for the purpose of winding up
the business of the Partnership and liquidating the assets thereof in an
orderly manner, but the Managing Partner shall engage in no new business
on behalf of the Partnership during the period of such winding up.
(b) After the payment of debts or otherwise providing for the
liabilities of the Partnership, the liquidator will distribute any
remaining assets of the Partnership as follows:
(1) Cash or cash equivalents shall be distributed (i)
first, to the Partners in proportion to their respective positive
Capital Account balances, if any, and (ii) second, to each
Partner in proportion to its Ownership Interest.
(2) Interests in the Gathering System and other tangible
assets shall be sold by the liquidator on such terms as are
approved by the Management Committee, or if the Management
Committee elects not to sell any such assets, or if such sale is
not consummated within a period deemed reasonable by the
Management Committee,
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such assets shall be distributed to each Partner in proportion to
its Ownership Interest, and each Partner shall execute an
operating agreement governing operation of such assets containing
operating and economic terms substantially similar to these
contained in this Agreement.
(c) On liquidation of the Partnership or a Partnership interest
within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g),
each Partner having a deficit balance in its Capital Account (after
giving effect to all contributions, distributions, and allocations for
all fiscal years, including the fiscal year of the liquidation) shall
contribute to the Partnership the amount necessary to restore the
deficit balance in such Capital Account to zero in compliance with
Regulation Section 1.704-1(b)(2)(ii)(b)(3). Such contribution shall be
made no later than the end of the taxable year in which the liquidation
occurred (or, if later, within 90 days after the date of liquidation).
The contribution shall not be used to pay nonrecourse liabilities but
shall be used to pay any other Partnership liabilities and then shall be
distributed to the other Partners in accordance with the positive
balance in such Partners' Capital Accounts.
(d) No dissolution of the Partnership shall relieve any Partner
from any obligation accruing or accrued prior to the date of such
dissolution or as a result of such dissolution or deprive any Partner
not in default hereunder of any remedy otherwise available to it.
The term "DISSOLUTION" as used in this Agreement shall mean "an event
requiring a winding up" as such terms are used in the Partnership Act.
10.5 RIGHT TO WITHDRAW. A Partner (herein called a "WITHDRAWING
PARTNER") shall have the right to withdraw from the Partnership at any time by
giving written notice (herein called "WITHDRAWAL NOTICE") to the other Partners
and to the Partnership. In the event of such withdrawal, the Partnership shall
retain all contributions theretofore made by the Withdrawing Partner. In
addition, such Withdrawing Partner, regardless of the time of the delivery of
the Withdrawal Notice shall pay to the Partnership its share of all cost,
expense, obligation and liability that (a) were accrued or otherwise
attributable to the period prior to the time of the giving of the Withdrawal
Notice, (b) were incurred prior to the time of the giving of the Withdrawal
Notice regardless of the periods of time to which such cost, expense, obligation
and liability relates, including any obligations attributable to the work
performed or actions taken or authorized by the Management Committee or the
Managing Partner prior to the time of the giving of the Withdrawal Notice, and
(c) are to be incurred by the Partnership as a result of actions taken or
authorized by the Management Committee
49
or the Managing Partner prior to the time of the giving of the Withdrawal Notice
(the "WITHDRAWING PARTNER OBLIGATIONS"). The Withdrawing Partner shall post a
deposit in an amount set by the Management Committee (without the Withdrawing
Partner voting thereon) to cover the Withdrawing Partner's share of the
estimated future pipeline abandonment costs (including environmental clean-up
costs) and Partnership liquidation costs. The deposit will be applied to the
Withdrawing Partner's actual share of such costs when they are ultimately
incurred with the Withdrawing Partner remaining liable for its share of the
ultimate costs if they are greater than the deposit. If the deposit is greater
than the Withdrawing Partner's actual share, the difference will be refunded.
Withdrawal shall (a) be effective as of the date of giving of the Withdrawal
Notice (i.e. latest date received by all Partners and the Partnership), (b)
terminate the Withdrawing Partner's status as a Partner, (c) forfeit all voting
rights of the Withdrawing Partner in Partnership affairs, (d) terminate all
representation of the Withdrawing Partner on the Management Committee and other
Partnership committees, and (e) result in a pro rata increase of the remaining
Partners' Ownership Interests based on the ratio of their then present Ownership
Interests. The non-Withdrawing Partners shall indemnify and hold harmless the
Withdrawing Partner, against any costs, expenses, obligations and liabilities of
the Partnership that are attributable to periods after the effective date of the
withdrawal other than Withdrawing Partner Obligations and demobilization costs
and liquidation costs.
10.6 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provision of this ARTICLE 10, in the event the Partnership is liquidated within
the meaning of Regulation Section 1.704-1(b)(2)(ii)(g) but no actual liquidation
has occurred, the property shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs shall
not be wound up. Instead, the Partnership shall be deemed to have distributed
the property in kind to the Partners, who shall be deemed to have assumed and
taken subject to all Partnership liabilities, all in accordance with their
respective Capital Accounts, and if any Partner's Capital Account has a deficit
balance (after giving effect to all contributions, distributions, and
allocations for all fiscal years, including the fiscal year during which such
liquidation occurs), such Partners shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulation Section 1.704-1(b)(2)(ii)(b)(3). Immediately
thereafter, the Partners shall be deemed to have recontributed the property in
kind to the Partnership, which shall be deemed to have assumed and taken subject
to all such liabilities.
ARTICLE 11.
OPTION AND PRIOR RIGHT TO PURCHASE.
11.1 DISPOSITIONS.
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(a) Each Partner agrees that it shall not sell, transfer, assign
or in any way alienate all or any portion of its Ownership Interest in
the Partnership or any right or interest therein, whether voluntarily or
by operation of law, or by gift, merger, consolidation, a Change of
Control (which with respect to DIGC shall mean a Change of Control as
defined in SECTION 3.7 (b)(z)) or otherwise, (hereinafter referred to as
"DISPOSE" or a "DISPOSITION"), except for a Disposition which complies
with the requirements of this SECTION 11.1.
(b) Subject to the express provisions of SECTION 11.1 below
excepting certain Dispositions, should any Partner decide to Dispose of
any portion of its Ownership Interest in the Partnership directly or
indirectly, such Partner (the "SELLING PARTNER") shall first give
written notice to the other Partners (the "NON-SELLING PARTNERS") of its
intent to Dispose of its interest and of the quantum interest be
Disposed. Each of the Non-Selling Partners shall have the right to make
an offer in writing to purchase the Ownership Interest offered to be
Disposed. Each Non-Selling Partner shall have the right to make an offer
for a portion of the Ownership Interest offered to be Disposed in
proportion that its Ownership Interest bears to the Ownership Interest
of all of the Non-Selling Partners who elect to make such offer. Such
offer must be made on or before 15 days after the date of receipt of
notification of intent to transfer by the Selling Partner. The Selling
Partner may, in its sole discretion, elect to either accept or reject
any such offer by notifying the Non-Selling Partner of its election
writing on or before 15 days of its receipt of the written offer. If the
Selling Partner accepts the offer of one or more Non-Selling Partners,
the Non-Selling Partners whose offer have been accepted shall have 45
days from receipt of notification of acceptance to complete their
respective purchases. Should the Selling Partner reject an offer of a
Non-Selling Partner or not receive timely an offer from a Non- Selling
Partner, the Selling Partner shall have the right for a period of 180
days following the expiration of the 15 day period referred to above, to
Dispose to a third party of that portion of its Ownership Interest
covered by such offer subject, however, in the case in which an offer
had been made by a Non-selling Partner, to a minimum price requirement
equivalent to the rejected offer of the Non-Selling Partners.
(c) The provisions of this SECTION 11.1shall not apply to (1) a
sale or transfer to an Affiliate, nor (2) a sale or transfer to a
publicly traded entity formed for the purpose of acquiring such
interest.
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(d) In cases where all or a portion of the consideration to be
received in connection with a Disposition is other than cash, (including
property, note, defined cash payment or other non-cash assets), the cash
value of that consideration shall be determined: (1) by mutual agreement
of the Partners involved in the transaction or (2) failing such mutual
agreement, within three (3) business days following receipt by the
Non-Selling Partner who previously made an offer from the Selling
Partner that it desires such determination to be made by independent
appraisal (to be obtained at the sole cost of the Selling Partner), by a
qualified independent appraiser selected by mutual agreement of the
Partners involved in the transaction, or (3) failing mutual agreement
for the selection of an independent appraiser within three (3) business
days after the receipt of the notice by the Non-Selling Partner, by
independent appraisal (obtained at the sole cost of the Selling Partner)
by a qualified appraiser selected by the Chief Judge of the United
States District Court for the Southern District of Texas, or in the
event such judge disqualifies himself or herself, the most senior judge
of such court who does not disqualify himself or herself.
(e) Any Disposition other than those referenced in SECTION
3.8(b), 11.1(b) shall require Majority Approval, excluding the vote of
the Selling Partner. Such Majority Approval shall not be unreasonably
withheld. A Selling Partner shall request the Non-Selling Partners in
writing to approve such Disposition. Within five (5) business days after
receipt of such notice by each Non-Selling Partner, such Non-Selling
Partner shall notify the Selling Partner in writing whether or not it
approves such Disposition. Failure by a Non-Selling Partner to timely
notify the Selling Partner shall be deemed approval of the Disposition.
If any Partner elects to not approve such Disposition, it shall specify
the reasonable grounds upon which it is objecting to such Disposition.
Failure to specify such grounds shall be deemed an election by such
Partner to approve the Disposition.
11.2. TAKE ALONG RIGHTS.
(a) Prior to MMBGC Payout, if MMBGC proposes to convey or
transfer all of its interest in the Partnership, directly or indirectly
through a sale of MMBGC or otherwise, to any person or entity other than
(1) a Partner or (2) an affiliate or subsidiary of any Partner
(including an affiliate or subsidiary of MMBGC) (a "PROPOSED
PURCHASER"), DIGC shall have the right, but not the obligation, to
require that the Proposed Purchaser purchase all of DIGC's interest in
the Partnership at the same price and on the same terms and conditions
as those that have been negotiated by MMBGC. Any binding
52
agreement entered into by MMBGC with a Proposed Purchaser shall provide
for the right of DIGC to convey all of its interest in the Partnership
to the Proposed Purchaser as provided herein. Upon execution of a
binding agreement with a Proposed Purchaser, MMBGC shall notify DIGC in
writing that they have elected to convey all of their interests in the
Partnership, together with a copy of the agreement with the Proposed
Purchaser. DIGC shall, not later than ten (10) days after receipt of
such notice, notify MMBGC in writing whether it elects to convey all of
its interest in the Partnership. Failure to notify MMBGC as provided
herein shall constitute an election by DIGC not to convey its interest
in the Partnership.
(b) Prior to PDI Payout, if PDI proposes to convey or transfer
all of its interest in the Partnership, directly or indirectly through a
sale of PDI or otherwise, to any person or entity other than (1) a
Partner or (2) an affiliate or subsidiary of any Partner (including an
affiliate or subsidiary of PDI) (a "PROPOSED PURCHASER"), DIGC shall
have the right, but not the obligation, to require that the Proposed
Purchaser purchase all of DIGC's interest in the Partnership at the same
price and on the same terms and conditions as those that have been
negotiated by PDI. Any binding agreement entered into by PDI with a
Proposed Purchaser shall provide for the right of DIGC to convey all of
its interest in the Partnership to the Proposed Purchaser as provided
herein. Upon execution of a binding agreement with a Proposed Purchaser,
PDI shall notify DIGC in writing that they have elected to convey all of
their interests in the Partnership, together with a copy of the
agreement with the Proposed Purchaser. DIGC shall, not later than ten
(10) days after receipt of such notice, notify PDI in writing whether it
elects to convey all of its interest in the Partnership. Failure to
notify PDI as provided herein shall constitute an election by DIGC not
to convey its interest in the Partnership.
11.3 OTHER SALES OF AN INTEREST. In the event of the election by a
Partner or Partners to dissolve the Partnership under SECTION 10.1 or SECTION
10.2, the remaining Partners, notwithstanding anything to the contrary in
ARTICLE 10 hereof, shall have the option and prior right to purchase the
Ownership Interest of the Partner or Partners that caused or voted in favor of
the dissolution and to continue the Partnership by such a purchase. The interest
of the dissolving Partner or Partners may be acquired by the other Partners in
the same ratio as determined for purchasing Partners under SECTION 11.1. On the
exercise of the option and prior right to purchase under this Section, the
remaining Partners who so elect to purchase shall pay the dissolving Partner or
Partners the net book value of such Partner or Partners' Ownership Interests as
shown on the next preceding annual financial statements prepared and delivered
pursuant to this Agreement, adjusted to the closing date of the purchase. The
sale of a dissolving Partner's Ownership Interest
53
shall be upon special warranty, and the purchase price shall be paid in cash at
closing on or before the expiration of 60 days from the receipt of notice of
exercise of the option and prior right. Upon a purchase by the remaining
Partners, the dissolving Partner shall be held harmless from liability for the
future obligations of the Partnership business, and the ownership of the
Partnership, allocation of profits and losses, and the capital accounts shall be
adjusted accordingly to reflect the purchase.
ARTICLE 12.
TAXES
12.1 TAXES.
(a) The Finance Partner shall cause to be paid all valid
applicable taxes and fees, other than local, state and federal income
taxes, levied upon the Partnership or in connection with its operations,
including but not limited to sales, use, excise and property taxes. To
the extent not paid from Partnership funds, either the Managing Partner
or the Finance Partner may make cash calls on each Partner for its
proportionate share of all such payments. The Finance Partner shall
render for ad valorem taxation all property subject to this Agreement
which by law should be rendered for such taxes and pay all such taxes
assessed thereon before they become delinquent. If any tax assessment is
considered unreasonable by the Finance Partner, it may at its discretion
protest such valuation or make payment under protest within the time and
manner prescribed by law, and it may at its discretion prosecute, or not
prosecute, the protest to a final determination. When any such protested
valuation or payment shall have been finally determined, the Finance
Partner shall pay from Partnership funds the assessment on the
Partnership, if any such remains unpaid, together with costs of protest
or prosecution and any interest and penalty accrued.
(b) The Partners intend that the Partnership shall be treated as
a "partnership" for income tax purposes, and the Partners agree to take
all actions, including the amendment of this Agreement and the execution
of such other documents as may be required to qualify for and receive
such tax treatment. The Finance Partner shall be the Tax Matters Partner
of the Partnership as described in ss.6231(a)(7) of the Internal Revenue
Code of 1986 (the "CODE") ("TAX MATTERS PARTNER"). The Tax Matters
Partner shall prepare and file all federal, state and municipal income
tax returns to be filed on behalf of the Partnership on an accrual
basis. The Tax Matters Partner shall inform all Partners of all matters
which may come to its attention in its capacity as Tax Matters Partner
by giving them notice thereof within 15 days
54
after becoming so informed. All Partnership elections for federal and
state tax purposes shall be determined by the Tax Matters Partner. All
Partners shall be entitled to participate in any IRS proceedings at
their expense. The Tax Matters Partner on behalf of the Partnership
shall make the election under Section 754 of the Code. The affairs of
the Partners and the Partnership with regard to Federal income taxes
shall be subject to the terms and conditions of EXHIBIT D attached
hereto.
ARTICLE 13.
INSURANCE AND LOSSES
13.1 INSURANCE. The Finance Partner shall obtain and maintain for the
protection and benefit of the Partnership and itself the following minimum
insurance coverage:
(a) Worker's Compensation Insurance to cover the Managing
Partner's employees performing services for DIGC in accordance with the
requirements of the laws of the State of Alabama or other applicable
state and Employer's Liability Insurance with limits of not less than
$1,000,000 aggregate for each accident and $1,000,000 aggregate for each
disease. The Finance Partner or its parent, subsidiary or other
affiliated companies shall diligently proceed to acquire Worker's
Compensation Insurance and Employer's Liability Insurance that permit
endorsement of such policies to include alternate employer/borrowed
servant coverage and shall provide such endorsement to the Partners.
Such policy shall be endorsed to provide all coverage applicable to
persons working offshore.
(b) Broad Form Comprehensive General Liability Insurance with
limits of not less than $5,000,000 combined single limit for personal
injury and property damage, endorsed to provide contractual liability,
completed operations, explosion, collapse and underground damage
hazards.
(c) Automobile Public Liability Insurance with limits of
$1,000,000 combined single limit for personal injury and property
damage.
(d) Property casualty insurance for equipment with limits of not
less than market value of the insured equipment.
Each policy of insurance obtained pursuant to the provisions of SECTIONS
13.1(a), 13.1(b), 13.1(c), AND 13.1(d) of this Section shall provide by
endorsement or otherwise that the provisions of the policy are extended to cover
the interests of the parties hereto. Each policy of insurance pursuant to the
provisions of SECTIONS 13.1(a), 13.1(b), 13.1(c), AND 13.1(d)
55
AND shall contain an endorsement providing that insurance carriers shall have no
right of subrogation against the Partners, their respective parents,
subsidiaries, and affiliated companies and shall name the Managing Partner and
the Partners and their respective parents, subsidiaries and affiliated companies
as additional insureds. In the event that the Managing Partner contracts with a
third party for the provision of any service or services for the Partnership,
that third party shall be required to carry insurance with subrogation waivers
equal to or in excess of the requirements herein and shall be required to
contractually indemnify and hold harmless the Partnership from tort liability
arising from its performance and the negligence of the Partners, Partnership and
their respective parents, subsidiaries and affiliated companies and on all
policies name the Managing Partner and the Partners and their respective
parents, subsidiaries and affiliated companies as additional insureds. The
Finance Partner shall furnish to the Partners a certificate covering each policy
of insurance obtained pursuant to this Section. The Managing Partner may settle
or defend any insured or uninsured claims on behalf of the Partnership subject
to the monetary limits in ARTICLE 3 or, if applicable, subject to approval of
the Management Committee.
13.2 COST OF INSURANCE. The Finance Partner shall submit a statement to
the Partnership of insurance premium costs and expenses associated with the
insurance policies provided hereunder. The Partnership shall promptly reimburse
the Finance Partner for such costs and expenses.
13.3 INDEMNIFICATION OF PARTNERS. Except as provided in SECTION
15.12,(1) all liability, loss, damage, claim or expense for which the
Partnership is responsible and not covered by insurance or in excess of
insurance actually carried shall be borne by the Partners proportionately based
on their Ownership Interests, and (2) the Partnership shall indemnify and hold
harmless each Partner against any claim made against any of them by a third
party alleging liability while acting on behalf of the Partnership in accordance
with this agreement or based on the Partner's status as a Partner, together with
the costs reasonably incurred for the defense of such claim, except with respect
to such claims that arise from gross negligence or willful misconduct. The
indemnified party shall be indemnified and reimbursed first from the assets of
the Partnership. In the event that the amount of such indemnity or reimbursement
exceeds the amount available from the assets of the Partnership, each Partner
shall severally contribute its proportionate share of the excess based on its
Ownership Interest.
13.4 LOSS OF OR DAMAGE TO PARTNERSHIP PROPERTY. The Partners shall be
responsible in proportion to their respective Ownership Interests for any
uninsured casualty loss of or damage to Partnership property, unless such loss
or damage is caused by the gross negligence or willful misconduct of a Partner
who will be totally liable therefor.
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ARTICLE 14.
INVOLUNTARY DISSOLUTION AND CONTINUANCE
14.1 CONTINUANCE OF RELATIONSHIP. It is understood and agreed by each of
the Partners that the relationship among them shall be a Partnership until such
relationship is either specifically terminated by the written consent of all of
the Partners or by one of the provisions hereof. If, notwithstanding such
understanding and agreement, the Partnership may be deemed terminated or
dissolved by operation of law, each of the Partners hereby covenants and agrees
that:
(a) The business and affairs of the Partnership shall continue
without interruption and be carried out by a new partnership upon the
approval of a majority of the Partners (the "SUCCESSOR PARTNERSHIP").
(b) The Partners of the Successor Partnership shall be the
Parties who were Partners hereunder at the time of such termination or
dissolution, and the Successor Partnership and the Partners thereof
shall be governed by the terms of this Agreement as if the Successor
Partnership were the Partnership.
(c) Each of the Partners shall execute such further agreements
including notes, notations and accommodations as may be necessary to
continue the business of the Partnership and to protect and perfect any
lien or security interest granted by the Partnership.
(d) Notwithstanding the foregoing, if for any reason the business
and affairs of the Partnership cannot be carried out as a Successor
Partnership and any Partner determines to proceed with the business of
the Partnership, then the other Partners at the time of dissolution
shall be entitled to join with such Partner in such other entity or
entities as may be used to own and operate the Gathering System, to the
same extent and on a similar basis as provided in this Agreement, taking
full account of the respective capital contributions theretofore made by
such partners to the Partnership.
ARTICLE 15.
MISCELLANEOUS
15.1 LAWS AND REGULATIONS. This Agreement and all operations hereunder
shall be subject to all valid and applicable federal and state laws and to the
valid and applicable orders, laws, rules and regulations of any state or federal
authority having jurisdiction, but
57
nothing contained herein shall be construed as a waiver of any right to question
or contest any such order, law, rule or regulation in any forum having
jurisdiction in the premises.
15.2 CONTROLLING LAW. THIS AGREEMENT SHALL BE GOVERNED, INTERPRETED
AND CONSTRUED UNDER THE STATUTORY AND COMMON LAW OF THE STATE OF
TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
15.3 FORCE MAJEURE. Performance, other than to make payments due, under
this Agreement by any party shall be excused in the event such performance is
prevented by war, blockades, insurrection, strikes or differences with workers,
riots, disorders, epidemics, landslides, lightning, earthquakes, fires, storms,
floods, washouts, civil disturbances, blowouts, explosions, breakage or accident
to machinery or lines of pipe, acts of God or of the public enemy, acts of
governmental authorities, state and federal regulations, inability or delay in
obtaining rights-of-way, permits, easements or material and, without limitation
by enumeration, any other cause or happening whether of the kind enumerated
herein or otherwise not reasonably within the control of such party; provided,
however, that performance shall be resumed within a reasonable time after such
cause has been removed; and provided further, that no party shall be required
against its will to adjust any labor dispute.
15.4 NOTICES. Unless herein provided to the contrary, any notice called
for in this Agreement shall be in writing and shall be considered as having been
given on the date of receipt if delivered personally or by mail or fax with all
postage and charges prepaid to the Managing Partner or Partner affected by such
notice at the place designated. Routine communications, including monthly
statements and payments, shall be considered as duly delivered when deposited in
the U.S. mail, first class, postage prepaid. Non-routine communications shall be
deemed received on the actual date of receipt by the addressee. Normal operating
instructions can be made by telephone. Unless changed by notice in writing to
the Managing Partner, the Finance Partner and all Partners, the addresses of the
parties are as follows:
MMBGC: MCNIC Mobile Bay Gathering Company
c/o Pipeline & Processing Group, Inc.
150 W. Jefferson, Suite 1700
Detroit, Michigan 48226
DIGC: Dauphin Island Gathering Company, L.P.
1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
PDI: PanEnergy Dauphin Island Company.
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5718 Westheimer, Suite 2000
Houston, Texas 77057
Partnership: Dauphin Island Gathering Partners
c/o Dauphin Island Gathering Company, L.P.
1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
A copy of all notices given to a Partner, the Managing Partner or the Finance
Partner shall also be given to the Partnership at its address as set by the
Management Committee from time to time.
15.5 CONFIDENTIALITY. The Partners (including Withdrawing Partners)
shall ensure that any information regarding the business, assets, customers,
processes and methods of the Partnership or the other Partners that it may learn
in the course of negotiations for or performance under this Agreement (a) is
treated by it in strict confidence, (b) is not disclosed in any manner to any
Person other than an Affiliate or a Partner a lender to or an accountant,
attorney or representative of such Partner or Affiliate who needs to know such
information, or as may be required by law or for tax purposes, and (c) is not
used by such Partner or any of its Affiliates for any purpose other than for the
exclusive benefit of the Partnership or to comply with law, tax purposes or
legal process. In addition, such information may be disclosed by a Partner to a
person only if and to the extent that such information (a) is known to such
person prior to learning of it from the Partner; (b) is obtained, whether
directly or indirectly, by such person from a source other than such Partner (or
any of its Affiliates) that (1) did not require such person to hold such secrets
or information in confidence and (2) did not limit or restrict such person's use
thereof, (c) is disclosed for legal, regulatory or tax purposes; or (d) becomes
public knowledge otherwise than through the Partner (or any of its Affiliates)
seeking to use or disclose such information. Notwithstanding the foregoing, (1)
no Partner shall disclose any information if such disclosure would cause a
breach of, or violate the terms of, any gathering agreement to which the
Partnership is subject and (2) no Partner shall disclose to its Affiliates any
information related to scheduling and nominations of gas gathered by the
Partnership.
A disclosure by a Partner to its employee who is also an employee of an
Affiliate of such Partner or who performs services for an Affiliate of such
Partner shall not violate the provisions of this SECTION 15.5, provided the
information so disclosed is not used for any purpose other than the exclusive
benefit of the Partnership, or to comply with law, tax purposes or legal
process.
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15.6 INURING CLAUSE. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns.
15.7 DEFAULT. No waiver of any default shall be construed as a waiver of
any future default, whether of a like or of a different nature.
15.8 PARTITION OF PARTNERSHIP. Each Partner hereby expressly waives any
right to bring any action for an involuntary partition of the Partnership or its
assets.
15.9 TIME OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
15.10 LIMITATION ON AUTHORITY. Neither the Managing Partner, the Finance
Partner nor any of the Partners shall have authority to take any action
inconsistent with the terms of this Agreement. Except as authorized by this
Agreement, no Partner shall act as the agent of the Partnership without express
written authorization to act as the agent with respect to the particular matter
involved. Such authorization shall be obtained from the Management Committee or,
to the extent authorized by this Agreement, from the Managing Partner.
15.11 ARBITRATION.
(a) On the request of any Partner, whether made before or after
the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind now existing or hereafter arising between any of
the parties hereto and pertaining to the interpretation of or breach of
this Agreement (a "DISPUTE") shall be resolved by binding arbitration in
accordance with the terms hereof. Any Partner may, by summary
proceedings, bring an action in court to compel arbitration of any
Dispute.
(b) Any arbitration shall be administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
SECTION , the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on any
award rendered by an arbitrator may be entered in any court having
jurisdiction.
(c) Any arbitration shall be conducted before one arbitrator. The
arbitrator shall be an individual who is knowledgeable in the subject
matter of the Dispute selected by agreement between the Partners. If the
Partners cannot agree on an arbitrator within 30 days after the request
for an
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arbitration, then any Partner may request the AAA to select an
arbitrator. The arbitrator may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion
in the arbitration proceeding.
(d) To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in
Houston, Texas. Arbitrators shall be empowered to impose sanctions and
to take such other actions as the arbitrators deem necessary to the same
extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the arbitrator shall make
specific written findings of fact and conclusions of law. The arbitrator
shall have the power to award recovery of all costs and fees to the
prevailing Partners. Each Partner agrees to keep all Disputes and
arbitration proceedings strictly confidential except for disclosure of
information required by applicable law.
(e) All fees of the arbitrator and any engineer, accountant or
other consultant engaged by the arbitrator, shall be paid by the
Partners according to their Ownership Interests unless otherwise awarded
by the arbitrator.
15.12 REPRESENTATION OF PARTNERS. Each Partner represents and warrants
to each other Partner and to the Partnership that:
(a) In cases of a corporation, it is a corporation duly
organized, validly existing and in good standing under the laws of its
State of incorporation or in a case of a partnership, it is a
partnership duly organized and validly existing under the laws of the
State of its organization.
(b) The execution and delivery of this Agreement have been, and
the performance of this Agreement shall be, at the time required to be
performed hereunder, duly and validly authorized by all requisite
corporate or partnership action on its part.
(c) It has full power and authority to carry on its business as
presently conducted, to enter into this Agreement and to perform its
obligations under this Agreement;
(d) This agreement has been duly executed and delivered on behalf
of it and constitutes the legal, valid and binding obligation of such
Partner
61
enforceable in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, reorganization or moratorium statutes,
or the similar laws affecting the rights of creditors, generally, or
equitable principles.
(e) The execution and delivery of this Agreement by such Partner
does not, and its performance of this Agreement, and ownership of its
Ownership Interest shall not, (1) violate or be in conflict with, or
require the consent of any person or entity under, any provision of such
Partner's governing documents, (2) conflict with, result in a breach of,
or constitute a default (or an event of that with a lapse of time or
notice, or both, would constitute a default) under any agreement or
instrument to which such Partner is a party or is bound or otherwise
subject to; or (3) violate any provision of or require any consent,
authorization or approval under any judgment, decree, judicial or
administrative order, award, writ, injunction, statute, rule or
regulation applicable to such Partner; and
(f) That such Partner has not and shall not at any time disclose
to the Partnership or the other parties any information that such
Partner is prohibited or restricted from disclosing.
Each Partner shall be responsible for, shall pay on a current basis,
shall indemnify, save, hold harmless, discharge and release the Partnership and
the other Partners, their respective Affiliates and its and their respective
successors and permitted assigns, and all of their respective stockholders,
directors, officers, employees, agents and representatives (the "INDEMNIFIED
PARTIES") from and against any and all claims, demands, suits, actions,
proceedings, payments, charges, judgments, assessments, liabilities, damages,
penalties, fines or costs and expenses suffered, paid or incurred by the party
seeking indemnification, including any legal or other expenses reasonably
incurred in connection therewith, arising from, based upon, related to or
associated with any breach of a representation and/or warranty made by such
Partner in this Agreement.
15.13 SEVERABILITY. If and to the extent that any court or governmental
agency of competent jurisdiction holds any part or provision of this Agreement
to be invalid or unenforceable, the Partners shall agree upon an equitable
adjustment of the provisions of this Agreement with a view toward effecting its
purpose. Such holding shall in no way affect the validity or effectiveness of
the other provisions of this Agreement, which shall remain in full force and
effect.
15.14 REMEDIES. All rights and remedies under this Agreement are
cumulative and in addition to other rights or remedies under this Agreement or
any applicable law.
62
15.15 EXHIBITS. Each exhibit referred to in this Agreement is
incorporated in this Agreement by reference. All obligations of any party under
any such exhibit shall be considered to be obligations under this Agreement.
15.16 SPECIAL AND CONSEQUENTIAL DAMAGES. Neither the Partners, the
Managing Partner, the Finance Partner, the Partnership, nor the members of the
Management Committee or any subcommittee thereof shall be liable to the other
for any exemplary or punitive damages or for loss of profits, consequential
losses or business loss, injury or damage arising in connection with the
Gathering System or this Agreement.
15.17 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
but one and the same instrument.
15.18 ENTIRE AGREEMENT. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
63
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
MCNIC MOBILE BAY GATHERING COMPANY
By: /s/ JOSEPH L. ROBERTS
Joseph L. Roberts
Vice President
DAUPHIN ISLAND GATHERING
COMPANY, L.P., by its general partner, OEDC,
INC.
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
PANENERGY DAUPHIN ISLAND COMPANY
By: /s/ BRAD D. REESE
Brad D. Reese
Vice President
64
CONTRACTS
1. Gathering Agreement dated January 8, 1993, between BP Exploration &
Oil, Inc. and DIGP, as amended by Agreement dated July 2, 1993.
2.Gathering Agreement dated June 30, 1993, between South Dauphin
Partners, Ltd. and DIGP as amended by the First Amendment to Gas
Gathering Agreement dated January 10, 1994, the Second Amendment
to Gas Gathering Agreement dated March 28, 1994, and the Third
Amendment to Gas Gathering Agreement dated August 19,
1994.
3.Gathering Agreement dated September 22, 1993, between Enron Oil & Gas
Company and DIGP.
4.Gathering Agreement dated August 25, 1993, between Santa Fe Minerals,
Inc. and DIGP, as amended by the First Amendment dated
December 1, 1995, between Chieftain International (U.S.) Inc. and
DIGP.
5.Gathering Agreement dated July 29, 1994, between Santa Fe Energy
Resources, Inc. and DIGP.
6.Gathering Agreement dated August 19, 1994, between SCANA Hydrocarbons,
Inc., SCANA Petroleum Resources, Inc. and DIGP (MO90, 91, 822,
865 and 866).
7.Gathering Agreement dated August 19, 1994, between SCANA
Hydrocarbons, Inc., SCANA Petroleum Resources, Inc. and DIGP
(MO959/960).
8.Gathering Agreement dated August 19, 1994, between OEDC Exploration
& Production, L.P. and DIGP.
9.Gathering Agreement dated June 1, 1994, between Excel Resources, Inc.
and DIGP.
10.Gathering Agreement dated July 20, 1995, between Legacy Resources
Company and DIGP.
65
11.Natural Gas Gathering Agreement dated October 15, 1993, between
Tenneco Gas, Inc. and Chevron U.S.A. Inc., as amended effective
February 1, 1996.
12.Natural Gas Gathering Agreement dated October 15, 1993, between
Tenneco Gas, Inc. and Union Oil Company of California.
13.Natural Gas Gathering Agreement dated October 15, 1993, between
Tenneco Gas, Inc. and Bechtel Energy Partners Ltd.
14.M0916 Area Project Agreement dated October 15, 1993, between
Tenneco Gas, Inc. and Bechtel Energy Partners Ltd., Chevron U.S.A.
Inc. and Union Oil Company of California.
15.Platform Space Agreement (Mobile 916A Platform) dated October 15,
1993, between Tenneco Gas, Inc. and Bechtel Energy Partners Ltd.,
Chevron U.S.A. Inc. and Union Oil Company of California.
16.Assignment of Contract Rights and Bill of Sale dated April 18, 1994,
from Tenneco Gas, Inc. and Tenneco Mobile Bay Gathering Company
to DIGP.
17.Consent to Assignment dated March 23, 1994, from Chevron USA, Inc.,
Union Oil Company of California and Bechtel Energy Partners, Ltd.
18.Consent and Agreement dated April 19, 1994, by and among DIGP,
Chevron USA, Inc., Union Oil Company of California, Bechtel
Energy Partners, Ltd. and Swiss Bank Corporation.
19.Assignment and Agreement with Respect to Platform Rights dated August
19, 1994, among South Dauphin Partners, Ltd., DIGP and SCANA
Petroleum Resources, Inc.
20.Lateral Line Interconnect, Reimbursement and Operating Agreement
dated April 9, 1993, between Transcontinental Gas Pipe Line Corp.
and DIGP.
21.Lateral Line Interconnect, Reimbursement and Operating Agreement
dated March 18, 1993, between Gateway Pipeline Co. and DIGP.
66
22.Operational Balancing Agreement dated May 23, 1993, by and between
DIGP and Gateway Pipeline Company.
23.Agreement dated October 20, 1992, between Mobil Oil Exploration &
Producing Southeast, Inc. and Dauphin Island Gathering Company,
L.P. regarding a wetlands mitigation plan.
24.Agreement No. 881 dated February 22, 1993, between Dauphin Island
Gathering Partners and Torch, Inc. and the letter agreement dated
January 7, 1994, between DIGP and Torch, Inc.
25.Assignment of Gathering System and Bill of Sale dated January 14,
1993, from Dauphin Island Gathering Company, L.P. to DIGP.
26.Construction Agreement dated November 8, 1991, between Flash Gas &
Oil Southwest, Inc., Offshore Energy Development Corporation
(predecessors in interest to DIGC) and BP Exploration, Inc., as
amended by the Letter of Understanding dated January 14, 1993,
for the construction of a twelve inch gas pipeline in Mobile Bay.
27.Contribution Agreement dated March 25, 1994, among EGGI, Seller and
TMBGC, as amended by the First Amendment to Contribution
Agreement dated as of December 31, 1994, among EGGI, Seller and
TMBGC.
28.Letter Agreement dated May 19, 1994, among EGGI, TMBGC and Seller
regarding the ownership by Tenneco Gas Production Company of an
interest of a gathering line in Mobile Bay.
29.Waiver Letter dated January 31, 1996, among EGGI, TMBGC and Seller
regarding the waiver of SECTION obligations under the Partnership
Agreement.
30.Agreement of Confidentiality and Exclusivity dated February 28, 1996,
among Enron Gas Gathering, Inc. ("EGGI") and DIGP.
31.Agreement of Confidentiality and Exclusivity dated February 28, 1996,
among Tennessee Gas Pipeline Company ("TGPC") and DIGP.
67
32.Certificate of DIGP and MCNIC Mobile Bay Gathering Company ("MMBGC")
dated February 28, 1996, regarding execution of Second Amended
and Restated Partnership Agreement for DIGP.
33.Agreement to Assign Permit dated February 28, 1996, among MMBGC,
Tenneco Gas Gathering Company and DIGP.
34.Transition Agreement dated February 28, 1996, among TGPC and DIGP
regarding performance of gas control services.
35.Distribution and Assumption Agreement dated February 28, 1996, among
DIGP, EGGI, TGPC, TMBGC and Dauphin Island Gathering Company,
L.P. regarding the Torch Arbitration.
68
PERMITS/AGREEMENTS
PERMIT/AGREEMENT GRANTED BY
ROW Transco Agreements dated 4/20/93 Transcontinental Gas Pipeline Corp.
ALNWP93-00423-F dated 2/24/93 C.O.E.
AL91-00326-F C.O.E.
AL92-00253-F/COE-92-50 C.O.E./Alabama Department of
Environmental Management ("ADEM")
AL91-00982-F C.O.E.
AL92-02139-F C.O.E.
AL92-02139-F/COE-92-88 C.O.E./ADEM
AL91-00253-F C.O.E.
AL93-01470-F C.O.E.
NPDES ALG 670004 ADEM
NPDES ALG 610000 ADEM
R.O.W. Contract 93-49-002 Alabama Department of
Conservation and Natural
Resources
R.O.W. Contract 93-49-005 Alabama Department of
Conservation and Natural
Resources
R.O.W. Contract 92-49-001 Alabama Department of
Conservation and Natural
Resources
R.O.W. Contract 92-49-002 Alabama Department of
Conservation and Natural
Resources
9-1-2848M Alabama Highway Department
Alabama Power Co. Easement Agreement U.S. Department of the Interior
dated 3/1/93
MMS Pipeline Seg. 9644, Dated 7/15/92 U.S. Department of the Interior
(Construction)
MMS Pipeline Seg. 9943, Dated 4/12/92 U.S. Department of the Interior
(Operation)
R.O.W. Agreement, Dated 10/20/92 Mobil Oil Exploration &
Producing Southeast, Inc.
R.O.W. Wetlands Agreement, dated Mobil Oil Exploration &
Producing South-
10/20/92 east, Inc.
R.O.W. Agreement, Dated 11/22/91 Atlantic Richfield Company
R.O.W. Agreement, Dated as Amended, West Dauphin Limited Partnership
11/15/91
NPDES ALG 28001 dated 6/29/94 ADEM
AL 93-02930-F, dated 7/6/94 C.O.E./ADEM
C.O.E.-94-010, dated 4/20/94
Mobil Block 822
MMS Segment 10094, dated 3/9/94 MMS
Mobile Block 822
MMS Segment 10098, dated 3/9/94 MMS
Mobile Block 822
SPROW Contract No. 94-49-021, dated Alabama department of Conservation &
5/21/94 in coordination with AL93-02930- Natural Resources
F
Alabama Offshore Tract 73
SPROW Contract No. 94-49-022, dated Alabama Department of Conservation &
5/29/94 in coordination with AL 93- Natural Resources
02930-F
Alabama Offshore Tract 73
SPROW Contract No. 94-49-023, dated Alabama Department of Conservation &
5/19/94 in coordination with Natural Resources
AL93=02930-F
Alabama Offshore Tracts 91 and IIO
SPROW Contract No. 94-49-024, dated Alabama Department of Conservation &
5/19/94 in coordination with AL93-02930- Natural Resources
F
Alabama Offshore Tracts 91 and I I O
AL93-02925-F and AL93-02928F dated C.O.E./ADEM
5/11/95 / COE-94-024 dated 4/28/94
Mobile 914 to Mobile 822
MMS Segment 10097 dated 3/9/94 MMS
Mobile 914, 870 to Mobile 822
AL93-02929-F dated 4/6/94 C.O.E./ADEM
C.O.E.-94-013 dated 3/15/94, Mobile 914
MMS Segment 10095, dated 3/9/95 MMS
Mobile Block 914
MMS Segment 10095, dated 3/9/94 MMS
Mobile Block 870
MMS Segment 10250, modified dated MMS
7/27/94
Original dated 5/27/94
Mobile Block 916 to Mobile 914
MMS Segment 10424, dated 9.21.94 MMS
Mobile 915 to Mobile 959
AL94-03727-F, dated 12/16/94 C.O.E./MMS
C.O.E.-95-009, dated 12/9/94
VK Block 80 to Mobile 959
MMS Segment 10093, dated 6/19/94 MMS
VK 31 to Mobile 821, MODIFIED
MMS Segment 10093, dated 5/19/94
VK 31 to Mobile 821
AL95-02112-F, dated 6/20/95/ C.O.E./ADEM
C.O.E.-95-048, dated 8/14/95
Alabama State Tract 58 to Legacy
Resources in Alabama State Tract 59
R.O.W. Contract 96-49-001 C.O.E./ADEM
Alabama Department of Conservation and
Natural Resources
AL95-00951-F, dated 7/5/95 20" line C.O.E.
from M0821 to 73
(no work has been done) (Island Crossing)
AL 93-02574-F dated 2/5/96 - from C.O.E.
MO916 to Shell Yellow
Hammer Treatment Plant,
Baldwin Co, Ala.
viii
EXHIBIT B-1
(AMI)
i
EXHIBIT B-2
(RESTRICTED AREA)
ii
EXHIBIT C
ACCOUNTING PROCEDURES
This Accounting Procedures is made a part of that certain Fourth
Amended Restated General Partnership Agreement for Dauphin Island Gathering
Partners between Dauphin Island Gathering Company, L.P., MCNIC Mobile Bay
Gathering Company and PanEnergy Dauphin Island Company,. (the "AGREEMENT").
Capitalized terms not otherwise defined herein that are defined in the Agreement
shall have the meanings ascribed to such terms in the Agreement.
ARTICLE 1
35.1 The Finance Partner shall have the responsibility and authority to:
(a) maintain the financial records and accounting system for the
Partnership;
(b) maintain custody of the funds, securities, notes or other
financial instruments of the Partnership; and
(c) pay and discharge obligations incurred by the Partnership in
accordance with the terms and conditions of applicable invoices.
35.2 The Managing Partner shall have the responsibility and
authority to:
(a) invoice customers for service revenue provided by the
Partnership and insure collection of same. The Managing Partner shall
receive vendor invoices and verify that goods or services have been
received/performed. Invoices will be approved, proper accounting
applied, and input into the accounting system for check issuance.
Approved invoices will be batched and forwarded to the Finance Partner;
(b) direct all amounts received from the sale of assets and/or
receipts due the Partnership to the Partnership's bank accounts;
(c) perform monthly variance (budget to actual) comparison for
the appropriate reporting period providing explanations for items
varying from budget by more than 10% and exceeding $2,500; and
(d) file all tax returns for the Partnership excluding items
covered in EXHIBIT D or SECTION 12.1 of the Agreement.
iii
ARTICLE 2
COSTS, EXPENSES AND EXPENDITURES
THE PARTNERS RECOGNIZE AND ACKNOWLEDGE THAT THE COSTS AND
EXPENSES OF THE PARTNERSHIP AS DESCRIBED HEREINBELOW WILL BE PAID USING
PARTNERSHIP FUNDS. THE MANAGING PARTNER AND THE FINANCE PARTNER WILL RENDER
STATEMENTS TO THE PARTNERSHIP FOR THEIR COSTS AND EXPENSES TO BE CHARGED TO THE
PARTNERSHIP PURSUANT TO THE PROVISIONS HEREIN BELOW. SUBJECT TO THE ROTATION
HEREINAFTER PRESCRIBED AND THE PROVISIONS OF THE AGREEMENT TO WHICH THIS
ACCOUNTING PROCEDURES IS AN EXHIBIT, THE PARTNERSHIP SHALL REIMBURSE THE
MANAGING PARTNER FOR ALL COSTS INCURRED BY IT ON BEHALF OF THE PARTNERSHIP IN
CONNECTION WITH THE ADMINISTRATION, ACCOUNTING, CONSTRUCTION, OPERATION,
MAINTENANCE, UPKEEP, REPAIR REPLACEMENT, DEVELOPMENT, EXPANSION, ENLARGEMENT,
IMPROVEMENT OR ABANDONMENT OF THE GATHERING SYSTEM (HEREINAFTER REFERRED TO AS
"OPERATION OF THE GATHERING SYSTEM") TO THE EXTENT THAT (A) SUCH COSTS ARE OF
THE AS DESCRIBED HEREINBELOW, (B) SUCH COSTS ARE EITHER INCURRED TO THIRD
PARTIES OR FOR THE REIMBURSEMENT OF THE MANAGING PARTNER OF ITS EMPLOYEE,
MATERIAL OR TRAVEL COSTS AS DESCRIBED HEREINBELOW AND (C) SUCH COSTS HAVE NOT
BEEN PAID TO THIRD PARTIES ENTITLED THERETO UTILIZING PARTNERSHIP FUNDS AS
AUTHORIZED HEREIN.
35.3 RENTALS. ALL RENTALS PAID OR THE PORTION THEREOF ATTRIBUTABLE TO
THE OPERATION OF THE GATHERING SYSTEM.
35.4 LABOR COSTS.
(A) SALARIES AND WAGES OF EMPLOYEES OF THE MANAGING PARTNER
DIRECTLY ENGAGED IN CONNECTION WITH THE FIELD OPERATION OF THE GATHERING
SYSTEM, WHETHER ASSIGNED ON A TEMPORARY OR PERMANENT BASIS PRORATED FOR
THE AMOUNT OF TIME ACTUALLY EXPENDED ON PARTNERSHIP BUSINESS. EMPLOYEES
ENGAGED LESS THAN FULL TIME IN CONNECTION WITH THE OPERATION OF THE
GATHERING SYSTEM SHALL KEEP AN ACCURATE DAILY LOG OF THE TIME SPENT ON
BEHALF OF THE PARTNERSHIP AND THE SPECIFIC SERVICES RENDERED
CONTEMPORANEOUSLY WITH THE WORK BEING DONE. THE LOG SHALL BE AVAILABLE
FOR INSPECTIONS BY THE PARTNERS AT ALL TIMES. THE SALARIES AND WAGES
SHALL NOT EXCEED THE GOING RATE IN THE AREA FOR THE TECHNICAL EXPERTISE
OF THE EMPLOYEE SO ENGAGED. EXCEPT AS PROVIDED IN SECTION 6.5 OF THE
AGREEMENT, THE MANAGING PARTNER SHALL NOT BE REIMBURSED FOR SALARIES OR
WAGES PAID TO ITS OFFICERS, DIRECTORS, OR HOME OFFICE EMPLOYEES.
(B) COSTS OF HOLIDAY, VACATION, SICKNESS AND JURY SERVICE
BENEFITS AND OTHER CUSTOMARY ALLOWANCES PAID TO PERSONS WHOSE SALARIES
AND WAGES ARE CHARGEABLE UNDER SECTION 2.2(a). COSTS UNDER THIS SECTION
SHALL BE
i
CHARGED ON THE BASIS OF A PERCENTAGE ASSESSMENT ON THE AMOUNT OF
SALARIES AND WAGES CHARGEABLE UNDER SECTION .
(C) EXPENDITURES OR CONTRIBUTIONS MADE PURSUANT TO ASSESSMENTS
IMPOSED BY A GOVERNMENTAL AUTHORITY WHICH ARE APPLICABLE TO SALARIES,
WAGES AND COSTS CHARGEABLE UNDER SECTION 2.2(a). COSTS UNDER THIS
SECTION 2.2 (d) SHALL BE CHARGED ON THE BASIS OF A PERCENTAGE ASSESSMENT
ON THE AMOUNT OF SALARIES AND WAGES CHARGEABLE UNDER SECTION 2.2(a).
(D) THE COST OF BENEFIT PLANS FOR EMPLOYEES INCLUDING, BUT NOT
LIMITED TO, GROUP LIFE INSURANCE, HOSPITALIZATION, DISABILITY, PENSION,
RETIREMENT, THRIFT, AND OTHER BENEFIT PLANS APPLICABLE TO LABOR COSTS
CHARGEABLE UNDER SECTION . COSTS UNDER THIS SECTION 2.2(___) SHALL BE
CHARGED ON THE BASIS OF A PERCENTAGE ASSESSMENT ON THE AMOUNT OF THE
SALARIES AND WAGES CHARGEABLE UNDER SECTION , NOT TO EXCEED THE
PERCENTAGE MOST RECENTLY RECOMMENDED BY THE COUNCIL OF PETROLEUM
ACCOUNTANTS SOCIETIES.
35.5 REIMBURSABLE EXPENSES OF EMPLOYEES. REASONABLE PERSONAL EXPENSES OF
EMPLOYEES OF THE MANAGING PARTNER IN CONNECTION WITH PARTNERSHIP BUSINESS.
PERSONAL EXPENSES SHALL INCLUDE THE USUAL OUT-OF-POCKET EXPENDITURES INCURRED BY
EMPLOYEES IN THE PERFORMANCE OF THEIR DUTIES DIRECTLY RELATED TO THE OPERATION
OF THE GATHERING SYSTEM AND FOR WHICH SUCH EMPLOYEES ARE REIMBURSED.
35.6 MATERIAL, EQUIPMENT AND SUPPLIES. MATERIAL, EQUIPMENT AND SUPPLIES
PURCHASED OR FURNISHED FROM THE MANAGING PARTNER'S WAREHOUSE OR OTHER PROPERTIES
FOR USE IN THE OPERATION OF THE GATHERING SYSTEM. SO FAR AS IT IS REASONABLY
PRACTICAL AND CONSISTENT WITH EFFICIENT AND ECONOMICAL OPERATION, ONLY SUCH
MATERIAL SHALL BE OBTAINED FOR THE GATHERING SYSTEM AS MAY BE REQUIRED FOR
IMMEDIATE USE, AND THE ACCUMULATION OF SURPLUS STOCK SHALL BE AVOIDED. SUCH
MATERIAL SHALL BE PRICED IN ACCORDANCE WITH SECTION BELOW.
35.7 TRANSPORTATION. TRANSPORTATION OF EMPLOYEES OF THE MANAGING PARTNER
IN CONNECTION WITH PARTNERSHIP BUSINESS, EQUIPMENT, MATERIAL AND SUPPLIES
NECESSARY FOR THE OPERATION OF THE GATHERING SYSTEM. HOWEVER, UNLESS OTHERWISE
PREVIOUSLY AGREED TO, THE MANAGEMENT COMMITTEE MAY REQUIRE THAT CHARGES FOR
TRANSPORTATION OF EQUIPMENT, MATERIAL AND SUPPLIES FURNISHED FROM THE MANAGING
PARTNER'S WAREHOUSE OR OTHER PROPERTIES BE
ii
RECALCULATED AND REDUCED IF SUCH CHARGES ARE IN EXCESS OF THE TRANSPORTATION
WHICH WOULD HAVE BEEN CHARGED FOR MOVEMENT OF PROPERTY FROM THE NEAREST RELIABLE
SUPPLY STORE OR RAILROAD RECEIVING POINT.
35.8 SERVICES AND MATERIALS. THE COST OF CONTRACT SERVICES AND UTILITIES
PROCURED FROM NON-AFFILIATES, THE COST OF USE AND SERVICE OF VEHICLES, EQUIPMENT
AND FACILITIES AS PROVIDED IN SECTION 3.5, AND THE COST OF MATERIALS PURCHASED
FROM THIRD PARTIES (INCLUDING PARTNERS OTHER THAN THE MANAGING PARTNER).
35.9 LEGAL EXPENSES AND CLAIMS. SUBJECT TO APPROVAL OF THE MANAGEMENT
COMMITTEE AS REQUIRED BY THE AGREEMENT, ALL COSTS AND EXPENSES OF HANDLING,
INVESTIGATING AND SETTLING LITIGATION OR CLAIMS ARISING BY REASON OF THE
OPERATION OF THE GATHERING SYSTEM OR NECESSARY TO PROTECT OR RECOVER ANY
GATHERING SYSTEM PROPERTY OR HANDLING REGULATORY OR OTHER LEGAL MATTERS FOR
OWNER, INCLUDING, BUT NOT LIMITED TO, ATTORNEY'S FEES, COURT COSTS, COSTS OF
INVESTIGATION OR PROCURING EVIDENCE, AND ANY JUDGMENTS PAID OR AMOUNTS PAID IN
SETTLEMENT OR SATISFACTION OF ANY SUCH LITIGATION OR CLAIMS.
35.10 TAXES. ALL TAXES OF EVERY KIND AND NATURE PAYABLE BY THE
PARTNERSHIP IN CONNECTION WITH THE GATHERING SYSTEM OR THE OPERATION OF THE
GATHERING SYSTEM.
35.11 INSURANCE. PREMIUMS PAID OR ALLOCATED FOR INSURANCE REQUIRED TO BE
CARRIED UNDER THE AGREEMENT.
35.12 PERMITS, LICENSES AND BONDS. COSTS OF PERMITS, LICENSES,
CERTIFICATES AND BOND PREMIUMS NECESSARY IN THE PERFORMANCE OF THE MANAGING
PARTNER'S DUTIES.
35.13 DAMAGES AND LOSSES TO THE PROJECT. TO THE EXTENT NOT COVERED BY
INSURANCE, ALL COSTS AND EXPENSES INCURRED FOR REPAIR OR REPLACEMENT OF PROPERTY
USED IN AND FOR THE GATHERING SYSTEM FOR DAMAGE OR LOSS INCURRED BY FIRE, FLOOD,
STORM, THEFT ACCIDENT OR OTHER CAUSES, EXCEPT THOSE RESULTING FROM THE MANAGING
PARTNER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
35.14 REPORTING EXPENSES. REASONABLE THIRD PARTY PREPARATION AND FILING
COSTS, EXPENSES AND FEES INCURRED BY THE MANAGING PARTNER IN CONNECTION WITH
REQUIRED GOVERNMENTAL FILINGS AND REPORTS.
iii
35.15 OTHER COSTS, EXPENSES AND EXPENDITURES. ANY OTHER COSTS, EXPENSES
AND EXPENDITURES NOT COVERED OR DEALT WITH IN THE FOREGOING PROVISIONS OF THIS
ARTICLE WHICH ARE REASONABLY INCURRED IN THE OWNERSHIP OF THE GATHERING SYSTEM
OR THE OPERATION OF THE GATHERING SYSTEM AS AUTHORIZED BY THE AGREEMENT.
35.16 OVERHEAD CHARGES. THE MANAGING PARTNER SHALL CHARGE THE AMOUNTS AS
SET FORTH IN SECTION 6.5 OF THE AGREEMENT, PAYABLE WITHIN 25 DAYS AFTER THE
CLOSE OF EACH MONTH.
ARTICLE 3
BASIS OF CHARGES
35.17 PURCHASES. MATERIAL PURCHASED AND SERVICES PROCURED SHALL BE
CHARGED AT THE PRICE PAID AFTER DEDUCTION OF ALL DISCOUNTS ACTUALLY RECEIVED,
INCLUDING MATERIALS ACQUIRED FROM A PARTNER OTHER THAN THE MANAGING PARTNER.
35.18 MATERIAL FURNISHED FROM THE MANAGING PARTNER'S WAREHOUSE OR OTHER
PROPERTIES.
(A) NEW MATERIAL. TUBULAR GOODS, TWO INCH AND OVER, SHALL BE
PRICED AT THE AVERAGE PRICE ON COMPETITIVE BIDS FROM AT LEAST THREE
SUPPLIERS, IF AVAILABLE. IN ADDITION, THE MANAGING PARTNER SHALL BE
PERMITTED TO INCLUDE LOADING AND UNLOADING COSTS ACTUALLY SUSTAINED.
OTHER MATERIAL SHALL BE PRICED AT THE CURRENT REPLACEMENT COST OF THE
SAME KIND OF MATERIAL, DETERMINED BY TAKING THE AVERAGE PRICE ON
COMPETITIVE BIDS FROM AT LEAST THREE SUPPLIERS CLOSEST TO THE GATHERING
SYSTEM, IF AVAILABLE, EFFECTIVE AT THE DATE OF MOVEMENT BY THE MANAGING
PARTNER AND F.O.B. THE SUPPLY STORE OR RAILWAY RECEIVING POINT NEAREST
THE GATHERING. SYSTEM WHERE MATERIAL OF THE SAME KIND IS AVAILABLE. THE
PARTNERSHIP SHALL RECEIVE ALL DISCOUNTS APPLICABLE TO PRICES PROVIDED
FOR IN THIS SECTION 3.3(a), 3.3(p).
(B) USED MATERIAL. USED MATERIAL IN SOUND AND SERVICEABLE
CONDITION AND SUITABLE FOR REUSE SHALL BE PRICED AT SEVENTY-FIVE PERCENT
OF THE CURRENT PRICE OF NEW MATERIAL AS DETERMINED IN SECTION 3.3(a),
3.3(p) ABOVE. USED MATERIAL WHICH CANNOT BE CLASSIFIED AS BEING IN A
SOUND AND SERVICEABLE CONDITION AND WHICH IS NO LONGER SUITABLE FOR ITS
ORIGINAL PURPOSE, BUT USEABLE
iv
FOR SOME OTHER PURPOSE, SHALL BE PRICED ON A BASIS COMPARABLE WITH THAT
OF ITEMS NORMALLY USED FOR SUCH A PURPOSE.
35.19 PREMIUM PRICES. WHENEVER MATERIAL IS NOT READILY OBTAINABLE AT THE
PRICES CONTEMPLATED BY THE MANAGING PARTNER FOR A PROJECT (WHICH PROJECT HAS
BEEN APPROVED IN ACCORDANCE WITH THE AGREEMENT BY THE MANAGEMENT COMMITTEE)
BECAUSE OF NATIONAL EMERGENCIES, STRIKES OR OTHER UNUSUAL CAUSES OVER WHICH THE
MANAGING PARTNER HAS NO CONTROL, THE MANAGING PARTNER MAY CHARGE FOR THE
REQUIRED MATERIAL AT THE PREMIUM PRICE (INCLUDING THE COST OF MAKING IT SUITABLE
FOR USE AND OF MOVING IT TO THE GATHERING SYSTEM) SUBJECT TO MANAGEMENT
COMMITTEE APPROVAL.
35.20 WARRANTY OF MATERIAL FURNISHED. THE MANAGING PARTNER DOES NOT
WARRANT ANY MATERIAL FURNISHED BEYOND, OR IN ADDITION TO, THE WARRANTY OR
GUARANTY OF THE MANUFACTURER OR ITS AGENT. THE MANAGING PARTNER EXPRESSLY
DISCLAIMS AND NEGATES ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IN THE CASE OF DEFECTIVE MATERIAL, THE MANAGING PARTNER
SHALL CREDIT THE PARTNERSHIP WITH ALL ADJUSTMENTS FROM THE MANUFACTURER OR
AGENT.
35.21 EQUIPMENT AND FACILITIES FURNISHED.
(A) THE MANAGING PARTNER SHALL CHARGE FOR THE USE OF ITS
VEHICLES, EQUIPMENT AND FACILITIES ON PARTNERSHIP BUSINESS AT RATES
COMMENSURATE WITH THE COST OF OWNERSHIP AND OPERATION. SUCH RATES SHALL
INCLUDE THE COST OF OPERATION, MAINTENANCE, REPAIR, INSURANCE, TAXES AND
OTHER NECESSARY AND USUAL EXPENSES AND DEPRECIATION. RATES FOR
AUTOMOTIVE EQUIPMENT SHALL GENERALLY BE IN LINE WITH RATES CURRENTLY
PREVAILING IN THE AREA. RATES FOR LABORATORY SERVICES SHALL NOT EXCEED
THOSE CURRENTLY PREVAILING FOR SIMILAR SERVICES BY OUTSIDE SERVICE
LABORATORIES. RATES FOR TRUCKS AND TRACTORS MAY NOT INCLUDE WAGES AND
EXPENSES OF THE OPERATORS OF SUCH TRUCKS AND TRACTORS. THE MANAGING
PARTNER MAY NOT CHARGE FOR THE USE OF VEHICLES USED BY PERSONS DESCRIBED
IN THE LAST SENTENCE OF SECTION 2.2.(a).
(B) WHEN REQUESTED, THE MANAGING PARTNER SHALL INFORM THE
MANAGEMENT COMMITTEE IN ADVANCE OF THE RATES IT PROPOSES TO CHARGE.
RATES SHALL BE REVISED AND ADJUSTED FROM TIME TO TIME ON A PROSPECTIVE
BASIS ONLY WHEN FOUND TO BE EITHER INSUFFICIENT OR EXCESSIVE BY THE
PARTNERSHIP.
v
ARTICLE 4
DISPOSAL OF MATERIAL
35.22 SURPLUS MATERIAL. ANY OF THE PARTNERS MAY PURCHASE, BUT SHALL BE
UNDER NO OBLIGATION TO PURCHASE, THE INTEREST OF THE PARTNERSHIP IN MATERIAL
WHICH HAS BECOME SURPLUS MATERIAL. THE DISPOSITION OF SUCH SURPLUS MATERIAL, IF
PURCHASED BY A PARTNER OR A THIRD PARTY, SHALL BE SUBJECT TO AGREEMENT BETWEEN
THE PARTNER OR THIRD PARTY AND THE PARTNERSHIP ACTING BY AND THROUGH THE
MANAGEMENT COMMITTEE, PROVIDED THE MANAGING PARTNER SHALL DISPOSE OF NORMAL
ACCUMULATIONS OF JUNK AND SCRAP MATERIAL AND PROVIDED FURTHER THAT THE PRICE OF
MATERIAL SOLD TO A PARTNER SHALL BE AS DETERMINED IN ACCORDANCE WITH ARTICLE 5,
5.1 BELOW. THE MANAGING PARTNER WILL GIVE NOTICE TO THE MANAGEMENT COMMITTEE OF
SURPLUS MATERIALS FOR SALE.
35.23 CREDITS FOR SALES. SALES OF MATERIAL TO ANY PERSON SHALL BE
CREDITED BY THE MANAGING PARTNER TO THE PARTNERSHIP AT THE NET AMOUNT COLLECTED
BY THE MANAGING PARTNER FROM THE VENDEE. THE MANAGING PARTNER SHALL TAKE ALL
REASONABLE AND NECESSARY STEPS TO COLLECT SUCH PROCEEDS. ANY CLAIM BY THE VENDEE
RELATED TO SUCH SALE SHALL BE FOR THE ACCOUNT OF THE PARTNERSHIP.
ARTICLE 5
BASIS OF PRICING SURPLUS
MATERIAL TRANSFERRED TO A PARTNER
35.24 MATERIAL PURCHASED BY A PARTNER, UNLESS OTHERWISE AGREED TO
BETWEEN THE PARTNER AND THE MANAGEMENT COMMITTEE, SHALL BE PRICED AFTER TAKING
COMPETITIVE BIDS ON THE FOLLOWING BASIS:
(A) NEW PRICE DEFINED. THE TERM "NEW PRICE" AS USED HEREIN SHALL
BE THE PRICE DETERMINED FOR NEW MATERIAL IN THE MANNER PROVIDED IN
SECTION .
(B) NEW MATERIAL. NEW MATERIAL, BEING MATERIAL PROCURED FOR THE
GATHERING SYSTEM BUT NEVER USED AT 100% OF CURRENT NEW PRICE.
(C) USED MATERIAL.
vi
(1) USED MATERIAL WHICH IS IN SOUND AND SERVICEABLE
CONDITION AND SUITABLE FOR REUSE WITHOUT RECONDITIONING AT 75% OF
CURRENT NEW PRICE OR AT SUCH LESSER AMOUNT AS IS AGREED UPON BY
THE MANAGEMENT COMMITTEE AND THE PURCHASING PARTNER.
(2) USED MATERIAL WHICH CANNOT BE CLASSIFIED AS BEING IN A
SOUND AN SERVICEABLE CONDITION AND WHICH IS NO LONGER SUITABLE
FOR ITS ORIGINAL PURPOSE, BUT USABLE FOR SOME OTHER PURPOSE AT A
PRICE COMPARABLE WITH THAT OF USED MATERIAL NORMALLY USED FOR
SUCH OTHER PURPOSE, OR AT SUCH LESSER AMOUNT AS IS AGREED UPON BY
THE MANAGEMENT COMMITTEE AND THE PURCHASING PARTNER.
(3) JUNK MATERIAL, BEING OBSOLETE AND SCRAP MATERIAL - AT
PREVAILING PRICES.
(D) TEMPORARILY USED MATERIAL. WHEN NEW MATERIAL HAS BEEN USED
FOR LESS THAN ONE YEAR AND ITS SERVICE TO THE GATHERING SYSTEM DOES NOT
JUSTIFY THE REDUCTION IN PRICE CONTEMPLATED BY SECTION 5.1(c), SUCH
MATERIAL SHALL BE PRICED ON A BASIS THAT WILL LEAVE A NET PAYMENT TO THE
PARTNERSHIP CONSISTENT WITH THE VALUE OF THE MATERIAL SOLD AS DETERMINED
BY THE MANAGEMENT COMMITTEE.
(E) TAXES. IN ADDITION TO THE PURCHASE PRICE, THE PURCHASING
PARTNER SHALL PAY ALL SALES AND USE TAXES APPLICABLE TO SUCH SALE.
vii
EXHIBIT D
TAX MATTERS
THIS EXHIBIT IS MADE A PART OF THAT CERTAIN FOURTH AMENDED AND
RESTATED GENERAL PARTNERSHIP AGREEMENT FOR DAUPHIN ISLAND GATHERING PARTNERS.
35.25 GENERAL.
(A) THE TAX MATTERS PARTNER (THE "TMP") AND OTHER PARTIES SHALL
USE THEIR BEST EFFORTS TO COMPLY WITH THE RESPONSIBILITIES OUTLINED IN
THIS SECTION AND IN SECTIONS 6222 THROUGH 6233 OF THE INTERNAL REVENUE
CODE ("CODE") (INCLUDING ANY TREASURY REGULATIONS PROMULGATED
THEREUNDER) AND IN DOING SO SHALL INCUR NO LIABILITY TO ANY OTHER PARTY.
NOTWITHSTANDING THE TMP'S OBLIGATION TO USE ITS BEST EFFORTS IN THE
FULFILLMENT OF ITS RESPONSIBILITIES, THE TMP SHALL NOT BE REQUIRED TO
INCUR ANY EXPENSES FOR THE PREPARATION FOR OR PURSUANCE OF
ADMINISTRATIVE OR JUDICIAL PROCEEDINGS UNLESS THE PARTIES AGREE ON A
METHOD FOR SHARING SUCH EXPENSES.
(B) IN THE EVENT OF ANY CHANGE IN THE TMP, THE PARTY SERVING AS
THE TMP FOR A GIVEN TAXABLE YEAR SHALL CONTINUE AS THE TMP WITH RESPECT
TO ALL MATTERS CONCERNING SUCH YEAR.
35.26 NOTICE. THE PARTIES SHALL FURNISH THE TMP WITH SUCH INFORMATION
(INCLUDING INFORMATION SPECIFIED IN SECTION 6230(E) OF THE CODE), AS IT MAY
REASONABLY REQUEST TO PERMIT IT TO PROVIDE THE INTERNAL REVENUE SERVICE WITH
SUFFICIENT INFORMATION TO ALLOW PROPER NOTICE TO THE PARTIES IN ACCORDANCE WITH
SECTION 6223 OF THE CODE.
35.27 INCONSISTENT TREATMENT OF PARTNERSHIP ITEM. IF ANY PARTY INTENDS
TO FILE A NOTICE OF INCONSISTENT TREATMENT UNDER SECTION 6222(B) OF THE CODE,
SUCH PARTY SHALL, AT LEAST 30 DAYS PRIOR TO THE FILING OF SUCH NOTICE, NOTIFY
THE OTHER PARTIES OF SUCH INTENT AND THE MANNER IN WHICH THE PARTY'S INTENDED
TREATMENT OF A PARTNERSHIP ITEM IS (OR MAY BE) INCONSISTENT WITH THE TREATMENT
OF THAT ITEM BY THE PARTNERSHIP.
viii
35.28 EXTENSIONS OF LIMITATION PERIODS. THE TMP SHALL NOT ENTER INTO ANY
EXTENSION OF THE PERIOD OF LIMITATIONS FOR MAKING ASSESSMENTS ON BEHALF OF ANY
OTHER PARTY WITHOUT FIRST SECURING THE WRITTEN CONSENT OF THAT PARTY.
35.29 REQUESTS FOR ADMINISTRATIVE ADJUSTMENTS. NO PARTY SHALL FILE,
PURSUANT TO SECTION 6227 OF THE CODE, A REQUEST FOR AN ADMINISTRATIVE ADJUSTMENT
OF PARTNERSHIP ITEMS FOR ANY PARTNERSHIP TAXABLE YEAR WITHOUT FIRST NOTIFYING
THE MANAGEMENT COMMITTEE. IF THE MANAGEMENT COMMITTEE, BY A MAJORITY APPROVAL,
AGREES WITH THE REQUESTED ADJUSTMENT, THE TMP SHALL FILE THE REQUEST FOR
ADMINISTRATIVE ADJUSTMENT ON BEHALF OF THE PARTNERSHIP. IF A MAJORITY APPROVAL
IS NOT OBTAINED WITHIN 30 DAYS, OR WITHIN THE PERIOD REQUIRED TO TIMELY FILE THE
REQUEST FOR ADMINISTRATIVE ADJUSTMENT, IF SHORTER, ANY PARTNER, INCLUDING THE
TMP, MAY FILE A REQUEST FOR ADMINISTRATIVE ADJUSTMENT ON ITS OWN BEHALF.
35.30 JUDICIAL PROCEEDINGS. ANY PARTNER INTENDING TO FILE A PETITION
UNDER SECTION 6226 OR 6228, OR OTHER SECTIONS, OF THE CODE WITH RESPECT TO ANY
PARTNERSHIP ITEM, OR OTHER TAX MATTERS INVOLVING THE PARTNERSHIP, SHALL NOTIFY
THE MANAGEMENT COMMITTEE OF SUCH INTENTION AND THE NATURE OF THE CONTEMPLATED
PROCEEDING. IN THE CASE WHERE THE TMP IS THE PARTNER INTENDING TO FILE SUCH
PETITION, SUCH NOTICE SHALL BE GIVEN WITHIN A REASONABLE TIME TO ALLOW THE
MANAGEMENT COMMITTEE, BY A MAJORITY VOTE, TO CHOOSE THE FORUM IN WHICH SUCH
PETITION WILL BE FILED. IF THE MANAGEMENT COMMITTEE DOES NOT AGREE ON THE
APPROPRIATE FORUM, THEN THE TMP SHALL CHOOSE THE FORUM.
35.31 SETTLEMENTS. THE TMP SHALL NOT BIND ANY PARTNER TO A SETTLEMENT
AGREEMENT WITHOUT OBTAINING THE WRITTEN CONCURRENCE OF ANY PARTY WHO WOULD BE
BOUND BY SUCH AGREEMENT. ANY PARTNER WHO ENTERS INTO A SETTLEMENT AGREEMENT WITH
THE SECRETARY OF THE TREASURY WITH RESPECT TO ANY PARTNERSHIP ITEMS, AS DEFINED
BY SECTION 6231(A)(3) OF THE CODE, SHALL NOTIFY THE OTHER PARTNERS OF SUCH
SETTLEMENT AGREEMENT AND ITS TERMS WITHIN 30 DAYS FROM THE DATE OF SETTLEMENT.
35.32 SURVIVAL. THE PROVISIONS OF THIS EXHIBIT SHALL SURVIVE THE
TERMINATION OF THE PARTNERSHIP AND THE TERMINATION OF ANY PARTNER'S INTEREST IN
THE PARTNERSHIP AND SHALL REMAIN BINDING ON THE PARTIES FOR A PERIOD OF TIME
NECESSARY TO RESOLVE WITH THE INTERNAL REVENUE SERVICE OR THE DEPARTMENT OF THE
TREASURY ANY AND ALL MATTERS REGARDING THE FEDERAL INCOME TAXATION OF THE
PARTNERSHIP.
ix
35.33 OTHER TAXES. THE PROVISIONS OF THIS EXHIBIT SHALL APPLY FOR STATE
INCOME TAX PURPOSES (AND FOR OTHER TAXES COMPUTED WITH RESPECT TO INCOME) TO THE
EXTENT RULES SIMILAR TO CODE SECTIONS 6221 THROUGH 6233 ARE APPLICABLE TO SUCH
TAXES.
x
EXHIBIT 10.9
================================================================================
AGREEMENT FOR PURCHASE AND SALE
by and among
DAUPHIN ISLAND GATHERING COMPANY, L.P.
and
PIPELINE & PROCESSING GROUP, INC.
January 31, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Sale and Purchase of the Assets........................................1
1.1. The Assets......................................................1
2. Purchase Price.........................................................1
2.1. Basic Amount....................................................1
2.2. Adjustment to the Purchase Price................................1
3. Representations and Warranties of Seller...............................2
3.1. Organization....................................................2
3.2. Authority and Authorization.....................................2
3.3. Enforceability..................................................2
3.4. Conflicts.......................................................3
3.5. Ownership in DIGP...............................................3
3.6. Contracts.......................................................3
3.7. Litigation and Claims...........................................4
3.8. Approvals and Preferential Rights...............................4
3.9. Compliance with Law and Permits.................................4
3.10. Status of Contracts.............................................5
3.11. Property Taxes, Expenses and Revenues...........................5
3.12. Regulatory......................................................6
3.13. Distributions from DIGP.........................................6
3.14. Insurance.......................................................6
3.15. Subsidiaries of DIGP............................................6
3.16. Gas Imbalances..................................................6
3.17. Title and Liens.................................................6
3.18. Condition of DIGS...............................................7
3.19. Financial Statements............................................7
3.20. Absence of Changes..............................................7
3.21. Liabilities.....................................................8
3.22. Bank Accounts...................................................8
3.23. Employee Matters................................................8
3.24. Investment Company; PUHCA.......................................8
3.25. Copies of Governing Documents...................................8
4. Representations and Warranties of Buyer................................9
4.1. Organization....................................................9
4.2. Authorization and Authority.....................................9
4.3. Enforceability..................................................9
4.4. Conflicts.......................................................9
4.5. Qualified Purchaser............................................10
i
4.6. Available Funds................................................10
4.7. Environmental Report...........................................10
5. Covenants of Seller Pending Closing...................................10
5.1. Conduct of Business Pending Closing............................10
5.2. Access.........................................................11
5.3. Antitrust Notification.........................................11
5.4. Contributions..................................................11
5.5. Waiver of Preferential Rights..................................11
5.6. Financial Statements...........................................11
5.7. Easements......................................................12
6. Covenants of Buyer Pending Closing....................................12
6.1. Antitrust Notification.........................................12
6.2. Notifications..................................................12
7. Conditions Precedent to the Obligations of Buyer......................12
7.1. Representations and Warranties.................................12
7.2. Compliance.....................................................12
7.3. Consents.......................................................12
7.4. No Pending Suits...............................................12
7.5. HSR Act........................................................13
7.6. Partnership Agreement..........................................13
7.7. Simultaneous Closings..........................................13
7.8. Gathering Agreements...........................................13
7.9. Construction of the DIGS.......................................13
8. Conditions Precedent to the Obligations of Seller.....................13
8.1. Representations and Warranties.................................13
8.2. Compliance.....................................................14
8.3. Consents.......................................................14
8.4. No Pending Suits...............................................14
8.5. HSR Act........................................................14
8.6. Capital Contributions and Distributions........................14
8.7. Gathering Agreements...........................................14
8.8. Simultaneous Closings..........................................14
8.9. Partnership Agreement..........................................14
9. Closing...............................................................14
9.1. The Closing....................................................14
9.2. Documents to be Delivered at Closing...........................15
9.3. Possession.....................................................16
9.4. Payment of Purchase Price......................................16
9.5. Closing Representation by Buyer................................16
ii
10. Termination...........................................................16
10.1. Events of Termination..........................................16
10.2. Effect of Termination..........................................17
11. Assumption of Obligations.............................................17
11.1. Assumed Obligations............................................17
11.2. Retained Obligations...........................................18
12. Survival and Indemnification..........................................18
12.1. Survival.......................................................18
12.2. Liabilities....................................................18
12.3. Indemnification by Seller......................................18
12.4. Indemnification by Buyer.......................................19
12.5. Liability Limitations..........................................19
12.6. Waiver of Representations......................................24
12.7. WAIVER OF CONSUMER RIGHTS......................................24
12.8. Environmental Matters..........................................25
13. Further Assurances....................................................26
14. Access by Seller after Closing........................................26
15. Notices...............................................................26
16. Assignment............................................................27
17. Governing Law.........................................................27
18. Expenses and Fees; Income Tax Matters.................................27
18.1. Expenses and Fees..............................................27
18.2. Income Tax Matters.............................................27
19. Integration...........................................................28
20. Waiver or Modification................................................28
21. Headings..............................................................28
22. Invalid Provisions....................................................28
23. Waiver of Jury Trial..................................................28
24. Multiple Counterparts.................................................29
iii
25. Public Announcements..................................................29
26. Arbitration...........................................................29
26.1. Binding Arbitration............................................29
26.2. Arbitrators....................................................29
26.3. Conduct of Arbitration.........................................30
26.4. Costs of Arbitration...........................................30
27. Third Party Beneficiaries.............................................30
iv
TABLE OF DEFINED TERMS
TERM SECTION
AAA.................................................................. 26.1
Administrator........................................................ 26.2
Advisor ............................................................. 9.5
Affiliate............................................................ 3.6
Agreement............................................................ Page 1
Applicable Environmental Laws........................................ 3.9
Assets............................................................... 1.1
Assignee............................................................. Annex III
Assignor............................................................. Annex III
Bill of Sale......................................................... Annex III
Business Day......................................................... 15
Buyer................................................................ Page 1
Buyer Indemnified Parties............................................ 12.3
Claimant............................................................. 26.2
Closing.............................................................. 9.1
Closing Date......................................................... 9.1
Confidentiality Agreement............................................ 19
Contribution Agreement............................................... 1.1
DIGP................................................................. 1.1
DIGS................................................................. 1.1
Dispute.............................................................. 26.1
DTPA................................................................. 12.7
Easements............................................................ 3.17
Effective Date....................................................... 1.1
EGGI................................................................. 1.1
Encumbrances......................................................... 3.17
Environmental Report................................................. 4.7
Equitable Limitations................................................ 3.3
Exhibit.............................................................. 1.1
Financial Statements................................................. 3.19
HSR Act ............................................................. 5.3
Indemnified Claims................................................... 11.2
Indemnitee........................................................... 12.5
Indemnitor........................................................... 12.5
Liabilities ......................................................... 12.2
Non-Waivable Claims ................................................. 12.5
OEDC................................................................. 3.1
OEDC E&P............................................................. 7.8
Partners............................................................. 1.1
v
Partnership Agreement................................................ 1.1
Payoff Balance....................................................... 2.2
Permitted Encumbrances............................................... 3.17
Permits.............................................................. 3.9
Purchase Price....................................................... 2.1
Related Transactions................................................. 7.7
Respondent........................................................... 26.2
Seller............................................................... Page 1
Seller Indemnified Parties........................................... 12.4
September 30 Balance Sheet........................................... 3.19
TMBGC................................................................ 1.1
Torch Arbitration.................................................... 5.1
vi
AGREEMENT FOR PURCHASE AND SALE
This Agreement for Purchase and Sale ("AGREEMENT") is made and entered
into on this the 31st day of January, 1996, by and between Dauphin Island
Gathering Company, L.P.
("SELLER") and Pipeline & Processing Group, Inc. ("BUYER").
1. SALE AND PURCHASE OF THE ASSETS.
1.1. THE ASSETS. Subject to the terms and conditions and for the
consideration herein set forth, Seller agrees to sell, assign, convey and
deliver to Buyer, and Buyer agrees to purchase and acquire from Seller at
Closing, effective as of September 30, 1995 (the "EFFECTIVE DATE"), 96% of the
interest of Seller in or under the following (the "ASSETS"): (i) Dauphin Island
Gathering Partners ("DIGP") formed pursuant to the Amended and Restated General
Partnership Agreement for Dauphin Island Gathering Partners dated April 18,
1994, among Enron Gas Gathering, Inc. ("EGGI"), Seller and Tenneco Mobile Bay
Gathering Company ("TMBGC"), (EGGI, Seller and TMBGC are hereinafter referred to
collectively as "PARTNERS" or individually as a "PARTNER"), as amended by the
First Amendment to Amended and Restated General Partnership Agreement dated as
of December 31, 1994, among EGGI, Seller and TMBGC, as further amended by the
letter agreement dated January 8, 1996 among EGGI, Seller and TMBGC
(collectively, the "PARTNERSHIP AGREEMENT"); (ii) the Contribution Agreement
dated March 25, 1994, among EGGI, Seller and TMBGC, as amended by the First
Amendment to Contribution Agreement dated as of December 31, 1994, among EGGI,
Seller and TMBGC (collectively, the "CONTRIBUTION AGREEMENT"); and (iii) all
rights and claims of Seller under any insurance policies of DIGP with
non-affiliates of Seller to the extent such rights and claims relate to an
obligation or liability assumed by Buyer under Section 11 hereof. The principal
asset of DIGP is Dauphin Island Gathering System (the "DIGS"). A detailed
description of the DIGS is contained in the Exhibit to Agreement for Purchase
and Sale attached to this Agreement (the "EXHIBIT").
2. PURCHASE PRICE.
2.1. BASIC AMOUNT. The purchase price for the Assets, subject to
adjustment pursuant to Section 2.2, shall be $17,999,899 (the "PURCHASE PRICE").
A portion of the Purchase Price will be used to pay a portion of the
indebtedness to Swiss Bank Corporation as provided in Section 9.
2.2. ADJUSTMENT TO THE PURCHASE PRICE. The Purchase Price shall be
decreased by an amount equal to 24% of the amount by which (i) the amount
required to be paid to satisfy in its entirety the indebtedness to Swiss Bank
Corporation pursuant the documents described in Item 1 of Part I of the Exhibit
(the "PAYOFF BALANCE") on September 30, 1995 (to the extent such amount is shown
on the September 30 Balance Sheet), exceeds (ii) the Payoff Balance on the
Closing Date. The Purchase Price shall be increased by an amount
1
equal to 24% of the amount by which (a) the Payoff Balance on the Closing Date
exceeds (b) the Payoff Balance on September 30, 1995 (to the extent such amount
is shown on the September 30 Balance Sheet).
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Buyer as follows (to the extent that any of the representations and warranties
contained in this Section 3 are limited by the phrase "to Seller's knowledge,"
such phrase shall mean to the actual knowledge of Seller; provided, however,
that Seller shall not be required to have conducted any investigation in
connection with the making of these representations and warranties):
3.1. ORGANIZATION.
3.1.1. Seller is a limited partnership duly organized and in good
standing under the laws of the State of Texas. Seller is qualified to do
business in and is in good standing under the laws of the State of Alabama. The
sole general partner of Seller is OEDC, Inc. ("OEDC"). OEDC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. OEDC is qualified to do business in and is in good standing
under the laws of the State of Alabama.
3.1.2. DIGP is a general partnership duly organized under the
laws of the State of Texas, and has taken all necessary action (if any) to
qualify to do business in the State of Alabama and in any other jurisdiction in
which the nature of its operations make qualification necessary or advisable.
3.2. AUTHORITY AND AUTHORIZATION. Seller has full partnership power and
author ity to carry on its business as presently conducted, to enter into this
Agreement and to perform its obligations under this Agreement. The execution and
delivery of this Agreement by Seller have been, and the performance by Seller of
this Agreement and the transactions contemplated hereby shall be at the time
required to be performed hereunder, duly and validly authorized by all requisite
partnership action on the part of Seller.
3.3. ENFORCEABILITY. This Agreement has been duly executed and delivered
on behalf of Seller and constitutes the legal, valid and binding obligation of
Seller enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, reorganization or moratorium statutes, or
other similar laws affecting the rights of creditors generally or equitable
principles (collectively, "EQUITABLE LIMITATIONS"). At the Closing all documents
and instruments required hereunder to be executed and delivered by Seller shall
be duly executed and delivered and shall constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms, except as
enforceability may be limited by Equitable Limitations.
2
3.4. CONFLICTS.
3.4.1. The execution and delivery of this Agreement by Seller
does not, and the consummation of the transactions contemplated by this
Agreement shall not, (a) violate or be in conflict with, or require the consent
of any person or entity under, any provision of the governing documents of
Seller or OEDC, (b) violate any provision of or require any consent,
authorization or approval under any judgment, decree, judicial or administrative
order, award, writ, injunction, statute, rule or regulation applicable to Seller
or OEDC or (c) result in the creation of any lien, charge or encumbrance on the
DIGS or any of the Assets.
3.4.2. The execution and delivery of this Agreement by Seller
does not, and the consummation of the transactions contemplated by this
Agreement shall not, (a) violate or be in conflict with, or require the consent
of any person or entity under, any provision of the governing documents of DIGP,
except as may be required pursuant to Section 12.1 of the Partnership Agreement,
(b) violate any provision of or require any consent, authorization or approval
under any judgment, decree, judicial or administrative order, award, writ,
injunc tion, statute, rule or regulation applicable to DIGP or (c) result in the
creation of any lien, charge or encumbrance on the DIGS or any other assets of
DIGP.
3.5. OWNERSHIP IN DIGP. Except as expressly provided in the Partnership
Agreement, Seller is entitled to 25% of all distributions from DIGP and of each
allocation of partnership income, gain, loss, deduction and credit.
3.6. CONTRACTS.
3.6.1. The Exhibit contains a complete and accurate list of the
following contracts, agreements, and commitments to which DIGP, or any of its
assets, is bound: (a) any agreement with any Affiliate of Seller; (b) any gas
gathering agreement; (c) any agreement with any downstream transporting pipeline
with which the DIGS is connected; (d) any agreement with a general contractor
for the construction of the DIGS; (e) any agreement with any lender; (f) any
agreement to sell, lease or otherwise dispose of any of its interests in any of
its assets; (g) any operating agreement or operating and maintenance agreement;
(h) permits, licenses and rights-of-way that relate to the DIGS; and (i) any
other contract, agreement or arrangement which is material to DIGP or to the
ownership, operation, value or use of the DIGS.
3.6.2. In addition, the Exhibit contains a complete and accurate
list of all contracts, agreements and commitments of Seller evidencing
obligations or liabilities assumed by Buyer pursuant to Section 11.1.
3.6.3. As used herein, "AFFILIATE" means any person directly or
indirectly controlling, controlled by, managed by or under common control with
any other person.
3
3.7. LITIGATION AND CLAIMS. Except as set forth on the Exhibit, no
claim, demand, filing, investigation, administrative proceeding, action, suit or
other legal proceeding is pending or, to Seller's knowledge, threatened, against
(a) Seller relating to the ownership or operation of the DIGS or to obligations
or liabilities of Seller assumed by Buyer pursuant to Section 11.1 or (b) DIGP.
No written notice, or to Seller's knowledge, no oral notice, from any
governmental authority or any other person (including employees) has been
received by Seller or DIGP (i) claiming any violation of any law, rule,
regulation, ordinance, order, decision or decree of any governmental authority
(including, without limitation, any such law, rule, regulation, ordinance,
order, decision or decree concerning the conservation of natural resources) or
(ii) requiring, or calling attention to the need for, any repairs of the DIGS or
any alterations or modifications to correct inadequacies of design or
construction of the DIGS.
3.8. APPROVALS AND PREFERENTIAL RIGHTS. The Exhibit contains a complete
and accurate list of (a) all approvals and consents required to be obtained by
Seller for the assignment or transfer of the Assets to Buyer, and (b) all
preferential purchase rights that affect the Assets and are applicable to the
transactions contemplated hereby.
3.9. COMPLIANCE WITH LAW AND PERMITS.
3.9.1. To Seller's knowledge, except as set forth on the Exhibit,
(a) the DIGS has been and currently is operated, and DIGP
and the DIGS are, in compliance with the provisions and requirements of all
laws, rules, regulations, ordinances, orders, decisions and decrees of all
governmental authorities having jurisdiction with respect to the DIGS or the
ownership or operation thereof, and in compliance with any necessary licenses
for the use of patents or other trade secrets;
(b) all necessary governmental permits, licenses and other
authorizations (hereinafter called "PERMITS") with regard to the ownership or
operation of the DIGS by DIGP have been obtained and maintained in effect;
(c) no violations by Seller or DIGP exist in respect of
such Permits; and
(d) the ownership and operation of the DIGS has been in
conformity, in all material respects, with the Permits.
3.9.2. To Seller's knowledge, except as set forth on the Exhibit,
(a) neither DIGP nor the DIGS is in violation of, or with
the lapse of time or the giving of notice, or both, would be in violation of,
any applicable federal, state or local laws, rules, regulations, orders or
ordinances pertaining to hazardous substances, environmentally hazardous
activity, or otherwise to the protection of health, safety or the
4
environment (collectively, the "APPLICABLE ENVIRONMENTAL LAWS"), including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976,
as amended, the Clean Air Act, as amended, the Federal Water Pollution Control
Act, as amended, and the Oil Pollution Act of 1990;
(b) neither DIGP nor the DIGS is subject to, or with the
lapse of time or the giving of notice, or both, would be subject to, any
existing, pending or threatened investigation or inquiry by any governmental
authority under any Applicable Environmental Laws;
(c) neither DIGP nor the DIGS is subject to, or with the
lapse of time or the giving of notice, or both, would be subject to, any
remedial obligations under any Applicable Environmental Laws;
(d) there is no physical condition or circumstance which,
with the giving of notice to, or the receiving of notice or orders from, any
governmental authority, would reasonably be expected to result in Liability
relating to DIGP under any Applicable Environmental Law; and
(e) the DIGS is free from naturally occurring radioactive
material in reportable quantities.
3.9.3. To Seller's knowledge, DIGP and the ownership and
operation of the DIGS (during Seller's ownership of a partnership interest in
DIGP or DIGP's ownership or operation thereof) have been in full compliance in
all material respects with 49 U.S.C. ss. 1671 ET SEQ., as amended, and all
applicable other federal, state, municipal or local statute, ordinances or
similar matters, which pertain to the safe and prudent operation and maintenance
of the DIGS and similar facilities, and all rules and regulations promulgated
thereunder.
3.10. STATUS OF CONTRACTS. Except as set forth on the Exhibit, to
Seller's knowledge, all of the permits, easements, agreements and contracts
described in the Exhibit are in full force and effect as to DIGP or Seller, as
applicable, and as to the contract counterparties; and, to Seller's knowledge,
DIGP is not in breach of, or with the lapse of time or the giving of notice, or
both, would be in breach of, any of its obligations thereunder.
3.11. PROPERTY TAXES, EXPENSES AND REVENUES. All ad valorem, property
and other taxes based on the ownership of the DIGS that are due and payable have
been properly and timely paid. All amounts payable by either DIGP or Seller
under the terms of the con tracts described in the Exhibit have been properly
and timely paid except for such expenses as are currently payable prior to
delinquency in the ordinary course of business. Except for minor amounts payable
by Excel Resources, Inc., all amounts payable by third-party
5
producers under the terms of the gathering agreements relating to the DIGS are
being properly and timely paid to DIGP.
3.12. REGULATORY. DIGP has not made any filing under Section 7(c) of the
Natural Gas Act.
3.13. DISTRIBUTIONS FROM DIGP. There have been no distributions or other
payments by DIGP to any Partner of DIGP since the Effective Date except (a) as
contemplated in Section 5.1.2 or (b) as fees or reimbursements to the Operator
or the Gas Controller (as those terms are defined in the Partnership Agreement)
in accordance with the terms of the Partnership Agreement; (c) or amounts
payable to TMBGC or its Affiliates for construction services relating to the
DIGS..
3.14. INSURANCE. The Exhibit contains a complete and accurate list of
all insurance coverage maintained by or on behalf of DIGP.
3.15. SUBSIDIARIES OF DIGP. DIGP has no subsidiaries. DIGP is not a
partner or joint venturer in any partnership or joint venture.
3.16. GAS IMBALANCES. There are no gas imbalances relating to the DIGS
or for which DIGP has or may have liability to any party, other than potential
liability to shippers for overdeliveries of gas for which DIGP would have a
resulting claim against another shipper for underdeliveries of gas.
3.17. TITLE AND LIENS.
3.17.1. DIGP, or an Affiliate of OEDC Partners, L.P., (i) has
good and indefeasible title to the easements, servitudes, rights of way and
other real property rights on which the DIGS is located (the "EASEMENTS"), all
of which are listed on the Exhibit and (ii) owns all of the rights, personal
property and fixtures required for the use and operation of the DIGS in the
manner in which it has been operated since the Effective Date, in both
instances, all free and clear of defects and irregularities and free and clear
of all liens, security interests, encumbrances, contracts, agreements and other
burdens (the "ENCUMBRANCES"), except for Permitted Encumbrances. The rights
granted by the Easements (I) grant to DIGP, or an Affiliate of OEDC Partners,
L.P., the full power and legal right to own and operate the DIGS in the manner
in which it is currently being operated and (II) form a continuous, unbroken
path along the route depicted in the Exhibit. As used in this Agreement, the
term "PERMITTED ENCUMBRANCES" shall mean (a) Encumbrances listed in the Exhibit,
including the terms of the Easements; (b) liens for current taxes and
assessments that are not yet due and payable; (c) mechanics', warehousemens',
landlord's and other similar statutory liens securing the payment of amounts
that are not yet due and payable; (d) Encumbrances in favor of Swiss Bank
Corporation, New York Branch, as collateral agent, which shall be released, and
the indebtedness secured thereby fully discharged, at the Closing; and (e) other
defects or irregularities of title affecting any of DIGP's assets that
6
individually or in the aggregate would not have an adverse effect on the
operation, value or use of such assets.
3.17.2. Seller is the owner of the Assets free of all
Encumbrances other than (i) Encumbrances in favor of Joint Energy Development
Investments Limited Partnership and Swiss Bank Corporation, which shall be
released at Closing and (ii) the terms and provisions of the Partnership
Agreement and the Contribution Agreement.
3.18. CONDITION OF DIGS. The equipment related to the DIGS has been
maintained in satisfactory operating condition consistent with good, prudent
industry practice and is capable of being used in the operation of the DIGS in
the manner in which it has been historically operated without present need for
repair or replacement except in the ordinary course of business.
3.19. FINANCIAL STATEMENTS.
3.19.1. Seller has delivered to Buyer copies of the following
financial statements (the "FINANCIAL STATEMENTS"):
(a) the unaudited balance sheet of DIGP as of September 30, 1995
(the "SEPTEMBER 30 BALANCE SHEET"), and related statements of income for the
period ended September 30, 1995;
(b) the audited financial statements of DIGP as of December 31,
1994, and for the calendar year ending December 31, 1994, including the balance
sheet and statements of income, partner's equity and cash flows; and
(c) the unaudited balance sheet of DIGP as of December 31, 1995,
for the calendar year ending December 31, 1995.
3.19.2. To Seller's knowledge, the books and records of DIGP have
been kept and maintained in accordance with good industry practice. To Seller's
knowledge, the Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied except as noted
therein (and except that the unaudited financial statements do not contain
footnotes) and fairly present in all material respects (i) the financial
position of DIGP as of the respective dates set forth therein and (ii) the
results of the operations and cash flows of DIGP for the fiscal periods set
forth therein.
3.20. ABSENCE OF CHANGES. Except (a) as disclosed in the Exhibit, (b) as
disclosed in the Financial Statements and (c) on account of matters that
generally affect the economy or the industry in which DIGP is engaged, since
September 30, 1995, there have been no adverse changes in (a) the assets,
liabilities or financial condition of DIGP or (b) the business, financial
condition or results of operations of DIGP.
7
3.21. LIABILITIES. Except as set forth on the Exhibit or as otherwise
set forth in the Financial Statements or reflected in the notes thereto, DIGP
does not have any obligation or liability (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due), other than
contractual liabilities incurred in the ordinary course of business that are not
required to be disclosed on the Financial Statements and other than liabilities
which have arisen after September 30, 1995, in the ordinary course of business,
consistent with past practices.
3.22. BANK ACCOUNTS. The Exhibit contains a list of all bank accounts
maintained by DIGP and the name of each person authorized to draw checks on such
accounts.
3.23. EMPLOYEE MATTERS. DIGP does not have, and has never had, any
employees and there is no "employee benefit plan" (as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974) sponsored
by, maintained by or to which DIGP has contributed.
3.24. INVESTMENT COMPANY; PUHCA.
3.24.1. Seller is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company," a "subsidiary company"
of a "holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
3.24.2. DIGP is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, or a "holding company" or a
"public utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
3.25. COPIES OF GOVERNING DOCUMENTS.
3.25.1. The copies of the Partnership Agreement and the
Contribution Agreement that were previously delivered to Buyer are complete and
accurate copies of the originals of those documents.
3.25.2. Except as set forth on the Exhibit, there are no
documents between Seller and any other Partner relating to DIGP for which Buyer
or DIGP would be liable from and after the Closing.
3.26. CAPITAL CONTRIBUTIONS. Except for the capital contributions
contemplated in Section 5.4 of the Partnership Agreement (that are to be made
contemporaneously with Closing as contemplated in Section 8.6), all capital
contributions to be made by Seller to DIGP under the terms of the Partnership
Agreement through the Closing have been timely made, and there remain no
outstanding obligations of Seller (or to Seller's knowledge, any other Partner)
to make contributions to DIGP. After the Closing, DIGP will not have any
8
obligation to Seller with respect to Seller's capital account in DIGP
attributable to the interest in DIGP to be sold to Buyer pursuant to this
Agreement.
If and when given, the representations by Seller and Buyer contained in
the certificates attached to this Agreement as Annex I and Annex II shall be
deemed to be representations under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Seller that:
4.1. ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan. As of the
Closing, Buyer shall be qualified to do business in and in good standing under
the laws of the State of Alabama.
4.2. AUTHORIZATION AND AUTHORITY. The execution and delivery of this
Agree ment have been and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed hereunder,
duly and validly authorized by all requisite corporate action on the part of
Buyer. Buyer has full corporate power and authority to carry on its business as
presently conducted, to enter into this Agreement, to purchase the Assets on the
terms described in this Agreement and to perform its other obligations under
this Agreement.
4.3. ENFORCEABILITY. This Agreement has been duly executed and delivered
on behalf of Buyer, and constitutes a legal, valid and binding obligation of
Buyer enforceable in accordance with its terms, except as enforceability may be
limited by Equitable Limita tions. At the Closing all documents required
hereunder to be executed and delivered by Buyer shall be duly executed and
delivered and shall constitute legal, valid and binding obligations of Buyer
enforceable in accordance with their terms, except as enforceability may be
limited by Equitable Limitations.
4.4. CONFLICTS. The execution and delivery of this Agreement by Buyer
does not, and the consummation of the transactions contemplated by this
Agreement shall not, (a) violate or be in conflict with, or require the consent
of any person or entity under, any provision of Buyer's Certificate of
Incorporation, bylaws or other governing documents, (b) conflict with, result in
a breach of, constitute a default (or an event that with the lapse of time or
notice, or both, would constitute a default) under any agreement or instrument
to which Buyer is a party or is bound, or (c) violate any provision of or
require any consent, authori zation or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule or
regulation applicable to Buyer.
4.5. QUALIFIED PURCHASER. Buyer is an experienced and knowledgeable
investor in the gas gathering and pipeline business. Buyer is acquiring the
Assets for its own account and not with a view to, or for offer of resale in
connection with, a distribution thereof, within
9
the meaning of the Securities Act of 1933, 15 U.S.C. ss. 77a ET SEQ., and any
other rules, regulations, and laws pertaining to the distribution of securities.
4.6. AVAILABLE FUNDS. Buyer has arranged to have available by the
Closing Date sufficient funds to enable the payment to Seller by wire transfer
of the Purchase Price in accordance with Section 9.4, and to otherwise perform
Buyer's obligations under this Agreement.
4.7. ENVIRONMENTAL REPORT. Buyer has caused to be prepared by The Hinds
Group, Inc. that certain Phase I Environmental Assessment on Acquisition of
Gathering System, Offshore Gulf of Mexico and Onshore Mobile, Alabama (the
"ENVIRONMENTAL REPORT"), and has reviewed the same. Buyer acknowledges and
agrees hereby that nothing disclosed in the Environmental Report constitutes or
would, with the passage of time, constitute a breach of Seller's representations
or warranties set forth in this Agreement, notwithstanding whether Seller had or
lacked knowledge of the matters set forth in such Environmental Report.
5. COVENANTS OF SELLER PENDING CLOSING.
5.1. CONDUCT OF BUSINESS PENDING CLOSING. Seller covenants that from the
date hereof to the Closing Date, except (a) as provided herein, (b) as required
by any obligation, agreement, contract or instrument referred to on the Exhibit,
or (c) as otherwise consented to in writing by Buyer, Seller will:
5.1.1. Not (i) in any manner deal with, incur obligations with
respect to, or undertake any transactions relating to, the Assets other than
transactions in the ordinary and regular course of business of owning the Assets
consistent with past practices; (ii) dispose of or encumber any of the Assets;
(iii) waive, compromise or settle any right or claim that would adversely affect
the ownership, operation or value of any of the Assets; (iv) enter into any
modifications or amendments of the Partnership Agreement or Contribution
Agreement; or (v) consent, as a Partner in DIGP, to any of the foregoing actions
with respect to the assets of DIGP.
5.1.2. Not consent, as a Partner in DIGP, to any distribution or
payment to any of the Partners except for (i) distributions to TMBGC
contemplated by Section 8.1(f) of the Partnership Agreement, (ii) payments to
the Operator or the Gas Controller (as those terms are defined in the
Partnership Agreement) in accordance with the terms of the Partnership
Agreement, (iii) amounts payable to TMBGC or its Affiliates for construction
services relating to the DIGS and (iv) distributions to such Partners of any
claims against Torch, Inc. that have been asserted (or that could be asserted
based upon the disputes giving rise to the arbitration proceeding) in the
arbitration proceeding described in Part III of the Exhibit (such proceeding is
referred to as the "TORCH ARBITRATION").
10
5.1.3. Notify Buyer of the discovery by Seller that any
representation or warranty of Seller contained in this Agreement is, becomes or
will be untrue in any material respect on the Closing Date.
5.2. ACCESS. Seller shall afford to Buyer and its authorized
representatives from the date hereof until the Closing Date, during normal
business hours, reasonable access to the Assets, the assets of DIGP and to
Seller's records and operating data and information relating to DIGP or the DIGS
available as of the date hereof and that becomes available to Seller at any time
prior to the Closing Date, other than any documents that are protected by an
attorney-client privilege. If Seller denies access to Buyer to any material
based on attorney-client privilege, Seller shall furnish a list of such
materials to Buyer.
5.3. ANTITRUST NOTIFICATION. If required under applicable law, Seller
will file, within five Business Days after the execution of this Agreement, with
the Federal Trade Commission and the Department of Justice the notification and
report form required for the transactions contemplated hereby and any
supplemental information that may be reasonably requested in connection
therewith pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules and regulations promulgated thereunder (the "HSR ACT"), which
notification and report form and supplemental information will comply in all
material respects with the requirements of the HSR Act. Seller will seek early
termination of the waiting period.
5.4. CONTRIBUTIONS. Contemporaneously with the Closing, Seller will make
capital contributions to DIGP (or such other arrangements as are acceptable to
the Partners) in compliance with Section 5.4 of the Partnership Agreement.
5.5. WAIVER OF PREFERENTIAL RIGHTS. Seller hereby waives any rights that
it may have under Section 12 of the Partnership Agreement with respect to the
Related Transactions and, to the extent required, consents to the Related
Transactions.
5.6. FINANCIAL STATEMENTS. Prior to Closing, Seller shall provide to
Buyer copies of the audited financial statements of DIGP as of December 31,
1995, and for the calendar year ending December 31, 1995, including the balance
sheet and statements of income, partner's equity and cash flows. As of the
Closing, the term "Financial Statements" for purposes of the representation
contained in Section 3.19 shall include the balance sheet and statements
provided pursuant to this Section 5.6.
5.7. EASEMENTS. If Seller determines, prior to the Closing, that OEDC
Partners, L.P. or one of its Affiliates, rather than DIGP, has record title to
any of the Easements, Seller shall cause OEDC Partners, L.P. or such Affiliate
to convey such Easements to DIGP prior to the Closing.
11
6. COVENANTS OF BUYER PENDING CLOSING.
6.1. ANTITRUST NOTIFICATION. If required under applicable law, Buyer
will file, within five Business Days after the execution of this Agreement, with
the Federal Trade Commission and the Department of Justice the notification and
report form required for the transactions contemplated hereby and any
supplemental information that may be reasonably requested in connection
therewith pursuant to the HSR Act, which notification and report form and
supplemental information will comply in all material respects with the require
ments of the HSR Act. Buyer will seek early termination of the waiting period.
6.2. NOTIFICATIONS. Buyer will notify Seller promptly after the
discovery by Buyer that any representation or warranty of Seller contained in
this Agreement is, becomes or will be untrue in any material respect on the
Closing Date. In addition, Buyer will notify Seller of the discovery by Buyer
that any representation or warranty of Buyer contained in this Agreement is,
becomes or will be untrue in any material respect on the Closing Date.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to
be performed at Closing are subject to the fulfillment, before or at Closing, of
each of the following conditions:
7.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller set forth in this Agreement shall be true and correct in all material
respects on the date of this Agreement and as of the Closing Date except for
changes therein specifically con templated by this Agreement. For purposes of
this Section 7.1, the limitations or qualifications of any representation or
warranty by the phrase "to Seller's knowledge" shall be ineffective such that
the inaccuracy of a representation or warranty shall be determined without any
consideration of the knowledge of Seller.
7.2. COMPLIANCE. Seller shall have performed and complied in all
material respects with each of the covenants and conditions required by this
Agreement of which performance or compliance is required prior to or at the
Closing.
7.3. CONSENTS. All approvals and consents required to be obtained for,
or in connection with, the transaction contemplated hereby shall have been
obtained.
7.4. NO PENDING SUITS. At the Closing Date, no suit, action or other
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit the performance of or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
7.5. HSR ACT. The waiting period under the HSR Act (to the extent
applicable to the transactions contemplated in this Agreement) shall have
expired or been terminated.
12
7.6. PARTNERSHIP AGREEMENT. An amendment and restatement of the
Partnership Agreement in form and substance reasonably satisfactory to Seller
and Buyer and an Operating Agreement designating Seller as the operator of the
DIGS on behalf of DIGP, providing for compensation to Seller as the operator
reasonably acceptable to Buyer and Seller and containing other terms as are
reasonably acceptable to Seller and Buyer shall have been executed by Seller and
Buyer.
7.7. SIMULTANEOUS CLOSINGS. The purchase and sale transaction between
Buyer and EGGI regarding the sale of EGGI's interest in DIGP and the purchase
and sale transaction between Tennessee Gas Pipeline Company and Buyer regarding
the sale of the stock of TMBGC (collectively, the "RELATED TRANSACTIONS") shall
have closed contemporaneously with this Agreement.
7.8. GATHERING AGREEMENTS. OEDC Exploration & Production, L.P., an
Affiliate of Seller ("OEDC E&P"), shall have executed with DIGP a gas gathering
agreement reasonably satisfactory in form and substance to Buyer and to OEDC E&P
for the gathering of gas that may be produced from and attributable to OEDC
E&P's interest in Viosca Knoll Blocks 33, 35, 38, 77, 80, 121, 122, 123, 298 and
300; Destin Dome Blocks 1 and 2; Pensacola Block 881; and Mobile Block 830. Such
gathering agreement shall provide that OEDC E&P's interest in each of Viosca
Knoll Blocks 117, 118 and 161 shall be added to such gathering agreement prior
to the commencement of the drilling of any wells on each of such respective
blocks unless OEDC E&P sells its interest in such block prior to the
commencement of the drilling of any wells on such block.
7.9. CONSTRUCTION OF THE DIGS. The DIGS has been constructed in
compliance, in all material respects, with the description contained in the
Exhibit.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of Seller
to be performed at Closing are subject to the fulfillment, before or at Closing,
of each of the following conditions:
8.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
by Buyer set forth in this Agreement shall be true and correct in all material
respects on the date of this Agreement and as of the Closing Date except for
changes therein specifically contemplated by this Agreement.
8.2. COMPLIANCE. Buyer shall have performed and complied in all material
respects with each of the covenants and conditions required by this Agreement of
which performance or compliance is required prior to or at the Closing.
8.3. CONSENTS. The consents specified in the Exhibit shall have been
obtained.
8.4. NO PENDING SUITS. At the Closing Date, no suit, action or other
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought
13
to restrain or prohibit the performance of or to obtain damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
8.5. HSR ACT. The waiting period under the HSR Act applicable to the
transactions contemplated in this Agreement shall have expired or been
terminated.
8.6. CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS. EGGI shall have made
capital contributions to DIGP, and DIGP shall have made distributions to TMBGC
(or such other arrangements as are acceptable to Seller, EGGI and TMBGC) in
compliance with Sections 5.4 and 8.1(f) of the Partnership Agreement.
8.7. GATHERING AGREEMENTS. OEDC E&P shall have executed with DIGP a gas
gathering agreement reasonably satisfactory in form and substance to Buyer and
to OEDC E&P for the gathering of gas that may be produced from, and attributable
to OEDC E&P's interest in, Viosca Knoll Blocks 33, 35, 38, 77, 80, 121, 122,
123, 298 and 300; Destin Dome Blocks 1 and 2; Pensacola Block 881; and Mobile
Block 830. Such gathering agreement shall provide that OEDC E&P's interest in
each of Viosca Knoll Blocks 117, 118 and 161 shall be added to such gathering
agreement prior to the commencement of the drilling of any wells on each of such
respective blocks unless OEDC E&P sells its interest in such block prior to the
commencement of the drilling of any wells on such block.
8.8. SIMULTANEOUS CLOSINGS. The Related Transactions shall have closed
contemporaneously with this Agreement.
8.9. PARTNERSHIP AGREEMENT. An amendment and restatement of the
Partnership Agreement in form and substance reasonably satisfactory to Seller
and Buyer and an Operating Agreement designating Seller as the operator of the
DIGS on behalf of DIGP, providing for compensation to Seller as the operator
reasonably acceptable to Buyer and Seller and containing other terms as are
reasonably acceptable to Seller and Buyer shall have been executed by Seller and
Buyer.
9. CLOSING.
9.1. THE CLOSING. The assignment and purchase of the Assets pursuant to
this Agreement (the "CLOSING") shall be consummated in Houston, Texas, at the
offices of Bracewell & Patterson, L.L.P. commencing at 9:00 a.m. on the third
Business Day after the day that all necessary requirements of the provisions of
the HSR Act shall have been complied with and the applicable waiting period
under the HSR Act with respect to the transactions contemplated hereby and any
of the Related Transactions, shall have expired or been terminated (the "CLOSING
DATE").
14
9.2. DOCUMENTS TO BE DELIVERED AT CLOSING.
9.2.1. At the Closing, Seller shall deliver to Buyer the
following instruments, dated the Closing Date, properly executed by authorized
representatives and, where appropriate, acknowledged:
(a) A Bill of Sale in the form of Annex III to convey the
Assets to Buyer;
(b) Such other instruments as are necessary to effectuate
the conveyance of the Assets to Buyer;
(c) A certificate substantially in the form of Annex I;
(d) A certificate of nonforeign status in the form
mutually acceptable to Buyer and Seller;
(e) The Agreements of Confidentiality and Exclusivity in
the form of Annex IV hereto;
(f) An opinion of Seller's counsel in a form mutually
acceptable to Buyer and Seller concerning the matters set forth in
Sections 3.1, 3.2, 3.3, and 3.4 and similar matters with respect to OEDC
Partners, L.P. in connection with the Performance Guaranty dated the
Closing Date to be executed by OEDC Partners, L.P.; and
(g) The Performance Guaranty dated the Closing Date in the
form attached hereto as Annex V executed by OEDC Partners, L.P.
9.2.2. At the Closing, Buyer shall deliver to Seller the
following instruments, dated the Closing Date, properly executed by authorized
representatives and, where appropriate, acknowledged:
(a) A certificate in the form of Annex II;
(b) The Agreements of Confidentiality and Exclusivity in
the form of Annex IV hereto;
(c) An opinion of Buyer's counsel in a form mutually
acceptable to Buyer and Seller concerning the matters set forth in
Sections 4.1, 4.2, 4.3, and 4.4 and similar matters with respect to MCN
Investment Corporation in connection with the Performance Guaranty dated
the Closing Date to be executed by MCN Investment Corporation; and
15
(d) The Performance Guaranty dated the Closing Date in the
form attached hereto as Annex VI executed by MCN Investment Corporation.
9.2.3. At the Closing, Seller shall deliver to Buyer copies of
releases of the Encumbrances against the Assets in favor of Joint Energy
Development Investments Limited Partnership and Swiss Bank Corporation.
9.3. POSSESSION. At the Closing, Seller shall deliver to Buyer
possession of the Assets.
9.4. PAYMENT OF PURCHASE PRICE. At the Closing, against delivery of the
documents and materials described in Section 9.2, Buyer shall pay the Purchase
Price by wire transfer of immediately available funds as follows: (a) to Swiss
Bank Corporation, an amount equal to the lesser of (i) 25% of all amounts owed
pursuant to the Credit Agreement described in Item 1 of Part I of the Exhibit or
(ii) the Purchase Price and (b) the balance of the Purchase Price, if any, to
Seller. Seller shall designate the appropriate bank account(s) to Buyer not
later than two Business Days prior to Closing.
9.5. CLOSING REPRESENTATION BY BUYER. The consummation of the
transactions contemplated in this Agreement by Buyer shall constitute an
acknowledgment by Buyer to Seller that Buyer has been afforded an opportunity to
(a) examine the Assets, the DIGS and such materials as it has requested to be
provided to it by Seller that have been provided by Seller or any other Partner,
(b) discuss with representatives of Seller and DIGP such materials and the
nature and operation of the Assets and the DIGS and (c) investigate the
condition, including subsurface condition, of the DIGS. In entering into this
Agreement and consummating the transactions contemplated in this Agreement,
Buyer has relied solely on the express representations, warranties and covenants
of Seller in this Agreement, its independent investigation of, and judgment with
respect to, the Assets and the properties and assets owned by DIGP and the
advice of its own legal, tax, economic, environmental, engineering, geological
and geophysical advisors and not on any comments or statements of any
representatives of, or consultants or advisors engaged by, Seller or Petrie
Parkman & Co.
(the "ADVISOR").
10. TERMINATION.
10.1. EVENTS OF TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
10.1.1. By the mutual written consent of Buyer and Seller;
10.1.2. By Seller if (i) Buyer shall fail to perform in any
material respect its covenants contained herein required to be performed by it
on or prior to the Closing Date, or (ii) any of Buyer's representations or
warranties contained herein shall be incorrect in any material respect on the
Closing Date, and such failure or misrepresentation is not cured
16
within ten days after Seller shall have notified Buyer of its intent to
terminate this Agreement pursuant to this Section 10.1.2;
10.1.3. By Buyer if (i) Seller shall fail to perform in any
material respect its covenants contained herein required to be performed by it
on or prior to the Closing Date, or (ii) any of Seller's representations or
warranties contained herein shall be incorrect in any material respect on the
Closing Date, and such failure or misrepresentation is not cured within ten days
after Buyer has notified Seller of its intent to terminate this Agreement
pursuant to this Section 10.1.3; and
10.1.4. By either Seller or Buyer if for any reason the Closing
has not occurred by March 29, 1996.
10.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either party as provided in Section 10, neither of the parties
shall have any liability hereunder of any nature whatsoever to the other;
provided that (i) if such termination shall result from the willful failure of
one party to fulfill a condition to the performance of the other party hereto or
to perform a covenant of this Agreement or from a willful misrepresentation by
either party, such party shall be fully liable for any and all Liability
sustained or incurred by the other party, and (ii) the provisions of Sections
12.4.2, 12.5.6, 12.7, and 15, 16, 17 and 19 through 27 shall survive any such
termination.
11. ASSUMPTION OF OBLIGATIONS.
11.1. ASSUMED OBLIGATIONS. Except as provided in Section 11.2, at
Closing, Buyer shall assume 96% of (a) all of the obligations and liabilities of
Seller as a general partner in DIGP, whether accruing prior to or after the
Effective Date, (b) all of the obligations and liabilities of Seller under the
Partnership Agreement and the Contribution Agreement, whether accruing prior to
or after the Effective Date, and (c) all of the other obligations and
liabilities of Seller with respect to DIGP or the DIGS, whether accruing prior
to or after the Effective Date. Such obligations and liabilities include, but
are not limited to, the obligation (i) to abandon or remove and dispose of all
structures, pipelines and the other equipment now or hereafter owned by DIGP;
(ii) to dispose of naturally occurring radioactive material and all other
pollutants, wastes, contaminants, or hazardous, extremely hazardous, or toxic
materials, substances, chemicals or wastes now or hereafter located on the
properties owned by DIGP; and (iii) with respect to pipeline demobilization and
partnership liquidation costs described in Sections 11.4 and 12.1 of the
Partnership Agreement. The assumption by Buyer set forth in Section 11 does not
limit any right of Buyer to indemnity under Section 12.3.
11.2. RETAINED OBLIGATIONS.
11.2.1. Buyer does not assume, and Seller retains or assumes, 4%
of (a) all of the obligations and liabilities of Seller as a general partner in
DIGP, whether accruing prior to or after the Effective Date, (b) all of the
obligations and liabilities of Seller under the
17
Partnership Agreement and the Contribution Agreement, whether accruing prior to
or after the Effective Date, and (c) all of the other obligations and
liabilities of Seller with respect to DIGP or the DIGS, whether accruing prior
to or after the Effective Date.
11.2.2. Buyer does not assume, and Seller retains or assumes, any
obligation or liability of DIGP or Seller (a) with respect to the Torch
Arbitration; (b) with respect to the fees payable to the Advisor relating to the
transactions contemplated in this Agreement; (c) relating to periods after the
Effective Date and allocated to Seller pursuant to the amended and restated
Partnership Agreement contemplated in Sections 7.6 and 8.9; (d) with respect to
Indemnifiable Claims; or (e) with respect to any state or federal income taxes
(and interest and penalties related thereto) of Seller for any taxable period
ending on or before December 31, 1995. As used in this Agreement, "INDEMNIFIABLE
CLAIMS" means any Liabilities for which any of the Buyer Indemnified Parties are
entitled to indemnification by Seller pursuant to the indemnification provisions
contained in Section 12.3.1(a), after giving effect to the deductible contained
in Section 12.5.2, the cap contained in Section 12.5.5, the time limitation
contained in Section 12.5.1 and all of the other limitations on such Liabilities
contained in Sections 12.5, 12.6 and 12.7.
11.2.3. Buyer does not assume, and Seller retains or assumes, any
obligation or liability of Seller under the Partnership Agreement resulting from
the gross negligence or willful misconduct of Seller in the performance by
Seller of the Operator's (as such term is defined in the Partnership Agreement)
duties and responsibilities under the Partnership Agreement.
12. SURVIVAL AND INDEMNIFICATION.
12.1. SURVIVAL. The liability of Buyer and Seller under each of their
respective representations, warranties and covenants contained in this Agreement
shall survive the Closing and execution and delivery of the assignments
contemplated hereby.
12.2. LIABILITIES. The term "LIABILITIES" shall mean any and all claims,
demands, suits, actions, proceedings, payments, charges, judgments, assessments,
liabilities, damages, penalties, fines or costs and expenses suffered, paid or
incurred by the person seeking indemnification, including any legal or other
expenses reasonably incurred in connection therewith.
12.3. INDEMNIFICATION BY SELLER.
12.3.1. After the Closing, Seller shall be responsible for, shall
pay on a current basis, and shall indemnify, save, hold harmless, discharge and
release Buyer, all of its Affiliates, successors and, permitted assignees, and
all of its and their respective stockholders, directors, officers, employees,
agents and representatives (collectively, "BUYER INDEMNIFIED PARTIES") from and
against any and all Liabilities, arising from, based upon, related to or
associated with (a) any breach of a representation, warranty or covenant of
18
Seller contained in this Agreement; (b) obligations and liabilities retained by
Seller pursuant to Section 11.2; and (c) the fees of the Advisor and any
brokers' or finders' fees or com missions arising with respect to brokers or
finders retained or engaged by Seller and resulting from or relating to the
transactions contemplated in this Agreement.
12.3.2. For purposes of Section 12.3.1, the limitation or
qualification of the representations and warranties contained in Sections 3.9.1,
3.10 and 3.19 "to Seller's knowledge" shall be ineffective such that the
inaccuracy of such representation and warranty shall be determined without any
consideration of the knowledge of Seller.
12.4. INDEMNIFICATION BY BUYER.
12.4.1. After the Closing, Buyer shall be responsible for, shall
pay on a current basis, and shall indemnify, save, hold harmless, discharge and
release Seller, its Affiliates, its and their successors and permitted assigns,
and all of their respective stockholders, directors, officers, employees, agents
and representatives (collectively, "SELLER INDEMNIFIED PARTIES") from and
against any and all Liabilities arising from, based upon, related to or
associated with (a) any breach of a representation, warranty or covenant of
Buyer contained in this Agreement; (b) liabilities and obligations assumed by
Buyer pursuant to Section 11.1; and (c) any brokers' or finders' fees or
commissions arising with respect to brokers or finders retained or engaged by
Buyer and resulting from or relating to the transactions contemplated in this
Agreement.
12.4.2. Buyer shall hold harmless, discharge and release the
Seller Indemnified Parties from and against any and all liabilities for injury
to or death of persons or damage to property of any Buyer Indemnified Party
arising out of or relating to Buyer's access to the Assets, the assets of DIGP
and Seller's records. In addition, Buyer shall hold harmless, discharge and
release the Seller Indemnified Parties from and against any and all Liabilities
for injury to or death of persons or damage to property of any person or entity
other than any Buyer Indemnified Party relating to Buyer's access to the Assets,
the assets of DIGP and Seller's records, but only to the extent of Buyer's
negligence, strict liability or other fault.
12.5. LIABILITY LIMITATIONS.
12.5.1. After the Closing, any assertion by any Buyer Indemnified
Party that Seller is liable (a) for the inaccuracy of any representation or
warranty, (b) for the breach of any covenant, (c) for indemnity under the terms
of this Agreement or (d) otherwise in connection with the transactions
contemplated in this Agreement, must be made by Buyer in writing and must be
given to Seller on or prior to the expiration of the 549th day after the Closing
Date, or, if such day is not a Business Day, the next preceding Business Day.
The notice shall state the facts known to Buyer that give rise to such notice in
sufficient detail to allow Seller to evaluate the assertion. The limitations in
this Section shall not apply,
19
however, to the obligations of Seller under Sections 11.2.1, 11.2.2(a),
11.2.2(b), 11.2.2(c), 11.2.2(e), 11.2.3, 13, 16, 18, 25 and 26.
12.5.2. None of the Buyer Indemnified Parties shall be entitled
to assert any right to indemnification hereunder or to otherwise seek any
damages or other remedies for or in connection with (a) the inaccuracy of any
representation or warranty of Seller contained in this Agreement or in any other
agreement, instrument, document or certificate executed or delivered in
connection with this Agreement; (b) the breach of, or failure to perform or
satisfy any of the covenants of Seller set forth in this Agreement or in any
other agreement, instrument, document or certificate executed or delivered in
connection with this Agreement; or (c) any liabilities otherwise arising in
connection with or with respect to the transactions contemplated in this
Agreement until the aggregate amount of the Liabilities for such
misrepresentations and breaches actually suffered by Buyer exceeds one percent
of the Purchase Price, and then only to the extent of such excess. The
limitations in this Section shall not apply, however, to the obligations of
Seller under Sections 10.2, 11.2.1, 11.2.2(a), 11.2.2(b), 11.2.2(c), 11.2.2(e),
11.2.3, 13, 16, 18, 25 and 26.
12.5.3. The amount of any Liabilities for which any of the Buyer
Indemnified Parties or Seller Indemnified Parties is entitled to indemnification
or other compensation under this Agreement or in connection with or with respect
to the transactions contemplated in this Agreement shall be reduced by any
corresponding (a) tax benefit created or generated or (b) insurance proceeds
realized or that could reasonably be expected to be realized by such party if a
claim were properly pursued by such party under the relevant insurance
arrangements.
12.5.4. The maximum Liability for which the Buyer Indemnified
Parties is entitled to indemnification or other compensation under this
Agreement in connection with the Torch Arbitration shall be limited to 25% of
the Liabilities (except court or arbitration costs and attorneys' fees) suffered
by all of the Buyer Indemnified Parties and 100% of the court or arbitration
costs and reasonable attorneys fees incurred by the Buyer Indemnified Parties in
such assertion against Seller. The maximum Liability for which the Buyer
Indemnified Parties is entitled to indemnification or other compensation under
this Agreement in connection with the breach of any representation or warranty
of Seller under this Agreement or any documents delivered in connection herewith
(other than Sections 3.1.1, 3.2, 3.3, 3.4.1, 3.5, 3.6.1(a), 3.6.2 (to the extent
that such section requires disclosure of matters relating solely to Seller other
than as a Partner), 3.7(a) (to the extent that such section requires disclosure
of matters relating solely to Seller other than as a Partner), 3.8, 3.11 (to the
extent that such section requires disclosure of matters relating solely to
Seller other than as a Partner), 3.13 (to the extent that such section requires
disclosure of matters relating solely to Seller other than as a Partner),
3.17.2, 3.24.1, 3.25.2, and 3.26, shall be limited to 25% of the Liabilities
(except court or arbitration costs and attorneys' fees) suffered by all of the
Buyer Indemnified Parties and 100% of the court or arbitration costs and
reasonable attorneys' fees incurred by the Buyer Indemnified Parties in such
assertion against Seller. The Liability for which any of the Buyer Indemnified
Parties is entitled to
20
indemnification or other compensation under this Agreement or any of the
documents delivered in connection herewith with respect to the breach of any
representation or warranty under Sections 3.1.1, 3.2, 3.3, 3.4.1, 3.5, 3.6.1(a),
3.6.2 (to the extent that such section requires disclosure of matters relating
solely to Seller other than as a Partner), 3.7(a) (to the extent that such
section requires disclosure of matters relating solely to Seller other than as a
Partner), 3.8, 3.11 (to the extent that such section requires disclosure of
matters relating solely to Seller other than as a Partner), 3.13 (to the extent
that such section requires disclosure of matters relating solely to Seller other
than as a Partner), 3.17.2, 3.24.1, 3.25.2, and 3.26 shall not be limited by the
limitations contained in this Section 12.5.4. Seller shall never be jointly
liable with Tennessee Gas Pipeline Company or any of its Affiliates or EGGI or
any of its Affiliates for any Liabilities suffered by Buyer in connection with
the transactions contemplated by this Agreement, and shall not have any
liability under any of the agreements executed by Buyer for the Related
Transactions.
12.5.5. Seller shall not be required to indemnify any Buyer
Indemnified Parties in an amount exceeding in the aggregate fifty percent of the
Purchase Price. The limitations in this Section shall not apply, however, to the
obligations of Seller under Sections 10.2, 11.2.1, 11.2.2(a), 11.2.2(b),
11.2.2(c), 11.2.2(e), 11.2.3, 13, 16.1, 18, 25 and 26.4.
12.5.6. NONE OF THE BUYER INDEMNIFIED PARTIES NOR THE SELLER
INDEMNIFIED PARTIES SHALL BE ENTITLED TO RECOVER FROM SELLER OR BUYER,
RESPECTIVELY, FOR ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS
AGREEMENT, OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT, ANY AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY
DAMAGES, COURT COSTS AND REASONABLE ATTORNEY FEES, SUFFERED BY SUCH PARTY. BUYER
ON BEHALF OF EACH OF THE BUYER INDEMNIFIED PARTIES AND SELLER ON BEHALF OF EACH
OF THE SELLER INDEMNIFIED PARTIES WAIVES ANY RIGHT TO RECOVER PUNITIVE, SPECIAL,
EXEMPLARY AND CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT. This Section shall not limit
the right of either the Buyer Indemnified Parties or the Seller
Indemnified Parties to recover punitive, special, exemplary and consequential
damages paid to a third party pursuant to a claim that is otherwise
indemnifiable under this Agreement.
12.5.7. Except for claims based on actual fraud and other
remedies that may not be waived by the operation of law ("NON-WAIVABLE CLAIMS"),
if the Closing occurs, the sole and exclusive remedy of each of the Buyer
Indemnified Parties and the Seller Indemnified Parties with respect to the
obligations and liabilities assumed under Section 11.1 and the purchase and sale
of the Assets (including, without limitation, Indemnifiable Claims) shall be
pursuant to the express indemnification provisions of this Agreement. Any and
all (a) claims relating to the representations, warranties, covenants and
agreements contained in this Agreement, (b) other claims pursuant to or in
connection with this Agreement or (c)
21
other claims relating to the Assets and the purchase and sale thereof shall be
subject to the provisions set forth in Section 12, except that Non-Waivable
Claims will not be subject to the provisions of Sections 12.5.1, 12.5.2 or
12.5.5. If the Closing occurs, Buyer on behalf of each of the Buyer Indemnified
Parties shall be deemed to have waived, to the fullest extent permitted under
applicable law, any right of contribution against Seller or any of its
Affiliates with respect to the DIGS and any and all rights, claims and causes of
action it may have against Seller or any of its Affiliates arising under or
based on any federal, state or local statute, law, ordinance, rule or regulation
or common law (this sentence does not limit claims under the indemnification
provisions of this Agreement). If the Closing occurs, Seller on behalf of each
of the Seller Indemnified Parties shall be deemed to have waived, to the fullest
extent permitted under applicable law, any right of contribution against Buyer
or any of its Affiliates with respect to the DIGS and any and all rights, claims
and causes of action it may have against Buyer or any of its Affiliates arising
under or based on any federal, state or local statute, law, ordinance, rule or
regulation or common law (this sentence does not limit claims under the
indemnification provisions of this Agreement).
12.5.8. In the event any legal proceeding shall be threatened or
instituted or any claim or demand shall be asserted or discovered by any person
in respect of which payment may be sought be one party hereto from the other
party under the provisions of Section 12, the party seeking indemnification (the
"INDEMNITEE") shall promptly cause written notice of the assertion of any such
claim of which it has knowledge which is covered by this indemnity to be
forwarded to the other party (the "INDEMNITOR"). Any notice of a claim by reason
of any of the representations, warranties, covenants, or agreements contained in
this Agreement shall state specifically the representation, warranty, covenant,
or agreement with respect to which the claim is made, the facts giving rise to
an alleged basis for the claim, and the amount of the liability asserted against
the Indemnitor by reason of the claim. In the event of the initiation of any
legal or administrative or other proceeding against an Indemnitee by a third
party for which indemnification is sought pursuant to Section 12, the Indemnitor
shall have the absolute right after the receipt of notice at its option and at
its own expense, to be represented by counsel of its choice, and to defend
against, negotiate, settle or otherwise deal with any proceeding, claim, or
demand which relates to any loss, liability or damages indemnified against
hereunder; PROVIDED, HOWEVER, that the Indemnitee may participate in any such
proceeding with counsel of its choice and at its expense. The parties hereto
agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such legal proceedings, claim or demand. To the
extent the Indemnitor elects not to defend such proceeding, claim or demand, and
the Indemnitee defends against or otherwise deals with any such proceedings,
claim or demand, the Indemnitee may retain counsel, at the expense of the
Indemnitor, and control the defense and settlement of such proceeding.
12.5.9. Seller and Buyer acknowledge that the payment of money,
as limited by the terms of this Agreement, shall be adequate compensation for
breach of any representation, warranty, covenant or agreement contained herein
or for any other claim arising in connection with or with respect to the
transactions contemplated in this Agreement,
22
provided, however, that either Buyer or Seller, as the case may be, shall be
entitled to injunctions, restraining orders and other equitable remedies in the
event (i) all of the conditions to such party's obligation to close set forth in
Section 8 or Section 9, as applicable, have been satisfied and (ii) the other
party fails to close the transactions contemplated by this Agreement. As the
payment of money shall be adequate compensation for any breaches of this
Agreement other than the failure of any party to close the transactions
contemplated by this Agreement, Buyer and Seller waive any right to rescind this
Agreement or any of the transactions contemplated hereby.
12.5.10. Each person entitled to indemnification hereunder or
otherwise to damages in connection with the transactions contemplated in this
Agreement shall take all reasonable steps to mitigate all losses, costs,
expenses and damages after becoming aware of any event or circumstance that
could reasonably be expected to give rise to any losses, costs, expenses and
damages that are indemnifiable or recoverable hereunder or in connection
herewith.
12.5.11. EXCEPT AS PROVIDED IN THE SECOND SENTENCE OF SECTION
12.4.2, THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS PROVIDED FOR IN
THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LOSSES, COSTS, EXPENSES
AND DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE GROSS, ACTIVE, PASSIVE
OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY INDEMNIFIED
PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE
EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
12.5.12. Neither Seller nor Buyer shall have any obligation or
liability to the other under this Agreement or in connection with or with
respect to the transactions contemplated in this Agreement for (a) any breach,
misrepresentation or noncompliance with respect to any representation, warranty,
covenant or obligation if such breach, misrepresentation or noncompliance shall
have been waived by the other party expressly in writing or by operation of the
provisions of this Agreement or (b) any misrepresentation or breach of warranty
if the party asserting the claim had actual knowledge of the relevant facts at
or before Closing.
12.6. WAIVER OF REPRESENTATIONS.
12.6.1. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF, ANY OTHER
REPRESENTATION OR WARRANTY WITH RESPECT TO THE ENVIRONMENTAL CONDITION, BOTH
SURFACE AND SUBSURFACE, OR OTHER CONDITION OF THE ASSETS OR ANY OF THE ASSETS OF
DIGP; OR THE OWNERSHIP OR OPERATION OF THE ASSETS OR ANY OF THE ASSETS OF DIGP
OR ANY PART THEREOF.
23
12.6.2. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES OF
SELLER CONTAINED IN THIS AGREEMENT, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND
BUYER HEREBY WAIVES, (I) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE
QUALITY, QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER
HYDROCARBONS IN OR UNDER THE OIL AND GAS PROPERTIES ATTACHED OR THAT COULD BE
ATTACHED TO THE DIGS; (II) ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
AS TO THE QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO SAMPLES, OR CONDITION OF ANY OF THE ASSETS OR ANY OF THE ASSETS OF DIGP OR
ANY PART THEREOF; AND (III) ALL REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED
OR STATUTORY, OTHER THAN THE EXPRESS REPRESENTATIONS CONTAINED IN THIS
AGREEMENT.
12.6.3. EXCEPT FOR THE EXPRESS REPRESENTATIONS OF SELLER
CONTAINED IN THIS AGREEMENT THE ASSETS ARE SOLD, AND BUYER
ACCEPTS THE ASSETS "AS IS, WITH ALL FAULTS."
12.6.4. THERE ARE NO REPRESENTATIONS OR WARRANTIES THAT
EXTEND BEYOND THE FACE OF THIS AGREEMENT, THE CERTIFICATES,
DOCUMENTS OR INSTRUMENTS DELIVERED AT CLOSING.
12.6.5. BUYER ACKNOWLEDGES THAT THE WAIVERS IN SECTION
12.6 ARE CONSPICUOUS.
12.7. WAIVER OF CONSUMER RIGHTS. SELLER AND BUYER EACH HEREBY WAIVES THE
PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES ACT, CHAPTER 17, SUBCHAPTER E,
SECTIONS 17.41 THROUGH 17.63, INCLUSIVE, OF THE TEXAS BUSINESS AND COMMERCE CODE
(THE "DTPA"), A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF ITS OWN SELECTION, EACH OF SELLER AND BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER. TO EVIDENCE ITS ABILITY TO GRANT SUCH
WAIVER, EACH PARTY REPRESENTS TO THE OTHER THAT (I) IT IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION; (II) IT IS REPRESENTED BY LEGAL COUNSEL IN
ENTERING INTO THIS AGREEMENT; AND (III) SUCH LEGAL COUNSEL WAS NOT DIRECTLY OR
INDIRECTLY IDENTIFIED, SUGGESTED, OR SELECTED BY AN AGENT OF THE OTHER PARTY.
12.8. ENVIRONMENTAL MATTERS.
12.8.1. Notwithstanding anything in this Agreement to the
contrary, the representations and warranties made by Seller in Sections 3.9.2
and 3.9.3 are the exclusive representations and warranties made by Seller with
respect to the following, and none of the
24
other representations or warranties made by Seller under this Agreement or the
documents delivered in connection herewith shall be deemed to cover or relate to
the following:
(a) whether DIGP or the DIGS is in violation of, or with the
lapse of time or the giving of notice, or both, would be in violation of, any
Applicable Environmental Laws;
(b) whether DIGP or the DIGS is subject to, or with the lapse of
time or the giving of notice, or both, would be subject to, any existing,
pending or threatened investigation or inquiry by any governmental authority
under any Applicable Environmental Laws;
(c) whether DIGP or the DIGS is subject to, or with the lapse of
time or the giving of notice, or both, would be subject to, any remedial
obligations under any Applicable Environmental Laws;
(d) whether there is any condition or circumstance which, with
the giving of notice to, or the receiving of notice or orders from, any
governmental authority, would reasonably be expected to result in Liability
relating to DIGP under any Applicable Environmental Law;
(e) whether the DIGS is free from naturally occurring radioactive
material in reportable quantities; or
(f) whether DIGP or the ownership and operation of the DIGS
(during Seller's ownership of a partnership interest in DIGP or DIGP's ownership
or operation thereof) have been in full compliance with 49 U.S.C. ss. 1671 ET
SEQ. as amended and all applicable other federal, state, municipal or local
statute, ordinances or similar matters, which pertain to the safe and prudent
operation and maintenance of the DIGS and similar facilities, and all rules and
regulations promulgated thereunder.
12.8.2. Notwithstanding anything in this Agreement to the
contrary, if any of Seller's representations or warranties under this Agreement
or in the documents delivered in connection herewith (other than Seller's
representations and warranties under Sections 3.9.2 and 3.9.3) (i) pertain to
matters relating to the protection of health, safety, or the environment, and
(ii) are not encompassed by the matters set forth in Section 12.8.1 above, then
such representations or warranties of Seller, insofar as they relate to matters
relating to the protection of health, safety or the environment shall be (x)
limited to Seller's knowledge, and (y) modified by the same disclosures made by
Seller with respect to Sections 3.9.2 and 3.9.3 of the Agreement.
13. FURTHER ASSURANCES. After the Closing, Seller and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action as may be necessary or advisable to carry
out their
25
obligations under this Agreement and under any exhibit, document, certificate or
other instrument delivered pursuant hereto. If OEDC Partners, L.P. or one of its
affiliates, rather than DIGP, has record title to any of the Easements, Seller
shall cause OEDC Partners, L.P. or such affiliate to convey such Easements to
DIGP.
14. ACCESS BY SELLER AFTER CLOSING. After the Closing Date, Seller and its
authorized representatives shall have reasonable access at Seller's sole cost
and expense) during Buyer's normal business hours to (a) all books and records
of Buyer pertaining to the Assets and the assets of DIGP, for periods prior to
the Closing Date and (b) the Assets and the assets of DIGP, for the purpose of
prosecuting or defending claims, lawsuits or other proceedings, for audit
purposes, or to comply with legal process, rules, regulations or orders of any
governmental authority. Seller, at its sole expense, may copy such records that
it deems appropriate. Buyer agrees to maintain such books and records for a
minimum of six years after Closing.
15. NOTICES. All notices required or permitted under this Agreement shall be in
writing and, (a) if by air courier, shall be deemed to have been given one
Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (b) if by telecopier, shall be
deemed to have been given when actually received, and (c) if mailed, shall be
deemed to have been given three Business Days after the date when sent by
registered or certified mail, postage prepaid, addressed as follows:
To Seller: Dauphin Island Gathering Company, L.P.
1400 Woodloch Forest Dr., Suite 200
The Woodlands, Texas 77380
Attention: David Strassner
Telephone: 713-364-0033
Telecopier: 713-364-1122
To Buyer: Pipeline & Processing Group, Inc.
150 West Jefferson Avenue
Detroit, Michigan 48226
Attention: Michael J. Way
Telephone: 313-256-5702
Telecopier: 313-256-6918
"BUSINESS DAY" shall mean a day other than Saturday or Sunday or any legal
holiday for commercial banking institutions under the laws of the State of
Texas.
16. ASSIGNMENT.
16.1. Neither Seller nor Buyer may assign its rights or delegate its
duties or obligations arising under this Agreement, in whole or in part, by
operation of law or otherwise, before Closing, without the prior written consent
of the other party, except that Buyer may
26
assign its rights hereunder prior to Closing to any other wholly owned, direct
or indirect subsidiary of MCN Corporation, but no such assignment shall relieve
Buyer from any responsibility, obligations or liabilities hereunder.
16.2. After Closing, neither Buyer nor Seller will assign or delegate
its rights, benefits, duties or obligations arising under this Agreement, in
whole or in part, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Any assigning or delegating party
shall be jointly and severally liable, with the permitted assignee or delegatee,
for any duties or obligations owed to the non-assigning party under this
Agreement.
17. GOVERNING LAW. This Agreement shall be governed and construed in accordance
with the laws of the State of Texas without giving effect to any principles of
conflicts of laws.
18. EXPENSES AND FEES; INCOME TAX MATTERS.
18.1. EXPENSES AND FEES. Whether or not the transactions contemplated by
this Agreement are consummated, each of the parties hereto shall pay the fees
and expense of its counsel, accountants and other experts incident to the
negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby. Buyer shall be responsible for the cost of all
fees for the recording of transfer documents and any sales, transfer, stamp or
other excise taxes resulting from the transfer of the Assets to Buyer. All other
costs shall be borne by the party incurring such costs.
18.2. INCOME TAX MATTERS. For federal and state income tax matters only,
the effective date of the sale and purchase of the Assets shall be deemed to be
January 1, 1996, notwithstanding the selection of the Effective Date for all
other matters. Seller and Buyer shall cause DIGP to provide a Form K-1 for the
entire calendar year 1995 reflecting Seller, TMBGC and EGGI as partners.
19. INTEGRATION. This Agreement, including the Exhibit and all Annexes, and the
other agreements to be entered into by the parties under the provisions of this
Agreement and the Confidentiality Agreement dated October 13, 1995, executed by
Buyer and the Advisor (the "CONFIDENTIALITY AGREEMENT") set forth the entire
agreement and understanding of the parties in respect of the transactions
contemplated hereby and supersede all prior agreements, prior arrangements and
prior understandings relating to the subject matter hereof. Upon Closing, the
obligations of Buyer under the Confidentiality Agreement to the extent such
relate to the Assets or the DIGS shall terminate.
20. WAIVER OR MODIFICATION. This Agreement may be amended, modified, superseded
or cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by a duly
authorized officer of Buyer and Seller, or, in the case of a waiver or consent,
by or on behalf of the party or
27
parties waiving compliance or giving such consent. The failure of any party at
any time or times to require performance of any provision of this Agreement
shall not affect its right at a later time to enforce such provision. No waiver
by any party of any condition, or of any breach of any covenant, agreement,
representation or warranty contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or waiver of any other condition or of any
breach of any other covenant, agreement, representation or warranty.
21. HEADINGS. The section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agree ment.
22. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, to the extent such does not result in a material adverse
impairment to the rights or obligations of any party hereto, such provision
shall be fully severable; this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
23. WAIVER OF JURY TRIAL. SELLER AND BUYER HEREBY IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED ON, ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN.
24. MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement. In addition,
this Agreement may be executed in a number of counterparts, any one of which may
contain the execution of either Buyer or Seller, and all of such counterparts
taken together shall constitute one completely executed original agreement.
25. PUBLIC ANNOUNCEMENTS. Buyer and Seller agree that prior to making any public
announcement or statement with respect to the transaction contemplated by this
Agreement, the party desiring to make such public announcement or statement
shall consult with the other party hereto and shall (a) agree upon the text of a
joint public announcement or statement to be made by both Buyer and Seller or
(b) obtain approval of the other party hereto the text of a public announcement
or statement to be made solely by Seller or Buyer, as the case may be. Nothing
contained in this Section shall be construed to require either party to obtain
approval of the other party hereto to disclose information with respect to the
transaction contemplated by this Agreement to any state or federal governmental
authority or agency to the extent required by applicable law or by any
applicable rules, regulations or
28
orders of any governmental authority or agency having jurisdiction or necessary
to comply with disclosure requirements of the New York Stock Exchange or any
applicable securities laws.
26. ARBITRATION.
26.1. BINDING ARBITRATION. On the request of any party hereto, whether
made before or after the institution of any legal proceeding, any action,
dispute, claim or controversy of any kind now existing or hereafter arising
between any of the parties hereto in any way arising out of, pertaining to or in
connection with this Agreement (a "DISPUTE") shall be resolved by binding
arbitration by three arbitrators in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") and, to the maximum
extent applicable, the Federal Arbitration Act (Title 9 of the United States
Code). The transactions contemplated by this Agreement are transactions
involving and relating to commerce. In the event of any inconsistency between
Section 26 and any statute and rules, Section 26 shall control. Judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction. Any party may, by summary proceedings, bring an action in court to
compel arbitration of any Dispute.
26.2. ARBITRATORS. Each arbitrator shall be an active or recently
retired business person or professional with not less than ten years experience
in the gas pipeline industry. The arbitrators may engage engineers, accountants
or other consultants that the arbitrator deems necessary to render a conclusion
in the arbitration proceeding. The arbitration shall be initiated by one party
("CLAIMANT") giving notice to the other party ("RESPONDENT") and to the
Administrator of the American Arbitration Association ("ADMINISTRATOR") that the
Claimant elects to refer the Dispute to arbitration, and that the Claimant has
appointed an arbitrator who shall be identified in such notice. The Respondent
shall notify the Claimant and the Administrator in writing within fifteen days
after its receipt of the Claimant's notice, identifying the arbitrator the
Respondent has selected. If the Respondent fails within the fifteen day period
to so notify the Claimant or to identify an arbitrator, the second arbitrator
shall be appointed by the Administrator at the request of the Claimant or the
Respondent within fifteen days after such request is made. The two arbitrators
so identified shall select a third arbitrator within fifteen days after the
second arbitrator has been appointed. If, however, such arbitrators shall fail
to appoint such third arbitrator within such fifteen day period, then the third
arbitrator shall be appointed by the Administrator at the request of either the
Claimant or the Respondent within fifteen days after such request is received by
the Administrator. If such arbitration is in compliance with the rules governing
the arbitration as described in Section 26.1, any claim of evident partiality on
the part of either arbitrator appointed by Buyer or Seller under the provisions
of Section 26 is hereby waived by the parties.
26.3. CONDUCT OF ARBITRATION. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be conducted
in Houston, Texas. Arbitrators shall
29
be empowered to impose sanctions and to take such other actions as the
arbitrators deem necessary to the same extent a judge could impose sanctions or
take such other actions pursuant to the Federal Rules of Civil Procedure and
applicable law. At the conclusion of any arbitration proceeding, the arbitrator
shall make specific written findings of fact and conclusions of law. Each party
agrees to keep all Disputes and arbitration proceedings strictly confidential
except for disclosure of information required by applicable law.
26.4. COSTS OF ARBITRATION. All fees of the arbitrators and any
engineer, accountant or other consultant engaged by the arbitrators, shall be
paid by Buyer and Seller equally unless otherwise awarded by the arbitrators in
the event the arbitrators find the asserted claim was frivolous.
27. THIRD PARTY BENEFICIARIES. Except as provided below, there are no
third-party beneficiaries of any of the rights and obligations of either Seller
or Buyer under this Agreement. EGGI and TMBGC are express third-party
beneficiaries of the consent and waiver provided in Section 5.5. The Seller
Indemnified Parties and the Buyer Indemnified Parties are express third-party
beneficiaries of the indemnification provisions of this Agreement. OEDC
Partners, L.P. and MCN Investment Corporation are express third-party
beneficiaries under this Agreement.
30
EXECUTED as of the date first set forth above.
DAUPHIN ISLAND GATHERING COMPANY, L.P., by its
sole general partner, OEDC, Inc.
By: /s/ DOUGLAS H. KIESEWETTER
Name: Douglas H. Kiesewetter
Title: Vice President
PIPELINE & PROCESSING GROUP, INC.
By: /s/ JOSEPH L. ROBERTS
Name: Joseph L. Roberts
Title: Vice President
31
EXHIBIT 10.10
PERFORMANCE GUARANTY
OEDC PARTNERS, L.P.
February 28, 1996
<PAGE>
PERFORMANCE GUARANTY
This Performance Guaranty (this "GUARANTY"), dated February 28, 1996 is
made by OEDC PARTNERS, L.P. a Texas limited partnership ("OEDC PARTNERS"), in
favor of MCNIC Mobile Bay Gathering Company, a Michigan corporation ("MMBGC").
As contemplated by the Agreement for Purchase and Sale dated January 31,
1996 (as the same may be amended from time to time, and any documents delivered
pursuant thereto, the "PURCHASE AGREEMENT") between Dauphin Island Gathering
Company ("DIGC") and MMBGC (the successor to Pipeline & Processing Group, Inc.
by assignment dated February 28, 1996), MMBGC will buy and DIGC will sell 96
percent of DIGC's interest in Dauphin Island Gathering Partners, a Texas general
partnership. The execution and delivery by OEDC Partners of this Guaranty are
conditions precedent to the performance by MMBGC of the Purchase Agreement. The
guaranties provided in this Guaranty reasonably may be expected to benefit,
directly or indirectly, OEDC Partners. Further, it is in the best interest of
OEDC Partners to provide the guaranties set forth hereunder, and the execution
and performance of such guaranties are necessary or convenient to the conduct,
promotion, or attainment of the business of OEDC Partners. In consideration of
the premises and in order to induce MMBGC to enter into the Purchase Agreement,
OEDC Partners hereby agrees as follows:
1. DEFINED TERMS. Each capitalized term referenced in this Guaranty but not
defined herein shall have the meaning ascribed to such term in the Purchase
Agreement.
2. GUARANTY.
2.1 GUARANTY. OEDC Partners hereby unconditionally and irrevocably
guarantees to MMBGC, the punctual performance or payment (as the case may be)
when due, whether at stated maturity or otherwise, of all obligations of DIGC
now or hereafter existing under the Purchase Agreement (all of such obligations
under the Purchase Agreement, being referred to herein as the "OBLIGATIONS"),
and any and all expenses (including reasonable counsel fees and expenses)
incurred by MMBGC in enforcing any rights under this Guaranty; PROVIDED THAT all
payments by OEDC Partners under this Section 2.1 shall be made within five
Business Days following MMBGC's demand therefor given in writing to OEDC
Partners (which demand will set forth the basis and calculation of the amount
for which demand is made).
2.2 GUARANTY ABSOLUTE. OEDC Partners guarantees that, subject to the
demand and payment provisions set forth in Section 2.1, the Obligations will be
performed or paid (as the case may be) strictly in accordance with the terms of
the Purchase Agreement. To the fullest extent permitted by applicable law, the
liability of OEDC Partners under this Guaranty shall be absolute and
unconditional (as primary obligor and not merely as surety) irrespective of:
(a) any lack of validity or enforceability of the Purchase
Agreement or any other agreement or instrument relating thereto;
-1-
(b) any law now or hereafter in effect in any jurisdiction
affecting any of the terms of the Purchase Agreement or the rights of
MMBGC with respect thereto;
(c) any change in the time, manner or place of performance, or
payment of, or in any other term of, all or any of the Obligations, or
any other amendment, extension of maturity or waiver of, or any consent
to departure from the Purchase Agreement;
(d) the existence of, or any release or amendment or waiver of or
consent to departure from, any other guaranty, for all or any of the
Obligations;
(e) the failure of MMBGC to assert any claim or demand or to
enforce any right or remedy under the Purchase Agreement;
(f) any change in the corporate existence, structure or ownership
of OEDC Partners, DIGC, MMBGC or any assignment by DIGC of its rights or
obligations under the Purchase Agreement;
(g) any bankruptcy, insolvency, receivership, or other
proceedings under bankruptcy law involving DIGC, or MMBGC or any defense
that may arise in connection with or as a result of any such bankruptcy,
insolvency, receivership or other proceedings; or
(h) any other act, omission to act, delay of any kind by OEDC
Partners or any other person, or any other circumstance whatsoever that
might, but for the provisions of this Section, constitute a legal or
equitable discharge of the obligations of OEDC Partners hereunder.
The guaranty made by OEDC Partners hereunder shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned by MMBGC for any reason,
including the insolvency, bankruptcy or reorganization of DIGC, or otherwise,
all as though such payment had not been made, and, in such event, OEDC Partners
will pay to MMBGC an amount equal to any such payment that has been rescinded or
returned. This Guaranty shall be absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a defense available to OEDC Partners or DIGC or a legal or equitable
discharge of a surety or OEDC Partners except indefeasible payment in full of
the Obligations. The provisions of this paragraph will survive any release or
termination of this Guaranty. If and to the extent that OEDC Partners makes any
payment to MMBGC pursuant to or in respect of this Guaranty, any claim which
OEDC Partners may have against DIGC by reason thereof shall be subject and
subordinate to the prior indefeasible payment in full of the Obligations. The
obligations of OEDC Partners hereunder are independent of the obligations of
DIGC and a separate action or actions may be brought and prosecuted against OEDC
-2-
Partners to enforce this Guaranty, irrespective or whether any action is brought
against DIGC or whether DIGC is joined in any such action or actions.
2.3 WAIVER. Except as otherwise set forth in Section 2.1, OEDC Partners
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Obligations and this Guaranty and any requirement that
MMBGC protect, secure, perfect, or insure any collateral or exhaust any right or
take any action against DIGC or any collateral.
3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF OEDC PARTNERS. OEDC Partners
hereby represents and warrants as follows:
(a) OEDC Partners is a limited partnership duly organized and in
good standing under the laws of the State of Texas. OEDC Partners is
qualified to do business in and is in good standing under the laws of
the State of Alabama. The sole general partner of OEDC Partners is OEDC,
Inc.
(b) OEDC Partners has full partnership power and authority to
carry on its business as presently conducted, to enter into this
Guaranty and to perform its obligations under this Guaranty. The
execution and delivery of this Guaranty by OEDC Partners have been, and
the performance by OEDC Partners of this Guaranty and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite partnership
action on the part of OEDC Partners.
(c) This Guaranty has been duly executed and delivered on behalf
of OEDC Partners and constitutes the legal, valid and binding obligation
of OEDC Partners enforce able in accordance with its terms, except as
enforceability may be limited by Equitable Limitations. At the Closing
all documents and instruments required hereunder to be executed and
delivered by OEDC Partners shall be duly executed and delivered and
shall constitute legal, valid and binding obligations of OEDC Partners
enforceable in accordance with their terms, except as enforceability may
be limited by Equitable Limitations.
(d) The execution and delivery of this Guaranty by OEDC Partners
does not, and the consummation of the transactions contemplated by this
Guaranty shall not, (a) violate or be in conflict with, or require the
consent of any person or entity under, any provision of the governing
documents of OEDC Partners or OEDC, Inc., or (b) violate any provision
of or require any consent, authorization or approval under any judgment,
decree, judicial or administrative order, award, writ, injunction,
statute, rule or regulation applicable to OEDC Partners or OEDC, Inc.
-3-
4. MISCELLANEOUS.
4.1 NOTICES. All notices required or permitted under this Guaranty shall
be in writing and, (1) if by air courier, shall be deemed to have been given one
Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (2) if by telecopier, shall be
deemed to have been given when actually received, and (3) if mailed, shall be
deemed to have been given three Business Days after the date when sent by
registered or certified mail, postage prepaid, addressed as follows:
To OEDC Partners: OEDC Partners, L.P.
1400 Woodloch Forest Dr., Suite 200
The Woodlands, Texas 77380
Attention: David Strassner
Telecopier: 713-364-1122
To MMBGC: MCNIC Mobile Bay Gathering Company
150 West Jefferson Avenue
Detroit, Michigan 48226
Attention: Michael J. Way
Telecopier: 313-256-6918
4.2 INTEGRATION. This Guaranty sets forth the entire agreement and
understanding of OEDC Partners and MMBGC in respect of the guaranty by OEDC
Partners of the Obligations and supersedes all prior agreements, prior
arrangements and prior understandings relating to the subject matter hereof.
4.3 GOVERNING LAW. This Guaranty shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to any
principles of conflicts of laws.
4.4 WAIVER OR MODIFICATION. This Guaranty may be amended, modified,
superseded or cancelled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of OEDC Partners and MMBGC. The failure of
MMBGC at any time or times to require performance of any provision of this
Guaranty shall not affect its right at a later time to enforce such provision.
No waiver by MMBGC of any condition, or of any breach of any covenant,
agreement, representation or warranty contained in this Guaranty, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or waiver of any other condition or of
any breach of any other covenant, agreement, representation or warranty.
4.5 HEADINGS. The section headings contained in this Guaranty are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Guaranty.
-4-
4.6 INVALID PROVISIONS. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Guaranty shall be
construed and enforced as if such illegal, invalid or unen forceable provision
had never comprised a part hereof; and the remaining provisions of this Guaranty
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance from this Guaranty.
4.7 CONTINUING GUARANTY. The obligations of OEDC Partners under Section 2
of this Guaranty shall be continuing and (a) remain in full force and effect as
long as any Obligations are extant, (b) be binding upon OEDC Partners, its
successors and assigns and (c) inure to the benefit of and be enforceable by
MMBGC and its successors, transferees and assigns. Notwithstanding the
foregoing, the obligations of OEDC Partners may not be assigned, transferred or
conveyed directly or indirectly.
4.8 WAIVERS OF OEDC PARTNERS. OEDC Partners hereby waives any right,
whether legal or equitable, statutory, or nonstatutory, to require MMBGC to
proceed against or take any action against or pursue any remedy with respect to
the MMBGC, or any other person or make presentment or demand for performance or
give any notice of nonperformance before MMBGC may enforce its rights hereunder
against OEDC Partners.
4.9 WAIVER OF JURY TRIAL. OEDC PARTNERS HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED ON, ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREIN.
4.10 ARBITRATION. On the request of either MMBGC or OEDC Partners, whether
made before or after the institution of any legal proceeding, any action,
dispute, claim or controversy of any kind now existing or hereafter arising
between any of the parties hereto in any way arising out of, pertaining to or in
connection with this Guaranty shall be resolved by binding arbitration in
accordance with Section 26 of the Purchase Agreement.
-5-
IN WITNESS WHEREOF, OEDC Partners has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
OEDC PARTNERS, L.P., by its sole general
partner, OEDC, Inc.
By: /s/ DOUGLAS H. KIESEWELTER
Name: Douglas H. Kiesewelter
Title: Executive Vice President
-6-
EXHIBIT 10.11
- --------------------------------------------------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTH DAUPHIN II LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF SOUTH DAUPHIN II LIMITED PARTNERSHIP
A TEXAS LIMITED PARTNERSHIP
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINITIONS.............................................1
1.02 OTHER DEFINITIONS..............................................11
ARTICLE II
ORGANIZATION
2.01 FORMATION......................................................11
2.02 NAME...........................................................11
2.03 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE
IN THE UNITED STATES; OTHER OFFICES............................11
2.04 PURPOSES.......................................................11
2.05 CERTIFICATE; FOREIGN QUALIFICATION.............................12
2.06 TERM...........................................................12
2.07 MERGER OR CONSOLIDATION........................................12
ARTICLE III
PARTNERS REPRESENTATIONS AND DISPOSITIONS OF INTERESTS
3.01 INITIAL PARTNERS...............................................12
3.02 CERTAIN REPRESENTATIONS AND WARRANTIES.........................13
3.03 RESTRICTIONS ON THE DISPOSITION OF AN INTEREST.................13
3.04 ADDITIONAL PARTNERS............................................16
3.05 INTERESTS IN A PARTNER.........................................16
3.06 WARRANTY AS TO NET WORTH OF GENERAL PARTNER....................17
3.07 REPRESENTATIONS AND WARRANTIES OF OEDC.........................17
i
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.01 INITIAL CONTRIBUTIONS AND MANDATORY OPERATIONS.................19
4.02 SUBSEQUENT CONTRIBUTIONS FOR ACTIVITIES
ON PARTNERSHIP PROPERTY........................................21
4.03 OPPORTUNITIES IN THE AREA OF MUTUAL INTEREST...................22
4.04 RETURN OF CONTRIBUTIONS........................................22
4.05 ADVANCES BY THE GENERAL PARTNER................................22
4.06 CAPITAL ACCOUNTS...............................................22
4.07 PERSONAL LIABILITY.............................................24
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.01 ALLOCATION FOR CAPITAL ACCOUNT PURPOSES........................25
5.02. INCOME TAX ALLOCATIONS.........................................28
5.03 ALLOCATIONS - TRANSFERS OF INTERESTS...........................30
5.04 DISTRIBUTIONS..................................................30
5.05 DETERMINATION OF PAYOUT........................................32
ARTICLE VI
MANAGEMENT AND OPERATION
6.01 MANAGEMENT OF PARTNERSHIP AFFAIRS..............................32
6.02 MAJOR DECISIONS................................................34
6.03 COSTS AND EXPENSES.............................................36
6.04 NATURE OF RELATIONSHIP.........................................37
6.05 INDEMNIFICATION................................................37
6.06 POWER OF ATTORNEY..............................................39
ARTICLE VII
OPTION TO CONVERT TO A NET PROFITS INTEREST
7.01 NET PROFITS INTEREST...........................................39
7.02 SPECIAL WITHDRAWAL.............................................40
7.03 BUY-SELL RIGHT.................................................40
7.04 BUY DOWN PAYOUT................................................41
ii
ARTICLE VIII
RIGHTS OF OTHER PARTNERS
8.01 INFORMATION....................................................42
8.02 LIMITATIONS....................................................42
8.03 MEETINGS.......................................................42
8.04 LIMITED LIABILITY..............................................42
ARTICLE IX
TAXES
9.01 TAX RETURNS....................................................42
9.02 TAX ELECTIONS..................................................42
9.03 TAX MATTERS PARTNER............................................43
ARTICLE X
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.01 MAINTENANCE OF BOOKS...........................................43
10.02 REPORTS........................................................43
10.03 OTHER REPORTS..................................................44
10.04 BANK ACCOUNTS..................................................45
ARTICLE XI
WITHDRAWAL, BANKRUPTCY, REMOVAL, ETC.
11.01 WITHDRAWAL, BANKRUPTCY, ETC. OF MANAGING GENERAL PARTNER.......45
11.02 REMOVAL OF MANAGING GENERAL PARTNER............................46
11.03 CONVERSION OF INTEREST.........................................47
11.04 BANKRUPT PARTNERS..............................................47
ARTICLE XII
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.01 DISSOLUTION....................................................48
12.02 LIQUIDATION AND TERMINATION....................................49
12.03 RESTORATION OF DEFICIT CAPITAL ACCOUNT.........................50
12.04 CANCELLATION OF CERTIFICATE....................................50
iii
ARTICLE XIII
GENERAL PROVISIONS
13.01 CONFIDENTIALITY................................................50
13.02 NOTICES........................................................50
13.03 ENTIRE AGREEMENT; SUPERSEDURE..................................51
13.04 EFFECT OF WAIVER OR CONSENT....................................51
13.05 AMENDMENT OR MODIFICATION......................................51
13.06 BINDING EFFECT; JOINDER OF ADDITIONAL PARTIES..................51
13.07 CONSTRUCTION...................................................51
13.08 FURTHER ASSURANCES.............................................52
13.09 DEEMED ASSENT..................................................52
13.10 WAIVER OF CERTAIN RIGHTS.......................................52
13.11 COUNTERPARTS...................................................52
13.12 ARBITRATION....................................................52
Exhibit A - Form of Assignment
Exhibit B - Description of Property Contributed as Partnership Property
Exhibit C - Form of Net Profits Interest
Exhibit D - Insurance
Exhibit E - Form of Accounting Procedure
Exhibit F - Minimum Schedules
Exhibit G - [Deleted]
Exhibit H - Production Handling Agreement
Exhibit I - Mandatory Operations
Schedule 1 - Disclosures of OEDC
iv
AGREEMENT OF LIMITED PARTNERSHIP
OF SOUTH DAUPHIN II LIMITED PARTNERSHIP
A TEXAS LIMITED PARTNERSHIP
This Agreement of Limited Partnership (this "Agreement") is made and
entered into as of July 25, 1996, by and among the Partners.
For and in consideration of the mutual covenants, rights, and
obligations set forth herein, the benefits to be derived therefrom, and other
good and valuable consideration, the receipt and the sufficiency of which each
Partner acknowledges and confesses, the Partners agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINITIONS. As used herein, the following terms have the
following respective meanings:
"Abandonment Costs" shall mean the actual costs of plugging and
abandoning any wells that are located on Partnership Property and have
produced oil and gas, or either of them, in commercial quantities, the
costs of dismantling and salvaging any platforms, pipelines, other
facilities and structures on Partnership Property and all other costs
associated with the restoration of Partnership Property in accordance
with applicable law (including, if applicable, the rules and regulations
of the Minerals Management Service of the United States Department of
the Interior), net of estimated salvage value of any salvageable
equipment or personalty.
"Abandonment Cost Reserve Account" shall have the meaning
attributed to it in Section 6.03.
"Act" means the Texas Revised Limited Partnership Act and any
successor statute, as amended from time to time.
"Adjusted Capital Account" means the Capital Account maintained
for each Partner as of the end of each fiscal year of the Partnership,
(a) increased by any amounts that such Partner is obligated to restore
under the standards set by Treasury Regulation Section
1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by
(i) the amount of all deductions in respect of depletion that, as of the
end of the fiscal year, are expected to be made to such Partner's
Capital Account in respect of the oil and gas properties of the
Partnership, (ii) the amount of all losses and deductions that, as of
the end of such fiscal year, are reasonably expected to be allocated to
such Partner in subsequent years under Sections 704(e)(2) and 706(d) of
the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (iii)
the amount
1
of all distributions that, as of the end of such fiscal year, are
reasonably expected to be made to such Partner in subsequent years in
accordance with the terms of this Agreement or otherwise to the extent
they exceed offsetting increases to such Partner's Capital Account that
are reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section
5.01(e)(i) or 5.01(e)(ii)). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
"Adjusted Property" means any property the Carrying Value of
which has been adjusted pursuant to Section 4.06(d)(i) or 4.06(d)(ii).
Once an Adjusted Property is deemed distributed by, and recontributed
to, the Partnership for federal income tax purposes upon a termination
thereof pursuant to Section 708 of the Code, such property shall
thereafter constitute a Contributed Property until the Carrying Value of
such property is subsequently adjusted pursuant to Section 4.06(d)(i) or
4.06(d)(ii).
"Affiliate" shall mean any Person directly or indirectly
controlling, controlled by or under common control with another Person.
As used in this definition of "Affiliate" and in Section 7.02, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of another
Person, whether through the ownership of voting securities, partnership
interests, by contract, by acting as a general partner, manager or
otherwise; and without limiting the foregoing it shall be deemed that
the ownership of more than 50% of the voting securities, partnership
interests or percentage interest of another Person shall be deemed to
meet such control test.
"AFE" has the meaning given in Section 4.01(c).
"AFE Expenditure Report" has the meaning given in Section
4.01(c).
"Aggregate Minimum Schedule" has the meaning given in Section
5.04(a)(i).
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to
the provisions of Section 5.01.
"Agreed Value" of any Contributed Property means the fair market
value of such property or other consideration at the time of
contribution as agreed by the Partners.
"Agreement" means this Agreement of Limited Partnership as the
same may be amended from time to time.
"Anticipated Rate - Pressure Schematic" means the information
concerning the expected pressures and flow rates for the wells to be
drilled in the Viosca Knoll area as set forth in the information
provided to JEDI by OEDC prior to the date of this Agreement.
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"Approved AFE" has the meaning given in Section 4.01(c).
"Area of Interest Agreement" means the Area of Interest Agreement
dated as of March 3, 1993 between OEDC and Enron Finance Corp., as
amended from time to time.
"Assets" or "Asset" means, collectively or singularly, (i) the
Subject Interests, together with all rights, titles, interests,
appurtenances, benefits and privileges of OEDC prior to the Assignment
attributable to each Subject Interest; (ii) all rights of OEDC prior to
the Assignment with respect to all contracts, agreements, instruments,
governmental orders, and contractual rights which cover or relate in any
way whatsoever to the Subject Interests; (iii) all rights of OEDC prior
to the Assignment with respect to all easements, rights-of-ways, rights,
permits, licenses and servitudes which are used or held in connection
with the exploration, development or operation of the Subject Interests
or the transportation of production therefrom; and (iv) all files,
records, data and documentation of OEDC prior to the Assignment
pertaining or related to the Subject Interests and/or assets described
in clauses (i) through (iii).
"Assignment" means the Assignment of Oil and Gas Leases in the
Form of Exhibit A.
"Bankrupt Partner" means any Partner (whether a General Partner
or a Limited Partner) with respect to which an event of the type
described in section 4.02(a)(4) or (5) of the Act shall have occurred,
subject to the lapsing of any period of time therein specified.
"Before Payout Partnership Percentages" means the respective
percentages set forth below, as same may be changed or amended from
time-to-time.
OEDC, as a General Partner 1%
OEDC, as a Limited Partner 14%
JEDI, as a Limited Partner 85%
"Budgeted AFE Amount" has the meaning assigned in Section
4.01(e).
"Business Day" means any day other than a Saturday, a Sunday, or
a holiday on which banks in the State of Texas are authorized by law to
close.
"Buy Down Payout" has the meaning given in Section 7.04(a) or
(b).
"Capital Account" means the capital account maintained for a
Partner pursuant to Section 4.06.
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"Capital Contribution" means any cash, cash equivalents or the
Net Agreed Value of Contributed Property that a Partner contributes to
the Partnership.
"Carrying Value" means (a) with respect to a Contributed
Property, the Agreed Value of such property reduced (but not below zero)
by all depreciation, depletion, amortization and cost recovery
deductions charged to the Partners' Capital Accounts in respect of such
Contributed Property, and (b) with respect to any other Partnership
Property, the adjusted basis of such property for federal income tax
purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections
4.06(d)(i) and 4.06(d)(ii) and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties.
"Certificate" means the Certificate of Limited Partnership of the
Partnership, as it may be amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, and any successor
statute, as amended from time to time.
"Contributed Property" means each property or other asset, but
excluding cash, contributed to the Partnership (or deemed contributed to
the Partnership on termination and reconstitution thereof pursuant to
Section 708 of the Code). Once the Carrying Value of a Contributed
Property is adjusted pursuant to Section 4.06(d), such property shall no
longer constitute a Contributed Property, but shall be deemed an
Adjusted Property.
"Cost Credit" has the meaning given in Section 4.01(e).
"Cost Overrun" has the meaning given in Section 4.01(e).
"Cumulative Preferred Return" means the sum of the Daily
Preferred Return for each day commencing with the date of this Agreement
(or such other beginning date when the context so indicates) through the
date of calculation.
"Curative Allocation" means any allocation of an item of income,
gain, deduction, loss or credit pursuant to the provisions of Section
5.01(j)(viii).
"Daily Preferred Return" means for any day commencing on the date
of this Agreement and ending on the day Payout occurs, the product of
(a) the balance in the Investment Account-JEDI at the end of such day
times (b) 0.000382983.
"Deficit Account" has the meaning given in Section 5.04(a)(i).
4
"Dispose," "Disposing," or "Disposition" means a sale,
assignment, transfer, exchange, mortgage, pledge, grant of a security
interest, or other disposition or encumbrance, or an agreement to
accomplish any of the foregoing.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"ECT" means Enron Capital & Trade Resources Corp.
"Elected Capital Contribution" has the meaning given in Section
4.01(e).
"Engineering Fee" means an annual fee of $10,000 per year to be
paid to Enron Finance Corp. by the Partnership commencing on the date of
this Agreement and on each annual anniversary of such date.
"Environmental Laws" means any and all laws or regulations
pertaining to health or the environment in effect in any and all
jurisdictions in which the Partnership is conducting or at any time has
conducted business, or where any property of the Partnership is located,
including without limitation, the Oil Pollution Act of 1990 ("OPA"), the
Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety
and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act,
as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, and other environmental
conservation or protection laws. The term "oil" shall have the meaning
specified in OPA, the terms "hazardous substance" and "release" (or
"threatened release") have the meanings specified in CERCLA, and the
terms "solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA; provided, however, that (i) in the event either of
any term defined thereby, such broader meaning shall apply subsequent to
the effective date of such amendment and (ii) to the extent the laws of
the state in which any property of the Partnership is located establish
a meaning for "oil," "hazardous substance," "release," "solid waste" or
"disposal" which is broader than that specified in either OPA, CERCLA or
RCRA, such broader meaning shall apply.
"Gas Contract" means the Gas Purchase Agreement to be entered
into between the Partnership and ECT after the date of this Agreement on
terms mutually acceptable to OEDC and ECT.
"Gathering Agreement" means the Gathering Agreement between the
Partnership and Dauphin Island Gathering Partners to be entered into
between them after the date of this Agreement on terms mutually
acceptable to OEDC and ECT.
5
"General Interest Rate" means a rate equal to the lesser of (a)
one and one-half (1 1/2) percentage points above a varying rate per
annum that is equal to the interest rate publicly quoted by The Chase
Manhattan Bank, N.A. or its successors from time to time as its prime
commercial or similar reference interest rate, with adjustments in such
varying rate to be made on the same date as any change in such rate, and
(b) the maximum rate permitted by applicable law.
"General Partner" means any Person executing this agreement as of
the date hereof as a general partner or hereafter admitted to the
Partnership as a general partner as herein provided, but shall not
include any Person who has ceased to be a general partner in the
Partnership.
o "Good and Marketable Title" means such record and
beneficial title that (i) entitles the Partnership to receive,
from its ownership of record in each Lease, a percentage of all
Hydrocarbons produced, saved and marketed from each well located
on each Lease, not less than the net revenue interest set forth
in Exhibit B for the respective Lease, without reduction,
suspension or termination for the respective productive life of
such well; (ii) obligates the Partnership to bear a percentage of
the costs and expenses relating to operations on and the
maintenance and development of each Lease and each well located
on each Lease not greater than the undivided leasehold or
operating rights interest set forth in Exhibit B for the
respective Lease without increase for the respective productive
life of each such well; (iii) entitles the Partnership to a share
of the working interest or operating rights in each Lease which
is not less than the undivided leasehold or operating rights
interest set forth in Exhibit B for the respective Lease; and
(iv) is free and clear of any encumbrances, liens, mortgages, or
pledges, preferential purchase rights or requirements for
consents to assignment applicable to or exercisable as a result
of the Assignment, and any other defects that would materially
affect or interfere with the operation, use, possession,
ownership or value thereof, except for the Permitted
Encumbrances.
"Hydrocarbons" means all oil, condensate, gas and other liquid
and gaseous hydrocarbon substances.
"Independent Petroleum Engineer" means Ryder Scott Company or any
other reputable knowledgeable third party petroleum engineering firm
designated by the Managing General Partner and acceptable to JEDI.
"Investment Account-JEDI" means an account to be maintained for
JEDI by the Managing General Partner which shall equal at any time (a)
the sum of all Capital Contributions made by JEDI plus (b) the
Cumulative Preferred Return less (c) the sum of all distributions from
the Partnership to JEDI; provided, however, the Investment Account-JEDI
shall not include any Elected Capital Contributions and distributions
related thereto pursuant to Section 4.01(e).
6
"JEDI" means Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership , and any of its successors
or assigns as a Limited Partner.
"Lease" means an oil an gas lease described, referred to or
identified in Exhibit B, as to all lands and depths described in such
lease (or the applicable part or portion thereof if specifically limited
in depth and/or areal extent in Exhibit B), together with any renewal or
extension of such lease (as to all or any part or portion thereof), and
any replacement lease taken upon or in anticipation of expiration or
termination of such lease (if executed and delivered during the term of
or within one (1) year after expiration of the predecessor lease), as to
all lands and depths described in the predecessor lease (unless the
predecessor lease is specifically limited in depth or areal extent in
Exhibit B in which event only such portion of such lease shall be
considered a renewal or extension or a replacement lease and subject to
the terms of this Agreement), and all renewals and extensions of such
replacement leases.
"Legal Requirement" means any requirement imposed pursuant to any
statute, rule, regulation, order, permit or license of any applicable
governmental authority or by any applicable court order.
"Limited Partner" means any Person executing this Agreement as of
the date hereof as a limited partner or hereafter admitted to the
Partnership as a limited partner as herein provided, but shall not
include any Person who has ceased to be a limited partner in the
Partnership.
"Managing General Partner" means OEDC or any other Person
designated as Managing General Partner pursuant to the provisions
hereof.
"Mandatory Operations" means the oil and gas operations on
Partnership Property described on Exhibit I.
"Minimum Schedules" has the meaning given in Exhibit F.
"MMS" means the U.S. Department of Interior, Minerals Management
Service.
"Net Agreed Value" means, (a) in the case of any Contributed
Property, the Agreed Value of such property reduced by any liabilities
either assumed by the Partnership upon such contribution or to which
such property is subject when contributed, and (b) in the case of any
property distributed to a Partner by the Partnership, the Partnership's
Carrying Value of such property (as adjusted pursuant to Section
4.06(d)(ii)) at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution, in either
case, as determined under Section 752 of the Code.
7
"Net Income" means, for any taxable period, the excess, if any,
of the Partnership's items of income and gain for such taxable period
over the Partnership's items of loss and deduction for such taxable
period. The items included in the calculation of Net Income shall be
determined in accordance with Section 4.06(b) and shall not include any
items allocated under Sections 5.01(c)-(h). Once an item of income,
gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to a Required Allocation or a
Curative Allocation, Net Income or Net Loss, whichever the case may be,
shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction for such taxable period
over the Partnership's items of income and gain for such taxable period.
The items included in the calculation of Net Loss shall be determined in
accordance with Section 4.06(b) and shall not include any items
allocated under Sections 5.01(c)-(h). Once an item of income, gain, loss
or deduction that has been included in the initial computation of Net
Loss is subjected to a Required Allocation or a Curative Allocation, Net
Income, or Net Loss, whichever the case may be, shall be recomputed
without regard to such item.
"Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury Regulation Section
1.704-2(b), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"OEDC" means OEDC Exploration & Production, L.P.
"Operative Agreements" has the meaning given in Section 6.01(ix).
"Partner" means any General Partner or Limited Partner and
"Partners" means collectively all of the General Partners (if more than
one) and Limited Partners.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth
in Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with
the principles of Treasury Regulation Section 1.704-2(i), are
attributable to a Partner Nonrecourse Debt.
8
"Partnership" has the meaning given it in Section 2.01.
"Partnership Minimum Gain" means that amount determined in
accordance with the principles of Treasury Regulation Section
1.704-2(d).
"Partnership Percentages" means the respective percentages as set
forth below, as same may be changed or amended from time to time:
OEDC, as a General Partner 1%
OEDC, as a Limited Partner 74%
JEDI, as a Limited Partner 25%
"Partnership Property" means all real, personal and mixed
property owned by the Partnership from time to time.
"Payout" means the earlier to occur of (a) that point at which
the Investment Account-JEDI equals zero or (b) Buy Down Payout.
"Permitted Encumbrances" is defined in the Assignment.
"Person" means any individual, natural person, corporation, joint
venture, partnership, limited partnership, limited liability company,
trust, estate, business trust, association, governmental entity or any
other entity.
"Plan of Development" means the Plan of Development provided to
JEDI by OEDC prior to the date of this Agreement, as amended or restated
with the consent of all of the Partners.
"Price Risk Management Products" means any commodity swap, cap,
floor, collar, forward agreement or other exchange or protection
agreements or any option with respect to any such transaction.
"Price Risk Management Program" means the Price Risk Management
Program to be adopted by the Partnership with the consent of all
Partners, as amended or restated with the consent of all Partners.
"Production Handling Agreement" means the Production Handling
Agreement in the form of Exhibit H between the Partnership and OEDC.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or
743 of the Code) upon the
9
disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Required Allocations" means any allocation (or limitation
imposed on any allocation) of an item of income, gain, deduction or loss
pursuant to Sections 5.01(i)(i)-(vii) such allocations being directly or
indirectly required by the Treasury Regulations promul gated under
Section 704(b) of the Code.
"Reserve Information" means the maps and seismic information
covering the Subject Interests provided to JEDI from OEDC.
"Simulated Basis" shall mean the Carrying Value of any oil and
gas property (as defined in section 614 of the Code).
"Simulated Depletion Allowance" shall mean a depletion allowance
computed in accordance with federal income tax principles (as if the
Simulated Basis of the property were its adjusted tax basis) and
computed in the manner specified in Treasury Regulation Section
1.704-1(b)(2)(iv)(k)(2). For purposes of computing the Simulated
Depletion Allowance with respect to any property, the Simulated basis of
such property shall be deemed to be the Carrying Value of such property,
and in no event shall such allowance, in the aggregate, exceed such
Simulated Basis.
"South Timbalier" means the leases described in Exhibit B under
such heading.
"Structuring Fee" means $281,918 to be paid to ECT Securities
Corp. by the Partnership on the date of this Agreement.
"Subject Interests" means the respective undivided interests set
forth in Exhibit B in and to the Leases, and any and all additional
right, title, interest or claim of every kind and character of OEDC
prior to the Assignment in and to the Leases and all lands now or
hereafter pooled, communitized or unitized therewith, even though OEDC's
interest may be incorrectly or incompletely described in Exhibit B, all
as the same shall be enlarged by the discharge of any burdens or by the
removal of any charges or encumbrances to which any of the same may be
subject, and any and all renewals and extensions of any of the same, but
expressly excluding any interest in the Leases acquired by OEDC after
date of this Agreement in excess of the interest described in Exhibit B.
"Taxes" means all ad valorem, property, occupation, severance,
production, gathering, pipeline, gross production, windfall profit,
energy, Btu, excise and other taxes, governmental charges and
assessments imposed on the Assets other than income taxes.
10
"Transaction Documents" means this Agreement, the Production
Handling Agreement, the Assignment, the Gas Contract, the Gathering
Agreement and any other contract, document, assignment or agreement as
contemplated by this Agreement, as the same may be amended or restated
from time to time.
"Unrealized Gain" attributable to any item of Partnership
Property means, as of any date of determination, the excess, if any, of
(a) the fair market value of such property as of such date (as
determined under Section 4.06(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to
Section 4.06(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership
Property means, as of any date of determination, the excess, if any, of
(a) the Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.06(d) as of such date) over
(b) the fair market value of such property as of such date (as
determined under Section 4.06(d)).
"Viosca Knoll" means the leases described in Exhibit B under such
heading.
1.02 OTHER DEFINITIONS. Other terms defined herein have the meanings so
given them.
ARTICLE II
ORGANIZATION
2.01 FORMATION. Upon first proper filing of the Certificate as described
in Section 2.05, the Persons executing this Agreement as of the date hereof
hereby form a limited partnership (the "Partnership") for the purposes
hereinafter set forth under and pursuant to the Act.
2.02 NAME. The name of the Partnership shall be "South Dauphin II,
Limited Partnership" and all Partnership business shall be conducted in such
name or such other name or names that comply with applicable law as the Managing
General Partner may designate from time to time.
2.03 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE IN THE UNITED
STATES; OTHER OFFICES. The registered office and the principal office of the
Partnership in the State of Texas shall be at such place as the Managing General
Partner may designate from time to time which shall initially be at the
corporate office of the General Partner. The registered agent for service of
process on the Partnership in the State of Texas or any other jurisdiction shall
be such Person or Persons as the Managing General Partner may designate from
time to time. The Partnership shall maintain records at its principal office as
required by section 1.07 of the Act. The Partnership may have such other offices
as the Managing General Partner may designate from time to time.
2.04 PURPOSES. The purposes of the Partnership are to own the Leases,
conduct the Mandatory Operations thereon, to enter into and comply with the
Gathering Agreement, the
11
Production Handling Agreement and the Gas Contract, to acquire, own and operate
other properties as may be acquired by the Partnership pursuant to the
provisions hereof and to otherwise engage in any other business or activity that
now or hereafter may be necessary, incidental, proper, advisable, or convenient
to accomplish the foregoing purposes (including, without limitation, obtaining
financing therefor as contemplated hereby) and that is not forbidden by the laws
of the jurisdictions in which the Partnership engages in such business or is not
otherwise prohibited hereby.
2.05 CERTIFICATE; FOREIGN QUALIFICATION. Immediately following the
execution hereof, the Managing General Partner shall execute and cause to be
filed with the Secretary of State of Texas a Certificate containing information
required by the Act and such other information as the Managing General Partner
may deem appropriate. Prior to conducting business in any jurisdiction other
than Texas, the Managing General Partner shall cause the Partnership to comply,
to the extent such matters are reasonably within the control of the Managing
General Partner, with all requirements necessary to qualify the Partnership as a
foreign limited partnership (or a partnership in which the Limited Partners have
limited liability) in such jurisdiction and to qualify the Partnership with the
United States Minerals Management Service to own and hold oil and gas leases on
the outer continental shelf of the Gulf of Mexico. Upon the request of the
Managing General Partner, each Partner shall execute, acknowledge, swear to, and
deliver all certificates and other instruments conforming with this Agreement
that are necessary or appropriate to form, qualify, continue, and terminate the
Partnership as a limited partnership under the laws of the State of Texas and to
qualify, continue, and terminate the Partnership as a foreign limited
partnership (or a partnership in which the Limited Partners have limited
liability) in all other jurisdictions in which the Partnership may conduct
business, and to this end the Managing General Partner may use the power of
attorney described in Section 6.06.
2.06 TERM. The Partnership shall commence on the date the Certificate
first is properly filed with the Secretary of State of Texas and shall continue
in existence until its business and affairs are wound up following dissolution
automatically at the close of Partnership business on December 31, 2013, or such
earlier time as this Agreement may specify or permit. The Partnership shall
conduct no business until the Certificate shall have been filed with the
Secretary of State of Texas.
2.07 MERGER OR CONSOLIDATION. The Partnership may merge or consolidate
with or into another business entity, or enter into an agreement to do so, only
with the prior written consent of all Partners.
ARTICLE III
PARTNERS REPRESENTATIONS AND DISPOSITIONS OF INTERESTS
3.01 INITIAL PARTNERS. The initial General Partner and Limited Partners
of the Partnership are the Persons named herein who are executing this Agreement
as of the date hereof as General Partner and Limited Partners, respectively,
each of whom is hereby admitted to the Partnership as a General Partner or a
Limited Partner, or both as the case may be.
12
3.02 CERTAIN REPRESENTATIONS AND WARRANTIES. Each Partner hereby
represents and warrants to the Partnership and each other Partner that (a) if
such Partner is a corporation, it is duly organized, validly existing, and in
good standing under the laws of the state of its incorporation and is duly
qualified and in good standing as a foreign corporation in the jurisdiction of
its principal place of business (if not incorporated therein), and if a General
Partner, in the State of Texas, (b) if such Partner is a partnership or other
entity, it is duly formed, validly existing, and (if applicable) in good
standing under the laws of the state of its formation, and if required by law is
duly qualified to do business and (if applicable) in good standing in the
jurisdiction of its principal place of business (if not formed therein) and, if
a General Partner, in the State of Texas, and the representations and warranties
in clauses (a) and (b) are true and correct with respect to each partner (other
than limited partners), or other member thereof, (c) if such Partner is not a
natural person, such Partner has delivered to the Managing General Partner true
and correct copies of its certificate or articles of incorporation, by-laws,
certificate of limited partnership, partnership agreement, and other
organizational documents, (d) such Partner has full corporate, partnership, or
other applicable power and authority to enter into the Transaction Documents, to
which it is a party, and to perform its obligations under such documents and all
necessary actions by the board of directors, shareholders, partners, or other
Persons necessary for the due authorization, execution, delivery, and
performance of the Transaction Documents, to which it is a party, by such
Partner have been duly taken, and such authorization, execution, delivery, and
performance do not conflict with any other agreement or arrangement to which
such Partner is a party or by which it is bound, (e) if such Partner is not a
natural person, all equity interests in such Partner have been duly and validly
issued and such issuance has complied in all respects with applicable federal
and state securities laws, and (f) such Partner is acquiring its interest in the
Partnership for investment purposes and not with a view to distribution thereof.
3.03 RESTRICTIONS ON THE DISPOSITION OF AN INTEREST.
(a) Except as specifically provided in this Section 3.03 or
elsewhere in this Agreement, no Disposition of an interest in the
Partnership shall be effected without the consent of all Partners. Any
attempted Disposition by a Partner of an interest or right, or any part
thereof, in or in respect of the Partnership other than in accordance
with this Agreement shall be, and is hereby declared, null and void ab
initio.
(b) Subject to the provisions of subsections (c), (d) and (e) of
this Section 3.03, JEDI (so long as it is a Limited Partner) may
transfer all or part of its interest in the Partnership at any time to
an Affiliate (other than Enron Oil & Gas Company) or to any other Person
that is managed by either ECT or any of its Affiliates. For purposes of
the immediately preceding sentence "manage" means to direct and control
the day to day activities of a Person, to have the power to bind such
Person by action (such as the execution of documents) and to otherwise
possess powers similar to those of the Managing General Partner of the
Partnership, notwithstanding that certain authority may lie in the
Person managed. After Payout, subject to the provisions of subsections
(c), (d) and (e) of this Section 3.03, OEDC may transfer all or part of
its limited partnership interest (but not its
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interest as a General Partner) at any time to an Affiliate. After
Payout, the Managing General Partner may transfer its general
partnership interest in the Partnership to a party that, in the sole
discretion of all other Partners, is a qualified, experienced, prudent
operator in the offshore Gulf of Mexico area and is capable of serving
as the Managing General Partner and carrying out the duties set out
herein in compliance with this Agreement. Any Partner may grant all or
any portion of its right to receive distributions hereunder or mortgage,
pledge or encumber its interest in the Partnership to any Person;
however, any such assignment of distributions or pledge, mortgage or
encumbrance shall not release the Partner(s) so acting from any of its
obligations hereunder and shall not have the effect of granting or
assigning to any assignee or lienholder or creditor of such Partner any
interest in the Partnership or any Partnership Property. After Payout,
subject to the provisions of Article VII hereof, or unless otherwise
permitted by the foregoing provisions of this Section 3.03(b), any
Partner shall have the right to Dispose of its interest in the
Partnership (other than as a mortgage, pledge, grant of security
interest or assignment of the right to distributions), but only after
satisfaction of the following conditions:
(i) The Partner desiring to sell its interest shall give notice to the
other Partners of its desire to sell, the price (which must be presented in
terms of a cash price) for which it would be willing to dispose of its interest
in the Partnership together with all other particulars concerning the proposed
sale. The other Partners shall have a prior and preferential right for a period
of fifteen (15) days from the receipt of such notice within which to elect to
purchase the selling Partner's interest in the Partnership on the terms offered.
If more than one Partner exercises such right, the Partners desiring to buy the
interest shall purchase the interest in proportion to their respective interests
in the Partnership. If no arrangement is consummated pursuant to this
subparagraph (i), then the following provision shall apply;
(ii) If no arrangement is consummated pursuant to subparagraph (i) above,
the party desiring to sell its interest in the Partnership may solicit offers
from third parties. After the receipt of a bona fide third party offer, the
selling Partner shall again give notice to the other Partners of the price
(which must be presented as a cash price) at which such Partner has made
arrangements to sell its interest, together with all particulars thereof
including the name of the offeror. The other Partners shall have a prior and
preferential right for a period of fifteen (15) days from the receipt of such
notice within which to exercise their right to purchase such selling Partner's
interest on the same terms and conditions of the third party offer. If this
right is exercised by more than one Partner, the purchasing Partner(s) shall
share the purchased interest in the proportions that the interest of each bears
to the total interest of all purchasing parties. In lieu of the exercise of this
preferential right, the parties receiving such notice from the selling Partner
may elect to sell their respective interests along with the selling Partner to
the third party (or to any other Partner who exercises its preferential right in
accordance with the foregoing provisions) on the same terms and conditions that
the selling Partner proposes to sell its interest, subject
14
to adjustment of the consideration received in accordance with the difference
between the size of interests of the selling Partner and the interest(s) of the
other Partner(s) desiring to sell along with the selling Partner. The Partner
selling its interest to a third party must therefore provide that a condition of
the sale includes a requirement that if the foregoing preferential right is not
exercised but instead other Partners desire to dispose of their respective
interests to such third party, the purchasing third party must purchase the
interest of any other Partners wishing to sell on the same terms and conditions.
(iii) If neither (i) nor (ii) above is elected by the non-selling
Partner(s), the Partner not selling may elect to avail itself of the provisions
of Article VII if the conditions otherwise set forth therein have been
satisfied.
(c) The Partnership shall not recognize for any purpose any
purported Disposition of an interest in the Partnership or distributions
therefrom unless and until the provisions of this Section 3.03 shall
have been satisfied; and with respect to all Dispositions (other than as
a mortgage, pledge, grant of security interest or assignment of the
right to distributions) there shall have been delivered to the Managing
General Partner a document (i) executed by both the Partner effecting
such Disposition and the Person (including other Partners) to which such
interest is Disposed, (ii) including the notice address of and the
written acceptance by any Person to be admitted to the Partnership of
all the terms and provisions of this Agreement and an agreement by such
Person to perform and discharge timely all of the obligations and
liabilities in respect of the interest being obtained, (iii) setting
forth the Partnership Percentage of the Partner effecting such
Disposition and the Person to which such interest is Disposed after such
Disposition (which together shall total the Partnership Percentage of
the Partner effecting such Disposition prior thereto), and (iv)
containing a representation and warranty that such Disposition was made
in accordance with all applicable laws and regulations (including
securities laws) and, if the Person to which such interest is Disposed
is to be admitted to the Partnership, a representation and warranty by
such Person that the representations and warranties in Section 3.02 are
true and correct with respect to such Person. Each such Disposition and,
if applicable, admission shall be effective as of the first day of the
calendar month immediately succeeding the month in which the Managing
General Partner shall receive such notification of Disposition and the
other requirements of this Section 3.03 shall have been met; provided,
however, that if there shall be only one General Partner and as a result
of such Disposition such General Partner would cease to be a General
Partner, such transferee shall be deemed admitted as a General Partner
immediately prior to such cessation.
(d) Notwithstanding any provision of this Agreement to the
contrary, the right of any Partner to Dispose of an interest in the
Partnership or distributions therefrom or of any Person to be admitted
to the Partnership in connection therewith shall not exist or be
exercised unless (i) either (A) the interest in the Partnership or
distributions therefrom subject to such Disposition or admission shall
have been registered under the Securities Act
15
of 1933, as amended, and any applicable state securities laws or (B) the
Partnership shall have received a favorable opinion of the Partnership's
legal counsel or of other legal counsel acceptable to the Managing
General Partner to the effect that such Disposition or admission is
exempt from registration under such laws and (ii) the Partnership shall
have received a favorable opinion of the Partnership's legal counsel or
of other legal counsel acceptable to the Managing General Partner to the
effect that such Disposition or admission would not result (A) when
added to the total of all other sales, assignments, or other
Dispositions within the preceding twelve (12) months, in the
Partnership's being considered to have terminated within the meaning of
section 708 of the Code or (B) in the Partnership being treated as an
association taxable as a corporation for federal income tax purposes.
(e) All costs (including, without limitation, the legal fees
incurred in connection with the obtaining of the legal opinions referred
to in Section 3.03(e)) incurred by the Partnership in connection with
any Disposition or admission of a Person to the Partnership pursuant to
this Section 3.03 shall be borne and paid by the Partner effecting such
Disposition and any Person admitted to the Partnership in connection
therewith within ten (10) days after the receipt by any such Person of
the Partnership's invoice for the amount due.
3.04 ADDITIONAL PARTNERS. Additional Persons may be admitted to the
Partnership as General Partners or Limited Partners and additional interests in
the Partnership may be issued to existing Partners by unanimous consent of all
Partners, but not otherwise, on such terms and conditions as may be determined
by all Partners at the time of such admission; provided that if a transfer of an
interest is effected pursuant to any of the foregoing provisions of Section
3.03, the transferee shall be admitted as a Partner. Such admission or issuance
shall specify the Partnership Percentages applicable thereto and may provide for
the creation of different classes or groups of Limited Partners or General
Partners and having different rights, powers, and duties. The creation of any
new class or group shall be reflected in an amendment hereto indicating such
different rights, powers, and duties, and such amendment need be executed only
by the Managing General Partner, provided consent thereto has been obtained from
all Partners. Any such admission must otherwise comply with the provisions of
Section 3.03(d)(i) and (ii), and shall not be effective until such new Partner
shall have executed and delivered to the Managing General Partner a document
including such new Partner's notice address, acceptance of all the terms and
provisions of this Agreement, an agreement to perform and discharge timely all
of its obligations and liabilities hereunder, and a certification that the
representations and warranties in Section 3.02 are true and correct with respect
to such new Partner.
3.05 INTERESTS IN A PARTNER. No Partner that is not a natural person
shall cause or permit an interest, direct or indirect, in itself to be Disposed
of such that, on account of such Disposition, (a) the Partnership would be
considered to have terminated within the meaning of section 708 of the Code, or
(b) the Partnership would become an association taxable as a corporation for
federal income tax purposes. Further, if (i) OEDC Partners, L.P. ceases to own a
99% limited partnership interest in OEDC, (ii)OEDC Inc. ceases to own a 1%
general partnership interest in OEDC, or (iii) if any two of David B. Strassner,
Douglas H. Kiesewetter or R. Keith Anderson are not the principal
16
officers in charge of managing the day-to-day operations of OEDC, then JEDI
shall have the rights set forth in Section 7.03.
3.06 WARRANTY AS TO NET WORTH OF GENERAL PARTNER. For the purpose of
assuring that the Partnership will at all times be characterized as a
partnership under the Code, the General Partner represents and warrants that it
will, at all times during the term of the Partnership, have a net worth, the
fair market value of which will not be less than the minimum net worth as would
be required of the General Partner pursuant to REVENUE PROCEDURE 89-12 in order
to enable the Partnership to obtain a ruling from the Internal Revenue Service
to the effect that the Partnership would be characterized as a partnership under
the Code.
3.07 REPRESENTATIONS AND WARRANTIES OF OEDC. Representations and
Warranties of OEDC. As a principal cause and material inducement to JEDI
entering into this Agreement, OEDC has made the representations set forth below
with the understanding that, notwithstanding any investigation made by JEDI,
JEDI is relying on each of such representations and would not have entered into
this Agreement but for each of such representations. In view of the forgoing,
and with the acknowledgment that JEDI's reliance on such representations is
reasonable, OEDC hereby represents and warrants to JEDI as follows:
(a) To the best of OEDC's knowledge:
(i) all of the information, reports and other data
furnished by OEDC to JEDI in connection with the transactions
described herein, including without limitation the Reserve
Information, the Anticipated Rate - Pressure Schematic, and the
Plan of Development is complete in all material respects and none
of such information supplied contains an untrue statement of a
material fact or omits to state any material fact which is
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and
(ii) the Reserve Information, the Anticipated Rate -
Pressure Schematic and the Plan of Development was prepared in
accordance with customary oil and gas engineering practices and
are based on historical information which is accurate and
complete in all material respects.
(b) The actions of OEDC in furnishing information to JEDI in
connection with the transactions described herein do not and will not
violate any duty owed by OEDC to any person to which such information
relates or any obligation of OEDC under any existing agreement.
(c) As a result of the Assignment being executed and delivered in
connection with this Agreement the Partnership owns Good and Marketable
Title to the Assets and the Subject Interests.
17
(d) All Taxes imposed or assessed with respect to or measured by
or charged against or attributable to the Subject Interests and the
Assets have been duly paid.
(e) Except as may be set forth on Schedule 1, there are no suits
or proceedings pending or, to the knowledge of OEDC, threatened against
OEDC or the Assets before any court, or by or before any governmental
commission, bureau or any regulatory authority, that if decided
adversely to the interest of OEDC could materially adversely affect
OEDC, any of the Assets or the right of JEDI under this Agreement.
(f) To the best of OEDC's knowledge, the Leases are in full force
and effect and OEDC has complied with the terms of all governmental
orders or directives naming OEDC which are applicable directly to the
Subject Interests.
(g) All rents and royalties with respect to the Leases which are
due and payable have been paid in a timely manner, and all liabilities
of any kind or nature incurred with respect to the Leases which are due
and payable have been paid before delinquent; OEDC has not received any
notice of default or claimed default with respect to the Subject
Interests or any Lease or any part thereof; except, in each case, where
the inaccuracy of any such statements would not have a material adverse
effect on the value of the Assets or any rights of JEDI therein under
this Agreement.
(h) The natural gas attributable to the Subject Interests is not
currently dedicated or committed to interstate commerce within the
meaning of the Natural Gas Act, and the first sale of natural gas
produced from the Subject Interests is not subject to price control
under the Natural Gas Act or the Natural Gas Policy Act of 1978.
(i) Except for the Gas Contract, the Area of Interest Agreement,
and any other agreements with ECT or its Affiliates, neither the Subject
Interests nor the Hydrocarbons attributable thereto are subject,
committed or dedicated to any contract, agreement or arrangement
regarding the gathering, balancing, transportation, processing, storing,
delivery, sale, use or marketing thereof; and no third party has any
call, right of first refusal or preferential right to purchase any such
Hydrocarbons.
(j) All consents and waivers of preferential purchase rights or
other rights necessary to permit the valid assignment to the Partnership
of the Subject Interest and Assets and execution and delivery of this
Agreement and the other Transaction Documents have been obtained or the
time for giving such consents or waivers has expired following a written
request therefor, except for any necessary approvals by the MMS.
(k) All advance notifications to third parties of the
transactions contemplated herein and in the other Transaction Documents
necessary to permit the valid assignment to the Partnership of the
Subject Interest and Assets and execution and delivery of this
18
Agreement and the other Transaction Documents have been timely and
properly given, except for any necessary approvals by the MMS.
(l) No authorization, consent, approval, license, or exemption
of, and no filing or registration with, any court or governmental
department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, is necessary to the valid execution and delivery by
OEDC of, or the performance by OEDC of its obligations under, this
Agreement or the other Transaction Documents that has not been obtained
or performed or the period for objection thereto expired, except for any
necessary approvals by the MMS.
(m) OEDC has furnished to JEDI true copies of all of the
agreements and other instruments described in Exhibit B as Permitted
Encumbrances.
(n) Except as set forth in Schedule 1, OEDC has obtained all
permits, licenses and other authorizations which are required under
Environmental Laws, the failure of which to obtain would materially
affect the value, use or operation of any of the Subject Interests; and
OEDC is in compliance in all material respects with all Environmental
Laws, and also is in compliance in all material respects with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in such
laws or contained in any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or
approved thereunder relating to the Assets, the failure with which to
comply would materially affect the value, use or operation of any
Subject Interests; and OEDC has not received notice of any violation of
or investigation relating to federal, state or local laws with respect
to pollution or protection of the environment relating to the Assets.
(o) The financial statements of OEDC dated as of December 31,
1995 and furnished to JEDI have been prepared in accordance with
generally accepted accounting principles, consistently applied, and
fairly and accurately reflect the financial condition of OEDC as of such
date, and since such date (i) there has been no change in the assets,
liabilities or financial condition of OEDC from that set forth in such
statement, other than changes in the ordinary course of business that
have not been, either in any case or in the aggregate, materially
adverse and (ii) neither the business, operations or affairs of OEDC,
nor any of its properties or assets has been materially adversely
affected by any occurrence or development regardless of whether insured
against.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.01 INITIAL CONTRIBUTIONS AND MANDATORY OPERATIONS. Contemporaneously
with the commencement of the Partnership or as otherwise described in this
Section 4.01, each Partner shall make the Capital Contributions to the
Partnership described for such Partner as follows:
19
(a) OEDC shall contribute, all those certain interests in the oil
and gas leases and appurtenant rights described in Exhibit B attached
hereto and made a part hereof for all purposes pursuant to the
Assignment. The Net Agreed Value of such leases is $1,450,145 and OEDC,
as a General Partner and a Limited Partner, shall have credited to its
respective Capital Accounts 1/15 and 14/15 of such amount. The
Partnership hereby assumes all of the obligations of OEDC with respect
to such leases, rights, and contractual commitments arising under the
contracts and agreements described on Exhibit B. Further, OEDC shall
contribute sufficient cash to the Partnership to pay and bear all of the
legal expenses required to acquire Partnership Property and to negotiate
and document this Agreement whether incurred by the General Partner or
Limited Partners, or any of their Affiliates in connection therewith.
(b) JEDI shall contribute up to $281,918 in cash to be used to
pay expenses and fees incurred in the organization of the Partnership
and for purchase of Price Risk Management Products by the Partnership as
described in the Price Risk Management Program.
(c) In addition to the capital contributed in Section 4.01(b),
JEDI shall contribute cash necessary to fund its 85% share of Mandatory
Operations up to $14,095,887 in the aggregate. In addition to the
capital contributed in Section 4.01(a), OEDC shall contribute cash
necessary to fund its 15% share of Mandatory Operations, 1% as a General
Partner and 14% as a Limited Partner. Advances of the Capital
Contribution will be made after presentation of an AFE Expenditure
Report by the Managing General Partner to JEDI for, and satisfactory
evidence of, costs incurred for the Mandatory Operations exceeding at
least $500,000 (or equal to the remaining Capital Contributions for
Mandatory Operations, if less) in the aggregate for such report, and for
which an Authority for Expenditure ("AFE") has been submitted by the
Managing General Partner and previously approved by JEDI ("Approved
AFE"). As used herein, "AFE Expenditure Report" means a report,
satisfactory in form and substance to JEDI, setting forth actual costs
incurred versus the budgeted amounts for such costs in accordance with
the Plan of Development, and, if requested by JEDI, including the
underlying invoices or other documentation supporting such AFE
Expenditure Report.
(d) If any Partner fails to timely contribute all or any part of
any initial mandatory Capital Contributions set forth in Sections
4.01(a), (b) and (c), then the non-defaulting Partner may thereupon
elect to expel the defaulting Partner from the Partnership and reduce
such defaulting Partner's interest in the Partnership to zero without
further compensation and such defaulting Partner shall be deemed to have
withdrawn from the Partnership pursuant to the provisions of Article XI,
regardless of whether it is a General or Limited Partner.
(e) JEDI will not be liable to make capital contributions in
excess of 85% of the budgeted costs set forth in the Approved AFE for
each project ("Budgeted AFE Amount"). If 85% of actual costs incurred
for a project are less than 85% of the Budgeted AFE Amount
20
for such project, the difference between 85% of the Budgeted AFE Amount
and 85% of actual costs ("Cost Credit") shall be applied to offset Cost
Overruns on other projects in the order as determined by OEDC by JEDI
making a capital contribution at such time. In the event 85% of the
actual costs for a project exceed 85% of the Budgeted AFE Amount for
such Project, the difference between 85% of actual costs and 85% of the
AFE Budgeted Amount ("Cost Overrun") shall be funded first with
available Cost Credits and then by OEDC. OEDC will fund such Cost
Overrun without burdening or diluting the economic interest of JEDI in
the Partnership in any way or the cash flow from any of the Partnership
Properties. If OEDC is unable to fund any Cost Overrun and OEDC and JEDI
shall have failed to negotiate the terms for JEDI to fund such Cost
Overrun within 30 days, then JEDI shall have the right but not the
obligation to make a Capital Contribution ("Elected Capital
Contribution") to fund the Cost Overrun and complete the project. After
such Elected Capital Contribution has been made by JEDI and such project
has been completed, JEDI shall be entitled to receive all of the
Partnership cash available for distribution until it has received cash
distributions from the Partnership equal to 300% of the Elected Capital
Contribution for the drilling and/or completion of wells and 150% of the
Elected Capital Contribution for costs related to pipelines, platforms
or other facilities.
4.02 SUBSEQUENT CONTRIBUTIONS FOR ACTIVITIES ON PARTNERSHIP PROPERTY.
Should the Managing General Partner deem it advisable or necessary to conduct
additional operations on Partnership Property beyond Mandatory Operations and
after Payout (other than normal continuing operations in connection with
existing wells, equipment and property including without limitation workovers or
recompletions as long as the funds therefor are available as provided in Section
5.04(a)), the Managing General Partner shall notify each Partner of the need for
Capital Contributions pursuant to this Section 4.02, which notice shall include
a statement in reasonable detail of the proposed uses of such Capital
Contributions and a date (which shall be no earlier than the fifth Business Day
following each Partner's receipt of such notice) before which such Capital
Contributions shall be made. If all Partners agree to make such Capital
Contributions, same shall be made in proportion to their respective Partnership
Percentages. However, should one or more of the Partners elect not to make such
additional contributions, then, at the option of the remaining Partners, they
may make such Capital Contributions necessary for the Partnership to conduct
such work or activity specified in the Managing General Partner's notice. After
such contribution has been made and such work has been conducted, the
contributing Partners shall receive all cash available for distributions from
the wells or properties on which the said funds are expended until the
contributing Partners receive cash distributions in an amount equal to (a) 300%
of the amount contributed to the extent that the amounts were expended for the
drilling, completing or reworking of wells, and (b) 150% of the amount
contributed to the extent that such sums were for costs related to pipelines,
platforms or other facilities. Cash available for distribution under this
Section 4.02 shall be determined in a similar manner as in Section 5.04(a).
21
4.03 OPPORTUNITIES IN THE AREA OF MUTUAL INTEREST.
(a) In the event OEDC owns or has the opportunity to acquire,
directly or indirectly, an interest in any lease or property, the
production from which would result in drainage from any reservoir
included in the Partnership Properties, OEDC shall offer the Partnership
the opportunity to acquire the interest on the same terms as OEDC
acquired it or proposes to acquire it.
(b) This Agreement will not terminate or modify the Area of
Interest Agreement, but to the extent of a conflict between its terms
and the terms of this Agreement, the terms of this Agreement will
control.
4.04 RETURN OF CONTRIBUTIONS. No Partner shall be entitled to the return
of any part of its Capital Contributions or to be paid interest in respect of
either its capital account or any Capital Contribution made by it. No unrepaid
Capital Contribution shall be deemed or considered to be a liability of the
Partnership or of any Partner. No Partner shall be required to contribute or to
lend any cash or property to the Partnership to enable the Partnership to return
any Partner's Capital Contributions to the Partnership.
4.05 ADVANCES BY THE GENERAL PARTNER. At any time after the Mandatory
Operations are completed and paid for, should the Partnership not have
sufficient cash to pay its ongoing obligations as they come due, the Managing
General Partner shall advance such funds for or on behalf of the Partnership.
Each such advance shall constitute a loan from the Managing General Partner to
the Partnership which loan shall bear interest from the date of the advance
until the date of repayment at the General Interest Rate. All such advances
shall be repaid out of 80% of the next available cash that would have otherwise
been distributed to the Partners from the Partnership in accordance with Section
5.04.
4.06 CAPITAL ACCOUNTS.
(a) The Partnership shall maintain for each Partner a Capital
Account in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the
cash amount or the Net Agreed Value of all Capital Contributions made by
such Partner to the Partnership pursuant to this Agreement and (ii) all
items of Partnership income and gain (including, without limitation,
income and gain exempt from tax) computed in accordance with Section
4.06(b) and allocated to such Partners pursuant to Section 5.01, and
decreased by (x) the amount of cash or Net Agreed Value of all actual
and deemed distributions of cash or property made to such Partner
pursuant to this Agreement and (y) all items of Partnership deduction
and loss computed in accordance with Section 4.06(b) and allocated to
such Partner pursuant to Section 5.01.
(b) For purposes of computing the amount of any item of income,
gain, loss or deduction to be reflected in the Partners' Capital
Accounts, the determination, recognition
22
and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax
purposes (including, without limitation, any method of depreciation,
cost recovery or amortization used for that purpose), provided, that:
(i) Except as otherwise provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction
shall be made without regard to any election under Section 754 of the Code which
may be made by the Partnership and, as to those items described in Section
705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such
items are not includable in gross income or are neither currently deductible nor
capitalized for federal income tax purposes.
(ii) Any income, gain or loss attributable to the taxable disposition of
any Partnership Property (including any property subject to depletion under
Section 611 of the Code) shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(iii) In accordance with the requirements of Section 704(b) of the Code, any
deductions for depreciation, cost recovery, depletion or amortization
attributable to any Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the Partnership were equal
to the Agreed Value of such property. Upon an adjustment pursuant to Section
4.06(d) to the Carrying Value of any Partnership Property subject to
depreciation, cost recovery, depletion or amortization, any further deductions
for such depreciation, cost recovery, depletion or amortization attributable to
such property shall be determined as if the adjusted basis of such property were
equal to the Carrying Value of such property immediately following such
adjustment.
(c) A transferee of an interest in the Partnership shall succeed
to a pro rata portion of the Capital Account of the transferor relating
to the Partnership interest transferred; provided, however, that, if the
transfer causes a termination of the Partnership under Section
708(b)(1)(B) of the Code, the Partnership's properties shall be deemed
to have been distributed in liquidation of the Partnership to the
Partners (including any transferee of an interest in the Partnership
that is a party to the transfer causing such termination) pursuant to
Section 12.02 and recontributed by such Partners to the reconstituted
Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 4.06(d)(ii) and such Carrying Values
shall then constitute the Agreed Values of such properties upon such
deemed contribution to the reconstituted Partnership. The Capital
Accounts of such reconstituted Partnership shall be maintained in
accordance with the provisions of this Section 4.06.
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(d) (i) In accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), upon a Partner's contribution to the Partnership of cash
or properties in exchange for an interest in the Partnership, the Capital
Accounts of all Partners and the Carrying Values of all Partnership properties
shall, immediately prior to such issuance, be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to the Partnership
properties, as if such Unrealized Gain or Unrealized Loss had been recognized on
an actual sale of each such property immediately prior to such issuance and had
been allocated to the Partners at such time pursuant to Section 5.01. In
determining such Unrealized Gain or Unrealized Loss, the fair market value of
all Partnership assets (including, without limitation, cash or cash equivalents)
immediately prior to the issuance of an interest in the Partnership shall be
determined by the Managing General Partner, with the approval of all of the
Limited Partners, using such reasonable methods of valuation as they may adopt.
(ii) In accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to
a Partner of any Partnership Property (other than a distribution of cash that is
not in redemption or retirement of an interest in the Partnership), the Capital
Accounts of all Partners and the Carrying Value of such Partnership Property
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership Property, as if such Unrealized
Gain or Unrealized Loss had been recognized in a sale of such property
immediately prior to such distribution for an amount equal to its fair market
value, and had been allocated to the Partners, at such time, pursuant to Section
5.01. In determining such Unrealized Gain or Unrealized Loss, the fair market
value of each such distributed property as of any date of determination shall be
determined by the Managing General Partner, with the approval of all of the
Limited Partners, using such reasonable methods of valuation as they may adopt.
(e) JEDI may elect at the end of each calendar quarter to cause capital
to be shifted from the Capital Account of OEDC to the Capital Account of JEDI in
an amount equal to the lesser of (i) the unpaid Cumulative Preferred Return
attributable to that quarter or (ii) OEDC's Capital Account balance.
(f) Notwithstanding any other provisions of this Agreement, the General
Partner hereby agrees to make Capital Contributions in a minimum amount at least
equal to 1% of the total Capital Contributions of the Partners.
4.07 PERSONAL LIABILITY. No Limited Partner shall have any personal
liability whatever, whether to the Partnership, to any of the Partners or to the
creditors of the Partnership, for the debts of the Partnership or any of its
losses beyond (i) the amount of its Capital Contributions and (ii) as may be
provided in the Act or by the laws of any jurisdiction in which the Partnership
may conduct
24
operations. In no event will any Limited Partner (or any successor in interest
of a Limited Partner, as such) be required to make any capital or other
contribution to the Partnership upon or following dissolution thereof solely by
reason that there is a deficit balance in the Capital Account of such Limited
Partner (or successor in interest).
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.01 ALLOCATION FOR CAPITAL ACCOUNT PURPOSES. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnerships' items of income, gain, loss and deduction
(computed in accordance with Section 4.06(b)) shall be allocated among the
Partners in each taxable year as provided hereinbelow.
(a) Net Income for each taxable period shall be allocated as
follows:
(i) First, 100% to the General Partner until the aggregate Net Income
allocated to the General Partner pursuant to this Section 5.01(a)(i) for the
current and each prior taxable year is equal to the Net Losses allocated to the
General Partner pursuant to Section 5.01(b)(iv);
(ii) Second, 100% to the Partners in the ratio that cumulative net
losses were allocated to the Partners pursuant to Section 5.01(b)(iii) until the
aggregate Net Income allocated to the Partners pursuant to this Section
5.01(a)(ii) for the current and each prior taxable year is equal to the Net
Losses allocated to the Partners pursuant to Section 5.01(b)(iii);
(iii) Third, prior to Payout, 100% to the Partners in accordance with
their Before Payout Partnership Percentages; and
(iv) Fourth, after Payout, 100% to the Partners in the ratio of their
Partnership Percentages.
(b) Net Losses for each taxable period shall be allocated as
follows:
(i) First, 100% to the Partners in accordance with their Partnership
Percentages until the Net Losses allocated pursuant to this Section 5.01(b)(i)
for the current and each prior taxable year is equal to the Net Income allocated
to such Partners pursuant to Section 5.01(a)(iv) for all previous years;
(ii) Second, 100% to the Partners in accordance with their Before Payout
Partnership Percentages until the Net Losses allocated pursuant to this Section
5.01(b)(ii) for the current and each prior taxable year is equal to the Net
25
Income allocated to such Partners pursuant to Section 5.01(a)(iii) for all
previous years;
(iii) Third, 100% to the Partners in the ratio of their Adjusted Capital
Account balances to the extent of such balances; and
(iv) Fourth, 100% to the General Partner.
(c) The Simulated Depletion Allowance with respect to each
separate oil and gas property (as defined in section 614 of the Code)
shall be treated as a deduction of the Partnership and shall be
allocated on the books of the Partnership among the Partners in the same
proportion in which the Partners (or their predecessors in interest)
were allocated the adjusted tax basis of such property under Section
5.02(b).
(d) Gross income shall be allocated to JEDI in an amount equal to
the distributions made to JEDI pursuant to Section 5.04(a)(i) to pay the
Cumulative Preferred Return for such year.
(e) Gross income shall be allocated to JEDI in an amount equal to
any distributions made to JEDI pursuant to the last sentence of Section
4.01(e).
(f) Income, gain, loss, deduction and credit arising from
subsequent operations funded by the Partners in a ratio other than their
Partnership Percentages shall be allocated to the Partners in the manner
described in Section 4.02.
(g) Losses and deductions arising from (i) the expenditure of
cash Capital Contributions made by a Partner pursuant to Section 4.01(e)
to fund a Cost Overrun shall be allocated to the Partners who made such
Capital Contributions, pro rata in accordance with the amount of such
contributions and (ii) any shift of capital from OEDC to JEDI pursuant
to Section 4.06(e) shall be allocated 100% to JEDI.
(h) Gross income in an amount equal to any addition to the
Abandonment Cost Reserves Account shall be allocated to the Partners in
accordance with their Partnership Percentages.
(i) Notwithstanding any other provisions of this Section 5.01,
the following special allocations shall be made for each taxable period:
(i) Notwithstanding any other provision of this Section 5.01, if there is
a net decrease in Partnership Minimum Gain during any Partnership taxable
period, each Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and amounts
provided in Treasury Regulation Section 1.704-2(f)(6),(g)(2), and (j)(2)(i). For
purposes of this
26
Section 5.01(i), each Partner's Capital Account shall be determined and the
allocation of income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 5.01(i) with
respect to such taxable period. This Section 5.01(i)(i) is intended to comply
with the Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Notwithstanding the other provisions of this Section 5.01 (other than
(i) above), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
during any Partnership taxable period, any Partner with a share of Partner
Nonrecourse Debt Minimum Gain at the beginning of such taxable period shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in Treasury
Regulation Section 1.704-2(i)(4) and (j)(2)(ii). For purposes of this Section
5.01(i) each Partner's Adjusted Capital Account balance shall be determined, and
the allocation of income and gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this Section 5.01, other
than (i) above, with respect to such taxable period. This Section 5.01(i)(ii) is
intended to comply with the chargeback of items of income and gain requirement
in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Except as provided in (i) and (ii) above, in the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) items of
Partnership income and gain shall be specifically allocated to such Partner in
an amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulation, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as quickly as
possible unless such deficit balance is otherwise eliminated pursuant to (i) or
(ii) above.
(iv) In the event any Partner has a deficit balance in its Adjusted Capital
Account at the end of any Partnership taxable period, such Partner shall be
specially allocated items of Partnership gross income and gain in the amount of
such excess as quickly as possible; provided, that an allocation pursuant to
this Section 5.01(c)(iv) shall be made only if and to the extent that such
Partner would have a deficit balance in its Adjusted Capital Account after all
other allocations provided in this Section 5.01(c) have been tentatively made as
if this Section 5.01(c)(iv) was not in this Agreement.
(v) Nonrecourse Deductions for any taxable period shall be allocated to
the Partners in accordance with their Before Payout Partnership Percentages or
their Partnership Percentages as then in effect.
27
(vi) Partner Nonrecourse Deductions for any taxable period shall be
allocated 100% to the Partner that bears the Economic Risk of Loss with respect
to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulation Section 1.704-2(i). If more
than one Partner bears the Economic Risk of Loss with respect to a Partner
Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall
be allocated between or among such Partners in accordance with the ratios in
which they share such Economic Risk of Loss.
(vii) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Sections 734(b) or 743(b) of the Code is required,
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such provisions.
(viii) Notwithstanding any other provision of this Section 5.01 other than
the Required Allocations, the Required Allocations shall be taken into account
in making the Agreed Allocations so that, to the extent possible, the net amount
of items of income, gain, loss and deduction allocated to each Partner pursuant
to the Required Allocations and Agreed Allocations, together, shall be equal to
the net amount of such items that would have been allocated to each such Partner
under the Agreed Allocations if the Required Allocations and the related
Curative Allocations have not otherwise been provided for in this Section 5.01.
5.02. INCOME TAX ALLOCATIONS.
(a) Except as provided in this Section 5.02, each item of income,
gain, loss and deduction of the Partnership for federal income tax
purposes shall be allocated among the Partners in the same manner as
such items are allocated for book purposes under Section 5.01.
(b) The deduction for depletion with respect to each separate oil
and gas property (as defined in section 614 of the Code) shall, in
accordance with section 613A(c)(7)(D) of the Code, be computed for
federal income tax purposes separately by the Partners rather than the
Partnership. Except as provided in Section 5.02(d), for purposes of such
computation, the proportionate share of the adjusted tax basis of each
oil and gas property allocated among the Partners shall be determined in
accordance with the following principles:
28
(i) In the case of a property acquired in whole or in part with funds
contributed by the Partners, to the Partners proportionate to the manner in
which the Partners contributed the funds.
(ii) In the case of a property acquired or developed with proceeds of
Partnership borrowings or reinvestment of Partnership earnings prior to Payout,
to the Partners in accordance with their Before Payout Partnership Percentages.
(iii) In all other cases to the Partners in accordance with their
Partnership Percentages at the time.
Each Partner, with the assistance of the Managing General Partner, shall
separately keep records of its share of the adjusted tax basis in each
separate oil and gas property, adjust such share of the adjusted tax
basis for any cost or percentage depletion allowable with respect to
such property and use such adjusted tax basis in the computation of its
cost depletion or in the computation of its gain or loss on the
disposition of such property by the Partnership. Upon the request of the
General Partner, each Limited Partner shall advise the General Partner
of its adjusted tax basis in each separate oil and gas property and any
depletion computed with respect thereto, both as computed in accordance
with the provisions of this subsection. The Managing General Partner may
rely on such information and, if it is not provided by the Limited
Partner, may make such reasonable assumptions as it shall determine with
respect thereto.
(c) Except as provided in Section 5.02(d), for the purposes of
the separate computation of gain or loss by each Partner on the sale or
disposition of each separate oil and gas property (as defined in section
614 of the Code), the Partnership's allocable share of the "amount
realized" (as such term is defined in section 1001(b) of the Code) from
such sale shall be allocated for federal income tax purposes among the
Partners as follows:
(i) First, to the extent such amount realized constitutes a recovery of
the Simulated Basis of the property, to the Partners in the same percentages as
the depletable basis of such property was allocated to the Partners pursuant to
Section 5.02(b).
(ii) Second, the remainder of such amount realized, if any, as follows:
(A) In the case of the disposition of a property prior to Payout which
is not made in connection with the sale of all or substantially all of the
assets of the Partnership, to the Partners in accordance with their Before
Payout Partnership Percentages to the Partners.
(B) In the case of the disposition of a property after Payout which is
not made in connection with the sale of all or substantially all of the assets
29
of the Partnership, to the Partners in accordance with their Partnership
Percentages at the time.
(C) In the case of the disposition of a property made in connection with
the sale of all or substantially all the assets of the Partnership, in the same
manner in which Net Income is allocated pursuant to Section 5.01(a).
(d) The Partners recognize that with respect to a Contributed
Property and an Adjusted Property, there will be a difference between
the Agreed Value or Carrying Value, as the case may be, of such property
at the time of contribution or revaluation, as the case may be, and the
adjusted tax basis of such property at the time. All items of tax
depreciation, cost recovery, amortization, adjusted tax basis of
depletable properties, amount realized and gain or loss with respect to
such Contributed Properties and Adjusted Properties (referred to as
"Section 704(c) Items") shall be allocated among the Partners to take
into account the disparities between the Carrying Values and the
adjusted tax basis with respect to such properties in accordance with
the provisions of sections 704(b) and 704(c) of the Code and the
Treasury Regulations under those sections; provided, however, that any
tax items not required to be allocated under sections 704(b) or 704(c)
of the Code shall be allocated in the same manner as such gain or loss
would be allocated for book purposes under Section 5.01.
(e) All items of income, gain, loss, deduction and credit
allocated to the Partners in accordance with the provisions hereof and
basis allocations recognized by the Partnership for federal income tax
purposes shall be determined without regard to any election under
section 754 of the Code which may be made by the Partnership; provided,
however, such allocations, once made, shall be adjusted as necessary or
appropriate to take into account the adjustments permitted by sections
734 and 743 of the Code.
5.03 ALLOCATIONS - TRANSFERS OF INTERESTS
(a) For income tax purposes, allocation of costs, revenues,
income, gains, losses, deductions, credits and items of tax preference
of the Partnership, including depletion and depreciation, if applicable,
attributable to any assigned interest shall be prorated between the
assignor and the assignee on the basis of the number of days such
interest was held by each of them during the calendar year or any other
reasonable basis determined by the Managing General Partner which is
consistent with Section 706 of the Code and applicable Treasury
Regulations.
5.04 DISTRIBUTIONS.
(a) From time to time (but at least once each calendar month) the
Managing General Partner shall determine in its reasonable good faith
judgment to what extent (if any) Partnership cash on hand exceeds its
current and anticipated needs for the immediately following three (3)
month period (including, without limitation, for operating expenses,
debt
30
service, and permitted acquisitions). Such determination shall be made
by taking into account cash generated by the Mandatory Operations and
each group of subsequent operations (to the extent the Partners
participate in subsequent operations on a non-uniform basis). If such
excess shall exist, the Managing General Partner shall, subject to
Section 6.03(b) below and the provisions of Sections 4.01(e) and 4.05,
cause the Partnership to distribute such excess among the Partners in
the following order and ratios:
(i) For each month prior to Payout, distributable cash shall
be distributed among the Partners in the following order and
ratios: first, if any Elected Capital Contributions have been
made and distributions are owing to JEDI pursuant to Section
4.01(e), 100% to JEDI in the manner provided in Section 4.01(e)
until complete satisfaction of the distribution requirement under
Section 4.01(e); second, 100% to JEDI up to the aggregate of each
of the Minimum Schedules after its commencement (the "Aggregate
Minimum Schedule") set forth on Exhibit F hereto. Each Minimum
Schedule will commence the earlier of the month following the
first month of production relative to the project associated with
such Minimum Schedule or 60 days after substantially all capital
is funded on such project associated with such Minimum Schedule.
In addition, the Managing General Partner shall establish a
deficit account (the "Deficit Account") to track the cumulative
amount by which the actual Partnership distributions are less
than the Aggregate Minimum Schedule. In the event that the
distributions from the Partnership for such month exceed the
Aggregate Minimum Schedule, distributions shall be made to JEDI
until the Deficit Account has a zero balance, thereafter for such
month OEDC will receive 100% of the distributable cash up to 15%
of the aggregate Partnership distributions for such month;
provided, however, such distributions to OEDC shall not exceed
$175,000 in any month. Finally, distributable cash for such month
shall be distributed 100% to JEDI. All distributions to JEDI
under this Section 5.04(a)(i) other than owing to JEDI pursuant
to Section 4.01(e) shall be applied first against any unpaid
Cumulative Preferred Return.
(ii) For each month after Payout, distributable cash shall be
distributed among the Partners in their respective Partnership
Percentages.
(iii) Distributions attributable to subsequent operations
shall be distributed among the Partners in the manner set forth
in Section 4.02.
(iv) Distributions attributable to Buy Down Payout shall be
distributed 100% to JEDI as provided in Section 7.04.
(v) Distributions attributable to Sections 7.01 and 7.02
shall be distributed in accordance with those respective
Sections.
31
5.05 DETERMINATION OF PAYOUT. When the Managing General Partner
determines, in its good faith judgment that Payout has occurred, it shall give
notice to all other Partners of such fact along with supporting schedules
showing the calculation of Payout, together with such other information as the
Partners may reasonably request. The other Partners shall then have a period of
thirty (30) days from the receipt of the Managing General Partner's notice to
object to the Managing General Partner's calculations or to otherwise
demonstrate to the reasonable satisfaction of the Managing General Partner that
an error has been made in calculating Payout. If no objection is timely made or
if the Managing General Partner can support its calculations (or adjust its
calculations to reflect Payout at some other date), the Partnership shall give
effect to Payout upon the date determined by the Managing General Partner, even
if such date does not coincide with the end of an accounting period.
Notwithstanding the determination of Payout by the Managing General Partner in
accordance with the foregoing provisions, the Managing General Partner shall
recalculate Payout at the end of the tax year during which Payout was determined
to have occurred and after the books for all items necessary to determine Payout
have been closed. If the original determination was in error, adjustments shall
be made to all allocations and distributions previously made to reflect the
final status of the determination of Payout. Nothing in this Section shall
affect the rights of the Partners to audit the Partnership's books as provided
elsewhere herein.
ARTICLE VI
MANAGEMENT AND OPERATION
6.01 MANAGEMENT OF PARTNERSHIP AFFAIRS. Except for situations in which
the approval of the remaining Partners is expressly required by this Agreement
or by non-waivable provisions of applicable law, the Managing General Partner
shall have full, complete, and exclusive authority to manage and control the
business, affairs, and properties of the Partnership, to make all decisions
regarding the same, and to perform any and all other acts or activities
customary or incident to the management of the Partnership's business. Except as
provided in the Production Handling Agreement, the Managing General Partner
shall receive no compensation for its services as such from the Partnership or
any Partner, including without limitation, serving as operator under any joint
operating agreements in connection with Partnership Property, but shall be
reimbursed for out-of-pocket costs and expenses incurred in the course of its
service hereunder as more fully set out in Section 6.03. Subject to the
provisions contained elsewhere herein, the Managing General Partner shall make
all decisions for the Partnership not otherwise provided for herein, including,
without limitation, the following:
(a) entering into, making, and performing all contracts,
agreements, and other undertakings binding the Partnership as may be
necessary, appropriate, or advisable in furtherance of the purposes of
the Partnership and making all decisions thereunder;
(b) opening and maintaining bank and investment accounts and
drawing checks and other orders for the payment of monies;
(c) maintaining the assets of the Partnership in good order;
32
(d) collecting all sums due the Partnership;
(e) to the extent that funds of the Partnership are available
therefor, paying as they become due all debts and obligations of the
Partnership;
(f) selecting, removing, and changing the authority and
responsibility of lawyers, accountants, and other consultants; and
(g) determining distributions of Partnership cash as required in
Section 5.04.
In carrying out its duties hereunder, the Managing General Partner
agrees that except as may be necessary to comply with the Gathering Agreement
and the Gas Contract (compliance with which shall take precedence over any
contrary provisions hereof) it will or it will cause:
(i) a prudent operating and maintenance program designed to drill
and complete or abandon the Mandatory Operations and all other
operations to be conducted on the Partnership Property as would a
reasonable and prudent operator and in accordance with sound field
practices;
(ii) the Partnership Property to be maintained and operated for the
production of oil and gas in a good and workmanlike manner and in
accordance with sound field practices, applicable operating agreements,
contracts of development, or similar instruments and, in all material
respects, with all applicable laws, rules, regulations, permits, orders,
or decrees, except those being contested in good faith and by
appropriate proceedings (provided that no forfeiture or loss of the
Partnership Property or any part thereof shall result during the
pendency or in the resolution of such contest), and all Partnership
wells to be produced as a prudent operator (subject, however, to any
applicable state and/or federal laws, rules, and/or regulations
governing the amount of oil and gas that may be produced from a well);
provided, however, that nothing contained in this paragraph shall be
deemed to prevent or restrict the Managing General Partner from electing
not to participate in any operations that are to be conducted under the
terms of any operating agreement, unit operating agreement, contract for
development, or similar instrument affecting or pertaining to
Partnership Property (or any portion thereof) if a prudent operator
under the same or similar circumstances would not do so;
(iii) all rentals and royalties with respect to Partnership Property
to be paid;
(iv) all taxes, assessments, and governmental charges or levies and
all claims asserted or imposed upon the Partnership Property that, if
unpaid, may become a lien upon the Partnership Property to be paid prior
to delinquency;
(v) all machinery, equipment, and facilities of any kind now or
hereafter located on the Partnership Property necessary or useful in the
operation thereof or for the production
33
of oil and gas therefrom, to be provided and to be kept in good and
effective operating condition, and all repairs, renewals, replacements,
additions, and improvements thereof or thereto needful to such end, to
be promptly made, all as would a reasonable and prudent operator acting
in accordance with sound field practices;
(vi) notice to be given to all Partners of every material adverse
claim or demand of which made by any Person, affecting the Partnership
Property or of any material proceedings instituted with respect thereto,
and all reasonably necessary and proper steps to be diligently taken to
protect and defend the Partnership Property against any such adverse
claim, demand, or proceeding, all as would a reasonable and prudent
operator;
(vii) the Partnership Property to be kept free and clear of liens,
charges, and encumbrances of every character, other than the Production
Payment and those, if any, consented to by the Partners in writing or
expressly permitted hereby including liens permitted in connection with
the third party financing contemplated by Section 4.01(e);
(viii) the Partnership to maintain insurance of the type and in the
amounts not less than those set forth in Exhibit D hereto; and
(ix) enter into and perform and enforce performance by the other
parties thereto of the Production Handling Agreement, the Gathering
Agreement and the Gas Contract ("Operative Documents").
6.02 MAJOR DECISIONS. Except as expressly permitted hereby, the Managing
General Partner, on behalf of the Partnership, shall not at any time, without
the consent of all Partners unless required pursuant to terms of the Gas
Contract or the Gas Gathering Agreement:
(a) sell, assign, transfer, convey or otherwise dispose of all or
any portion of the Partnership Property,
(b) mortgage, pledge a security interest in and/or deed of trust
with respect to or otherwise collaterally assign Partnership Property or
any Partnership interest therein,
(c) admit any additional or substitute Partner of the
Partnership,
(d) do any act in contravention of this Agreement or outside the
purposes of the Partnership,
(e) except as permitted by Section 4.05, borrow or lend money on
behalf of the Partnership for any purpose or utilize collateral owned by
the Partnership as security for any loan,
34
(f) become bailor, endorser or surety or knowingly cause or
permit to be done anything whereby the seizure, or attachment of the
Partnership Property is reasonably likely to occur,
(g) utilize Partnership assets, including but not limited to
Partnership Property, in any way for furtherance of personal business
activities unrelated to Partnership business,
(h) assign, transfer or pledge any debt due the Partnership or
release any such debt except upon payment in full,
(i) draw, accept or endorse any bill, exchange or promissory note
on behalf of the Partnership,
(j) make any contract to sell or execute a bill of sale or
similar instrument of any substantial part of the Partnership assets
including but not limited to the Partnership Property, other than
pursuant to the Gas Contract or other sales of hydrocarbons in the
ordinary course of the Partnership's business,
(k) incur on behalf of the Partnership any expense reasonably
estimated to cost more than an amount equal to the greater of $25,000.00
or three (3) months' net cash flow of the Partnership unless authorized
pursuant to an AFE previously approved by all the Parties or unless
required in an emergency situation to protect life or property,
(l) amend, modify, waive performance of, terminate or take any
action to breach any of the Operative Documents,
(m) sell any Partnership Property for less than its fair value,
(n) conduct any operations or activities other than the Mandatory
Operations before Payout,
(o) acquire any property other than through Capital Contributions
or equipment reasonably necessary to conduct the Mandatory Operations or
other operations permitted by the terms of this Agreement, or
(p) enter into any Price Risk Management Products other than as
set forth in the Price Risk Management Program to be entered into on the
date of this Agreement by the Partnership.
No General Partner, other than the Managing General Partner, shall have
the rights and benefits set out in this Article VI to bind or act on behalf of
the Partners or the Partnership.
35
6.03 COSTS AND EXPENSES.
(a) On the date of this Agreement the Partnership shall pay to
JEDI Securities Corp. the Structuring Fee and to Enron Finance Corp. the
initial Engineering Fee. The Managing General Partner shall bear all
legal fees of all Partners and filing fees and other similar expenses in
the organization and formation of the Partnership, the acquisition of
the Partnership Property and all other matters relating thereto.
(b) In the event that, as of the end of any month, the aggregate
estimated future net cash flow from all of the Partnership Property, as
estimated by the Independent Petroleum Engineer in such engineer's most
current report, is less than 300% of the aggregate future Abandonment
Costs for all of the Partnership Property, as estimated by the
Independent Petroleum Engineer in the most recent report furnished
pursuant to Section 10.02, the Managing General Partner may place in a
segregated account (the "Abandonment Cost Reserve Account") an amount
equal to no more than fifty percent (50%) of the income of the
Partnership (calculated without taking into account the placing of such
amounts in the Abandonment Cost Reserve Account) for such month. At such
time as the amount in the Abandonment Cost Reserve Account exceeds 125%
of the aggregate estimated future Abandonment Costs for all of the
Partnership Property as a group (as determined by an independent
appraiser acceptable to all Partners), no further amount shall be placed
in such account until such time as the funds in the Abandonment Cost
Reserve Account shall again be less than 125% of said aggregate
estimated future Abandonment Costs. The amounts placed in the
Abandonment Cost Reserve Account shall be placed in certificates of
deposit or United States government securities having maturities not to
exceed thirty (30) days. Any interest accrued thereon shall be retained
in and added to the said Abandonment Cost Reserve Account. At any time,
on or prior to the date which any such Abandonment Costs must be
incurred and the Partnership is required to expend amounts or has
expended amounts for Abandonment Costs on the Partnership Property for
which an Abandonment Cost Reserve Account has been established, there
shall be released from the Abandonment Cost Reserve Account the lesser
of (i) an amount equal to said Abandonment Costs or (ii) the total
amount of funds in the Abandonment Cost Reserve Account to pay those
amounts to the Partnership. If less than all of the funds in the
Abandonment Cost Reserve Account are to be released and paid to the
Partnership after there has been incurred and paid all Abandonment Costs
relating to all of the Partnership Property, then the amounts, if any,
in the Abandonment Cost Reserve Account shall be released to the
Partnership and credited to the accounts of the respective Partners.
(c) Except as set forth in Article IV and Sections 6.03(a) and
(b) above, all charges, costs and expenses incurred by the Partnership
or the Managing General Partner on behalf of the Partnership shall be
paid out of Partnership funds and borne and allocated to the Partners as
set forth elsewhere herein. Specifically, such expenses and charges
shall be limited to those set out in the Accounting Procedure attached
hereto and made a part hereof for all purposes .
36
6.04 NATURE OF RELATIONSHIP. The Managing General Partner shall conduct
the affairs of the Partnership in the best interests of the Partnership and the
mutual best interests of the Partners, including, without limitation, the
safekeeping and use of all Partnership funds and assets and the use thereof for
the benefit of the Partnership. The Managing General Partner at all times shall
act with integrity and in good faith and utilize all reasonable efforts in all
activities relating to the conduct of the business of the Partnership and in
resolving conflicts of interest. During the existence of the Partnership, the
Managing General Partner shall devote such time and effort to the Partnership
business and operations as shall be necessary to promote fully the interests of
the Partnership and the mutual best interests of the Partners; however, it is
specifically understood and agreed that neither the Managing General Partner nor
any other General Partner shall be required to devote full time to Partnership
business, and (subject to the other express provisions hereof) the Managing
General Partner and each other Partner at any time and from time to time may
engage in and possess interests in other business ventures of any and every type
and description, independently or with others, including ones in competition
with the Partnership, and, except as set out in the Area of Interest Agreement
with no obligation to offer to the Partnership or any other Partner the right to
participate therein.
6.05 INDEMNIFICATION. (A) TO THE FULLEST EXTENT PERMITTED BY LAW
(INCLUDING AS PERMITTED BY, BUT SUBJECT TO THE RESTRICTIONS AND PROCEDURES OF,
ARTICLE 11 OF THE ACT), THE PARTNERSHIP SHALL INDEMNIFY EACH GENERAL PARTNER AND
ITS RESPECTIVE AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AND AGENTS, AND HOLD THEM HARMLESS FROM AND AGAINST ALL LOSSES,
COSTS, LIABILITIES, DAMAGES, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COSTS
OF SUIT AND ATTORNEY'S FEES) ANY OF THEM MAY INCUR IN PERFORMING THE RESPECTIVE
OBLIGATIONS OF A GENERAL PARTNER HEREUNDER AND SPECIFICALLY INCLUDING
NEGLIGENCE, SOLE NEGLIGENCE, OR PARTIAL NEGLIGENCE OF THE INDEMNITEE, AND THE
PARTNERSHIP SHALL ADVANCE EXPENSES ASSOCIATED WITH DEFENSE OF ANY ACTION RELATED
THERETO; PROVIDED, HOWEVER, THAT SUCH INDEMNITY SHALL NOT APPLY TO ACTIONS
CONSTITUTING GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR A BREACH OF ANY PROVISION
HEREOF.
(b) TO THE FULLEST EXTENT PERMITTED BY LAW, OEDC AGREES TO INDEMNIFY
JEDI AND ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AND AGENTS (THE "INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM
HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, ANY
AND ALL ACTIONS, ADMINISTRATIVE ORDERS, SUITS, PROCEEDINGS (INCLUDING ANY
INVESTIGATIONS, LITIGATION OR INQUIRIES), CLAIMS, DEMANDS AND CAUSES OF ACTION,
AND, IN CONNECTION THEREWITH, ALL COSTS, LOSSES, LIABILITIES, DAMAGES OR
EXPENSES OF ANY KIND OR NATURE WHATSOEVER (COLLECTIVELY THE "INDEMNITY MATTERS")
WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF SUCH PERSONS
(WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF,
ARISING OUT OF OR IN ANY WAY RELATING TO (I) THE BREACH OF ANY REPRESENTATION OR
COVENANT OF OEDC IN ANY
37
TRANSACTION DOCUMENT OR (II) THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY OEDC,
INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR
PREPARING TO DEFEND ANY SUCH INDEMNITY MATTER AND INCLUDING ALL INDEMNITY
MATTERS CAUSED BY OR ARISING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE,
FAULT OR OTHER LEGAL DUTY OF ANY INDEMNIFIED PARTY BUT EXCLUDING ALL INDEMNITY
MATTERS CAUSED BY, OR ARISING FROM, THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF ANY INDEMNIFIED PARTY.
(c) TO THE FULLEST EXTENT PERMITTED BY LAW AND TO THE EXTENT THAT CASH
FLOW FROM THE PARTNERSHIP AND PARTNERSHIP PROPERTIES ARE INSUFFICIENT TO SATISFY
IN FULL ANY INDEMNITY MATTERS, OEDC AGREES TO INDEMNIFY AND HOLD HARMLESS FROM
TIME TO TIME THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL INDEMNITY
MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF SUCH
PERSONS (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT
OF, ARISING OUT OF OR IN ANY WAY RELATING TO (I) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE PARTNERSHIP OR ANY OF THE PARTNERSHIP PROPERTIES, (II) THE
BREACH OR NON-COMPLIANCE BY THE PARTNERSHIP OR OEDC WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE PARTNERSHIP OR OEDC, (III) PAST OWNERSHIP BY OEDC OR THE
PARTNERSHIP OF ANY OF THE PARTNERSHIP PROPERTIES OR PAST ACTIVITY ON ANY OF THE
PARTNERSHIP PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME,
COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PARTNERSHIP
PROPERTIES , OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE PARTNERSHIP OR THE PARTNERSHIP PROPERTIES, INCLUDING WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER
EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO
DEFEND ANY SUCH INDEMNITY MATTER AND INCLUDING ALL INDEMNITY MATTERS CAUSED BY
OR ARISING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR OTHER LEGAL
DUTY OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS CAUSED BY, OR
ARISING FROM, THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED
PARTY.
(d) TO THE FULLEST EXTENT PERMITTED BY LAW, JEDI AGREES TO INDEMNIFY OEDC AND
ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AND AGENTS (THE "INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM
HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, ANY
AND ALL ACTIONS, ADMINISTRATIVE ORDERS, SUITS, PROCEEDINGS (INCLUDING ANY
INVESTIGATIONS, LITIGATION OR INQUIRIES), CLAIMS, DEMANDS AND CAUSES OF ACTION,
AND, IN CONNECTION THEREWITH, ALL COSTS, LOSSES, LIABILITIES, DAMAGES OR
EXPENSES OF ANY KIND OR NATURE WHATSOEVER (COLLECTIVELY THE "INDEMNITY MATTERS")
WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF SUCH PERSONS
(WHETHER OR NOT ANY OF THEM IS DESIGNATED A
38
PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATING TO (I) THE
BREACH OF ANY REPRESENTATION OR COVENANT OF JEDI IN ANY TRANSACTION DOCUMENT OR
(II) THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY JEDI, INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER
EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO
DEFEND ANY SUCH INDEMNITY MATTER AND INCLUDING ALL INDEMNITY MATTERS CAUSED BY
OR ARISING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR OF ANY
INDEMNIFIED PARTY BUT EXCLUDING ALL INDEMNITY MATTERS CAUSED BY, OR ARISING
FROM, THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PARTY.
6.06 POWER OF ATTORNEY. Each Partner hereby appoints the Managing
General Partner as such Partner's true and lawful attorney-in-fact for the
purpose of executing, swearing to, acknowledging, and delivering all
certificates, documents, and other instruments as may be necessary, appropriate,
or advisable in the judgment of the Managing General Partner in furtherance of
the business of the Partnership or complying with applicable law, including,
without limitation, filings of the type described in Section 2.05. Such power
shall be irrevocable and is coupled with an interest. Upon request by the
Managing General Partner, any Partner shall confirm its grant of such power of
attorney or any use thereof by the Managing General Partner or shall execute,
swear to, acknowledge, and deliver any such certificate, document, or other
instrument.
6.07 CONTRACTS WITH AFFILIATES. The Managing General Partner, on behalf
of the Partnership, may enter into contracts and agreements with any Affiliate
of the Managing General Partner for the rendering of services or the furnishing
of supplies and equipment including without limitation the Gathering Agreement
and the Production Handling Agreement; provided that the amount of the
compensation, price or rental can be charged to the Partnership therefor must be
no less favorable to the Partnership than those available for unrelated third
parties in the area which are of comparable reputation or standing in the
industry and which are engaged in the business of rendering comparable services
or selling or leasing comparable equipment and supplies. The Managing General
Partner shall provide written notice to all Partners of any such contracts with
its Affiliates.
ARTICLE VII
OPTION TO CONVERT TO A NET PROFITS INTEREST
7.01 NET PROFITS INTEREST. On or after the occurrence of Payout, the
Partnership, at the option of the Managing General Partner, shall have the right
upon the satisfaction of certain conditions as set forth below, to purchase from
JEDI its interest in the Partnership in return for a net profits interest in all
Partnership Property equal to its Partnership Percentage. The conveyance of such
net profits interest shall be in the form of Exhibit C hereto with such
modifications as may be mutually agreed by the Partners, but shall provide that
the "Permitted Encumbrances" as defined therein shall include any liens, burdens
and encumbrances that shall have been placed upon or permitted against the
Partnership Property in accordance with this Agreement, or as may have been
otherwise agreed by the Partners. The option described in this Section 7.01 may
be exercised by the
39
Managing General Partner at any time within fifteen (15) days after the
occurrence of the event detailed in subparagraph (a) below together with the
satisfaction of one or more of the conditions set forth in subparagraphs (b),
(c), (d) or (e) below, such conditions being:
(a) Payout has occurred or has been deemed to occur pursuant to
the remaining provisions hereof,
(b) ECT has rejected any two financing opportunities occurring in
any consecutive nine (9) month period pursuant to the Area of Interest
Agreement,
(c) The Managing General Partner has solicited the Partners'
interest in selling any material Partnership Property and JEDI has
rejected same.
(d) JEDI proposes to sell its interest in the Partnership to any
Person who is not within the class of persons identified in Section
3.03(b) and the remaining Partners have not elected to acquire JEDI's
interest in the Partnership nor elected to sell its interest along with
JEDI in either case as set forth in Section 3.03(b)(i).
(e) JEDI has transferred its interest in the Partnership to one
or more of the class of Persons as permitted in Section 3.03(b), but is
no longer managing such Persons, as management is defined in said
Section 3.03(b).
7.02 SPECIAL WITHDRAWAL. JEDI, if it is not a General Partner, shall
have the right to withdraw from the Partnership at any time after Payout in
exchange for a net profits interest in all Partnership Property equal to its
Partnership Percentage at the time of withdrawal (as such net profits interest
is described Exhibit C hereto and Section 7.01). JEDI shall exercise such right
by giving the Managing General Partner written notice of such withdrawal. Such
withdrawal shall be effective on the first day of the calendar quarter
immediately following the receipt by the Managing General Partner of such
notice.
7.03 BUY-SELL RIGHT. In the event OEDC undergoes a change of control, as
described in the second sentence of Section 3.05, or sells substantially all of
its assets, JEDI shall have the right, to be exercised only if it so elects,
upon written notice given within thirty (30) days after it learns of such change
of control, to deliver to OEDC an offer ("Offer") in writing setting forth an
offer to either (i) purchase from OEDC all of its interest in the Partnership
for a cash purchase price ("Offer Price") set forth in the Offer, or (ii) sell
to OEDC the interest of JEDI in the Partnership for a cash purchase price equal
to the product obtained by the multiplication of the Offer Price times a
fraction, the numerator of which is the Partnership Percentage (or Before Payout
Partnership Percentage, if before Payout) of JEDI and the denominator of which
is the Partnership Percentage (or Before Payout Partnership Percentage, if
before Payout) if of OEDC. Within twenty-one (21) Business Days after receipt of
the Offer, OEDC shall deliver to JEDI a written notice ("Acceptance Notice")
stating whether it elects to sell its interest in the Partnership to JEDI
pursuant to subsection (i) above, or to purchase JEDI's interest in the
Partnership pursuant to subsection (ii) above. If an Acceptance
40
Notice is not delivered within such period, it shall be deemed conclusively that
OEDC has elected to sell its interest in the Partnership to JEDI pursuant to
subsection (i) above. The closing of a purchase pursuant to this Section 7.03
shall be held at the principal office of the Partnership on a mutually
acceptable date not more than sixty (60) days after the date of delivery of the
Offer. At the Closing the following shall occur:
(a) The selling Partner shall assign to the buying Partner the
interest of the selling Partner in the Partnership, free and clear of
all liens, claims, and encumbrances, and shall execute and deliver to
the Partnership all other documents, if any, that may be required to
give effect to the purchase of the selling Partner's interest in the
Partnership.
(b) The buying Partner shall pay to the selling Partner, by
cashier's or certified check, the cash purchase price determined
pursuant hereto for the selling Partner's interest in the Partnership.
(c) The selling Partner shall be released from (i) liability for
borrowed money or any other recourse or non-recourse debt of the
Partnership, and (ii) all of its other obligations under this Agreement
with the exception of those liabilities which have accrued through the
date of the event causing dissolution of the Partnership, and the buying
Partner shall indemnify and hold harmless the selling Partner from all
indebtedness, liabilities, and other obligations of the Partnership to
the extent that such indebtedness and other obligations accrue after the
event causing the Buy-Sell Provisions of this Section 7.03 to come into
effect.
7.04 BUY DOWN PAYOUT. (a) After all Mandatory Operations have been
completed and paid in full with no amounts owing to JEDI under Sections 4.01(e),
the Partnership may borrow money by leveraging the Partnership Properties to the
extent permitted by Section 6.02 and use some or all of the funds for a
distribution to JEDI for the purpose of achieving Buy Down Payout. Buy Down
Payout will be achieved when JEDI receives 110% of its current Investment
Account-JEDI immediately prior to such distribution.
(b) Before all Mandatory Operations have been completed and paid
in full, the Partnership may borrow money from OEDC by leveraging the
Partnership's Properties and use some or all of the funds for a distribution to
JEDI for the purpose of achieving Buy Down Payout. Buy Down Payout under this
Section 7.04(b) will be achieved when (i) funds for such buy down are provided
by OEDC (raised by OEDC's Affiliate through an initial public offering of common
stock) and loaned to the Partnership at an interest rate of 8% per annum
compounded monthly and amortized with 100% of the Partnership's net cash flows,
and (ii) JEDI is paid the sum of (A) the greater of (1) 110% of its current
Investment Account-JEDI or (2) JEDI's current Investment Account-JEDI plus the
product of .10 multiplied by the difference between $7,000,000 and the aggregate
dollar amount of all cash distributions made to JEDI from the Partnership since
first production from the Partnership Properties and (B) the lesser of (x) 5% of
JEDI's remaining capital
41
commitment and (y) $350,000. The loan by OEDC described in this Section 7.04(b)
does not require the prior consent of JEDI.
ARTICLE VIII
RIGHTS OF OTHER PARTNERS
8.01 INFORMATION. In addition to the other rights specifically set forth
herein, each Partner shall have access to all information to which such Partner
is entitled to have access pursuant to section 1.07 of the Act under the
circumstances and subject to the conditions therein stated and, in addition,
shall have the right to conduct an audit thereof at such Partner's expense upon
thirty (30) days advance written notice.
8.02 LIMITATIONS. No General Partner (other than the Managing General
Partner) or Limited Partner shall have the authority or power in its capacity as
such to act for or on behalf of the Partnership or any other Partner, to do any
act that would be binding on the Partnership or any other Partner, or to incur
any expenditures on behalf of or with respect to the Partnership. Except as
provided in Section 7.02, no Limited Partner shall have the right or power to
withdraw from the Partnership.
8.03 MEETINGS. From time to time, but at least once each calendar year,
the Managing General Partner, on ten (10) days' prior notice to each member,
shall call a meeting of the Partnership and apprise it generally of the business
and affairs of the Partnership since the latest meeting. The Partners may make
recommendations to or otherwise advise and consult with the Managing General
Partner regarding the business and affairs of the Partnership, but nothing in
this sentence shall be construed to authorize the Limited Partners to engage in
any action prohibited by Section 8.02.
8.04 LIMITED LIABILITY. No Limited Partner shall be liable for the
losses, debts, liabilities, contracts, or other obligations of the Partnership
except to the extent required by law or otherwise set forth herein.
ARTICLE IX
TAXES
9.01 TAX RETURNS. The Managing General Partner shall cause to be
prepared and filed all necessary federal and state income tax returns for the
Partnership, including making the elections described in Section 9.02. Each
Partner shall furnish to the Managing General Partner all pertinent information
in its possession relating to Partnership operations that is necessary to enable
such income tax returns to be prepared and filed.
9.02 TAX ELECTIONS. The following elections shall be made on the
appropriate returns of the Partnership:
(a) to adopt the calendar year as the Partnership's fiscal year;
42
(b) to adopt the accrual method of accounting and to keep the
Partnership's books and records on the income-tax method;
(c) if there shall be a distribution of Partnership Property as
described in section 734 of the Code or if there shall be a transfer of
a Partnership interest as described in section 743 of the Code, upon
written request of any Partner, to elect, pursuant to section 754 of the
Code, to adjust the basis of Partnership properties;
(d) to amortize the organizational expenses of the Partnership
ratably over a period of sixty (60) months as permitted by section
709(b) of the Code;
(e) to expense intangible drilling and development costs as set
forth in the Code; and
(f) any other election the Managing General Partner may deem
appropriate and in the best interests of the Partners.
No election shall be made by the Partnership or any Partner to be excluded from
the application of the provisions of subchapter K of chapter 1 of subtitle A of
the Code or any similar provisions of applicable state laws.
9.03 TAX MATTERS PARTNER. The Managing General Partner shall be the "tax
matters partner" of the Partnership pursuant to section 6231(a)(7) of the Code.
The Managing General Partner shall take such action as may be necessary to cause
each other Partner to become a "notice partner" within the meaning of section
6223 of the Code. The Managing General Partner shall inform each other Partner
of all significant matters that may come to its attention in its capacity as tax
matters partner by giving notice thereof within ten (10) Business Days after
becoming aware thereof and, within such time, shall forward to each other
Partner copies of all significant written communications it may receive in such
capacity. The Managing General Partner shall not take any action contemplated by
sections 6222 through 6232 of the Code without the consent of all Partners. This
provision is not intended to authorize the Managing General Partner to take any
action left to the determination of an individual Partner under sections 6222
through 6232 of the Code.
ARTICLE X
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.01 MAINTENANCE OF BOOKS. The books of account for the Partnership
shall be maintained on an accrual basis in accordance with the terms of this
Agreement except that the capital accounts of the Partners shall be maintained
in accordance with Section 4.06. The calendar year shall be the accounting year
of the Partnership.
10.02 REPORTS. On or before the 120th day following the end of each
fiscal year during the term of the Partnership, the Managing General Partner
shall cause each other Partner to be furnished
43
with an audited balance sheet, an income statement, and a statement of changes
in Partners' capital of the Partnership for, or as of the end of, such year
certified by a recognized firm of certified public accountants. Such financial
statements shall be prepared in accordance with accounting principles generally
employed for accrual-basis records consistently applied (except as therein
noted) and shall be accompanied by a report of such certified public accountants
certifying the statements and stating that (a) their examination was made in
accordance with generally accepted auditing standards and, in their opinion,
such financial statements fairly present the financial position, financial
results of operations, and changes in Partners' capital in accordance with
accounting principles generally employed for cash-basis records consistently
applied (except as therein noted) and (b) in making the examination and
reporting on the financial statements described above, nothing came to their
attention that caused them to believe that (i) the income and revenues were not
paid or credited in accordance with the financial and accounting provisions of
this Agreement, (ii) the costs and expenses were not charged in accordance with
the financial and accounting provisions of this Agreement, or (iii) the Managing
General Partner or any other Partner failed to comply in any material respect
with the financial and accounting provisions of this Agreement, or if they do
conclude that the Managing General Partner or another Partner so failed,
specifying the nature and period of existence of such failure. The Managing
General Partner also may cause to be prepared or delivered such other reports as
it may deem appropriate. The costs of all such reports shall be borne by the
Partnership.
10.03 OTHER REPORTS.
(a) As soon as available, but in any event by 12:00 noon of the
following day, daily drilling reports in the form and substance
satisfactory to JEDI with respect to any Partnership Property upon which
drilling activities are being conducted at the time.
(b) Prior to the occurrence thereof and allowing JEDI enough time
(but in the event a rig is on location, no more than 24 hours) to
consider the information received and discuss same with the Managing
General Partner, JEDI will be provided with oral reports with respect to
the Partnership Properties of any (i) significant operations decisions
including, but not limited to, well logging, fishing operations, setting
production casing, perforating, and stimulation treatments and (ii)
deviations in operations to be conducted thereon as set forth in the
Plan of Development or any information delivered to JEDI in connection
with any other approved projects.
(c) As soon as available, but in any event within 30 days
following the end of a calendar month, the Managing General Partner
shall furnish to the Partners a monthly lease operating report in form
and substance satisfactory to JEDI showing, among other things, the
gross production of hydrocarbons from each well, the gross production of
hydrocarbons attributable to the Partnership Property (including any
thereof used in lease operations), the quantity of hydrocarbons sold for
the account of or taken in kind by the Partnership and the prices
realized, the current status of any Gas imbalances, affecting
Partnership Property, the
44
cumulative amount of hydrocarbons remaining to be delivered therefrom
and the number of wells operated, wells drilled and wells abandoned.
(d) As soon as available, the Managing General Partner shall
furnish to the Partners copies of surface maps showing property lines
and well locations, well logs, core analysis data, flow and pressure
tests, natural gas analysis and casing programs and other similar
information related to the Partnership Property and the production
therefrom.
(e) On or before 45 days after (i) the third full month of
production from the last to begin production of the Viosca Knoll and
South Timbalier properties ("Production Date") and (ii) December 31 of
each year , the Managing General Partner shall furnish to the other
Partners an engineering report, prepared by the Independent Petroleum
Engineer, covering all Partnership Property, dated as of the Production
Date or December 31 thereafter, prepared in accordance with the
customary and generally accepted standards and practices for petroleum
engineers, based on assumptions as to costs, product prices and similar
factors as the Managing General Partner shall designate from time to
time. Such report shall set forth an estimate of the oil and gas
reserves, classified by appropriate categories, a projection of the rate
of production of and net income from such reserves, a calculation of the
present net worth of such income, discounted at various rates designated
from time to time by the Managing General Partner. In addition, the
Managing General Partner shall furnish to the other Partners, promptly
upon receipt by the Managing General Partner, any other engineering
reports covering any of the Partnership Properties prepared by an
independent petroleum engineer.
(f) Such other information concerning the business, affairs and
operations of the Partnership as the Limited Partners may request.
10.04 BANK ACCOUNTS. The Managing General Partner shall establish and
maintain one or more separate accounts for Partnership funds in the Partnership
name at such financial institutions as he may designate. The Managing General
Partner may not commingle the Partnership's funds with the funds of any Partner
or Person.
ARTICLE XI
WITHDRAWAL, BANKRUPTCY, REMOVAL, ETC.
11.01 WITHDRAWAL, BANKRUPTCY, ETC. OF MANAGING GENERAL PARTNER.
(a) Each General Partner covenants and agrees that it will not
withdraw from the Partnership as a General Partner within the meaning of
section 6.02 of the Act. If a General Partner shall so withdraw from the
Partnership in violation of such covenant and agreement, such withdrawal
shall be effective no earlier than the 90th day following notice of such
withdrawal to all other Partners, and the Partnership may recover
damages from such General Partner, including, without limitation, the
reasonable cost of obtaining a replacement
45
of the services that such General Partner shall have been obligated to
perform, and in addition may (i) pursue any remedies otherwise available
under applicable law, and/or (ii) effect recovery of any of the damages
just described by offsetting those damages against the amount otherwise
distributable to such General Partner.
(b) A General Partner shall not cease to be a General Partner on
the occurrence of an event of the type described in section 4.02(a)(4)
or (7)-(9) of the Act, but shall cease to be a General Partner (and, in
the case of the Managing General Partner, Managing General Partner) on
the 90th day thereafter. A General Partner shall notify each other
Partner that an event of the type described in section 4.02(a)(4)-(10)
of the Act has occurred with respect to it within five (5) Business Days
after such occurrence.
(c) Following any notice pursuant to Section 11.01(a) that the
Managing General Partner shall be withdrawing, or following the
occurrence of an event of the type described in section 4.02(a)(4)-(10)
of the Act with respect to the Managing General Partner (without regard
to the lapse of any time periods therein), the remaining Partners by
written consent may select a new Managing General Partner, which (if not
already a General Partner) shall be admitted to the Partnership as a
General Partner effective immediately prior to the existing Managing
General Partner's ceasing to be a General Partner with such Partnership
Percentage as the Limited Partners making such selection may specify,
but only if such new Managing General Partner, if not already a Partner,
shall have made such Capital Contribution as such Limited Partners may
specify and shall have executed and delivered to the Partnership a
document including such new Managing General Partner's notice address,
acceptance of all the terms and provisions of this Agreement, an
agreement to perform and discharge timely all of its obligations and
liabilities hereunder, and a representation and warranty that the
representation and warranties in Section 3.02 are true and correct with
respect to such new Managing General Partner. Notwithstanding the
foregoing provisions of this Section 11.01(c), the right to select such
new Managing General Partner shall not exist or be exercised unless the
Partnership shall have received favorable opinion of the Partnership's
legal counsel or of other legal counsel acceptable to the Limited
Partners making such selection to the effect that such selection and
admission will not result in (a) the loss of limited liability of any
Limited Partner or (b) in the Partnership's being treated as an
association taxable as a corporation for federal income tax purposes.
Notwithstanding the foregoing provisions of this Section 11.01(c), no
such new Managing General Partner shall be admitted (and the existing
Managing General Partner shall continue as such) if the event that
permitted the selection of a new Managing General Partner shall have
been an event of the type described in section 4.02(a)(5) of the Act
that with the passage of time would cause the existing Managing General
Partner to become a Bankrupt Partner but, due to the failure of such
situation to continue, such Managing General Partner does not become a
Bankrupt Partner.
11.02 REMOVAL OF MANAGING GENERAL PARTNER. The Managing General Partner
may be removed by the unanimous vote of the Partners other than the Managing
General Partner or any
46
Affiliate of the Managing General Partner acting as a General Partner or a
Limited Partner upon its gross negligence, willful misconduct or a material
breach of a material provision hereof (and such breach has not been cured or the
Managing General Partner is not pursuing, at its cost a remedy for such breach,
which cure is reasonably obtainable within 60 days) or in the event it becomes a
Bankrupt Partner or is dissolved. Any such action for removal also must provide
for the selection of a new Managing General Partner. The new Managing General
Partner so selected shall be admitted to the Partnership as a General Partner
with such Partnership Percentage as the Limited Partners making such selection
may specify, but only if such new Managing General Partner shall have made such
Capital Contribution as such Limited Partners may specify and shall have
executed and delivered to the Partnership a document including such new Managing
General Partner's notice address, acceptance of all the terms and provisions of
this Agreement, an agreement to perform and discharge timely all of its
obligations and liabilities hereunder, and a representation and warranty that
the representation and warranties in Section 3.02 are true and correct with
respect to such new Managing General Partner. Such removal shall be effective
only immediately subsequent to such admission. Notwithstanding the foregoing
provisions of this Section 11.02, the right to remove the Managing General
Partner shall not exist or be exercised unless the Partnership shall have
received a favorable opinion from the Partnership's legal counsel (or other
counsel acceptable to the Limited Partners consenting to such removal) that the
removal of the Managing General Partner and the selection and admission of a new
Managing General Partner will not result in (a) the loss of limited liability of
any Limited Partner or (b) in the Partnership's being treated as an association
taxable as a corporation for federal income tax purposes. Notwithstanding the
foregoing, the removed Managing General Partner shall not be released of any
obligations or liabilities that may have accrued prior to the date of such
removal. The removed Managing General Partner shall deliver unto the newly named
Managing General Partner all of the books, records, files or other data owned by
the Partnership and shall render a final accounting to the newly appointed
Managing General Partner and all such other information as the newly appointed
Managing General Partner may require.
11.03 CONVERSION OF INTEREST. Immediately upon a Managing General
Partner's ceasing to be Managing General Partner following the admission of a
new Managing General Partner pursuant to Section 11.01(c) or 11.02, the former
Managing General Partner's interest in the Partnership as a General Partner
shall be converted into the interest of a Limited Partner in the Partnership
having the Partnership Percentage equal to the Partnership Percentage of such
former Managing General Partner immediately prior to its ceasing to be a General
Partner, and such Managing General Partner shall be admitted to the Partnership
as a Limited Partner.
11.04 BANKRUPT PARTNERS. If any Partner shall become a Bankrupt Partner,
the Partnership shall have the option, exercisable by notice from the Managing
General Partner (including any newly designated Managing General Partner) to the
Bankrupt Partner (or its representative) after receipt of notice of the
occurrence of the event causing it to become a Bankrupt Partner, to buy, and
upon the exercise of such option the Bankrupt Partner or its representative
shall sell, its interest in the Partnership for an amount determined as follows:
The Bankrupt Partner shall give notice to the other Partners of such event.
Within fifteen (15) days, the other Partners, or any of them electing to do so
in proportion to their respective interests, shall have the prior and
preferential right to buy such
47
Partner's interest in the Partnership. The price to be paid shall be equal to
the fair market value thereof determined by mutual agreement by the Bankrupt
Partner (or its representative) and the Partners who have exercised such option;
provided, however, that if such Persons shall not agree on such fair market
value on or before the 15th day following the exercise of such option, either
such Person, by notice to the other, may require such determination to be made
by an independent appraiser specified in such notice, but on or before the fifth
Business Day following receipt the Person receiving such notice shall object to
such independent appraiser, and such Persons otherwise fail to agree on an
independent appraiser, either such Person may petition the United States
District Judge for the Southern District of Texas (Houston Division) then senior
in service to designate such independent appraiser; and the determination of
such independent appraiser shall be final and binding on all parties. The costs
of appraisal shall be borne equally by the Bankrupt Partner and the Partners
exercising such option. Such fair market value shall be paid in cash due on
closing. The payment to be made to the Bankrupt Partner or its representative
pursuant to this Section 11.04 is, and shall be conclusively deemed to be, in
complete liquidation and satisfaction of all the rights and interest of the
Bankrupt Partner and its representative (and of any and all Persons claiming by,
through, or under the Bankrupt Partner and its representative) in and in respect
of the Partnership, including, without limitation, any interest in the
Partnership, any rights in specific Partnership Property, and any rights against
the Partnership and (insofar as the affairs of the Partnership are concerned)
against the Partners and shall constitute a compromise to which all Partners
have agreed pursuant to section 5.02(d) of the Act. If at the time any Partner
shall become a Bankrupt Partner there shall be only one other Partner, such
other Partner shall have all the rights of the Partnership and the Managing
General Partner pursuant to this Section 11.04.
ARTICLE XII
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.01 DISSOLUTION. The Partnership shall be dissolved and its affairs
shall be wound up upon the first to occur of any of the following:
(a) the written consent of all Partners;
(b) the date set forth in Section 2.06;
(c) a Managing General Partner shall cease to be a General
Partner as described in Section 11.01(b) and no new Managing General
Partner shall have been selected and admitted as provided in Section
11.01(c); or
(d) any other event causing dissolution as described in section
8.01 of the Act (other than an event described in section 4.02(a)(4) or
(7)-(10) of the Act, except as provided in Sections 11.01(b) and
12.01(c));
provided, however, that if an "event of withdrawal" (as defined in section
4.02(a) of the Act) shall occur with respect to any General Partner and at least
one other General Partner shall remain and a
48
Managing General Partner either shall remain or shall be about to be admitted
pursuant to Section 3.03(c), 11.01(c), or 11.02, the Partnership automatically
shall be reconstituted and the remaining General Partner(s) shall, and hereby
agree to, carry on the business of the Partnership.
12.02 LIQUIDATION AND TERMINATION. Upon dissolution of the Partnership,
unless it is reconstituted and continued as provided in Section 12.01, the
Managing General Partner shall act as liquidator or may appoint one or more
other Persons as liquidator; provided, however, that if the Partnership shall be
dissolved on account of an event of the type described in section
4.02(a)(4)-(10) of Act with respect to the Managing General Partner, the
liquidator shall be one or more Persons selected in writing by the owners of a
majority of Partnership Percentages. The liquidator shall proceed diligently to
wind up the affairs of the Partnership and make final distributions as provided
herein. The costs of liquidation shall be borne as a Partnership expense. The
liquidator shall sell all Partnership Property to satisfy the liabilities of the
Partnership and to make the distributions to the Partners set forth below. Until
final distribution, the liquidator shall continue to operate the Partnership
properties with all of the power and authority of the Managing General Partner.
The steps to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator shall cause a proper accounting to be
made by a recognized firm of certified public accountants of the
Partnership's assets, liabilities, and operations through the last day
of the calendar month in which the dissolution shall occur or the final
liquidation shall be completed, as applicable;
(b) The liquidator shall pay all of the debts and liabilities of
the Partnership (including, without limitation, all expenses incurred in
liquidation and any advances described in Section 4.05) or otherwise
make adequate provision therefor (including, without limitation, the
establishment of a cash escrow fund for contingent liabilities in such
amount and for such term as the liquidator may reasonably determine);
and
(c) All remaining assets of the Partnership shall be distributed
to the Partners as follows:
(i) First, Partnership cash shall be distributed to JEDI in
the amount and manner described in the last sentence of Section
4.01(e);
(ii) Second, Partnership cash shall be distributed to JEDI
to pay the positive balance of the Investment Account-JEDI, and
(iii) Third, Partnership Property shall be distributed
among the Partners in accordance with their respective
Partnership Percentages.
(d) Subject to Section 5.01(i), any items of income, gain, loss,
or deduction realized by the Partnership in its final fiscal year or
other final period, shall be allocated
49
among the Partners so as to ensure, to the extent possible (as
determined by the Partners) that the Capital Accounts of the Partners
equal the amounts they are entitled to receive as distributions pursuant
to Section 12.02(c). Subject to the provisions of Section 12.03, the
distribution of cash and/or property to a Partner in accordance with the
provisions of this Section 12.02 shall constitute a complete return to
the Partner of its Capital Contributions and a complete distribution to
the Partner of its interest in the Partnership and all the Partnership's
property and shall constitute a compromise to which all Partners have
consented within the meaning of section 5.02(d) of the Act. To the
extent that a Partner shall return funds to the Partnership, it shall
have no claim over against any other Partner for the same.
12.03. RESTORATION OF DEFICIT CAPITAL ACCOUNT. At such time during
liquidation of the Partnership pursuant to Section 12.02 after all assets of the
Partnership have been sold, all liabilities and expenses have been paid, all
revenues, costs, deductions, expenses, gains and losses have been allocated, all
cash has been distributed, no Partner shall be obligated to make a contribution
to increase its Capital Account to zero, if negative.
12.04 CANCELLATION OF CERTIFICATE. Upon completion of the distribution
of Partnership assets as provided herein, the Partnership shall be terminated,
and the General Partner (or, if there shall be no General Partner, the Limited
Partners) shall cause the cancellation of the Certificate and any other filings
made pursuant to Section 2.05 and shall take such other actions as may be
necessary to terminate the Partnership.
ARTICLE XIII
GENERAL PROVISIONS
13.01 CONFIDENTIALITY. The Partners shall ensure that any information
regarding the business, assets, customers, processes and methods of the
Partnership or the other Partners that it may learn solely in the course of
negotiations for or performance under this Agreement, the Gas Contract or the
Area of Interest Agreement (a) is treated by it in strict confidence, (b) is not
disclosed in any manner to any person other than an Affiliate (other than Enron
Oil & Gas Company) of a Partner or as may be required by law, and (c) is not
used by such Partner or any of its Affiliates for any purpose other than for the
exclusive benefit of the Partnership or to comply with law or legal process. In
addition, such information may be disclosed by a Partner to a person only if and
to the extent that such information (i) is known to such person prior to
learning of it from the Partner; (ii) is obtained, whether directly or
indirectly, by such person from a source other than such Partner (or any of its
Affiliates) that (A) did not require such person to hold such secrets or
information in confidence and (B) did not limit or restrict such person's use
thereof; or (iii) becomes known otherwise than through the Partnership or the
Partner (or any of its Affiliates) seeking to use or disclose such information.
13.02 NOTICES. All notices or requests or consents provided for or
permitted to be given pursuant to this Agreement must be in writing and must be
given by depositing same in the United
50
States mail, addressed to the Person to be notified, postpaid, and registered or
certified with return receipt requested or by delivering such notice in person
to such party. Notices given or served pursuant hereto shall be effective upon
receipt by the Person to be notified. All notices to be sent to a Partner shall
be sent to or made at the addresses set forth on such Partner's signature page
hereto or as each Partner may specify by notice to the Managing General Partner.
Any notice to the Partnership shall be given to the Managing General Partner.
13.03 ENTIRE AGREEMENT; SUPERSEDURE. This Agreement, together with the
Production Payment Purchase Agreement, all documents affixed hereto or thereto,
and all other documents referred to herein or executed in connection herewith
constitutes the entire agreement of the Partners and their Affiliates relating
to the matters contained herein and supersedes all prior contracts or
agreements, whether oral or written.
13.04 EFFECT OF WAIVER OR CONSENT. No waiver or consent, express or
implied, by any Person to or of any breach or default by any Person in the
performance by such Person of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a Person to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such Person of its rights hereunder
until the applicable statute of limitation period has run.
13.05 AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified from time to time only by a written instrument executed by all
Partners; provided, however, that no amendment or modification reducing a
Partner's Partnership Percentage (other than to reflect changes otherwise
provided hereby) shall be effective without such Partner's consent; and provided
further that amendments of the type described in Section 3.04 may be adopted as
therein provided.
13.06 BINDING EFFECT; JOINDER OF ADDITIONAL PARTIES. Subject to the
restrictions on Dispositions set forth herein, this Agreement shall be binding
upon and shall inure to the benefit of the Partners, as well as the respective
successors and assigns of such Partners. All reference herein to any Partner
shall include its respective permitted successors and assigns.
13.07 CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, excluding any conflicts-of-law
rule or principle that might refer the governance or construction of this
Agreement to the laws of another jurisdiction. The headings in this Agreement
are inserted for convenience and identification only and are not intended to
describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provision hereof. Whenever the context requires, the gender of
all words used in this Agreement shall include the masculine, feminine, and
neuter. All references to Articles and Sections refer to articles and sections
of this Agreement, and all references to Exhibits are to Exhibits attached
hereto, each of which is made a part hereof for all purposes. All sums and
amounts payable or to be payable pursuant to the provisions of this Agreement
shall be payable in coin or currency of the United States of America that, at
the time of payment, is legal tender for the payment of public and private debts
51
in the United States of America. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
13.08 FURTHER ASSURANCES. In connection with this Agreement, as well as
all transactions contemplated by this Agreement, each Partner agrees to execute
and deliver such additional documents and instruments and to perform such
additional acts as may be necessary or appropriate to effectuate, carry out, and
perform all of the terms, provisions, and conditions of this Agreement and all
such transactions.
13.09 DEEMED ASSENT. The failure of any Person to respond, within the
response period set forth in the request in question (which response period
shall end no earlier than the fifth and no later than the 15th Business Day
following the date on which such Person receives such request as described in
Section 13.02), either in the affirmative or in the negative, to any request it
receives relating to a proposed act in respect of which such Person is entitled
to vote pursuant hereto shall be deemed conclusively for all purposes to be a
vote by such Person in favor of the act set forth in such request; or, if an
option has been granted herein, an election not to exercise such option.
13.10 WAIVER OF CERTAIN RIGHTS. Each Partner irrevocably waives any
right it might have to maintain any action for dissolution of the Partnership or
to maintain any action for partition of the property of the Partnership.
13.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall constitute
one and the same instrument.
13.12 ARBITRATION.
(a) On the request of any Partner, whether made before or after
the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind now existing or hereafter arising between any of
the parties hereto and pertaining to the interpretation of or breach of
this Agreement (a "Dispute") shall be resolved by binding arbitration in
accordance with the terms hereof. Any Partner may, by summary
proceedings, bring an action in court to compel arbitration of any
Dispute.
(b) Any arbitration shall be administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
Section 13.12, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on any
aware rendered by an arbitrator maybe entered in any court having
jurisdiction.
52
(c) Any arbitration shall be conducted before one arbitrator. The
arbitrator shall be an individual who is knowledgeable in the subject
matter of the Dispute selected by agreement between the Partners. If the
Partners cannot agree on an arbitrator within thirty (30) days after the
request for an arbitration, then any Partner may request the AAA to
select an arbitrator. The arbitrator may engage engineers, accountants
or other consultants that the arbitrator deems necessary to render a
conclusion in the arbitration proceeding.
(d) To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in
Houston, Texas. Arbitrators shall be empowered to impose sanctions and
to take such other actions as the arbitrators deem necessary to the same
extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the arbitrator shall make
specific written findings of fact and conclusions of law. The arbitrator
shall have the power to award recovery of all costs and fees to the
prevailing Partners.
(e) All fees of the arbitrator and any engineer, accountant or
other consultant engaged by the arbitrator, shall be paid by the
Partners according to their Partnership Percentages unless otherwise
awarded by the arbitrator.
[SIGNATURES BEGIN NEXT PAGE]
53
WITNESS WHEREOF, the initial Partners have executed this Agreement as of
the date first set forth above.
GENERAL PARTNER: OEDC EXPLORATION &
PRODUCTION, L.P.
BY: OEDC, INC., ITS GENERAL PARTNER
.
By: /s/ David B. Strassner
David B. Strassner
President
1400 Woodloch Forest Dr.
Suite 520
The Woodlands, Texas 77380
Attention: R. Keith Anderson
Telephone: (713) 364-0033
Telecopy: (713) 364-1122
S - 1
LIMITED PARTNER: JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
BY: ENRON CAPITAL MANAGEMENT LIMITED
PARTNERSHIP, ITS GENERAL PARTNER
BY: ENRON CAPITAL CORP., ITS GENERAL
PARTNER
By:/s/ Wynne Snoots, Jr.
Wynne Snoots, Jr.
Agent and Attorney-in-Fact
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Corp.
1400 Smith
Houston, Texas 77002
Attention: Donna Lowry
Telecopy: (713) 646-3602
Telephone: (713) 853-1939
S - 2
EXHIBIT 10.12
BINDING TERM SHEET TO FORM GENERAL PARTNERSHIP
RELATED TO NGL PROCESSING FACILITY
This Binding Term Sheet for form General Partnership Related to NGL
Processing Facility ("Term Sheet") is made and entered into as of the 30th day
of June, 1996, by and among Pipeline & Processing Group, Inc., a Michigan
corporation ("P&PG"), PanEnergy Field Services, Inc., a Colorado corporation
("PFS"), and Dauphin Island Gathering Company, L.P., a Texas limited
partnership, the general partner of which is OEDC, Inc., a Texas corporation
("DIGC"). All of such parties for convenience being sometimes hereinafter
referred to collectively as the "Partners" or individually as a "Partner."
WHEREAS, on June 30, 1996, DIGC, MCNIC Mobile Gathering Company and PFS
executed a non-binding letter regarding a proposal for PFS to join Dauphin
Island Gathering Partners ("DIGP") (the "Letter of Intent"), a copy of which is
attached hereto as Exhibit 1;
WHEREAS, clauses (a) through (e) (inclusive) of Section 3 of the Letter of
Intent set forth the terms under which the parties thereto contemplate the
parties hereto forming a partnership to construct, own and operate a plant for
purposes of processing, fractionation and marketing natural gas liquids and by
products (the "Plant");
WHEREAS, the parties desire to adopt the provisions, clauses (a) through
(e) (inclusive) of Section 3 of the Letter of Intent as their agreement to form
a partnership with respect to the Plant;
Now, therefore, in consideration of their respective mutual promises and
covenants, the parties agree as follows:
1. The parties agree to form a partnership as outlined in clauses (a)
through (e) (inclusive) of Section 3 of the Letter of Intent and herein;
2. The parties shall negotiate in good faith documentation for the
formation of the partnership and use commercially reasonable efforts to finalize
such documentation on or before 60 days after the date hereof.
3. The parties agree that construction of the Plant shall be at
competitive industry costs for the size plant agreed to by the parties.
4. THIS TERM SHEET IS NOT ASSIGNABLE AND, AFTER ACCEPTANCE AS HEREINAFTER
DESCRIBED, SHALL REPRESENT THE ENTIRE AGREEMENT WITH RESPECT TO THE PLANT,
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-1-
IN WITNESS WHEREOF, the parties hereto have executed this Binding Term
Sheet as of the day and year first written above.
Pipeline & Processing Group, Inc.
By: /s/ JOSEPH L. ROBERTS
Joseph L. Roberts
Vice President
PanEnergy Field Services, Inc.
By: /s/ BRAD D. REESE
Brad D. Reese
Vice President
Dauphin Island Gathering Company, L.P.,
a Texas limited partnership
By: OEDC, Inc., a Texas corporation
General Partner
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
-2-
EXHIBIT A
DAUPHIN ISLAND GATHERING COMPANY, L.P.
August 29, 1996
PanEnergy Field Services, Inc.
5718 Westheimer, Ste. 2000
Houston, Texas 77057
Attention: Mr. Brad D. Reese
Vice President
Re: PROPOSAL TO JOIN DAUPHIN ISLAND GATHERING PARTNERS (DIGP)
Gentlemen:
PanEnergy Field Services, Inc. (PFS) and DIGP have been involved in discussions
concerning an investment in the Dauphin Island Gathering System (DIGS) since
last summer, independent of Centana's activities in Main Pass. In the recent
weeks, we have exchanged several proposals, none of which have been accepted. We
have worked this week to refine our proposals with the intent of avoiding any
potential conflicts with our respective obligations and goals.
Accordingly, the terms herein contemplate a restructuring of DIGP between PFS
and the Partners in DIGP, comprised of Dauphin Island Gathering Company, L.P.
(DIGC) and MCNIC Mobile Bay Gathering Company (MMBGC), as follows:
5. ACQUISITION BY PFS OF PORTION OF MMBGC INTEREST IN DIGP.
a. PFS or a wholly-owned direct or indirect affiliate of PanEnergy
Corp would purchase from MMBGC a 35% ownership in DIGP, with an
effective date of June 30, 1996.
b. Purchase price would be $31,500,000.
c. PFS shall have the option to acquire an additional 5% Partnership
interest during July, 1996, for a purchase price of $4,500,000.
-3-
d. If the Main Pass Gathering System is acquired by DIGP partners by
October 10, 1996, PFS or its affiliate would be entitled to
purchase an additional 5% Partnership interest in DIGP for a
purchase price of $4,500,000, plus adjustments.
e. All Partnership interests purchased by PFS shall be subject to the
14% after payout DIGC back-in. As to PFS, the back-in shall be
calculated based on PFS' cost-basis and subject to the same 10%
discounted cash flow calculation applicable to the back-in to
MMBGC's interest. The amended Partnership Agreement will include
provisions for accounting for individual Partners' revenues, costs
and back-in calculations.
f. The effective date of any such additional acquisition of
Partnership interests by PFS, as contemplated in Sections 1.c.
and 1.d. above, shall be July 1, 1996.
g. MMBGC/DIGC/PFS would be general partners with seats on the
Management Committee. Ownership would be as specified in
Section 2.d.
h. Scope of Partnership limited to gas gathering.
i. Partnership will not participate in construction of gathering lines
in areas where potential conflicts exist. Such activities will be
exclusively conducted by partners that have no potential conflicts.
j. DIGC would remain as operator, gas nominations/controller and
constructor. The Amended Partnership Agreement shall contain
mutually agreeable provisions for PFS as a general partner to be
actively involved through the Management Committee in the business
development and commercial operations of the DIGS, as well as
involvement in joint marketing efforts.
k. Except for major decisions, all DIGP decisions would be made by
vote of two or more members that are not affiliates with at least a
majority of the ownership interest in the Partnership. Major
decisions shall require 90% approval and shall mean: changing
Partnership purpose; approving Partner or affiliate projects
prohibited by Partnership Agreement (non-prohibited projects shall
be approved as provided in the first sentence of this paragraph);
approving financing that is recourse to Partners and mortgaging
material Partnership assets; and admitting Partners other than as a
result of a sale of interest by an existing Partner. No Partner
shall have project veto rights.
-4-
l. DIGC management fee for G&A (as specified in Attachment II) would
be $660,000 per year (paid monthly), and may be revised annually by
the Management Committee if materially disproportionate to services
rendered.
m. There shall be no right of first refusal. If any of MMBGC/DIGC/PFS
ever desire to sell any of their respective interests in DIGP,
there would first allow the other general Partners to make an offer
to buy the same on terms to be offered by such other general
Partners, with no obligation to accept such offer.
n. DIGC would waive its preferential right to purchase interests
offered by MMBGC to PFS.
o. Closing of transaction on June 30, 1996.
p. Closing would include execution of (i) Purchase and Sale Agreement
and related documents to convey Partnership interest to PFS; (ii)
Third Amended and Restated Partnership Agreement; and (iii) Binding
Term Sheet related to NGL Processing Facility as provided in
Section 3 below. This proposal and the terms hereof shall be
superseded by the execution of the agreements set forth in (i) --
(iii) above.
6. PARTICIPATION IN THE EXPANDED DAUPHIN ISLAND GATHERING SYSTEM.
a. General Partners of DIGP (DIGC/MMBGC/PFS) contribute capital for
existing 1996 VK expansion, the 1996 Phase I extension consisting
of extending the existing DIGS to Main Pass area (approximately 45
to 50 miles of 20" or 24" ANSI 900), and the 1997 Phase II
expansion consisting of continuation of Phase I extension to
onshore transportation interconnect (20" or 24" ANSI 900).
b. Construction of Phase I and II extensions are subject to signed
gathering agreement for firm gathering to existing outlets onshore
Alabama, and evaluation of gas reserves to be committed to the
DIGS.
c. 30-day default in capital contributions shall result in dilution ,
in addition to other available remedies. If at any time or over
course of time a Partner's interest is diluted by 75% or more, such
Partner shall forfeit all voting rights.
-5-
d. Partnership Ownership would be as follows:
BPO-INTERESTS
REVENUE VOTING
MMBGC 59% 59%
DIGC 1% 1%
PFS 40% 40%
Interests are subject to revision upon occurrence of DIGC back-ins,
failure to make capital contributions, and if PFS acquires additional
Partnership interests.
7. NGL PROCESSING FACILITY.
a. PFS/DIGC/Pipeline & Processing Group, Inc. or wholly owned
subsidiaries thereof, or wholly owned direct or indirect affiliates
of their ultimate parent companies, would form a partnership for
onshore NGL processing, fractionation and marketing at the terminus
of Phase II pipeline with substantively same terms as Third Amended
and Restated Partnership Agreement for DIGP except for ownership.
b. Ownership would be owned initially 49.5% by PFS, 49.5% by MCNIC and
1% by DIGC. Subject to Partners consents, Partnership interests may
be offered to third parties should they dedicate gas reserves to the
processing plant or the DIGS. Third party interests would dilute
existing partners prorata.
c. PFS would construct the facility and perform all physical and
commercial operations on behalf of the partnership.
d. PFS and DIGC would jointly market the NGL processing service.
e. DIGC would have right to acquire an additional 321/3% interest in
the Partnership (subject to pro rata dilutions for other partners
admitted during the option period) in accordance with the terms set
forth on the attachment hereto (Attachment I).
THIS LETTER DOES NOT CREATE AND IS NOT INTENDED TO CREATE A BINDING OFFER OR
ENFORCEABLE CONTRACT OR COMMITMENT, AND MAY NOT BE RELIED UPON BY EITHER PARTY
AS THE BASIS FOR A CONTRACT BY ESTOPPEL OR OTHERWISE.
MMBGC joins herein to acknowledge its concurrence to this proposal.
-6-
If this letter correctly sets forth our understanding, please execute a copy of
this letter in the space provided below and return it to the undersigned. Timing
is of the essence and this proposal requires your concurrence, closing not later
than June 30, 1996.
We appreciate your thoughtful consideration and look forward to your response.
Very truly yours,
Dauphin Island Gathering Company, L.P., by its general partner, OEDC, Inc.
By:
Douglas H. Kiesewetter
Vice President
AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED
this 30th day of June, 1996. this 30th day of June, 1996.
PANENERGY FIELD SERVICES, INC. MCNIC MOBILE BAY
GATHERING COMPANY
By: By:
Brad D. Reese Joseph L. Roberts
Vice President Vice President
-7-
ATTACHMENT
to term sheet between DIGC and PFS dated June 30, 1996
DIGC BUY-IN STRUCTURE
MOBILE BAY NGL PLANT
DIGC buys an option to acquire an additional 321/3% interest in the
partnership (subject to prorata dilution for other partners admitted
during the option period), but will only contribute capital with
respect to its 1% partnership interest until it exercises such
option.
DIGC pays MCNIC and PFS an option payment at closing of the Mobile
Bay NGL Plant Partnership Agreement equal to $200,000.00 (shared
equally by MCNIC and PFS).
DIGC's option permits DIGC to acquire an additional 321/3% interest
in the partnership equally from MCNIC and PFS within the first three
years of plant operations by exercising its option according to the
schedule below:
DIGC's exercise price is calculated by multiplying the appropriate
Payment Factor below by the depreciated book value (25-year straight
line depreciation) of the interest acquired by DIGC in the NGL Plant
Partnership.
PAYMENT FACTOR BEGINNING WITH PLANT OPERATION
(Three Month Periods)
first year second year third year
---------- ----------- ----------
103% 106% 109% 112% 115% 118% 121% 124% 127% 130% 133% 136%
Should DIGC fail to exercise its option prior to the expiration of
the timeframe above, then its back-in under the expanded DIGP shall
be reduced from 14% to 12%.
DIGC's capital account and right to participate in distributions
will be based on its actual contributions as set forth herein.
-8-
EXHIBIT 10.13
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement"), dated July 31, 1995, is
entered into by and among Offshore Energy Development Corporation, a Texas
corporation ("OEDC Corp."), OEDC, Inc., a Texas corporation ("OEDC Inc."), OEDC
Partners, L.P., a Texas limited partnership ("OEDC L.P."), Beacon Gas Storage
Co., L.P., Dauphin Island Gathering Company, L.P., Beacon Natural Gas Company,
L.P. and OEDC Exploration & Production, L.P. (collectively, the "OEDC Parties"
and individually any of them is an "OEDC Party") and NGP-OEDC Holdings, L.P., a
Texas limited partnership ("Purchaser"), who hereby agree as follows:
Recitals
A. The OEDC Parties and Natural Gas Partners, L.P., an affiliate of
Purchaser ("NGP") previously entered into that certain Agreement (Pertaining to
Purchase of Class A Common Stock of OEDC Inc. and Limited Partnership Interests
in OEDC Partners, L.P.), dated August 31, 1992, as amended by an amendment
thereto dated May 27, 1993 (as amended, the "Original Purchase Agreement")
pursuant to which the OEDC Parties made certain representations, warranties and
covenants in order to induce NGP to purchase certain limited partnership
interests of OEDC L.P. and to purchase certain shares of Class A Common Stock of
OEDC Inc. (the "Class A Stock"), which such limited partnership interests and
shares were subsequently assigned by NGP to Purchaser;
B. OEDC L.P. and OEDC Inc. have requested that Purchaser make an
additional investment of $5,500,000 in OEDC L.P. and OEDC Inc., to provide funds
for developmental drilling on certain properties and for other general business
purposes of the OEDC Parties;
C. Based upon the representations and warranties herein made by the OEDC
Parties, Purchaser desires to make an additional investment in OEDC L.P. and
OEDC, Inc. upon the terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties, intending to be legally bound, agree as follows:
1. AGREEMENT TO MAKE ADDITIONAL INVESTMENT.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing, (i) Purchaser will make an additional $5,500,000
capital contribution to OEDC L.P. (the "Additional Contribution"), in return for
which Purchaser shall receive such number of Common Units and Preferred Units in
OEDC L.P. as are set forth in the Amended and Restated Agreement of Limited
Partnership of OEDC L.P. dated as of July 31, 1995, among OEDC Inc., as general
partner, and Purchaser and OEDC Corp., as limited partners (the "Amended
Partnership Agreement"), and (ii) Purchaser will purchase, and OEDC Inc. will
issue and sell to Purchaser, such number of additional shares of Class A Common
Stock as is required to cause the total number of shares owned by Purchaser to
be equal to 50.0% of all outstanding shares of the Class A Stock (the
"Additional Class A Shares").
2. CLOSING; CONDITIONS TO CLOSING.
2.1 CLOSING. Purchaser's funding of the Additional Contribution in
exchange for the issuance of the Common Units and Preferred Units as provided in
the Amended Partnership Agreement and the
<PAGE>
sale and purchase of the Additional Class A Shares shall take place at a
mutually agreed upon location on July 31, 1995 or such later date as mutually
agreed to by the parties (the "Closing").
2.2 CONDITIONS TO CLOSING. Purchaser's obligations under Section 1 are
subject to the fulfillment on or before the Closing of the following conditions
(subject to the right of Purchaser to waive any such conditions):
(i) the delivery to Purchaser of each of the following, in form
and substance satisfactory to Purchaser:
(A) the Amended Partnership Agreement, in substantially
the form set forth as Exhibit A, duly executed by the
appropriate OEDC Parties;
(B) an amendment to the Articles of Incorporation of OEDC
Inc. (the "Amended Corporate Documents"), duly executed by
the appropriate OEDC Parties;
(C) certificates for the Additional Class A Shares,
registered in the name of Purchaser;
(D) a certificate executed by an authorized officer of
OEDC Inc. certifying that all of the conditions to Closing as
set forth in this subsection (b) have been satisfied;
(E) a legal opinion of counsel to the OEDC parties in
substantially the form set forth as Exhibit B hereto;
(F) a certificate, executed by each of the Offshore
Principals, ratifying and confirming their obligations under
the Waiver and Distribution Agreement;
(G) such other documents, certificates and instruments
which the Purchaser may reasonably require to verify and
substantiate the representations, warranties and covenants of
the OEDC Parties in the Transaction Documents;
(ii) all the representations and warranties of each of the OEDC
Parties contained in this Agreement or in any certificate, document or
instrument delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be true and correct on and as of
the date of the Closing as if made on and as of the date of the Closing;
(iii) since the date of the most recent Financial Statement, there
shall have been no Material Adverse Change in the financial condition,
business or affairs of any of the OEDC Parties and none of the OEDC
Parties shall not have suffered any material loss (whether or not
insured) by reason of physical damage caused by fire, earthquake,
accident or other calamity which substantially affects the value of
their assets; and
(iv) Purchaser shall have received the fee required by Section
4.2(a).
3. REPRESENTATIONS AND WARRANTIES OF OEDC PARTIES
Each of the OEDC Parties represents and warrants to Purchaser as
follows:
2
3.1 CORPORATE/PARTNERSHIP ORGANIZATION. Each of OEDC Inc. and OEDC Corp.
is a corporation duly organized and validly existing, and in good standing under
the laws of the State of Texas. Each of Beacon Gas Storage Co., L.P., Dauphin
Island Gathering Company, L.P., Beacon Natural Gas Company, L.P. and OEDC
Exploration & Production, L.P. (collectively, the "Subsidiary Partnerships") and
OEDC, L.P. is a limited partnership duly formed and validly existing under the
laws of the State of Texas. Each of the OEDC Parties has all requisite corporate
or partnership power and authority, as applicable, to carry on its business as
now conducted and proposed to be conducted. OEDC Corp. is, and each of the other
OEDC Parties will promptly be, qualified to conduct business in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect on its business and properties.
3.2 CAPITALIZATION. OEDC Inc. currently has 6000 shares of Class B
Common Stock and 3000 shares of Class A Stock which have been duly authorized
and validly issued and all such shares are fully paid and nonassessable. OEDC
Inc. has full legal right to issue the Additional Shares of Class A Stock to
Purchaser. Upon delivery of certificates representing the Additional Shares of
Class A Stock to Purchaser in exchange for receipt of the consideration
therefor, such shares of the Class A Stock will have been duly authorized and
validly issued and fully paid and nonassessable. A true and correct copy of the
OEDC Corp.'s articles of incorporation as filed with the Texas Secretary of
State and bylaws and a true and correct schedule listing all the record holders
of all of its outstanding shares, each as in effect on this date, are attached
to the Original Purchase Agreement.
3.3 SUBSIDIARIES. Other than OEDC L.P.'s and OEDC Inc.'s ownership
interests in the Subsidiary Partnerships, Dauphin Island Gathering Partners and
South Dauphin Partners, none of the OEDC Parties own or have the right to
acquire any equity interest in any other corporation, association or business
entity.
3.4 FINANCIAL STATEMENTS; NO MATERIAL CHANGES; NO UNDISCLOSED
LIABILITIES.
(a) Each of the financial statements of the OEDC Parties delivered to
Purchaser after the date of the Original Agreement and prior to the date hereof
(the "Financial Statements") have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis and
accurately, completely and fairly present the financial condition of the OEDC
Parties at the respective dates thereof and the results of their operations for
the periods then ended (except that the unaudited financial statements do not
include certain accruals disclosed to Purchaser, are not accompanied by notes or
other textual disclosure required by GAAP and are subject to normal audit
adjustments which will not reflect a Material Adverse Change in the financial
condition of such OEDC Parties).
(b) Since the date of the most recent Financial Statements, there has
been no Material Adverse Change in the financial condition of any of the OEDC
Parties or their respective businesses.
(c) Other than as disclosed in writing to Purchaser or as shown in the
Financial Statements, as of the date hereof, none of the OEDC Parties has any
Liabilities that would have a Material Adverse Effect on any of the OEDC
Parties.
3.5 AUTHORIZATION; VALID AND BINDING AGREEMENTS. All corporate and
partnership actions on the part of the OEDC Parties and their respective
officers, directors, and shareholders, which are necessary for the
authorization, execution, and delivery to Purchaser of this Agreement, the
Amended Partnership Agreement, the Amended Corporate Documents and all other
documents, certificates and instruments executed and delivered pursuant to
Section 2.2 (collectively, the "Transaction Documents"), the issuance to
Purchaser of the Common Units and Preferred Units as provided in the Amended
Partnership Agreement, the issuance of the Additional Class A Shares, and the
performance of the obligations of the OEDC Parties under all of the Transaction
Documents, have been taken, and the Transaction Documents
3
constitute valid and legally binding obligations of each of the OEDC Parties
which are parties thereto, enforceable in accordance with their respective
terms. A copy of the resolutions and other documents of the OEDC Parties
authorizing the transactions contemplated in the Transaction Documents are
attached hereto as Exhibit C and by reference incorporated herein. Since the
date of adoption of such resolutions and execution of such documents no action
has been taken by any of the OEDC Parties to modify or rescind such resolutions
and documents and each remains in full force and effect as of this date.
3.6 CONSENTS. Except for the consent of Senior Lender required under the
Senior Credit Agreement, which has been obtained, the execution and delivery by
each of the OEDC Parties of the Transaction Documents to which it is a party and
the performance by each of the OEDC Parties of its respective obligations
thereunder does not require any consent, approval, order, or authorization of,
or registration, qualification, designation, declaration, or filing with, any
federal, state, local, or governmental authority or any other party, other than
the parties to this Agreement, under Applicable Law or under the terms of any
contract, instrument, license or agreement of any character to which any of the
OEDC Parties is a party or by which any of their respective properties is bound.
3.7 NO DEFAULTS CONFLICTS; COMPLIANCE WITH LAWS AND REGULATIONS.
(a) None of the OEDC Parties is in violation of or in default under, and
no condition exists that with notice or lapse of time or both would constitute a
default under (i) any provisions of the articles of incorporation, bylaws or
partnership agreement, as applicable, of any of the OEDC Parties; (ii) the
Senior Credit Agreement or any other loan agreement, indenture, mortgage,
evidence of indebtedness or other instrument evidencing borrowed money, or any
agreement, contract, lease or license to which any OEDC Party is a party or its
property is bound; or (iii) any judgment, order or injunction of any court,
arbitration or governmental agency. The execution, delivery and performance of
the Transaction Documents and the closing of the transactions as contemplated
hereby will not conflict with or cause any of the OEDC Parties to be in
violation of or in default under, any of the foregoing documents, instruments,
or other items listed in clauses (i) - (iii), or result in the creation of any
lien, charge, or encumbrance on any of the assets of the OEDC Parties.
(b) None of the OEDC Parties is subject to any existing, pending or to
the best knowledge of each of the OEDC Parties, threatened action, suit,
investigation, inquiry or proceeding by any governmental authority under, or
subject to any remedial or other obligations under, any and all laws, statutes,
ordinances, rules, regulations, orders, judicial or arbitral decisions or
determinations of any governmental authority or court pertaining to health or
the environment in effect in any jurisdiction in which any of the OEDC Parties
is conducting or at any time has conducted business or where any of the
properties of any of the OEDC Parties is located (collectively, "Environmental
Laws"), and further none of the OEDC Parties is aware of any situation or event
which with the passage of time would constitute a violation of Environmental
Laws. Each of the OEDC Parties has complied with and is in full compliance with,
all Environmental Laws. All material notices, government permits, licenses or
similar authorizations, if any, required to be obtained or filed in connection
with the operations of the businesses of the OEDC Parties, including, without
limitation, past or present treatment, storage or "Disposal" (as defined in the
Resource Conservation Recovery Act, as amended) or any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing in the environment (a "Release") of any
pollutant, containment, solid waste, hydrocarbon plant, toxic or hazardous
substance or waste, any flammable, explosive or radioactive materials or other
material or substance regulated under the Environmental Laws (a "Hazardous
Material") into the environment, have been duly obtained or filed. The OEDC
Parties have taken all steps necessary to determine and have determined that no
Hazardous Materials have been Disposed of or otherwise Released and there has
been no threatened Release of any Hazardous Material on or to any of the
properties of any of the OEDC
4
Parties except in compliance with Environmental Laws and except for those
Disposals, Releases or threatened Releases which in the aggregate would not
reasonably be expected to have a Material Adverse Effect on any of the OEDC
Parties.
(c) To the best knowledge of each of the OEDC Parties, none of the OEDC
Parties is in violation or default under of any provisions of any federal or
state statute, rule, or regulation (other than Environmental Laws) which are
applicable to any of the OEDC Parties (including those relating to safety
matters).
3.8 OUTSTANDING DEBT. None of the OEDC Parties has outstanding any
"Debt" (as such term is defined in the Bylaws of OEDC Inc.) except for the debt
outstanding under the Senior Credit Agreement and such other debt which is
permitted by Article Five Section 1 of the bylaws of OEDC, Inc.
3.9 TAXES. Each of the OEDC Parties has filed or caused to be filed all
tax returns which it is required to file and each has paid all taxes shown to be
due and payable on said returns or on any assessments made against it or any of
its property and all other taxes, fees or other charges imposed on it. All other
taxes, fees or other charges imposed on any OEDC Party and its or any of their
respective properties by any governmental authority (other than any such taxes,
fees or other charges the amount or validity of which are currently being
contested in good faith by appropriate proceedings with respect to which
reserves in conformity with GAAP have been provided on the books of the
appropriate OEDC Party) have been paid in full, and no tax lien has been filed
and, to the knowledge of any OEDC Party, no claim is being asserted with respect
to any such tax, fee or other charge.
3.10. CONTRACTS AND COMMITMENTS.
(a) No OEDC Party is a party to, or bound by, nor is any of the
properties or assets owned by any OEDC Party and used in the conduct of its
business affected by, any contractual obligation or requirement of law
including, without limitation, either of the foregoing relating to any
environmental matter, which is likely to materially and adversely, or insofar as
any OEDC Party can reasonably foresee, materially affect, its business, assets
or condition, financial or otherwise.
(b) Except for contracts entered into in accordance with Article Five
Section 1 of the Bylaws of OEDC Inc. and those contracts previously disclosed in
writing to Purchaser:
(i) No OEDC Party has any outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by it
on notice of not longer than 30 days and without liability, penalty or
premium or any agreement or arrangement providing for the payment of any
bonus or commission based on sales or earnings;
(ii) No OEDC Party has any employment agreement, or any other
agreement that contains any severance or termination pay liabilities or
obligations; and
(iii) There exist no Material Contracts for the sale of production
from the "Oil and Gas Properties" (as defined in the bylaws of OEDC
Inc.) of any OEDC Party (including without limitation, calls on, or
other rights to purchase, production, whether or not the same are
currently being exercised) other than (i) production sales contracts
previously disclosed to Purchaser in writing (the "Disclosed Production
Sales Contracts"), (ii) agreements or arrangements which are cancelable
on 60 days notice or less without penalty or detriment, and (iii) calls
on, or other rights to purchase production which neither (A)
individually, or in the aggregate, affect a material part
5
of the production of oil and gas from the Oil and Gas Properties of the
OEDC Parties, nor (B) grant an option to purchase production at a price
other than a price that is the market price from time to time existing
in the areas where the Oil and Gas Properties of the OEDC Parties
subject to such call (or other right to purchase) are located. Except as
previously disclosed to Purchaser in writing, the OEDC Parties are
presently receiving a price for all production from (or attributable to)
each Oil and Gas Property covered by a Disclosed Production Sales
Contract, as computed in accordance with the terms of such contract, and
deliveries of gas from any Oil and Gas Property subject to such a
contract are not being curtailed substantially below such property's
delivery capacity.
3.11 NO LITIGATION. Other than as set forth on Schedule 3.11, there is
no material action, suit, proceeding, or investigation, pending or, to the best
of any OEDC Party's knowledge, currently threatened against the OEDC Parties.
3.12 TITLE TO PROPERTY; CONDITION OF ASSETS.
(a) Each of the OEDC Parties represents and warrants that it has
Marketable Title to all of its oil and gas leases that are reflected in the
reserve reports and the engineering reserve reports prepared by or for such OEDC
Party and delivered to Purchaser (the "Reserve Reports"). For purposes of this
Agreement, "Marketable Title" shall mean such title that:
(i) Is deducible from the records of the Minerals Management
Service and/or the appropriate Texas and Alabama counties and Louisiana
parishes and free from reasonable doubt to the end that a willing buyer
engaged in the business of the ownership, development and operation of
producing oil and gas properties with knowledge of all the facts and
their legal bearing would be willing to accept the same; and
(ii) Entitles the applicable OEDC Party to receive not less than
the net revenue interest for such lease as described the Reserve Reports
as the "net revenue interest" with respect to such lease; and
(iii) Obligates OEDC Parties to pay costs and expenses relating to
such lease in an amount not greater than the "working interest" as
described in the Reserve Reports with respect to such lease; and
(iv) Vests in the applicable OEDC Party the operating rights to
such lease as described in the Reserve Reports together with the rights
to explore for, develop and operate the oil, gas and other minerals
covered by the lease; and
(v) Except for Permitted Encumbrances, is free and clear of any
lien, encumbrance or burden.
"Permitted Encumbrances" shall mean in relation to title to an oil and
gas lease: (1) lessors royalties, overriding royalties, reversionary interests
and similar burdens so long as all such burdens were properly taken into account
in determining the net revenue interest and working interest reflected for such
lease in the Reserve Reports; (2) division orders, but only if the net revenue
interest and working interest reflected for such lease in any division order was
properly taken into account in determining the net revenue interest and working
interest reflected for such lease in the Reserve Reports and in applicable sales
contracts; (3) preferential rights to purchase and required third party consents
to assignments and similar agreements with respect to which waivers or consents
are obtained from the appropriate parties
6
or the appropriate time period for asserting such rights has expired without an
exercise of such rights; (4) liens for taxes not yet delinquent or, if
delinquent, that are being contested in good faith in the normal course of
business; (5) materialman's, mechanic's, repairman's, employee's, contractor's,
operator's, and other liens or charges arising in the ordinary course of
business (x) if they have not become due and payable or payment is being
withheld as provided by law, or (z) if their validity is being contested in good
faith by appropriate action; (6) all rights to consent by, required notices to,
filings with, or other actions by governmental or regulatory entities in
connection with the sale or conveyance of oil and gas leases or interests if
they are customarily obtained subsequent to the sale or conveyance; (7)
easements, rights-of-way, servitudes, permits, surface lease and other rights
relating to surface operations which do not have a Material Adverse Effect the
operation of such lease; and (8) all other liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects and irregularities
affecting such lease which individually or in the aggregate are not such as to
interfere materially with the operation of such lease and do not materially
prevent OEDC Parties from receiving its share of the proceeds of production from
such lease.
(b) With respect to properties other than oil and gas leases, each of
the OEDC Parties has marketable title, in fee simple, to all owned real
properties (other than easements), and a valid leasehold estate as to all other
leased properties, and good title to all of its other properties and assets,
including the properties and assets reflected in the Financial Statements (other
than properties and assets disposed of in the ordinary course of business),
subject to no "Lien" (as such term is defined in the bylaws of OEDC, Inc.) of
any kind except Liens permitted by the bylaws of OEDC, Inc. and except such
Liens as do not, individually or in the aggregate, materially detract from the
value of the property subject thereto, interfere in any material respect with
the manner in which it is currently being used in the conduct of the business of
the OEDC Parties or materially impair the operations of the business of the OEDC
Parties. All leases and agreements necessary for the conduct of the respective
businesses of the OEDC Parties are, to the best knowledge of the OEDC Parties,
valid and subsisting, in full force and effect and, to the best knowledge of the
OEDC Parties, there exists no default or event or circumstance which with the
giving of notice or the passage of time or both would give rise to a default
under any such lease or leases, which would affect in any material respect the
conduct of the business of the OEDC Parties.
(c) All of the assets and properties of the OEDC Parties which are
reasonably necessary for the operation of their businesses are in good working
condition and are maintained in accordance with prudent business standards.
3.13 PRODUCTION SALES CONTRACTS; GAS IMBALANCES; PREFERENTIAL RIGHTS.
The OEDC parties have previously provided to Purchaser true and correct copies
of (a) a list of all existing Material Contracts for the sale of any production
of any of the OEDC Parties, (b) an accurate description of all obligations (if
any) of any of the OEDC Parties to any third party under Material Contracts
which include "take or pay" or similar provisions obligating an OEDC Party to
deliver production for which it has already received payment (or obligating an
OEDC Party to return any such payment) together with an accurate and detailed
listing of the amount of all such delivery obligations, (c) a list of all
instruments and agreements whereby any third party may claim a preferential
right or call to purchase a material portion of the production of any OEDC
Party, other than under existing contracts for sale of production, and (d) an
accurate and detailed listing of all material gas imbalances owing by or owing
to the OEDC Parties as of a recent date (not more than 10 days prior to the date
hereof). There is no preferential right to purchase any assets of any of the
OEDC Parties by virtue of the transactions contemplated in connection with the
sale of the Class A Stock and the issuance of the Common Units and Preferred
Units pursuant to the Amended Partnership Agreement.
7
3.14 RESERVES. The OEDC Parties make no warranty, express or implied, as
to quantity, quality or recoverability of the hydrocarbon reserves underlying
the oil and gas properties of the OEDC Parties, except that each of the OEDC
Parties represents that to the best of its knowledge, the estimates of
recoverable reserves attributable to the OEDC Parties which are set forth in the
Reserve Reports prepared by or for the OEDC Parties and delivered to Purchaser
have been prepared in accordance generally accepted engineering methods and
further represent that the factual data which was used by the persons who
prepared the OEDC Parties' Reserve Reports was prepared without
misrepresentations or omissions of material facts known to any of the OEDC
Parties.
3.15 GOVERNMENT PERMITS. The OEDC parties currently possess all permits,
licenses, consents and approvals ("Government Permits") necessary under federal,
state or local law to conduct their respective oil and gas exploration,
production, and marketing activities in the manner in which they are now being
conducted. There are no proceedings pending, or to the knowledge of any of the
OEDC Parties threatened, that seek the revocation, cancellation, suspension or
modification of any Government Permit.
3.16 DISCLOSURE. Neither this Agreement nor any other documents,
certificate or statement furnished to Purchaser by or on behalf of the OEDC
Parties in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
OEDC Parties which has a Material Adverse Effect, or to the best of any OEDC
Party's knowledge, in the future could reasonably be likely to (so far as the
OEDC Parties can now foresee) have a Material Adverse Effect on, the business,
properties, assets or financial condition of the OEDC Parties and which has not
been set forth in this Agreement or the other documents, certificates and
statements furnished to Purchaser by or on behalf of the OEDC parties prior to
or on the date hereof in connection with the transactions contemplated hereby.
3.17 INSURANCE. All policies of fire, liability, workmen's compensation
and other forms of insurance currently owned or held by the OEDC Parties are
sufficient for compliance with all requirements of law and of all agreements to
which any OEDC Party is a party; are valid, outstanding and enforceable
policies; provide adequate insurance coverage in at least such amounts and
against at least such risks (but including in any event public liability) as are
required by any operating agreements pertaining to the oil and gas properties of
the OEDC Parties or as are otherwise usually insured against in the same general
area by companies engaged in the same or a similar business for the assets and
operations of the OEDC Parties; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. All risks which the OEDC Parties and their respective Boards of
Directors or officers have designated as being self insured were disclosed to
Purchaser in the Original Purchase Agreement. None of the OEDC Parties has been
refused any insurance with respect to its assets or operations, nor has its
coverage been limited, by an insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years.
3.18 USE OF PROCEEDS. It is contemplated that the funds provided to the
OEDC Parties at the Closing (net of the fee to Purchaser specified in Section
4.2(a) shall be used to drill and complete Mobile Bay, South Timbalier and
Viosca Knoll leases, and any remaining proceeds will be used for general
business purposes of the OEDC Parties, subject in each case to the approval of
such expenditures in an approved budget of the appropriate OEDC Party.
3.19 ERISA. OEDC does not maintain any savings, retirement, pension or
profit sharing plan. To the best knowledge of the OEDC Parties, no OEDC Party is
subject to any of the funding or vesting requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any requirement which
could create an accumulated funding deficiency within the meaning of ERISA, nor
has
8
any OEDC Party incurred any liability to the Pension Benefit Guaranty
Corporation established under ERISA (or any successor thereto under ERISA).
3.20 ENFORCEABILITY OF WAIVER AND DISTRIBUTION AGREEMENT. The OEDC
Parties hereby ratify and confirm all of the terms and conditions set forth in
that certain Waiver and Distribution Agreement dated as of September 20, 1994
(the "Waiver and Distribution Agreement") among Purchaser, OEDC Inc., OEDC L.P.,
OEDC Corp. and David B. Strassner, Douglas H. Kiesewetter, Gaylen J. Byker and
R. Keith Anderson (collectively, the "Offshore Principals"), and confirm that
all of the obligations of the OEDC Parties and the Offshore Principals
thereunder are valid, binding and enforceable in accordance with their terms.
4. COVENANTS OF THE OEDC PARTIES.
4.1 GENERAL AFFIRMATIVE COVENANTS. Each of the OEDC Parties covenants
and agrees with Purchaser that it will:
(a) Keep adequate books and records, in accordance with GAAP applied on
a consistent basis, of all of its transactions so that at any time and from time
to time its true and complete financial condition may be readily determined, and
upon the reasonable request of Purchase, make such records available for
Purchaser's inspection and permit Purchaser to make copies thereof.
(b) Within thirty (30) days after the end of each month, deliver to
Purchaser, unaudited financial statements of the OEDC Parties prepared in
conformity with GAAP applied on a consistent basis (except for the omission of
such disclosure which is required by GAAP for fiscal year end reports and
accruals of depreciation, depletion and other items disclosed to Purchaser), and
certified to be true and correct, by the appropriate chief financial officer for
each such OEDC Party.
(c) Promptly, and in any event within ninety (90) days after the close
of each fiscal year of the OEDC Parties, deliver to Purchaser a copy of the
annual audit of each of the OEDC Parties prepared in conformity with generally
accepted accounting principles applied on a consistent basis and signed by
independent certified public accountants.
(d) Promptly after the discovery of the occurrence of any event which
triggers a "Special Voting Period" under the Articles of Incorporation of OEDC
Inc., deliver notice thereof to Purchaser. If no such event has occurred within
ninety (90) days after the close of each fiscal year of the OEDC Parties, the
chief financial officer of each of the appropriate OEDC Parties, shall provide
to Purchaser a certificate confirming that, to the knowledge of such officer, a
Special Voting Period event has not occurred, nor has any event occurred that
might trigger such a Special Voting Period after the lapse of time or the giving
of notice, or both.
(e) Promptly inform each of the Purchaser of any litigation or of any
claim or controversy that might become the subject of litigation against the
OEDC Parties or might affect any of the property of the OEDC Parties, if such
litigation or potential litigation would, in the event of an unfavorable
outcome, have a Material Adverse Effect on any of the OEDC Parties' financial
condition.
(f) Promptly furnish to Purchaser, at its request, such additional
financial or other information concerning the assets, Liabilities, operations
and transactions of the OEDC Parties as they may from time to time reasonably
request.
9
(g) Promptly pay or cause to be paid when due any and all taxes,
assessments and governmental charges upon the OEDC Parties or against any
property of the OEDC Parties unless any of the same is being contested in good
faith by appropriate proceedings and adequate reserves in accordance with GAAP
have been established therefor.
(h) Maintain its corporate or partnership existence and will promptly
qualify to do business in any jurisdiction where such qualification is required.
(i) Comply in all material respects with all laws, statutes, ordinances
and governmental regulations applicable to it or to any of its property,
business operations and transactions, and promptly endeavor to correct any
immaterial violations thereof.
(j) Maintain for itself, with financially sound and reputable insurance
companies or associations, insurance and employee fidelity bonds of the kinds,
covering the risks and in the relative proportionate amounts usually carried by
companies engaging in similar businesses, and promptly furnish to the Purchaser
such information and evidence with reference to insurance as the Purchaser may
from time to time reasonably request.
(k) Preserve and maintain all licenses, privileges, franchises,
certificates and the like necessary or appropriate for the operation of its
business.
(l) Allow Purchaser to visit and inspect any of the properties of the
OEDC Parties, and to discuss the OEDC Parties' affairs, business plans, finances
and accounts with its officers. at such reasonable times and as often as may be
reasonably requested.
4.2 PAYMENT OF FEE AND EXPENSES OF PURCHASER.
(a) On or before the date of the Closing, the OEDC Parties shall pay to
Purchaser, in cash, a financing fee in the amount of $110,000.
(b) Each of the OEDC Parties agrees, jointly and severally, to pay and
reimburse Purchaser and its Affiliates general partners, employees and agents
(collectively, for purposes of this subsection referred to as "Purchase
Parties") for all costs, expenses or disbursements, of any kind or nature
whatsoever with respect to or arising out of the transactions related to this
Agreement and the other Transaction Documents, including without limitation (i)
Purchaser Parties' out-of-pocket expenses, and Purchaser Parties' fees,
disbursements and expenses, including without limitation, fees and disbursements
of Purchaser Parties' counsel, Thompson & Knight, and Purchaser's independent
engineers which are incurred in connection with the execution and delivery of
this Agreement and the Transaction Documents, (ii) all out-of-pocket expenses of
the Purchaser Parties (including, without limitation, the fees and expenses of
the Purchaser Parties' counsel) in connection with any subsequent amendments,
modifications, consents or waivers with respect to any of the Transaction
Documents; (iii) the costs and expenses of all investigations undertaken in
connection with the foregoing, (iv) the costs and expenses incurred by
representatives of the Purchaser Parties in connection with attending meeting of
the Board of Directors of the OEDC Parties or any other visit to the facilities,
including attorneys' fees, incurred by the Purchaser Parties in enforcing any of
their respective rights under the Transaction Documents, or in complying with
any subpoena or other legal process served upon Purchaser in connection with the
Transaction Documents, including, without limitation, costs and expenses
incurred in any bankruptcy case.
10
4.3 INDEMNIFICATION.
(a) The OEDC Parties, jointly and severally, agree to indemnify and hold
Purchaser, its officers, general partners, employees, agents and each
controlling person of any of the foregoing (collectively, "Indemnified Parties")
harmless from, and pay or reimburse each of the Indemnified Parties for, any and
all direct losses, damages, costs and legal, accounting or other expenses
(collectively, "Damages") which such Indemnified Party may sustain or incur as a
result of any misrepresentation, breach of warranty or default in performance of
any obligation on the part of an OEDC Party under this Agreement or under the
other Transaction Documents.
(b) Any party entitled to indemnification hereunder shall give prompt
notice of its intention to seek indemnification to the party or parties against
whom indemnification is sought, but the failure to give such notice will not
result in any waiver of the rights of such indemnified party except to the
extent the indemnifying party is actually prejudiced thereby.
5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations and warranties contained in this Agreement or in any
certificate, instrument, or document delivered pursuant hereto shall survive the
making of this Agreement without the necessity of any other document being
delivered, notwithstanding any investigation made heretofore or hereafter by any
party, until Purchaser and its Affiliate no longer own any ownership interest in
any of the OEDC Parties.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to the OEDC Parties that it is
acquiring the Additional Class A Shares and Common Units and Preference Units,
as applicable, for the purpose of investment for its own account and not with a
view to or for resale in connection with any distribution thereof within the
meaning of Section 2(11) of the Securities Act of 1933, as amended ("Securities
Act"). Purchaser acknowledges that (a) the Additional Class A Shares and Common
Units and Preference Units have not been registered under the Securities Act or
the securities laws of any state and that the OEDC Parties do not contemplate
filing any such registrations, (b) the Additional Class A Shares and Common
Units and Preference Units cannot be transferred unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available with respect to such transfer, (c) that Purchaser can not sell,
transfer or otherwise dispose of the Additional Class A Shares or Common Units
and Preference Units in violation of the Securities Act or any applicable
federal or state law or regulation, (d) the OEDC Parties' stock records may be
marked to indicate such transfer restrictions, and (e) the OEDC Parties may
direct any transfer agent to enter a stop transfer order in its records with
respect to the Additional Class A Shares and Common Units and Preference Units
in accordance with the foregoing.
7. DEFINITIONS.
When capitalized and used in this Agreement and in the Schedules and
Exhibits hereto, the following terms shall have the following meanings.
"ADDITIONAL CLASS A SHARES" shall have the meaning set forth in Section
1.
"ADDITIONAL CONTRIBUTION" shall have the meaning set forth in the
recitals hereto.
11
"AFFILIATES" shall mean as to any Person, all entities (i) in which such
Person, either individually or in the aggregate, directly or indirectly, owns,
controls or holds the power to vote 50% or more of the outstanding voting
securities, general partnership interests, joint venture interests, or other
similar securities or interests, or (ii) directly or indirectly, controlling,
controlled by, or under common control with such Person.
"AMENDED CORPORATE DOCUMENTS" shall have the meaning set forth in
Section 2.2.
"AMENDED PARTNERSHIP AGREEMENT" shall have the meaning set forth in
Section 1.
"APPLICABLE LAW" shall mean any statute or law or any judgment, order,
decree, rule, or regulation of any court or Governmental Entity to which a
specified Person or property is subject.
"CLASS A STOCK" shall have the meaning set forth in the recitals hereto.
"CLOSING" shall have the meaning set forth in Section 2.1.
"COMMON UNITS" shall have the meaning assigned to such term in the
Amended Partnership Agreement.
"ENCUMBRANCES" shall mean liens, charges, pledges, options, mortgages,
security interests, claims, restrictions (whether on voting, sale, transfer or
disposition or otherwise) and other encumbrances of every type and description,
whether imposed by law, agreement, understanding or otherwise.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 3.4.
"GAAP" shall have the meaning set forth in Section 3.4.
"GOVERNMENTAL ENTITY" shall mean any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state, municipal, domestic,
foreign or other administrative agency, department, commission, board, bureau or
other governmental authority or instrumentality.
"GOVERNMENT PERMITS" shall have the meaning set forth in Section 3.15.
"LIABILITIES" shall mean any liabilities, debts or obligations of any
nature, whether accrued, absolute, contingent or otherwise, and whether imposed
by law, agreement, understanding or otherwise.
"MATERIAL CONTRACT" shall have the meaning set forth in the bylaws of
OEDC Inc.
"MATERIAL ADVERSE EFFECT" shall mean with respect to any of the OEDC
Parties, unless otherwise specified in this Agreement, any event, occurrence or
circumstance which could reasonably be expected to (i) result in liability, or
require an expenditure by, any one or more of the OEDC Parties in an amount in
excess of $100,000, or (ii) interfere with the ability of any OEDC Party to
conduct its business in the normal course.
"ORIGINAL PURCHASE AGREEMENT" shall have the meaning set forth in the
recitals hereto.
"OFFSHORE PRINCIPALS" shall have the meaning set forth in Section 3.20.
12
"PERSON" means an individual, corporation, limited liability company,
association, joint stock company, trust, partnership, joint venture,
unincorporated organization, a government or any department or agency thereof,
or any other legal entity.
"PREFERRED UNITS" shall have the meaning assigned to such term in the
Amended Partnership Agreement.
"PROCEEDINGS" shall mean all proceedings, actions, suits, investigations
or inquiries in or before any arbitrator or Governmental Entity.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR CREDIT AGREEMENT" shall mean that certain Credit Agreement dated
as of July 25, 1994 among Senior Lender, OEDC L.P., OEDC Inc. Dauphin Island
Gathering Company, L.P., and OEDC Exploration & Production, L.P.
"SENIOR LENDER" shall mean the lender under the Senior Credit Agreement,
initially, Joint Energy Development Investment Limited Partnership.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in Section 3.5.
"WAIVER AND DISTRIBUTION AGREEMENT" shall have the meaning set forth in
Section 3.20.
8. MISCELLANEOUS PROVISIONS.
8.1 NOTICES. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, or sent by cable, telegram, telefax, or telex, to the parties at their
respective addresses as set out under such parties name on the execution page of
this Agreement (or at such other addresses as shall be specified by the parties
by like notice):
8.2 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO CONFLICT OF LAWS PROVISIONS.
8.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions
and agreements between and among the parties hereto with respect to the matters
contained herein, and this Agreement, together with the Exhibits and Schedules
hereto, the Related Documents and the other documents and agreements
contemplated hereby or desirable or necessary to consummate the transactions
described herein, constitute the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
8.4 OFFICER'S CERTIFICATIONS. The individuals executing this Agreement
on behalf of the parties hereto certify that each is the duly elected, qualified
and acting officer of such party holding the office set forth below his
signature and each has been duly authorized to execute and deliver, on behalf of
such party, this Agreement and all other Related Documents to which it is a
party.
13
8.5 SEVERABILITY. In the event any provision of this Agreement is held
to be illegal, invalid or unenforceable under the terms of any present or future
laws effective during the term hereof, such provision shall be fully severable,
and this Agreement shall be enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof. Furthermore, in lieu
of such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
8.6 AMENDMENTS AND WAIVERS. This Agreement may be amended only by an
instrument in writing executed by the party against whom enforcement of the
amendment is sought. Any of the parties hereto may by a signed writing give any
consent, take any action, waive any inaccuracies in the representations or
warranties herein or compliance by any party with any of the covenants or
conditions herein, modify the terms of this Agreement or take any other action
deemed to be necessary or appropriate to consummate the transactions
contemplated by this Agreement.
8.7 PARTIES BOUND; ASSIGNMENTS. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and permitted assigns. Except as otherwise provided, the parties
agree that any of the Common Units or Preference Units or shares of Class A
Stock owned by Purchaser, may be assigned and transferred, in whole or in part,
at any time, to a partner or other Affiliate of Purchaser. In addition, shares
of Class A Stock owned by Purchaser may be assigned to an unrelated third party,
subject to the same limitations which apply to transfers of the Units under the
partnership agreement. Any assignee of the shares of Class A Stock or of the
Units shall be entitled to all rights which accrue to Purchaser under this
Agreement; provided that, this sentence shall not be deemed to give an assignee
any right to be substituted as a limited partner of OEDC L.P. beyond those which
are set forth in the partnership agreement. All references herein to Purchaser
shall be deemed to include any such assignee.
8.8 AMENDMENT. This Agreement may be amended only by an instrument in
writing executed jointly by an authorized officer of each of the parties hereto
or bound by the terms hereof.
8.9 HEADINGS. Descriptive headings are used for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in one (1) or more
exact counterparts, each of which shall be deemed to be an original, and all
such counterparts shall together constitute but one (1) and the same instrument.
8.11 FURTHER ASSURANCES. Each party, at the request of any other party,
will execute, deliver and acknowledge from time to time such other and further
acts and things as may be reasonably necessary more fully and effectively to
consummate the transactions contemplated by this Agreement.
14
IN WITNESS WHEREOF, the parties hereto have executed or caused their
duly authorized and acting officers to execute this Agreement on the date
specified above.
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By: R. Keith Anderson
Title: Vice President
OEDC, INC.
By: R. Keith Anderson
Title: Vice President
OEDC PARTNERS, L.P.
By: OEDC, Inc.,
general partner
By: R. Keith Anderson
Title: Vice President
BEACON GAS STORAGE CO., L.P.
By: OEDC, Inc.
general partner
By: R. Keith Anderson
Title: Vice President
15
DAUPHIN ISLAND GATHERING COMPANY, L.P.
By: OEDC, Inc.,
general partner
By: R. Keith Anderson
Title: Vice President
BEACON NATURAL GAS COMPANY, L.P.
By: OEDC, Inc.,
general partner
By: R. Keith Anderson
Title: Vice President
OEDC EXPLORATION & PRODUCTION, L.P.
By: OEDC, Inc.,
general partner
By: R. Keith Anderson
Title: Vice President
NGP-OEDC HOLDINGS, L.P.
By: Natural Gas Partners, L.P.,
its general partner
By: G.F.W. Energy, L.P.,
general partner
By: David R. Albin
16
EXHIBIT A
(Form of Amended Partnership Agreement)
A-1
<PAGE>
EXHIBIT B
(Form of Opinion of Counsel to OEDC Parties)
July , 1995
NGP-OEDC Holdings, L.P.
115 E. Putnam Avenue
Greenwich, CT 06830
Gentlemen:
This opinion is being delivered to you, at the request of our clients,
pursuant to the requirements of Section 2.2 of that certain Purchase Amendment
dated as of the date (the "Agreement") hereof by and among Offshore Energy
Development Corporation, a Texas corporation ("OEDC Corp."), OEDC, Inc., a Texas
corporation ("OEDC Inc."), OEDC Partners, L.P., a Texas limited partnership
("OEDC L.P."), Beacon Gas Storage Co., L.P., Dauphin Island Gathering Company,
L.P., Beacon Natural Gas Company, L.P. and OEDC Exploration & Production, L.P.
(collectively, with OEDC L.P., the "OEDC Partnerships"; OEDC Corp. and OEDC Inc.
are collectively, the "OEDC Corporations" and the OEDC Partnerships and the OEDC
Corporations are collectively, the "OEDC Parties", and individually any of them
is an "OEDC Party") and you.
We have acted as counsel for each of the OEDC Parties in connection with
the negotiation, execution and delivery to you of the Agreement, the Amended and
Restated Agreement of Limited Partnership of OEDC Partners, L.P. (the "Amended
Partnership Agreement") and the other Transaction Documents. Capitalized terms
used herein and not otherwise defined shall have the meanings set forth for such
terms in the Agreement.
For purposes of this opinion, we have examined executed counterparts of
the Transaction Documents and have discussed the matters addressed in this
opinion with officers and representatives of the OEDC Parties to the extent we
have deemed appropriate to enable us to render this opinion.
In preparing this opinion we have also examined original counterparts or
photostatic or certified copies of all other instruments, agreements,
certificates, records and other documents (whether of the OEDC Parties or their
officers, directors, shareholders and representatives, public officials, or
other persons) which we have considered relevant hereto. In making this
examination we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as photostatic or certified
copies, and the authenticity of the originals of such copies.
Based upon the foregoing, and subject to the qualifications and
exceptions hereinafter set forth, we are of the opinion that:
B-1
1. Each of OEDC Partnerships has been duly formed and is validly
existing as a limited partnership under the Texas Revised Limited Partnership
Act. Each of the OEDC Corporations is duly organized, validly existing and in
good standing under the laws of the State of Texas.
2. To the best of our knowledge, each of OEDC L.P. and OEDC E&P is duly
qualified to transact business and in good standing in all jurisdictions outside
of Texas where the character of its properties or the nature of its activities
makes such qualification necessary.
3. Each of the OEDC Parties has all requisite corporate power,
partnership power or legal capacity, as applicable, to make or enter into the
Transaction Documents to which it is a party and to perform its obligations
thereunder.
4. Each of the Transaction Documents has been duly authorized, executed
and delivered by the OEDC Parties which are parties thereto.
5. Each of the Transaction Documents constitutes a legal, valid and
binding instrument and agreement of the OEDC Parties which are parties thereto,
enforceable in accordance with their respective terms.
6. Except for those which have been obtained by the OEDC Parties, no
consent, approval, authorization or order of any court or governmental agency or
authority of the State of Texas or of the United States of America of a type
customarily required for transactions of this nature is required for (a) the
execution and delivery by any of the OEDC Parties of the Transaction Documents,
or (b) to the best of our knowledge, for the consummation of the transactions
contemplated by the Transaction Documents or for the performance by the OEDC
Parties of their various obligations thereunder.
7. The execution, delivery and performance by each of the OEDC Parties
of the Transaction Documents to which each is a party, and the consummation of
the transactions contemplated by the Transaction Documents, will not and did not
(a) violate or contravene any provision of the articles of incorporation or
bylaws or partnership agreements, as applicable, of any of the OEDC Parties, or,
(b) to the best of our knowledge, conflict with or result in a breach of any
material term or provision of or constitute a default under or result in the
maturing of any indebtedness pursuant to any indenture, mortgage, deed of trust,
note or loan agreement, or other material agreement or instrument, of which we
have knowledge to which any of the OEDC Parties is a party or by which any of
them or any of their various properties are bound, or, (c) result in a violation
of any law, rule or regulation or, to the best of our knowledge, any judgment,
order, decree, determination or award of any court or governmental authority
which is now in effect and applicable to any OEDC Party or to any of their
properties. To the best of our knowledge none of the OEDC Parties is in default
under or in violation of any law, rule, regulation, judgment, order, decree,
determination, award, indenture, mortgage, deed of trust, note, loan agreement
or other material agreement or instrument of which we have knowledge or in
violation of its articles of incorporation or bylaws or partnership agreement,
as applicable.
8. To the best of our knowledge there are no actions, suits, proceedings
or investigations pending or threatened against or affecting the OEDC Parties or
any of their various properties in any court or governmental agency (a) seeking
to enjoin, or questioning the legality or validity of, the performance by the
OEDC Parties of any of their various obligations under the Transaction
Documents, or (b) which have, or would have if adversely determined, a material
adverse effect on the ability of the OEDC Parties to perform such obligations.
B-2
This opinion is limited by, subject to and based on the following:
(a) This opinion is limited in all respects to the laws of the State of
Texas and applicable federal law.
(b) In rendering the opinion expressed in paragraph 5 hereof, we have
assumed that each of the Transaction Documents which requires your execution has
been duly authorized, executed and delivered by you.
(c) In connection with opinions expressed herein as being limited "to
the best of our knowledge", our examination has been limited to discussions with
the officers and representatives of the OEDC Parties in the course of this
transaction and our knowledge of the affairs of the OEDC Parties as their
counsel, and we have made no independent investigations as to the accuracy or
completeness of any representations, warranties, data or other information,
written or oral, made or furnished by any of them to us or to you.
(d) The enforceability of the respective obligations of the parties to
the OEDC Parties, and the availability of certain rights and remedies provided
for therein, may be limited by (i) applicable state and federal laws and
judicial decisions, but the remedies provided for in the Transaction Documents
are adequate for the practical realization of the benefits provided thereby,
(ii) equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances, or (iii)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
The opinions herein expressed are for the benefit of the addressee and
may be relied upon only by the addressee.
Respectfully submitted,
B-3
<PAGE>
EXHIBIT C
AUTHORIZING RESOLUTIONS
C-1
<PAGE>
SCHEDULE 3.11
LITIGATION
On April 27, 1995, a lawsuit was filed against OEDC Corp. styled Cause
No. 95-020846; H.E. (GENE) HOLDER, JR. AND DAN H. MONTGOMERY V. OFFSHORE ENERGY
DEVELOPMENT CORPORATION; In the 269th Judicial District of Harris County, Texas.
Although OEDC Corp. believes that the Plaintiffs' claims are baseless, the
Plaintiffs allege that OEDC Corp. breached an oral agreement to enter into a
joint venture agreement and/or fraudulently induced the Plaintiffs to enter into
confidentiality agreements with non- compete provisions based on a false promise
to form a joint venture. The Plaintiffs also allege that OEDC Corp. stole their
idea to build a non-jurisdictional gas gathering system in South Mobile Bay. The
Plaintiffs seek unspecified actual damages, pre- and post- judgment interest,
exemplary damages, and attorneys' fees and costs. OEDC Corp. has filed an answer
denying the Plaintiffs' claims, and OEDC has counterclaimed to recover its
attorneys' fees and costs incurred as a result of what it contends are spurious
claims. Discovery has just begun in the case and there is no trial setting or
docket control order entered as of this date.
EXHIBIT 10.14
EXECUTION
================================================================================
CREDIT AGREEMENT
------------------------------------------------
OEDC EXPLORATION & PRODUCTION, L.P.
Borrower
and
OFFSHORE ENERGY DEVELOPMENT CORPORATION
and
OEDC, INC.
and
OEDC PARTNERS, L.P.
and
DAUPHIN ISLAND GATHERING COMPANY, L.P.
Guarantors
and
UNION BANK OF CALIFORNIA, N.A.
August 28, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
CREDIT AGREEMENT..................................................... 1
ARTICLE I - Definitions and References............................... 1
Section 1.1. Defined Terms.................................... 1
Section 1.2. Exhibits and Schedules; Additional
Definitions...................................... 12
Section 1.3. Amendment of Defined Instruments................. 12
Section 1.4. References and Titles............................ 12
Section 1.5. Calculations and Determinations.................. 12
ARTICLE II - The Loan................................................ 13
Section 2.1. Advances......................................... 13
Section 2.2. Requests for Advances............................ 13
Section 2.3. Use of Proceeds.................................. 14
Section 2.4. Rate Elections................................... 14
Section 2.5. Fees............................................. 15
Section 2.6. Optional Prepayments............................. 15
Section 2.7. Mandatory Prepayments and Monthly
Reduction........................................ 16
Section 2.8. Payments to Lender............................... 16
Section 2.9. Initial Borrowing Base........................... 17
Section 2.10. Subsequent Determinations of Borrowing
Base............................................. 17
Section 2.11. Capital Adequacy................................ 18
Section 2.12. Increased Cost of Fixed Rate Portions........ 18
Section 2.13. Availability................................. 19
Section 2.14. Funding Losses............................... 19
Section 2.15. Reimbursable Taxes........................... 19
ARTICLE III - Conditions Precedent to Lending........................ 20
Section 3.1. Documents to be Delivered........................ 20
Section 3.2. Additional Conditions Precedent.................. 22
ARTICLE IV - Representations and Warranties.......................... 23
Section 4.1. Borrower's Representations and
Warranties....................................... 23
Section 4.2. Representation by Lender......................... 29
ARTICLE V - Covenants of Borrower.................................... 29
Section 5.1. Affirmative Covenants............................ 29
Section 5.2. Negative Covenants............................... 39
ARTICLE VI - Security................................................ 45
Section 6.1. The Security..................................... 45
Section 6.2. Agreement to Deliver Security Documents.......... 45
Section 6.3. Perfection and Protection of Security
Interests and Liens.............................. 45
Section 6.4. Bank Accounts; Offset............................ 46
Section 6.5. Production Proceeds.............................. 46
ARTICLE VII - Events of Default and Remedies......................... 46
Section 7.1. Events of Default................................ 46
Section 7.2. Remedies......................................... 49
Section 7.3. Indemnity........................................ 49
-i-
ARTICLE VIII - Miscellaneous......................................... 51
Section 8.1. Waivers and Amendments; Acknowledgments.......... 51
Section 8.2. Survival of Agreements; Cumulative
Nature........................................... 52
Section 8.3. Notices.......................................... 53
Section 8.4. Parties in Interest.............................. 53
Section 8.5. Governing Law; Submission to Process............. 53
Section 8.6. Limitation on Interest........................... 54
Section 8.7. Termination; Limited Survival.................... 55
Section 8.8. Severability..................................... 55
Section 8.9. Counterparts..................................... 56
SECTION 8.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES,
ETC. ............................................ 56
Section 8.11. Recapitalization................................ 56
SCHEDULE 1 -- Disclosure Schedule
SCHEDULE 2 -- Security Schedule
SCHEDULE 3 -- Hedging Contracts
EXHIBIT A -- Note
EXHIBIT B -- Request for Advance
EXHIBIT C -- Rate Election
EXHIBIT D -- Certificate Accompanying Financial Statement
EXHIBIT E -- Opinion of Borrower's Counsel
EXHIBIT F -- Insurance Certificates
-ii-
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of August 28, 1996, by and among OEDC
Exploration & Production, L.P., a Texas limited partnership (herein called
"Borrower"), Offshore Energy Development Corporation, a Delaware corporation
("OEDC"), OEDC, Inc., a Texas corporation ("General Partner"), OEDC Partners,
L.P., a Texas limited partnership ("OEDC Partners"), Dauphin Island Gathering
Company, L.P., a Texas limited partnership ("Dauphin") and Union Bank of
California, N.A. (herein called "Lender"). In consideration of the mutual
covenants and agreements contained herein the parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Advance" has the meaning given it in Section 2.1.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.
"Agreement" means this Credit Agreement.
"Associated Property" means any rights of any Related Person, as lessee in
the surface estate associated with the Property.
"Base Rate" means the per annum rate of interest equal to the sum of (a)
one percent (1.0%) plus (b) the variable rate of interest per annum established
from time to time by Lender as its "reference rate" (which rate of interest may
not be the lowest rate charged on similar loans). Each change in the Base Rate
shall become effective without prior notice to Borrower automatically as of the
opening of business on the date of such change in the Base Rate. The Base Rate
shall in no event, however, exceed the Highest Lawful Rate.
"Base Rate Portion" means that portion of the unpaid principal balance of
the Loan which is not made up of Fixed Rate Portions.
"Borrower" means OEDC Exploration & Production, L.P., a Texas limited
partnership.
"Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.9 or the amount determined by Lender in
accordance with the provisions of Section 2.10.
-1-
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Los Angeles,
California. Any Business Day in any way relating to Fixed Rate Portions (such as
the day on which an Interest Period begins or ends) must also be a day on which
transactions in United States' dollars are carried out in the eurocurrency
market.
"Change of Control" shall mean the occurrence of any event or series of
events by which: (a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended from time to
time, the "Exchange Act") is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of
the total voting stock of OEDC (other than the Principal Owners) or (b) any two
of David B. Strassner, Douglas H. Kiesewetter, R. Keith Anderson or Matthew T.
Bradshaw cease to be actively involved in the management and operation of either
OEDC or Borrower for any reason other than his death or disability. "Principal
Owners" means David B. Strassner, Douglas H. Kiesewetter, R. Keith Anderson,
David R. Albin, R. Gamble Baldwin, any of their Families or Family Trusts, and
Natural Gas Partners, L.P. "Family" means,in respect of any individual, the
heirs, legatees, descendants and blood relatives to the third degree of
consanguinity of such individual. "Family Trusts" means, in respect of any
individual, any trusts for the primary benefit of such individual, his/her
spouse, lineal descendants, blood relatives to the third degree of consanguinity
of such individual, and charitable purposes, so long as such individual and
his/her spouse have the exclusive right to control each such trust.
"Collateral" means all property of any kind of any Related Person which is
subject to a Lien in favor of Lender or which, under the terms of any Security
Document, is purported to be subject to such a Lien.
"Commitment Period" means the period from and including the date hereof
until and including August 31, 1998 as such date may be extended pursuant to
Section 2.1 (or, if earlier, the day on which the Note first becomes due and
payable in full).
"Consolidated" refers to the consolidation of any Person with its properly
consolidated subsidiaries. References herein to a Person's Consolidated
financial statements, financial position, financial condition, liabilities, etc.
refer to the consolidated financial statements, financial position, financial
condition, liabilities, etc. of such Person and its properly consolidated
subsidiaries.
"Dauphin" means Dauphin Island Gathering Company, L.P., a Texas limited
partnership, whose sole general partner is General Partner.
-2-
"Debt" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Determination Date" has the meaning given it in
Section 2.10.
"Disclosure Schedule" means Schedule 1 hereto. Insofar as any
representations and warranties made herein are incorporated in other Loan
Documents by reference to this Agreement or otherwise remade in Loan Documents
delivered as of a date after the date hereof, the term "Disclosure Schedule"
shall in such representations and warranties be deemed to refer as well to all
information contained in the financial statements delivered pursuant to Section
5.1(b)(i) and all written disclosures made pursuant to Section 5.1(d).
"EBITDA" means, for any period, the sum (determined on a Consolidated
basis and in accordance with GAAP) of (a) Borrower's net income (or net loss)
after deduction of all expenses and other charges for such period, and (b)
Borrower's Consolidated taxes, interest, interest associated with leasing
arrangements to the extent such taxes and interest are taken into account in
determining such net income (or net loss) for such period, payments on the
Preferential Units owned by NGP-OEDC Holdings, L.P. or its successors, to the
extent such payments are taken into account in determining such net income (or
net loss) for such period, depreciation, amortization, depletion expenses and
other non-cash items taken into account in determining such net income (or net
loss) for such period.
"Engineering Report" means each engineering report delivered pursuant to
Sections 5.1(b)(iii) and (iv).
"Enron Partnership" means South Dauphin II Limited Partnership, a Texas
limited partnership, where sole general partner is Borrower.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984,
and any and all other federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges, releases
or
-3-
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment including ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title IV of ERISA
maintained by any Related Person or any Affiliate thereof with respect to which
any Related Person has a fixed or contingent liability.
"Event of Default" has the meaning given it in Section 7.1.
"Excepted Liens" means: (a) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action; (b) Liens in connection with worker's compensation,
unemployment insurance or other social security, old age pension or public
liability obligations; (c) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or incident
to the exploration, development, operation and maintenance of oil and gas
properties and statutory landlord's liens in respect of obligations which are
not yet due and payable or which are being contested in good faith by
appropriate proceedings diligently conducted by any Related Person and for which
adequate reserves have been made pursuant to GAAP; (d) any Liens reserved in
leases for rent and for compliance with the terms of the leases in the case of
leasehold estates, to the extent that any such Lien referred to in this clause
does not materially impair the use of the property covered by such Lien for the
purposes for which such property is held by any Related Person or materially
impair the value of such property subject thereto; (e) encumbrances (other than
to secure the payment of borrowed money or the deferred purchase price of
property or services), easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any rights of way or other property of
any Related Person for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, and defects,
irregularities and deficiencies in title of any rights of way or other property
which in the aggregate do not materially impair the use of such rights of way or
other property for the purposes of which such rights of way and other property
are held by such Related Person or materially impair the value of such property
subject thereto; (f) any Liens permitted by the terms of the Security Documents;
and (g) any Liens arising
-4-
pursuant to transportation, production handling and other similar agreements
necessary or desirable in the transportation and handling of hydrocarbons from
the properties of the Related Persons, which Liens secure amounts for the
payment of the costs and expenses of such transportation and handling, provided
that such amounts are not yet due and payable or are being contested in good
faith by appropriate proceedings diligently conducted by such Related Persons
and for which adequate reserves have been made pursuant to GAAP.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December
31 of any year.
"Fixed Rate" means, with respect to each particular Fixed Rate Portion and
the associated LIBOR Rate and Reserve Percentage, the rate per annum calculated
by Lender (rounded upwards, if necessary, to the next higher 0.01%) determined
on a daily basis pursuant to the following formula:
Fixed Rate =
LIBOR Rate
--------------------------- + A
100.0% - Reserve Percentage
where A means two and one-half percent (2.5%). The Fixed Rate for any Fixed Rate
Portion shall change whenever A changes, but if the Reserve Percentage changes
during the Interest Period for a Fixed Rate Portion, Lender may, at its option,
either change the Fixed Rate for such Fixed Rate Portion or leave it unchanged
for the duration of such Interest Period. The Fixed Rate shall in no event,
however, exceed the Highest Lawful Rate.
"Fixed Rate Portion" means any portion of the unpaid principal balance of
the Loan which Borrower designates as such in a Rate Election.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and its
Consolidated Subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the Initial Financial Statements.
"General Partner" means OEDC, Inc., a Texas corporation.
"Guarantors" means, collectively, OEDC, Dauphin, General Partner, OEDC
Partners, and any other Person who has guaranteed some or all of the Obligations
and has been accepted by Lender as a Guarantor; each individually, a
"Guarantor".
-5-
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Highest Lawful Rate" means the maximum nonusurious rate of interest that
Lender is permitted under applicable law to contract for, take, charge, or
receive with respect to the Loan.
"Initial Engineering Report" means the engineering report concerning oil
and gas properties of Borrower dated June 19, 1996, prepared by Ryder Scott
Company as of January 1, 1996.
"Initial Financial Statements" means (i) the audited annual financial
statements of each of Borrower, General Partner, OEDC Partners and Dauphin dated
as of December 31, 1995, and (ii) the unaudited quarterly consolidated financial
statements of Borrower, General Partner, and OEDC Partners dated as of April 30,
1996.
"Interest Expenses" means for any period, the Consolidated expenses of
Borrower for such period for net interest and fees on Debt incurred in
connection with the borrowing of money.
"Interest Period" means, with respect to each particular Fixed Rate
Portion of the Loan, a period of 1, 2 or 3 months, as specified in the Rate
Election applicable thereto, beginning on and including the date specified in
such Rate Election (which must be a Business Day), and ending on but not
including the same day of the month as the day on which it began (e.g., a period
beginning on the third day of one month shall end on but not include the third
day of another month), provided that (i) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (unless such next succeeding Business Day is the first
Business Day of a calendar month, in which case such Interest Period shall end
on the immediately preceding Business Day) and (ii) any Interest Period which
begins on the last Business Day of a calendar month (or a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month in
which it would have occurred if there were a numerically corresponding day in
such calendar month. No Interest Period may be elected which would extend past
the date on which the Note is due and payable in full.
"Late Payment Rate" means, at the time in question, five percent (5%) per
annum plus the Base Rate then in effect; provided that, with respect to any
Fixed Rate Portion with an Interest Period extending beyond the date such Fixed
Rate Portion becomes due and payable, "Late Payment Rate" shall mean five
percent (5%) per annum plus the related Fixed Rate. The Late Payment Rate shall
in no event, however, exceed the Highest Lawful Rate.
-6-
"Lender" means Union Bank of California, N.A. and its
successors and assigns.
"LIBOR Rate" means, with respect to each particular Fixed Rate Portion and
with respect to the related Interest Period, the rate of interest per annum
determined by Lender in accordance with its customary general practices to be
representative of the rates at which deposits of dollars are offered to Lender
at approximately 9:00 a.m. Los Angeles time two Business Days prior to the first
day of such Interest Period (by prime banks in the interbank eurocurrency market
which have been selected by Lender in accordance with its customary general
practices) for delivery on the first day of such Interest Period in an amount
equal or comparable to the amount of such Fixed Rate Portion and for a period of
time equal or comparable to the length of such Interest Period. The LIBOR Rate
determined by Lender with respect to a particular Fixed Rate Portion shall be
fixed at such rate for the duration of the associated Interest Period. If Lender
is unable so to determine the LIBOR Rate for any Fixed Rate Portion, or if the
associated Fixed Rate would exceed the Highest Lawful Rate, Borrower shall be
deemed not to have elected such Fixed Rate Portion.
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Debt owed to him or any other
arrangement with such creditor which provides for the payment of such Debt out
of such property or assets or which allows him to have such Debt satisfied out
of such property or assets prior to the general creditors of any owner thereof,
including any lien, mortgage, security interest, pledge, deposit, production
payment, rights of a vendor under any title retention or conditional sale
agreement or lease substantially equivalent thereto, tax lien, mechanic's or
materialman's lien, or any other charge or encumbrance for security purposes,
whether arising by law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business.
"Loan" has the meaning given it in Section 2.1.
"Loan Documents" means this Agreement, the Note, the Security Documents,
and all other agreements, certificates, documents, instruments and writings at
any time delivered in connection herewith or therewith and under which there are
duties, representations, warranties, certifications or obligations of or by the
Related Persons (exclusive of term sheets, commitment letters, correspondence
and similar documents used in the negotiation hereof).
"MMS" means the U.S. Department of Interior, Minerals
Management Service.
"Material Agreements" means, collectively, (i) the limited partnership
agreement of Borrower, (ii) the limited partnership agreement of Dauphin, (iii)
the limited partnership agreement of
-7-
the Enron Partnership, (iv) the limited partnership agreement of Dauphin Island
Gathering Partners, (v) the limited partnership agreement of OEDC Partners, and
(vi) the limited partnership agreement of South Dauphin Partners, Ltd.
"Maximum Loan Amount" means $10,000,000.
"Monthly Reduction Amount" means (i) $312,500, for the period from the
date hereof and ending on August 31, 1997, (ii) $250,000 for the period from
September 1, 1997 and ending on February 28, 1998, (iii) $166,667, for the
period from March 1, 1998 and ending on July 31, 1998, and (iv) $166,665 on
August 31, 1998; provided that such amounts may be redetermined by Lender in its
sole discretion in connection with each redetermination of the Borrowing Base.
"Note" has the meaning given it in Section 2.1.
"Obligations" means the sum of (a) all Debt from time to time owing by
Borrower to Lender under or pursuant to any of the Loan Documents, plus (b) all
other Debt from time to time owing by any of the Related Persons to Lender.
"Obligation" means any part of the Obligations.
"OEDC" means Offshore Energy Development Corporation, a
Delaware corporation.
"OEDC Partners" means OEDC Partners, L.P., a Texas limited partnership,
whose sole general partner is General Partner.
"Permitted Investments" means investments:
(a) in open market commercial paper, maturing not later than thirty
(30) days after acquisition thereof, which has the highest or second
highest credit rating given by either Standard & Poor's Corporation or
Moody's Investors
Service, Inc.
(b) in marketable obligations, maturing within thirty (30) days
after acquisition thereof, issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America.
(c) in demand deposits, and time deposits (including certificates of
deposit) maturing within thirty (30) days from the date of deposit
thereof, with any office of Lender or with a domestic office of any
national or state bank or trust company which is organized under the laws
of the United States of America or any state therein, which has capital,
surplus and undivided profits of at least $250,000,000, and whose
certificates of deposit have at least the third highest credit rating
given by either Standard & Poor's Corporation or Moody's Investors
Service, Inc.
-8-
(d) in repurchase agreements relating to investments described in
clauses (a) through (c) above with a market value at least equal to the
consideration paid in connection therewith, with any Person who regularly
engages in the business of entering into repurchase agreements and has a
combined capital surplus and undivided profit of not less than
$250,000,000.
(e) in any Related Person.
"Person" means an individual, corporation, partnership, association, joint
stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.
"Prohibited Lien" means any Lien not expressly allowed under
Section 5.2(b).
"Property" has the meaning given it in the Mortgage.
"Rate Election" has the meaning given it in Section 2.4.
"Recapitalization" means (i) the merger of Offshore Energy Development
Corporation, a Texas corporation ("Offshore Texas"), with and into OEDC, with
OEDC being the surviving corporation and the shareholders of Offshore Texas
receiving shares of common stock of OEDC in exchange for their shares of common
stock of Offshore Texas, (ii) the transfer by the shareholders of the General
Partner of all of the issued and outstanding shares of capital stock of the
General Partner to OEDC in exchange for shares of common stock of OEDC, (iii)
the transfer by the holders (other than Offshore Texas) of all of the common
units representing limited partner interests in OEDC Partners held by such
holders to OEDC in exchange for shares of common stock of OEDC, and (iv) an
underwritten, registered public offering by OEDC of shares of its common stock.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect.
"Related Person" means Borrower and Guarantors, provided that the addition
of any Person as a Guarantor after the date hereof shall be subject to Section
5.2(n).
"Reportable Event" has the meaning stated in Title IV of
ERISA.
"Request for Advance" means a written request made by Borrower which meets
the requirements of Section 2.2.
"Reserve Percentage" means, on any day with respect to each particular
Fixed Rate Portion, the maximum reserve requirement, as determined by Lender
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed
-9-
as a percentage and rounded to the next higher 0.01%, which would then apply to
Lender under Regulation D with respect to "Eurocurrency liabilities" (as such
term is defined in Regulation D) equal in amount to such Fixed Rate Portion,
were Lender to have any such "Eurocurrency liabilities". If such reserve
requirement shall change after the date hereof, the Reserve Percentage shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each such change in such reserve requirement.
"Restricted Debt" of any Person means Debt in any of the
following categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the
deferred purchase price of property or services,
(c) Debt evidenced by a bond, debenture, note or
similar instrument,
(d) Debt which would be shown on such Person's balance sheet as a
liability (other than reserves for taxes and contingent obligations),
(e) Debt arising under futures contracts, swap
contracts, or similar speculative agreements,
(f) Debt constituting principal under capitalized
leases,
(g) Debt arising under conditional sales or other
title retention agreements,
(h) Debt owing under direct or indirect guaranties of Debt of any
other Person or constituting obligations to purchase or acquire or to
otherwise protect or insure a creditor against loss in respect of Debt of
any other Person (such as obligations under working capital maintenance
agreements, agreements to keep-well, or agreements to purchase Debt,
assets, goods, securities or services), but excluding endorsements in the
ordinary course of business of negotiable instruments in the course of
collection,
(i) Debt of the types described in clauses (a), (b), (c), (f) and
(g) of this definition of Restricted Debt owing by virtue of such Person's
liability as a general partner of any other Person, except where the
holder of such Debt has agreed to waive any recourse as to such general
partner,
(j) Debt with respect to letters of credit or
applications or reimbursement agreements therefor,
(k) Debt with respect to payments received in
consideration of oil, gas, or other minerals yet to be
-10-
acquired or produced at the time of payment (including obligations under
"take-or-pay" contracts to deliver gas in return for payments already
received and the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or
indirectly received payment), or
(l) Debt with respect to other obligations to deliver
goods or services in consideration of advance payments
therefor;
provided, however, that the term "Restricted Debt" shall not include Debt which
is ninety (90) days or less past due that was incurred on ordinary trade terms
and is owed by the Person incurring the same to vendors, suppliers, or other
Persons providing goods and services for use by such Person in the ordinary
course of its business.
"Security Documents" means the instruments listed in the Security Schedule
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Related Person to Lender in connection with this Agreement or
any transaction contemplated hereby to secure or guarantee the payment of any
part of the Obligations or the performance of any Related Person's other duties
and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
"Solid Waste" has the meaning specified in the Resource Conservation and
Recovery Act of 1976, as heretofore amended.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any Related Person or
of any Affiliate of any Related Person from an ERISA Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA,
or (c) the filing of a notice of intent to terminate any ERISA Plan or the
treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the
Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any
-11-
other event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
ERISA Plan.
"Trade Debt" means any Debt owed by any Person on ordinary trade terms to
vendors, suppliers and other Persons providing goods and services used by it in
the ordinary course of its business.
Section 1.2. Exhibits and Schedules; Additional Definitions. All Exhibits
and Schedules attached to this Agreement are a part hereof for all purposes.
Reference is hereby made to the Security Schedule for the meaning of certain
terms defined therein and used but not defined herein, which definitions are
incorporated herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under the
Loan Documents of fees and of interest shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 360 days.
Each determination by Lender of amounts to be paid under Sections 2.11 through
2.15 or any other matters which are to be determined hereunder by Lender (such
as any LIBOR Rate, Fixed Rate, Business Day, Interest Period or Reserve
Percentage) shall, in the absence of manifest error, be conclusive and binding.
Unless otherwise
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expressly provided herein or unless Lender otherwise consents all financial
statements and reports furnished to Lender hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - The Loan
Section 2.1. Advances. Subject to the terms and conditions hereof, Lender
agrees to make advances to Borrower (herein called "Advances") upon request from
time to time during the Commitment Period so long as the aggregate amount of
Advances outstanding at any time does not exceed the lesser of the Maximum Loan
Amount and the Borrowing Base in effect as of the date on which the requested
Advance is to be made. The amount requested in any Request for Advance must be
greater than or equal to $100,000 or must equal the unadvanced portion of the
Borrowing Base. It is expressly understood that Lender's commitment to advance
funds hereunder is determined only by reference to the lesser of the Maximum
Loan Amount and the Borrowing Base from time to time in effect, and the face
amount of the Note and the amount specified in the Security Documents are
specified at a greater amount only for the convenience of the parties to avoid
the necessity of preparing and recording supplements to the Security Documents.
The obligation of Borrower to repay to Lender the aggregate amount of all
Advances made by Lender (herein called the "Loan"), together with interest
accruing in connection therewith, shall be evidenced by a single promissory note
(herein called the "Note") made by Borrower payable to the order of Lender in
the form of Exhibit A with appropriate insertions. The amount of principal owing
on the Note at any given time shall be the aggregate amount of all Advances
theretofore made minus all payments of principal theretofore received by Lender
on the Note. Interest on the Note shall accrue and be due and payable as
provided herein and therein. Subject to the terms and conditions hereof,
Borrower may borrow, repay, and reborrow hereunder. So long as no Default shall
have occurred and be continuing at such time, at least ninety (90) days but not
more than 120 days before each August 31 beginning August 31, 1998, Borrower may
request in writing to Lender that the Commitment Period be extended by one year
from the then scheduled date. On or before the immediately following July 31
after each such request, Lender shall notify Borrower in writing whether it
elects to so extend the Commitment Period. Any failure by Lender to so notify
Borrower shall be deemed to be a decision by Lender to not extend the Commitment
Period.
Section 2.2. Requests for Advances. Borrower must give to Lender notice of
any requested Advance as follows:
(a) if all of such Advance is designated as a Base Rate Portion, by
11:00 a.m., Dallas, Texas time, on the date such Advance is requested to
be made;
(b) if any part of such Advance is designated by
Borrower as a Fixed Rate Portion, by 11:00 a.m., Dallas,
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Texas time, on the second Business Day preceding the date such Advance is
requested to be made.
Each such written request or confirmation must be made in the form and substance
of the "Request for Advance" attached hereto as Exhibit B, duly completed. If
all conditions precedent to such Advance have been met, Lender will on the date
requested make the Advance available to Borrower in immediately available funds
at Lender's office in Dallas, Texas. Each Request for Advance, with respect to
any portion of the Advance requested thereby that is designated as a Fixed Rate
Portion, shall be irrevocable and binding on Borrower.
Section 2.3. Use of Proceeds. Borrower shall use all funds from the
initial Advance to repay all Debt owing in connection with the Credit Agreement
dated as of July 25, 1994, among OEDC Partners, General Partner, Borrower,
Dauphin and Joint Energy Development Investments Limited Partnership, as
amended. All funds from subsequent Advances shall be used (i) to finance the
acquisition and development of oil and gas properties, (ii) to fund Borrower's
purchase of its fifteen percent (15%) general partnership interest in the Enron
Partnership, and (iii) for general business purposes. In no event shall any
funds lent hereunder be used directly or indirectly by any Persons for personal,
family, household or agricultural purposes or for the purpose, whether
immediate, incidental or ultimate, of purchasing, acquiring or carrying any
"margin stock" or any "margin securities" (as such terms are defined
respectively in Regulation U and Regulation G promulgated by the Board of
Governors of the Federal Reserve System) or to extend credit to others directly
or indirectly for the purpose of purchasing or carrying any such margin stock or
margin securities. Borrower represents and warrants that Borrower is not engaged
principally, or as one of Borrower's important activities, in the business of
extending credit to others for the purpose of purchasing or carrying such margin
stock or margin securities.
Section 2.4. Rate Elections. Borrower may from time to time designate all
or any portion of the Loan (including any yet to be made Advances which are to
be made prior to or at the beginning of the designated Interest Period but
excluding any portions of the Loan which are required to be repaid prior to the
end of the designated Interest Period) as a "Fixed Rate Portion". Without the
consent of Lender, Borrower may make no such election during the continuance of
a Default, and Borrower may make such an election with respect to already
existing Fixed Rate Portions only if such election will take effect at or after
the termination of the Interest Period applicable thereto. Each election by
Borrower of a Fixed Rate Portion shall:
(a) Be made in writing in the form and substance of
the "Rate Election" attached hereto as Exhibit C, duly
completed;
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(b) Specify the amount of the Loan which Borrower desires to
designate as a Fixed Rate Portion, the first day of the Interest Period
which is to apply thereto, and the length of such Interest Period; and
(c) Be received by Lender not later than 11:00 a.m., Dallas, Texas
time, on the second Business Day preceding the first day of the specified
Interest Period.
Each election which meets the requirements of this section (herein called a
"Rate Election") shall be irrevocable. Borrower may make no Rate Election which
does not specify an Interest Period complying with the definition of "Interest
Period" in Section 1.1, and the amount of the Fixed Rate Portion elected in any
Rate Election must be $100,000 or a higher integral multiple of $100,000. Upon
the termination of each Interest Period the portion of the Loan within the
related Fixed Rate Portion shall, unless the subject of a new Rate Election then
taking effect, automatically become a part of the Base Rate Portion of the Loan
and become subject to all provisions of the Loan Documents governing such Base
Rate Portion. Borrower shall have no more than three (3) Fixed Rate Portions in
effect at any time.
Section 2.5. Fees.
(a) Commitment Fees. In consideration of Lender's commitment to make
Advances, Borrower will pay to Lender a commitment fee determined on a
daily basis by applying a rate of three-eighths of one percent (.375%) to
the unused portion of the Borrowing Base on each day during the Commitment
Period, determined for each such day by deducting from the amount of the
Borrowing Base at the end of such day the unpaid principal balance of the
Loan at the end of such day. This commitment fee shall be due and payable
in arrears on the last day of each calendar quarter and at the end of the
Commitment Period.
(b) Facility Fees. On the date hereof, Borrower shall
pay to Lender a facility fee in the amount of $46,875.
Section 2.6. Optional Prepayments. Borrower may, upon two (2) Business
Days' notice to Lender, from time to time and without premium or penalty prepay
the Note, in whole or in part, so long as each partial prepayment of principal
on the Note is greater than or equal to $10,000, so long as Borrower does not
make any prepayments which would reduce the unpaid principal balance of the Loan
to less than $10,000 without first either (a) terminating this Agreement or (b)
providing assurance satisfactory to Lender in its discretion that Lender's legal
rights under the Loan Documents are in no way affected by such reduction. Each
prepayment of principal under this section shall be accompanied by all interest
then accrued and unpaid on the principal so prepaid. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all
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payments otherwise required to be paid under the Loan Documents at the time of
such prepayment.
Section 2.7. Mandatory Prepayments and Monthly Reduction. (a) If the
unpaid principal balance of the Loan ever exceeds the Borrowing Base (other than
as a result of a Monthly Reduction Amount as provided in Section 2.7(b))
Borrower shall, within ten (10) days after Lender gives notice of such fact to
Borrower, either (i) prepay the principal of the Loan in an amount at least
equal to such excess, (ii) give notice to Lender electing to prepay the
principal of the Loan in six (or fewer) installments in an aggregate amount at
least equal to such excess, or (iii) grant Lender first perfected Liens in and
to such additional Collateral satisfactory to Lender, pursuant to documentation
in form and substance satisfactory to Lender to increase the Borrowing Base to
an amount equal to the then outstanding principal balance of the Loan. Each
installment under clause (ii) of the immediately preceding sentence shall equal
or exceed one-sixth of such excess; the first such installment shall be paid
with the giving of such notice and the subsequent installments shall be due and
payable at one month intervals thereafter until such excess has been eliminated.
Each prepayment of principal under this section shall be accompanied by all
interest then accrued and unpaid on the principal so prepaid. Any principal or
interest prepaid pursuant to this section shall be in addition to, and not in
lieu of, all payments otherwise required to be paid under the Loan Documents at
the time of such prepayment.
(b) The Borrowing Base shall be reduced by the Monthly Reduction Amount on
the last day of each month, beginning September 30, 1996. To the extent that the
unpaid principal balance of the Loan ever exceeds the Borrowing Base (that
amount being called the "excess") as a result of such a reduction, Borrower
shall, on the same day as such reduction occurs, prepay, the principal of the
Loan in the amount of the excess. Each prepayment of principal under this
section shall be accompanied by all interest then accrued and unpaid on the
principal so prepaid. Any principal or interest prepaid pursuant to this section
shall be in addition to, and not in lieu of, all payments otherwise required to
be paid under the Loan Documents at the time of such prepayment.
Section 2.8. Payments to Lender. Borrower will make each payment which it
owes under the Loan Documents not later than 12:00 noon, Los Angeles, California
time, on the date such payment becomes due and payable, in lawful money of the
United States of America, without set-off, deduction or counterclaim, and in
immediately available funds. Any payment received by Lender after such time will
be deemed to have been made on the next following Business Day. Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the
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period of such extension as provided in the Loan Document under which such
payment is due. Each payment under a Loan Document shall be due and payable at
the place provided therein and, if no specific place of payment is provided,
shall be due and payable at the place of payment of the Note. When Lender
collects or receives money on account of the Obligations, Lender may apply such
money as it elects to the various Obligations then due and payable; provided
that, so long as no Event of Default has occurred, all payments applied to
principal shall be applied first to any outstanding Base Rate Portion, then to
the outstanding Fixed Rate Portions in such order as Borrower may direct.
Section 2.9. Initial Borrowing Base. During the period from the date
hereof to the first Determination Date the Borrowing Base shall be $6,250,000.
Section 2.10. Subsequent Determinations of Borrowing Base. By March 31 and
September 30 of each year, beginning March 31, 1997, Borrower shall furnish to
Lender all information, reports and data which Lender has then requested
concerning Borrower's businesses and properties (including Borrower's oil and
gas properties and interests and the reserves and production relating thereto),
together with the Engineering Report described in Section 5.1(b)(iii) or (iv) as
applicable. Borrower and Lender shall each have the right to request one
additional redetermination of the Borrowing Base during any period of twelve
consecutive calendar months. Within thirty (30) days after receiving such
information, reports and data, or as promptly thereafter as practicable, Lender
shall by notice to Borrower designate the new Borrowing Base available to
Borrower hereunder during the period beginning on and including the date such
notice is sent (herein called a "Determination Date") and continuing until but
not including the next date as of which the Borrowing Base is redetermined. If
Borrower does not furnish all such information, reports and data by the date
specified in the first sentence of this section Lender may nonetheless designate
the Borrowing Base at any amount which it determines and may redesignate the
Borrowing Base from time to time thereafter until Lender receives all such
information, reports and data, whereupon Lender shall designate a new Borrowing
Base as described above. Lender shall determine the amount of the Borrowing Base
based upon the loan collateral value which it in its discretion assign to the
various items of Collateral at the time in question in accordance with its
customary practices and standards applied generally to its substantial energy
credits and based upon such other credit factors (including without limitation
the assets, liabilities, cash flow, business, properties, prospects, management
and ownership of the Related Persons and their Affiliates) as it in its
discretion (but in accordance with its customary practices and standards) deems
significant. It is expressly understood that Lender has no obligation to
designate the Borrowing Base at any particular amount.
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Section 2.11. Capital Adequacy. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any law, rule or regulation, or (b) the introduction or
implementation of or the compliance with any request, directive or guideline
from any central bank or other governmental authority (whether or not having the
force of law) affects or would affect the amount of capital required or expected
to be maintained by Lender or any corporation controlling Lender, then, upon
demand by Lender, Borrower will pay to Lender, from time to time as specified by
Lender, such additional amount or amounts which Lender shall determine to be
appropriate to compensate Lender or any corporation controlling Lender in light
of such circumstances, to the extent that Lender reasonably determines that the
amount of any such capital would be increased or the rate of return on any such
capital would be reduced by or in whole or in part based on the existence of the
face amount of Lender's Loan or commitments under this Agreement.
Section 2.12. Increased Cost of Fixed Rate Portions. If any applicable
domestic or foreign law, treaty, rule or regulation (whether now in effect or
hereinafter enacted or promulgated, including Regulation D) or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law):
(a) shall change the basis of taxation of payments to Lender of any
principal, interest, or other amounts attributable to any Fixed Rate
Portion or otherwise due under this Agreement in respect of any Fixed Rate
Portion (other than taxes imposed on the overall net income of Lender or
any lending office of Lender by any jurisdiction in which Lender or any
such lending office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any Fixed
Rate Portion (excluding those for which Lender is fully compensated
pursuant to adjustments made in the definition of Fixed Rate) or against
assets of, deposits with or for the account of, or credit extended by,
Lender; or
(c) shall impose on Lender or the interbank eurocurrency deposit
market any other condition affecting any Fixed Rate Portion, the result of
which is to increase the cost to Lender of funding or maintaining any
Fixed Rate Portion or to reduce the amount of any sum receivable by Lender
in respect of any Fixed Rate Portion by an amount deemed by Lender to be
material,
then Lender shall promptly notify Borrower in writing of the happening of such
event and of the amount required to compensate Lender for such event (on an
after-tax basis, taking into account any taxes on such compensation), whereupon
(i) Borrower shall pay
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such amount to Lender and (ii) Borrower may elect, by giving to Lender not less
than three Business Days' notice, to convert all (but not less than all) of any
such Fixed Rate Portion into a part of the Base Rate Portion.
Section 2.13. Availability. If (a) any change in applicable laws,
treaties, rules or regulations or in the interpretation or administration
thereof of or in any jurisdiction whatsoever, domestic or foreign, shall make it
unlawful or impracticable for Lender to fund or maintain Fixed Rate Portions, or
shall materially restrict the authority of Lender to purchase or take offshore
deposits of dollars, or (b) Lender determines that matching deposits appropriate
to fund or maintain any Fixed Rate Portion are not available to it, or (c)
Lender determines that the formula for calculating the Fixed Rate does not
fairly reflect the cost to Lender of making or maintaining loans based on such
rate, then the right of Borrower to elect Fixed Rate Portions shall be suspended
to the extent and for the duration of such illegality, impracticability or
restriction and all Fixed Rate Portions (or portions thereof) which are then
outstanding or are then the subject of any Rate Election and which cannot
lawfully or practicably be maintained or funded shall immediately become or
remain part of the Base Rate Portion.
Section 2.14. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify Lender against, and reimburse Lender on
demand for, any loss or expense incurred or sustained by Lender (including any
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by Lender to fund or maintain Fixed Rate
Portions or Advances), as a result of (a) any payment or prepayment (whether
authorized or required hereunder or otherwise) of all or a portion of a Fixed
Rate Portion on a day other than the day on which the applicable Interest Period
ends, (b) any payment or prepayment, whether required hereunder or otherwise, of
a Loan made after the delivery, but before the effective date, of a Rate
Election, if such payment or prepayment prevents such Rate Election from
becoming fully effective, (c) the failure of any Advance to be made or of any
Rate Election to become effective due to any condition precedent not being
satisfied or due to any other action or inaction of any Related Person, or (d)
any conversion (whether authorized or required hereunder or otherwise) of all or
any portion of any Fixed Rate Portion into the Base Rate Portion or into a
different Fixed Rate Portion on a day other than the day on which the applicable
Interest Period ends.
Section 2.15. Reimbursable Taxes. Borrower covenants and
agrees that:
(a) Borrower will indemnify Lender against and reimburse Lender for
all present and future income, stamp and other taxes, levies, costs and
charges whatsoever imposed, assessed, levied or collected on or in respect
of
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this Agreement or any Fixed Rate Portions (whether or not legally or
correctly imposed, assessed, levied or collected), excluding, however, any
taxes imposed on or measured by the overall net income of Lender or any
lending office of Lender by any jurisdiction in which Lender or any such
lending office is located (all such non-excluded taxes, levies, costs and
charges being collectively called "Reimbursable Taxes" in this section).
(b) All payments on account of the principal of, and interest on,
the Loan and the Note, and all other amounts payable by Borrower to Lender
hereunder, shall be made in full without set-off or counterclaim and shall
be made free and clear of and without deductions or withholdings of any
nature by reason of any Reimbursable Taxes, all of which will be for the
account of Borrower. In the event of Borrower being compelled by law or
other regulations to make any such deduction or withholding from any
payment to Lender, Borrower shall pay on the due date of such payment, by
way of additional interest, such additional amounts as are needed to cause
the amount receivable by Lender after such deduction or withholding to
equal the amount which would have been receivable in the absence of such
deduction or withholding. If Borrower should make any deduction or
withholding as aforesaid, Borrower shall within 60 days thereafter forward
to Lender an official receipt or other official document evidencing
payment of such deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Fixed Rate Portion Borrower may elect, by giving to Lender
not less than three Business Days' notice, to convert all (but not less
than all) of any such Fixed Rate Portion into a part of the Base Rate
Portion, but such election shall not diminish the obligation of Borrower
to pay all such Reimbursable Taxes.
ARTICLE III - Conditions Precedent to Lending
Section 3.1. Documents to be Delivered. Lender has no obligation to make
its first Advance unless Lender shall have received all of the following, at
Lender's office in Dallas, Texas, duly executed and delivered and in form,
substance and date satisfactory to Lender:
(a) The Note.
(b) An "Omnibus Certificate" of the Secretary and of the Chief
Operating Officer or the Executive Vice President of General Partner,
which shall contain the names and signatures of the officers of General
Partner authorized to execute Loan Documents on behalf of General Partner
and on behalf of Borrower and Dauphin in General Partner's capacity as
general partner of Borrower and Dauphin and which shall
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certify to the truth, correctness and completeness of the following
exhibits attached thereto: (i) a copy of resolutions duly adopted by the
Board of Directors of General Partner and in full force and effect at the
time this Agreement is entered into, authorizing the execution of this
Agreement and the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions contemplated
herein and therein, (ii) a copy of the charter documents of General
Partner and all amendments thereto, certified by the appropriate official
of General Partner's state of organization, (iii) a copy of any bylaws of
General Partner, (iv) a copy of the limited partnership agreement of
Borrower, (v) a copy of the limited partnership agreement of Dauphin, (vi)
a copy of the Certificate of Limited Partnership of Borrower, (vii) a copy
of the Certificate of Limited Partnership of Dauphin, (viii) a copy of the
limited partnership agreement of the Enron Partnership, (ix) a copy of the
Certificate of Limited Partnership of the Enron Partnership, (x) a copy of
the limited partnership agreement of OEDC Partners, and (xi) a copy of the
Certificate of Limited Partnership of OEDC Partners.
(c) An "Omnibus Certificate" of the Secretary and of the Chief
Operating Officer or the Executive Vice President of OEDC, which shall
contain the names and signatures of OEDC authorized to execute Loan
Documents on behalf of OEDC and which shall certify to the truth,
correctness and completeness of the following exhibits attached thereto:
(i) a copy of resolutions duly adopted by the Board of Directors of OEDC
and in full force and effect at the time this Agreement is entered into,
authorizing the execution of this Agreement and the other Loan Documents
delivered or to be delivered in connection herewith and the consummation
of the transactions contemplated herein and therein, (ii) a copy of the
charter documents of OEDC and all amendments thereto, certified by the
appropriate official of OEDC's state of organization and (iii) a copy of
any bylaws of OEDC.
(d) A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction.
(e) A "Compliance Certificate" of the Chief Operating Officer or the
Executive Vice President and of the secretary of General Partner, of even
date with such Advance, in which such officers certify to the satisfaction
of the conditions set out in subsections (a), (b), (c) and (d) of Section
3.2.
(f) A favorable opinion of Bracewell & Patterson, counsel for
Borrower and Guarantors, substantially in the form set forth in Exhibit E.
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(g) Each Security Document listed in the Security
Schedule.
(h) Endorsements naming Lender as an additional insured or loss
payee, as appropriate, on all liability insurance, business interruption
and all property insurance policies of Borrower and a detailed schedule of
all insurance of Borrower attached hereto as Exhibit F.
(i) All pending or, to the knowledge of any Related Person,
threatened actions, suits or legal, equitable, arbitrative or
administrative proceedings by or against any Related Person before any
federal, state, municipal or other court, department, commission, body,
board, bureau, agency or instrumentality, domestic or foreign shall be
described on the Disclosure Schedule. There shall be no outstanding order
or injunction which would prohibit any of the transactions contemplated by
the Loan Documents.
(j) Evidence of bonds required by the MMS for the
operation by Borrower of its oil and gas properties.
(k) Copies of the audited annual financial statements of General
Partner dated as of December 31, 1995.
(l) A copy of the Fourth Amended and Restated General Partnership
Agreement for Dauphin Island Gathering Partners dated as of July 1, 1996,
among Dauphin, MCNIC Mobile Bay Gathering Company, and Panenergy Dauphin
Island Company, certified by General Partner as to the correctness and
completeness thereof.
(m) Instruments and documents releasing the Liens and Debt owing in
connection with the Credit Agreement dated as of July 25, 1994, among OEDC
Partners, General Partner, Borrower, Dauphin and Joint Energy Development
Investments Limited Partnership, as amended.
Section 3.2. Additional Conditions Precedent. Lender has no obligation to
make any Advance (including the first) unless the following conditions precedent
have been satisfied:
(a) All representations and warranties made by any Related Person in
any Loan Document shall be true on and as of the date of such Advance
(except to the extent that the facts upon which such representations are
based have been changed by the extension of credit hereunder) as if such
representations and warranties had been made as of the date of such
Advance.
(b) No Default shall exist at the date of such
Advance.
(c) No material adverse change shall have occurred to
Borrower's Consolidated financial condition or businesses,
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or to the Related Persons' financial condition or businesses taken as a
whole, since the date of this Agreement.
(d) Each Related Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed
or complied with by it on or prior to the date of such Advance.
(e) The making of such Advance shall not be prohibited by any law or
any regulation or order of any court or governmental agency or authority
and shall not subject Lender to any penalty or other onerous condition
under or pursuant to any such law, regulation or order.
(f) Lender shall have received all documents and instruments which
Lender has then reasonably requested as to the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
of the Related Persons in this Agreement and the other Loan Documents.
ARTICLE IV - Representations and Warranties
Section 4.1. Borrower's Representations and Warranties. To confirm
Lender's understanding concerning Borrower and its businesses, properties and
obligations and to induce Lender to enter into this Agreement and to make the
Loan, the Related Persons, jointly and severally, represent and warrant to
Lender that:
(a) No Default. No event has occurred and is
continuing which constitutes a Default.
(b) Organization and Good Standing. Each Related Person which is a
corporation or partnership is duly organized, validly existing and in good
standing under the laws of its state of organization, having all corporate
or partnership powers required to carry on its business and enter into and
carry out the transactions contemplated hereby. Each Related Person is
duly qualified, in good standing, and authorized to do business in all
other jurisdictions within the United States wherein the character of the
properties owned or held by it or the nature of the business transacted by
it makes such qualification necessary, except that it shall not be
required hereunder to so qualify in any jurisdiction where no Collateral
is located if the failure so to qualify could not reasonably be expected
to cause a material adverse change in the business, financial condition,
or results of operations of Borrower or of the Related Persons taken as a
whole. Each Related Person has taken all actions and procedures
customarily taken in order to enter, for the purpose of conducting
business or owning property, each jurisdiction outside the United States
wherein the character of the properties owned or held by it or the nature
of the business transacted by it
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makes such actions and procedures desirable, except where such actions and
procedures the failure of which to take could not reasonably be expected
to cause a material adverse change in the business, financial condition,
or results of operations of Borrower or of the Related Persons taken as a
whole.
(c) Authorization. Each Related Person which is a corporation or
partnership has duly taken all corporate or partnership action necessary
to authorize the execution and delivery by it of the Loan Documents to
which it is a party and to authorize the consummation of the transactions
contemplated thereby and the performance of its obligations thereunder.
Borrower is duly authorized to borrow funds hereunder.
(d) No Conflicts or Consents. The execution and delivery by the
various Related Persons of the Loan Documents to which each is a party,
the performance by each of its obligations under such Loan Documents, and
the consummation of the transactions contemplated by the various Loan
Documents, do not and will not (i) conflict with any provision of (1) any
domestic or foreign law, statute, rule or regulation, (2) the articles or
certificate of incorporation, bylaws, charter, or partnership agreement or
certificate of any Related Person, or (3) any agreement, judgment,
license, order or permit applicable to or binding upon any Related Person,
(ii) result in the acceleration of any Debt owed by any Related Person, or
(iii) result in or require the creation of any Lien upon any assets or
properties of any Related Person except as expressly contemplated in the
Loan Documents. Except as expressly contemplated in the Loan Documents no
consent, approval, authorization or order of, and no notice to or filing
with, any court or governmental authority or third party is required in
connection with the execution, delivery or performance by any Related
Person of any Loan Document or to consummate any transactions contemplated
by the Loan Documents.
(e) Enforceable Obligations. This Agreement is, and the other Loan
Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Related Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights and
general principles of equity.
(f) Initial Financial Statements. The Initial
Financial Statements fairly present each Related Person's
Consolidated financial position at the respective dates
thereof and the Consolidated results of such Related
Person's operations and such Related Person's Consolidated
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cash flows for the respective periods thereof. Since the date of the
annual Initial Financial Statements no material adverse change has
occurred in Borrower's financial condition or businesses, Borrower's
Consolidated financial condition or businesses, or the financial condition
or businesses of the Related Persons taken as a whole. All Initial
Financial Statements were prepared in accordance with GAAP.
(g) Other Obligations and Restrictions. No Related Person has any
outstanding Debt of any kind (including contingent obligations, tax
assessments, and unusual forward or long-term commitments) which is, in
the aggregate, material to such Related Person or material with respect to
such Related Person's Consolidated financial condition and not shown in
the Initial Financial Statements or disclosed in the Disclosure Schedule.
No Related Person is in default in any material respect under any material
partnership agreement, indenture, promissory note, franchise or other
agreement or obligation to which it is a party or by which any of its
properties is bound. No Related Person is subject to or restricted by any
franchise, contract, deed, charter restriction, or other instrument or
restriction which is materially likely in the foreseeable future to
materially and adversely affect the businesses, properties, prospects,
operations, or financial condition of such Related Person or of such
Related Person on a Consolidated basis.
(h) Full Disclosure. No certificate, statement or other information
delivered herewith or heretofore by any Related Person to Lender in
connection with the negotiation of this Agreement or in connection with
any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Related
Person (other than industry-wide risks, including pricing risks, normally
associated with the types of businesses conducted by the Related Persons)
necessary to make the statements contained herein or therein not
misleading as of the date made or deemed made. There is no fact known to
any Related Person (other than industry-wide risks, including pricing
risks, normally associated with the types of businesses conducted by the
Related Persons) that has not been disclosed to Lender in writing which
could materially and adversely affect any Related Person's properties,
business, prospects or condition (financial or otherwise) or any Related
Person's Consolidated properties, businesses, prospects or condition
(financial or otherwise). All data and information provided by Borrower in
connection with any Engineering Report was true and correct and did not
fail to include any information known to or reasonably available to any
Related Person which was required in order to keep the information which
was provided from being materially misleading, it being understood that
each Engineering Report is necessarily based upon professional
-25-
opinions, estimates and projections and that no Related Person warrants
that such opinions, estimates and projections will ultimately prove to
have been accurate. Borrower has heretofore delivered to Lender true,
correct and complete copies of the Initial Financial Statements.
(i) Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits
or legal, equitable, arbitrative or administrative proceedings pending, or
to the knowledge of any Related Person threatened, which affect any of the
Property (including any challenge or otherwise pertaining to Borrower's
title to the Property) against any Related Person before any federal,
state, municipal or other court, department, commission, body, board,
bureau, agency, or instrumentality, domestic or foreign, which could
reasonably be expected to cause a material adverse change in the business,
financial condition, or results of operations of Borrower or of the
Related Persons taken as a whole, or their ownership or use of any of
their assets or properties, or the right or ability of any Related Person
to enter into the Loan Documents to which it is a party or to consummate
the transactions contemplated thereby or to perform its obligations
thereunder and (ii) there are no outstanding judgments, injunctions,
writs, rulings or orders by any such governmental entity against any
Related Person or any Related Person's stockholders, partners, directors
or officers which have or may have any such effect.
(j) ERISA Liabilities. All currently existing ERISA Plans are listed
in the Disclosure Schedule. No Termination Event has occurred with respect
to any ERISA Plan and the Related Persons are in compliance with ERISA in
all material respects. No Related Person is required to contribute to, or
has any other absolute or contingent liability in respect of, any
"multiemployer plan" as defined in Section 4001 of ERISA. Except as set
forth in the Disclosure Materials: (i) no "accumulated funding deficiency"
(as defined in Section 412(a) of the Internal Revenue Code of 1986, as
amended) exists with respect to any ERISA Plan, whether or not waived by
the Secretary of the Treasury or his delegate, and (ii) the current value
of each ERISA Plan's benefits does not exceed the current value of such
ERISA Plan's assets available for the payment of such benefits by more
than $500,000.
(k) Environmental and Other Laws. Except as disclosed in the
Disclosure Schedule: (i) the Related Persons are conducting their
businesses in material compliance with all applicable federal, state or
local laws, including Environmental Laws, and have and are in compliance
in all material respects with all licenses and permits required under any
such laws; (ii) none of the operations or properties of any Related Person
is the subject of federal, state or local investigation evaluating whether
any material
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remedial action is needed to respond to a release of any Hazardous
Materials into the environment or to the improper storage or disposal
(including storage or disposal at offsite locations) of any Hazardous
Materials; (iii) no Related Person (and to the best knowledge of each
Related Person, no other Person) has filed any notice under any federal,
state or local law indicating that any Related Person is responsible for
the improper release into the environment, or the improper storage or
disposal, of any material amount of any Hazardous Materials or that any
material amount of Hazardous Materials has been improperly released, or
are improperly stored or disposed of, upon any property of any Related
Person; (iv) no Related Person has transported or arranged for the
transportation of any Hazardous Material to any location which is (1)
listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, listed for possible inclusion on such National Priorities List by
the Environmental Protection Agency in its Comprehensive Environmental
Response, Compensation and Liability Information System List, or listed on
any similar state list or (2) the subject of federal, state or local
enforcement actions or other investigations which may lead to claims
against any Related Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims (whether under
Environmental Laws or otherwise) which could reasonably be expected to
have a material adverse change in the business financial condition, or
results of operations of Borrower or the Related Persons taken as a whole;
and (v) no Related Person otherwise has any known material contingent
liability under any Environmental Laws or in connection with the release
into the environment, or the storage or disposal, of any Hazardous
Materials. Borrower undertook, at the time of acquisition of the Property,
all appropriate inquiry into the previous ownership and uses of the
Property consistent with good commercial or customary practice. Borrower
has taken all steps reasonably necessary to determine and has determined
that no material amount of Hazardous Materials or Solid Wastes have been
disposed of or otherwise released on or to the Property in violation of
any applicable law or the disposal or release of which will impose any
material remedial obligations under any Environmental Laws. The use which
Borrower makes and intends to make of the Property will not result in the
disposal of or other release of any material amount Hazardous Material or
Solid Waste on or to the Property in violation of any applicable laws or
the disposal or release of which will subject Borrower to any material
remedial obligations under any Environmental Laws.
(l) Names and Places of Business. No Related Person has, during the
preceding five years, had, been known by, or used any other corporate
trade, or fictitious name, except as disclosed in the Disclosure Schedule.
Except as otherwise indicated in the Disclosure Schedule, the chief
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executive office and principal place of business of the Related Persons
are (and for the preceding five years have been) located at the address of
Borrower set out in Section 8.3. Except as indicated in the Disclosure
Schedule, no Related Person has any other office or place of business.
(m) Subsidiaries. No Related Person presently has any Subsidiary or
own any stock in any other corporation or association except those listed
in the Disclosure Schedule. No Related Person is a member of any general
or limited partnership, joint venture or association of any type
whatsoever except those listed in the Disclosure Schedule. As of the date
hereof each of the Related Persons owns, directly or indirectly, the
equity interest in each of its Subsidiaries which is indicated in the
Disclosure Schedule.
(n) Title to Properties. Each Related Person has good and defensible
title to all of its material properties and assets free and clear of all
Prohibited Liens and of all impediments to the use of such properties and
assets in such Related Person's business, except that no representation or
warranty is made with respect to any oil, gas or mineral property or
interest to which no proved oil or gas reserves are properly attributed.
(o) Solvency. Upon giving effect to the issuance of the Note, the
execution of the Loan Documents by Borrower and the consummation of the
transactions contemplated hereby, Borrower will be solvent (as such term
is used in applicable bankruptcy, liquidation, receivership, insolvency or
similar laws).
(p) No Financing of Regulated Corporate Takeovers. No funds lent
hereunder will be used to acquire any security in any transaction which is
subject to Sections 13 or 14 of the Securities Exchange Act of 1934,
including particularly (but without limitation) Sections 13(d) and 14(d)
thereof.
(q) Taxes. All tax returns required to be filed by any Related
Person in any jurisdiction have been filed and all taxes, assessments,
fees, or other governmental charges upon any Related Person or upon any of
its properties, income, or franchises have been paid prior to the time
that such taxes, assessments, or levies could give rise to a Lien thereon,
except for any taxes, assessments, charges or levies that such Related
Person is contesting in good faith by appropriate proceedings and has set
aside on its books adequate reserves therefor.
(r) Government Regulation. No Related Person is subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Investment Company Act of 1940 (as any of the
preceding acts have been amended) or any other statute, law, regulation or
decree which regulates the incurring by such Related Person of
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Debt, including, but not limited to, statutes, laws, regulations or
decrees relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
(s) Insider. No Related Person is, and no Person having "control"
(as that term is defined in 12 U.S.C. ss. 375(b)(5) or in regulations
promulgated pursuant thereto) of any Related Person is, an "executive
officer", "director" or "principal shareholder" (as those terms are
defined in 12 U.S.C. ss. 375(b) or in regulations promulgated pursuant
thereto) of Lender, of a bank holding company of which Lender is a
Subsidiary or of any Subsidiary of a bank holding company of which Lender
is a Subsidiary.
Section 4.2. Representation by Lender. Lender hereby represents that it
will acquire the Note for its own account in the ordinary course of its
commercial lending business; however, the disposition of Lender's property shall
at all times be and remain within its control and, in particular and without
limitation, Lender may, subject to the terms of this Agreement, sell or
otherwise transfer the Note, any participation interest or other interest in the
Note, or any of its other rights and obligations under the Loan Documents.
ARTICLE V - Covenants of Borrower
Section 5.1. Affirmative Covenants. To conform with the terms and
conditions under which Lender is willing to have credit outstanding to Borrower,
and to induce Lender to enter into this Agreement and make the Loan, the Related
Persons, jointly and severally, warrant, covenant and agree that until the full
and final payment of the Obligations and the termination of this Agreement,
unless Lender has previously agreed otherwise:
(a) Payment and Performance. Borrower will pay all amounts due under
the Loan Documents in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition expressed or
implied in the Loan Documents. Borrower will cause the other Related
Persons to observe, perform and comply with every such term, covenant and
condition. Nothing in this section 5.1(a) is intended to reduce, or shall
be construed as reducing, any grace period or eliminating any notice
requirements expressly provided for in the Loan Documents with respect to
such terms, covenants and conditions.
(b) Books, Financial Statements and Reports. Each Related Person
will at all times maintain full and accurate books of account and records.
Borrower will maintain and will cause its Subsidiaries to maintain a
standard system of accounting and will furnish the following statements
and reports to Lender at Borrower's expense:
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(i) Annual Statements. As soon as available, and in any event
within ninety (90) days after the end of each Fiscal Year, the Enron
Partnership's and each Related Person's Consolidated financial
statements, together with all notes thereto and all prepared in
reasonable detail in accordance with GAAP together with an opinion,
based on an audit using generally accepted auditing standards by
KPMG Peat Marwick LLP, or other independent certified public
accountant's selected by Borrower and acceptable to Lender, stating
that such financial statement have been so prepared. These financial
statements shall contained a Consolidated balance sheet as of the
end of such Fiscal Year and Consolidated statements of earnings, of
cash flows, and of changes in owners' equity for such Fiscal Year,
each setting forth in comparative form the corresponding figures for
the preceding Fiscal Year.
(ii) Quarterly Statements. As soon as available, and in any
event within forty-five (45) days after the end of each Fiscal
Quarter, (1) a Consolidated balance sheet of each Related Person and
of the Enron Partnership as of the end of such period and (2)
statements of the Enron Partnership's, and each Related Person's
Consolidated earnings and cash flows for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, all in reasonable detail and prepared in accordance with
GAAP subject to changes resulting from normal year-end adjustments.
In addition Borrower will, together with each such set of financial
statements and each set of financial statements furnished under
Section (b)(i) of this section, furnish a certificate in the form of
Exhibit D signed by the chief financial officer of General Partner
stating that such financial statements are accurate and complete,
stating that he has reviewed the Loan Documents, containing
calculations showing the Compliance (or non-compliance) at the end
of such Fiscal Quarter with the requirements of Sections 5.2(k) and
5.2(l), and stating that no Default exists at the end of such Fiscal
Quarter or at the time of such certificate or specifying the nature
and period of existence of any such Default.
(iii) Engineering Report. By March 31 of each year, (A) an
engineering report prepared as of January 1 by Ryder Scott Company
or other independent petroleum engineers chosen by Borrower and
acceptable to Lender, concerning all oil and gas properties and
interests owned by any Related Person which are located in or
offshore of the United States and which have attributable to them
proved oil or gas reserves, and (B) an engineering report prepared
as of January 1 by Ryder Scott or other independent petroleum
engineers chosen by Borrower and acceptable to Lender, concerning
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all oil and gas properties and interests owned by the Enron
Partnership which are located in or offshore of the United States
and which have attributable to them proved oil or gas reserves.
These reports shall be in form and substance satisfactory to Lender,
shall take into account any "over-produced" or "under-produced"
status under gas balancing arrangements (shall identify each
property where such "over-produced" status occurred and the
magnitude of such over-production), shall contain a hedging report
prepared by Borrower regarding any forward, future, swap, or hedging
contract entered into by Borrower as in effect at the end of the
preceding Fiscal Year, and shall contain information and analysis
comparable in scope to that contained in the Initial Engineering
Report. The report described in clause (A) of the first sentence of
this section 5.1(b)(iii) shall distinguish (or shall be delivered
together with a certificate from an appropriate officer of Borrower
which distinguishes) those properties treated in the reports which
are Collateral from those properties treated in the report which are
not Collateral.
(iv) Internal Engineering Report. By September 30 of each
year, an engineering report prepared by in-house petroleum engineers
employed by any Related Person, concerning all oil and gas
properties and interests owned by any Related Person which are
located in or offshore of the United States and which have
attributable to them proved oil and gas reserves. This report shall
be substantially in the form and substance as the reports delivered
under subsection (b)(iii) above and otherwise shall be satisfactory
to Lender. As soon as available, a copy of any engineering report
prepared by in-house petroleum engineers employed by any Related
Person or Enron Partnership, concerning all oil and gas properties
and interests owned by Enron Partnership which are located in or
offshore of the United States and which have attributable to them
proved oil and gas reserves.
(v) Production Report. As soon as available, and in any event
within forty-five (45) days after the end of each month, a report
describing by lease or unit the gross volume of production and sales
attributable to production during such month from the properties
described in subsection (b)(iii) above and describing the related
severance taxes, other taxes, leasehold operating expenses and
capital costs attributable thereto and incurred during such month.
In addition, Borrower will, together with each such report furnish a
certificate signed by the Chairman of the Board or President of
General Partner stating that such report is accurate and complete.
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(vi) Insurance Report. Within fifteen (15) days after any
material changes in insurance coverage by the Related Persons, a
report describing such changes, and, within thirty (30) days after
the end of each Fiscal Year, a report describing the insurance
coverage of the Related Persons and certifying compliance with
Section 5.1(h). In addition the Related Persons will, together with
each report describing any material changes in insurance coverage by
the Related Persons, provide a new insurance certificate, naming
Lender as an additional insured or loss payee, as appropriate.
(vii) Litigation Report. Within ninety (90) days after the end
of each Fiscal Year, complete reports by the Chairman of the Board
or President of General Partner, describing all actions, suits or
legal, equitable, arbitrative or administrative proceedings pending,
or to the knowledge of the Related Persons, threatened against any
Related Person before any federal, state, municipal or other court,
department, commission, body, board, bureau, agency or
instrumentality, domestic or foreign, and (ii) within sixty (60)
days after the end of each Fiscal Quarter (except the last) of each
Fiscal Year in which a material change in any reported action, suit
or proceeding has occurred or any additional action, suit or
proceeding which may materially and adversely affect any Related
Person, has been threatened in writing or commenced, reports by the
Chairman of the Board or President of General Partner, describing
such material changes or additions.
(viii) SEC Filings. Promptly upon their becoming available,
copies of all financial statements, reports, notices and proxy
statements sent by any Related Person to its stockholders and all
registration statements and periodic reports filed by any Related
Person with any securities exchange, the Securities and Exchange
Commission or any similar governmental authority.
(c) Other Information and Inspections. Borrower will furnish to
Lender any information which Lender may from time to time reasonably
request concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with the Related Persons' and their
Subsidiaries' businesses and operations. Each Related Person will permit
representatives appointed by Lender (including independent accountants,
agents, attorneys, appraisers and any other Persons) upon reasonable
notice and during normal business hours to visit and inspect any of such
Related Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra
copies therefrom and photocopies and photographs thereof, and to write
down and record any information such representatives obtain, and
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each Related Person shall permit Lender or its representatives to
investigate and verify the accuracy of the information furnished to Lender
in connection with the Loan Documents and to discuss all such matters with
its officers and representatives. Lender agrees that it will take all
reasonable steps to keep confidential any proprietary information given to
it by any Related Person, provided, however, that this restriction shall
not apply to information which (i) has at the time in question entered the
public domain, (ii) is required to be disclosed by law or by any order,
rule or regulation (whether valid or invalid) of any court or governmental
agency, or authority, (iii) is disclosed to Lender's Affiliates, auditors,
attorneys, or agents, (iv) is furnished to any purchaser or prospective
purchaser of participation or other interests in the Loan or the Note, or
(v) is disclosed by Lender, to the extent reasonably necessary, in
connection with Lender's collecting the Obligations or enforcing its
rights under the Loan Documents following the occurrence of an Event of
Default.
(d) Notice of Material Events and Change of Address. Borrower will
notify Lender in writing, stating that such notice is being given pursuant
to this Agreement, promptly upon Borrower having knowledge thereof:
(i) of any material adverse change in Borrower's
individual or Consolidated financial condition or in
the aggregate value of the Collateral,
(ii) of the occurrence of any Default,
(iii) of the acceleration of the maturity of any Debt owed by
any Related Person or of any default by any Related Person or any
Subsidiary of the Related Persons under any indenture, mortgage,
agreement, contract or other instrument to which any of them is a
party or by which any of them or any of their properties is bound,
if such acceleration or default might have a material adverse effect
upon such Related Person's Consolidated financial condition or on
the value of any material part of the Collateral,
(iv) of any material adverse claim filed against any Related
Person or any Subsidiary of any Related Person or with respect to
any Related Person's properties or any property of any Subsidiary of
any Related Person, and
(v) of any circumstance or event which would cause the
representations and warranties contained in Sections 4.1(i), (j) or
(k) to be incorrect if remade on and as of the occurrence of such
circumstance or event.
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Upon the occurrence of any of the foregoing Borrower will take all
necessary or appropriate steps to remedy promptly any such material
adverse change, Default, acceleration, default or circumstance or event,
and to resolve all controversies on account of any of the foregoing.
Borrower will also notify Lender in writing at least twenty Business Days
prior to the date that any Related Person changes its name or the location
of its chief executive office or principal place of business or the place
where it keeps its books and records concerning the Collateral, furnishing
with such notice any necessary financing statement amendments or
requesting Lender and its counsel to prepare the same.
(e) Maintenance of Properties. Each Related Person will maintain,
preserve, protect, and keep all Collateral and all other property used or
useful in the conduct of its business in good condition and in compliance
with all applicable laws, rules and regulations, and will from time to
time make all repairs, renewals and replacements needed to enable the
business and operations carried on in connection therewith to be promptly
and advantageously conducted at all times.
(f) Maintenance of Existence and Qualifications. Each Related Person
which is a corporation or partnership will, and will cause each of its
Subsidiaries which is a corporation or partnership to, maintain and
preserve its corporate or partnership existence and its rights and
franchises in full force and effect and will qualify to do business as a
foreign corporation or partnership in all states or jurisdictions where
required by applicable law, except where the failure so to qualify will
not have any material adverse effect on Borrower.
(g) Payment of Trade Debt, Taxes, etc. Each Related Person will, and
will cause each of its Subsidiaries to, (i) timely file all required tax
returns; (ii) timely pay all taxes, assessments, and other governmental
charges or levies imposed upon it or upon its income, profits or property;
(iii) within ninety (90) days after the same becomes due, pay all Trade
Debt; and (iv) pay and discharge when due all other Debt now or hereafter
owed by it. Each Related Person and each of its Subsidiaries may, however,
delay paying or discharging any such taxes or assessments and other
governmental charges or levies, or Trade Debt so long as it is in good
faith contesting the validity thereof by appropriate proceedings.
(h) Insurance. Each Related Person will, and will cause of each of
its Subsidiaries to, at all times (i) keep or cause to be kept insured its
property of a character usually insured by Persons in the same location
and engaged in similar types of oil and gas activities and operations and
ownership interests as such Related Person or respective Subsidiary (ii)
maintain insurance against its liability for
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personal injury, death or property damage and (iii) maintain business
interruption insurance. All such insurance shall be by financially sound
and reputable insurers and shall cover such casualties, risks and
contingencies and in such types and amounts as are consistent with
customary standards of Persons in the same location and engaged in similar
types of oil and gas activities and operations as such Related Person or
respective Subsidiary; provided that in no event shall such insurance
coverage be less than the coverage set forth on Exhibit F. Self insurance
(other than prudent deductible amounts) will not be used to satisfy the
foregoing requirements. Upon demand by Lender, any insurance policies
covering Collateral shall be endorsed (i) to provide for payment of losses
to Lender as its interests may appear, pursuant to a mortgage clause
(without contribution) of standard form made part of the applicable
policy, (ii) to provide that such policies may not be cancelled, reduced
or affected in any manner for any reason without fifteen days prior notice
to Lender, (iii) to provide for any other matters specified in any
applicable Security Document or which Lender may reasonably require; and
(iv) to provide for insurance against fire, casualty and any other hazards
normally insured against, in the amount of the full value (less a
reasonable deductible not to exceed amounts customary in the industry for
similarly situated businesses and properties) of the property insured.
(i) Payment of Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, Borrower will promptly
(and in any event, within 30 days after any invoice or other statement or
notice) pay all reasonable costs and expenses incurred by or on behalf of
Lender (including reasonable attorneys' fees) in connection with (i) the
negotiation, preparation, execution and delivery of the Loan Documents,
and any and all consents, waivers or other documents or instruments
relating thereto, (ii) the filing, recording, refiling and re-recording of
any Loan Documents and any other documents or instruments or further
assurances reasonably required to be filed or recorded or refiled or
re-recorded by the terms of any Loan Document, and (iii) the defense or
enforcement of the Loan Documents or the defense of Lender's exercise of
its rights thereunder.
(j) Performance on Borrower's Behalf. If any Related Person fails to
pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Lender may pay the
same; provided that Lender shall not pay any of the foregoing that is
being contested by Borrower as provided in Section 5.1(g). Borrower shall
immediately reimburse Lender for any such payments and each amount paid by
Lender shall constitute an Obligation owed hereunder which is due and
payable on the date such amount is paid by Lender.
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(k) Interest. Borrower hereby promises to pay interest to Lender at
the Late Payment Rate on all Obligations which Borrower has in this
Agreement promised to pay (including Obligations to pay fees or to
reimburse or indemnify Lender) and which are not paid within three
Business Days of the date such payment is due.
(l) Compliance with Agreements and Law. Each Related Person will,
and will cause each of its Subsidiaries to, perform all material
obligations it is required to perform under the terms of each operating
agreement, indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which
it is a party or by which it or any of its properties is bound. Each
Related Person will, and will cause each of its Subsidiaries to, conduct
its business and affairs in material compliance with all laws,
regulations, and orders applicable thereto, including Environmental Laws.
(m) Evidence of Compliance. Borrower will furnish to Lender at
Borrower's reasonable expense all evidence which Lender from time to time
reasonably requests as to the accuracy and validity of or compliance with
all representations, warranties and covenants made by any Related Person
in the Loan Documents, the satisfaction of all conditions contained
therein, and all other matters pertaining thereto.
(n) ERISA Compliance. Each Related Person will (i) make prompt
payment of all contributions required under all ERISA Plans and required
to meet the minimum funding standard set forth in ERISA with respect to
its ERISA Plan, (ii) within 30 days after the filing thereof, furnish to
Lender each annual report return (Form 5500 Series), as well as all
schedules and attachments required to be filed with the Department of
Labor and/or the Internal Revenue Service pursuant to ERISA, and the
regulations promulgated thereunder, in connection with each of its ERISA
Plans for each ERISA Plan year, and (iii) notify Lender immediately of any
fact, including but not limited to, any Reportable Event arising in
connection with any of its ERISA Plan, which might constitute grounds for
termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a trustee
to administer such ERISA Plan, together with a statement, if requested by
Lender, as to the reason therefor and the action, if any, proposed to be
taken with respect thereto.
(o) Environmental Matters; Environmental Reviews.
(i) Each Related Person will, and will cause each of its
Subsidiaries to, comply in all material respects with all
Environmental Laws now or hereafter applicable to such Related
Person and shall obtain, at or prior to the time required by
applicable Environmental Laws, all
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environmental, health and safety permits, licenses and other
authorizations necessary for its operations and will maintain such
authorizations in full force and effect. Without limiting the
foregoing, each Related Person will, and will cause each of its
Subsidiaries to, plug abandoned wells as required in accordance with
all applicable laws, regulations, leases and licenses.
(ii) Borrower will promptly furnish to Lender all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by any Related
Person, or of which it has notice, pending or threatened against any
Related Person, by any governmental authority with respect to any
alleged material violation of or material non-compliance with any
Environmental Laws or any permits, licenses or authorizations in
connection with its ownership or use of its properties or the
operation of its business.
(iii) Borrower will promptly furnish to Lender all requests for
information, notices of claim, demand letters, and other
notifications, received by any Related Person in connection with any
Related Person's ownership or use of its properties or the conduct
of its business, relating to potential responsibility with respect
to any investigation or clean-up of a material amount of Hazardous
Material at any location.
(iv) Borrower will not cause or permit the Property, the
Associated Property or Borrower to be in violation of, or do
anything or permit anything to be done which will subject the
Property or the Associated Property to, any material remedial
obligations under any Environmental Laws, assuming disclosure to the
applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the Property or
the Associated Property and Borrower will promptly notify Lender in
writing of any existing, pending or, to the best knowledge of
Borrower, threatened investigation or inquiry by any governmental
authority in connection with any Environmental Laws. Borrower will
take all steps reasonably necessary to determine that no material
amount of Hazardous Materials or Solid Wastes have been disposed of
or otherwise released on or to the Property or the Associated
Property in violation of applicable law or the disposal or release
of which will impose any material remedial obligations under any
Environmental Laws. Borrower will not cause or permit the disposal
or other release of any material amount of Hazardous Materials or
Solid Wastes on or to the Property or the Associated Property in
violation of applicable law or the disposal or release of which will
impose any material remedial obligations under any Environmental
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Laws and covenants and agrees to keep or cause the Property and the
Associated Property to be kept free (except as permitted by
applicable law or which would not impose any material remedial
obligations) of any material amount of Hazardous Materials or Solid
Wastes and to remove the same (or if removal is prohibited by law,
to take whatever actions is required by law, to take whatever action
is required by law) promptly upon discovery at its sole expense.
Upon Lender's reasonable request, at any time and from time to time
during the existence of the Mortgage, Borrower will provide at
Borrower's sole expense an inspection or audit of the Property and
the Associated Property from an engineering or consulting firm
approved by Lender, indicating the presence or absence of Hazardous
Materials and Solid Waste on the Property and the Associated
Property.
(p) Liens on Mortgaged Properties Acquired or Completed in the
Future. Within thirty (30) days following each Determination Date,
Borrower will execute and deliver documentation in form and substance
satisfactory to Lender, granting to Lender first perfected Liens on and in
the oil, gas and mineral lease(s) covering each well (i) acquired or
completed since the prior Determination Date which is capable of
production of oil, gas or other hydrocarbons in paying quantities, insofar
as such lease(s) cover the proration unit assigned to such well, and (ii)
which is to be added to the Borrowing Base at the request of Borrower.
Prior to the granting of such Liens, Borrower will furnish to Lender title
opinions in form, substance and authorship satisfactory to Lender,
concerning not less than ninety percent (90%) of the aggregate value of
such properties and will furnish all other documents and information
relating to such properties as Lender may reasonably request.
(q) Maintenance of Permits and Bonds. Borrower will maintain all
permits and bonds as may be required at any time by the MMS for the
operation of the oil and gas properties of Borrower.
(r) Required Hedging. Borrower shall at all times maintain in effect
the forward, future, swap or hedging contracts described on Schedule 3,
subject to the maturity of such contracts by their terms. Prior to
December 1, 1996, Borrower shall enter into, and shall at all times
thereafter maintain, hedging contracts in respect of .7 billion cubic feet
of natural gas.
(s) Subsidiaries. Notwithstanding anything in this Section 5.1 to
the contrary, no Subsidiary (other than the Related Persons and
wholly-owned Subsidiaries) of a Related Person shall be obligated to
comply with any covenant or provision of this Section 5.1 to such
Subsidiary to the extent that such covenant or provision (or the
compliance
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therewith is in contravention of such Subsidiary's partnership agreement
or charter documents, as applicable; provided that Borrower shall provide
notice to Lender of the contravention to any covenant or provision
promptly upon determination thereof by any Related Person).
Section 5.2. Negative Covenants. To conform with the terms and conditions
under which Lender is willing to have credit outstanding to Borrower, and to
induce Lender to enter into this Agreement and make the Loan, the Related
Persons, jointly and severally, warrant, covenant and agree that until the full
and final payment of the Obligations and the termination of this Agreement,
unless Lender has previously agreed otherwise:
(a) Restricted Debt. No Related Person will in any
manner owe or be liable for Restricted Debt except:
(i) the Obligations.
(ii) Debt outstanding under the instruments and agreements
described on Schedule 5.2(a), excluding any renewals or extensions
of such Debt.
(iii) Debt incurred in connection with the financing of
insurance premiums owed by the Related Persons and their
Subsidiaries in an aggregate principal amount not to exceed $500,000
at any time.
(iv) purchase money Debt in an aggregate principal amount not
to exceed $1,500,000 at any time, provided that the original
principal amount of any such Debt shall not be in excess of the
purchase price of the asset acquired thereby and such Debt shall be
secured only by the acquired asset.
(v) Debt owing in respect of the Preference Units
held by NGP-OEDC Holdings, L.P. or its successors,
under the terms of the Amended and Restated Agreement
of Limited Partnership of OEDC Partners, L.P. dated as
of July 31, 1995.
(vi) miscellaneous items of Restricted Debt not described in
subsections (i) through (v) of this subsection (a) which do not in
the aggregate (taking into account all such Restricted Debt of all
Related Persons) exceed $100,000 at any one time outstanding.
(b) Limitation on Liens. No Related Person will create, assume or
permit to exist any Lien upon any of the properties or assets which it now
owns or hereafter acquires, except, to the extent not otherwise forbidden
by the Security Documents:
(i) Liens which secure Obligations only.
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(ii) Excepted Liens.
(iii) Liens securing Debt described in Section
5.2(a)(ii) and (iv).
(c) Limitation on Mergers, Issuances of Securities. No Related
Person will merge or consolidate with or into any other business entity or
acquire by purchase, lease or merger all or any substantial part of the
assets or capital stock of any Person, except for mergers and
consolidations between Related Persons pursuant to [the Recapitalization].
No Subsidiary of any Related Person which is a partnership will allow any
diminution of such Related Person's interest (direct or indirect) therein.
For purposes of this Section 5.2(c), the term "substantial part" means
property or assets of any Person with a fair market value in excess of ten
percent (10%) of the fair market value of all assets of such Person.
(d) Limitation on Sales of Property. No Related Person will sell,
transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the
extent not otherwise forbidden under the Security Documents:
(i) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value.
(ii) inventory (including oil and gas sold as produced and
seismic data) which is sold in the ordinary course of business on
ordinary trade terms.
(iii) sales or other dispositions of property other than
Collateral which is sold for fair consideration which is in the
aggregate does not exceed $300,000 during the six consecutive
calendar months following any Determination Date.
(iv) interests in oil and gas leases, or portions thereof (if
released or abandoned, but not otherwise sold or transferred), so
long as no well situated in any such lease, or located on any unit
containing all or any part thereof, is capable of producing oil, gas
or other hydrocarbons or minerals in commercial quantities.
No Related Person will sell, transfer or otherwise dispose of capital
stock of any of such Related Person's Subsidiaries. No Related Person will
discount, sell, pledge or assign any notes payable to it, accounts
receivable or future income except to the extent expressly permitted under
the Loan Documents.
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(e) Limitation on Dividends and Redemptions. No Related Person will
declare or pay any dividends on, or make any other distribution in respect
of, any class of its capital stock or any partnership or other interest in
it nor will any Related Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the
capital stock of or partnership interests in any Related Person (whether
such interests are now or hereafter issued, outstanding or created), or
cause or permit any reduction or retirement of the capital stock of any
Related Person, except as expressly provided in this section. Such
dividends, distributions, contributions, purchases, redemptions,
acquisitions, retirements or reductions may be made by Borrower and the
Guarantors (i) without limitation to Borrower; (ii) to the Guarantors,
(iii) by OEDC Partners to NGP-OEDC Holdings, L.P., or its successors in
interest, in respect of the Preference Units held by NGP-OEDC Holdings,
L.P., or their successors in interest, under the terms of the Amended and
Restated Agreement of Limited Partnership of OEDC Partners, L.P. dated as
of July 31, 1995 (including redemptions of such Preference Units), so long
as at the time of such dividend or other distribution and after giving
effect thereto, no Default or Event of Default has occurred and is
continuing; and (iv) by Borrower to Joint Energy Development Investments
Limited Partnership ("JEDI") as repayment for amounts owing by Borrower
and paid by JEDI with respect to JEDI's initial investment in the Enron
Partnership so long as such repayment is made out of a portion of the
proceeds of the Recapitalization and at the time of such repayment and
after giving effect thereto, no Default or Event of Default has occurred
and is continuing. No Related Person will directly or indirectly make any
capital contribution to or purchase, redeem, acquire or retire any shares
of the capital stock of or partnership interests in any Related Person
(whether such interests are now or hereafter issued, outstanding or
created), or cause or permit any reduction or retirement of the capital
stock of any Related Person.
(f) Limitation on Investments and New Businesses. No Related Person
will (i) make any expenditure or commitment or incur any obligation or
enter into or engage in any transaction except in the ordinary course of
business, (ii) engage directly or indirectly in any business or conduct
any operations except in connection with or incidental to its present
businesses and operations, (iii) make any acquisitions of or capital
contributions to or other investments in any Person, other than Permitted
Investments, or (iv) make any significant acquisitions or investments in
any properties other than oil and gas properties acquired in the ordinary
course of business in an aggregate amount not to exceed $2,000,000 during
any twelve consecutive calendar month period. Notwithstanding the
foregoing, Borrower and the other Related Persons may make such
investments, capital contributions and capital
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expenditures as may be necessary for (A) the planned expansion of the
Dauphin Island Gathering System; provided that (i) the aggregate amount of
all such investments, capital contributions and capital expenditures under
this clause (A) together with any loans or advances made in connection
therewith pursuant to Section 5.2(g) shall not exceed $1,000,000 and (ii)
at the time of any investment, capital contribution or capital expenditure
under this clause (A) and after giving effect thereto, no Default or Event
of Default has occurred and is continuing, and (B) the construction,
development and operation of a natural gas liquids plant in Alabama;
provided that (i) the aggregate amount of all such investments, capital
contributions and capital expenditures under this clause (B) together with
any loans or advances made in connection therewith pursuant to Section
5.2(g) shall not exceed $1,000,000, (ii) at the time of any investment,
capital contribution or capital expenditure under this clause (B) and
after giving effect thereto, no Default or Event of Default shall have
occurred and be continuing and (iii) prior to the making of any
investment, capital contribution or capital expenditure under this clause
(B), Borrower shall have pledged its interests in the partnership that
owns such natural gas liquids plant to secure the Obligations.
(g) Limitation on Credit Extensions. Except for Permitted
Investments, no Related Person will extend credit, make advances or make
loans to any Person, other than (i) normal and prudent extensions of
credit to customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those
extended by similar businesses operated in a normal and prudent manner and
(ii) loans to any Related Person. Notwithstanding the foregoing, Borrower
and the other Related Persons may make such loans or advances as may be
necessary for (A) the planned expansion of the Dauphin Island Gathering
System; provided that (i) the aggregate amount of all such loans or
advances under this clause (A) together with any investments, capital
contributions and capital expenditures made in connection therewith
pursuant to Section 5.2(f) shall not exceed $1,000,000 and (ii) at the
time of any loan or advance under this clause (A) and after giving effect
thereto, no Default or Event of Default has occurred and is continuing,
and (B) the construction, development and operation of a natural gas
liquids plant in Alabama; provided that (i) the aggregate amount of all
such loans and advances under this clause (B) together with any
investments, capital contributions and capital expenditures made in
connection therewith pursuant to Section 5.2(f) shall not exceed
$1,000,000, (ii) at the time of any loan or advance under this clause (B)
and after giving effect thereto, no Default or Event of Default shall have
occurred and be continuing and (iii) prior to the making of any loan or
advance under this clause (B), Borrower shall have
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pledged its interests in the partnership that owns such natural gas
liquids plant to secure the Obligations.
(h) Transactions with Affiliates. No Related Person will engage in
any transaction with or pay any management or other fees or compensation
to any of its Affiliates except (i) transactions on terms which are not
less favorable to it than those which would have been obtainable at the
time in arms-length dealing with Persons other than such Affiliates and
(ii) fees paid by Borrower to Natural Gas Partners pursuant to that
certain Financial Advisory Services Agreement dated April 1, 1996 between
Natural Gas Partners, L.P. and OEDC Partners, provided that such
restriction shall not apply to transactions among the Related Persons.
(i) Certain Contracts; Amendments; Multiemployer ERISA Plans. Except
as expressly provided for in the Loan Documents, no Related Person will,
directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Related
Person to: (i) pay dividends or make other distributions to Borrower, (ii)
to redeem equity interests held in it by Borrower, (iii) to repay loans
and other indebtedness owing by it to Borrower, or (iv) to transfer any of
its assets to Borrower. Except for the contracts described on the
Disclosure Schedule under Section 5.2(i), no Related Person will enter
into any "take-or-pay" contract or other contract or arrangement for the
purchase of goods or services which obligates it to pay for such goods or
service regardless of whether they are delivered or furnished to it. No
Related Person will amend or permit any amendment to any contract or lease
which releases, qualifies, limits, makes contingent or otherwise
detrimentally affects the rights and benefits of Lender under or acquired
pursuant to any Security Documents. No Related Person will incur any
obligation to contribute to any "multiemployer plan" as defined in Section
4001 of ERISA.
(j) Fiscal Year. No Related Person will change its
fiscal year or method of accounting.
(k) Current Ratio. The ratio of Current Assets to Current
Liabilities will never be less than 1.0 to 1.0, which will be tested as of
the end of each Fiscal Quarter. For purposes of this subsection, the term
"Current Assets" means Borrower's Consolidated current assets, including
any unused portion of the Borrowing Base which is then available for
borrowing plus OEDC Partners' Consolidated current assets. The term
"Current Liabilities" means Borrower's Consolidated current liabilities
calculated without including any payments of principal on Funded Debt
which are to be required to be repaid within one year from the time of
calculation plus OEDC Partners' Consolidated current liabilities
calculated without including any payments or
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principal on Funded Debt which are to be required to be repaid within one
year from the time of calculation. "Funded Debt" means any Debt which by
its terms matures one year or more from the date of its creation.
(l) Borrower's Consolidated EBITDA to Interest Expense. The ratio of
Borrower's EBITDA to Borrower's Consolidated Interest Expense will never
be less than 2.5 to 1.0, which will be tested as of the end of any Fiscal
Quarter for any period of four consecutive Fiscal Quarters.
(m) Weighted-Average Payable Maturity. The weighted-average maturity
of all Debt of Borrower incurred on ordinary terms to vendors, suppliers
and other Persons providing goods and services used by Borrower in the
ordinary course of business shall not exceed 60 days at any time.
(n) Subsequent Guarantors. Notwithstanding anything
to the contrary herein, no Person may become a Related
Person after the date hereof unless all of the following
conditions precedent have been satisfied:
(i) Lender shall have received a certificate of the chief
financial officer of General Partner which states that Borrower
desires to add a Person (a "Subsequent Guarantor") to this Agreement
as a Related Person and sets forth the name of the Subsequent
Guarantor, its jurisdiction of incorporation or formation and a
brief description of its business and properties.
(ii) Lender shall have received (1) a guaranty of the
Obligations in form, substance and date satisfactory to Lender, duly
executed and delivered by the Subsequent Guarantor and (2) an
acknowledgment in form, substance and date satisfactory to Lender,
duly executed and delivered by the Subsequent Guarantor, pursuant to
which the Subsequent Guarantor acknowledges and agrees that it is a
Related Person and is subject to all representations, warranties,
covenants and agreements of the Loan Documents which pertain to
Related Persons.
(iii) at the time the Subsequent Guarantor becomes a Related
Person and after giving effect thereto, no Default or Event of
Default has occurred and is continuing.
(iv) Lender shall have received a certificate of the Secretary
of the Subsequent Guarantor certifying as to the names and true
signatures of the officers of the Subsequent Guarantor authorized to
sign on behalf of the Subsequent Guarantor and certifying that
attached thereto is a true and complete copy of resolutions
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adopted by the Board of Directors of the Subsequent Guarantor
authorizing the execution, delivery and performance by the
Subsequent Guarantor of a guaranty of the Obligations and an
acknowledgment of its liabilities and duties under the Loan
Documents.
(v) a favorable opinion of counsel to Borrower and the
Subsequent Guarantor in form, substance and date satisfactory to
Lender.
ARTICLE VI - Security
Section 6.1. The Security. The Obligations will be secured by the Security
Documents listed in the Security Schedule and any additional Security Documents
hereafter delivered by any Related Person and accepted by Lender.
Section 6.2. Agreement to Deliver Security Documents. Each Related Person
agrees to deliver to further secure the Obligations whenever requested by Lender
in its sole and absolute discretion, deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other Security
Documents in form and substance satisfactory to Lender for the purpose of
granting, confirming, and perfecting first and prior liens or security interests
in any real or personal property which is at such time Collateral or which was
to be Collateral pursuant to any Security Document previously executed and not
then released by Lender. Borrower also agrees to deliver, whenever requested by
Lender in its sole and absolute discretion, favorable title opinions from legal
counsel acceptable to Lender with respect to the Related Persons' properties and
interests that (i) are to included in the Borrowing Base pursuant to either
Section 2.7(a) or 5.1(p), (ii) are not covered by title opinions previously
delivered to Lender and (iii) concern at least ninety percent (90%) of the
aggregate value of such properties. Such title opinions shall (a) state that the
Related Persons have good and defensible title to such properties and interests,
free and clear of all Prohibited Liens, (b) confirm that such properties and
interests are subject to Security Documents securing the Obligations that
constitute and create legal, valid and duly perfected first deed of trust or
mortgage liens in such properties and interests and first priority assignments
of and security interests in the oil and gas attributable to such properties and
interests and the proceeds thereof, and (c) cover such other matters as Lender
may reasonably request.
Section 6.3. Perfection and Protection of Security Interests and Liens.
Each Related Person will from time to time deliver to Lender any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by such Related
Person in form and substance satisfactory to Lender, which Lender requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations.
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Section 6.4. Bank Accounts; Offset. To secure the repayment of the
Obligations each of the Related Persons hereby grants to Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of Lender at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any and
all moneys, securities or other property (and the proceeds therefrom) of such
Related Person, now or hereafter held or received by or in transit to Lender
from or for the account of such Related Person whether for safekeeping, custody,
pledge, transmission, collection or otherwise, (b) any and all deposits (general
or special, time or demand, provisional or final) of such Related Person with
Lender, and (c) any other credits and claims of such Related Person at any time
existing against Lender, including claims under certificates of deposit. Upon
the occurrence of any Event of Default, Lender is hereby authorized to foreclose
upon, offset, appropriate, and apply, at any time and from time to time, without
notice to such Related Person, any and all items hereinabove referred to against
the Obligations then due and payable.
Section 6.5. Production Proceeds. Notwithstanding that, by the terms of
the various Security Documents, Borrower is and will be assigning to Lender all
of the "Production Proceeds" (as defined therein) accruing to the property
covered thereby, so long as no Event of Default has occurred Borrower may
continue to receive from the purchasers of production all such Production
Proceeds, subject, however, to the Liens created under the Security Documents,
which Liens are hereby affirmed and ratified. Upon the occurrence of an Event of
Default (other than any Event of Default arising under the Mortgage as a result
of Borrower's failure to pay Production Proceeds to Lender in accordance with
the terms therein), Lender may exercise all rights and remedies granted under
the Security Documents, including the right to obtain possession of all
Production Proceeds then held by Borrower or to receive directly from the
purchasers of production all other Production Proceeds. In no case shall any
failure, whether purposed or inadvertent, by Lender to collect directly any such
Production Proceeds constitute in any way a waiver, remission or release of any
of its rights under the Security Documents, nor shall any release of any
Production Proceeds by Lender to Borrower constitute a waiver, remission, or
release of any other Production Proceeds or of any rights of Lender to collect
other Production Proceeds thereafter.
ARTICLE VII - Events of Default and Remedies
Section 7.1. Events of Default. Each of the following events constitutes
an Event of Default under this Agreement:
(a) Any Related Person shall fail to pay (i) any principal of the
Note when the same becomes due and payable, (ii) any interest on the Note
within three Business days after the same becomes due and payable, or
(iii) any fee or
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other amount payable hereunder or under any other Loan Document within
three Business Days after the same becomes due and payable;
(b) Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied
within the applicable period of grace (if any) provided in such Loan
Document;
(c) Any Related Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 5.1(d) or Section 5.2;
(d) Any Related Person fails (other than as referred to in
subsections (a), (b) or (c) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and
such failure remains unremedied for a period of thirty (30) days after
notice of such failure is given by Lender to Borrower;
(e) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person in
connection with any Loan Document shall prove to have been false or
incorrect in any material respect on any date on or as of which made, or
any Loan Document at any time ceases to be valid, binding and enforceable
as warranted in Section 4.1(e) for any reason other than its release or
subordination by Lender;
(f) Any Related Person fails to duly observe, perform or comply with
any Material Agreement and such failure is not remedied within the
applicable period of grace (if any) provided in such Material Agreement;
(g) Any Related Person (i) fails to pay any portion, when such
portion is due, of any of its Debt in excess of $125,000 (other than Debt
described in Section 5.1(g) which is not required to be paid so long as
the Related Person is in good faith contesting the validity thereof by
appropriate proceedings), or (ii) breaches or defaults in the performance
of any agreement or instrument by which any such Debt is issued,
evidenced, governed, or secured, and any such failure, breach or default
continues beyond any applicable period of grace provided therefor;
(h) Any Related Person:
(i) suffers the entry against it of a judgment, decree or
order for relief by a court of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or hereafter
in effect, including the federal Bankruptcy Code, as from time to
time amended, or has any such proceeding
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commenced against it which remains undismissed for a
period of sixty days; or
(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such law; or makes a general assignment
for the benefit of creditors; or fails generally to pay (or admits
in writing its inability to pay) its debts as such debts become due;
or takes corporate or other action to authorize any of the
foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of
any part of the Collateral in a proceeding brought against or
initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after the
making thereof, or such appointment or taking possession is at any
time consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $125,000 (not covered by insurance
satisfactory to Lender in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or
released within thirty days after the entry or levy thereof or after
any stay is vacated or set aside;
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess
of $25,000 exists with respect to any ERISA Plan, whether or not waived by
the Secretary of the Treasury or his delegate, or (ii) any Termination
Event occurs with respect to any ERISA Plan and the then current value of
such ERISA Plan's benefit liabilities exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefit
liabilities by more than $25,000 (or in the case of a Termination Event
involving the withdrawal of a substantial
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employer, the withdrawing employer's proportionate share of
such excess exceeds such amount);
(j) Any material adverse change occurs in Borrower's individual or
Consolidated financial condition or businesses or operations and such
adverse change is not remedied within 20 days; and
(k) The occurrence of a Change of Control.
Upon the occurrence of an Event of Default described in subsection (h)(i),
(h)(ii) or (h)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement. During the continuance of any other Event
of Default, Lender at any time and from time to time may by notice to Borrower
declare any or all of the Obligations immediately due and payable, and all such
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement. During the continuance of any Event of
Default, Lender may by notice to Borrower, declare any obligation of Lender to
make any further loans of any kind under any agreement with any Related Person
permanently terminated. After any such acceleration (whether automatic or due to
declaration by Lender), any obligation of Lender to make any further loans of
any kind under any agreement with any Related Person shall be permanently
terminated.
Section 7.2. Remedies. If any Default shall occur and be continuing,
Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and Lender may enforce the
payment of any Obligations due or enforce any other legal or equitable right.
All rights, remedies and powers conferred upon Lender under the Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Loan Documents or at law or in equity.
Section 7.3. Indemnity. The Related Persons, jointly and severally, agree
to indemnify Lender, upon demand, from and against any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors)
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of any kind or nature whatsoever (in this section collectively called
"liabilities and costs") which to any extent (in whole or in part) may be
imposed on, incurred by, or asserted against Lender growing out of, resulting
from or in any other way associated with (i) any of the Collateral, the Loan
Documents, the Property or the transactions and events (including the
enforcement or defense thereof) at any time associated therewith or contemplated
therein (including any violation or noncompliance with any Environmental Laws by
any Related Person or any liabilities or duties of Borrower or of Lender with
respect to Hazardous Materials found in or released into the environment), (ii)
by reason of the assertion that Lender received, either before or after payment
in full of the Obligations, funds from the production of oil, gas, other
hydrocarbons or other minerals claimed by third Persons (and funds attributable
to sales of production) which (a) were made at prices in excess of the maximum
price permitted by applicable law or (b) were otherwise made in violation of
laws, rules, regulations and orders governing such sales, (iii) any bodily
injury or death or property damage occurring in or upon or in the vicinity of
the Property through any cause whatsoever, (iv) any act, omission, event or
circumstance (including without limitation the presence on the Property or the
Associated Property or release from the Property or the Associated Property of
Hazardous Materials or Solid Wastes disposed of or otherwise released) resulting
from or in connection with the ownership, construction, occupancy, operation,
use and maintenance of the Property or the Associated Property, regardless of
whether the act, omission, event or circumstance constituted a violation of any
Environmental Law at the time of its existence or occurrence, and (v) any and
all claims or proceedings (whether brought by private party or governmental
agencies) for bodily injury, property damage, abatement or remediation,
environmental damage or impairment or any other injury or damage resulting from
or relating to any Hazardous Material or Solid Waste located upon or migrating
into, from or through the Property or the Associated Property (whether or not
the release of such materials was caused by the Borrower, a tenant or subtenant
or a prior owner or tenant or subtenant on the Property or the Associated
Property and whether or not the alleged liability is attributable to the
handling, storage, generation, transportation, removal or disposal of such
substance, waste or material or the mere presence of such substance, waste or
material on the Property or the Associated Property), which the Lender may have
liability with respect to due to the making of the Loan, the granting of the
Mortgage, the exercise of any of its rights under the Loan Documents, or
otherwise. During the continuance of any Event of Default, Lender shall have the
right to compromise and adjust any such claims, actions and judgments, if Lender
has reasonably determined that the Related Persons will otherwise be unable to
fund the amount of such claim, action or judgment under this section.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN
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WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY
EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND
BY LENDER,
provided only that Lender shall be not entitled under this section to receive
indemnification for that portion, if any, of (i) any liabilities and costs which
is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment or (ii) to the extent that Lender
or any of its Affiliates or agents ever replaces Borrower as the operator of any
oil and gas properties constituting Collateral (after foreclosure thereof), any
liabilities and costs which are proximately caused by Lender's, its Affiliates'
or agents' own negligence in the operation of such Collateral, as determined in
a final judgment. As used in this section the term "Lender" shall refer not only
to the Person designated as such in Section 1.1 but also to each director,
officer, agent, attorney, employee, representative and affiliate of such Person.
ARTICLE VIII - Miscellaneous
Section 8.1. Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by course
of conduct or otherwise) by Lender in exercising any right, power or
remedy which Lender may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor shall any
single or partial exercise by Lender of any such right, power or remedy
preclude any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Loan Document and no
consent to any departure therefrom shall ever be effective unless it is in
writing and signed by Lender, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which
given and to the extent specified in such writing. No notice to or demand
on any Related Person shall in any case of itself entitle any Related
Person to any other or further notice or demand in similar or other
circumstances. This Agreement and the other Loan Documents set forth the
entire understanding and agreement of the parties hereto and thereto with
respect to the transactions contemplated herein and therein and supersede
all prior discussions and understandings with respect to the subject
matter hereof and thereof, and no modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective unless the same is in writing and signed by the party against
whom it is sought to be enforced.
(b) Acknowledgements and Admissions. The Related
Persons hereby represent, warrant, acknowledge and admit
that (i) they have been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to
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which they are a party, (ii) they have made an independent decision to
enter into this Agreement and the other Loan Documents to which they are a
party, without reliance on any representation, warranty, covenant or
undertaking by Lender, whether written, oral or implicit, other than as
expressly set out in this Agreement or in another Loan Document delivered
on or after the date hereof, (iii) there are no representations,
warranties, covenants, undertakings or agreements by Lender as to the Loan
Documents except as expressly set out in this Agreement or in another Loan
Document delivered on or after the date hereof, (iv) Lender owes no
fiduciary duty to Borrower or any other Related Person with respect to any
Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower, on one hand,
and Lender, on the other hand, is and shall be solely that of debtor and
creditor, respectively, (vi) no partnership or joint venture exists with
respect to the Loan Documents between Borrower or any other Related Person
and Lender, (vii) should an Event of Default or Default occur or exist
Lender will determine in its sole discretion and for its own reasons what
remedies and actions it will or will not exercise or take at that time,
(viii) without limiting any of the foregoing, no Related Person is relying
upon any representation or covenant by Lender, or any representative
thereof, and no such representation or covenant has been made, that Lender
will, at the time of an Event of Default or Default, or at any other time,
waive, negotiate, discuss, or take or refrain from taking any action
permitted under the Loan Documents with respect to any such Event of
Default or Default or any other provision of the Loan Documents, and (ix)
Lender has relied upon the truthfulness of the acknowledgements in this
section in deciding to execute and deliver this Agreement and to make the
Loan.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 8.2. Survival of Agreements; Cumulative Nature. The various
representations, warranties, covenants and agreements of the Related Persons in
the Loan Documents shall survive the execution and delivery of this Agreement
and the other Loan Documents and the performance hereof and thereof, including
the making or granting of the Loan and the delivery of the Note and the other
Loan Documents, and shall further survive until all of the Obligations are paid
in full to Lender and all of Lender's obligations to Borrower are terminated.
Any investigation at any time made by or on behalf of Lender shall not diminish
Lender's right to rely upon the representations and warranties in the Loan
Documents. All statements and agreements contained in any certificate or other
instrument delivered by any Related Person
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to Lender under any Loan Document shall be deemed representations and warranties
by Borrower or agreements and covenants of Borrower under this Agreement. The
representations, warranties, and covenants made by Borrower in the Loan
Documents, and the rights, powers, and privileges granted to Lender in the Loan
Documents, are cumulative, and, except for expressly specified waivers and
consents, no Loan Document shall be construed in the context of another to
diminish, nullify, or otherwise reduce the benefit to Lender of any such
representation, warranty, covenant, right, power or privilege. In particular and
without limitation, no exception set out in this Agreement to any
representation, warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other Loan Document, and
each such similar representation, warranty or covenant shall be subject only to
those exceptions which are expressly made applicable to it by the terms of the
various Loan Documents.
Section 8.3. Notices. All notices, requests, consents, demands and other
communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document, and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, to Borrower and the Related
Persons at the address of Borrower specified on the signature pages hereto and
to Lender at its address specified on the signature pages hereto (unless changed
by similar notice in writing given by the particular Person whose address is to
be changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, when received, (b) in
the case of telecopy, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail; provided,
however, that no Request for Advance shall become effective until actually
received by Lender.
Section 8.4. Parties in Interest. All grants, covenants and agreements
contained in the Loan Documents shall bind and inure to the benefit of the
parties thereto and their respective successors and assigns; provided, however,
that no Related Person may assign or transfer any of its rights or delegate any
of its duties or obligations under any Loan Document without the prior consent
of Lender. Notwithstanding the foregoing, Lender may not assign, or grant
participations in, its interest in the Loan, this Agreement or the other Loan
Documents without the consent of Borrower, such consent not to be unreasonably
withheld.
Section 8.5. Governing Law; Submission to Process. Except to the extent
that the law of another jurisdiction is expressly elected in a Loan Document,
the Loan Documents shall be deemed contracts and instruments made under the laws
of the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of the State of Texas and the laws of the United States of
America, without regard to principles of
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conflicts of law. Chapter 15 of Texas Revised Civil Statutes Article 5069 (which
regulates certain revolving credit loan accounts and revolving tri-party
accounts) does not apply to this Agreement or the Note. The obligations of
Borrower for payment of all amounts due under this Agreement and the Loan
Documents are performable in Los Angeles County, California, and all other
obligations of Borrower under this Agreement and the Loan Documents are
performable in Dallas County, Texas. The Related Persons hereby irrevocably
submit themselves and each other Related Person to the jurisdiction of the state
and federal courts sitting in the State of Texas and agree and consent that
service of process may be made upon them or any of the Related Persons in any
legal proceeding relating to the Loan Documents or the Obligations by any means
allowed under Texas or federal law. Any legal proceeding arising out of or in
any way related to any of the Loan Documents shall be brought and litigated
exclusively in the United States District Court for the Northern District of
Texas, Dallas Division, to the extent it has subject matter jurisdiction, and
otherwise in the Texas District Courts sitting in Dallas County, Texas. The
parties hereto hereby waive and agree not to assert, by way of motion, as a
defense or otherwise, that any such proceeding is brought in an inconvenient
forum or that the venue thereof is improper. In furtherance thereof, the Related
Persons and Lender each hereby acknowledge and agree that it was not
inconvenient for them to negotiate and receive funding of the transactions
contemplated by this Agreement in such county and that it will be neither
inconvenient nor unfair to litigate or otherwise resolve any disputes or claims
in a court sitting in such county.
Section 8.6. Limitation on Interest. Lender, the Related Persons and any
other parties to the Loan Documents intend to contract in strict compliance with
applicable usury law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable law from time to time in
effect. Neither any Related Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Lender
expressly disavows any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Lender or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute
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interest which would otherwise increase the interest on any or all of the
Obligations to an amount in excess of that permitted to be charged by applicable
law then in effect, then all such sums determined to constitute interest in
excess of such legal limit shall, without penalty, be promptly applied to reduce
the then outstanding principal of the related Obligations or, at Lender's or
such holder's option, promptly returned to Borrower or the other payor thereof
upon such determination. In determining whether or not the interest paid or
payable, under any specific circumstance, exceeds the maximum amount permitted
under applicable law, Lender and the Related Persons (and any other payors
thereof) shall to the greatest extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) amortize, prorate, allocate, and spread the total amount of interest
throughout the entire contemplated term of the instruments evidencing the
Obligations in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. In the event applicable law provides for an
interest ceiling under Texas Revised Civil Statutes Annotated article 5069-1.04,
that ceiling shall be the indicated rate ceiling and shall be used when
appropriate in determining the Highest Lawful Rate. As used in this section the
term "applicable law" means the laws of the State of Texas or the laws of the
United States of America, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into effect in the future.
Section 8.7. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
notice delivered to Lender to terminate this Agreement. Upon receipt by Lender
of such a notice, if no Obligations are then owing this Agreement and all other
Loan Documents shall thereupon be terminated and the parties thereto released
from all prospective obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by any Related
Person in any Loan Documents, any Obligations under Sections 2.11 through 2.15,
and any obligations which any Person may have to indemnify or compensate Lender
shall survive any termination of this Agreement or any other Loan Document. At
the request and expense of Borrower, Lender shall prepare and execute all
necessary instruments to reflect and effect such termination of the Loan
Documents.
Section 8.8. Severability. If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.
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Section 8.9. Counterparts. This Agreement may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
SECTION 8.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. THE RELATED
PERSONS AND LENDER EACH HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED
THEREWITH, BEFORE OR AFTER MATURITY; (b) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section 8.11. Recapitalization. Notwithstanding anything to the contrary
contained or implied herein, the parties hereby acknowledge that the
Recapitalization may hereafter be consummated, provided that the
Recapitalization shall be consummated substantially in the manner described in
the draft Form S-1 of OEDC delivered to Lender on the date hereof.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
OEDC EXPLORATION & PRODUCTION, L.P.
By: OEDC, Inc., its General Partner
By:/s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
Address:
1400 Woodloch Forest Dr., Suite 200
The Woodlands, Texas 77380
Telephone: (713) 364-0033
Telecopy: (713) 364-1122
OFFSHORE ENERGY DEVELOPMENT CORPORATION
By:/s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
OEDC, INC.
By:/s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
OEDC PARTNERS, L.P.
By: OEDC, Inc., its General Partner
By:/s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
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DAUPHIN ISLAND GATHERING COMPANY, L.P.
By: OEDC, Inc., its General Partner
By:/s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ CARL STUTZMAN
Carl Stutzman
Vice President
By:
Name:
Title:
Address:
500 North Akard
4200 Lincoln Plaza
Dallas, Texas 75201
Attention: Carl Stutzman
Telephone: (214) 922-4200
Telecopy: (214) 922-4209
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SCHEDULE 1
DISCLOSURE SCHEDULE
To supplement the following sections of the Agreement of which this
Schedule is a part, each Related Person hereby makes the following disclosures:
1. Section 4.1(f) Initial Financial Statements:
2. Section 4.1(g) Other Obligations:
3. Section 4.1(i) Litigation:
4. Section 4.1(j) ERISA Liabilities:
5. Sections 4.1(l) and 8.3 Names and Places of Business:
6. Section 4.1(m) Subsidiaries and Stockholdings:
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SCHEDULE 2
SECURITY SCHEDULE
1. Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement executed by Borrower dated of even date herewith, covering
properties in Alabama (the "Alabama Mortgage").
2. Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement executed by Borrower dated of even date herewith, covering
properties in Louisiana (together with the Alabama Mortgage, the
"Mortgage").
3. Financing Statements covering collateral described in the Mortgage, for
filing with the Secretary of State of Texas, the Secretary of State of
Alabama, and Terrebonne Parish, Louisiana.
4. Guaranty dated of even date herewith executed by OEDC.
5. Guaranty dated of even date herewith executed by General
Partner.
6. Guaranty dated of even date herewith executed by OEDC Partners.
7. Guaranty dated of even date herewith executed by Dauphin.
8. Pledge Agreement dated of even date herewith executed by Borrower covering
its limited partnership interest in the Enron Partnership and its limited
partnership interest in South Dauphin Partners, Ltd.
9. Pledge and Security Agreement dated of even date herewith
executed by General Partner covering General Partner's
partnership interest in Dauphin.
10. Pledge Agreement dated of even date herewith executed by Dauphin covering
its partnership interest in Dauphin Island Gathering Partners and the
Fourth Amended and Restated General Partnership Agreement for Dauphin
Island Gathering Partners dated as of July 1, 1996, among Dauphin, MCNIC
Mobil Bay Gathering Company and Panenergy Dauphin Island Company.
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EXHIBIT A
PROMISSORY NOTE
$10,000,000 Dallas, Texas August 28, 1996
FOR VALUE RECEIVED, the undersigned, OEDC Exploration & Production, L.P.,
a Texas limited partnership (herein called "Borrower"), hereby promises to pay
to the order of Union Bank of California, N.A. (herein called "Lender"), the
principal sum of Ten Million Dollars ($10,000,000) or, if less, the aggregate
unpaid principal amount of the Loan made under this Note by Lender to Borrower
pursuant to the terms of the Credit Agreement (as hereinafter defined), together
with interest on the unpaid principal balance thereof as hereinafter set forth,
both principal and interest payable as herein provided in lawful money of the
United States of America at the offices of Lender, 445 South Figueroa Street,
Los Angeles, California 90071 or at such other place within Los Angeles County,
California, as from time to time may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain Credit Agreement
of even date herewith among Borrower, OEDC, Inc., OEDC Partners, L.P., Dauphin
Island Gathering Company, L.P. and Lender (herein, as from time to time
supplemented, amended or restated, called the "Credit Agreement"), and is the
Note as defined therein, (b) is subject to the terms and provisions of the
Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Credit Agreement). Payments
on this Note shall be made and applied as provided herein and in the Credit
Agreement. Reference is hereby made to the Credit Agreement for a description of
certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Security Documents for a description of the nature and extent of the
security thereby provided and the rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the last day of each calendar
month, beginning September 30, 1996, and (ii) any day on which past due
interest or principal is owed hereunder and is unpaid. If the terms hereof
or of the Credit Agreement provide that payments of interest or principal
hereon shall be deferred from one Base Rate Payment Date to another day,
such other day shall also be a Base Rate Payment Date.
"Fixed Rate Payment Date" means, with respect to any
Fixed Rate Portion: (i) the day on which the related Interest
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Period ends, and (ii) any day on which past due interest or past due
principal is owed hereunder with respect to such Fixed Rate Portion and is
unpaid. If the terms hereof or of the Credit Agreement provide that
payments of interest or principal with respect to such Fixed Rate Portion
shall be deferred from one Fixed Rate Payment Date to another day, such
other day shall also be a Fixed Rate Payment Date.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on August 31, 1998.
The Base Rate Portion of the Loan (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the Base Rate in effect on such day. On each Base Rate Payment
Date Borrower shall pay to the holder hereof all unpaid interest which has
accrued on the Base Rate Portion to but not including such Base Rate Payment
Date. Each Fixed Rate Portion of the Loan (exclusive of any past due principal
or interest) shall bear interest on each day during the related Interest Period
at the related Fixed Rate in effect on such day. On each Fixed Rate Payment Date
relating to such Fixed Rate Portion Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Fixed Rate Portion to but not
including such Fixed Rate Payment Date. All past due principal of and past due
interest on the Loan shall bear interest on each day outstanding at the Late
Payment Rate in effect on such day, and such interest shall be due and payable
daily as it accrues. Notwithstanding the foregoing provisions of this paragraph:
(a) this Note shall never bear interest in excess of the Highest Lawful Rate,
and (b) if at any time the rate at which interest is payable on this Note is
limited by the Highest Lawful Rate (by the foregoing clause (a) or by reference
to the Highest Lawful Rate in the definitions of Base Rate, Fixed Rate, and Late
Payment Rate), this Note shall bear interest at the Highest Lawful Rate and
shall continue to bear interest at the Highest Lawful Rate until such time as
the total amount of interest accrued hereon equals (but does not exceed) the
total amount of interest which would have accrued hereon had there been no
Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon. In the event applicable law provides for a ceiling
under Texas Revised Civil Statutes Annotated article 5069-1.04, that ceiling
shall be the indicated rate ceiling and shall be used in this Note for
calculating the Highest Lawful Rate and for all other purposes. The term
"applicable law" as used in this Note shall mean the laws of the State of Texas
or the laws of the United States, whichever laws allow the greater interest, as
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such laws now exist or may be changed or amended or come into
effect in the future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity, except as otherwise provided in the
Credit Agreement.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
OEDC EXPLORATION & PRODUCTION, L.P.
By: OEDC, Inc., its General Partner
By:
Douglas H. Kiesewetter
Vice President
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EXHIBIT B
REQUEST FOR ADVANCE
Reference is made to that certain Credit Agreement dated as of
August 28, 1996 (as from time to time amended, the "Agreement"), by
and among OEDC Exploration & Production, L.P. ("Borrower"), OEDC,
Inc. ("General Partner"), OEDC Partners, L.P. ("OEDC Partners"),
Dauphin Island Gathering Co., L.P. ("Dauphin") and Union Bank of
California, N.A. ("Lender"). Terms which are defined in the
Agreement are used herein with the meanings given them in the
Agreement. Pursuant to the terms of the Agreement Borrower hereby
requests Lender to make an Advance to Borrower in the principal
amount of $ and specifies , as the date
Borrower desires for Lender to make such Advance and to deliver to
Borrower the proceeds thereof.
To induce Lender to make such Advance, Borrower hereby represents,
warrants, acknowledges, and agrees that:
(a) The officer of General Partner signing this instrument is the duly
elected, qualified and acting officer of General Partner as indicated below
such officer's signature hereto having all necessary authority to act for
Borrower in making the request herein contained.
(b) The representations and warranties of the Related Persons set
forth in the Agreement and the other Loan Documents are true and correct on
and as of the date hereof (except to the extent that the facts on which
such representations and warranties are based have been changed by the
extension of credit under the Agreement), with the same effect as though
such representations and warranties had been made on and as of the date
hereof.
(c) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 8.1(a) of the Agreement; nor will any such Default
exist upon Borrower's receipt and application of the Advance requested
hereby. Borrower will use the Advance hereby requested in compliance with
Section 2.3 of the Agreement.
(d) Except to the extent waived in writing as provided in Section
8.1(a) of the Agreement, each Related Person has performed and complied
with all agreements and conditions in the Agreement required to be
performed or complied with by such Related Person on or prior to the date
hereof, and each of the conditions precedent to the Advance contained in
the Agreement remains satisfied.
(e) The Loan Documents have not been modified, amended or supplemented
by any unwritten representations or promises, by any course of dealing, or
by any other means not provided for
-1-
in Section 8.1(a) of the Agreement. The Agreement and the
other Loan Documents are hereby ratified, approved, and
confirmed in all respects.
IN WITNESS WHEREOF, this instrument is executed on behalf of Borrower by
the undersigned in his capacity as an officer of General Partner as of .
OEDC EXPLORATION & PRODUCTION, L.P.
By: OEDC, Inc., its General Partner
By:
Name:
Title:
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EXHIBIT C
RATE ELECTION
Reference is made to that certain Credit Agreement dated as of
August 28, 1996 (as from time to time amended, the "Agreement"), by
and among OEDC Exploration & Production, L.P. ("Borrower"), OEDC,
Inc. ("General Partner"), OEDC Partners, L.P., Dauphin Island
Gathering Company, L.P. and Union Bank of California, N.A.
("Lender"). Terms which are defined in the Agreement and which are
used but not defined herein are used herein with the meanings given
them in the Agreement. Pursuant to the terms of the Agreement
Borrower hereby elects a Fixed Rate Portion in the amount of $
______________ with an Interest Period beginning on
____________________ and continuing for a period of ______________.
To meet the conditions set out in the Agreement for the making of such
election, Borrower hereby represents, warrants, acknowledges and agrees that:
(a) The officer of General Partner signing this instrument is a duly
elected, qualified and acting __________ of General Partner, having all
necessary authority to act for Borrower in making the election herein
contained.
(b) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 8.1(a) of the Agreement.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course
of dealing, or by any other means not provided for in Section 8.1(a) of
the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
IN WITNESS WHEREOF, this instrument is executed on behalf of Borrower by
the undersigned in his capacity as an officer of General Partner as of .
OEDC EXPLORATION & PRODUCTION, L.P.
By: OEDC, Inc., its General Partner
By:
Name:
Title:
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EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Credit Agreement dated as of
August 28, 1996 (as from time to time amended, the "Agreement"), by
and among OEDC Exploration & Production, L.P. ("Borrower"), OEDC,
Inc. ("General Partner"), OEDC Partners, L.P. ("OEDC Partners"),
Dauphin Island Gathering Company, L.P. ("Dauphin") and Union Bank
of California, N.A. ("Lender"), which Agreement is in full force
and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section 5.1(b)(ii) of the
Agreement. Together herewith Borrower is furnishing to Lender [Borrower's]
[General Partner's] [OEDC Partners'] [Dauphin's] [audited] [unaudited] financial
statements (the "Financial Statements") as at ____________ (the "Reporting
Date"). Borrower hereby represents, warrants, and acknowledges to Lender that:
(a) the officer of General Partner signing this instrument is the
duly elected, qualified and acting ____________ of General Partner and as
such is Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete
and satisfy the requirements of the Agreement;
(c) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements of
Section 5.1(d) of the Agreement, and no Default otherwise existed on the
Reporting Date or otherwise exists on the date of this instrument *[except
for Default(s) under Section(s) ____________ of the Agreement, which
[is/are] more fully described on a schedule attached hereto].
(d) attached hereto is a schedule of calculations showing Borrower's
compliance as of the Reporting Date with the requirements of Sections
_____ of the Agreement; and
(e) *[Unless otherwise disclosed on a schedule attached hereto, ]The
representations and warranties of the Related Persons set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the
extension of credit under the Agreement), with the same effect as though
such representations and warranties had been made on and as of the date
hereof.
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The officer of General Partner signing this instrument hereby certifies
that he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Borrower and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete. The foregoing officer's certificate is based upon, and such officer's
"inquiry" is limited to, the officer's personal knowledge, the books and records
of the Related Persons, and statements of or conversations with the officers and
employees of the Related Persons. The officer of General Partner signing this
instrument has no reason to believe, however, in any instance in which he has
certified a statement "to the best of his knowledge" that the statement is
untrue in any material respect.
IN WITNESS WHEREOF, this instrument is executed on behalf of Borrower by
the undersigned in his capacity as an officer of General Partner as of .
OEDC EXPLORATION & PRODUCTION, L.P.
By: OEDC, Inc., its General Partner
By:
Name:
Title:
-2-
EXHIBIT 10.15
GUARANTY
THIS GUARANTY is made as of August 28, 1996, by Dauphin Island Gathering
Company, L.P., a Texas limited partnership ("Guarantor"), in favor of Union Bank
of California, N.A.
("Lender").
RECITALS:
1. OEDC Exploration & Production, L.P., a Texas limited partnership
("Borrower") has executed in favor of Lender that certain promissory note of
even date herewith, payable to the order of Lender in the principal amount of
$10,000,000 (such promissory note, as from time to time amended, and all
promissory notes given in substitution, renewal or extension therefor or
thereof, in whole or in part, being herein collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of even date
herewith, (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), by and among Borrower, Offshore Energy
Development Corporation, OEDC, Inc., OEDC Partners, L.P., Guarantor, and Lender,
pursuant to which Lender has agreed to advance funds to Borrower under the Note.
3. It is a condition precedent to Lender's obligation to advance funds
pursuant to the Credit Agreement that Guarantor shall execute and deliver to
Lender a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.
4. Guarantor will benefit from the advances under the Note
to Borrower.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantor from Lender's advances of funds to Borrower under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Lender to advance funds under the Credit Agreement, Guarantor
hereby agrees with Lender as follows:
AGREEMENTS
Section 1. DEFINITIONS. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Guaranty which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Obligation Document, Loan
Document, or other document or instrument refer to the same as from time to time
amended, supplemented or restated. As used herein the following terms shall have
the following meanings:
-1-
"OBLIGATION DOCUMENTS" means this Guaranty, the Note, the Credit
Agreement, the Loan Documents, all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with.
"OBLIGORS" means Borrower, Guarantor and any other endorsers, guarantors
or obligors, primary or secondary, of any or all of the Obligations.
"SECURITY" means any rights, properties, or interests of Lender, under the
Obligation Documents or otherwise, which provide recourse or other benefits to
Lender in connection with the Obligations or the non-payment or non-performance
thereof, including collateral (whether real or personal, tangible or intangible)
in which Lender has rights under or pursuant to any Obligation Documents,
guaranties of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of subrogation,
rights of offset, and rights pursuant to which other claims are subordinated to
the Obligations.
Section 2. GUARANTY.
(a) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete, and full payment when due (after
giving affect to any applicable grace periods provided for in the Obligation
Documents), and no matter how the same shall become due, of the Obligations.
Without limiting the generality of the foregoing, Guarantor hereby agrees that
its liability hereunder shall extend to and include all post-petition interest,
expenses, and other duties and liabilities of Borrower described above in this
subsection (a), or below in the following subsection (b), which would be owed by
Borrower but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization, or similar proceeding involving
Borrower.
(b) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete and full performance, when due, and no
matter how the same shall become due, of all obligations and undertakings of
Borrower to Lender under, by reason of, or pursuant to any of the Obligation
Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantor will, forthwith upon demand by Lender, pay such Obligation in full to
Lender. If Borrower shall for any reason fail to perform promptly any
Obligation, Guarantor will, forthwith upon demand by Lender, cause such
Obligation to be performed or, if specified by Lender, provide sufficient funds,
in such amount and manner as Lender shall in good faith determine, for the
prompt, full and
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faithful performance of such Obligation by Lender or such other Person as Lender
shall designate.
(d) If either Borrower or Guarantor fails to pay or perform any Obligation
as described in the immediately preceding subsections (a), (b), or (c) Guarantor
will incur the additional obligation to pay to Lender, and Guarantor will
forthwith upon demand by Lender pay to Lender, the amount of any and all
expenses, including reasonable fees and disbursements of Lender's counsel and of
any experts or agents retained by Lender, which Lender may incur as a result of
such failure.
(e) As between Guarantor and Lender, this Guaranty shall be considered a
primary liability of Guarantor.
Section 3. UNCONDITIONAL GUARANTY.
(a) No action which Lender may take or omit to take in connection with any
of the Obligation Documents, any of the Obligations (or any other indebtedness
owing by Borrower to Lender), or any Security, and no course of dealing of
Lender with any Obligor or any other Person, shall release or diminish
Guarantor's obligations, liabilities, agreements or duties hereunder, affect
this Guaranty in any way, regardless of whether any such action or inaction may
increase any risks to or liabilities of Lender or any Obligor or increase any
risk to or diminish any safeguard of any Security. Without limiting the
foregoing, Guarantor hereby expressly agrees that Lender may, from time to time,
without notice to or the consent of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in part, any one or more of
the Obligation Documents and give or refuse to give any waivers or other
indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any action
for the collection or enforcement of any of the Obligations, to foreclose
or take or prosecute any action in connection with any Security or
Obligation Document, to bring suit against any Obligor or any other
Person, or to take any other action concerning the Obligations or the
Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the time,
rate, terms, or manner for payment or performance of any one or more of
the Obligations (whether for principal, interest, fees, expenses,
indemnifications, affirmative or negative covenants, or otherwise).
(iv) Compromise or settle any unpaid or unperformed Obligation or
any other obligation or amount due or owing, or claimed to be due or
owing, under any one or more of the Obligation Documents.
-3-
(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations, accept
additional or substituted Security therefor, and perfect or fail to
perfect Lender's rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or from any
Security for any of the Obligations, as Lender may determine to be in its
best interest, without in any way being required to marshall Security or
assets or to apply all or any part of such monies upon any particular
Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford Guarantor any recourse against Lender. Without limiting
the foregoing, the obligations, liabilities, agreements, and duties of Guarantor
under this Guaranty shall not be released, diminished, impaired, reduced, or
affected by the occurrence of any or all of the following from time to time,
even if occurring without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of any
Obligor or any other proceedings involving any Obligor or any of the
assets of any Obligor under laws for the protection of debtors, or any
discharge, impairment, modification, release, or limitation of the
liability of, or stay of actions or lien enforcement proceedings against,
any Obligor, any properties of any Obligor, or the estate in bankruptcy of
any Obligor in the course of or resulting from any such proceedings.
(ii) The failure by Lender to file or enforce a claim in any
proceeding described in the immediately preceding subsection (i) or to
take any other action in any proceeding to which any Obligor is a party.
(iii) The release by operation of law of any Obligor from any of the
Obligations or any other obligations to Lender.
(iv) The invalidity, deficiency, illegality, or unenforceability of
any of the Obligations or the Obligation Documents, in whole or in part,
any bar by any statute of limitations or other law of recovery on any of
the Obligations, or any defense or excuse for failure to perform on
account of force majeure, act of God, casualty,
-4-
impossibility, impracticability, or other defense or excuse whatsoever
(other than the payment in full of the Obligations).
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of any
Obligor or Lender.
(vi) The fact that Guarantor may have incurred directly part of the
Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or event
(whether or not similar to any of the foregoing) which in the absence of
this provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a guarantor or surety other than the
actual payment and performance by Guarantor under this Guaranty or the
payment in full of the Obligations.
(c) After the occurrence and continuance of a Default (and after giving
affect to any applicable grace period provided for in the Obligation Documents
if such Default results from the failure of any Obligor to pay any Obligation
when due), Lender may invoke the benefits of this Guaranty before pursuing any
remedies against any Obligor or any other Person and before proceeding against
any Security now or hereafter existing for the payment or performance of any of
the Obligations. Lender may maintain an action against Guarantor on this
Guaranty without joining any other Obligor therein and without bringing a
separate action against any other Obligor.
(d) If any payment to Lender by any Obligor is held to constitute a
preference or a voidable transfer under applicable state or federal laws, or if
for any other reason Lender is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such payment to Lender
shall not constitute a release of Guarantor from any liability hereunder, and
Guarantor agrees to pay such amount to Lender on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of any such payment or payments.
Any transfer by subrogation which is made as contemplated in Section 6 prior to
any such payment or payments shall (regardless of the terms of such transfer) be
automatically voided upon the making of any such payment or payments, and all
rights so transferred shall thereupon revert to and be vested in Lender.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. WAIVER. Guarantor hereby waives, with respect
to the Obligations, this Guaranty, and the other Obligation
Documents:
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(a) notice of the incurrence of any Obligation by Borrower, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) Guarantor shall take full responsibility for
informing itself of such matters, (ii) Lender shall have no responsibility of
any kind to inform Guarantor of such matters, and (iii) Lender is hereby
authorized to assume that Guarantor, by virtue of its relationships with
Borrower which are independent of this Guaranty, has full and complete knowledge
of such matters at each time when Lender extends credit to Borrower or takes any
other action which may change or increase Guarantor's liabilities or losses
hereunder).
(b) notice that Lender, any Obligor, or any other Person has taken or
omitted to take any action under any Obligation Document or any other agreement
or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty and all rights of Guarantor
under ss.34.02 of the Texas Business and Commerce Code.
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. EXERCISE OF REMEDIES. Lender shall have the right to enforce,
from time to time, in any order and at Lender's sole discretion, any rights,
powers and remedies which Lender may have under the Obligation Documents or
otherwise, including judicial foreclosure, the exercise of rights of power of
sale, the taking of a deed or assignment in lieu of foreclosure, the appointment
of a receiver to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment of leases,
rentals, oil or gas production, or other properties or rights, whether real or
personal, tangible or intangible; and Guarantor shall be liable to Lender
hereunder for any deficiency resulting from the exercise by Lender of any such
right or remedy even though any rights which Guarantor may have against Borrower
or others may be destroyed or diminished by exercise of any such right or
remedy. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Lender provided herein and in
the other Obligation Documents are cumulative and are in addition to, and not
exclusive of, any other rights, powers or remedies provided by law or in equity.
The rights of Lender hereunder are not conditional or contingent on any attempt
by Lender to exercise
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any of its rights under any other Obligation Document against any
Obligor or any other Person.
Section 6. LIMITED SUBROGATION. Until all of the Obligations have been
paid and performed in full Guarantor shall have no right to exercise any right
of subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty (including any right of subrogation
under ss.34.04 of the Texas Business and Commerce Code), and Guarantor hereby
waives any rights to enforce any remedy which Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall be paid to Guarantor on account of any such subrogation or other
rights, any such other remedy, or any Security at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Lender to be held by Lender as collateral for, or then or at any
time thereafter applied in whole or in part by Lender against, all or any
portion of the Obligations, whether matured or unmatured, in such order as
Lender shall elect. If Guarantor shall make payment to Lender of all or any
portion of the Obligations and if all of the Obligations shall be finally paid
in full, Lender will, at Guarantor's request and expense, execute and deliver to
Guarantor (without recourse, representation or warranty) appropriate documents
necessary to evidence the transfer by subrogation to Guarantor of an interest in
the Obligations resulting from such payment by Guarantor; provided that such
transfer shall be subject to Section 3(d) above.
Section 7. SUCCESSORS AND ASSIGNS. Guarantor's rights or obligations
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of Guarantor,
as well as Guarantor. This Guaranty shall apply to and inure to the benefit of
Lender and its successors or assigns. Without limiting the generality of the
immediately preceding sentence, Lender may, in accordance with the terms of the
Credit Agreement, assign, grant a participation in, or otherwise transfer any
Obligation held by it or any portion thereof, and Lender may assign or otherwise
transfer its rights or any portion thereof under any Obligation Document, to any
other Person, and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to Lender hereunder unless otherwise
expressly provided by Lender in connection with such assignment or transfer.
Section 8. SUBORDINATION. Guarantor hereby subordinates
and makes inferior to the Obligations any and all indebtedness
now or at any time hereafter owed by Borrower to Guarantor.
Guarantor agrees that after the occurrence of any Default or
Event of Default it will neither permit Borrower to repay such
-7-
indebtedness or any part thereof nor accept payment from Borrower of such
indebtedness or any part thereof without the prior written consent of Lender. If
Guarantor receives any such payment without the prior written consent of Lender,
the amount so paid shall be held in trust for the benefit of Lender, shall be
segregated from the other funds of Guarantor, and shall forthwith be paid over
to Lender to be held by Lender as collateral for, or then or at any time
thereafter applied in whole or in part by Lender against, all or any portions of
the Obligations, whether matured or unmatured, in such order as Lender shall
elect.
Section 9. REPRESENTATIONS AND WARRANTIES. Guarantor
hereby represents and warrants to Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true and correct in
all respects as of the date hereof.
(b) This Guaranty is a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights.
(c) The incurrence of the liability and obligations of Guarantor hereunder
in return for the direct or indirect value of the consideration to be received
by the Guarantor may reasonably be expected to benefit Guarantor, directly or
indirectly.
(d) Guarantor is not "insolvent" on the date hereof (that is, the sum of
Guarantor's absolute and contingent liabilities, including the Obligations, does
not exceed the fair market value of Guarantor's assets). Guarantor's capital is
adequate for the businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or otherwise), nor does
Guarantor intend to incur or believe that it will incur, debts which will be
beyond its ability to pay as such debts mature.
Section 10. NO ORAL CHANGE. No amendment of any provision of this Guaranty
shall be effective unless it is in writing and signed by Guarantor and Lender,
and no waiver of any provision of this Guaranty, and no consent to any departure
by Guarantor therefrom, shall be effective unless it is in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 11. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision
of this Guaranty shall be determined to be illegal or unenforceable all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
-8-
Section 12. HEADINGS AND REFERENCES. The headings used herein are for
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 13. TERM. This Guaranty shall be irrevocable until all of the
Obligations have been completely and finally paid and performed, Lender has no
obligation to make any loans or other advances to Borrower, and all obligations
and undertakings of Borrower under, by reason of, or pursuant to the Obligation
Documents have been completely performed, and this Guaranty is thereafter
subject to reinstatement as provided in Section 3(d). All extensions of credit
and financial accommodations heretofore or hereafter made by Lender to Borrower
shall be conclusively presumed to have been made in acceptance hereof and in
reliance hereon.
Section 14. NOTICES. Any notice or communication required
or permitted hereunder shall be given as provided in the Credit
Agreement.
Section 15. LIMITATION ON INTEREST. Lender and Guarantor intend to
contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantor is obligated are expressly incorporated herein by reference.
Section 16. LOAN DOCUMENT. This Guaranty is a Loan
Document, as defined in the Credit Agreement, and is subject to
the provisions of the Credit Agreement governing Loan Documents.
Section 17. COUNTERPARTS. This Guaranty may be executed in
any number of counterparts, each of which when so executed shall
be deemed to constitute one and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE STATE
OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
DAUPHIN ISLAND GATHERING COMPANY, L.P.
By: OEDC, INC., its General Partner
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
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EXHIBIT 10.16
GUARANTY
THIS GUARANTY is made as of August 28, 1996, by OEDC, Inc.,
a Texas corporation ("Guarantor"), in favor of Union Bank of
California, N.A. ("Lender").
RECITALS:
1. OEDC Exploration & Production, L.P., a Texas limited partnership
("Borrower") has executed in favor of Lender that certain promissory note of
even date herewith, payable to the order of Lender in the principal amount of
$10,000,000 (such promissory note, as from time to time amended, and all
promissory notes given in substitution, renewal or extension therefor or
thereof, in whole or in part, being herein collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of even date
herewith, (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), by and among Borrower, Offshore Energy
Development Corporation, Guarantor, OEDC Partners, L.P., Dauphin Island
Gathering Company, L.P., and Lender, pursuant to which Lender has agreed to
advance funds to Borrower under the Note.
3. It is a condition precedent to Lender's obligation to advance funds
pursuant to the Credit Agreement that Guarantor shall execute and deliver to
Lender a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.
4. Guarantor owns a one percent (1%) general limited
partnership interest in Borrower.
5. Guarantor will benefit from the advances under the Note
to Borrower.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantor from Lender's advances of funds to Borrower under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Lender to advance funds under the Credit Agreement, Guarantor
hereby agrees with Lender as follows:
AGREEMENTS
Section 1. DEFINITIONS. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Guaranty which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Obligation Document, Loan
Document, or other document or instrument refer to the same as from time to time
amended, supplemented or restated. As used herein the following terms shall have
the following meanings:
-1-
"OBLIGATION DOCUMENTS" means this Guaranty, the Note, the Credit
Agreement, the Loan Documents, all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with.
"OBLIGORS" means Borrower, Guarantor and any other endorsers, guarantors
or obligors, primary or secondary, of any or all of the Obligations.
"SECURITY" means any rights, properties, or interests of Lender, under the
Obligation Documents or otherwise, which provide recourse or other benefits to
Lender in connection with the Obligations or the non-payment or non-performance
thereof, including collateral (whether real or personal, tangible or intangible)
in which Lender has rights under or pursuant to any Obligation Documents,
guaranties of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of subrogation,
rights of offset, and rights pursuant to which other claims are subordinated to
the Obligations.
Section 2. GUARANTY.
(a) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete, and full payment when due (after
giving affect to any applicable grace periods provided for in the Obligation
Documents), and no matter how the same shall become due, of the Obligations.
Without limiting the generality of the foregoing, Guarantor hereby agrees that
its liability hereunder shall extend to and include all post-petition interest,
expenses, and other duties and liabilities of Borrower described above in this
subsection (a), or below in the following subsection (b), which would be owed by
Borrower but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization, or similar proceeding involving
Borrower.
(b) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete and full performance, when due, and no
matter how the same shall become due, of all obligations and undertakings of
Borrower to Lender under, by reason of, or pursuant to any of the Obligation
Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantor will, forthwith upon demand by Lender, pay such Obligation in full to
Lender. If Borrower shall for any reason fail to perform promptly any
Obligation, Guarantor will, forthwith upon demand by Lender, cause such
Obligation to be performed or, if specified by Lender, provide sufficient funds,
in such amount and manner as Lender shall in good faith determine, for the
prompt, full and
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faithful performance of such Obligation by Lender or such other Person as Lender
shall designate.
(d) If either Borrower or Guarantor fails to pay or perform any Obligation
as described in the immediately preceding subsections (a), (b), or (c) Guarantor
will incur the additional obligation to pay to Lender, and Guarantor will
forthwith upon demand by Lender pay to Lender, the amount of any and all
expenses, including reasonable fees and disbursements of Lender's counsel and of
any experts or agents retained by Lender, which Lender may incur as a result of
such failure.
(e) As between Guarantor and Lender, this Guaranty shall be considered a
primary liability of Guarantor.
Section 3. UNCONDITIONAL GUARANTY.
(a) No action which Lender may take or omit to take in connection with any
of the Obligation Documents, any of the Obligations (or any other indebtedness
owing by Borrower to Lender), or any Security, and no course of dealing of
Lender with any Obligor or any other Person, shall release or diminish
Guarantor's obligations, liabilities, agreements or duties hereunder, affect
this Guaranty in any way, regardless of whether any such action or inaction may
increase any risks to or liabilities of Lender or any Obligor or increase any
risk to or diminish any safeguard of any Security. Without limiting the
foregoing, Guarantor hereby expressly agrees that Lender may, from time to time,
without notice to or the consent of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in part, any one or more of
the Obligation Documents and give or refuse to give any waivers or other
indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any action
for the collection or enforcement of any of the Obligations, to foreclose
or take or prosecute any action in connection with any Security or
Obligation Document, to bring suit against any Obligor or any other
Person, or to take any other action concerning the Obligations or the
Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the time,
rate, terms, or manner for payment or performance of any one or more of
the Obligations (whether for principal, interest, fees, expenses,
indemnifications, affirmative or negative covenants, or otherwise).
(iv) Compromise or settle any unpaid or unperformed Obligation or
any other obligation or amount due or owing, or claimed to be due or
owing, under any one or more of the Obligation Documents.
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(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations, accept
additional or substituted Security therefor, and perfect or fail to
perfect Lender's rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or from any
Security for any of the Obligations, as Lender may determine to be in its
best interest, without in any way being required to marshall Security or
assets or to apply all or any part of such monies upon any particular
Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford Guarantor any recourse against Lender. Without limiting
the foregoing, the obligations, liabilities, agreements, and duties of Guarantor
under this Guaranty shall not be released, diminished, impaired, reduced, or
affected by the occurrence of any or all of the following from time to time,
even if occurring without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of any
Obligor or any other proceedings involving any Obligor or any of the
assets of any Obligor under laws for the protection of debtors, or any
discharge, impairment, modification, release, or limitation of the
liability of, or stay of actions or lien enforcement proceedings against,
any Obligor, any properties of any Obligor, or the estate in bankruptcy of
any Obligor in the course of or resulting from any such proceedings.
(ii) The failure by Lender to file or enforce a claim in any
proceeding described in the immediately preceding subsection (i) or to
take any other action in any proceeding to which any Obligor is a party.
(iii) The release by operation of law of any Obligor from any of the
Obligations or any other obligations to Lender.
(iv) The invalidity, deficiency, illegality, or unenforceability of
any of the Obligations or the Obligation Documents, in whole or in part,
any bar by any statute of limitations or other law of recovery on any of
the Obligations, or any defense or excuse for failure to perform on
account of force majeure, act of God, casualty,
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impossibility, impracticability, or other defense or excuse whatsoever
(other than the payment in full of the Obligations).
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of any
Obligor or Lender.
(vi) The fact that Guarantor may have incurred directly part of the
Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or event
(whether or not similar to any of the foregoing) which in the absence of
this provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a guarantor or surety other than the
actual payment and performance by Guarantor under this Guaranty or the
payment in full of the Obligations.
(c) After the occurrence and continuance of a Default (and after giving
affect to any applicable grace period provided for in the Obligation Documents
if such Default results from the failure of any Obligor to pay any Obligation
when due), Lender may invoke the benefits of this Guaranty before pursuing any
remedies against any Obligor or any other Person and before proceeding against
any Security now or hereafter existing for the payment or performance of any of
the Obligations. Lender may maintain an action against Guarantor on this
Guaranty without joining any other Obligor therein and without bringing a
separate action against any other Obligor.
(d) If any payment to Lender by any Obligor is held to constitute a
preference or a voidable transfer under applicable state or federal laws, or if
for any other reason Lender is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such payment to Lender
shall not constitute a release of Guarantor from any liability hereunder, and
Guarantor agrees to pay such amount to Lender on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of any such payment or payments.
Any transfer by subrogation which is made as contemplated in Section 6 prior to
any such payment or payments shall (regardless of the terms of such transfer) be
automatically voided upon the making of any such payment or payments, and all
rights so transferred shall thereupon revert to and be vested in Lender.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. WAIVER. Guarantor hereby waives, with respect
to the Obligations, this Guaranty, and the other Obligation
Documents:
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(a) notice of the incurrence of any Obligation by Borrower, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) Guarantor shall take full responsibility for
informing itself of such matters, (ii) Lender shall have no responsibility of
any kind to inform Guarantor of such matters, and (iii) Lender is hereby
authorized to assume that Guarantor, by virtue of its relationships with
Borrower which are independent of this Guaranty, has full and complete knowledge
of such matters at each time when Lender extends credit to Borrower or takes any
other action which may change or increase Guarantor's liabilities or losses
hereunder).
(b) notice that Lender, any Obligor, or any other Person has taken or
omitted to take any action under any Obligation Document or any other agreement
or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty and all rights of Guarantor
under ss.34.02 of the Texas Business and Commerce Code.
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. EXERCISE OF REMEDIES. Lender shall have the right to enforce,
from time to time, in any order and at Lender's sole discretion, any rights,
powers and remedies which Lender may have under the Obligation Documents or
otherwise, including judicial foreclosure, the exercise of rights of power of
sale, the taking of a deed or assignment in lieu of foreclosure, the appointment
of a receiver to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment of leases,
rentals, oil or gas production, or other properties or rights, whether real or
personal, tangible or intangible; and Guarantor shall be liable to Lender
hereunder for any deficiency resulting from the exercise by Lender of any such
right or remedy even though any rights which Guarantor may have against Borrower
or others may be destroyed or diminished by exercise of any such right or
remedy. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Lender provided herein and in
the other Obligation Documents are cumulative and are in addition to, and not
exclusive of, any other rights, powers or remedies provided by law or in equity.
The rights of Lender hereunder are not conditional or contingent on any attempt
by Lender to exercise
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any of its rights under any other Obligation Document against any
Obligor or any other Person.
Section 6. LIMITED SUBROGATION. Until all of the Obligations have been
paid and performed in full Guarantor shall have no right to exercise any right
of subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty (including any right of subrogation
under ss.34.04 of the Texas Business and Commerce Code), and Guarantor hereby
waives any rights to enforce any remedy which Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall be paid to Guarantor on account of any such subrogation or other
rights, any such other remedy, or any Security at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Lender to be held by Lender as collateral for, or then or at any
time thereafter applied in whole or in part by Lender against, all or any
portion of the Obligations, whether matured or unmatured, in such order as
Lender shall elect. If Guarantor shall make payment to Lender of all or any
portion of the Obligations and if all of the Obligations shall be finally paid
in full, Lender will, at Guarantor's request and expense, execute and deliver to
Guarantor (without recourse, representation or warranty) appropriate documents
necessary to evidence the transfer by subrogation to Guarantor of an interest in
the Obligations resulting from such payment by Guarantor; provided that such
transfer shall be subject to Section 3(d) above.
Section 7. SUCCESSORS AND ASSIGNS. Guarantor's rights or obligations
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of Guarantor,
as well as Guarantor. This Guaranty shall apply to and inure to the benefit of
Lender and its successors or assigns. Without limiting the generality of the
immediately preceding sentence, Lender may, in accordance with the terms of the
Credit Agreement, assign, grant a participation in, or otherwise transfer any
Obligation held by it or any portion thereof, and Lender may assign or otherwise
transfer its rights or any portion thereof under any Obligation Document, to any
other Person, and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to Lender hereunder unless otherwise
expressly provided by Lender in connection with such assignment or transfer.
Section 8. SUBORDINATION. Guarantor hereby subordinates
and makes inferior to the Obligations any and all indebtedness
now or at any time hereafter owed by Borrower to Guarantor.
Guarantor agrees that after the occurrence of any Default or
Event of Default it will neither permit Borrower to repay such
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indebtedness or any part thereof nor accept payment from Borrower of such
indebtedness or any part thereof without the prior written consent of Lender. If
Guarantor receives any such payment without the prior written consent of Lender,
the amount so paid shall be held in trust for the benefit of Lender, shall be
segregated from the other funds of Guarantor, and shall forthwith be paid over
to Lender to be held by Lender as collateral for, or then or at any time
thereafter applied in whole or in part by Lender against, all or any portions of
the Obligations, whether matured or unmatured, in such order as Lender shall
elect.
Section 9. REPRESENTATIONS AND WARRANTIES. Guarantor
hereby represents and warrants to Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true and correct in
all respects as of the date hereof.
(b) This Guaranty is a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights.
(c) The incurrence of the liability and obligations of Guarantor hereunder
in return for the direct or indirect value of the consideration to be received
by the Guarantor may reasonably be expected to benefit Guarantor, directly or
indirectly.
(d) Guarantor is not "insolvent" on the date hereof (that is, the sum of
Guarantor's absolute and contingent liabilities, including the Obligations, does
not exceed the fair market value of Guarantor's assets). Guarantor's capital is
adequate for the businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or otherwise), nor does
Guarantor intend to incur or believe that it will incur, debts which will be
beyond its ability to pay as such debts mature.
Section 10. NO ORAL CHANGE. No amendment of any provision of this Guaranty
shall be effective unless it is in writing and signed by Guarantor and Lender,
and no waiver of any provision of this Guaranty, and no consent to any departure
by Guarantor therefrom, shall be effective unless it is in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 11. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision
of this Guaranty shall be determined to be illegal or unenforceable all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
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Section 12. HEADINGS AND REFERENCES. The headings used herein are for
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 13. TERM. This Guaranty shall be irrevocable until all of the
Obligations have been completely and finally paid and performed, Lender has no
obligation to make any loans or other advances to Borrower, and all obligations
and undertakings of Borrower under, by reason of, or pursuant to the Obligation
Documents have been completely performed, and this Guaranty is thereafter
subject to reinstatement as provided in Section 3(d). All extensions of credit
and financial accommodations heretofore or hereafter made by Lender to Borrower
shall be conclusively presumed to have been made in acceptance hereof and in
reliance hereon.
Section 14. NOTICES. Any notice or communication required
or permitted hereunder shall be given as provided in the Credit
Agreement.
Section 15. LIMITATION ON INTEREST. Lender and Guarantor intend to
contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantor is obligated are expressly incorporated herein by reference.
Section 16. LOAN DOCUMENT. This Guaranty is a Loan
Document, as defined in the Credit Agreement, and is subject to
the provisions of the Credit Agreement governing Loan Documents.
Section 17. COUNTERPARTS. This Guaranty may be executed in
any number of counterparts, each of which when so executed shall
be deemed to constitute one and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE STATE
OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
OEDC, INC.
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
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EXHIBIT 10.17
GUARANTY
THIS GUARANTY is made as of August 28, 1996, by Offshore Energy
Development Corporation, a Texas corporation ("Guarantor"), in favor of Union
Bank of California, N.A.
("Lender").
RECITALS:
1. OEDC Exploration & Production, L.P., a Texas limited partnership
("Borrower") has executed in favor of Lender that certain promissory note of
even date herewith, payable to the order of Lender in the principal amount of
$10,000,000 (such promissory note, as from time to time amended, and all
promissory notes given in substitution, renewal or extension therefor or
thereof, in whole or in part, being herein collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of even date
herewith, (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), by and among Borrower, Guarantor, OEDC, Inc.,
OEDC Partners, L.P., Dauphin Island Gathering Company, L.P., and Lender,
pursuant to which Lender has agreed to advance funds to Borrower under the Note.
3. It is a condition precedent to Lender's obligation to advance funds
pursuant to the Credit Agreement that Guarantor shall execute and deliver to
Lender a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.
4. Guarantor owns 49.5% of the common units of OEDC Partners, L.P., which
owns a ninety nine percent (99%) limited partnership interest in Borrower.
5. Guarantor will benefit from the advances under the Note
to Borrower.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantor from Lender's advances of funds to Borrower under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Lender to advance funds under the Credit Agreement, Guarantor
hereby agrees with Lender as follows:
AGREEMENTS
Section 1. DEFINITIONS. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Guaranty which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Obligation Document, Loan
Document, or other document or instrument refer to the same as
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from time to time amended, supplemented or restated. As used herein the
following terms shall have the following meanings:
"OBLIGATION DOCUMENTS" means this Guaranty, the Note, the Credit
Agreement, the Loan Documents, all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with.
"OBLIGORS" means Borrower, Guarantor and any other endorsers, guarantors
or obligors, primary or secondary, of any or all of the Obligations.
"SECURITY" means any rights, properties, or interests of Lender, under the
Obligation Documents or otherwise, which provide recourse or other benefits to
Lender in connection with the Obligations or the non-payment or non-performance
thereof, including collateral (whether real or personal, tangible or intangible)
in which Lender has rights under or pursuant to any Obligation Documents,
guaranties of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of subrogation,
rights of offset, and rights pursuant to which other claims are subordinated to
the Obligations.
Section 2. GUARANTY.
(a) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete, and full payment when due (after
giving affect to any applicable grace periods provided for in the Obligation
Documents), and no matter how the same shall become due, of the Obligations.
Without limiting the generality of the foregoing, Guarantor hereby agrees that
its liability hereunder shall extend to and include all post-petition interest,
expenses, and other duties and liabilities of Borrower described above in this
subsection (a), or below in the following subsection (b), which would be owed by
Borrower but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization, or similar proceeding involving
Borrower.
(b) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete and full performance, when due, and no
matter how the same shall become due, of all obligations and undertakings of
Borrower to Lender under, by reason of, or pursuant to any of the Obligation
Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantor will, forthwith upon demand by Lender, pay such Obligation in full to
Lender. If Borrower shall for any reason fail to perform promptly any
Obligation, Guarantor will, forthwith upon demand by
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Lender, cause such Obligation to be performed or, if specified by Lender,
provide sufficient funds, in such amount and manner as Lender shall in good
faith determine, for the prompt, full and faithful performance of such
Obligation by Lender or such other Person as Lender shall designate.
(d) If either Borrower or Guarantor fails to pay or perform any Obligation
as described in the immediately preceding subsections (a), (b), or (c) Guarantor
will incur the additional obligation to pay to Lender, and Guarantor will
forthwith upon demand by Lender pay to Lender, the amount of any and all
expenses, including reasonable fees and disbursements of Lender's counsel and of
any experts or agents retained by Lender, which Lender may incur as a result of
such failure.
(e) As between Guarantor and Lender, this Guaranty shall be considered a
primary liability of Guarantor.
Section 3. UNCONDITIONAL GUARANTY.
(a) No action which Lender may take or omit to take in connection with any
of the Obligation Documents, any of the Obligations (or any other indebtedness
owing by Borrower to Lender), or any Security, and no course of dealing of
Lender with any Obligor or any other Person, shall release or diminish
Guarantor's obligations, liabilities, agreements or duties hereunder, affect
this Guaranty in any way, regardless of whether any such action or inaction may
increase any risks to or liabilities of Lender or any Obligor or increase any
risk to or diminish any safeguard of any Security. Without limiting the
foregoing, Guarantor hereby expressly agrees that Lender may, from time to time,
without notice to or the consent of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in part, any one or more of
the Obligation Documents and give or refuse to give any waivers or other
indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any action
for the collection or enforcement of any of the Obligations, to foreclose
or take or prosecute any action in connection with any Security or
Obligation Document, to bring suit against any Obligor or any other
Person, or to take any other action concerning the Obligations or the
Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the time,
rate, terms, or manner for payment or performance of any one or more of
the Obligations (whether for principal, interest, fees, expenses,
indemnifications, affirmative or negative covenants, or otherwise).
(iv) Compromise or settle any unpaid or unperformed
Obligation or any other obligation or amount due or owing,
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or claimed to be due or owing, under any one or more of the
Obligation Documents.
(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations, accept
additional or substituted Security therefor, and perfect or fail to
perfect Lender's rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or from any
Security for any of the Obligations, as Lender may determine to be in its
best interest, without in any way being required to marshall Security or
assets or to apply all or any part of such monies upon any particular
Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford Guarantor any recourse against Lender. Without limiting
the foregoing, the obligations, liabilities, agreements, and duties of Guarantor
under this Guaranty shall not be released, diminished, impaired, reduced, or
affected by the occurrence of any or all of the following from time to time,
even if occurring without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of any
Obligor or any other proceedings involving any Obligor or any of the
assets of any Obligor under laws for the protection of debtors, or any
discharge, impairment, modification, release, or limitation of the
liability of, or stay of actions or lien enforcement proceedings against,
any Obligor, any properties of any Obligor, or the estate in bankruptcy of
any Obligor in the course of or resulting from any such proceedings.
(ii) The failure by Lender to file or enforce a claim in any
proceeding described in the immediately preceding subsection (i) or to
take any other action in any proceeding to which any Obligor is a party.
(iii) The release by operation of law of any Obligor from any of the
Obligations or any other obligations to Lender.
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation
Documents, in whole or in part, any bar by any statute of
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limitations or other law of recovery on any of the Obligations, or any
defense or excuse for failure to perform on account of force majeure, act
of God, casualty, impossibility, impracticability, or other defense or
excuse whatsoever (other than the payment in full of the Obligations).
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of any
Obligor or Lender.
(vi) The fact that Guarantor may have incurred directly part of the
Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or event
(whether or not similar to any of the foregoing) which in the absence of
this provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a guarantor or surety other than the
actual payment and performance by Guarantor under this Guaranty or the
payment in full of the Obligations.
(c) After the occurrence and continuance of a Default (and after giving
affect to any applicable grace periods provided for in the Obligation Documents
if such Default results from the failure of any Obligor to pay any Obligation
when due), Lender may invoke the benefits of this Guaranty before pursuing any
remedies against any Obligor or any other Person and before proceeding against
any Security now or hereafter existing for the payment or performance of any of
the Obligations. Lender may maintain an action against Guarantor on this
Guaranty without joining any other Obligor therein and without bringing a
separate action against any other Obligor.
(d) If any payment to Lender by any Obligor is held to constitute a
preference or a voidable transfer under applicable state or federal laws, or if
for any other reason Lender is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such payment to Lender
shall not constitute a release of Guarantor from any liability hereunder, and
Guarantor agrees to pay such amount to Lender on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of any such payment or payments.
Any transfer by subrogation which is made as contemplated in Section 6 prior to
any such payment or payments shall (regardless of the terms of such transfer) be
automatically voided upon the making of any such payment or payments, and all
rights so transferred shall thereupon revert to and be vested in Lender.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
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Section 4. WAIVER. Guarantor hereby waives, with respect
to the Obligations, this Guaranty, and the other Obligation
Documents:
(a) notice of the incurrence of any Obligation by Borrower, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) Guarantor shall take full responsibility for
informing itself of such matters, (ii) Lender shall have no responsibility of
any kind to inform Guarantor of such matters, and (iii) Lender is hereby
authorized to assume that Guarantor, by virtue of its relationships with
Borrower which are independent of this Guaranty, has full and complete knowledge
of such matters at each time when Lender extends credit to Borrower or takes any
other action which may change or increase Guarantor's liabilities or losses
hereunder).
(b) notice that Lender, any Obligor, or any other Person has taken or
omitted to take any action under any Obligation Document or any other agreement
or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty and all rights of Guarantor
under ss.34.02 of the Texas Business and Commerce Code.
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. EXERCISE OF REMEDIES. Lender shall have the right to enforce,
from time to time, in any order and at Lender's sole discretion, any rights,
powers and remedies which Lender may have under the Obligation Documents or
otherwise, including judicial foreclosure, the exercise of rights of power of
sale, the taking of a deed or assignment in lieu of foreclosure, the appointment
of a receiver to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment of leases,
rentals, oil or gas production, or other properties or rights, whether real or
personal, tangible or intangible; and Guarantor shall be liable to Lender
hereunder for any deficiency resulting from the exercise by Lender of any such
right or remedy even though any rights which Guarantor may have against Borrower
or others may be destroyed or diminished by exercise of any such right or
remedy. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Lender provided herein and in
the other
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Obligation Documents are cumulative and are in addition to, and not exclusive
of, any other rights, powers or remedies provided by law or in equity. The
rights of Lender hereunder are not conditional or contingent on any attempt by
Lender to exercise any of its rights under any other Obligation Document against
any Obligor or any other Person.
Section 6. LIMITED SUBROGATION. Until all of the Obligations have been
paid and performed in full Guarantor shall have no right to exercise any right
of subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty (including any right of subrogation
under ss.34.04 of the Texas Business and Commerce Code), and Guarantor hereby
waives any rights to enforce any remedy which Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall be paid to Guarantor on account of any such subrogation or other
rights, any such other remedy, or any Security at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Lender to be held by Lender as collateral for, or then or at any
time thereafter applied in whole or in part by Lender against, all or any
portion of the Obligations, whether matured or unmatured, in such order as
Lender shall elect. If Guarantor shall make payment to Lender of all or any
portion of the Obligations and if all of the Obligations shall be finally paid
in full, Lender will, at Guarantor's request and expense, execute and deliver to
Guarantor (without recourse, representation or warranty) appropriate documents
necessary to evidence the transfer by subrogation to Guarantor of an interest in
the Obligations resulting from such payment by Guarantor; provided that such
transfer shall be subject to Section 3(d) above.
Section 7. SUCCESSORS AND ASSIGNS. Guarantor's rights or obligations
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of Guarantor,
as well as Guarantor. This Guaranty shall apply to and inure to the benefit of
Lender and its successors or assigns. Without limiting the generality of the
immediately preceding sentence, Lender may, in accordance with the terms of the
Credit Agreement, assign, grant a participation in, or otherwise transfer any
Obligation held by it or any portion thereof, and Lender may assign or otherwise
transfer its rights or any portion thereof under any Obligation Document, to any
other Person, and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to Lender hereunder unless otherwise
expressly provided by Lender in connection with such assignment or transfer.
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Section 8. SUBORDINATION. Guarantor hereby subordinates and makes inferior
to the Obligations any and all indebtedness now or at any time hereafter owed by
Borrower to Guarantor. Guarantor agrees that after the occurrence of any Default
or Event of Default it will neither permit Borrower to repay such indebtedness
or any part thereof nor accept payment from Borrower of such indebtedness or any
part thereof without the prior written consent of Lender. If Guarantor receives
any such payment without the prior written consent of Lender, the amount so paid
shall be held in trust for the benefit of Lender, shall be segregated from the
other funds of Guarantor, and shall forthwith be paid over to Lender to be held
by Lender as collateral for, or then or at any time thereafter applied in whole
or in part by Lender against, all or any portions of the Obligations, whether
matured or unmatured, in such order as Lender shall elect.
Section 9. REPRESENTATIONS AND WARRANTIES. Guarantor
hereby represents and warrants to Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true and correct in
all respects as of the date hereof.
(b) This Guaranty is a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights.
(c) The incurrence of the liability and obligations of Guarantor hereunder
in return for the direct or indirect value of the consideration to be received
by the Guarantor may reasonably be expected to benefit Guarantor, directly or
indirectly.
(d) Guarantor is not "insolvent" on the date hereof (that is, the sum of
Guarantor's absolute and contingent liabilities, including the Obligations, does
not exceed the fair market value of Guarantor's assets). Guarantor's capital is
adequate for the businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or otherwise), nor does
Guarantor intend to incur or believe that it will incur, debts which will be
beyond its ability to pay as such debts mature.
Section 10. NO ORAL CHANGE. No amendment of any provision of this Guaranty
shall be effective unless it is in writing and signed by Guarantor and Lender,
and no waiver of any provision of this Guaranty, and no consent to any departure
by Guarantor therefrom, shall be effective unless it is in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 11. INVALIDITY OF PARTICULAR PROVISIONS. If any
term or provision of this Guaranty shall be determined to be
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illegal or unenforceable all other terms and provisions hereof shall
nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable law.
Section 12. HEADINGS AND REFERENCES. The headings used herein are for
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 13. TERM. This Guaranty shall be irrevocable until all of the
Obligations have been completely and finally paid and performed, Lender has no
obligation to make any loans or other advances to Borrower, and all obligations
and undertakings of Borrower under, by reason of, or pursuant to the Obligation
Documents have been completely performed, and this Guaranty is thereafter
subject to reinstatement as provided in Section 3(d). All extensions of credit
and financial accommodations heretofore or hereafter made by Lender to Borrower
shall be conclusively presumed to have been made in acceptance hereof and in
reliance hereon.
Section 14. NOTICES. Any notice or communication required
or permitted hereunder shall be given as provided in the Credit
Agreement.
Section 15. LIMITATION ON INTEREST. Lender and Guarantor intend to
contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantor is obligated are expressly incorporated herein by reference.
Section 16. LOAN DOCUMENT. This Guaranty is a Loan
Document, as defined in the Credit Agreement, and is subject to
the provisions of the Credit Agreement governing Loan Documents.
Section 17. COUNTERPARTS. This Guaranty may be executed in
any number of counterparts, each of which when so executed shall
be deemed to constitute one and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE STATE
OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
OFFSHORE ENERGY DEVELOPMENT CORPORATION
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
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EXHIBIT 10.18
GUARANTY
THIS GUARANTY is made as of August 28, 1996, by OEDC
Partners, L.P., a Texas limited partnership ("Guarantor"), in
favor of Union Bank of California, N.A. ("Lender").
RECITALS:
1. OEDC Exploration & Production, L.P., a Texas limited partnership
("Borrower") has executed in favor of Lender that certain promissory note of
even date herewith, payable to the order of Lender in the principal amount of
$10,000,000 (such promissory note, as from time to time amended, and all
promissory notes given in substitution, renewal or extension therefor or
thereof, in whole or in part, being herein collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of even date
herewith, (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), by and among Borrower, Offshore Energy
Development Corporation, OEDC, Inc., Guarantor, Dauphin Island Gathering
Company, L.P., and Lender, pursuant to which Lender has agreed to advance funds
to Borrower under the Note.
3. It is a condition precedent to Lender's obligation to advance funds
pursuant to the Credit Agreement that Guarantor shall execute and deliver to
Lender a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.
4. Guarantor owns a ninety-nine percent (99%) limited
partnership interest in Borrower.
5. Guarantor will benefit from the advances under the Note
to Borrower.
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Guarantor from Lender's advances of funds to Borrower under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Lender to advance funds under the Credit Agreement, Guarantor
hereby agrees with Lender as follows:
AGREEMENTS
Section 1. DEFINITIONS. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Guaranty which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Obligation Document, Loan
Document, or other document or instrument refer to the same as from time to time
amended, supplemented or restated. As used herein the following terms shall have
the following meanings:
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"OBLIGATION DOCUMENTS" means this Guaranty, the Note, the Credit
Agreement, the Loan Documents, all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with.
"OBLIGORS" means Borrower, Guarantor and any other endorsers, guarantors
or obligors, primary or secondary, of any or all of the Obligations.
"SECURITY" means any rights, properties, or interests of Lender, under the
Obligation Documents or otherwise, which provide recourse or other benefits to
Lender in connection with the Obligations or the non-payment or non-performance
thereof, including collateral (whether real or personal, tangible or intangible)
in which Lender has rights under or pursuant to any Obligation Documents,
guaranties of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of subrogation,
rights of offset, and rights pursuant to which other claims are subordinated to
the Obligations.
Section 2. GUARANTY.
(a) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete, and full payment when due (after
giving affect to any applicable grace periods provided for in the Obligation
Documents), and no matter how the same shall become due, of the Obligations.
Without limiting the generality of the foregoing, Guarantor hereby agrees that
its liability hereunder shall extend to and include all post-petition interest,
expenses, and other duties and liabilities of Borrower described above in this
subsection (a), or below in the following subsection (b), which would be owed by
Borrower but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization, or similar proceeding involving
Borrower.
(b) Guarantor hereby irrevocably, absolutely, and unconditionally
guarantees to Lender the prompt, complete and full performance, when due, and no
matter how the same shall become due, of all obligations and undertakings of
Borrower to Lender under, by reason of, or pursuant to any of the Obligation
Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantor will, forthwith upon demand by Lender, pay such Obligation in full to
Lender. If Borrower shall for any reason fail to perform promptly any
Obligation, Guarantor will, forthwith upon demand by Lender, cause such
Obligation to be performed or, if specified by Lender, provide sufficient funds,
in such amount and manner as Lender shall in good faith determine, for the
prompt, full and
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faithful performance of such Obligation by Lender or such other Person as Lender
shall designate.
(d) If either Borrower or Guarantor fails to pay or perform any Obligation
as described in the immediately preceding subsections (a), (b), or (c) Guarantor
will incur the additional obligation to pay to Lender, and Guarantor will
forthwith upon demand by Lender pay to Lender, the amount of any and all
expenses, including reasonable fees and disbursements of Lender's counsel and of
any experts or agents retained by Lender, which Lender may incur as a result of
such failure.
(e) As between Guarantor and Lender, this Guaranty shall be considered a
primary liability of Guarantor.
Section 3. UNCONDITIONAL GUARANTY.
(a) No action which Lender may take or omit to take in connection with any
of the Obligation Documents, any of the Obligations (or any other indebtedness
owing by Borrower to Lender), or any Security, and no course of dealing of
Lender with any Obligor or any other Person, shall release or diminish
Guarantor's obligations, liabilities, agreements or duties hereunder, affect
this Guaranty in any way, regardless of whether any such action or inaction may
increase any risks to or liabilities of Lender or any Obligor or increase any
risk to or diminish any safeguard of any Security. Without limiting the
foregoing, Guarantor hereby expressly agrees that Lender may, from time to time,
without notice to or the consent of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in part, any one or more of
the Obligation Documents and give or refuse to give any waivers or other
indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any action
for the collection or enforcement of any of the Obligations, to foreclose
or take or prosecute any action in connection with any Security or
Obligation Document, to bring suit against any Obligor or any other
Person, or to take any other action concerning the Obligations or the
Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the time,
rate, terms, or manner for payment or performance of any one or more of
the Obligations (whether for principal, interest, fees, expenses,
indemnifications, affirmative or negative covenants, or otherwise).
(iv) Compromise or settle any unpaid or unperformed Obligation or
any other obligation or amount due or owing, or claimed to be due or
owing, under any one or more of the Obligation Documents.
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(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations, accept
additional or substituted Security therefor, and perfect or fail to
perfect Lender's rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or from any
Security for any of the Obligations, as Lender may determine to be in its
best interest, without in any way being required to marshall Security or
assets or to apply all or any part of such monies upon any particular
Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford Guarantor any recourse against Lender. Without limiting
the foregoing, the obligations, liabilities, agreements, and duties of Guarantor
under this Guaranty shall not be released, diminished, impaired, reduced, or
affected by the occurrence of any or all of the following from time to time,
even if occurring without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation, dissolution, sale of
all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of any
Obligor or any other proceedings involving any Obligor or any of the
assets of any Obligor under laws for the protection of debtors, or any
discharge, impairment, modification, release, or limitation of the
liability of, or stay of actions or lien enforcement proceedings against,
any Obligor, any properties of any Obligor, or the estate in bankruptcy of
any Obligor in the course of or resulting from any such proceedings.
(ii) The failure by Lender to file or enforce a claim in any
proceeding described in the immediately preceding subsection (i) or to
take any other action in any proceeding to which any Obligor is a party.
(iii) The release by operation of law of any Obligor from any of the
Obligations or any other obligations to Lender.
(iv) The invalidity, deficiency, illegality, or unenforceability of
any of the Obligations or the Obligation Documents, in whole or in part,
any bar by any statute of limitations or other law of recovery on any of
the Obligations, or any defense or excuse for failure to perform on
account of force majeure, act of God, casualty,
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impossibility, impracticability, or other defense or excuse whatsoever
(other than the payment in full of the Obligations).
(v) The failure of any Obligor or any other Person to sign any
guaranty or other instrument or agreement within the contemplation of any
Obligor or Lender.
(vi) The fact that Guarantor may have incurred directly part of the
Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or event
(whether or not similar to any of the foregoing) which in the absence of
this provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a guarantor or surety other than the
actual payment and performance by Guarantor under this Guaranty or the
payment in full of the Obligations.
(c) After the occurrence and continuance of a Default (and after giving
affect to any applicable grace period provided for in the Obligation Documents
if such Default results from the failure of any Obligor to pay any Obligation
when due), Lender may invoke the benefits of this Guaranty before pursuing any
remedies against any Obligor or any other Person and before proceeding against
any Security now or hereafter existing for the payment or performance of any of
the Obligations. Lender may maintain an action against Guarantor on this
Guaranty without joining any other Obligor therein and without bringing a
separate action against any other Obligor.
(d) If any payment to Lender by any Obligor is held to constitute a
preference or a voidable transfer under applicable state or federal laws, or if
for any other reason Lender is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such payment to Lender
shall not constitute a release of Guarantor from any liability hereunder, and
Guarantor agrees to pay such amount to Lender on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of any such payment or payments.
Any transfer by subrogation which is made as contemplated in Section 6 prior to
any such payment or payments shall (regardless of the terms of such transfer) be
automatically voided upon the making of any such payment or payments, and all
rights so transferred shall thereupon revert to and be vested in Lender.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. WAIVER. Guarantor hereby waives, with respect
to the Obligations, this Guaranty, and the other Obligation
Documents:
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(a) notice of the incurrence of any Obligation by Borrower, and notice of
any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) Guarantor shall take full responsibility for
informing itself of such matters, (ii) Lender shall have no responsibility of
any kind to inform Guarantor of such matters, and (iii) Lender is hereby
authorized to assume that Guarantor, by virtue of its relationships with
Borrower which are independent of this Guaranty, has full and complete knowledge
of such matters at each time when Lender extends credit to Borrower or takes any
other action which may change or increase Guarantor's liabilities or losses
hereunder).
(b) notice that Lender, any Obligor, or any other Person has taken or
omitted to take any action under any Obligation Document or any other agreement
or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty and all rights of Guarantor
under ss.34.02 of the Texas Business and Commerce Code.
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.
Section 5. EXERCISE OF REMEDIES. Lender shall have the right to enforce,
from time to time, in any order and at Lender's sole discretion, any rights,
powers and remedies which Lender may have under the Obligation Documents or
otherwise, including judicial foreclosure, the exercise of rights of power of
sale, the taking of a deed or assignment in lieu of foreclosure, the appointment
of a receiver to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment of leases,
rentals, oil or gas production, or other properties or rights, whether real or
personal, tangible or intangible; and Guarantor shall be liable to Lender
hereunder for any deficiency resulting from the exercise by Lender of any such
right or remedy even though any rights which Guarantor may have against Borrower
or others may be destroyed or diminished by exercise of any such right or
remedy. No failure on the part of Lender to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Lender provided herein and in
the other Obligation Documents are cumulative and are in addition to, and not
exclusive of, any other rights, powers or remedies provided by law or in equity.
The rights of Lender hereunder are not conditional or contingent on any attempt
by Lender to exercise
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any of its rights under any other Obligation Document against any
Obligor or any other Person.
Section 6. LIMITED SUBROGATION. Until all of the Obligations have been
paid and performed in full Guarantor shall have no right to exercise any right
of subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any Obligor or any
Security in connection with this Guaranty (including any right of subrogation
under ss.34.04 of the Texas Business and Commerce Code), and Guarantor hereby
waives any rights to enforce any remedy which Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall be paid to Guarantor on account of any such subrogation or other
rights, any such other remedy, or any Security at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Lender to be held by Lender as collateral for, or then or at any
time thereafter applied in whole or in part by Lender against, all or any
portion of the Obligations, whether matured or unmatured, in such order as
Lender shall elect. If Guarantor shall make payment to Lender of all or any
portion of the Obligations and if all of the Obligations shall be finally paid
in full, Lender will, at Guarantor's request and expense, execute and deliver to
Guarantor (without recourse, representation or warranty) appropriate documents
necessary to evidence the transfer by subrogation to Guarantor of an interest in
the Obligations resulting from such payment by Guarantor; provided that such
transfer shall be subject to Section 3(d) above.
Section 7. SUCCESSORS AND ASSIGNS. Guarantor's rights or obligations
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of Guarantor,
as well as Guarantor. This Guaranty shall apply to and inure to the benefit of
Lender and its successors or assigns. Without limiting the generality of the
immediately preceding sentence, Lender may, in accordance with the terms of the
Credit Agreement, assign, grant a participation in, or otherwise transfer any
Obligation held by it or any portion thereof, and Lender may assign or otherwise
transfer its rights or any portion thereof under any Obligation Document, to any
other Person, and such other Person shall thereupon become vested with all of
the benefits in respect thereof granted to Lender hereunder unless otherwise
expressly provided by Lender in connection with such assignment or transfer.
Section 8. SUBORDINATION. Guarantor hereby subordinates
and makes inferior to the Obligations any and all indebtedness
now or at any time hereafter owed by Borrower to Guarantor.
Guarantor agrees that after the occurrence of any Default or
Event of Default it will neither permit Borrower to repay such
-7-
indebtedness or any part thereof nor accept payment from Borrower of such
indebtedness or any part thereof without the prior written consent of Lender. If
Guarantor receives any such payment without the prior written consent of Lender,
the amount so paid shall be held in trust for the benefit of Lender, shall be
segregated from the other funds of Guarantor, and shall forthwith be paid over
to Lender to be held by Lender as collateral for, or then or at any time
thereafter applied in whole or in part by Lender against, all or any portions of
the Obligations, whether matured or unmatured, in such order as Lender shall
elect.
Section 9. REPRESENTATIONS AND WARRANTIES. Guarantor
hereby represents and warrants to Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true and correct in
all respects as of the date hereof.
(b) This Guaranty is a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights.
(c) The incurrence of the liability and obligations of Guarantor hereunder
in return for the direct or indirect value of the consideration to be received
by the Guarantor may reasonably be expected to benefit Guarantor, directly or
indirectly.
(d) Guarantor is not "insolvent" on the date hereof (that is, the sum of
Guarantor's absolute and contingent liabilities, including the Obligations, does
not exceed the fair market value of Guarantor's assets). Guarantor's capital is
adequate for the businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or otherwise), nor does
Guarantor intend to incur or believe that it will incur, debts which will be
beyond its ability to pay as such debts mature.
Section 10. NO ORAL CHANGE. No amendment of any provision of this Guaranty
shall be effective unless it is in writing and signed by Guarantor and Lender,
and no waiver of any provision of this Guaranty, and no consent to any departure
by Guarantor therefrom, shall be effective unless it is in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 11. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision
of this Guaranty shall be determined to be illegal or unenforceable all other
terms and provisions hereof shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
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Section 12. HEADINGS AND REFERENCES. The headings used herein are for
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 13. TERM. This Guaranty shall be irrevocable until all of the
Obligations have been completely and finally paid and performed, Lender has no
obligation to make any loans or other advances to Borrower, and all obligations
and undertakings of Borrower under, by reason of, or pursuant to the Obligation
Documents have been completely performed, and this Guaranty is thereafter
subject to reinstatement as provided in Section 3(d). All extensions of credit
and financial accommodations heretofore or hereafter made by Lender to Borrower
shall be conclusively presumed to have been made in acceptance hereof and in
reliance hereon.
Section 14. NOTICES. Any notice or communication required
or permitted hereunder shall be given as provided in the Credit
Agreement.
Section 15. LIMITATION ON INTEREST. Lender and Guarantor intend to
contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantor is obligated are expressly incorporated herein by reference.
Section 16. LOAN DOCUMENT. This Guaranty is a Loan
Document, as defined in the Credit Agreement, and is subject to
the provisions of the Credit Agreement governing Loan Documents.
Section 17. COUNTERPARTS. This Guaranty may be executed in
any number of counterparts, each of which when so executed shall
be deemed to constitute one and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE STATE
OF TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
OEDC PARTNERS, L.P.
By: OEDC, INC., its General Partner
By: /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
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EXHIBIT 10.19
AMENDED AND RESTATED
EXCESS GAS PURCHASE CONTRACT
BETWEEN
OEDC EXPLORATION & PRODUCTION L.P.
AS SELLER
AND
ENRON CAPITAL & TRADE RESOURCES CORP.
AS BUYER
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS............................................................1
1.1 Definitions.....................................................1
2. COMMITMENTS AND RESERVATIONS...........................................5
2.1 Commitment......................................................5
2.2 Increase in Base Quantity.......................................5
2.3 Additional Commitment Option....................................5
2.4 Seller's Reservations...........................................6
3. QUANTITY OF GAS........................................................7
3.1 Excess Gas Quantity.............................................7
3.2 Quantity........................................................8
3.3 Released Gas....................................................8
3.4 Constant Rate...................................................8
3.5 Operational Tolerance...........................................8
4. DELIVERY POINT AND LIABILITY...........................................9
4.1 Delivery Point..................................................9
4.2 Title Transfer..................................................9
4.3 Liability.......................................................9
5. PRESSURE, NOMINATIONS AND DISPATCHING..................................9
5.1 Pressure........................................................9
5.2 Notification....................................................9
5.3 Nomination Procedures..........................................10
5.4 Change in Nominated Quantities.................................10
6. MEASUREMENT AND QUALITY...............................................11
6.1 Measurement....................................................11
6.2 Measurement Adjustments........................................11
6.3 Quality and Measurement Specifications.........................12
6.4 Btu Content....................................................12
7. PRICE.................................................................12
7.1 Contract Price.................................................12
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7.2 Optional Quantity..............................................16
7.3 Mid-Month Incremental Quantity.................................16
7.4 Dry Basis......................................................17
7.5 Third Party Costs..............................................17
7.6 Failure to Deliver or Take.....................................17
8. BILLING AND PAYMENT...................................................18
8.1 Payment Date...................................................18
8.2 Late Payment...................................................18
8.3 Adjustments....................................................19
9. PENALTIES.............................................................19
9.1 Transportation Penalties.......................................19
9.2 Notification...................................................19
10. FORCE MAJEURE.........................................................19
10.1 Force Majeure..................................................19
11. TERM..................................................................20
11.1 Term...........................................................20
11.2 Adjustments Upon Termination...................................20
12. WARRANTY OF TITLE.....................................................21
12.1 Warranty.......................................................21
13. REGULATORY BODIES.....................................................21
13.1 Regulations....................................................21
13.2 Regulatory Filings.............................................21
14. ADDRESSES.............................................................21
14.1 Seller's Address...............................................21
14.2 Buyer's Address................................................22
14.3 Notices In Writing.............................................22
15. MISCELLANEOUS.........................................................22
15.1 Costs of Litigation............................................22
15.2 Confidentiality................................................22
15.3 No Waiver......................................................23
15.4 Binding Effect.................................................23
15.5 Counterpart Execution..........................................23
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15.6 Entire Agreement...............................................23
15.7 Severability...................................................23
15.8 Governing Law..................................................24
15.9 Recordation of Agreement.......................................24
15.10 Capacity Utilization...........................................24
15.11 Limitation of Remedies, Liability and Damages..................25
15.12 Sellers' Representative and Agent..............................25
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AMENDED AND RESTATED
EXCESS GAS PURCHASE CONTRACT
This Amended and Restated Excess Gas Purchase Contract (this "Contract")
is made and entered into as of the 7th day of June 1995, but effective as of
December 1, 1994, by and between OEDC EXPLORATION & PRODUCTION L.P., a Texas
limited partnership, and SOUTH DAUPHIN PARTNERS LTD. a Texas limited
partnership, hereinafter collectively referred to as "Seller", and ENRON CAPITAL
& TRADE RESOURCES CORP., a Delaware corporation, hereinafter referred to as
"Buyer".
WHEREAS, Seller has a supply of natural gas available for sale to be
produced from certain oil and gas leases more particularly described below and
may acquire additional supplies of gas in an area to be herein identified; and
WHEREAS, Buyer desires to purchase such gas from Seller and Seller
desires to sell said gas to Buyer, and
WHEREAS, Enron Gas Marketing, Inc. and South Dauphin Partners Ltd. have
entered into an Excess Gas Purchase Contract dated May 18, 1993, as amended
August 10, 1993, October 1, 1993, and December 21, 1993, and amended and
restated June 21, 1994; and
WHEREAS, effective December 31, 1994, Enron Gas Marketing, Inc. has
merged into Enron Capital & Trade Resources Corp.; and
WHEREAS, OEDC Exploration & Production L.P. desires to become a party
Seller to this Amended and Restated Excess Gas Purchase Contract;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
herein contained, the parties do hereby covenant and agree as follows:
1.
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used in this Contract, shall
have the meanings set forth below:
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by or under common control with another Person. As used in this
definition of "Affiliate", the term "control" means the possession, directly or
indirectly of the power to direct or cause the direction of the
-1-
management and policies of another Person, whether through the ownership of
voting securities, partnership interests, by contract or otherwise; and without
limiting the foregoing it shall be deemed that the ownership of more than fifty
percent (50%) of the voting securities, partnership interests or percentage
interest of another Person shall be deemed to meet such control test.
"AREA OF INTEREST" means the area shown on the plat attached to this
Agreement as Exhibit "H" consisting of portions of the Mobile Area, the Viosca
Knoll Area, the Main Pass Area, the Pensacola Area and the Destin Dome Area of
the Offshore Gulf of Mexico, offshore of the States of Louisiana, Mississippi,
Alabama and Florida.
"AREA OF INTEREST AGREEMENT" means the Area of Interest Agreement dated
May 18, 1993 between OEDC Exploration & Production, L.P. and Enron Finance Corp.
"BASE QUANTITY" shall mean the lower of (a) 120,000 MMBtu per day or (b)
the full well streams of all Gas owned by Seller attributable to the maximum
efficient rate of recovery from the Exhibit "A" Leases, subject to adjustment
pursuant to the provisions of Sections 2.2 and 2.3.
"BUSINESS DAY" shall mean a Day on which Federal Reserve member banks in
New York City are open for business, and a Business Day shall close at 5:00 p.m.
Central Time.
"BRITISH THERMAL UNIT: or "BTU" means the amount of energy required to
raise the temperature of one (1) pound of pure water one degree Fahrenheit
(1(degree)F.) from fifty-nine degrees Fahrenheit (59(degree)F.) to sixty degrees
Fahrenheit (60(degree)F.). The term "MMBtu shall mean one million Btu's.
"DAY" shall mean a period of twenty-four (24) consecutive hours
beginning and ending at seven o'clock a.m. Central Time.
"DELIVERY POINT" shall mean as the context requires, the point(s) of
delivery set forth in Exhibit "B", as amended from time to time.
"EXCESS GAS QUANTITY" shall mean all Seller's Gas, expressed in MMBtu/d,
produced from each Exhibit "A" Leases, as may be added from the Area of Interest
from time to time, including royalty Gas, overriding royalty Gas and other
working interest Gas, which Seller may from time to time have the right to
market, but excluding Production Payment Gas, if any, and any other Gas released
pursuant to the provisions hereof.
"EXHIBIT "A" LEASES" shall mean the Leases described in Exhibit "A"
together with any other Leases added pursuant to Section 2.3.
-2-
"FERC" shall mean the Federal Energy Regulatory Commission or any
successor governmental authority.
"FIRST TRANSPORTER" shall mean the first interstate or intrastate
pipeline downstream of the Delivery Point.
"GAS" shall mean methane and other gaseous hydrocarbons meeting the
quality standards and specifications pursuant to 6 hereof.
"INSIDE F.E.R.C." shall mean the publication entitled INSIDE F.E.R.C.
GAS MARKET REPORT, published by McGraw-Hill, Inc.
"INTEREST RATE" means 3% over the Prime Rate, as herein defined;
provided, however, that the Interest Rate shall never exceed the maximum lawful
rate permitted by applicable law.
"INSIDE FERC INDEX" for any Month means the price for such Month
identified in the first issue of INSIDE FERC for such Month in the table
entitled "Prices for Spot Gas Delivered to Pipelines" in the column labeled
"Index" for deliveries into the specified pipeline in the specified geographic
area.
"MID-MONTH INCREMENTAL QUANTITY" shall mean an increase in the Nominated
Quantity during any Month above the Nominated Quantity for the first day of such
month, such increase to be agreed upon by Buyer and Seller as set forth in
Section 7.3 hereof.
"MONTH" shall mean a period beginning at seven o'clock a.m. on the first
Day of a calendar Month and ending at seven o'clock a.m. on the first Day of the
next succeeding calendar Month.
"NOMINATION NOTICE" shall mean the notice provided to Seller by Buyer
pursuant to Section 5.3 prior to each Month during the term hereof, which notice
sets forth the initial Nominated Quantity for the Delivery Point.
"NOMINATED QUANTITY" shall mean the daily quantity of Gas, at the
Delivery Point and expressed in MMBtu's per day, designated by Buyer in the
Nomination Notice to be delivered and sold hereunder during any Month, as
adjusted in a Confirmation Notice given by Seller pursuant to Sections 5.3 or
3.1, provided that such quantity shall never be less than the Base Quantity nor
more than the Excess Gas Quantity for the Month. The nominated Quantity for any
Month shall include the Base Quantity and the Optional Quantity, if any, for
such Month,
"OPTIONAL QUANTITY" means that portion of the Excess Gas Quantity or the
Nominated Quantity, whichever is less, which exceeds the Base Quantity.
-3-
"PRODUCTION PAYMENT" shall mean collectively any production payment(s)
in and to the Exhibit "A" Leases or any other leases in the Area of Interest
that may be sold by Seller, or any Affiliate of Seller, to Buyer, or any
Affiliate of Buyer.
"PRODUCTION PAYMENT GAS" shall mean the daily volumes of Gas deemed
first delivered by Seller and received by Buyer attributable to any Production
Payment.
"PRIME RATE" shall mean, for any date, the per annum rate of interest
announced from time to time by Citibank, N.A., as its "prime" rate for
commercial loans, effective as of such date as established from time to time by
the administrative body of such bank charged with the responsibility of
establishing such rate.
"RESERVED CAPACITY" for any day means that portion of Buyer's firm
transportation in Transco's Mobile Bay Pipeline Lateral which is the lesser of:
(a) the first 50,000 MMBtu per day or (b) a quantity, if positive, calculated by
subtracting (ii) below from (i) below:
(i) 50,000 MMBtu per day.
(ii) The total quantity of Production Payment Gas nominated for
such day, if any, under any Production Payment(s).
"UNIT OF MEASUREMENT" shall mean one million British Thermal Units
(MMBtu) on an actual water vapor content basis.
"TRANSCO" means Transcontinental Gas Pipe Line Corporation.
"WEIGHTED AVERAGE SPOT PRICE" for any Month shall mean the weighted
average of the lowest of the range of prices set forth in Gas Daily(R) (Pasha
Publications, Inc.), or successor publication, in the column "Daily Price
Survey" under the listing applicable to Koch Gateway Pipeline, Louisiana such
weighted average to be determined as follows: the Mid-Month Incremental Quantity
delivered hereunder on each day of such Month shall be multiplied by the price,
determined as set forth in this definition, for such Day, and the sum of such
amounts shall be divided by the total Mid Month Incremental Quantity delivered
hereunder during such Month. If there is no range of prices published for any
particular Day, but there is published a single price under the above column and
listing, then such price shall be utilized for that Day. In the event that no
price or range of prices is published for that particular Day, then the price to
be utilized for such Day shall be the arithmetic average of the price
(determined as stated above) for each of (a) the first Day for which a price is
posted immediately preceding the relevant Day and (b) the first day for which a
price is posted immediately following the relevant Day. In the event Gas Daily
should ceases publication, or prices for Koch
-4-
Gateway Pipeline, Louisiana are no longer available, an alternate publication or
methodology shall be established by mutual agreement of the Parties.
2.
COMMITMENTS AND RESERVATIONS
2.1 COMMITMENT. Subject to the terms hereof, including but not limited
to Section 3.3, Seller commits the Excess Gas Quantity underlying the Leases,
subject to Seller's Reservations. During the term of this Contract, Seller
agrees not to sell to any third party any Gas committed hereunder without prior
written consent of Buyer unless such Gas is released by the operation of the
remaining provisions hereof.
2.2 INCREASE IN BASE QUANTITY. If Seller or Buyer desires to increase
the Base Quantity during the term of this Agreement with Gas to be produced from
Exhibit "A" Leases, the party desiring to increase the Base Quantity shall
notify the other party of the quantity of such proposed increase. The party
receiving such notice shall have thirty (30) Days from the receipt thereof to
either (a) accept the proposed increase in the Base Quantity, or (b) reject such
increase. If the parties agree to increase the Base Quantity, they shall execute
an amendment of this Contract to reflect the increased Base Quantity.
2.3 ADDITIONAL COMMITMENT OPTION.
(a) Seller shall notify Buyer each time during the term of this
Agreement that Seller or any Affiliate of Seller either acquires
additional producing properties within the Area of Interest or
intends to develop non-producing properties within the Area of
Interest and shall provide Buyer with the following information
in connection therewith as may be requested by Buyer and which is
in Seller's possession or is readily available to Seller.
(i) all data and information available to Seller
pertinent to the estimation of gas reserves,
including, but not limited to surface maps showing
property lines and well locations, well logs,
electric logs, core analysis, flow and pressure
tests, production history, gas analysis and casing
programs;
(ii) geologic and geophysical data and information;
(iii) copies of title opinions, if available, and
other title documents and information in the
possession of or available to Seller; and
-5-
(iv) such other information and data as Buyer may
reasonably request.
(b) For a period of sixty (60) days from (i) the date of first
production of the relevant property or (ii) if production is
already in existence, from the date of Seller's notice as set
forth in Section 2.3(a) above (the "Option Period"), Buyer shall
have the right but not the obligation to elect to purchase such
Gas under terms and conditions as set forth herein as a part of
the Base Quantity; provided that should Seller have received a
third party offer pursuant to Section 2.3(c) below during the
Option Period, Buyer shall have the rights with respect to such
Gas as set forth in said Section 2.3(c).
(c) At any time during the term of this Contract, should Seller
receive a bona fide offer from a third-party Gas purchaser to
purchase, for a term in excess of one month, any Gas produced or
to be produced from the Exhibit "A" Leases that has been rejected
by Buyer pursuant to Section 2.2, that is subject to the Option
Period of Section 2.3(b) or that is subject hereto but is not a
part of the Base Quantity, Seller shall provide Buyer notice
thereof (including a copy of such third-party offer) and upon
receipt of such notice, Buyer shall notify Seller within five (5)
Days of receipt of Seller's notice whether Buyer elects to match
such third-party offer to purchase the Gas covered thereby. If
Buyer elects to match such third-party offer, Buyer and Seller
agree to purchase and sell such Gas under terms and conditions
identical to those contained in such third-party offer. If Buyer
elects not to match such third-party offer, Buyer's right to
purchase such Gas shall be waived and such Gas shall be released
from this Contract, but only for the term of the third party
Contract.
(d) Failure of Buyer to exercise its option rights as to one
acquisition, or as to the matters set forth in any single notice
from Seller to Buyer in accordance with Section 2.3(a), (b) and
(c), shall not prejudice its rights to exercise its option for
subsequent acquisitions or under subsequent notices during the
full term hereof.
(e) At any time that Buyer has elected to purchase additional Gas
from Seller under the foregoing provisions, such Gas shall be
covered hereby and the Leases involved shall become Exhibit "A"
Leases for all purposes. Buyer and Seller shall enter into such
further instruments and amendments hereof as may be necessary to
give effect to the foregoing.
2.4 SELLER'S RESERVATIONS. Seller reserves the following rights and
sufficient Gas to satisfy such rights:
-6-
(a) To operate the Leases, as Seller, in its sole judgment deems
advisable, including without limitation, the right to drill new
wells, to repair and rework old wells, and to plug and abandon
any well when no longer capable of producing Gas in paying
quantities.
(b) All condensate in, under or that may be produced from or
attributable to the Leases and the right to separate the
condensate from the Gas using conventional mechanical separators.
(c) The right to process the Gas, or cause same to be processed,
before delivery to Buyer.
(d) Gas that Seller's other working interest owners, overriding
royalty interest owners and royalty interest owners are entitled
to under the terms of any and all agreements covering gas to be
produced from the Leases.
(e) The right to release or surrender any leasehold when in
Seller's sole judgment such lease hold is no longer capable of
producing gas in paying quantities. Seller agrees to provide
Buyer written notice of such release or surrender within sixty
(60) days after such release or surrender.
(f) Nothing herein shall obligate Seller to drill new well(s) or
rework or recomplete any well(s).
(g) The right to pool, consolidate, or unitize any of Seller's
Leases with other properties of Seller and of others in the same
field, and to alter such consolidated areas or units, in any of
which events this Contract will cover Seller's allocated interest
in the unitized production.
(h) The right to use the appropriate pro rata portion of the Gas
produced from or attributable to the Leases for developing and
operating the Leases including compression, processing and other
treating facilities, platform installations and other
miscellaneous uses incident to the operation of the Leases or
such facilities.
3.
QUANTITY OF GAS
3.1 EXCESS GAS QUANTITY. Each Month during the term of this Contract,
Seller shall make available to Buyer a quantity of Gas equal to the Excess Gas
Quantity, less any Gas released by Buyer pursuant to the provisions hereof.
-7-
3.2 QUANTITY. Subject to the other provisions of this Contract each
Month during the term of this Contract, Seller shall sell and deliver to Buyer,
and Buyer shall purchase and receive from Seller, on a firm basis, the Base
Quantity; and Seller shall have the right to sell, and Buyer shall have the
right to buy, on an interruptible basis, the Optional Quantity. Either Party may
without liability interrupt, in whole or in part, the purchase or sale of the
Optional Quantity in accordance with the provisions hereof for any reason EXCEPT
(i) Buyer shall not interrupt for the sole purpose of obtaining a lower price
from another party and (ii) Seller shall not interrupt for the sole purpose of
obtaining a higher price from another party (the exceptions (i) and (ii)
collectively, "Pricing Reasons").
3.3 RELEASED GAS. In the event the Nominated Quantity for any Month is
less than the Excess Gas Quantity for such Month, Buyer shall release to Seller
for each Day in the Month the portion of the Excess Gas Quantity that is in
excess of the Nominated Quantity and Buyer shall not have the rights or options
under this Contract with respect to any portion of the Excess Gas Quantity so
released hereunder for such month.
3.4 CONSTANT RATE. The parties recognize that due to operating
conditions, varying market demands and the difficulty of apportioning receipts
of Gas from various sources, the parties may not be able to tender and receive
Gas during any Month at exactly constant rates. The parties agree to use
reasonable efforts to maintain as nearly a constant rate of deliveries and takes
as practicable. Each party shall provide the other notice as soon as possible of
any changes in scheduled rates of delivery or receipt during any Month. Seller
and Buyer shall have agents or employees available at all times to receive
notices and requests for changes in the rates of delivery of Gas hereunder.
3.5 OPERATIONAL TOLERANCE. It is the intent of the parties hereto that
the Nominated Quantities shall be the quantities delivered. However, Buyer and
Seller recognize the inherent inaccuracies in the measurement and allocation of
Gas due to the inability to maintain precise control. Such inaccuracies may at
times occur through no fault of Buyer or Seller, such as in the case of
allocations after actual deliveries which are the result of measurement
inaccuracies, or unpreventable variations in rates of flow at the Delivery
Point, and may result in failure to deliver or receive the Nominated Quantities
(such inaccuracies, but only to the extent they do not exceed the permitted
tolerances in the applicable FERC Tariff of the First Transporter, are
hereinafter called "Measurement and Allocation Inaccuracies"). Future deliveries
shall be adjusted as soon as possible to account for variations in deliveries
arising under this Section 3.5. Measurement and Allocation Inaccuracies shall
not give rise to any damages pursuant to Section 7.6.
-8-
4.
DELIVERY POINT AND LIABILITY
4.1 DELIVERY POINT. The Delivery Point(s) for the Gas to be delivered by
Seller to Buyer hereunder are set forth on Exhibit "B". Any Delivery Point other
than as set forth on Exhibit "B" shall be by mutual agreement of Buyer and
Seller.
4.2 TITLE TRANSFER. Title to the Gas delivered hereunder shall pass at
each Delivery Point.
4.3 LIABILITY. As between the parties hereto, Seller shall be in
exclusive control and possession of the Gas deliverable hereunder and
responsible for any damage or injury caused thereby prior to the time same shall
have been delivered to Buyer. After delivery of the Gas to Buyer at the Delivery
Point, Buyer shall be deemed to be in exclusive control and possession thereof
and responsible for any injury or damage caused thereby. Seller and Buyer each
assume full responsibility and liability for and shall indemnify and hold
harmless the other Party from all liability and expense on account of any and
all damages, claims or actions, including injury to and death of persons,
arising from any act or accident occurring when title to the Gas is in the
possession and control of the indemnifying party. It is further understood and
agreed that under this Contract Buyer shall not ever be liable or responsible in
any way for the payment of any costs, expenses or liabilities incurred in
connection with developing, exploring, drilling, equipping, testing, operating,
producing, maintaining or abandoning the Leases or any well or facility thereon
or storing, handling, treating or transporting to the Delivery Point Gas
production therefrom, and Seller agrees to protect, defend, indemnify and save
Buyer harmless from against any and all liability, loss, cost and expense
including, without limitation, court costs and reasonable attorney's fees
resulting from or attributable to the same. Other than for transportation
penalties that are the obligations of Seller specifically set forth in Section
9.1, and the taxes to be paid by Seller pursuant to Section 7.5, Buyer will
indemnify and save Seller harmless from any and all liability, loss, cost or
expense including, without limitation, court costs and reasonable attorney's
fees resulting from or attributable to the transportation, re-sale or storage of
the Gas purchased by Buyer downstream of the Delivery Point.
5.
PRESSURE, NOMINATIONS AND DISPATCHING
5.1 PRESSURE. Seller shall deliver, or cause to be delivered, the Gas
delivered hereunder at a pressure sufficient to be delivered into First
Transporter's pipeline at the Delivery Point, provided however, that in no event
shall Seller be required to add compression to effect any deliveries of Gas
hereunder.
5.2 NOTIFICATION. Seller shall inform Buyer, as often as may be
necessary, of the delivery rate and pressure of the Gas delivered hereunder.
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5.3 NOMINATION PROCEDURES. Not less than four (4) Business Days prior to
the earlier First Transporter's nomination deadline for the first Day of any
Month, Seller will notify Buyer, utilizing the format set forth in Exhibit "C"
attached hereto, of the Excess Gas Quantity which Seller expects to be available
for delivery hereunder at each Delivery Point during such Month where such
Excess Gas Quantity which Seller expects to be available for delivery hereunder
at each Delivery Point during such Month where such Excess Gas Quantity shall be
not less than the Base Quantity. No later than three (3) Business Days prior to
such nomination deadline, Buyer shall provide Seller with a Nomination Notice
utilizing the format set forth in Exhibit "D" attached hereto which sets forth
the Nominated Quantity and the quantity to be delivered at each Delivery Point,
together with certain other information, including the price pursuant to Section
7.2(a) that Buyer is willing to pay for the Optional Quantity. The price for the
Optional Quantity may be negotiated as set forth in said Section 7.2(a). Unless
the Optional Quantity is released as set forth in Section 7.2(b), Seller shall,
no later than the Pricing Deadline defined in Section 7.2(a) hereof, deliver to
Buyer a further notice (the "Confirmation Notice"), in the form attached hereto
as Exhibit "E", setting forth the Optional Quantity that Seller will sell and
deliver to Buyer for the relevant Month. Such Optional Quantity shall not exceed
the Optional Quantity set forth in Buyer's Nomination Notice. If the Optional
Quantity in the Confirmation Notice is less than the Optional Quantity in
Buyer's Nomination Notice for such Month, the Nominated Quantity hereunder for
such Month shall be adjusted accordingly. If no Conformation Notice is timely
delivered by Seller, it shall be deemed that the Optional Quantity set forth in
Buyer's Nomination Notice will be the Optional Quantity for such Month.
5.4 CHANGE IN NOMINATED QUANTITIES.
(a) The Nominated Quantity may be increased at any time by mutual
agreement of the parties;
(b) The Nominated Quantity may also be reduced, provided that
Section 7.6 may apply.
(c) A revised Nominated Quantity shall always be set forth in a
notice from the party electing to make such revision and shall be
effective on the earliest possible date after such notice is
received by either party from the other, but no earlier than
allowed by the nomination and scheduling procedures in the
applicable First Transporter's tariff. Any changes to the
Nominated Quantity shall be effected in a manner designed to
avoid to the greatest extent possible, the imposition of
transportation penalties.
(d) It is the understanding and intent of the parties that the
Base Quantity shall never be more than the full well streams of
all Gas owned by Seller attributable to the maximum efficient
rate of recovery from the Exhibit "A" Leases. In the event Seller
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determines that the normal decline in production from the Exhibit
"A" Leases will cause the maximum efficient rate of production
therefrom to be less than the Base Quantity, Seller shall provide
advance written notice of such fact to Buyer and shall notify
Buyer of the Quantity to which the Base Quantity should be
reduced. Buyer shall have thirty (30) days within which to review
any data that it deems necessary in connection with Seller's
request and, unless it can demonstrate to Seller's reasonable
satisfaction that the Base Quantity should not be reduced, the
parties shall reduce the Base Quantity to the amount requested by
Seller or to such other amount as may be mutually agreed. In the
event that Buyer determines in its reasonable discretion that
Seller's failure to produce the Base Quantity could result in a
loss of market, or pipeline scheduling or imbalance penalties,
Buyer shall have the right to request a reduction in the Base
Quantity to a quantity that would avoid any potential loss of
market or such penalties. Further, in the event Seller fails to
deliver the Base Quantity for two (2) consecutive Months, Buyer
shall have the right to reduce the Base Quantity to a volume
which, based upon historical data and anticipated production,
Buyer deems reasonably necessary to avoid future failures by
Seller. Seller, within thirty (30) days after the receipt of
Buyer's notice of a reduction in the Base Quantity pursuant to
the foregoing, shall reduce the Base Quantity to such amount as
requested by Buyer or to such other amount as may be mutually
agreed by Buyer and Seller.
6.
MEASUREMENT AND QUALITY
6.1 MEASUREMENT. Buyer shall cause the Gas delivered hereunder to be
measured by First Transporter at each Delivery Point at pressures in First
Transporter's pipeline in existence from time-to-time and such measurement shall
be corrected to the Unit of Measurement. Seller's deliveries of Gas shall be
calculated from the measurements taken at the meter installed, operated and
maintained by First Transporter at or near the Delivery Point, and from the
heating value determined by the instruments operated by First Transporter. The
measurement statements of the quantities accepted for delivery by the First
Transporter at each Delivery Point and the allocation of such quantities for
Buyer's account made by the First Transporter , shall, absent manifest error by
First Transporter or Seller's operator, establish the quantities of Gas
delivered hereunder each Month during the term hereof.
6.2 MEASUREMENT ADJUSTMENTS. If at any time Buyer, Seller or the First
Transporter determines any of the measuring or testing equipment is found to be
out of service, or registering inaccurately in any percentage, it shall be
adjusted at once to read accurately within the limits prescribed by the
manufacturer. Any necessary adjustments to previous measurement readings shall
be made in accordance with the First Transporter's determination and acceptance
of such adjustments.
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6.3 QUALITY AND MEASUREMENT SPECIFICATIONS. The quality and measurement
standards and specifications of this Contract shall be the First Transporter's
quality and measurement standards and specifications as set forth in the First
Transporter's published tariffs filed with FERC, if applicable, or in the case
of a non-FERC-jurisdictional First Transporter, its customary quality and
measurement standards and specifications, for acceptance and transportation of
Gas at the Delivery Point, as the same may be modified from time to time. Seller
shall take all actions necessary to cause the Gas to satisfy such quality
standards and specifications before delivery to Buyer.
6.4 BTU CONTENT. Except for purposes of determining whether or not Gas
meets the quality standards and specifications of this Contract (which, in
accordance with Section 6.3 shall be based upon First Transporter's quality and
measurement standards and specifications applicable at the time of delivery),
the heating value or Btu content of Gas delivered to Buyer under this Contract
shall be determined on an actual water vapor content basis (or, if measured on a
different basis, adjusted to an actual water vapor content basis), except to the
extent applicable regulations may require otherwise.
7.
PRICE
7.1 CONTRACT PRICE. For each MMBtu sold and purchased hereunder, the
Contract price shall be an amount equal to the sum of (i) the Gathering Fee and
(ii) the applicable Commodity Price, where:
(i) Gathering Fee means the gathering charges per MMBtu
incurred by Seller in moving Buyer's Gas from
"Sales Point (defined below)" to the Delivery
Points.
(ii) Commodity Price means an amount per MMBtu
determined in accordance with Sections 7.1.1 (for
the Tier I Quantity), 7.1.2 (for the Tier II
Quantity), 7.1.3 (for the Tier III Quantity), 7.2
(for the Optional Quantity), or 7.3 (for the
Mid-Month Incremental Quantity, as applicable).
7.1.1 TIER I QUANTITY (First 8,000 MMBtu per day). For the first 8,000
MMBtu per day nominated for delivery hereunder on the first day of any month,
the Commodity Price shall be the difference between (x) the arithmetic average
of the Transco Zone 4 Price and the Florida Gas Zone 3 Price and (y) the
"Marketing Expense", where:
(a) "Florida Gas Zone 3 Price" for any Month means the price for such
Month identified in the first issue of INSIDE F.E.R.C. for such Month in
the table entitled "Prices for Spot Gas
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Delivered to Pipeline" in the column labeled "Index" for deliveries to
Florida Gas Transmission Company (Zone 3).
(b) "Marketing Expense" means the sum of the following: (i) the
Gathering Fee; (ii) the transportation and fuel charges per MMBtu
available to Buyer, under transportation arrangements in place at such
time, in transporting gas from the terminus of DIGS to Transco/Station
85, and (2) the transportation and fuel charges per MMBtu available to
Buyer under transportation arrangements in place at such time in
transporting gas from the terminus of DIGS to Citronella, if any. The
transportation charges in (1) and (2) above shall be the lowest such
charges available to Buyer, under transportation arrangements in place
at such time, in transporting like quantities of gas under its
transportation arrangements between such points.
(c) "Sales Point" means the point set forth in Exhibit "G" attached
hereto.
(d) "Transco Zone 4 Price" for any Month means the price for such Month
identified in the first issue of INSIDE F.E.R.C. for such Month in the
table entitled "Prices for Spot Gas Delivered to Pipeline" in the column
labeled "Index" for deliveries to Transco (Mississippi, Alabama).
(e) In the event that any index price set forth above is not published,
but prices set forth in such table under the column "Range" are
published, the price used shall be the average of the prices in such
table under the column "Range." In the event INSIDE F.E.R.C. is no
longer published, or any price set forth above is no longer available,
the price last determined on the basis of such publication shall
continue as the applicable Index Price until an alternate method is
established pursuant to the provisions hereof. Seller and Buyer will use
their reasonable efforts to negotiate a mutually acceptable alternative
index representing the estimated spot price of Gas at the applicable
location as determined based on transactions agreed to in the last week
of the Month prior to delivery (the "Spot Price"). If by the end of the
first Month for which the price could not be determined as set forth
above the parties are unable to agree upon a substitute methodology
and/or publication to determine the Index Price, then Seller and Buyer
shall each in good faith prepare a list of up to five alternative
published references posting or prices representative of Spot Prices for
Gas delivered in the same geographic area. Each list shall be set forth
in the party's priority order with the highest priority index listed
first. Each party shall submit its list to the other within ten days
after the end of the first Month for which the price could not be
determined as set forth above. The lists shall be compared and the first
listed index appearing in Buyer's list that also appears in Seller's
list shall constitute the replacement index and shall be used to
determine the applicable Index Price. In the event there is no match the
parties shall exchange lists again within 10 days and the first index
appearing in Buyer's list that also appears in Seller's list shall
constitute the
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replacement index and shall be used to determine the Index Price. If
either party fails to provide a list of that party's alternative
published references, the first listing on the other party's list shall
be the replacement index. If no replacement index is established
pursuant to the procedures followed herein, then the replacement index
shall be the average of the first index submitted by each party on its
final list.
(f) Each party shall name one arbitrator within five (5) days following
the end of the 20 day negotiation period specified in (b) above, and the
two arbitrators shall name a third arbitrator within 5 days after they
have both been selected. If either party or the two arbitrators fail to
timely name an arbitrator as provided herein, then application may be
made to the Chief Judge of the United States District Court for the
Southern District of Texas for the appointment of such arbitrator. The
board so constituted shall fix a reasonable time and place for a hearing
of the controversy but such hearing shall be within ten (10) days
following the selection of the board. The board shall consider such
evidence as it deems necessary or desirable. The parties shall direct
the board to reach a decision within ten (10) days following the
hearing. The action of a majority of the members of such board shall
govern and their decision in writing shall be final and binding on the
parties hereto and judgment upon any award rendered by the board may be
entered and a confirmation order sought in any court having jurisdiction
thereof. Each party shall pay the expenses of the arbitrator selected by
or for it and the expenses of preparing and presenting its evidence at
the hearing; all other costs of the arbitration shall be equally divided
between the parties hereto.
7.1.2 TIER II. Quantity (next 42,000 MMBtu per day). For the next 42,000
MMBtu per day nominated for delivery hereunder on the first day of any month,
the Commodity Price shall be the Transco Zone 4 Price, as described in Section
7.1.1(d) above, less the sum of (i) the Gathering Fee and (b) the transportation
and fuel charges incurred by Buyer (as of the effective date hereof, $0.0921 per
MMBtu (Adjusted to thermal basis from volumetric basis) plus 0.41% fuel under
its firm transportation contract with Transco for transportation of such gas
from the terminus of DIGS to Transco Station 85.
7.1.3 TIER III Quantity (next 70,000 MMBtu per day).
(a) For the next 70,000 MMBtu per day nominated for delivery hereunder
on the first day of any month, Buyer and Seller shall attempt to negotiate a
cash price for deliveries at the terminus of DIGS. In such case, the Commodity
Price for the Tier III Quantity shall be determined by subtracting the Gathering
Fee from such negotiated cash price. If Buyer and Seller fail to agree on a cash
price by noon on the business day immediately preceding the day upon which NYMEX
trading closes for such month, the Commodity Price for the Tier III Quantity
shall be equal to the arithmetic average of the INSIDE FERC Indices, each
reduced by the Gathering Fee and applicable transportation and associated costs
as set forth below, for the following three pipelines and locations:
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(i) Koch Gateway Pipeline, Louisiana.
(ii) Transco, Zone 4.
(iii) Florida Gas Transmission Company, Zone 3, provided that
Buyer has access to markets at Citronella.
(b) Provided, however, prior to calculating such average, each of the
INSIDE FERC Indices set forth in (i), (ii) and (iii) above shall be
reduced by an amount equal to the sum of (i) the Gathering Fee and (2)
the lowest transportation rate, including fuel and ACA charges,
available to Buyer to transport such gas from the terminus of DIGS for
delivery into the specified pipeline's mainline point correlating to the
INSIDE FERC Indices above. Additionally, prior to the time Buyer has
access to markets at Citronella, only the INSIDE FERC Indices referenced
in (i) and (ii) above shall be utilized in determining the Commodity
Price for the Tier III Quantity.
(c) Insofar as, and only insofar as, the Tier III Quantity is concerned,
as set forth in Section 7.1.3(a) above, the term of this agreement shall
become effective on January 1, 1995 and continue through March 31, 1996.
Within the sixty (60) day period prior to April 1, 1996, either party
may elect to notify the other of its desire to enter into negotiations
for the continued purchase and sale of gas subject to Section 7.1.3(a)
above. If neither party exercises its right to renegotiate, the purchase
and sale of the Tier III Quantity shall continue on a month-to-month
basis until either party notifies the other, upon 60 days prior notice,
that it desires to renegotiate this agreement, as to the Tier III
Quantity. In the event that Buyer and Seller cannot reach agreement and
Seller has received an acceptable purchase offer from a third party,
Buyer will be afforded the opportunity to review and match such offer.
In such case Buyer will have the right to match any third party offer.
In such case Buyer will have the right to match any third party offer.
If a matching offer is not submitted to Seller by Buyer pursuant to its
rights under this paragraph within five (5) days following Buyer's
receipt of Seller's notice of such third party offer, complete with
details of the offer, and, Seller elects to sell the Tier III Quantity
to the third party, then Buyer shall release such Tier III Quantity from
commitment hereunder.
7.2 OPTIONAL QUANTITY.
(a) Buyer's Nomination Notice pursuant to Section 5.3 hereof for any
Month shall include Buyer's offer of a cash price for deliveries at the
terminus of DIGS where deliveries can be made into the system of either
Transco or Koch Gateway Pipeline Co. ("Onshore Price") for the Optional
Quantity for such Month. If such Onshore Price offer is accepted by
Seller, or if Buyer and Seller shall negotiate and agree to a different
Onshore Price, Buyer and
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Seller shall execute a Negotiated Onshore Price Agreement in form
attached hereto as Exhibit "F" no later than two (2) Business Days prior
to the earlier of the Transporters' nomination deadlines for such Month
("Pricing Deadline"). The Onshore Price agreed upon by Buyer and Seller
as set forth above shall be hereinafter called the "Negotiated Onshore
Price", and the Commodity Price for the Optional Quantity shall be
determined as follows:
Optional Quantity Commodity Price = Negotiated Onshore Price - Gathering
Fee (defined in Section 7.1. (a)(i).
(b) If Buyer and Seller fail to agree upon a Negotiated Onshore Price,
the Optional Quantity shall be released from this agreement for such
Month and for purposes of Section 3.2 hereof, the Optional Quantity for
such Month shall equal zero (0) MMBtu.
7.3 MID-MONTH INCREMENTAL QUANTITY. In the event Seller and Buyer, for
any Day(s) during any Month agree to a Mid-Month Incremental Quantity for such
Month, Buyer and Seller may negotiate a cash price at the terminus of DIGS for
such Mid-Month Incremental Quantity, to be determined daily or fixed for a given
period during the balance of the month, as mutually agreed upon. In such case,
the Commodity Price for the Mid-Month Incremental Quantity shall be determined
by subtracting the Gathering Fee from said negotiated cash price. If no
agreement on such cash price is reached, the Commodity Price for the Mid-Month
Incremental Quantity shall be the Fallback Commodity Price, which shall be
determined as follows:
Fallback Commodity Price = Weighted Average Spot Price - Market
Cost
(f) Additional Definitions:
"Market Cost" means the sum of (i) and (ii) below:
(i) the Gathering Fee
(ii) the transportation and fuel charges per MMBtu
incurred by Buyer, under the transportation
arrangements in place at such time, in transporting
the gas sold hereunder from the terminus of DIGS to
Koch Gateway Pipeline
7.4 DRY BASIS. All prices shall be calculated on the basis of the actual
water vapor content of Gas delivered, except to the extent required otherwise by
regulation.
7.5 THIRD PARTY COSTS. Seller shall be responsible for the payment of
all third party fees and charges, if any, necessary for the gathering,
processing, dehydration, compression, transportation
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and delivery of the Gas to the Delivery Point, and all taxes, charges, or
assessments made or assessed on such Gas at, upstream of or near such Delivery
Point, including but not limited to all production, severance, excise, ad
valorem, energy, Btu and other taxes imposed or levied by the state, federal or
any governmental entity on the Gas produced by Seller and delivered or sold
hereunder. In the event Buyer is required to remit such taxes, the amount
thereof shall be deducted from any sums thereafter becoming due and owing to
Seller. Nothing herein shall be construed as applying to any tax on the resale
of Gas, or to the transportation charges or fees imposed on Buyer after title
and possession of the Gas shall have passed to Buyer. If, after the date hereof
Seller has the opportunity to enter into an arm's length contract with a third
party for the Gas covered hereby, whereby Seller would be reimbursed for all or
a portion of any energy, Btu, or other new or increased taxes imposed after the
date hereof that are the responsibility of Seller hereunder, then Seller shall
give notice to Buyer thereof, together with all the other material terms of such
proposal. Buyer shall have thirty (30) days within which to agree to modify this
Contract to conform to all of the terms of such proposal, including the
reimbursement, or payment, as the case may be, by Buyer of the portion of such
taxes that such third party buyer would pay or reimburse to Seller. If Buyer
fails to meet such offer, then Buyer shall release from this Contract all Gas in
excess of a daily quantity equal to fifty percent (50%) of the daily quantity of
Gas delivered or to be delivered pursuant to the Production Payment, and this
Contract shall thereafter be for a term only for so long as the Production
Payment is in effect.
7.6 FAILURE TO DELIVER OR TAKE. In the event that Seller does not
deliver the Base Quantity on any Day ("Deficiency Default"), a Seller's
Deficiency Quantity shall be that portion of the Base Quantity that the Seller
failed to deliver, and Seller shall pay to Buyer the sum of (a) the Default
Charge, as set forth below, and (b) the produce of Seller's Deficiency Quantity
and the positive amount, if any, obtained by subtracting (i) the price that was
applicable to such Gas hereunder from (ii) the cost to Buyer, including
incremental transportation costs and/or location or basis adjustments, to
replace Seller's Deficiency Quantity. In the event that Buyer fails to take the
Base Quantity on any Day ("Deficiency Default"), a Buyer's Deficiency Quantity
shall be that portion of the Base Quantity that Buyer failed to take, and Buyer
shall pay to Seller the sum of (a) the Default Charge, as set forth below, and
(b) the product of Buyer's Deficiency Quantity and the positive amount, if any,
obtained by subcontracting (i) the price obtained by Seller in an arm's-length
sale to a third party of a quantity of Gas equal to the quantity that Buyer
failed to purchase, less incremental transportation charges to Seller and
including location or basis adjustments, from (ii) the then applicable price
under Article 7 as is appropriate. As used herein, the Default Charge shall be
as follows:
1. If the Deficiency Default was the result, in whole or in part, of
the defaulting Party's effort to obtain a more favorable price,
the Default Charge shall be the product of (a) either Seller's
Deficiency Quantity, or Buyer's Deficiency Quantity, whichever is
applicable, and (b) $0.15.
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2. If the Deficiency Default was not the result, in whole or in
part, of the defaulting Party's effort to obtain a more favorable
price, the Default Charge shall be the product of (a) either
Seller's Deficiency Quantity or Buyer's Deficiency Quantity,
whichever is applicable, and (b) $0.02.
In the event that either Party interrupts, in whole or in part, the
purchase or sale of the Optional Quantity for Pricing Reasons, in contravention
of Section 3.2 hereof, such action shall also be a Deficiency Default, and the
defaulting Party shall pay to the other Party an amount calculated as set forth
above in this Section 7.6, utilizing the Optional Quantity which was interrupted
for Pricing Reasons as the Deficiency Quantity, and utilizing the Default Charge
in subparagraph 1 above.
8.
BILLING AND PAYMENT
8.1 PAYMENT DATE. Seller shall invoice Buyer monthly for the amount due
hereunder. On or before the twenty-fifth (25th) Day of the calendar Month
following the Month of production or within ten (10) days from the date of
invoicing, whichever is later, Buyer will make payment to Seller by wire
transfer to an account designated in writing by Seller. Seller's invoices shall
be supported by a measurement statement from the First Transporter, if
available, and/or allocation statement from Seller's operator, if available, for
quantities received by Buyer at the Delivery Point.
8.2 LATE PAYMENT. Should Buyer fail to remit an amount when due,
interest on the unpaid portion shall accrue at a rate equal to the Interest
Rate. If Buyer disputes the full amount invoices, Buyer shall remit the full
undisputed amount attributable thereto in accordance with Section 8.1 above.
Buyer will remit any disputed amount, as adjusted if necessary by mutual
agreement of the parties, promptly following resolution of any such dispute. If
Buyer has overpaid amounts actually due then Seller shall remit to Buyer such
excess plus interest calculated at the Interest Rate upon request.
8.3 ADJUSTMENTS. Upon notice to the other party, either party has the
right, as its sole expense and during normal working hours, to examine the
records of the other as necessary to verify the accuracy of any statement,
charge, notice or computation made pursuant to the provisions of this Contract.
If any such examination reveals any inaccuracy in any statement, the necessary
adjustments in such statement and the payments thereof will be promptly made;
provided, that no adjustment or payment will be made after the lapse of two (2)
years from the rendition thereof. The provisions of this paragraph will survive
any termination of this Contract for a period of two (2) years from the date of
such termination. The parties shall use their reasonable efforts to resolve any
Measurement and Allocation Inaccuracies as soon as practicable so that
settlement may be effected within the two-year time period.
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9.
PENALTIES
9.1 TRANSPORTATION PENALTIES. It is understood that the Gas purchased
and sold hereunder will be transported by third party transporters, and each
party has agreed to provide notice to the other party of quantities of Gas
Seller intends to deliver and Buyer intends to purchase and receive. If Seller
delivers, or causes to be delivered, for Buyer's account at any Delivery Point,
a quantity of Gas that is greater or less than the Nominated Quantity scheduled
for transportation by First Transporter and such variable deliveries causes
Buyer, or Buyer's designee, to incur a penalty as levied by the First
Transporter of any other transporting pipeline, then Seller shall bear and pay
such penalties. Buyer agrees to bear and pay all penalties which are assessed by
First Transporter or any other transporting pipeline(s) against Buyer, Buyer's
designee, or Seller as a result of Buyer's failure to adjust nominations in
accordance with the nomination procedures and notices in effect at the time,
pursuant to Sections 5.3 and 5.4.
9.2 NOTIFICATION. Either party shall immediately notify the other party
of any notice received from First Transporter, or any other third party
transporter, that indicates an imbalance in deliveries exists or is occurring
which may give rise to a penalty. The parties agree to cooperate immediately to
adjust their Gas nomination(s) and/or delivery(ies) as necessary to bring
deliveries and receipts into balance so that penalties are avoided or minimized
as much as possible.
10.
FORCE MAJEURE
10.1 FORCE MAJEURE. In the event of either party being rendered unable,
wholly or in part, by Force Majeure to carry out its obligations under this
Contract other than to make payments due hereunder, it is agreed that on such
party's giving notice and full particulars of such Force Majeure in writing or
by telecopy to the other party as soon as possible after the occurrence of the
cause relied on, then the obligations of the party giving such notice, so far as
they are affected by such Force Majeure, shall be suspended during the
continuance of any inability so caused, but for no longer period, and such cause
shall as far as possible be remedied with all reasonable dispatch. The term
"Force Majeure" as employed herein shall mean acts of God, governmental action,
strikes, lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lighting,
earthquakes, fires, hurricanes, tornadoes, storms, storm warnings, floods,
washouts, arrests and restraints of governments and people, civil disturbances,
explosions, breakage or accidents to wells, platforms, machinery or lines of
pipe, the necessity for making repairs to or alterations of wells, platforms,
machinery or lines of pipe, freezing of lines of pipe, and any other causes,
whether of the kind herein enumerated or otherwise, not within the control of
the party claiming suspension and which by the exercise of due diligence such
party is unable to prevent or overcome; provided that the unavailability of firm
or interruptible transportation services (unless
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caused by an event of force majeure as set out herein) shall not be claimed by
one of the parties hereto as an event of Force Majeure. It is further understood
and agreed that the settlement of strikes or lockouts shall be entirely within
the discretion of the party having the difficulty, and that the above
requirements that any Force Majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes or lockouts by acceding to
the demands of the opposing party when such course is inadvisable in the
discretion of the party having the difficulty.
11.
TERM
11.1 TERM. Subject to the provisions of Sections 7.1.3(c), 7.5 and 11.2
hereof, this Contract shall be effective as of December 1, 1994 and shall
continue in force and effect until the later of (a) the termination of any
Production Payment, (b) the termination of the Area of Interest Agreement or (c)
June 30, 2000 (the original date of expiration of Buyer's transportation
contract with Transco covering the Reserved Capacity); provided that upon any
termination, howsoever occurring, this Contract shall continue from month to
month thereafter until terminated by either party upon thirty (30) days prior
written notice to the other party.
11.2 ADJUSTMENTS UPON TERMINATION. Subject to the provisions of Section
8.3, upon the termination of this Contract any monies or penalties due and owing
either Party shall be paid pursuant to the terms hereof, and any corrections or
adjustments to payments previously made shall be determined and any refunds due
either Party made at the earliest possible time, and, unless a dispute exists,
in any event no later than two (2) years following such termination. This
Contract shall remain in effect until the obligations under this Section have
been fulfilled.
12.
WARRANTY OF TITLE
12.1 WARRANTY. Seller hereby warrants the title to all Gas comprising
the Excess Gas Quantity delivered by Seller to Buyer hereunder, the right to
sell the same and that it is free from all liens and adverse claims, and agrees,
if notified thereof by Buyer, to indemnify Buyer against all suits, actions,
debts, accounts, damages, costs, losses, and expenses arising from or out of any
adverse legal claims of any and all persons to or against said Gas. Seller
agrees to pay or cause to be paid all taxes and assessments levied on the Gas
prior to its delivery to Buyer, and to pay or cause to be paid or delivered in
kind to the Parties entitled thereto all royalties, overriding royalties or like
charges against said Gas or the value thereof. In the event any adverse claim of
any character whatsoever is asserted
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in respect to any of said Gas, Buyer may retain the purchase price thereof up to
the amount of such claim without interest until such claim has been finally
determined, as security for the performance of Seller's obligations with respect
to such claim under this Article 12, or until Seller shall have furnished bond
to Buyer, in an amount and with sureties satisfactory to Buyer, conditioned for
the protection of Buyer with respect to such claim.
13.
REGULATORY BODIES
13.1 REGULATIONS. This Contract is subject to all present and future
valid orders, rules, and regulations of any regulatory body having jurisdiction.
13.2 REGULATORY FILINGS. The parties agrees to timely make all
regulatory filings, if any, that may be needed to effectuate the contemplated
purchase and sale of Gas hereunder.
14.
ADDRESSES
14.1 SELLER'S ADDRESS. Unless Buyer is otherwise notified in writing by
Seller, the address of Seller is and shall remain:
OEDC Exploration and Production L.P. and
South Dauphin Partners Ltd.
c/o OEDC, Inc.
1400 Woodloch Forest Dr., Suite 200
The Woodlands, Texas 77380
Attention: R. Keith Anderson
Telephone Number: (713) 364-0033
Telecopy Number: (713) 364-1122
14.2 BUYER'S ADDRESS. Unless Seller is otherwise notified in writing by
Buyer, the address of Buyer is and shall remain:
ENRON CAPITAL & TRADE RESOURCES CORP.
P. O. Box 1188
Houston, Texas 77251-1188
Attention: Contract Administration
Telecopy Number: (713) 646-8174
-21-
14.3 NOTICES IN WRITING. All notices required to be given in writing
hereunder shall be given to the respective parties at such address or such other
addresses as the parties respectively shall designate from time-to-time by
written notice. All notices shall be in writing and shall be delivered
personally or mailed by certified mail, postage prepaid, return receipt
requested or by telex or telecopier. All notices given by personal delivery or
mail shall be effective on the date of actual receive at the appropriate
address. Notice given by telex or telecopier shall be effective upon actual
receipt if received during recipient's normal business hours or at the beginning
of the next business day after receipt if received after the recipient's normal
business hours.
15.
MISCELLANEOUS
15.1 COSTS OF LITIGATION. In the event of a breach of this Contract or
if a dispute arising hereunder is not resolved, and one party should sue the
other party to enforce its rights hereunder or for breach hereof, the party
prevailing in such litigation shall be entitled to recover it costs and
reasonable attorney's fees in addition to any other remedy or recovery to which
it may be entitled.
15.2 CONFIDENTIALITY. Each party agrees that it shall not, and shall use
reasonable diligence (in accordance with reasonable commercial practice and at
least as stringent procedures as its uses to protect similar confidential
information of its own) to cause its agents and representatives not to disclose
to any other person any confidential information or data of any other party
hereto which is obtained by such party or its agents or representatives. For
purposes of this Section 15.2, "Confidential Information" shall include
information regarding Price as set forth in Section 7.1, any data or information
provided by Seller to Buyer pursuant to Section 2.3 as well as any other
information designated by Seller in writing as "Confidential" provided that
information shall not be deemed to be confidential if such information (i) is
known to such party prior to disclosure by another party hereunder, (ii) is or
becomes publicly available through no breach by such party of this Agreement,
(iii) is disclosed to such party by a third party whom such party reasonably
believes to have the right to make such disclosure or (iv) may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, or in order to comply with any applicable law, order, regulation or
ruling. Seller shall have the right to make any such confidential information
available to (i) bona fide prospective purchaser of Seller's interest hereunder,
(ii) bona fide prospective lenders to either party, and (iii) either party's
consultants for evaluation purposes, provided that such third party has agreed
in writing to be bound by the confidentiality provisions hereof.
15.3 NO WAIVER. No waiver by either party of any one or more defaults by
the other in the performance of any provisions of this Contract shall operate or
be construed as a waive of any future default or defaults, whether of a like or
of a different character.
-22-
15.4 BINDING EFFECT. This Contract shall be binding upon and inure to
the benefit of the heirs, legal representatives, successors and assigns of the
respective parties hereto provided however, that Seller may not assign its
interest under this Contract unless transferred along with the Exhibit "A"
Leases, it being understood that this Contract is appurtenant to and creates a
creates a covenant running with the Exhibit "A" Leases. Provided however,
transfer of this Agreement by Seller shall be subject to the Buyer's consent,
which shall be withheld only where Buyer determines, in its sole direction, that
the proposed transferee does not have experience and net worth equivalent to
that of Seller. Any assignment by Seller or Buyer of all or any portion of its
interest hereunder shall be expressly subject to terms hereof, and the assigning
party shall give the other party written notice of such assignment. Any assignee
of all or any portion of Seller's or Buyer's interest under this Contract shall
assume and agree to be bound by and perform all obligations arising after the
effective date of assignment with respect to the assigned interest. Any transfer
or conveyance by Seller to a third party of the Exhibit "A" Leases shall be
conditioned upon the execution by such third party of an agreement in the form
attached hereto as Exhibit "H."
15.5 COUNTERPART EXECUTION. The Contract may be signed in counterparts,
each of which shall constitute an original and together which shall constitute
one and the same Contract.
15.6 ENTIRE AGREEMENT. Effective as of the effective date first
hereinabove written, this Contract supersedes in its entirety all prior
agreements, written or oral, including that certain Excess Gas Purchase Contract
between Buyer and Seller dated May 18, 1993, as amended, covering the Exhibit
"A" Leases; and this Contract constitutes the entire agreement between the
parties with respect to the subject matter hereof, and no waiver, representation
or agreement, verbal or otherwise, shall affect the subject matter hereof unless
and until such waiver, representation or agreement is reduced to writing and
executed by the authorized representatives of the parties.
15.7 SEVERABILITY. Except as otherwise stated herein, any or Section
declared or rendered unlawful by a court of law or regulatory agency with
jurisdiction over the parties or deemed unlawful because of statutory change
will not otherwise affect the lawful obligations that arise under this contract.
15.8 GOVERNING LAW. THIS CONTRACT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER STATE ARE
MANDATED.
15.9 RECORDATION OF AGREEMENT. Contemporaneously with the execution of
this Agreement, Seller and Buyer have executed several originals of this
Contract for filing in the appropriate County records which documents contain
all the terms and provisions of this Agreement except Article 7 (Price).
Originals of the full and complete Agreement are available in the offices of
-23-
Buyer and Seller for persons having bona fide inquiries, subject to the same
confidentiality requirements applicable to the parties hereto under Section
15.2.
15.10 CAPACITY UTILIZATION.
(a) REQUIRED NOTICE. In the event production from the Exhibit "A"
leases is expected to fall below the Reserved Capacity Seller
shall notify Buyer thereof no later than 5:00 p.m. Central Time
on the ninth (9th) Business Day prior to the month in which such
shortage is expected to occur.
(b) THROUGH FEBRUARY 28, 1995. Commencing with the effective date
of this agreement and continuing until February 28, 1995, Buyer
shall be solely responsible for utilization of the Reserved
Capacity; provided however, if Buyer is not provided timely
notice under Section 15.10(a) above, and Buyer is not able to
release or fill any portion of the Reserved Capacity with third
party gas, Seller shall reimburse to Buyer within ten (10) days
after the date of Buyer's written invoice therefor, the amount of
any transportation demand charges paid by Buyer to Transco and
attributable to that portion of the Reserved Capacity which is
not released by Buyer or filled by Buyer with third party gas
("Unused Demand Charges").
(c) SUBSEQUENT TO MARCH 1, 1995. Commencing March 1, 1995 and
thereafter, Seller shall reimburse Buyer for fifty percent (50%)
of the Unused Demand Charges within ten (10) days after the date
of Buyer's written invoice therefor. Additionally, Buyer shall
pay to Seller, within ten (10) days after receipt of same, fifty
percent (50%) of any profits generated by Buyer for released firm
capacity. Seller may reduce the Reserved Capacity, effective 90
days after Buyer's receipt of Seller's written request to reduce
the Reserved Capacity. Seller's right to request such reduction
shall be exercisable only at such time that the Excess Gas
Quantity is reasonably expected to fall below the previously
effective Reserved Capacity due solely to the natural decline of
reserves and deliverability. In the event of a reduction in
Buyer's deliverability due to an event of Force Majeure, Buyer
shall, if it is unable to immediately replace such gas with
third-party supplies, post for capacity releases, at the next
available posting period, the affected capacity. Notwithstanding
the foregoing, Seller shall reimburse to Buyer, no later than ten
(10) days after the date of Seller's invoice therefor,
seventy-five percent (75%) any Unused Demand Charges. Any amounts
owed to Buyer by Seller, as set forth above, shall be settled by
an offsetting credit on Seller's monthly invoice to Buyer.
15.11 LIMITATION OF REMEDIES, LIABILITY AND DAMAGES. The parties do
hereby confirm that the express remedies and measures of damages provided in
this agreement satisfy the essential
-24-
purposes hereof. For breach of any provision for which an express remedy or
measure of damages is herein provided, such express remedy or measure of damages
shall be the sole and exclusive remedy hereunder, the obligor's liability shall
be limited as set forth in such provision and all other remedies or damages at
law or in equity are waived. If no remedy or measure of damages is expressly
herein provided, the obligator's liability shall be limited to direct actual
damages only, such direct actual damages shall be the sole and exclusive remedy
hereunder and all other remedies or damages at law or in equity are waived.
Neither party shall be liable for consequential, incidental, punitive, exemplary
or indirect damages, in tort, contract, under any indemnity provision or
otherwise.
15.12 SELLERS' REPRESENTATIVE AND AGENT. The Parties acknowledge that
this Agreement has been jointly executed by OEDC Exploration and Production L.P.
("OEDC") and South Dauphin Partners, Ltd. ("SDP") solely for the purpose of
committing all the Excess Gas Quantity to this Agreement. Any and all
communication required to be made by Buyer to Seller hereunder shall be
satisfied upon Buyer's communication with and through OEDC alone. OEDC and SDP
hereby jointly and severally represent and warrant to Buyer that (i) OEDC has
full power and authority to receive payment for and on behalf of SDP, (ii) OEDC
has been appointed by SDP's agent for purposes of managing all aspects of the
sale of SDP's Gas production that is the subject of this Agreement, including,
without limitation, the allocation of all production purchased by Buyer
hereunder between OEDC, SDP and other present and future owners of interests in
such Gas production, if any, and (iii) OEDC has assumed and shall continue for
the term of this Agreement to perform as SDP's agent for billing, collection,
allocation and all other contract administration matters hereunder. Buyer shall
be fully protected in relying upon the joint representations and warranties made
in the following sentence.
IN WITNESS WHEREOF, the Parties have executed this Contract in multiple
originals as of the date first hereinabove set forth.
SELLERS:
OEDC EXPLORATION & PRODUCTION L.P., BY
OEDC, INC. ITS GENERAL PARTNER
By: /s/ R. KEITH ANDERSON
Title: Vice President
SOUTH DAUPHIN PARTNERS LTD.,
-25-
BY OEDC EXPLORATION & PRODUCTION L.P.,
ITS MANAGING GENERAL PARTNER,
BY OEDC, INC. ITS GENERAL PARTNER
By: /s/ R. KEITH ANDERSON
Title: Vice President
BUYER:
ENRON CAPITAL & TRADE
RESOURCES CORP.
By: /s/ WYNNE SNOOTS, JR.
Title: Vice President
Signature page to that certain Amended and Restated Excess Gas Purchase
Contract dated June 7, 1995 between OEDC Exploration & Production L.P. South
Dauphin Partners Ltd. and Enron Capital & Trade Resources Corp.
-26-
STATE OF TEXAS }
}
COUNTY OF HARRIS }
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that R. Keith Anderson, whose name as Vice President
of OFFSHORE ENERGY DEVELOPMENT CORPORATION, Inc., a corporation, as general
partner of OEDC Exploration & Production, L.P., a limited partnership, as
general partner of South Dauphin Partners Ltd., a limited partnership, is signed
to the foregoing Amended and Restated Excess Gas Purchase Contract ("Contract"),
and who is known to me, acknowledged before me on this day that, being informed
of the contents of the Contract, he, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation, acting in
its capacity as general partner of OEDC Exploration & Production, L.P., which in
turn in acting in its capacity as general partner of South Dauphin Partners Ltd.
Given under my hand and official seal this 7th day of June, 1995.
/s/ BILLY D. BILTON
Notary Public in and for the State of TEXAS
My Commission Expires: 2/22/98
-27-
STATE OF TEXAS }
}
COUNTY OF HARRIS }
I, the undersigned authority, a Notary Public, in and for said county in
said state, hereby certify that Wynne Snoots, Jr., whose name as Vice President
of Enron Capital & Trade Resources Corp., a Delaware corporation, is signed to
the foregoing Amended and Restated Excess Gas Purchase Contract ("Contract"),
and who is known to me, acknowledged before me on this day that, being informed
of the contents of the Contract, he, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal this 20th day of July, 1995.
SEAL
/s/ CYNTHIA L. ADAMS
Notary Public in and for the State of TEXAS
My Commission Expires: 5/17/98
-28-
EXHIBIT "A"
LEASES, LEASE ACREAGE, PROPERTY AND SUBJECT INTERESTS
(1) Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Series Number OCS-G 13978, effective as of July 1, 1993,
covering all of Block 35, Viosca Knoll, OCS Official Protraction Diagram, NH
16-7.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(2) Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G 13979, effective as of July 1, 1993,
covering all of Block 38, Viosca Knoll, OCS Official Protraction Diagram, NH
1607.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(3) Oil and Gas Lease of Submerged Lands under the outer Continental
Shelf Lands Act bearing Serial Number OCS-G-14592, effective as of July 1, 1994,
covering all of Block 33, Viosca Knoll, OCS Official Protraction Diagram, NH
16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(4) Oil and Gas Lease of Submerged Lands under the outer Continental
Shelf Lands Act bearing serial Number OCS-G-14593, effective as of July 1, 1994
covering all of Block 77, Viosca Knoll, OCS Official Protraction Diagram, NH
16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(5) Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G-14595, effective as of July 1, 1994,
covering all of Block 80, Viosca Knoll, OCS Official Protraction Diagram, NH
16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
"A"-1-
(6) Oil and Gas Lease of Submerged Lands under the outer Continental
Shelf Lands Act bearing Serial Number OCS-G-14595, effective as of July 1, 1994,
covering all of Block 121, Viosca Knoll, OCS Official Protraction Diagram, NH
16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(7) Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G-14596, effective as of July 1, 1994,
covering all of Block 122, Viosca Knoll, OCS Official Protection Protraction
Diagram, NH 16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(8) Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G-14597, effective as of July 1, 1994,
covering all of Block 123, Viosca Knoll, OCS Official Protraction Diagram, NH
16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(9) Oil and Gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G-145605, effective as of July 1,
1994, covering all of Block 298, Viosca Knoll, OCS Official Protraction Diagram,
NH 16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(10) Oil and gas Lease of Submerged Lands under the Outer Continental
Shelf Lands Act bearing Serial Number OCS-G-14606, effective as of July 1, 1994,
covering all of Block 300, Viosca Knoll, OCS Official Protraction Diagram, NH
16-07.
Leasehold Interest or Operating Rights 100%
Net Revenue Interest .823333
(11) Oil and Gas Lease bearing Serial Number OCS-G-5759, executed by the
United States of America as Lessor, in favor of Atlantic Richfield Company, et
al as Lessees, dated July 1, 1983, covering all of Block 959, Mobile, OCS
Official Protraction Diagram NH 16-4, Insofar as only Insofar from the surface
to 100 feet below the base of the Miocene Formation as seen in the Unocal,
Mobile Block 916 No. 2 Well at 3155 MD.
"A"-2-
Leasehold Interest or Operating Rights 50%
Net Revenue Interest .823333
(12) Oil and Gas Lease bearing Serial Number OCS-G-5760, executed by the
United States of America as Lessor, in favor of Atlantic Richfield Company, et
al as Lessees, dated July 1, 1983, covering all of Block 960, Mobile, OCS
Official Protraction Diagram NH 16-4, Insofar as only Insofar from the surface
to 100 feet below the base of the Miocene Formation as seen in the Unocal,
Mobile Block 916 No. 2 Well at 3155 MD.
Leasehold Interest or Operating Rights 50%
Net Revenue Interest .4038542
"A"-3-
EXHIBIT "B"
DELIVERY POINTS
1. The interconnect of the Dauphin Island Gathering System and Transcontinental
Gas Pipe Line's Mobile Bay Pipeline Lateral facilities.
2. The interconnect of the Dauphin Island Gathering System and the transmission
facilities of Mobile Bay Pipeline Company (for redelivery into Koch Gateway
Pipeline Company.
3. The interconnect of the Dauphin Island Gathering System and Transco's Mobile
Bay Pipeline Lateral at FGT POI #62137 to accommodate Buyer's Sales into Florida
Gas Transmission Company.
"B"-1-
EXHIBIT "C"
_____________________, 199___
Enron Capital & Trade Resources Corp.
P.O. Box 1188
Houston, Texas 77251-1188
Re: Amended and Restated Excess Gas Purchase Contract "Contract" dated
_________________, between OEDC Exploration & Production L.P. and South Dauphin
Partners, Ltd. as Seller, and Enron Capital & Trade Resources Corp. as Buyer
Gentlemen:
In accordance with Section 5.3 of the above referenced Contract, the
daily quantity which Seller estimates will be available for delivery hereunder,
at each Delivery Point during the month of ______________, is a follows:
DELIVERY POINT DAILY QUANTITY (MMBTU/D)1
OEDC EXPLORATION & PRODUCTION L.P.,
By:
Name:
Title:
- --------
1 Under Section 5.3 of the Contract, the daily quantity shall not be
less than the Base Quantity.
"C"-1-
EXHIBIT "D"
BUYER'S NOMINATION NOTICE
Date
Attention:
Re: Contract No. _______________, Amended and Restated Excess Gas
Purchase Contract ("Contract") dated ___________________, between OEDC
Exploration & Production L.P. and South Dauphin Partners, Ltd., as Seller, and
Enron Capital & Trade Resources Corp., as Buyer
Gentlemen:
This Buyer's Nomination Notice is submitted pursuant to Section 5.3 of
the referenced Contract.
Term of Delivery: through
Nominated Quantity: MMBtu per day.
Buyer's Onshore Price offer for the Optional Quantity:
Sincerely,
ENRON CAPITAL & TRADE RESOURCES CORP.
Buyer
By:
Vice President
"D"-1-
EXHIBIT "E"
CONFIRMATION NOTICE
____________________, 199___
Enron Capital & Trade Resources Corp.
P.O. Box 1188
Houston, Texas 77251-1188
Re: Amended and Restate Excess Gas Purchase Contract dated ___________,
between OEDC Exploration & Production L.P. and South Dauphin Partners Ltd., as
Seller, and Enron Capital & Trade Resources Corp., as Buyer.
Gentlemen:
In accordance with Section 5.3 of the above referenced Contract, the
Optional Quantity which Seller agrees to deliver hereunder, at each Delivery
Point during the month of __________, is as follows:
DELIVERY POINT OPTIONAL QUANTITY (MMBTU/D)
OEDC EXPLORATION & PRODUCTION L.P.,
By:
Name:
Title:
"E"-1-
EXHIBIT "F"
NEGOTIATED ONSHORE
PRICE AGREEMENT
Attention:
Re: Amended and Restated Excess Gas Purchase Contract dated
_____________, between OEDC Exploration & Production L.P. and South Dauphin
Partners Ltd., as Seller, and Enron Capital & Trade Resources Corp., as Buyer.
Pursuant to Section 7.2(a) of the referenced contract, Buyer and Seller
agree to a Negotiated Onshore Price of ______________ for the month of
_______________, 19__.
ENRON CAPITAL & TRADE RESOURCES CORP.
By:
Name:
Title:
OEDC EXPLORATION & PRODUCTION, L.P.
By:
Name:
Title:
"F"-1-
EXHIBIT "G"
SALES POINT
1. The inlet flange of the measuring facilities of Dauphin Island Gathering
Partners at the platform owned by Seller in Mobile Bay, Block 959, Offshore
Alabama.
"G"-1-
EXHIBIT "H"
GAS PURCHASE AGREEMENT
This Gas Purchase Agreement (this "Agreement"), dated effective as of
this 1st Day of April 1995 (the "EFFECTIVE DATE") for an initial term of six
months (the "INITIAL TERM"), by and between Enron Capital & Trade Resources
Corp., a Delaware corporation ("BUYER"), and ("SELLER"), each herein referred to
from time to time as a "PARTY" or collectively as the "PARTIES."
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used in this Agreement, shall
have the meaning set forth below:
"BRITISH THERMAL UNIT" or "BTU" shall mean the amount of energy
required to raise the temperature of one pound of pure water one degree
Fahrenheit from 59 degrees Fahrenheit to 60 degrees Fahrenheit.
"BUSINESS DAY" shall mean any Day other than a Saturday, a
Sunday, or a state or Federal bank holiday in Houston, Texas, and closing as of
5:00 p.m. Central Standard Time ("CST").
"BUYER'S TRANSPORTER" shall mean Transcontinental Gas Pipeline
Corporation ("Transco"), Florida Gas Transmission Company ("Florida") or Koch
Gateway Pipeline Company ("Koch"), any successor or assign thereof, and "BUYER'S
TRANSPORTATION CONTRACT" shall mean the applicable transportation agreement and
tariff between Buyer and Buyer's Transporter in effect from time to time and the
applicable tariff.
"CLAIMS" shall mean any and all claims, suits, actions, debts,
accounts, damages, costs, expenses (both operational and administrative), losses
and liabilities, including injury to and death of persons, and including all
costs and attorney's fees.
"CONTRACT PRICE" - ARTICLE 4.
"DAY" shall mean a period of 24 consecutive hours, beginning at
7:00 a.m. CST on any calendar Day and ending at 7:00 a.m. on the following
calendar Day, CST.
"DEDICATED RESERVES" shall mean Seller's Interest in all
recoverable Gas reserves in, under, attributable to or produced from the area
shown outlined on EXHIBIT "A," together with a description of the various
property interests, including, without limitation, leaseholds, royalties,
"H"-1-
overriding royalties, other non-expense bearing accounts, carried interests or
fee interests (collectively, the "SUBJECT LEASES") within such area in which
Seller owns or controls an interest listed on EXHIBIT "B".
"FORCE MAJEURE" - SECTION 11.2.
"GAS" shall mean natural gas, including gas-well gas, casinghead
gas, or residue gas resulting from processing both casinghead gas and gas-well
gas, and shall include liquefied natural gas and synthetic gas in a vaporized
state.
"INSIDE F.E.R.C." shall mean INSIDE F.E.R.C.'S GAS MARKET REPORT
published biMonthly by McGraw-Hill, Inc.
"INTEREST RATE" shall mean two percent over the Prime Rate, as
herein defined; provided, the Interest Rate shall never exceed the maximum
lawful rate permitted by applicable law.
"MMBTU" shall mean one million British Thermal Units.
"MONTH" shall mean a period beginning at 7:00 a.m. CST on the
first Day of any calendar Month and ending at 7:00 a.m. CST on the first Day of
the next succeeding calendar Month.
"PRIME RATE" shall mean, for any date, the per annum rate of
interest announced from time-to-time by Citibank, N.A., as its "prime" rate for
commercial loans, effective as of such date as established from time-to-time by
the administrative body of such bank charged with the responsibility of
establishing such rate.
"RELEASED GAS" - SECTION 2.3.
"SELLER'S DAILY DELIVERABILITY OF GAS" shall mean the Gas which
is physically capable of being produced by Seller and delivered to Buyer in
accordance with applicable law, rule or order from wells located on or completed
within the Dedicated Reserves, subject only to Seller's Reservations.
"SELLER'S INTEREST" shall mean the undivided interests owned or
controlled by Seller set forth in EXHIBIT "B" in and to the Subject Leases, and
any and all additional right, title, interest or claim of every kind and
character of Seller in the Subject Leases, the area shown on EXHIBIT "A", and
the production therefrom, together with any pool, communitized area or unit and
all interests in any wells, whether now existing or drilled hereafter, on or
completed within any such Subject Lease, or within any such pool, communitized
area or unit, including, without limitation, those described in EXHIBIT "B",
even though Seller's Interest may be incorrectly or incompletely stated or
described in EXHIBIT "B", all as the same shall be enlarged by the discharge of
any burdens or by the removal of
"H"-2-
any charges or encumbrances to which any of the same may be subject as of the
Effective Date, and any and all renewals and extensions or amendments of any of
the same.
"SELLER'S RESERVATIONS" - Section 2.4.
"TAXES" shall mean all ad valorem, property, occupation,
severance, production, gathering, pipeline, gross production, gross receipts,
sales, use, excise and other taxes, governmental charges and assessments, other
than income taxes.
1.2 ACCOUNTING DEFINITIONS. All accounting definitions not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles as in effect from time to time.
1.3 OTHER DEFINITIONS: USE OF DEFINED EXPRESSIONS. Article, Section,
Exhibit and like references refer to such portions of this Agreement unless
otherwise specified. Each Exhibit attached hereto is made a part hereof for all
purposes. Unless otherwise defined or the context otherwise requires,
expressions for which meanings are provided in this Agreement shall have such
meanings when used in each notice or other communication delivered or given from
time to time under or in connection with this Agreement. The titles of the
Articles and Sections hereof are intended for descriptive purposes only, and are
not intended to be utilized in the construction of the provisions hereof.
ARTICLE 2.
QUANTITY AND EXCLUSIVE COMMITMENT
2.1 QUANTITY. During the term of this Agreement, Buyer shall have the
right, but not the obligation (other than as may be required by applicable law,
rule or order), to take and purchase 100 percent of Seller's Daily
Deliverability of Gas. During the term of this Agreement, Seller shall make
available to Buyer 100 percent of Seller's Daily Deliverability of Gas.
2.2 EXCLUSIVE COMMITMENT. Subject to Seller's Reservations, Seller
exclusively commits to the performance of this Agreement the Dedicated Reserves,
warrants that the Dedicated Reserves are not otherwise subject to any purchase
and sale agreement, and agrees not to sell, transfer or deliver to any third
party or parties any Gas, other than Released Gas, produced from the Dedicated
Reserves during the term hereof without the prior written consent of Buyer.
2.3 RELEASED GAS. In the event that Seller has available for sale,
transfer or delivery during any Month, from the Dedicated Reserves, quantities
of Gas in excess of the Gas nominated by Buyer for such Month, Seller shall have
the right during such Month, upon written notice to Buyer (the "NOTICE PERIOD")
to temporarily release such Gas from the terms of this Agreement in order to
sell
"H"-3-
or otherwise dispose of such excess quantity of Gas; provided, (i) Seller is not
in default in the performance of any of its obligations under this Agreement,
(ii) Buyer has not increased its nomination of Gas to an amount equal to
Seller's Daily Deliverability of Gas as of 24 hours prior to the expiration of
the Notice Period, and (iii) such release of excess Gas shall be limited to the
remaining Days of such Month. Any Gas so released shall be herein called
"RELEASED GAS".
2.4 SELLER'S RESERVATIONS. Seller reserves the following rights,
together with, as applicable, commercially reasonable quantities of Gas to
satisfy such rights: (i) to operate its property as a reasonably prudent
operator free from any control by Buyer in respect of the right to drill new
wells, the right to repair and rework wells, and the right to plug and abandon
any well or surrender any Subject Lease or portion thereof when no longer deemed
by Seller to be capable of producing Gas in paying quantities under reasonably
prudent methods of operation; provided, in the event Seller should plug and
abandon any well or surrender any Subject Lease or portion thereof, written
notice of same shall be given to Buyer within 30 Days of such event, (ii) to
separate the Gas using mechanical, low temperature or other separation equipment
selected by Seller, (iii) to process the Gas, or have the same processed before
delivery to Buyer, for the extraction of liquefiable hydrocarbons, helium and
any other constituents of the raw Gas streams; provided, such processing will
not (including amounts lost due to shrinkage and fuel requirements) remove more
than 10 percent of the volume of Gas produced from the Dedicated Reserves, (iv)
to use Gas produced from the Subject Leases for developing and operating the
Subject Leases and to fulfill Subject Lease obligations to any lessors of the
Subject Leases, and (v) to pool, communitize or unitize the Subject Leases with
other properties or interests of Seller and others. In which even this Agreement
shall cover Seller's interest in the pool, communitized area or unit
attributable to the Dedicated Reserves.
ARTICLE 3.
DELIVERY POINT AND TRANSPORTATION
3.1 DESIGNATION AND UTILIZATION. The "DELIVERY POINT(S)" are set forth
in EXHIBIT "C." The Delivery Points to be utilized from time to time shall be
determined by Buyer in its sole discretion. Either Party may request to
establish a point as a new Delivery Point hereunder. If Seller and Buyer
mutually agree to the addition of such new Delivery Point, such point shall
become a Delivery Point hereunder and shall be added by ratification by the
Parties of an amended EXHIBIT "C" which shall be effective as of the date of
first utilization of such additional Delivery Point.
3.2 RESPONSIBILITY FOR TRANSPORTATION. Seller shall be responsible for
transportation of the Gas purchased and sold hereunder to the Delivery Point(s).
Buyer shall be responsible for transportation of the Gas purchased and sold
hereunder from the Delivery Point(s).
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ARTICLE 4.
PRICE
Seller and Buyer agree that Buyer shall pay a price per MMBtu,
determined on a dry basis per MMBtu in accordance with the Buyer's
Transportation Contract(s), for Gas delivered hereunder each Month, equal to the
arithmetic average of the Index prices posted for deliveries into Transco, Zone
4; Florida, Zone 3; and Koch, Louisiana, as reported in the first issue for such
Month of INSIDE FERC GAS MARKET REPORT; provided, however, such average price
shall be reduced, as appropriate, for any gathering or transportation fees
incurred by Buyer to move the Gas from the Delivery Point(s) to the respective
mainline points representing the above Index price posting points. The price
thereby obtained shall herein be called the "Contract Price". If the index used
to determine the Contract Price is not available in the future, the Parties
agree to promptly negotiate a mutually satisfactory alternate index for the
Contract Price (an "ALTERNATE PRICE"). If the Parties cannot agree by the end of
the first Month for which the Contract Price could not be determined, then
Seller and Buyer shall each prepare a prioritized list of up to three
alternative published reference postings or prices representative of spot prices
for Gas delivered in the same geographic area. Each Party shall submit its list
to the other within 10 Days after the end of the first Month for which the price
could not be determined. The first listed index appearing in Buyer's list that
also appears in Seller's list shall constitute the replacement index. If no
common indices appear on the lists, each Party shall submit a new list adding
two indices within 10 Days. If either Party fails to provide timely a list, such
Party's list shall not be considered. From and after the "RENEGOTIATION DATE",
which shall be the date the Contract Price is no longer available, until the
Alternate Price is determined, the Alternate Price shall be the average of the
Contract Price(s) in effect during the 12 Months preceding the Month in which
the Renegotiation Date occurred, which price shall be effective until the
Alternate Price is determined. Upon determination of a new Alternate Price, the
Contract Price, as applicable, will be adjusted retroactively to the
Renegotiation Date.
ARTICLE 5.
TERM
This Agreement shall become effective as of the Effective Date and shall
continue in effect until the last expiration date of the Exhibit "B" leases;
provided that from and after such termination this Agreement will continue from
Month-to-Month thereafter until canceled by written notice given by either Party
to the other not less than 30 Days prior to such termination date or each Month
thereafter. Upon the expiration of the Parties' sale and purchase obligations
under this Agreement, any monies, penalties or other charges due and owing
Seller shall be paid, any corrections or adjustments to payments previously made
shall be determined, and any refunds due Buyer made, within 60 Days. All
indemnity and confidentiality obligations and audit rights shall survive the
termination of this Agreement. The Parties' obligations provided in this
Agreement shall remain in effect for the purpose of complying with this Article
5.
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ARTICLE 6.
BILLING AND PAYMENT
6.1 BUYER'S PAYMENT. Payment by Buyer to Seller for all Gas received by
Buyer during the preceding calendar Month as measured at the Delivery Point(s)
shall be due on or before the last Day of such following Month. Payment of all
funds shall be made as indicated in EXHIBIT "D". If Buyer should fail to remit
any amounts in full when due as required hereunder, or if any adjustments are
made under this Agreement, including, without limitation, adjustments as a
result of the conclusion of any audits or as a result of the resolution of a
billing dispute, interest on the unpaid portion shall accrue at a rate equal to
the Interest Rate.
6.2 SELLER'S SUSPENSION OF PERFORMANCE. If Buyer fails to make timely
payment hereof and such failure is not remedied within 10 Business Days after
Seller gives Buyer written notice of such failure, Seller, in addition to any
other remedy it may have, may suspend further sale and delivery of Gas until
such amount, including interest at the Interest Rate, is paid; provided, if
Buyer, in good faith, shall dispute the amount of any such billing or part
thereof and shall pay to Seller such amounts as its concedes to be correct, no
suspension shall be permitted.
6.3 AUDIT. For a period of two years from the termination or expiration
of this Agreement, Seller, Buyer or a third Party representative of Seller or
Buyer, shall have the right, at any and all reasonable times and upon reasonable
notice, to examine the books and records of the other, to the extent reasonably
necessary to verify the accuracy of any billing statement, payment demand,
charge, payment or computation made under this Agreement.
ARTICLE 7.
QUALITY, MEASUREMENT, DELIVERABILITY AND PRESSURE
7.1 QUALITY SPECIFICATIONS, MEASUREMENT AND DELIVERABILITY. Gas
delivered to Buyer hereunder at the Delivery Points shall meet or exceed the
specifications of Buyer's Transporter. In the event Gas tendered by Seller to
Buyer does not meet or exceed the specifications herein required, in addition to
any other remedy Buyer may have under this Agreement, at law, or in equity,
Buyer shall have the right to refuse to accept Gas until such time as Seller is
again able to tender Gas complying with the specifications. At appropriate
intervals Gas volumes shall be measured, meters and instruments calibrated,
corrections undertaken, and measurement settlement adjustments made by Buyer or
Buyer's Transporter. If Buyer or Buyer's Transporter determines that measurement
error results from pulsation, the Party or its designee owning the facilities
causing the pulsation shall, at its expense, within 60 Days of its receipt of
notification of same reduce the pulsation to a level such that the square root
error in respect of pulsation is not greater than one percent; provided, the
pulsation testing device and testing procedures shall be mutually agreed by the
Parties and the Parties
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shall have the right to witness all pulsation testing. The costs of all
measuring, calibration and pulsation testing shall be shared equally by the
Parties; provided, in the event Gas delivered by Seller under this Agreement for
any Month at any particular Delivery Point is less than 300 MMBtu per Day times
the number of Days in the Month, then Buyer may, at its election either (i) upon
30 Days prior written notice to Seller, permanently release Seller's Gas at such
Delivery Point from this Agreement, or (ii) charge Seller an additional metering
fee of $350 for such Month with respect to each such particular Delivery Point.
Buyer may deduct all such fees from the proceeds due Seller hereunder. Seller
shall deliver Gas, or cause Gas to be delivered, hereunder at pressures
sufficient to cause such Gas to enter the facilities of Buyer's Transporter at
the Delivery Point(s), but such pressure shall in no event exceed the applicable
maximum allowable operating pressure specified in the Buyer's Transportation
Contract or applicable tariff. Buyer shall have the right, to be exercised not
more frequently than once each six Months, to request that Seller perform or
have performed at Buyer's expense a deliverability test to evaluate the reserves
and the deliverability of wells located or completed within the Dedicated
Reserves. All such deliverability tests will be conducted by Seller in
accordance with the rules and regulations of the Railroad Commission of Texas
and good engineering practices and may be witnessed by representatives of Buyer,
and Buyer shall be provided copies of all test reports and results.
ARTICLE 8.
POSSESSION AND TITLE
8.1 WARRANTY OF TITLE. Seller hereby warrants to title to the Dedicated
Reserves and Gas delivered by Seller to Buyer hereunder, the right to sell the
same, that no Party other than Buyer has any first right or preferential
purchase right pertaining to the Dedicated Reserves or such Gas, and that it is
free from all production burdens, liens and adverse claims. Seller agrees to
indemnify, defend and hold harmless Buyer against all Claims arising from or out
of any adverse legal claims of any and all persons to or against said Gas or the
proceeds from the sale thereof. In the event any Claim is asserted to any of
said Gas or the proceeds from the sale thereof, or any collateral Buyer may have
obtained from Seller to secure obligations owing Buyer hereunder, Buyer may
withhold payments due hereunder up to the amount of such Claim without interest.
Such withholding of payments as security for the performance of Seller's
obligations with respect to such Claim may continue until the Claim has been
finally determined or Seller shall have furnished a bond to Buyer in an amount
and with sureties satisfactory to Buyer, conditioned for the protection of Buyer
with respect to such Claim.
8.2 TRANSFER OF TITLE TO GAS. Title to all Gas delivered hereunder shall
pass to Buyer at the Delivery Points. As between the Parties hereto, Seller
shall be deemed to be in exclusive control and possession of the Gas deliverable
hereunder until the same shall have been delivered to Buyer at the Delivery
Points, after which delivery Buyer shall be deemed to be in exclusive control
and possession thereof. Seller and buyer each assumes all liability for and
shall indemnify, defend and
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hold harmless the other Party from any Claims arising from any act or incident
occurring when title to the Gas is vested in the indemnifying Party; provided,
notwithstanding the foregoing, Seller shall indemnify, defend and hold harmless
Buyer from any Claims arising from any act or incident attributable to the
delivery by Seller to Buyer of Gas which does not meet the specifications set
forth in ARTICLE 7.1 regardless of the point at which title passes from Seller
to Buyer.
ARTICLE 9.
SUCCESSION AND ASSIGNMENT
9.1 TRANSFER OF THIS AGREEMENT. This Agreement shall inure to and be
binding upon the permitted successors and assigns of the Parties. Neither Party
shall assign or otherwise transfer this Agreement without the prior written
approval of the other Party which may not be unreasonably withheld; provided,
either Party may, without the approval of the other Party, pledge or assign its
interest, by merger or otherwise, in this Agreement (i) to any affiliate or (ii)
as security for its indebtedness, but no such transfer of this Agreement shall
operate to relieve such Party of its obligations hereunder.
9.2 TRANSFER OF DEDICATED RESERVES. Seller shall not sell, assign,
sublease, mortgage or otherwise transfer its interest in the Subject Leases or
Dedicated Reserves without the prior written approval of Buyer which may not be
unreasonably withheld; provided, if any such transfer shall occur (i) such
transfer shall provide that it is made expressly subject to this Agreement and
such transferee assumes the obligations of Seller hereunder and (ii) Seller
shall furnish Buyer with recorded instruments effecting same within 30 Days
thereof.
9.3 PROHIBITED TRANSFERS. Any Party's transfer in violation of this
ARTICLE 9 shall be void, AB INITIO.
ARTICLE 10.
OPERATIONS
Four (4) Business Days prior to the first occurring nomination deadline
of Buyer's Transporters for the first Day of each delivery Month, Seller shall
provide to Buyer notice of the quantities available for delivery for each Month.
Within two (2) Business Days following Buyer's receipt of such notice, Buyer
shall provide to Seller notice of the quantities Buyer requests Seller to make
available for delivery during such Month. Should Buyer desire to change the
requested quantities during the Month, Buyer shall provide to Seller notice
thereof not later than two hours prior to Buyer's Transporter's nomination
deadline for the applicable Day. Seller, subject to the terms of this Agreement,
shall notify Buyer of any change in Seller's Daily Deliverability of Gas not
later than two hours prior to Buyer's Transporter's nomination deadline for the
applicable Day. Scheduling requests will be accepted at the numbers provided by
each Party to the other Party.
"H"-8-
ARTICLE 11.
FORCE MAJEURE
11.1 SUSPENSION FOR FORCE MAJEURE. Except with regard to Buyer's
obligations to make payments due under this Agreement, in the event either Party
hereto is rendered unable, wholly or in part, by Force Majeure to carry out its
obligations under this Agreement, it is agreed that upon such Party's giving
notice and full particulars of such Force Majeure to the other Party as soon as
reasonably possible, such notice to be confirmed in writing, then the
obligations of the Party giving such notice, so far as they are affected by such
Force Majeure, from its inception, shall be suspended during the continuance of
any inability so caused but for no longer period. Such cause shall as far as
possible be remedied with all reasonable dispatch.
11.2 DEFINITION OF FORCE MAJEURE. The term "FORCE MAJEURE" as employed
herein shall mean acts of God, strikes, lockouts, or other industrial
disturbances, epidemics, landslides, lightning, earthquakes, fires, storms,
floods, washouts, arrests and restraints of rules and people, arrests and
restraints of Government, either Federal or State, inability of any Party hereto
to obtain necessary materials, supplies (other than Gas), or permits due to
existing or future rules, orders, laws of governmental authorities (both Federal
and State), civil disturbances, explosions, sabotage, breakage or accident to
machinery or lines of pipe, freezing of lines of pipe, and any other causes
whether of the kind herein enumerated or otherwise, which were not anticipated
at the execution of this Agreement, which are not within the control of the
Party claiming suspension and which by the exercise of due diligence such Party
could not have prevented or is unable to overcome.
11.3 THIRD PARTY FORCE MAJEURE. The term "Force Majeure" shall also
include any event of Force Majeure, as defined in SECTION 11.2 above, occurring
with respect to the facilities or service of Buyer's or Seller's third-party
transporters delivering and receiving gas at the Delivery Point(s), but shall
not include curtailment or interruption of service by such third-party
transporter, either pursuant to or in violation of the applicable transportation
agreements, which curtailment or interruption shall not have resulted from an
event described in SECTION 11.2 hereof.
ARTICLE 12.
TAXES
The Contract Price includes full reimbursement for, and Seller is liable
for and shall pay, or cause to be paid, or reimburse Buyer if Buyer has paid,
all Taxes applicable to the Gas sold upstream of and at the Delivery Point(s).
In the event Buyer is required to remit such Tax, the amount thereof shall be
deducted from any sums becoming due to Seller hereunder. Seller shall indemnify,
defend and hold harmless Buyer from any Claims for such Taxes. The Contract
Price does not include reimbursement for, and Buyer is liable for and shall pay,
cause to be paid, or reimburse Seller if Seller
"H"-9-
has paid, all Taxes applicable to the Gas sold downstream of the Delivery
Point(s), including any Taxes imposed or collected by a taxing authority with
jurisdiction over Buyer. Buyer shall indemnify, defend and hold harmless Seller
from any Claims for such Taxes. Notwithstanding anything to the contrary herein,
Seller shall pay or cause to be paid, or reimburse Buyer if Buyer has paid, any
new Taxes imposed or levied upon the Gas purchased and sold hereunder, its
heating value or content effective after the Effective Date.
ARTICLE 13.
REPRESENTATIONS, WARRANTIES AND COVENANTS
13.1 SELLER'S REPRESENTATIONS AND WARRANTIES. As a principal cause and
material inducement to Buyer entering into this Agreement Seller hereby
represents and warrants to Buyer throughout the term of this Agreement the
following.
(i) This Agreement and any other documents and instruments to be
delivered by Seller pursuant hereto, and the transactions contemplated hereby
and thereby, have been duly authorized by Seller, and this Agreement has been,
and each such other document or instrument will be, duly executed and delivered
by Seller and constitutes, or upon such execution and delivery will constitute,
legal, valid and binding obligations of Seller, enforceable against Seller in
accordance with its respective terms, subject, however, to applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
creditors' rights generally and except as the enforceability thereof may be
limited by general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
(ii) All consents, licenses, permits, approvals and
authorizations of and registrations or declarations with any governmental or
regulatory authority or with any third Party which are required in connection
with its execution and delivery of this Agreement or performance of its
obligations hereunder have been obtained or effected, and are in full force and
effect.
(iii) The execution, delivery, and performance by Seller of this
Agreement and the other documents and instruments to be delivered by Seller
pursuant hereto, and the transactions contemplated hereby and thereby, do not
and will not (a) violate or conflict with any provision of Seller's certificate
of incorporation or bylaws; (b) violate or constitute a default under any
agreement or instrument to which Seller is a Party or by which Seller is bound,
which violation will have a material and adverse effect on Seller's ability to
perform its obligations hereunder, or (c) violate any existing statute or law or
any judgment, decree, order, regulation or rule of any court or governmental
authority applicable to Seller, which violation will have a material and adverse
effect on Seller's ability to perform its obligations hereunder.
"H"-10-
(iv) There are no judicial or administrative actions, proceedings
or investigations (including, without limitation, bankruptcy, reorganization or
insolvency actions, proceedings or investigations) pending or, to Seller's
knowledge, threatened that (a) challenge the validity of this Agreement or the
transactions contemplated hereby; (b) seek to restrain or prevent any action
taken or to be taken by Seller in connection with this Agreement, or (c) if
adversely determined, would have a material and adverse effect upon Seller's
ability to perform its obligations hereunder.
(v) Seller is not in, and has not received notice of the
existence of, any default under any transportation purchase or other agreement
material to Seller's performance under this Agreement, nor is there existing any
event or circumstance that with notice or lapse of time or both would give rise
to a default on the part of Seller thereunder.
(vi) There are no suits or proceedings pending, or to the
knowledge of Seller, threatened, against Seller or the Dedicated Reserves before
any court or by or before any governmental commission, bureau or regulatory
authority that if decided adversely to the interest of Seller could materially
adversely affect Seller or the rights of Buyer under this Agreement.
(vii) Seller is not a Party to or bound by, and the Dedicated
Reserves and the Gas produced from or attributed to the Subject Leases are not
encumbered or affected by, any Gas balancing, deferred production, Gas banking,
mortgage or similar contract or agreement relating to the Dedicated Reserves or
the Gas produced therefrom.
(viii) Seller is not a Party to, and the Dedicated Reserves and
the Gas produced therefrom or attributable thereto are not subject to, any
contract or agreement (including, without limitation, advanced purchase
agreements, prepayments, take-or-pay make-up obligations or otherwise) whereby
the owner of the Gas or any part thereof is not entitled to convey or market
such Gas.
(ix) The Subject Leases are in full force and effect, and to the
best of Seller's knowledge all rentals and royalties due thereunder have been
timely and properly paid and the wells and equipment located on the Subject
Leases are in good operating condition and comply with all requirements under
federal, state and local laws.
13.2 BUYER'S REPRESENTATIONS AND WARRANTIES. As a principal cause and
material inducement to Seller entering into this Agreement, Buyer hereby
represents and warrants to Seller throughout the term of this Agreement the
following.
(i) It is a corporation duly organized, validly existing, and in
good standing under the law of the State set forth in the salutation hereof and,
if incorporated in a state other than Texas, is duly qualified and in good
standing as a foreign corporation in the State of Texas.
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(ii) This Agreement and any other documents and instruments to be
delivered by Buyer pursuant hereto, and the transactions contemplated hereby and
thereby, have been duly authorized by Buyer; and this Agreement has been, and
each such other document or instrument will be, duly executed and delivered by
Buyer and constitutes, or upon such execution and delivery will constitute
legal, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with its respective terms, subject, however, to applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
creditors' rights generally and except as the enforceability thereof may be
limited by general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
(iii) All consents, licenses, permits, approvals and
authorizations of and registrations or declarations with any governmental or
regulatory authority or with any third Party which are required in connection
with its execution and delivery of this Agreement or performance of its
obligations hereunder have been obtained or effected, and are in full force and
effect.
(iv) The execution, delivery, and performance by Buyer of this
Agreement and the other documents and instruments to be delivered by Buyer
pursuant hereto, and the transactions contemplated hereby and thereby, do not
and will not (a) violate or conflict with any provision of Buyer's certificate
of incorporation or bylaws, (b) violate or constitute a default under any
agreement or instrument to which Buyer is a Party or by which Buyer is bound,
which violation will have a material and adverse effect on Buyer's ability to
perform its obligations hereunder, or (c) violate any existing statute or law or
any judgment, decree, order, regulation or rule of any court or governmental
authority applicable to Buyer, which violation will have a material and adverse
effect on Buyer's ability to perform its obligations hereunder.
(v) There are no judicial or administrative actions, proceedings
or investigations (including, without limitation, bankruptcy, reorganization or
insolvency actions, proceedings or investigations) pending or, to Buyer's
knowledge, threatened that (a) challenge the validity of this Agreement or the
transactions contemplated hereby; (b) seek to restrain or prevent any action
taken or to be taken by Buyer in connection with this Agreement, or (c) if
adversely determined, would have a material and adverse effect upon Buyer's
ability to perform its obligations.
ARTICLE 14.
NOTICES
All notices, including, without limitation, consents, and communications
made pursuant to this Agreement shall be made as specified in EXHIBIT "D".
Notices required to be in writing shall be delivered in written form by letter,
facsimile or other documentary form. Notice by facsimile or hand delivery shall
be deemed to have been received by the close of the Business Day on which it was
"H"-12-
transmitted or hand delivered (unless transmitted or hand delivered after close
in which case it shall be deemed received at the close of the next Business Day)
or such earlier time confirmed by the receiving Party. Notice by overnight mail
or courier shall be deemed to have been received two Business Days after it was
sent or such earlier time confirmed by the receiving Party. Any Party may change
its addresses by providing notice of same in accordance herewith.
ARTICLE 15.
MISCELLANEOUS
15.1 AGREEMENT. This Agreement sets forth all understandings between the
Parties respecting the terms and conditions of this transaction. All prior
agreements, understandings and representations, whether consistent or
inconsistent, oral or written, concerning this transaction are merged into and
superseded by this written Agreement. No modification or amendment of this
Agreement shall be binding on either Party unless in writing and signed by the
Parties. This Agreement may be executed in any number of counterparts which
shall be an original, but all of which shall constitute one and the same
agreement. Should Seller utilize the services of a third party representative
under this Agreement (the "SELLER'S REPRESENTATIVE"), Seller shall notify Buyer
of same in writing authorizing Buyer to conduct operations under this Agreement
with the Seller's Representative. No appointment of a Seller's Representative
will discharge Seller of its obligations hereunder and Seller shall indemnify,
defend and hold harmless Buyer from any Claims made as a result of any act or
omission to act of a Seller's Representative WITHOUT REGARD TO THE CAUSE OR
CAUSES RELATED THERETO, INCLUDING, WITHOUT LIMITATION THE NEGLIGENCE OF ANY
PARTY,. WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR
PASSIVE.
15.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS, EXCLUDING ANY PRINCIPLE OF
CONFLICT OF LAWS WHICH MAY REQUIRE THE APPLICATION OF THE LAWS OF A DIFFERENT
JURISDICTION.
15.3 CONFIDENTIALITY. Each Party agrees that it will maintain this
Agreement, and all parts and contents thereof, in strict confidence, and that it
will not cause or permit disclosure of same to any third Party without the
express written consent of the other Party, provided, that such information
shall not be deemed to be confidential if (i) such Party is required by a court
or agency exercising jurisdiction over the subject matter hereof, by order or by
regulation or law, to disclose; provided, in the event either Party becomes
aware of a judicial or administrative proceeding that has resulted or may result
in such an order requiring disclosure, it shall so notify the other Party
immediately, utilize all reasonably available means to limit the scope of the
order or regulation requiring disclosure, and take all actions reasonably
necessary to prevent disclosure to the public as a result of disclosure to the
court or administrative body, or (ii) the information becomes publicly available
through no
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breach of this Agreement. The Parties do hereby agree that disclosure by a Party
of confidential information hereunder is permitted in the event and to the
extent (i) reasonably necessary to bona fide prospective purchasers of a Party's
interest hereunder, (ii) reasonably necessary to bona fide prospective lenders
to a Party, and (iii) reasonably necessary to a Party's consultants for
evaluation purposes, (iv) reasonably necessary to obtain transportation of the
Gas covered by this Agreement, or (v) reasonably necessary in the course of
routine audit procedures; in each case provided that any such third Party has
agreed in writing to be bound by the confidentiality provisions hereof.
15.4 EXCLUSION OF THIRD PARTY RIGHTS. The provisions of this Agreement
shall not impart rights enforceable by any person, firm or organization not a
Party or not bound as a Party, or not a permitted successor or assignee of a
Party bound to this Agreement.
15.5 LIABILITY. Each Party reserves to itself all rights, set-offs,
counterclaims and other remedies and defenses which it is or may be entitled to
arising from or out of this Agreement; PROVIDED, IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR ANY PUNITIVE, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES,
EXCEPT AS PROVIDED IN SECTION 8.2 AND ALL SUCH DAMAGES ARE HEREBY EXCLUDED FROM
THIS AGREEMENT AND WAIVED BY THE PARTIES.
15.6 WAIVER. A waiver by either Party of any provision hereof shall not
be construed to constitute a continuing waiver hereunder by such Party, and
furthermore, a waiver by either Party of any one or more defaults by the other
Party in performance of any provisions of this Agreement shall not operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be
effective on the Day and year first written above.
SELLER BUYER
ENRON CAPITAL & TRADE RESOURCES CORP.
By: By:
Title: Vice President
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EXHIBIT "A"
PLAT OR SURVEY
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EXHIBIT "B"
SUBJECT LEASES
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EXHIBIT "C"
DELIVERY POINTS
1. The interconnect of the Dauphin Island Gathering System and Transcontinental
Gas Pipe Line's Mobile Bay Pipeline Lateral facilities.
2. The interconnect of the Dauphin Island Gathering System and the transmission
facilities of Mobile Bay Pipeline Company (for redelivery into Koch Gateway
Pipeline Company).
3. The interconnect of the Dauphin Island Gathering System and Transco's Mobile
Bay Pipeline Lateral at FGT POI #62137 to accommodate Buyer's Sales into Florida
Gas Transmission Company.
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EXHIBIT "D"
NOTICES
NOTICES TO SELLER:
COPY TO:
PAYMENTS TO SELLER BY WIRE:
NOTICES TO BUYER:
Enron Capital & Trade Resources Corp.
P.O. Box 4428
Houston, Texas 77210-4428
Attn: Documentation
Facsimile Number: (713) 646-4816
OPERATIONAL MATTERS TO BUYER:
Enron Capital & Trade Resources Corp.
P.O. Box 4428
Houston, Texas 77210-4428
Attn: Gas Supply Department
Facsimile Number: (713) 750-7088
ACCOUNTING MATTERS TO BUYER:
Enron Capital & Trade Resources Corp.
P.O. Box 4428
Houston, Texas 77210-4428
Attn: Gas Purchase Accounting
Facsimile Number: (713) 646-8420
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EXHIBIT 10.20
AMENDED AND RESTATED GUARANTY AGREEMENT
This Amended and Restated Guaranty Agreement (this "Guaranty") is made and
entered into as of the 30th day of March, 1994 by OEDC PARTNERS, L.P.
("Guarantor"), by its General Partner OEDC, Inc., in favor of ENRON FINANCE
CORP. ("EFC"), ENRON RESERVE ACQUISITION CORP. ("ERAC"), ENRON GAS MARKETING,
INC. ("EGM") and CACTUS HYDROCARBON III LIMITED PARTNERSHIP ("Cactus III") (EFC,
ERAC, EGM and Cactus III may be collectively referred to herein as "Enron").
WHEREAS, reference for all purposes is hereby made to that certain
Guaranty Agreement dated May 18, 1993, as amended by (i) that certain Amendment
to Guaranty Agreement dated October 1, 1993, and (ii) that certain Amendment to
Guaranty Agreement dated December 21, 1993, (collectively, the "Prior
Guaranty");
WHEREAS, pursuant to that certain Assignment dated June 9, 1993, but
effective May 18, 1993, ERAC assigned to EGM all of the rights and interests in
and to the Excess Gas Purchase Contract;
WHEREAS, pursuant to that certain Assignment dated December 21, 1993, ERAC
assigned all of its right, title and interest in and to the Purchase and Sale
Agreement (insofar as same pertains to the Production Payment), the Conveyance
of Production Payment and the Production and Delivery Agreement; and
WHEREAS, Guarantor and Enron desire to amend and restate that Prior
Guaranty as hereinafter set forth.
NOW, THEREFORE, for and in the receipt of good and valuable consideration
and to induce Enron to enter into the following agreements (collectively, the
"Agreements"):
A. Agreement of Limited Partnership of South Dauphin Partners Ltd.
dated as of March 2, 1993 between OEDC Exploration and Production, L.P.
and EFC, as amended by (i) that certain Agreement regarding Partnership
dated May 18, 1993, (ii) that certain Amendment No. 1 to Agreement of
Limited Partnership dated August 10, 1993, (iii) that certain Amendment
No. 2 to Agreement of Limited Partnership dated October 1, 1993, (iv) that
certain Amendment No. 3 to Agreement of Limited Partnership dated December
21, 1993, and (v) that certain Amendment No. 4 to Agreement of Limited
Partnership dated of even date herewith;
B. Purchase and Sale Agreement dated as of March 3, 1993 between
South Dauphin Partners Ltd. and ERAC, as amended by (i) that certain
Letter Agreement dated March 4, 1993, (ii) that certain Letter Agreement
dated April 26, 1993, (iii) that certain Closing Agreement dated May 18,
1993, (iv) that certain Letter Agreement dated August 10, 1993, (v) that
certain Letter Agreement dated October 1, 1993, (vi) that certain Letter
-1-
Agreement dated December 21, 1993 and (vii) that certain Letter Agreement
dated of even date herewith;
C. Conveyance of Production Payment dated May 18, 1993 from South
Dauphin Partners Ltd. to ERAC, as amended by (i) that certain First
Amendment to Conveyance of Production Payment dated August 10, 1993, (ii)
that certain Second to Conveyance of Production Payment dated October 1,
1993, (iii) that certain Third Amendment to Conveyance of Production
Payment dated December 21, 1993, and (iv) that certain Fourth Amendment to
Conveyance of Production Payment dated of even date herewith;
D. Production and Delivery Agreement dated May 18, 1993 between
South Dauphin Partners Ltd. and ERAC, as amended by (i) that certain First
Amendment to Production and Delivery Agreement dated August 10, 1993, (ii)
that certain Second Amendment to Production and Delivery Agreement dated
October 1, 1993, (iii) that certain Third Amendment to Production and
Delivery Agreement dated December 21, 1993, and (iv) that certain Fourth
Amendment to Production and Delivery Agreement dated of even date
herewith;
E. Excess Gas Purchase Contract dated May 18, 1993 by and between
South Dauphin Partners Ltd. and ERAC, as amended by (i) that certain First
Amendment to Excess Gas Purchase Contract dated August 10, 1993, (iii)
that certain Second Amendment to Excess Gas Purchase Contract dated
October 1, 1993, (iii) that certain Third Amendment to Excess Gas Purchase
Contract dated December 21, 1993, and (iv) that certain [Amended and
Restated Excess Gas Purchase Contract dated of even date herewith (all
such amendments being by and between South Dauphin Partners Ltd. and Enron
Gas Marketing, Inc., successor to the interest of ERAC); and
F. Area of Interest Agreement dated as of May 18, 1993 between OEDC
Exploration and Production L.P. and EFC;
to which reference is hereby made for all purposes, Guarantor, acting herein by
OEDC, Inc., its duly appointed, authorized and empowered General Partner,
guarantees unto Enron, and its successors and assigns, the prompt and full
payment, compliance, performance and observance of (i) all obligations,
undertakings, responsibilities and covenants required to be paid, complied with,
performed or observed by OEDC EXPLORATION & PRODUCTION, L.P. under each of
documents described in items B, C, D, E and F above, (ii) the representations
and warranties of OEDC Exploration & Production, L.P., under Section 3.02 of the
Agreement of Limited Partnership described in item A above, and (iii) the
covenants of OEDC EXPLORATION & PRODUCTION, L.P. under Sections 4.01, 4.03, 4.05
and 12.03 of the Agreement of Limited Partnership described in item A above with
respect to any tax payments or contractual obligations of South Dauphin
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Partners Ltd., including without limitation those contractual obligations set
forth in Section 6.01(iii), (iv) and (viii); provided that the foregoing
guaranty shall not extend or apply to any liabilities of South Dauphin Partners
Ltd. arising out of or in connection with any breach of a duty of South Dauphin
Partners Ltd. that is not expressly contained in an agreement, whether such
breach arises out of a tort, strict liability or otherwise, except to the extent
that any such liabilities arise out of the failure to comply with clause (viii)
of Section 6.01 of the Agreement of Limited Partnership identified as item A
above.
The liability of Guarantor under this Guaranty is direct and unconditional
and may be enforced by Enron, its successors or assigns, without first
exercising any rights or remedies which Enron, its successors or assigns, may
have against OEDC Exploration & Production, L.P., or its respective successors
or assigns under the Agreements or otherwise, and such liability shall be to the
same extent as the liability of OEDC Exploration & Production, L.P., to Enron
that arises out of the matters that are guaranteed hereunder. Guarantor hereby
agrees that Enron its successors and assigns, may from time to time extend the
time for payment, performance or observance of any or all of the obligations,
liabilities, undertakings, responsibilities and covenants required to be paid,
performed or observed by OEDC Exploration & Production, L.P., under the
Agreements or amend or change the terms of the Agreements without in any way
affecting the liability of the undersigned hereunder.
Guarantor hereby represents and warrants that it has full power, right and
authority to enter into and deliver this Agreement and to carry out the terms
and conditions hereof; that the execution, delivery and performance of this
Agreement by Guarantor has been authorized by all necessary partnership action;
that such execution, delivery and performance does not conflict with any other
agreement or arrangement to which Guarantor is a party or by which it is bound;
that no condition or any circumstance exists which would prevent Guarantor from
faithfully and fully carrying out the provisions of this Guaranty; and that no
consent, approval or waiver of any governmental entity or person is necessary
for the execution, delivery and performance of this Guaranty.
Further, Guarantor represents and warrants that (i) the audited financial
statements of Guarantor dated as of December 31, 1992 and (ii) the unaudited
financial statements of Guarantor dated as of December 31, 1993, both furnished
to Enron, have been prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly and accurately reflect the
financial condition of Guarantor as of such dates, and since October 31, 1993
(A) there has been no change in the assets, liabilities or financial condition
of Guarantor from that set forth in such latest statement, other than changes in
the ordinary course of business that have not been, either in any case or in the
aggregate, materially adverse and (B) neither the business, operations or
affairs of Guarantor, nor any of its properties or assets has been materially
adversely affected by any occurrence or development regardless of whether
insured against.
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During the term of this Guaranty, quarterly within sixty (60) days after
the end of each fiscal quarter of Guarantor and annually within 120 days after
the end of each fiscal year of Guarantor, Guarantor shall furnish Guarantor's
financial statements as of the end of and for such period, including a balance
sheet and statements of income, stockholder's equity and cash flow, prepared in
accordance with generally accepted accounting principles and, with respect to
the annual financial statements, accompanied by a report of the Guarantor's
independent certified public accountants stating that their examination was made
in accordance with generally accepted auditing standards and that in their
opinion such financial statements fairly present Guarantor's financial
condition, results of operations and changes in financial position in accordance
with generally accepted accounting principles consistently applied.
This Guaranty shall be governed by, construed and enforced in accordance
with the laws of the State of Texas. If any term, clause or provision of this
Guaranty is ever held illegal, invalid or unenforceable, the remainder of this
Guaranty shall not be affected but shall remain in full force in accordance with
the terms hereof.
Neither this Guaranty nor any of the obligations hereunder shall ever be
assigned or transferred by Guarantor, except with the prior written consent of
Enron. Subject to the foregoing, this Guaranty shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.
The rights of Enron under this Guaranty shall not exclude, or be in lieu
of, any other legal or equitable rights of Enron against OEDC Exploration &
Production, L.P., under the Agreements but shall be in addition to all such
other legal and equitable rights of Enron thereunder.
The terms and provisions of this Guaranty shall supersede and replace the
terms and provisions of the Prior Guaranty insofar as the same are amended
hereby. Notwithstanding the foregoing, nothing herein shall release Guarantor
from any liability that it may have previously accrued pursuant to the Prior
Guaranty.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first set forth above.
OEDC PARTNERS, L.P.,
By: OEDC, Inc., its General Partner
By: /s/ GAYLEN J. BYKER
Gaylen J. Byker
Vice President
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EXHIBIT 10.21
AREA OF INTEREST AGREEMENT
This Agreement is dated as of the 18th day of May, 1993 between OEDC
EXPLORATION & PRODUCTION, L.P. ("OEDC") and ENRON FINANCE CORP. ("EFC").
RECITALS
A. WHEREAS, OEDC and EFC (and certain of their respective Affiliates)
have entered into agreements (collectively the "Agreements") as follows:
(a) Agreement of Limited Partnership (the "Partnership
Agreement") of South Dauphin Partners Ltd., a Texas limited partnership
(the "Partnership"), dated March 2, 1993, and
(b) Agreement of Purchase and Sale dated March 3, 1993, as
amended by Closing Agreement dated May 18, 1993 (collectively the
"Production Payment Purchase Agreement") covering the sale of a
non-monetary Production Payment (the "Production Payment") from South
Dauphin Partners Ltd. to Enron Reserve Acquisition Corp.
B. WHEREAS, as a portion of the consideration for the above agreements,
OEDC has agreed that EFC or its Affiliates may participate under certain
conditions in additional activities of OEDC and its Affiliates in the Area of
Interest hereinafter defined.
C. WHEREAS, the parties desire to set forth their respective agreements
concerning the Area of Interest.
D. WHEREAS, capitalized terms set forth herein shall have the meanings
ascribed to them in this Agreement, and terms that are capitalized but not
defined herein shall have the meanings ascribed to them in the Partnership
Agreement.
In consideration of the foregoing, the parties agree as follows:
1. For purposes of this Agreement, the following terms shall
have the following meanings:
"Affiliate" shall mean any person directly or indirectly
controlling, controlled by or under common control with another
person. As used in this definition of "Affiliate", the term
"control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of another person, whether through the ownership of
voting securities, partnership interests, by contract or
otherwise; and without limiting the foregoing it shall be deemed
that the ownership of more than 50% of the voting securities,
partnership interests or percentage interest of another person
shall be deemed to meet such control test.
"Area of Interest" shall have the meaning specified in
Paragraph 2 below.
"Non-OEDC Entity" means (a) any person who is not an
Affiliate of either OEDC or any of its Affiliates, and (b)
Natural Gas Partners, L.P. (whether or not it is or becomes an
Affiliate of OEDC) and its Affiliates.
"Opportunity" shall mean the option, right or opportunity
to acquire an interest in oil and/or gas reserves, production or
payments or proceeds therefrom, whether through a purchase,
exchange, partnership, joint venture, lease, participation
agreement, operating agreement or any similar arrangement, but
excluding the acquisition by OEDC, or its Affiliates, of an
interest in the Partnership from any Partner.
"Property" means an interest in oil, gas or other
minerals, through fee ownership, leasehold interests or other
real property rights or interests.
"Third Party Financing" shall mean a loan, cash
contribution, funding or payment by a Non-OEDC Entity in return
for an obligation to repay, a temporary allocation of income or
proceeds, a production payment, a prepayment for oil or gas or
other arrangement whereby such person receives cash, oil and gas
or any other think of value, in any case that is dedicated from
an oil and gas production source, whether or not said production
source is within the Area of Interest and whether or not such
arrangement is related to the Property for which the funds are
used, but excluding farmout agreements or similar arrangements
where a third party or OEDC earns an interest in a Property but
"carries" the other party for an interest in the property. An
unsecured loan to OEDC or its Affiliates shall not be deemed to
be Third Party Financing, regardless from whom made.
2. There is hereby established an Area of Interest (the "Area of
Interest") being all of the lands, waterbottoms, and other property rights as to
all of the depths thereunder within an area that is outlined on the map attached
hereto as Exhibit A. Certain activities of OEDC and its Affiliates in the Area
of Interest for the term of this Agreement shall be subject to the provisions
hereof.
3. It is understood that OEDC's activities on Mobile Bay Blocks 90, 91,
and 822 are subject to and governed by the Partnership Agreement and the
Production Payment Purchase Agreement, together with other documents with
Affiliates of EFC, all as more fully set forth in said
-2-
agreements (collectively the "Production Payment Documents"). It is contemplated
that OEDC, on its own behalf or through its Affiliates, may conduct additional
oil and gas exploration activities, including acquiring additional property
interests within the Area of Interest or engaging in activities similar to those
set forth in the Partnership Agreement and the Production Payment Documents.
Without limiting in any way the activities that OEDC may undertake in the Area
of Interest, it is agreed that should OEDC, or any Affiliate of OEDC during the
term hereof, acquire or have an Opportunity in or relating to a Property within
the Area of Interest, it shall offer to EFC the right and option to provide
financing for the Opportunity on the following terms and under the following
conditions:
(a) Should OEDC or any of its Affiliates acquire or have an
Opportunity within the Area of Interest for which OEDC required Third
Party Financing, OEDC shall deliver to EFC a notice setting forth all
details of such Opportunity, including information relating to any
amounts required to carry out the anticipated activities relating to
such Opportunity, the extent of the projected or actual oil and gas
reserves and all other relevant information reasonably obtainable by
OEDC that may be deemed necessary by EFC in order for EFC to evaluate
such Opportunity.
(b) Within twenty-one (21) days after receipt by EFC of a written
description by OEDC of the Opportunity within the Area of Interest, the
nature and extent of the required Third Party Financing relating thereto
and the other information described in (a) above, EFC shall deliver a
financing proposal to OEDC relating to the Opportunity. Such proposal
shall set out, in reasonable detail, the structure and terms of the
financing offered by EFC. OEDC and EFC shall thereafter negotiate in
good faith an arrangement by which EFC will be allowed to finance the
Opportunity. During this negotiation period, OEDC may also solicit from
third parties or discuss with third parties potential Third Party
Financing of the same Opportunity on any terms acceptable to OEDC.
(c) If, after the end thirty (30) days from the date of receipt
by EFC of the original notice of the Opportunity, OEDC and EFC have been
unable to reach agreement on a structure and financing by EFC to OEDC
concerning the Opportunity under discussion, OEDC shall be free to
obtain a proposal from a third party for Third Party Financing of such
Opportunity on such terms and conditions as are acceptable to OEDC in
its sole discretion. The written proposal obtained by OEDC from a third
party for Third Party Financing shall contain reasonable detail of the
structure and terms of such proposal and otherwise shall be subject only
to normal closing conditions.
(d) If OEDC obtains such a written proposal from a third party,
OEDC shall submit such proposal to EFC, and EFC shall have five (5)
Business Days after the receipt of such written Third Party Financing
proposal to agree to finance the Opportunity on terms that
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are substantially equivalent (on an economic and risk basis and not
necessarily as to structure) as such third party offer. Thereafter, OEDC
shall have the right, but not the obligation, to enter into the
financing arrangement (whether that offered by EFC or as proposed by
such third party) that is, in the sole good faith opinion of OEDC, the
most advantageous to OEDC on an economic and risk basis, subject however
to the provisions of (e) and (f) below.
(e) If OEDC has elected not to accept the original proposal made
by EFC pursuant to (b) above or any subsequent proposal made by EFC
pursuant to (d) above, OEDC (or its Affiliates) shall be free to
consummate the transaction with such third party as proposed in the
notice to EFC given pursuant to (d) above, OEDC (or its Affiliates)
shall be free to consummate the transaction with such third party as
proposed in the notice to EFC given pursuant to (c) above; provided,
however, that should there occur any change in such Third Party
Financing (prior to the consummation thereof) that would materially
benefit the person providing such Third Party Financing (on an economic
or risk basis and not necessarily as to structure), OEDC shall resubmit
the proposal to EFC who shall have five (5) Business Days after the
receipt thereof to again agree to finance the Opportunity on the basis
proposed by the third party prior to OEDC's consummation thereof. OEDC
shall then have the right to accept EFC's revised offer or the third
party offer in accordance with the standards set forth in (d) above.
(f) If OEDC (or its Affiliates) does not subsequently consummate
a financing of an Opportunity with a third party pursuant to the
foregoing, it shall not be deemed, for purposes of Paragraph 6 below or
Section 7.01(b) of the Partnership Agreement, that EFC has rejected the
option to finance the Opportunity.
4. Should OEDC and EFC reach agreement concerning financing of
the Opportunity, then such agreement may include, but shall not be
required to include, the sale of a production payment similar to the
Production Payment and, if applicable, a contribution of the Opportunity
to the Partnership and a readjustment of the interests within the
Partnership or other arrangements as may be satisfactory to OEDC and
EFC.
5. Except as provided in Section 7.01(b) of the Partnership
Agreement, the failure by OEDC and EFC to reach agreement on any
Opportunity hereunder shall not affect any existing arrangements between
EFC and OEDC, including without limitation the Partnership and the
Production Payment. Should OEDC reach agreement on financing with a
third party, EFC shall not be required, as a condition thereof, to
alter, amend or make any other changes to its existing arrangements with
OEDC in the Area of Interest.
-4-
6. The Area of Interest and the provisions hereof shall be for a
term until such time as EFC and OEDC have been unable to agree on
financing of any two (2) Opportunities presented by OEDC to EFC
hereunder within any consecutive nine (9) month period, subject to the
provisions of paragraph 3(f) hereof.
7. The parties hereto shall ensure that any information regarding
the business, assets or Opportunities that it may learn in the course of
negotiations for or performance under this Agreement (1) is treated by
it in strict confidence, (2) is not disclosed in any manner to any
person other than an Affiliate (except Enron Oil & Gas Company and
Engasco Corp.) or as may be required by law, and (3) is not used by such
person or any of its Affiliates for any purpose other than for the
exclusive benefit of the parties. In addition, such information may be
disclosed by the parties to another person only if and to the extent
that such information (a) is known to such person prior to learning of
it from the party; (b) is obtained, whether directly or indirectly, by
such person from a source other than such party (or any of its
Affiliates) that (I) did not require such person to hold such secrets or
information in confidence and (II) did not limit or restrict such
person's use thereof; or (c) becomes known otherwise than through the
party (or any of its Affiliates) by virtue of this Agreement.
8. Neither party shall assign any of its rights or interests
under this Agreement without the express prior written consent of the
other party.
9. (a) On the request of either party, whether made before or
after the institution of any legal proceeding, any action,
dispute, claim or controversy of any kind now existing or
hereafter arising between any of the parties hereto and
pertaining to the interpretation of or breach of this
Agreement (a "Dispute") shall be resolved by binding
arbitration in accordance with the terms hereof. Either
party may, by summary proceedings, bring an action in
court to compel arbitration of any Dispute.
(b) Any arbitration shall be administered by the
American Arbitration Association (the "AAA") in accordance
with the terms of this Section 9, the Commercial
Arbitration Rules of the AAA, and, to the maximum extent
applicable, the Federal Arbitration Act. Judgment on any
award rendered by an arbitrator maybe entered in any court
having jurisdiction.
(c) Any arbitration shall be conducted before
one arbitrator. The arbitrator shall be an individual
who is knowledgeable in the subject matter of the
Dispute selected by agreement between the parties. If
the parties
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cannot agree on an arbitrator within thirty (30) days
after the request for an arbitration, then any party may
request the AAA to select an arbitrator. The arbitrator
may engage engineers, accountants or other consultants
that the arbitrator deems necessary to render a conclusion
in the arbitration proceeding.
(d) To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within
180 days of the filing of the Dispute with the AAA.
Arbitration proceedings shall be conducted in Houston,
Texas. Arbitrators shall be empowered to impose sanctions
and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose
sanctions or take such other actions pursuant to the
Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the
arbitrator shall make specific written findings of fact
and conclusions of law. The arbitrator shall have the
power to award recovery of all costs and fees to the
prevailing party.
(e) All fees of the arbitrator and any engineer,
accountant or other consultant engaged by the arbitrator,
shall be shared equally by the parties unless awarded in a
different fashion by the arbitrator.
10. Except as otherwise expressly stated herein, in the event any
provision contained in this Agreement shall for any reason be held invalid,
illegal or unenforceable by a court or regulatory agency of competent
jurisdiction by reason of a statutory change or enactment, such invalidity,
illegality or unenforceability shall not affect the remaining provisions of this
Agreement.
11. The failure of OEDC or EFC to insist upon strict performance of any
provision hereof shall not constitute a waiver of or estoppel against asserting
the right to require such performance in the future, nor shall a waiver or
estoppel in any one instance constitute a waiver of estoppel with respect to a
later breach of a similar nature or otherwise.
12. It is not the intent of the parties that any provision herein
violate any applicable law regarding the rule against perpetuities, the
suspension of the absolute power of alienation, or other rules regarding the
vesting or duration of estates, and this Agreement shall be construed as not
violating such rule to the extent the same can be so construed consistent with
the intent of the parties. In the event, however, that any provision hereof is
determined to violate such rule, then such provision shall nevertheless be
effective for the maximum period (but not longer than the maximum period)
permitted by such rule that will result in no violation. To the extent such
maximum period is permitted to be determined by reference to "lives in being",
the parties agree that "lives in being"
-6-
shall refer to the lifetime of the last to die of the now living lineal
descendants of the late Theodore Roosevelt (the late President of the United
States of America).
13. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
14. This Agreement may not be amended, altered, or modified except
pursuant to a written instrument executed by OEDC and EFC.
15. This Agreement, together with the Production Payment Purchase
Agreement, the Partnership Agreement, all documents affixed hereto or thereto,
and all other documents referred to herein or therein or executed in connection
herewith constitute the entire agreement of the parties hereto and their
Affiliates relating to the matter contained herein.
16. This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
EXECUTED as of the date first set forth above.
OEDC EXPLORATION & PRODUCTION, L.P.
BY OEDC, INC., ITS GENERAL PARTNER
By /s/ DOUGLAS H. KIESEWETTER
Douglas H. Kiesewetter
Vice President
ENRON FINANCE CORP.
By /s/ D. JOHN THOMPSON
D. John Thompson
Vice President
-7-
EXHIBIT 10.22
OFFSHORE ENERGY DEVELOPMENT CORPORATION
1996 STOCK AWARDS PLAN
I. PURPOSE
The purpose of the OFFSHORE ENERGY DEVELOPMENT CORPORATION 1996 STOCK
AWARDS PLAN (the "PLAN") is to provide a means through which OFFSHORE ENERGY
DEVELOPMENT CORPORATION, a Delaware corporation (the "COMPANY"), and its
subsidiaries, may attract able persons to enter the employ of the Company and to
provide a means whereby those key employees upon whom the responsibilities of
the successful administration and management of the Company rest, and whose
present and potential contributions to the welfare of the Company are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of the Company and their desire to remain in its
employ. A further purpose of the Plan is to provide such key employees with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. Accordingly, the Plan provides for granting Incentive
Stock Options, options which do not constitute Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Performance Awards, Phantom Stock
Awards, or any combination of the foregoing, as is best suited to the
circumstances of the particular employee as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "AFFILIATES" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and (f),
respectively.
(b) "AWARD" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of
<PAGE>
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.
(e) "CHANGE OF CONTROL VALUE" shall mean (i) the per share price offered
to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place, or (iii) if such Change of
Control occurs other than pursuant to a tender or exchange offer, the Fair
Market Value per share of the shares into which Awards are exercisable, as
determined by the Committee, whichever is applicable. In the event that the
consideration offered to stockholders of the Company consists of anything other
than cash, the Committee shall determine the fair cash equivalent of the portion
of the consideration offered which is other than cash.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulations under such
section.
(g) "COMMITTEE" means the Compensation Committee of the Board which
shall be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and
(ii) constituted solely of "outside directors," within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder.
(h) "COMPANY" means Offshore Energy Development Corporation and any of
its Affiliates.
(i) "DIRECTOR" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(j) An "EMPLOYEE" means any person (including an officer or a Director)
in an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(k) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any specified date, the mean of the
high and low sales prices of the Stock (i) reported by the any interdealer
quotation system on which the Stock is quoted on that date or (ii) if the Stock
is listed on a national stock exchange, reported on the stock exchange composite
tape on that date; or, in either case, if no prices are reported on that date,
on the last preceding date on which such prices of the Stock are so reported. If
the Stock is traded over the
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counter at the time a determination of its fair market value is required to be
made hereunder, its fair market value shall be deemed to be equal to the average
between the reported high and low or closing bid and asked prices of Stock on
the most recent date on which Stock was publicly traded. In the event Stock is
not publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
(m) "HOLDER" means an employee who has been granted an Award.
(n) "INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of section 422(b) of the Code.
(o) "NONQUALIFIED STOCK OPTION" means an option granted under Paragraph
VII of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.
(p) "OPTION" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.
(q) "OPTION AGREEMENT" means a written agreement between the Company and
a Holder with respect to an Option.
(r) "PERFORMANCE AWARD" means an Award granted under Paragraph X of the
Plan.
(s) "PERFORMANCE AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(t) "PHANTOM STOCK AWARD" means an Award granted under Paragraph XI of
the Plan.
(u) "PHANTOM STOCK AWARD AGREEMENT" means a written agreement between
the Company and a Holder with respect to a Phantom Stock Award.
(v) "PLAN" means the Offshore Energy Development Corporation 1996 Stock
Awards Plan, as amended from time to time.
(w) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(x) "RESTRICTED STOCK AWARD" means an Award granted under Paragraph IX
of the Plan.
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(y) "RULE 16B-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(z) "SPREAD" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.
(aa) "STOCK" means the common stock, $0.01 par value of the Company.
(bb) "STOCK APPRECIATION RIGHT" means an Award granted under Paragraph
VIII of the Plan.
(cc) "STOCK APPRECIATION RIGHTS AGREEMENT" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the stockholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The Plan
shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
IV. ADMINISTRATION
(a) COMMITTEE. The Plan shall be administered by the Committee.
(b) POWERS. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, Nonqualified Option or Stock Appreciation Right shall be
granted, the number of shares of Stock which may be issued under each Option,
Stock Appreciation Right or Restricted Stock Award, and the value of each
Performance Award and Phantom Stock Award. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contributions to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, the
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Committee is authorized to construe the Plan and the respective agreements
executed thereunder, to prescribe such rules and regulations relating to the
Plan as it may deem advisable to carry out the Plan, and to determine the terms,
restrictions and provisions of each Award, including such terms, restrictions
and provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
any agreement relating to an Award in the manner and to the extent it shall deem
expedient to carry it into effect. The determinations of the Committee on the
matters referred to in this Article IV shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to time
grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 835,000 shares. Shares of Stock shall be
deemed to have been issued under the Plan only to the extent actually issued and
delivered pursuant to an Award. To the extent that an Award lapses or the rights
of its Holder terminate or the Award is paid in cash, any shares of Stock
subject to such Award shall again be available for the grant of an Award. To the
extent that an Award lapses or the rights of its Holder terminate, any shares of
Stock subject to such Award shall again be available for the grant of an Award.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant the exercise of an Incentive Stock Option and for those shares
acquired pursuant to the exercise of a Nonqualified Stock Option.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are key
employees. Awards may not be granted to any Director who is not an employee. An
Award may be granted on more than one occasion to the same person, and, subject
to the limitations set forth in the Plan, such Award may include an Incentive
Stock Option or a Nonqualified Stock Option, a Stock Appreciation Right, a
Restricted Stock Award, a Performance Award, a Phantom Stock Award or any
combination thereof.
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VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that
the aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Nonqualified Stock Options as determined by the Committee. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option shall
be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the Fair
Market Value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall provide that the Option may not be
exercised earlier than six months from the date of grant and shall specify the
effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from the sale or
margin loan proceeds from the brokerage firm directly to the Company. Such
Option Agreement may also include, without limitation, provisions relating to
(i) vesting of
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Options, subject to the provisions hereof accelerating such vesting on a Change
of Control, (ii) tax matters (including provisions (y) permitting the delivery
of additional shares of Stock or the withholding of shares of Stock from those
acquired upon exercise to satisfy federal or state income tax withholding
requirements and (z) dealing with any other applicable employee wage withholding
requirements), and (iii) any other matters not inconsistent with the terms and
provisions of this Plan that the Committee shall in its sole discretion
determine. The terms and conditions of the respective Option Agreements need not
be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Incentive Stock Option on the date the Incentive Stock Option is
granted and (ii) such purchase price shall be subject to adjustment as provided
in Paragraph XII. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to
all the privileges and rights of a stockholder only with respect to such shares
of Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the right
to receive an amount equal to the Spread with respect to a share of Stock upon
the exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. The Spread with respect to a Stock Appreciation Right may be payable
either in cash, shares of Stock with a Fair Market Value equal to the Spread or
in a
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combination of cash and shares of Stock. With respect to Stock Appreciation
Rights that are subject to Section 16 of the 1934 Act, however, the Committee
shall, except as provided in Paragraph XII(c), retain sole discretion (i) to
determine the form in which payment of the Stock Appreciation Right will be made
(I.E., cash, securities or any combination thereof) or (ii) to approve an
election by a Holder to receive cash in full or partial settlement of Stock
Appreciation Rights. Each Stock Appreciation Rights Agreement shall provide that
the Stock Appreciation Rights may not be exercised earlier than six months from
the date of grant and shall specify the effect of termination of employment on
the exercisability of the Stock Appreciation Rights.
(b) OTHER TERMS AND CONDITIONS. At the time of such Award, the
Committee, may in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Stock Appreciation Rights, including, but not limited
to rules pertaining to termination of employment (by retirement, disability,
death or otherwise) of a Holder prior to the expiration of such Stock
Appreciation Rights. Such additional terms, conditions or restrictions shall be
set forth in the Stock Appreciation Rights Agreement made in conjunction with
the Award. Such Stock Appreciation Rights Agreements may also include, without
limitation, provisions relating to (i) vesting of Awards, subject to the
provisions hereof accelerating vesting on a Change of Control,(ii) tax matters
(includinG provisions covering applicable wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan, that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Appreciation Rights Agreements need not be
identical.
(c) EXERCISE PRICE. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii)
shall be subject to adjustment as provided in Paragraph XII.
(d) EXERCISE PERIOD. The term of each Stock Appreciation Right shall be
as specified by the Committee at the date of grant.
(e) LIMITATIONS ON EXERCISE OF STOCK APPRECIATION RIGHT. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares
of Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder
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and an obligation of the Holder to forfeit and surrender the shares to the
Company under certain circumstances (the "FORFEITURE RESTRICTIONS"). The
Forfeiture Restrictions shall be determined by the Committee in its sole
discretion, and the Committee may provide that the Forfeiture Restrictions shall
lapse upon (i) the attainment of targets established by the Committee that are
based on (1) the price of a share of Stock, (2) the Company's earnings per
share, (3) the Company's revenue, (4) the revenue of a business unit of the
Company designated by the Committee, (5) the return on stockholders' equity
achieved by the Company, or (6) the Company's pre-tax cash flow from operations,
(ii) the Holder's continued employment with the Company for a specified period
of time, or (iii) a combination of any two or more of the factors listed in
clauses (i) and (ii) of this sentence. Each Restricted Stock Award may have
different Forfeiture Restrictions, in the discretion of the Committee. The
Forfeiture Restrictions applicable to a particular Restricted Stock Award shall
not be changed except as permitted by Paragraph IX(b) or Paragraph XII.
(b) OTHER TERMS AND CONDITIONS. Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends with respect to Stock subject to a Restricted Stock Award, to
vote Stock subject thereto and to enjoy all other stockholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Stock until the Forfeiture Restrictions shall have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeiture Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award. Such Restricted Stock
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating vesting on a Change of Control,
vesting of Awards, (ii) tax matters (including provisions (y) covering any
applicable employee wage withholding requirements and (z) prohibiting an
election by the Holder under section 83(b) of the Code), and (iii) any other
matters not inconsistent with the terms and provisions of this Plan that the
Committee shall in its sole discretion determine. The terms and conditions of
the respective Restricted Stock Agreements need not be identical.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the
amount and form of any payment for Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Stock received pursuant to a Restricted
Stock Award, except to the extent otherwise required by law.
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(d) AGREEMENTS. At the time any Award is made under this Paragraph IX,
the Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.
X. PERFORMANCE AWARDS
(a) PERFORMANCE PERIOD. The Committee shall establish, with respect to
and at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) PERFORMANCE AWARDS. Each Performance Award shall have a maximum
value established by the Committee at the time of such Award.
(c) PERFORMANCE MEASURES. A Performance Award shall be awarded to an
employee contingent upon future performance of the employee, the Company or any
subsidiary, division or department thereof by or in which is he employed during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(d) AWARDS CRITERIA. In determining the value of Performance Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(e) PAYMENT. Following the end of the performance period, the Holder of
a Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Stock or a
combination thereof, as determined by the Committee. Payment shall be made in a
lump sum or in installments as prescribed by the Committee. Any payment to be
made in Stock shall be based on the Fair Market Value of the Stock on the
payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.
(f) TERMINATION OF EMPLOYMENT. A Performance Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable performance period, except as may be determined by
the Committee or as may otherwise be provided in the Award at the time granted.
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(g) AGREEMENTS. At the time any Award is made under this Paragraph X,
the Company and the Holder shall enter into a Performance Award Agreement
setting forth each of the matters contemplated hereby, and, in addition such
matters are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XI. PHANTOM STOCK AWARDS
(a) PHANTOM STOCK AWARDS. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without payment
of any amounts by the Holder thereof (except to the extent otherwise required by
law) or satisfaction of any performance criteria or objectives. Each Phantom
Stock Award shall have a maximum value established by the Committee at the time
of such Award.
(b) AWARD PERIOD. The Committee shall establish, with respect to and at
the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
(c) AWARDS CRITERIA. In determining the value of Phantom Stock Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) PAYMENT. Following the end of the vesting period for a Phantom Stock
Award, the Holder of a Phantom Stock Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Phantom Stock Award, based
on the then vested value of the Award. Payment of a Phantom Stock Award may be
made in cash, Stock or a combination thereof as determine by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee in its sole discretion. Any payment to be made in Stock shall be based
on the Fair Market Value of the Stock on the payment date. Cash dividend
equivalents may be paid during or after the vesting period with respect to a
Phantom Stock Award, as determined by the Committee. If a payment of cash is to
be made on a deferred basis, the Committee shall establish whether interest
shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(e) TERMINATION OF EMPLOYMENT. A Phantom Stock Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee or as set forth in the Award at the time of grant.
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(f) AGREEMENTS. At the time any Award is made under this Paragraph XI,
the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and, in addition such
matters as are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.
(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value.
Further, in the event of a Change of Control, the Committee, in its discretion
shall act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Holders and which may vary
among Options held by any individual Holder: (1) determine a limited period of
time on or before a specified date (before or after such Change of Control)
after which specified date all unexercised Options and all rights of Holders
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each
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Holder an amount of cash per share equal to the excess, if any, of the Change of
Control Value of the shares subject to such Option over the exercise price(s)
under such Options for such shares, (3) make such adjustments to Options then
outstanding as the Committee deems appropriate to reflect such Change of Control
(provided, however, that the Committee may determine in its sole discretion that
no adjustment is necessary to Options then outstanding) or (4) provide that
thereafter upon any exercise of an Option theretofore granted the Holder shall
be entitled to purchase under such Option, in lieu of the number of shares of
Stock then covered by such Option the number and class of shares of stock or
other securities or property (including, without limitation, cash) to which the
Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution the Holder has been
the holder of record of the number of shares of Stock then covered by such
Option. The provisions contained in this paragraph shall be inapplicable to an
Award granted within six (6) months before the occurrence of a Change of Control
if the Holder of such Award is subject to the reporting requirements of Section
16(a) of the 1934 Act. The provisions contained in this paragraph shall not
terminate any rights of the Holder to further payments pursuant to any other
agreement with the Company following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or
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upon conversion of shares of obligations of the Company convertible into such
shares or other securities, and in any case whether or not for fair value, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number of shares of Stock subject to Awards theretofore granted or the
purchase price per share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may be
made which would impair the rights of the Holder without the consent of the
Holder (unless such change is required in order to cause the benefits under the
Plan to qualify as performance-based compensation within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder), and
provided, further, that the Board may not, without approval of the stockholders,
amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
(c) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted
under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted
Stock Agreement, Performance Award Agreement or Phantom Stock Award Agreement
-14-
on behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the payment of any Award.
(b) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment at
any time.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue
any Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative.
(f) RULE 16B-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
-15-
(g) SECTION 162(M). If the plan is subject to 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with Section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.
(h) GOVERNING LAW. This Plan shall be construed in accordance with the
laws of the State of Delaware.
-16-
EXHIBIT 10.23
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Option Agreement") is between
Offshore Energy Development Corporation, a Delaware corporation (the "Company"),
and (the "Optionee"). W I T N E S S E T H:
WHEREAS, it is the desire of the Company (i) to carry out the purposes
of the Offshore Energy Development Corporation 1996 Stock Awards Plan (the
"Plan") by providing the Optionee the right to acquire a proprietary interest in
the Company through the award of an Incentive Stock Option within the meaning of
Section 422(b) of the Code, (ii) to retain the Optionee, an employee of
outstanding ability and potential, and (iii) to provide additional motivation to
the Optionee to continue to exert Optionee's best efforts for the success and
welfare of the Company and the benefit of the Company's stockholders; and
WHEREAS, the Company, acting through the Compensation Committee of its
Board of Directors (the "Committee"), has determined that its interests will be
advanced by the issuance to Optionee of an Incentive Stock Option under the
Plan.
NOW THEREFORE, for and in consideration of these premises it is agreed
as follows:
1. OPTION. Subject to the terms and conditions contained herein, the
Company hereby irrevocably grants to Optionee the right and option ("Option") to
purchase from the Company ____________ (____) shares of the Company's common
stock, $0.01 par value ("Common Stock"), at a price of $__________ per share,
which is the Fair Market Value of a share of Common Stock as of the Grant Date
(as defined below).
2. OPTION PERIOD. The Option herein granted may be exercised by
Optionee in whole or in part at any time during a _____ (___) year period (the
"Option Period") beginning on ________________, 199__ (the "Grant Date") subject
to the limitation that said Option shall not be exercisable for more than a
percentage of the aggregate number of shares offered by this Option determined
by the number of full years of employment with the Company or its Affiliates
from the Grant Date, to the date of such exercise, in accordance with the
following schedule:
-1-
NUMBER OF PERCENTAGE OF
FULL YEARS SHARES PURCHASABLE
Less than one 0%
One 20%
Two 40%
Three 60%
Four 80%
Five or more 100%
Notwithstanding anything in this Option Agreement to the contrary, (i) the
schedule of vesting set forth above is subject to Paragraph 8 herein and (ii)
the Committee, in its sole discretion, may waive the foregoing schedule of
vesting and, upon written notice to the Optionee, accelerate the earliest date
or dates on which any of the Options granted hereunder are exercisable.
3. PROCEDURE FOR EXERCISE. The Option herein granted may be exercised
by written notice by Optionee to the Secretary of the Company setting forth the
number of shares of Common Stock with respect to which the Option is to be
exercised accompanied by payment for the shares to be purchased, and specifying
the address to which the certificate for such shares is to be mailed. The notice
shall be accompanied by one or a combination of (i), (ii) or (iii) as agreed to
by the Committee, equal in value to the aggregate exercise price: (i) cash,
cashier's check, bank draft, or postal or express money order payable to the
order of the Company, (ii) certificates representing shares of Common Stock
theretofore owned by Optionee duly endorsed for transfer to the Company, or
(iii) a written election by Optionee to transact a "cashless exercise" as
described in Paragraph VII(d) of the Plan. Notice may also be delivered by
telecopy provided that the exercise price of such shares is received by the
Company via wire transfer on the same day the telecopy transmission is received
by the Company. The notice shall specify the address to which the certificates
for such shares are to be mailed. An option to purchase shares of Common Stock
in accordance with this Plan shall be deemed to have been exercised immediately
prior to the close of business on the date (i) written notice of such exercise
and (ii) payment in full of the exercise price for the number of shares for
which Options are being exercised, are both received by the Company, and
Optionee shall be treated for all purposes as the record holder of such shares
of Common Stock as of such date.
-2-
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Paragraph
3.
4. TERMINATION OF EMPLOYMENT. If Optionee's employment with the Company
or its Affiliates is terminated during the Option Period for any reason other
than death or disability, Options granted to Optionee which are not exercisable
on such date thereupon terminate. Any Options which are exercisable on the date
of Optionee's termination of employment shall expire upon the earlier of (i) the
remaining term of the Option or (ii) three (3) months from the date of such
termination of employment.
5. DEATH OR DISABILITY. If Optionee's employment with the Company or
its Affiliates is terminated by death or disability, all Options hereunder
exercisable at the date of such death or disability shall be thereafter
exercisable by Optionee, his executor or administrator, or the person or persons
to whom his rights under this Option Agreement shall pass by will or by the laws
of descent and distribution, as the case may be, for a period of six months from
the date of Optionee's death or disability, unless this Option Agreement should
earlier terminate in accordance with its other terms. In no event may any Option
be exer cised after the end of the Option Period. Optionee shall be deemed to be
disabled if, in the opinion of a physician selected by the Committee, he or she
is incapable of performing services for the Company or its Affiliates by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of a long, continued and indefinite
duration.
6. TRANSFERABILITY. This Option shall not be transferable by Optionee
otherwise than by Optionee's will or by the laws of descent and distribution.
During the lifetime of Optionee, the Option shall be exercisable only by him.
Any heir or legatee of Optionee shall take rights herein granted subject to the
terms and conditions hereof. No such transfer of this Option Agreement to heirs
or legatees of Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
-3-
7. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock covered by this Option
Agreement until the date of issuance of a certificate for shares of Common Stock
purchased pursuant to this Option Agreement. Until such time, Optionee shall not
be entitled to dividends or to vote at meetings of the stockholders of the
Company. Except as provided in Paragraph 10 hereof, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or securities or other
property) paid or distributions or other rights granted in respect of any share
of Common Stock for which the record date for such payment, distribution or
grant is prior to the date upon which the Optionee shall have been issued share
certificates, as provided hereinabove.
8. CHANGE OF CONTROL. In the event of a Change of Control (as defined
in the Plan), all outstanding Options, whether exercisable or not, shall
immediately vest and become exercisable. Further, in the event of a Change of
Control, the Committee, in its discretion, shall act to effect one or more of
the alternatives set forth in Paragraph XII(c) of the Plan.
9. CORPORATE TRANSACTIONS. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves and such transaction is not a Change of Control, then thereafter
upon any exercise of the Option hereunder, the Optionee shall be entitled to
purchase under the Option, in lieu of the number of shares of Common Stock
covered by this Option then exercisable, the number and class of shares of stock
and securities to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation, sale of assets or dissolution,
if, immediately prior to such agreement of merger, consolidation, sale of assets
or dissolution, the Optionee had been the holder of record of the number of
shares of Common Stock as to which the Option is then exercisable.
10. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
Stock of the Company shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares subject to the Option heretofore granted, and the
Option prices, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares without changing the aggregate Option price.
11. OTHER CORPORATE TRANSACTIONS. The existence of outstanding Options
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's
-4-
capital structure or its business, or any merger or consolidation of the
Company, or any issu ance of Common Stock or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise. In the event of changes in the outstanding
Common Stock by reason of recapitalizations, reorganizations, mergers,
consolidations, combinations, or exchanges or other relative changes in
capitalization occurring after the Grant Date and not otherwise provided for by
Paragraphs 8, 9 and 10 above, this Option shall be subject to adjustment by the
Committee at its discretion as to the number and price of shares of Common Stock
or other considerations subject to this Option.
12. COMPLIANCE WITH SECURITIES LAWS. Upon the acquisition of any shares
pursuant to the exercise of the Option herein granted, Optionee (or any person
acting under Paragraph 6) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
13. COMPLIANCE WITH LAWS. Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise the Option(s) granted hereby,
and that the Company will not be obligated to issue any shares pursuant to this
Option Agreement, if the exercise of the Option(s) or the issuance of such
shares of Common Stock would constitute a violation by the Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
14. NOTICE OF DISPOSITION. If Optionee disposes of any shares of Common
Stock acquired pursuant to the exercise of an Option granted hereunder prior to
the later of (i) two years from the Grant Date or (ii) one year from the date
the shares of Common Stock were acquired, Optionee shall notify the Company of
such disposition within ten days of its occurrence and deliver to the Company
any amount of federal or state income tax withholding required by law as set
forth in Paragraph 15 below.
15. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Common Stock acquired by exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, the Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation
-5-
under applicable tax laws or regulations; and, if the Optionee fails to do so,
the Company is authorized to withhold from any cash remuneration then or
thereafter payable to the Optionee any tax required to be withheld by reason of
such resulting compensation income, or the Company may otherwise refuse to issue
or transfer any shares otherwise required to be issued or transferred pursuant
to the terms hereof.
16. RESOLUTION OF DISPUTES. As a condition of the granting of the
Option hereby, the Optionee and his heirs and successors agree that any dispute
or disagreement which may arise hereunder shall be determined by the Committee
in its sole discretion and judgment, and that any such determination and any
interpretation by the Committee of the terms of this Option Agreement shall be
final and shall be binding and conclusive, for all purposes, upon the Company,
Optionee, his heirs and personal representatives.
17. LEGENDS ON CERTIFICATE. The certificates representing the shares of
Common Stock purchased by exercise of an Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
18. NOTICES. Every notice hereunder shall be in writing and shall be
given by registered or certified mail. All notices of the exercise of any Option
hereunder shall be directed to Offshore Energy Development Corporation, 1400
Woodloch Forest Drive, Suite 200, The Woodlands, Texas 77380, Attention:
Secretary. Any notice given by the Company to Optionee directed to him at his
address on file with the Company shall be effective to bind him and any other
person who shall acquire rights hereunder. The Company shall be under no
obligation whatsoever to advise Optionee of the existence, maturity or
termination of any of Optionee's rights hereunder and Optionee shall be deemed
to have familiarized himself with all matters contained herein and in the Plan
which may affect any of Optionee's rights or privileges hereunder.
19. CONSTRUCTION AND INTERPRETATION. Whenever the term "Optionee" is
used herein under circumstances applicable to any other person or persons to
whom this award, in accor dance with the provisions of Paragraph 6 hereof, may
be transferred, the term "Optionee" shall be deemed to include such person or
persons. References to the masculine gender herein also include the feminine
gender for all purposes.
20. AGREEMENT SUBJECT TO PLAN. This Option Agreement is subject to the
Plan. The terms and provisions of the Plan (including any subsequent amendments
thereto) are
-6-
hereby incorporated herein by reference thereto. In the event of a conflict
between any term or provision contained herein and a term or provision of the
Plan, the applicable terms and provisions of the Plan will govern and prevail.
All definitions of words and terms contained in the Plan shall be applicable to
this Option Agreement.
21. EMPLOYMENT RELATIONSHIP. Employees shall be considered to be in the
employment of the Company as long as they remain employees of the Company or an
Affiliate. Any questions as to whether and when there has been a termination of
such employment and the cause of such termination shall be determined by the
Committee, and its determination shall be final. Nothing contained herein shall
be construed as conferring upon the Optionee the right to continue in the employ
of the Company, nor shall anything contained herein be construed or interpreted
to limit the "employment at will" relationship between the Optionee and the
Company.
22. BINDING EFFECT. This Option Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
IN WITNESS WHEREOF, this Option Agreement has been executed as of the
day of , 19 .
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:________________________
Name & Title:______________
OPTIONEE
---------------------------
-7-
EXHIBIT 10.24
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
Offshore Energy Development Corporation, a Delaware corporation (the "Company"),
and (the "Optionee").
WITNESSETH:
WHEREAS, it is the desire of the Company (i) to carry out the purposes
of the Offshore Energy Development Corporation 1996 Stock Awards Plan (the
"Plan") by providing the Optionee the right to acquire a proprietary interest in
the Company through the award of a Nonqualified Stock Option, (ii) to retain the
Optionee, an employee of outstanding ability and potential, and (iii) to provide
additional motivation to the Optionee to continue to exert Optionee's best
efforts for the success and welfare of the Company and the benefit of the
Company's stockholders; and
WHEREAS, the Company, acting through the Compensation Committee of its
Board of Directors (the "Committee"), has determined that its interests will be
advanced by the issuance to Optionee of a Nonqualified Stock Option under the
Plan.
NOW THEREFORE, for and in consideration of these premises it is agreed
as follows:
1. OPTION. Subject to the terms and conditions contained herein, the
Company hereby irrevocably grants to Optionee the right and option ("Option") to
purchase from the Company ____________ (____) shares of the Company's common
stock, $0.01 par value ("Common Stock"), at a price of $__________ per share.
2. OPTION PERIOD. The Option herein granted may be exercised by Optionee
in whole or in part at any time during a _____ (___) year period (the "Option
Period") beginning on ________________, 199__ (the "Grant Date") subject to the
limitation that said Option shall not be exercisable for more than a percentage
of the aggregate number of shares offered by this Option determined by the
number of full years of employment with the Company or its Affiliates from the
Grant Date, to the date of such exercise, in accordance with the following
schedule:
-1-
Number of Percentage of
Full Years Shares Purchasable
---------- ------------------
Less than one 0%
One 20%
Two 40%
Three 60%
Four 80%
Five or more 100%
Notwithstanding anything in this Option Agreement to the contrary, (i) the
schedule of vesting set forth above is subject to Paragraph 8 herein and (ii)
the Committee, in its sole discretion, may waive the foregoing schedule of
vesting and, upon written notice to the Optionee, accelerate the earliest date
or dates on which any of the Options granted hereunder are exercisable.
3. PROCEDURE FOR EXERCISE. The Option herein granted may be exercised by
written notice by Optionee to the Secretary of the Company setting forth the
number of shares of Common Stock with respect to which the Option is to be
exercised accompanied by payment for the shares to be purchased, and specifying
the address to which the certificate for such shares is to be mailed. The notice
shall be accompanied by one or a combination of (i), (ii) or (iii) as agreed to
by the Committee, equal in value to the aggregate exercise price: (i) cash,
cashier's check, bank draft, or postal or express money order payable to the
order of the Company, (ii) certificates representing shares of Common Stock
theretofore owned by Optionee duly endorsed for transfer to the Company, or
(iii) a written election by Optionee to transact a "cashless exercise" as
described in Paragraph VII(d) of the Plan. Notice may also be delivered by
telecopy provided that the exercise price of such shares is received by the
Company via wire transfer on the same day the telecopy transmission is received
by the Company. The notice shall specify the address to which the certificates
for such shares are to be mailed. An option to purchase shares of Common Stock
in accordance with this Plan shall be deemed to have been exercised immediately
prior to the close of business on the date (i) written notice of such exercise
and (ii) payment in full of the exercise price for the number of shares for
which Options are being exercised, are both received by the Company, and
Optionee shall be treated for all purposes as the record holder of such shares
of Common Stock as of such date.
-2-
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Paragraph
3.
4. TERMINATION OF EMPLOYMENT. If Optionee's employment with the Company
or its Affiliates is terminated during the Option Period for any reason other
than death or disability, Options granted to Optionee which are not exercisable
on such date thereupon terminate. Any Options which are exercisable on the date
of Optionee's termination of employment shall expire upon the earlier of [(I)
THE EXPIRATION OF THE REMAINING TERM OF THE OPTION OR (II) ____ YEARS FROM THE
DATE OF SUCH TERMINATION OF EMPLOYMENT].
5. DEATH OR DISABILITY. If Optionee's employment with the Company or its
Affiliates is terminated by death or disability, all Options hereunder
exercisable at the date of such death or disability shall be thereafter
exercisable by Optionee, his executor or administrator, or the person or persons
to whom his rights under this Option Agreement shall pass by will or by the laws
of descent and distribution, as the case may be, for a period of six months from
the date of Optionee's death or disability, unless this Option Agreement should
earlier terminate in accordance with its other terms. In no event may any Option
be exer cised after the end of the Option Period. Optionee shall be deemed to be
disabled if, in the opinion of a physician selected by the Committee, he or she
is incapable of performing services for the Company or its Affiliates by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of a long, continued and indefinite
duration.
6. TRANSFERABILITY. This Option shall not be transferable by Optionee
otherwise than by Optionee's will or by the laws of descent and distribution.
During the lifetime of Optionee, the Option shall be exercisable only by him.
Any heir or legatee of Optionee shall take rights herein granted subject to the
terms and conditions hereof. No such transfer of this Option Agreement to heirs
or legatees of Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
-3-
7. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock covered by this Option
Agreement until the date of issuance of a certificate for shares of Common Stock
purchased pursuant to this Option Agreement. Until such time, Optionee shall not
be entitled to dividends or to vote at meetings of the stockholders of the
Company. Except as provided in Paragraph 10 hereof, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or securities or other
property) paid or distributions or other rights granted in respect of any share
of Common Stock for which the record date for such payment, distribution or
grant is prior to the date upon which the Optionee shall have been issued share
certificates, as provided hereinabove.
8. CHANGE OF CONTROL. In the event of a Change of Control (as defined in
the Plan), all outstanding Options, whether exercisable or not, shall
immediately vest and become exercisable. Further, in the event of a Change of
Control, the Committee, in its discretion, shall act to effect one or more of
the alternatives set forth in Paragraph XII(c) of the Plan.
9. CORPORATE TRANSACTIONS. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves and such transaction is not a Change of Control, then thereafter
upon any exercise of the Option hereunder, the Optionee shall be entitled to
purchase under the Option, in lieu of the number of shares of Common Stock
covered by this Option then exercisable, the number and class of shares of stock
and securities to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation, sale of assets or dissolution,
if, immediately prior to such agreement of merger, consolidation, sale of assets
or dissolution, the Optionee had been the holder of record of the number of
shares of Common Stock as to which the Option is then exercisable.
10. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
Stock of the Company shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares subject to the Option heretofore granted, and the
Option prices, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares without changing the aggregate Option price.
11. OTHER CORPORATE TRANSACTIONS. The existence of outstanding Options
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's
-4-
capital structure or its business, or any merger or consolidation of the
Company, or any issu ance of Common Stock or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise. In the event of changes in the outstanding
Common Stock by reason of recapitalizations, reorganizations, mergers,
consolidations, combinations, or exchanges or other relative changes in
capitalization occurring after the Grant Date and not otherwise provided for by
Paragraphs 8, 9 and 10 above, this Option shall be subject to adjustment by the
Committee at its discretion as to the number and price of shares of Common Stock
or other considerations subject to this Option.
12. COMPLIANCE WITH SECURITIES LAWS. Upon the acquisition of any shares
pursuant to the exercise of the Option herein granted, Optionee (or any person
acting under Paragraph 6) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
13. COMPLIANCE WITH LAWS. Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise the Option(s) granted hereby,
and that the Company will not be obligated to issue any shares pursuant to this
Option Agreement, if the exercise of the Option(s) or the issuance of such
shares of Common Stock would constitute a violation by the Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
14. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Common Stock acquired by exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, the Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation under applicable tax
laws or regulations; and, if the Optionee fails to do so, the Company is
authorized to withhold from any cash remuneration then or thereafter payable to
the Optionee any tax required to be withheld by reason of such resulting
compensation income, or the Company may otherwise refuse to issue or transfer
any shares otherwise required to be issued or transferred pursuant to the terms
hereof.
-5-
15. RESOLUTION OF DISPUTES. As a condition of the granting of the Option
hereby, the Optionee and his heirs and successors agree that any dispute or
disagreement which may arise hereunder shall be determined by the Committee in
its sole discretion and judgment, and that any such determination and any
interpretation by the Committee of the terms of this Option Agreement shall be
final and shall be binding and conclusive, for all purposes, upon the Company,
Optionee, his heirs and personal representatives.
16. LEGENDS ON CERTIFICATE. The certificates representing the shares of
Common Stock purchased by exercise of an Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
17. NOTICES. Every notice hereunder shall be in writing and shall be
given by registered or certified mail. All notices of the exercise of any Option
hereunder shall be directed to Offshore Energy Development Corporation, 1400
Woodloch Forest Drive, Suite 200, The Woodlands, Texas 77380, Attention:
Secretary. Any notice given by the Company to Optionee directed to him at his
address on file with the Company shall be effective to bind him and any other
person who shall acquire rights hereunder. The Company shall be under no
obligation whatsoever to advise Optionee of the existence, maturity or
termination of any of Optionee's rights hereunder and Optionee shall be deemed
to have familiarized himself with all matters contained herein and in the Plan
which may affect any of Optionee's rights or privileges hereunder.
18. CONSTRUCTION AND INTERPRETATION. Whenever the term "Optionee" is
used herein under circumstances applicable to any other person or persons to
whom this award, in accor dance with the provisions of Paragraph 6 hereof, may
be transferred, the term "Optionee" shall be deemed to include such person or
persons. References to the masculine gender herein also include the feminine
gender for all purposes.
19. AGREEMENT SUBJECT TO PLAN. This Option Agreement is subject to the
Plan. The terms and provisions of the Plan (including any subsequent amendments
thereto) are hereby incorporated herein by reference thereto. In the event of a
conflict between any term or provision contained herein and a term or provision
of the Plan, the applicable terms and provisions of the Plan will govern and
prevail. All definitions of words and terms contained in the Plan shall be
applicable to this Option Agreement.
-6-
20. EMPLOYMENT RELATIONSHIP. Employees shall be considered to be in the
employment of the Company as long as they remain employees of the Company or an
Affiliate. Any questions as to whether and when there has been a termination of
such employment and the cause of such termination shall be determined by the
Committee, and its determination shall be final. Nothing contained herein shall
be construed as conferring upon the Optionee the right to continue in the employ
of the Company, nor shall anything contained herein be construed or interpreted
to limit the "employment at will" relationship between the Optionee and the
Company.
21. BINDING EFFECT. This Option Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
IN WITNESS WHEREOF, this Option Agreement has been executed as of the
day of , 19 .
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:_______________________________
Name & Title:______________________
OPTIONEE
----------------------------------
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EXHIBIT 10.25
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is
between Offshore Energy Development Corporation, a Delaware corporation (the
"Company"), and (the "Optionee").
W I T N E S S E T H:
WHEREAS, it is the desire of the Company (i) to carry out the purposes
of the Offshore Energy Development Corporation 1996 Stock Awards Plan (the
"Plan") by providing the Optionee the right to acquire a proprietary interest in
the Company through the award of a Nonqualified Stock Option, (ii) to retain the
Optionee, an employee of outstanding ability and potential, and (iii) to provide
additional motivation to the Optionee to continue to exert Optionee's best
efforts for the success and welfare of the Company and the benefit of the
Company's stockholders; and
WHEREAS, the Company, effective ___________, 1996, previously granted
an option to the Optionee to purchase _______ shares of Common Stock (as defined
below) at a price of $_______ per share ("Previous Option Agreement"); and
WHEREAS, the Company, acting through the Compensation Committee of its
Board of Directors (the "Committee"), has determined that its interests will be
advanced by the issuance to Optionee of a Nonqualified Stock Option under the
Plan, provided that the Optionee's receipt of a Nonqualified Stock Option under
the Plan is conditioned upon the Optionee releasing the Company from any and all
obligations or liabilities the Company may owe Optionee under the Previous
Option Agreement.
NOW THEREFORE, for and in consideration of these premises it is agreed
as follows:
1. RELEASE. Optionee, on Optionee's own behalf and on behalf of
Optionee's related persons, KNOWINGLY and VOLUNTARILY RELEASES, ACQUITS, and
FOREVER DISCHARGES Company from any and all claims, obligations or liabilities
under the Previous Option Agreement, and for and on account of the Nonqualified
Stock Options granted herein, Optionee does surrender and release to the Company
the Option (as defined in the Previous Option Agreement) granted Optionee under
the Previous Option Agreement.
-1-
2. OPTION. Subject to the terms and conditions contained herein, the
Company hereby irrevocably grants to Optionee the right and option ("Option") to
purchase from the Company ____________ (____) shares of the Company's common
stock, $0.01 par value ("Common Stock"), at a price of $__________ per share.
3. OPTION PERIOD. The Option herein granted may be exercised by
Optionee in whole or in part at any time during a _____ (___) year period (the
"Option Period") beginning on ________________, 199__ (the "Grant Date") subject
to the limitation that said Option shall not be exercisable for more than a
percentage of the aggregate number of shares offered by this Option determined
by the number of full years of employment with the Company or its Affiliates
from the Grant Date, to the date of such exercise, in accordance with the
following schedule:
NUMBER OF PERCENTAGE OF
FULL YEARS SHARES PURCHASABLE
Less than one 0%
One 20%
Two 40%
Three 60%
Four 80%
Five or more 100%
Notwithstanding anything in this Option Agreement to the contrary, (i) the
schedule of vesting set forth above is subject to Paragraph 9 herein and (ii)
the Committee, in its sole discretion, may waive the foregoing schedule of
vesting and, upon written notice to the Optionee, accelerate the earliest date
or dates on which any of the Options granted hereunder are exercisable.
4. PROCEDURE FOR EXERCISE. The Option herein granted may be exercised
by written notice by Optionee to the Secretary of the Company setting forth the
number of shares of Common Stock with respect to which the Option is to be
exercised accompanied by payment for the shares to be purchased, and specifying
the address to which the certificate for such shares is to be mailed. The notice
shall be accompanied by one or a combination of (i), (ii) or (iii) as agreed to
by the Committee, equal in value to the aggregate exercise price: (i) cash,
cashier's check, bank draft, or postal or express money order payable to the
order of the Company, (ii) certificates representing shares of Common Stock
theretofore
-2-
owned by Optionee duly endorsed for transfer to the Company, or (iii) a written
election by Optionee to transact a "cashless exercise" as described in Paragraph
VII(d) of the Plan. Notice may also be delivered by telecopy provided that the
exercise price of such shares is received by the Company via wire transfer on
the same day the telecopy transmission is received by the Company. The notice
shall specify the address to which the certificates for such shares are to be
mailed. An option to purchase shares of Common Stock in accordance with this
Plan shall be deemed to have been exercised immediately prior to the close of
business on the date (i) written notice of such exercise and (ii) payment in
full of the exercise price for the number of shares for which Options are being
exercised, are both received by the Company, and Optionee shall be treated for
all purposes as the record holder of such shares of Common Stock as of such
date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to Optionee at the address specified pursuant to this Paragraph
4.
5. TERMINATION OF EMPLOYMENT. If Optionee's employment with the Company
or its Affiliates is terminated during the Option Period for any reason other
than death or disability, Options granted to Optionee which are not exercisable
on such date thereupon terminate. Any Options which are exercisable on the date
of Optionee's termination of employment shall expire upon the earlier of [(I)
THE EXPIRATION OF THE REMAINING TERM OF THE OPTION OR (II) ____ YEARS FROM THE
DATE OF SUCH TERMINATION OF EMPLOYMENT].
6. DEATH OR DISABILITY. If Optionee's employment with the Company or
its Affiliates is terminated by death or disability, all Options hereunder
exercisable at the date of such death or disability shall be thereafter
exercisable by Optionee, his executor or administrator, or the person or persons
to whom his rights under this Option Agreement shall pass by will or by the laws
of descent and distribution, as the case may be, for a period of six months from
the date of Optionee's death or disability, unless this Option Agreement should
earlier terminate in accordance with its other terms. In no event may any Option
be exer cised after the end of the Option Period. Optionee shall be deemed to be
disabled if, in the opinion of a physician selected by the Committee, he or she
is incapable of performing services for the Company or its Affiliates by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of a long, continued and indefinite
duration.
-3-
7. TRANSFERABILITY. This Option shall not be transferable by Optionee
otherwise than by Optionee's will or by the laws of descent and distribution.
During the lifetime of Optionee, the Option shall be exercisable only by him.
Any heir or legatee of Optionee shall take rights herein granted subject to the
terms and conditions hereof. No such transfer of this Option Agreement to heirs
or legatees of Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
8. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock covered by this Option
Agreement until the date of issuance of a certificate for shares of Common Stock
purchased pursuant to this Option Agreement. Until such time, Optionee shall not
be entitled to dividends or to vote at meetings of the stockholders of the
Company. Except as provided in Paragraph 11 hereof, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or securities or other
property) paid or distributions or other rights granted in respect of any share
of Common Stock for which the record date for such payment, distribution or
grant is prior to the date upon which the Optionee shall have been issued share
certificates, as provided hereinabove.
9. CHANGE OF CONTROL. In the event of a Change of Control (as defined
in the Plan), all outstanding Options, whether exercisable or not, shall
immediately vest and become exercisable. Further, in the event of a Change of
Control, the Committee, in its discretion, shall act to effect one or more of
the alternatives set forth in Paragraph XII(c) of the Plan.
10. CORPORATE TRANSACTIONS. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves and such transaction is not a Change of Control, then thereafter
upon any exercise of the Option hereunder, the Optionee shall be entitled to
purchase under the Option, in lieu of the number of shares of Common Stock
covered by this Option then exercisable, the number and class of shares of stock
and securities to which the Optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation, sale of assets or dissolution,
if, immediately prior to such agreement of merger, consolidation, sale of assets
or dissolution, the Optionee had been the holder of record of the number of
shares of Common Stock as to which the Option is then exercisable.
11. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
Stock of the Company shall at any time be changed or exchanged by declaration of
a stock dividend,
-4-
stock split, combination of shares, or recapitalization, the number and kind of
shares subject to the Option heretofore granted, and the Option prices, shall be
appropriately and equitably adjusted so as to maintain the proportionate number
of shares without changing the aggregate Option price.
12. OTHER CORPORATE TRANSACTIONS. The existence of outstanding Options
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issu ance of
Common Stock or subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceedings, whether of a similar character or otherwise.
In the event of changes in the outstanding Common Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations, or
exchanges or other relative changes in capitalization occurring after the Grant
Date and not otherwise provided for by Paragraphs 9, 10 and 11 above, this
Option shall be subject to adjustment by the Committee at its discretion as to
the number and price of shares of Common Stock or other considerations subject
to this Option.
13. COMPLIANCE WITH SECURITIES LAWS. Upon the acquisition of any shares
pursuant to the exercise of the Option herein granted, Optionee (or any person
acting under Paragraph 7) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
14. COMPLIANCE WITH LAWS. Notwithstanding any of the other provisions
hereof, Optionee agrees that he will not exercise the Option(s) granted hereby,
and that the Company will not be obligated to issue any shares pursuant to this
Option Agreement, if the exercise of the Option(s) or the issuance of such
shares of Common Stock would constitute a violation by the Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
15. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Common Stock acquired by exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, the Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation
-5-
under applicable tax laws or regulations; and, if the Optionee fails to do so,
the Company is authorized to withhold from any cash remuneration then or
thereafter payable to the Optionee any tax required to be withheld by reason of
such resulting compensation income, or the Company may otherwise refuse to issue
or transfer any shares otherwise required to be issued or transferred pursuant
to the terms hereof.
16. RESOLUTION OF DISPUTES. As a condition of the granting of the
Option hereby, the Optionee and his heirs and successors agree that any dispute
or disagreement which may arise hereunder shall be determined by the Committee
in its sole discretion and judgment, and that any such determination and any
interpretation by the Committee of the terms of this Option Agreement shall be
final and shall be binding and conclusive, for all purposes, upon the Company,
Optionee, his heirs and personal representatives.
17. LEGENDS ON CERTIFICATE. The certificates representing the shares of
Common Stock purchased by exercise of an Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
18. NOTICES. Every notice hereunder shall be in writing and shall be
given by registered or certified mail. All notices of the exercise of any Option
hereunder shall be directed to Offshore Energy Development Corporation, 1400
Woodloch Forest Drive, Suite 200, The Woodlands, Texas 77380, Attention:
Secretary. Any notice given by the Company to Optionee directed to him at his
address on file with the Company shall be effective to bind him and any other
person who shall acquire rights hereunder. The Company shall be under no
obligation whatsoever to advise Optionee of the existence, maturity or
termination of any of Optionee's rights hereunder and Optionee shall be deemed
to have familiarized himself with all matters contained herein and in the Plan
which may affect any of Optionee's rights or privileges hereunder.
19. CONSTRUCTION AND INTERPRETATION. Whenever the term "Optionee" is
used herein under circumstances applicable to any other person or persons to
whom this award, in accor dance with the provisions of Paragraph 7 hereof, may
be transferred, the term "Optionee" shall be deemed to include such person or
persons. References to the masculine gender herein also include the feminine
gender for all purposes.
20. AGREEMENT SUBJECT TO PLAN. This Option Agreement is subject to the
Plan. The terms and provisions of the Plan (including any subsequent amendments
thereto) are hereby incorporated herein by reference thereto. In the event of a
conflict between any term
-6-
or provision contained herein and a term or provision of the Plan, the
applicable terms and provisions of the Plan will govern and prevail. All
definitions of words and terms contained in the Plan shall be applicable to this
Option Agreement.
21. EMPLOYMENT RELATIONSHIP. Employees shall be considered to be in the
employment of the Company as long as they remain employees of the Company or an
Affiliate. Any questions as to whether and when there has been a termination of
such employment and the cause of such termination shall be determined by the
Committee, and its determination shall be final. Nothing contained herein shall
be construed as conferring upon the Optionee the right to continue in the employ
of the Company, nor shall anything contained herein be construed or interpreted
to limit the "employment at will" relationship between the Optionee and the
Company.
22. BINDING EFFECT. This Option Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
IN WITNESS WHEREOF, this Option Agreement has been executed as of the
day of , 19 .
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:________________________
Name & Title:______________
OPTIONEE
---------------------------
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EXHIBIT 10.26
[Execution Draft]
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of , 1996, by and among Offshore
Energy Development Corporation, a Delaware corporation (the "Company"), David B.
Strassner and Douglas H. Kiesewetter, in their individual capacity and in their
respective capacity as trustee of the trusts set forth on the signature page of
this Agreement, and R. Keith Anderson (collectively, together with their
successors and assigns, "Management Owners"), Natural Gas Partners, L.P., R.
Gamble Baldwin, David R. Albin, Donald Shore as Trustee of the Albin Income
Trust, John S. Foster, Kenneth A. Hersh, Bruce B. Selkirk, III, John C. Goff,
Agnes Denise Darraugh (collectively, with their respective successors and
assigns, the "NGP Owners") (collectively, Management Owners and NGP Owners are
the "Owners").
1. BACKGROUND.
The Company has been recently created and organized to engage in the oil
and gas business, either directly or through one or more subsidiaries. The
Management Owners have acquired Common Stock pursuant to the merger of Offshore
Energy Development Corporation, a Texas corporation, with and into the Company,
and each of the Owners has acquired Common Stock pursuant to the exchange of
common units of OEDC Partners, L.P., a Texas limited partnership, for shares of
Common Stock. The Owners anticipate that the Company will commence a public
offering of its Common Stock pursuant to the filing of a registration statement
on Form S-1 with the Commission (the "Initial Registration") pursuant to the
Securities Act (the "Proposed Transaction"), and the Owners desire to set forth
their respective rights to register Registrable Securities in the future. The
execution and delivery of this Agreement is a condition to consummation of the
Proposed Transaction.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1. REGISTRATION ON REQUEST.
(a) From time to time after the first anniversary of the Initial
Registration Date, upon the written request of one or more holders of
Registrable Securities, requesting that the Company effect the registration
under the Securities Act of all or a portion of such holders' Registrable
Securities and specifying the intended method of disposition thereof and whether
or not such requested registration is to be an underwritten offering, the
parties hereto agree as follows:
(i) The Company will promptly give written notice of such
requested registration to all other holders of Registrable Securities,
if any; and
(ii) Promptly after the performance of the obligations imposed
under clause (i) of this Section 2.1(a), and subject to the limitations
set forth in subsection (e) of this Section 2.1, the Company will use
its best efforts to effect the registration under the Securities Act of:
(A) the Registrable Securities which the Company has
been so requested to register by such holders, and
(B) all other Registrable Securities which the Company has
been requested to register by the holders thereof by written
request given to the Company within 30 days after the giving of
such written notice by the Company (which request shall specify
the intended method of disposition of such Registrable
Securities), all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered;
(b) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall effect
a registration pursuant to this Section 2.1 in connection with an underwritten
offering by one or more holders of Registrable Securities, no securities other
than Registrable Securities shall be included among the securities covered by
such registration unless (i) the managing underwriter of such offering shall
have advised each holder of Registrable Securities to be covered by such
registration in writing that the inclusion of such other securities would not
adversely affect such offering or (ii) the holders of all Registrable Securities
to be covered by such registration shall have consented in writing to the
inclusion of such other securities. The Company shall not grant registration
rights to any party, other than the registration rights granted hereunder,
unless the form and substance of any such grant shall have been approved in
writing by the Majority Holders, provided that, in no event may the Company
grant registration rights to any party which are superior to or of equal dignity
with the rights granted hereunder to holders of Registrable Securities.
(c) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1
shall be on such appropriate registration form of the Commission (i) as shall be
selected by the Company and as shall be reasonably acceptable to the Requisite
Holders, and (ii) as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified in
their request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
(d) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 2.1. Any
Selling Expenses in connection with any registration requested under this
Section 2.1 shall be allocated among all Persons on whose behalf securities of
the Company are included in such registration, on the basis of the respective
amounts of the securities then being registered on their behalf.
(e) LIMITATIONS ON REQUESTED REGISTRATIONS. The Company's obligation to
take or continue any action to effect a requested registration under this
Section 2.1 shall be subject to the following:
-2-
(i) the Company shall not be required to effect more than three
registrations requested pursuant to this Section 2.1; provided that, a
registration requested pursuant to this Section 2.1 shall not be deemed
to have been effected (A) unless a registration statement with respect
thereto has been declared effective for a period of at least 90 days,
(B) if after a registration statement has become effective, such
registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or
court for any reason, or (C) if the conditions to closing specified in
the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than as a
result of the voluntary termination of such offering by the Requisite
Holders;
(ii) The Company will not be required to effect a registration
pursuant to this Section 2.1 unless (A) either (I) such registration has
been requested by the holders of Registrable Securities which represent
at least 35% (by number of shares) of the Registrable Securities then
outstanding, or (II) such registration has been requested by a majority
(by number of shares) of the NGP Owners (regardless of the percentage of
the total outstanding shares of the Company then owned by such Owners)
after two registrations shall have previously been effected pursuant to
this Section 2.1, and (B) the Registrable Securities to be included in
such registration, including those of all Owners joining in such
proposed sale, have an estimated aggregate offering price to the public
of at least $3,000,000; and
(iii) The Company will not be required to effect a registration
pursuant to this Section 2.1 during the ninety-day period after a
registration statement shall have been filed and declared effective
under the Securities Act with respect to the public offering of any
class of the Company's equity securities (which shall exclude a
registration of securities with respect to an employee benefit,
retirement or similar plan).
(f) SELECTION OF UNDERWRITERS. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by the Company with the approval of
the Requisite Holders.
(g) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
registration pursuant to this Section 2.1 involves an underwritten offering, and
the managing underwriter shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
acceptable to the Requisite Holders, the Company will include in such
registration to the extent of the number which the Company is so advised can be
sold in such offering, Registrable Securities requested to be included in such
registration, pro rata among the holders thereof requesting such registration on
the basis of the number of shares of Registrable Securities of the Company so
proposed to be sold and so requested to be included. In connection with any
registration as to which the provisions of this clause (g) apply, no securities
other than Registrable Securities shall be covered by such registration.
-3-
2.2. INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at
any time subsequent to the Initial Registration Date proposes to register any of
its securities under the Securities Act (other than (i) on a registration
statement on Form S-8, Form S-4 or any registration statement in connection with
a registration of any employee benefit, retirement or similar plan, or any
exchange offer made solely to existing security holders, or (ii) pursuant to
Section 2.1), whether or not for sale for its own account, it will each such
time give prompt written notice to all holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 2.2. Upon the
written request of any such holder made within 30 days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such holder and the intended method of disposition thereof),
the Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the holders thereof, to the extent requisite to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered, PROVIDED that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall be deemed to have been
effected pursuant to Section 2.1 or shall relieve the Company of its obligation
to effect any registration upon request under Section 2.1. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2 and any Selling Expenses shall
be allocated among all Persons on whose behalf securities of the Company are
included in such registration, on the basis of the respective amounts of the
securities then being registered on their behalf.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If (i) a registration
pursuant to this Section 2.2 involves an underwritten offering of the securities
so being registered, whether or not for sale for the account of the Company, to
be distributed (on a firm commitment basis) by or through one or more
underwriters of recognized standing under underwriting terms appropriate for
such a transaction, and (ii) the managing underwriter of such underwritten
offering shall inform the Company and the holders of the Registrable Securities
requesting such
-4-
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in (or
during the time of) such offering, then the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in (or during the time of) such offering, first, all securities proposed by
the Company to be sold for its own account, second, such Registrable Securities
requested to be included in such registration pro rata on the basis of the
number of units of such securities so proposed to be sold and so requested to be
included, and third, all other securities of the Company requested to be
included in such registration pro rata on the basis of the number of units of
such securities so proposed to be sold and so requested to be included.
2.3. REGISTRATION PROCEDURES.
If and whenever the Company is required to use its best efforts
to effect the registration of any Registrable Securities under the Securities
Act as provided in Sections 2.1 and 2.2, the Company will as expeditiously as
possible:
(i) prepare and (as soon thereafter as possible or in any event
no later than 60 days after the end of the period within which requests
for registration may be given to the Company) file with the Commission
the requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to
become effective, PROVIDED that the Company may discontinue any
registration of its securities which are not Registrable Securities
(and, under the circumstances specified in Section 2.2(a), its
securities which are Registrable Securities) at any time prior to the
effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such registration
statement;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act (or any
successor provision), in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably
request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as
each seller thereof shall reasonably request, to keep such registration
or qualification in effect for so long as such registration statement
remains
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in effect, and take any other action which may be reasonably necessary
or advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it
would not but for the requirements of this subdivision (iv) be obligated
to be so qualified or to consent to general service of process in any
such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and underwriters, if any) of:
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the
date of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities and, in
the case of the accountants' letter, such other financial matters, and,
in the case of the legal opinion, such other legal matters, as such
seller may reasonably request;
(vii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such
seller promptly prepare and furnish to such seller a reasonable number
of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include
-6-
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act (or any successor provision), and will furnish to each
such seller at least five business days prior to the filing thereof a
copy of any amendment or supplement to such registration statement or
prospectus and shall not file any thereof to which any such seller shall
have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(x) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the Registrable Securities is then listed; and
(xi) enter into such agreements and take such other actions as
the Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in the subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 UNDERWRITTEN OFFERINGS.
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(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to each such holder and the
underwriters and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.7. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(b), arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to made any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representation required by law.
2.5. PREPARATION; REASONABLE INVESTIGATION. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its
-8-
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
2.6. ADDITIONAL RIGHTS OF OWNERS. If any registration statement
prepared under this Agreement refers to any Owner by name or otherwise as the
holder of any securities of the Company, then such Owner shall have the right to
require (x) the insertion therein of language, in form and substance
satisfactory to such Owner, to the effect that the holding by such Owner of such
securities does not necessarily make such Owner a "controlling person" of the
Company within the meaning of the Securities Act and is not to be construed as a
recommendation by such Owner of the investment quality of the Company's debt or
equity securities covered thereby and that such holding does not imply that such
Owner will assist in meeting any future financial requirements of the Company,
or (y) in the event that such reference to such Owner by name or otherwise is
not required by the Securities Act or any rules and regulations promulgated
thereunder, the deletion of the reference to such Owner.
2.7. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, (i) in the case of any registration statement
filed pursuant to Section 2.1 or 2.2 indemnify and hold harmless the seller of
any Registrable Securities covered by such registration statement, its directors
and officers, each other Person who participates in the offering or sale of such
securities and each other Person, if any, who controls such seller within the
meaning of the Securities Act, and (ii) in the case of any registration
statement of the Company, indemnify and hold harmless its directors and officers
and each other Person, if any, who controls the Company within the meaning of
the Securities Act, in each case against any losses, claims, damages or
liabilities, joint or several, to which such seller or any such director or
officer or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such seller and each such
director, officer, and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; PROVIDED that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller, as
-9-
the case may be, specifically stating that it is for use in the preparation
thereof and, PROVIDED further that the Company shall not be liable to any Person
who participates as an underwriter, in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within the
meaning of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such Person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected in such
final prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 2.3, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (severally and not jointly with any other
sellers, in the same manner and to the same extent as set forth in subdivision
(a) of this Section 2.7) the Company, each director of the Company, each officer
of the Company and each other Person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, PROVIDED that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party
-10-
to such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.7 shall be made by corresponding payments of the amounts thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.8. CONTRIBUTION. If the indemnification provided for in Section
2.7 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to any
limitations set forth in Section 2.7 hereof, any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.8 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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2.9. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
will not effect or permit to occur any combination or subdivision of its
outstanding shares which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this Section 2. or the
marketability of such Registrable Securities under any such registration.
2.10 INITIAL REGISTRATION. The provisions in Section 2.7 and 2.8
of this Agreement with respect to indemnification and contribution shall also be
applicable with respect to any sale of Common Stock of the Company by any of the
Owners in the Initial Registration, as if such sale was made pursuant to the
provisions of this Agreement.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
COMMON STOCK: Shares of common stock, par value $__, of the
Company.
COMPANY: As defined in the introductory paragraph of this
Agreement. For purposes of this Agreement, all references to the
Company shall be deemed to include any successor entity or
transferee.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time. Reference to a particular section of the Securities
Exchange Act of 1934 shall include a reference to the comparable
section, if any, of any such similar Federal statute.
INITIAL REGISTRATION DATE: The first date on which the
registration statement for the Proposed Transaction has been
declared effective under the Securities Act.
MAJORITY HOLDERS: At any time, the holder or holders of more
than 50% (by number of units) of all Registrable Securities then
outstanding.
OFFSHORE TEXAS SHAREHOLDERS: Any of the holders of record of
Common Stock of Offshore Energy Development Corporation, a Texas
corporation, as of August 29, 1996.
PERSON: A corporation, an association, a partnership, a
business, an individual, a governmental or political subdivision
thereof or a governmental agency.
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REGISTRABLE SECURITIES: includes the following: (i) any Common
Stock owned by an Owner or by any trust the beneficiary of which
is an Owner or a member of an Owners immediate family, (ii)
solely for purposes of the incidental registration rights set
forth in Section 2.2 hereof, any Common Stock owned by an
Offshore Texas Shareholder, and (iii) any securities issued or
issuable with respect to any such Common Stock by way of
distribution or in connection with any recapitalization, merger,
consolidation or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public
pursuant to Rule 144 or Rule 144A (or any successor provision)
under the Securities Act, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the
Company and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act
or any similar state law then in force, or (d) they shall have
ceased to be outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's
performance of or compliance with Section 2.1, including,
without limitation, all registration, filing and National
Association of Securities Dealers fees, all fees and expenses of
complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for the Company
and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, the
fees and disbursements incurred by the holders of Registrable
Securities to be registered (including the fees and
disbursements of not more than one special counsel to the
holders of such Registrable Securities), premiums and other
costs of policies of insurance against liabilities arising out
of the public offering of the Registrable Securities being
registered and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but
excluding Selling Expenses, if any, provided that, in any case
where Registration Expenses are not to be borne by the Company,
such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees,
premiums or other expenses relating to liability insurance
required by underwriters of the Company or other expenses for
the preparation of financial statements or other data normally
prepared by the Company in the ordinary course of its business
or which the Company would have incurred in any event.
REQUISITE HOLDERS: With respect to any registration of
Registrable Securities pursuant to Section 2.1, any holder or
holders of more than 50% (by number of units) of the Registrable
Securities to be so registered.
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SECURITIES ACT: The Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as of the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933
shall include a reference to the comparable section, if any, of
any such similar Federal Statute.
SELLING EXPENSES: underwriting discounts and commissions and
stock transfer taxes relating to securities registered by the
Company.
4. RULE 144 AND RULE 144A: If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder (or, if the Company is not required to file
such reports, will, upon the request of any holder of Registrable Securities,
make publicly available other information) and will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements. After any sale of Registrable
Securities pursuant to this Section 4, the Company will, to the extent allowed
by law, cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to such Registrable Securities. In
order to permit the holders of Registrable Securities to sell the same, if they
so desire, pursuant to Rule 144A promulgated by the Commission (or any successor
to such rule), the Company will comply with all rules and regulations of the
Commission applicable in connection with use of Rule 144A (or any successor
thereto). Prospective transferees of Registrable Securities that are Qualified
Institutional Buyers (as defined in Rule 144A) which would be purchasing such
Registrable Securities in reliance upon Rule 144A may request from the Company
information regarding the business, operations and assets of the Company. Within
five business days of any such request, the Company shall deliver to any such
prospective transferee copies of annual audited and quarterly unaudited
financial statements of the Company and such other information as may be
required to be supplied by the Company for it to comply with Rule 144A.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Majority
Holders. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 5, whether
or not such Registrable Securities shall have been marked to indicate such
consent.
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6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of units of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. NOTICES. All communications provided for hereunder shall be
sent by first-class mail and (a) if addressed to a party other than the Company,
addressed to such party at the address set forth opposite such parties name on
the execution page hereof, or (b) if addressed to the Company, at 1400 Woodloch
Forest Drive, Suite 200, The Woodlands, Texas 77380 or at such other address, or
to the attention of such other officer, as the Company shall have furnished to
each holder of Registrable Securities at the time outstanding; provided,
HOWEVER, that any such communication to the Company may also, at the option of
any of the parties hereunder, be either delivered to the Company at its address
set forth above or to any officer of the Company.
8. ASSIGNMENT; THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
or percentages of units of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein. Prior to
the second anniversary of the Initial Registration Date, the Offshore Texas
Shareholders are intended third-party beneficiaries of the incidental
registration rights set forth in Section 2.2. of this Agreement.
9. TERMINATION. This Agreement shall terminate when no
Registrable Securities remain outstanding.
10. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
11. SPECIFIC PERFORMANCE. The parties hereto recognize and agree
that money damages may be insufficient to compensate the holders of any
Registrable Securities for breaches by the Company of the terms hereof and,
consequently, that the equitable remedy of specific performance of the terms
hereof will be available in the event of any such breach.
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12. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of Texas.
13. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
COMPANY
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:
Address For Notices: OWNERS
NGP OWNERS
NATURAL GAS PARTNERS, L.P.,
By: G.F.W. ENERGY, L.P.,
100 N. Guadalupe Street, Suite 205 its general partner
Santa Fe, NM 87501
Attention: David R. Albin
By:
David R. Albin,
Authorized Representative
R. Gamble Baldwin
David R. Albin
Donald Shore as Trustee
for the Albin Income Trust
John S. Foster
Kenneth A. Hersh
Bruce B. Selkirk III
John C. Goff
Agnes Denise Darraugh
By: Natural Gas Partners, L.P.
attorney-in-fact
By: G.F.W. Energy, L.P. its general
partner
By:
David R. Albin, Authorized
Representative
-17-
MANAGEMENT OWNERS
David B. Strassner, in his individual capacity
and as trustee of the David B. and
Cathy C. Strassner 1989 Revocable
Management Trust
Douglas H. Kiesewetter, in his individual capacity
and as trustee of the Douglas H. and
Deborah M. Kiesewetter 1989 Revocable
Management Trust
R. Keith Anderson
-18-
EXHIBIT 10.27
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT, dated as of , 1996, by and among Offshore
Energy Development Corporation, a Delaware corporation (the "Company"), the
persons or entities identified as Management Owners below on the signature pages
of this Agreement (such persons and entities, together with their successors and
assigns, are collectively referred to herein as "Management Owners"), Natural
Gas Partners, L.P. ("NGP") and the persons and entities identified as NGP Owners
below on the signature pages of this Agreement (NGP and such persons and
entities, together with their successors and assigns, are collectively referred
to herein as "NGP Owners") (collectively, the Management Owners and the NGP
Owners are the "Owners").
1. BACKGROUND. The Company has been recently created and organized to
engage in the oil and gas business, either directly or though one or more
subsidiaries. The Management Owners propose to acquire shares of the Company's
Common Stock, par value $.01 ("Common Stock") pursuant to the merger of Offshore
Energy Development Corp., a Texas corporation, with and into the Company. The
NGP Owners propose to exchange common units of limited partnership interests in
OEDC Partners, L.P., a Texas limited partnership, for shares of Common Stock.
The proposed merger and exchange are to be effectuated in connection with the
Company's public offering of shares of Common Stock pursuant to the filing of a
registration statement on Form S-1 with the Securities and Exchange Commission
(collectively, the "Proposed Transaction"). The execution and delivery of this
Agreement is being made in connection with the consummation of the Proposed
Transaction.
2. PRO-RATA SALE RIGHTS
2.1 GENERAL RIGHTS. If a Management Owner, an NGP Owner or a Permitted
Assignee of either (a "Transferring Owner") proposes to Transfer any Owner
Shares (a "Proposed Transfer") in a single transaction or a series of related
transactions (other than Transfers permitted under subsection 2.4 below), then
the Transferring Owner shall refrain from effecting such Proposed Transfer
unless, prior to the consummation thereof, the other Owners and their respective
successors and Permitted Assignees ("Tag Along Owners") shall have been afforded
the opportunity to join in such Proposed Transfer on a Pro-Rata basis, as
hereinafter provided in subsections 2.2 or 2.3.
2.2 PROCEDURES FOR PUBLIC SALES.
(a) If a Proposed Transfer is to be effectuated through an established
brokerage firm and utilizing the public securities markets (E.G., the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market
System), such Transferring Owner shall provide prior written notice of the
following (a "Public Sale Notice") to all the Tag Along Owners:
(i) The number of shares proposed to be made available for sale
(the "Initial Shares");
(ii) The pricing and other instructions pursuant to which the
selected broker will be operating;
(iii) The name, address, telephone number and facsimile number
of the selected broker and the name of the selected registered
representative at the broker; and
(iv) Confirmation that the selected broker and selected
registered representative have been advised that the Tag Along Owners
may desire to elect to participate, on a Pro-Rata basis, in the Proposed
Transfer.
(b) After receiving a Public Sale Notice, a Tag Along Owner shall be
entitled to elect to participate in the Proposed Transfer through the broker,
subject to such Tag Along Owner (i) meeting all of the broker's requirements to
establish a customer account and execute transactions for such Tag Along Owner,
(ii) meeting all of the requirements imposed by applicable securities laws in
order to execute such transaction (including Rule 144), and (iii) responding in
writing within the 5 business days after receipt of the Public Sale Notice (the
"Public Offering Response") to the Transferring Owner, to the Tag Along Owners
and to the selected broker. The number of Owner Shares which each Tag Along
Owner may elect to add to the Proposed Transfer shall be determined in
accordance with the following formula: (i) the Initial Shares, times (ii) a
fraction the numerator of which is the total of the Owners Shares owned by such
Tag Along Owner, and the denominator of which is the total Owner Shares owned by
the Transferring Owner.
(c) If the broker is unable to sell all of the Owner Shares which are
available for sale, the aggregate amount of shares which the broker is able to
sell shall be allocated on a Pro-Rata basis among the Transferring Owner and the
Tag Along Owners electing to participate in the Proposed Transfer.
2.3 PROCEDURES FOR OTHER SALES.
(a) If a Proposed Transfer is to be effectuated in a manner other than
as described in subsection 2.2., then the Transferring Owner shall cause the
person or group that proposes to acquire Owner Shares held by the Transferring
Owner (the "Proposed Purchaser") to send a written offer ("Purchase Offer") to
the Tag Along Owners, offering to purchase Owner Shares held by the Tag Along
Owners on a Pro-Rata basis.
(b) Each purchase of Tag Along Shares shall be made at the highest price
per share and on such other terms and conditions as the Proposed Purchaser has
offered to purchase Owner Shares from the Transferring Owner. Each Tag Along
Owner shall have at least 20 days from the receipt of the Purchase Offer in
which to accept such Purchase Offer, in whole or in part, and if accepted, the
closing of the sale of any Tag Along Shares pursuant thereto shall occur within
30 days after such acceptance or at such other time as the parties to such
transaction may mutually agree. If the Tag Along Owners shall decline to
Transfer all of the shares that they would be entitled to Transfer under this
subsection 2.3, the Transferring Owner
-2-
shall have the right to include additional Owner Shares in the Transfer to the
extent of the deficiency.
2.4 EXCLUDED TRANSFERS. The provisions of subsections 2.1 through 2.3 do
not apply to the Transfer by an Owner of any Owner Shares held by such Owner on
the date hereof to (i) such Owner's spouse or consanguinal relatives, (ii) to a
trust for estate or testamentary purposes, (iii) to any partners or other
affiliates of such Owner, (iv) to any charitable organization qualified as such
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or (v)
any transfer occurring by operation of law upon the death, dissolution or
liquidation of an Owner; provided that, as a condition to the transfer of any
Owner Shares pursuant to this subsection 2.4, the transferee must acknowledge
and agree to be bound by the restrictions in this agreement with respect to any
subsequent Transfer of Owner Shares (any such transferee of Owner Shares
pursuant to this subsection 2.4 is referred to herein as a "Permitted Assignee"
and after obtaining such status shall thereafter be treated as an Owner).
3. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings assigned to them below:
"COMMON STOCK" as defined in Section 1 hereof.
"OWNER SHARES" means with respect to any Owner (i) all shares of Common
Stock held by such Owner, (ii) any equity securities issued or issuable directly
or indirectly to a Owner with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, conversion, recapitalization, merger, consolidation or
other reorganization, and (iii) any other shares of any class or series of
voting security of the Company currently held or held in the future by a Owner.
As to any particular shares constituting Owner Shares, such shares will cease to
be Owner Shares when they have been transferred in accordance with the
restrictions set forth in Section 2 to any person who is not a Permitted
Assignee.
"PERMITTED ASSIGNEE" as defined in subsection 2.4.
"PLEDGE" means any pledge of an interest in, or other encumbrance placed
upon, Owner Shares as security for indebtedness or for other purposes.
"PRO-RATA BASIS" means with respect to the calculation of the number of
Owner Shares which a Tag Along Owner may Transfer upon electing to participate
in a Proposed Transfer hereunder, the amount equal to the total number of Owner
Shares to be Transferred in the Proposed Transfer multiplied by a fraction equal
to (i) the number of Owner Shares owned by such Tag Along Owner, divided by (ii)
the total number of Owner Shares owned by the Transferring Owner and all Tag
Along Owners electing to participate in a Proposed Transfer hereunder.
"PROPOSED PURCHASER" as defined in subsection 2.3.
-3-
"PURCHASE OFFER" as defined in subsection 2.3.
"TAG ALONG OWNERS" as defined in subsection 2.1.
"TRANSFER" means any sale, assignment or other disposition of Owner
Shares, other than a Pledge.
"TRANSFERRING OWNER" as defined in subsection 2.1.
4. ENFORCEMENT; LEGENDS. No Owner Shares shall be transferred on the
books of the Company nor shall any sale, assignment, transfer, pledge or other
disposition thereof be effective unless and until the terms and provisions of
this Agreement are first complied with and, in case of violation of this
Agreement by the attempted transfer of Owner Shares without compliance with the
terms and provisions hereof, such sale, assignment, transfer, pledge or other
disposition shall be invalid and of no effect. The Owners will cause the Company
to imprint a legend on any certificates evidencing Owner Shares which are
subject to this Agreement referring to the restrictions on transfer of the Owner
Shares imposed hereunder. Any such legend shall be removed from the certificates
evidencing any shares which cease to be "Owner Shares", as set forth in
definition of such term in Section 3 hereof.
5. TERMINATION. This Agreement shall terminate upon the earlier of (i)
the first date on which the NGP Owners and their Permitted Assignees shall no
longer own any Owner Shares, or (ii) the fifth anniversary of the date hereof,
or (iii) by mutual agreement of the parties, as provided in accordance with
section 6(h) below.
6. MISCELLANEOUS.
(a) BENEFIT. This Agreement will only bind and inure to the benefit of,
and will only be enforceable by and against, the Company, the Management Owners
and the NGP Owners and their respective Permitted Assignees.
(b) NOTICES. Whenever in this Agreement notice is required to be given
it shall be given in writing, and if such notice is given by registered mail, it
shall be deemed to have been received on the second business day after the date
such notice is posted. All notices hereunder to the Company shall be mailed to
it at the address of its principal place of business and all notices to the
Owners shall be mailed to them at their last known address as shown on the books
and records of the Company. Any party may change its or his or her mailing
address by giving written notice of such change to all other parties. All
notices under this Agreement which are to the provided to (i) the Management
Owners shall be sent to Douglas H. Kiesewetter at 1400 Woodloch Forest Drive,
Suite 200, The Woodlands, TX 77380, or such other representative designated from
time to time in writing to the Company and the NGP Owners, and (ii) the NGP
Owners shall be sent to NGP at 777 Main Street, Suite 2700, Fort Worth, TX
76102, or such other representative designated from time to time in writing to
the Company and the Management Owners.
-4-
(c) GOVERNING LAW. This Agreement and the rights and duties of the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas.
(d) NUMBER. Words in the singular shall be construed to include the
plural and vice versa, unless the context otherwise requires.
(e) HEADINGS. The headings appearing in this Agreement are inserted only
for convenience of reference and in no way shall be construed to define, limit
or describe the scope or intent of any provision of this Agreement.
(f) SEVERABILITY. Every provision in this Agreement is intended to be
severable. In the event that any provision in this Agreement shall be held
invalid, the same shall not affect in any respect whatsoever the validity of the
remaining provisions of this Agreement; provided, however, that if any such
provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent
permitted by applicable law.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
(h) ENTIRETY AND MODIFICATION. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified, supplemented or amended in any respect except by written
instrument executed by Management Owners holding a majority of the Owner Shares
held by all Management Owners and by NGP Owners holding a majority of the Owner
Shares held by all NGP Owners.
-5-
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
COMPANY
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:
-6-
OWNERS
NGP OWNERS
Number of Owner
Shares: NATURAL GAS PARTNERS, L.P.,
By: G.F.W. ENERGY, L.P.,
its general partner
By:
David R. Albin, Authorized Representative
R. Gamble Baldwin
David R. Albin
Donald Shore as Trustee of the Albin Income Trust
John S. Foster
Kenneth A. Hersh
Bruce B. Selkirk III
Agnes Denise Darraugh
John C. Goff
By: Natural Gas Partners, L.P. attorney-in-fact
By: G.F.W. Energy, L.P. its general partner
By:
David R. Albin, Authorized Representative
-7-
MANAGEMENT OWNERS
David B. Strassner, in his individual capacity
and as trustee of the David B. and
Cathy C. Strassner 1989 Revocable
Management Trust
Douglas H. Kiesewetter, in his individual capacity
and as trustee of the Douglas H. and
Deborah M. Kiesewetter 1989 Revocable
Management Trust
R. Keith Anderson
-8-
EXHIBIT 10.28
AFFILIATES AGREEMENT
(AS AMENDED MARCH 23, 1994)
The AGREEMENT, dated as of August 31, 1992 and amended as of March 23, 1994
(the "Agreement"), by and among _________________ (a "Management Shareholder"),
Natural Gas Partners, L.P., a Delaware limited partnership (the "Purchaser"),
OEDC Partners, L.P., a Texas limited partnership and OEDC, Inc., a Texas
corporation.
WITNESSETH:
WHEREAS, the Management Shareholder is a shareholder of Offshore Energy
Development Corporation, a Texas corporation, and a shareholder and an employee
of OEDC, Inc., a Texas corporation and the general partner (the "General
Partner") of OEDC Partners, L.P., a Texas limited partnership (the
"Partnership"), or an employee of an entity contractually obligated to provide
administrative and professional services to the General Partner.
WHEREAS, the Purchaser on even date therewith has purchased certain units
of limited partnership interests in the Partnership and shares of stock issued
by the General Partner, and has been induced to make such purchases, in part, by
the willingness of Management Shareholder to enter into this Agreement, and
WHEREAS, Management Shareholder will benefit as a shareholder of the
Company (as hereinafter defined) from the purchases of units and shares of
stock, and the Purchaser's investment in the Partnership resulting thereby.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained and contemplated and subject to the terms and conditions herein
contained and contemplated, the parties hereto agree as follows:
SECTION I
SHARE TRANSFER RESTRICTIONS
1. TRANSFER RESTRICTIONS
(a) GENERAL RESTRICTION ON TRANSFER. The management Shareholder will not
Transfer any interest in any Shareholder Shares except in accordance with and
pursuant to this paragraph 1.
(b) PERMITTED TRANSFERS EXCLUDED FROM RESTRICTIONS. The Management
Shareholder may transfer his Shareholder Shares:
(i) to any of the following: (A) his spouse, parents, siblings or
descendants; (B) to any trust for the benefit of the Management
Shareholder, his spouse, parents, siblings or descendants; (C) for estate
planning or testamentary purposes; or (D) to any other shareholder of OEDC,
Inc. who is party to an agreement with provisions substantially the same as
those in this section I; provided that, after any such Transfer the
Management Shareholder shall continue to hold at lease 51% of the
Shareholder Shares held by the Management Shareholder on the date hereof:
(ii) to any Person to the extent such Transfer is approved in writing
by the Purchaser.
(c) Management Shareholder and/or his spouse or descendants shall continue
to own at least ___% of the shares of Offshore Energy Development Corporation
owned by them collectively as of August 31, 1992.
2. LEGEND. Each certificate evidencing Shareholder Shares and each
certificate issued in exchange for or upon the transfer or any Shareholder
Shares (if such shares remain Shareholder Shares as defined herein upon such
transfer) will be stamped or otherwise imprinted with a legend in substantially
the following form:
"Transfers of the securities represented by this certificate are
restricted pursuant to the terms of the Affiliates Agreement dated as of
August 31, 1992 among the corporation and certain stockholders of the
corporation or its affiliates. A copy of such agreement will be furnished
without charge by the corporation to the holder hereof upon written
request."
The Management Shareholder will cause the Company to imprint such legends on
certificates evidencing Shareholder Shares outstanding prior to the date hereof.
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Shareholder Shares pursuant to paragraph 4 hereof.
3. TRANSFEREES. Prior to any Permitted Transfer of Shareholder Shares and
as a condition precedent to the effectiveness of any such Permitted Transfer,
the management Shareholder will cause such transferee to execute and deliver to
the Company and the Purchaser a counterpart of this Agreement.
4. DEFINITIONS. For the purposes of this Agreement, in addition to those
terms defined in the recitals the following terms have the meanings set forth
below:
"COMPANY: shall mean OEDC, Inc., a Texas corporation.
"OEDC PARTIES" shall have the meaning set forth for such term in the
Agreement dated as of August 31, 1992 pertaining to Purchaser's purchase of
the Partnership units and the Class A Common Stock of OEDC, Inc.
"PERMITTED TRANSFERS" shall mean any transfer of Shareholder Shares by
the management Shareholder pursuant to paragraph 1 of this Section I.
"PURCHASER" Natural Gas Partners, L.P., a Delaware limited
partnership.
"PUBLIC MARKET" shall mean the trading of OEDC, Inc.'s common stock on
any national securities exchange or the quotation of such securities on the
NASDAQ national Market System or any other recognized domestic
over-the-counter market.
"SHAREHOLDER SHARES" means all shares of common stock or of any other
class or series of voting stock in the Company which are now owned or
hereafter acquired by the Management Shareholder together with any other
equity securities, rights, options or warrants issued or issuable directly
or indirectly with respect to such stock. As to any particular shares
constituting Shareholder Shares, such shares will cease to be Shareholder
Shares when they have been transferred in a Permitted Transfer.
"TRANSFER" shall mean any sale, assignment, pledge or other
disposition of any interest in Shareholder Shares.
5. TERMINATION. The provisions of this Section I will terminate upon the
earlier of (i) the date upon which the Purchaser and its assigns own less than
5% of OEDC, Inc.'s outstanding voting securities; (ii) at the end of the first
month in which a Public Market exists for any of OEDC, Inc.'s common stock; or
(iii) the tenth anniversary of the date hereof.
SECTION II
RESTRICTION ON ACTIVITIES DURING EMPLOYMENT
1. For so long as and during the term of employment of Management
Shareholder by any of the OEDC Parties or by any other entity under contract to
perform, directly or indirectly, any administrative, professional or consulting
services to any of the OEDC Parties or to any Affiliate thereof, Management
Shareholder's activities in or related to the discovery, exploration,
development, gathering, transportation or storage of oil and gas reserves shall
be engaged in solely on behalf of the OEDC Parties and at no time during the
period of such employment shall Management Shareholder devote more than a
nominal percent of his work efforts (not to exceed 10 percent) to any other
commercial activities. The restriction on activities set forth in this Section
II shall be of no further force or effect upon the termination of employment of
the Management Shareholder in any capacity as set forth in the first sentence
hereof.
SECTION III
POST EMPLOYMENT RESTRICTIONS ON ACTIVITIES, CONFIDENTIALITY
1. After the termination of employment of the Management Shareholder for
any reason (including, without limitation, a resignation), the management
Shareholder shall not promote, participate in the development of, pursue
financing for, or consult or work in any capacity for which compensation is
received on any prospect, lease, farmin, farmout, project, venture or business
opportunity (a "Business Opportunity") in which any of the OEDC Parties has an
economic interest, or, for the period of one year following such Management
Shareholder's termination, which any of the OEDC Parties is evaluating for
investment or otherwise. Management Shareholder recognizes that each such
Business Opportunity constitutes a corporate opportunity or partnership
opportunity to the OEDC Parties and acknowledges his continuing fiduciary duty
to the OEDC Parties, as the case may be, with respect thereto.
2. In the course of his employment, Management Shareholder has received
and will receive information relating to the business, operations and prospects
of the OEDC Parties (all such information, whether written, oral or in other
media, quantitative, statistical or in other formats, or a proprietary or
confidential nature, including trade secrets, patent or trademark information,
geological, geophysical or reserve data or information, product or materials
specification, marketing, customer, supplier or personnel information,
fabricating, construction or manufacturing techniques, methodologies or know
how, defined as "Confidential Information"). Management Shareholder agrees
during his employment and thereafter not to disclose any Confidential
Information to any third party, except during the course of employment as may be
required for the performance of employment duties. Confidential Information does
not include (i) information generally available to the public other than as a
result of disclosure by Management Shareholder or (ii) information Management
Shareholder receives from a third party source not bound by a confidentiality
agreement with the Purchaser or any of the OEDC Parties. If Management
Shareholder receives a request or demand for Confidential Information pursuant
to a subpoena or order of a competent court or other governmental body,
Management Shareholder will notify Purchaser and the OEDC Parties as soon as
practicable and, to the extent feasible, accord Purchaser and an opportunity to
intervene in such proceedings.
SECTION IV
MISCELLANEOUS
1. AMENDMENT AND WAIVER. No modification, amendment or waiver of any
provision of this Agreement will be effective against the Purchaser or the
Management Shareholder, unless such modification, amendment or waiver is
approval in writing by the Management Shareholder and his assigns pursuant to
Permitted Transfers and the Purchaser and its successors and assigns. The
failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right
of such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
2. SEVERABILITY. Whenver possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement (other than a provision constituting a
material consideration to a party) is held to be invalid, illegal or
unenforceable in any respect under applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability will not affect any other
provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
3. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
4. SUCCESSORS AND ASSIGNS. Except as expressly provided elsewhere herein,
this Agreement will bind and inure to the benefit of and be enforceable by the
Management Shareholder and his assigns pursuant to Permitted Transfers and by
the Purchaser and any successors and Assigns.
5. COUNTERPARTS. This Agreement may be executed in separate counterparts
each of which will be an original and all of which taken together will
constitute one and same instrument.
6. NOTICES. Any notice provided for in this Agreement will be in writing
and will be personally delivered, mailed by first class mail or delivered by
facsimile transmission, if to the Management Shareholder, at the address at the
Partnership as set forth in the partnership agreement for the Partnership, and
if to the Purchaser, at the addres set forth in such partnership agreement, and
to any successors and Permitted Assigns of the Purchaser subject to this
Agreement at such address or facsimile number as indicated by the Company's
records, or at such address or facsimile number or to the attention of such
other person as the recipient party has specified by prior written notice to the
sending party.
7. GOVERNING LAW. THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
TEXAS.
8. SPECIFIC PERFORMANCE. In the event of Management Shareholder's default,
Purchaser shall have the right to enforce specific performance of this Agreement
without the requirement of pleading or proving the unavailability or inadequacy
of any remedy at law. Purchaser shall also have the right to recover damages
against Management Shareholder, in addition to or as an alternative, at
Purchaser's election to Purchaser's right to enforce specific performance.
Management Shareholder shall also be liable to Purchaser for all costs and
expenses incurred by Purchaser in enforcing this Agreement and in seeking to
enforce specific performance or to recover damages for breach hereof by
Management Shareholder, including, but not limited to, reasonable attorneys'
fees and all court costs.
IN WITNESS WHEREOF, the parties hereto have executed this amended Agreement
on the 30th day March, 1994.
THE MANAGEMENT SHAREHOLDER
__________________________
THE PURCHASER:
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P.,
General Partner
By: /s/ R. Gamble Baldwin
Title: General Partner
OEDC PARTNERS, L.P.
By: OEDC, Inc., General Partner
By: /s/ David B. Strassner
President
OEDC, Inc.
By: /s/ David B. Strassner
Title: President
EXHIBIT 10.29
AMENDMENT TO AFFILIATES AGREEMENT
This Amendment to Affiliates Agreement ("Amendment") is dated August 30,
1996 and is between ___________________ (a "Management Shareholder"), Natural
Gas Partners, L.P., a Delaware limited partnership ("NGP"), Offshore Energy
Development Corporation, a Delaware corporation (the "Company"), OEDC Partners,
L.P., a Texas limited partnership (the "Partnership"), and OEDC, Inc., a Texas
corporation ("OEDC"), who agree as follows:
1. BACKGROUND. The Company has recently been created and organized to
become a holding company for the Partnership and OEDC. The Management
Shareholder (and two other similarly situated Management Shareholders)
(collectively, the "Management Shareholders") are acquiring Common Stock in the
Company (i) pursuant to the merger of Offshore Energy Development Corporation, a
Texas corporation ("Prior Company") with and into the Company and (ii) pursuant
to an exchange of common shares of OEDC, Inc., a Texas corporation, for shares
of Common Stock in the Company (collectively, the "Restructuring"). OEDC, NGP
and each of the Management Shareholders are parties to separate Affiliates
Agreements (as amended March 23, 1994) (the "Affiliates Agreements"). The
parties intend that, upon consummation of the Restructuring, the Company shall
be the successor to OEDC with respect to the Affiliates Agreements. The Company
intends to complete a public offering of its Common Stock (the "Public
Offering") pursuant to a registration statement on Form S-1 with the Securities
and Exchange Commission and is applying to include the Common Stock on the
NASDAQ National Market in order to establish a Public Market (as defined in the
Affiliates Agreements).
2. TERMINATION OF SECTION I. Contemporaneously with the closing with the
underwriters of the Public Offering (the "Closing"), Section I of the Affiliates
Agreement is terminated. This termination of Section I is being effected as of
the Closing, rather than at the end of the first month in which a Public Market
exists, as contemplated in the Affiliates Agreements.
3. MODIFICATION AND CONTINUATION OF SECTIONS II, III AND IV. Sections II,
III and IV of the Affiliates Agreements are continued in effect following the
Closing with the following modifications, which will be effective as of the
Closing:
(i) The Company will be the employer of the Management Shareholder, rather
than OEDC.
(ii) The references to "OEDC Parties" are modified to mean the Company and
its subsidiaries and affiliated partnership (collectively, the "Company
Parties").
(iii) The term "OEDC Parties" is replaced by the term "Company Parties."
(iv) All references in Section IV to "permitted Assigns" and "assigns
pursuant to Permitted Transfers" are deleted and replaced with "successors
and assigns."
(v) The construction, validity and interpretation of the Affiliates
Agreements, as modified and amended hereby, will be governed by the
internal laws of Delaware rather than Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above. THE MANAGEMENT SHAREHOLDER
Name:_______________________________
OFFSHORE ENERGY DEVELOPMENT
CORPORATION, a Delaware corporation
By:________________________________
Douglas H. Kiesewetter
Executive Vice President
OEDC, INC.
By:________________________________
Douglas H. Kiesewetter
Executive Vice President
OEDC PARTNERS, L.P.
By: OEDC, Inc., its general partner
By:__________________________
Douglas H. Kiesewetter
Executive Vice President
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its
general partner
By:________________________________
David R. Albin
Authorized Representative
EXHIBIT 10.31
FINANCIAL ADVISORY SERVICES AGREEMENT
This Financial Advisory Services Agreement, effective as of April 1,
1996 (this "Agreement") is between OEDC Partners, L.P., a Texas limited
partnership (the "Company"), and Natural Gas Partners, L.P., a Delaware limited
partnership ("NGP"), and sets forth the terms and conditions pursuant to which
the Company will retain NGP to act as its financial advisor.
The Company and NGP agree as follows:
1. RETENTION OF FINANCIAL ADVISOR; SCOPE OF SERVICES.
(a) Subject to the terms and conditions set forth herein, the Company
hereby retains NGP to act as a financial advisor to the Company during the
Contract Period (as defined in paragraph 2 below).
(b) Pursuant to the organizational documents of OEDC, Inc., the general
partner of the Company (the "General Partner"), representatives of NGP will
continue to serve on the Board of Directors of the General Partner.
(c) As financial advisor to the Company, NGP will, from time to time, as
requested by the Company, provide consultation, assistance and advice to the
Company with respect to the equity or debt public offering process, including
drafting of documents, planning and participation in meetings with investors,
and general oversight of legal, accounting, placement and underwriting issues.
(d) The parties hereto acknowledge that (i) NGP is not regularly engaged
in the business of providing financial advisory services and that the services
to be performed by NGP hereunder are provided as an incident to NGP's activities
as an owner of a significant portion of the stock of the General Partner, (ii)
the fees to be paid to NGP hereunder were established at an amount which is
believed to be approximately equal to the amount of indirect costs and expenses
NGP will incur in providing such services, (iii) NGP is not an "investment
advisor", within the meaning of the Investment Advisors Act of 1940, as amended,
or applicable state laws, or a "broker" or "dealer" under the Securities
Exchange Act of 1934, as amended, or applicable state laws, (iv) the nature of
the services to be provided by NGP under this Agreement do not include those of
an "investment advisor" (i.e. providing advice as to the value of securities or
the advisability of investing in, purchasing or selling securities), or those of
a "broker" or "dealer" (i.e. effecting transaction in securities for the account
of the Company or others), and (v) it is specifically intended by the parties
hereto that NGP's activities hereunder not subject NGP to any regulation or
registration under federal or state laws.
(e) The parties hereto acknowledge and agree that NGP will make
available any and all of its employees, agents and other resources, which NGP,
it its sole discretion, determines is necessary for it to perform its services
hereunder. The parties further acknowledge that unless
and until NGP provides notice to the contrary, all decisions with respect to
staffing, scheduling and allocating NGP's resources for purposes of this
Agreement will be coordinated on behalf of NGP by its employee David Albin, and
any request by the Company for the performance of services hereunder shall be
directed to David Albin.
2. CONTRACT PERIOD AND TERMINATION. NGP shall act as the Company's
financial advisor under this Agreement, effective as of April 1, 1996 (the
"Effective Date") and continuing (unless otherwise extended by the mutual
agreement of the parties) until the earlier of (i) the date of dissolution of
the Company, and (ii) the later of (a) the date that representatives of NGP no
longer serve on the Board of Directors of the General Partner of the Company and
(b) the second anniversary of the date of the consummation of the Company's
first issuance of securities pursuant to a public offering (the period from the
Effective Date of this Agreement until the date of its termination is referred
to herein as the "Contract Period"). Notwithstanding the immediately preceding
sentence, this Agreement may be terminated effective as of the end of any fiscal
quarter of the Company at any time in the sole discretion of NGP, if NGP
provides written notice of its election to terminate this Agreement to the
Company not less than 30 days before the date on which termination is to be
effective. Upon termination, neither party will have any further obligation
under this Agreement, except for (i) the Company's obligation to pay to NGP the
fees and reimbursements then due pursuant to Paragraph 3, which shall continue
after such termination until such amounts are paid in full, and (ii) the
Company's obligation to provide the indemnification contained in Paragraph 4,
which shall continue in effect for a period of three years after such
termination.
3. FEES AND EXPENSES. NGP shall be entitled to the following fees for
its services provided during the Contract Period:
(a) An annual directors fee of $15,000 for each representative of
NGP that serves on the Board of Directors of the General Partner of the
Company (of which there are currently two NGP representatives on the
Board of Directors), which amount shall be payable quarterly in arrears
on the last day of each fiscal quarter of the Company, commencing with
the quarter ending June 30, 1996; and
(b) An annual fee from the period commencing as of the date of
the consummation of the Company's first issuance of securities pursuant
to a public offering and continuing for a period of two years thereafter
of $30,000 per year (pro-rated for any portion of a year), which amount
shall be payable quarterly in arrears on the last day of each fiscal
quarter of the Company.
In addition to the fees described above in this Paragraph 3, the Company shall
promptly reimburse NGP for all reasonable out-of-pocket expenses incurred by NGP
and its partners, employees and agents (including any legal fees incurred by
NGP) in connection with NGP's activities pursuant to this Agreement during the
Contract Period.
-2-
4. INDEMNIFICATION. In consideration of the services performed and to be
performed by NGP for the Company, and for other good and valuable consideration,
the Company and NGP hereby agree as follows:
(a) The Company shall indemnify and hold harmless NGP its affiliates and
affiliated entities, each of its partners, officers, employees, agents and each
person, if any, who "controls" NGP (within the meaning of the federal securities
laws) (collectively the "Indemnified Parties" and individually, an "Indemnified
Party") from and against any and all actions or claims and any and all losses,
claims, damages, liabilities, costs or expenses (including, without limitation,
reasonable attorneys' fees and any legal or other expenses in giving testimony
or furnishing documents in response to a subpoena or otherwise or the costs of
investigating, preparing or defending any action or claim, whether or not in
connection with any action or litigation in which any Indemnified Party is a
party), joint or several, to which any Indemnified Party may become subject
under the Securities Act of 1933 or any other federal or state securities law or
otherwise as and when incurred, directly or indirectly, caused by, relating to,
based upon or arising out of any matter related to this Agreement, including,
without limitation, any act or omission by NGP in connection with its role as
financial advisor and its acceptance of or the performance or non-performance of
its obligations under this Agreement, except insofar as such losses, claims,
damages, liabilities, costs or expenses arise out of or are based upon any
untrue statement or alleged untrue statement of material fact contained in any
registration statement, preliminary prospectus, final prospectus, placement
memorandum, or in any amendment or supplement thereto, or upon the omission or
alleged omission therefrom of any such statement which has been made therein or
omitted therefrom in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of NGP expressly for use therein.
(b) The indemnity provided for in subparagraph (a) above shall cover any
loss, claim, damage, liability, cost or expense incurred by an Indemnified Party
REGARDLESS OF THE ORDINARY NEGLIGENCE OF SUCH INDEMNIFIED PARTY, but shall not
cover any loss, claim, damage, liability, cost or expense to the extent it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) to have resulted from an Indemnified Party's gross negligence or
willful misconduct.
(c) The indemnity provided for in subparagraph (a) shall be in addition
to any liability that the Company may otherwise have to the Indemnified Parties
and shall be subject to the following:
(i) Promptly after receipt by an Indemnified Party under
subparagraph (a) above of notice of the commencement of any action,
proceeding, investigation or other event with respect to which any
Indemnified Party demands indemnification hereunder, such Indemnified
Party shall, if a claim in respect thereof is to be made against the
Company, notify the Company in writing of the commencement thereof,
provided that the failure to so notify the Company shall not relieve it
from any liability that it may have to any Indemnified Party, except to
the extent the Company is prejudiced by such failure.
-3-
(ii) Notwithstanding anything expressed or implied herein to the
contrary, the indemnity provided for herein shall cover the amount of
any settlements entered into in connection with any claim for which an
Indemnified Party may be indemnified hereunder, if and only if such
settlement is consented to by the Company.
(iii) No settlement binding on an Indemnified Party may be made
without the consent of such Indemnified Party (which consent shall not
be unreasonably withheld).
(iv) If the claim for indemnification arises out of a claim for
damages by a person other than an Indemnified Party, the Company, after
giving notice to the Indemnified Party, may undertake to defend or
settle such claim for damages and may employ counsel for such purpose.
The Indemnified Party, at its own expense, shall have the right to
employ separate counsel with respect to such claim and to participate
in, but not control, such settlement or defense; provided that, if the
Company is also a defendant in respect of any such claim and a potential
conflict exists between the interests of the Company and those of an
Indemnified Party or if the Company does not elect to undertake the
settlement or defense of such claim, the Indemnified Parties shall, at
the expense of the Company, have the right to employ not more than one
counsel to represent the Indemnified Parties with respect to such claim
and the Indemnified Parties may control any settlement or defense
applicable to the claims brought against such Indemnified Parties.
(v) Expenses and other costs incurred by an Indemnified Party in
connection with any suit, action or other proceeding relating to this
Agreement shall be advanced by the Company to such Indemnified Party
prior to any final determination of whether an Indemnified Party is
entitled to be indemnified for such costs and expenses hereunder, if the
Indemnified Party provides to the Company an undertaking to return any
amounts so received to the extent that it is ultimately determined that
he was not entitled to be indemnified for such costs and expenses
hereunder.
(vi) In order to provide for just and equitable contribution, if
a claim for indemnification is made hereunder but a court of competent
jurisdiction finds in a final judgment (not subject to appeal) that such
indemnification may not be enforced in such case, even though the
express provisions hereof provide for indemnification, then in such
case, the Company on the one hand, and the Indemnified Parties on the
other hand, shall contribute to the losses, claims, damages, liabilities
or costs so that the Indemnified Parties are responsible in the
aggregate for a percentage of the losses, claims, damages, liabilities
or costs equal to a fraction, the numerator of which is the fees (but
not expenses) previously received by NGP pursuant to Paragraph 5 of this
Agreement, and the denominator of which is the sum of total aggregate
amount of all consideration received by the Company in respect of
transactions giving rise to such claim for indemnification, or, if no
such transaction exists or has not been completed, the fair market value
of the outstanding units of the Company's partnership interests on the
date hereof, and the Company shall be responsible for the remainder of
such losses, claims,
-4-
damages, liabilities or costs; PROVIDED, HOWEVER, that if such
allocation is not permitted by applicable law then the relative fault of
the Company, on the one hand, and the Indemnified Parties, on the other
hand, in connection with the statements, acts or omissions that resulted
in such losses, claims, damages, liabilities or costs and relevant
equitable considerations shall also be considered. No person found
liable for a fraudulent misrepresentation shall be entitled to
contribution from any person who is not also found liable for such
fraudulent misrepresentation. Notwithstanding the foregoing, the
Indemnified Parties, in the aggregate, shall not be obligated to
contribute any amount hereunder that exceeds the amount of fees (but not
expenses) NGP received previously pursuant to this Agreement.
(vii) The Company agrees that the Indemnified Parties shall not
have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Company for or in connection with any matter related
to this Agreement, except for liabilities or expenses that are found in
a final judgment by a court of competent jurisdiction (not subject to
further appeal) to have resulted primarily and directly from NGP or such
other Indemnified Party's gross negligence or willful misconduct.
5. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE FULLY PERFORMED THEREIN.
6. SUCCESSORS AND ASSIGNS. The benefits of this Agreement shall inure to
the parties hereto, their respective successors and assigns, and to the
indemnified parties hereunder and their successors and representatives, and the
obligations and liabilities assumed in this Agreement by the parties hereto
shall be binding upon their respective successors and assigns. This Agreement
may not be assigned by any party to an unaffiliated party without the express
written consent of the other party hereto.
7. NOTICES. All communications under this Agreement shall be in writing
and shall be delivered personally or sent by personal delivery, expedited
delivery, certified mail, return receipt requested or by telecopy as follows:
If to NGP:
115 E. Putnam Ave.
Greenwich, Connecticut 06830
Telecopy Number: (203) 629-3334
Attention: David R. Albin
-5-
with a copy to:
777 Main Street, Suite 2700
Fort Worth, Texas 76102-5304
Telecopy Number: (817) 820-6650
Attention: Kenneth A. Hersh
If to the Company:
OEDC Partners, L.P.
1400 Woodloch Park Drive
Suite 200
The Woodlands, Texas 77380
Telecopy Number: (713) 364-1122
Attention: Douglas Kiesewetter
Either party may change its address or telecopy number set forth above
by giving the other party notice of such change in accordance with the
provisions of this Paragraph 7. A notice shall be deemed given, if by personal
delivery or expedited delivery service, on the date of such delivery to such
address, if by certified mail, on the date shown on the applicable return
receipt, or if by telecopy, on the date of receipt of the transmission of such
notice at such telecopy number.
8. APPROVAL OF AGREEMENT. Since NGP is an affiliate of the Company,
Offshore Energy Development Corporation, as a limited partner of the Company,
joins in the execution of this Agreement for the limited purpose of consenting
to NGP's provision of the services and the consideration described herein in
accordance with Section 5.9 of the Amended and Restated Agreement of Limited
Partnership of the Company.
9. NATURE OF RELATIONSHIP. The parties hereto intend that the services
provided by NGP to the Company pursuant to this Agreement are being provided as
an independent contractor. Nothing contained in this Agreement shall constitute
or be construed to be or create a general partnership or joint venture between
NGP and the Company or their respective successors or assigns.
10. CAPTIONS. The Paragraph titles herein are for reference purposes
only and do not control or affect the meaning or interpretation of any term or
provision hereof.
11. AMENDMENTS. No alteration, amendment, change or addition hereto
shall be binding or effective unless the same is set forth in writing signed by
a duly authorized representative of each party.
12. PARTIAL INVALIDITY. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable,
-6-
(i) the remaining terms and provisions hereof shall be unimpaired and (ii) the
invalid or unenforceable term or provision shall be replaced by a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
13. SURVIVAL. All representations, warranties and agreements contained
herein, or contained in certificates submitted pursuant to this Agreement, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any party hereto, and shall survive the execution and
delivery hereof.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall be considered one and the same agreement.
-7-
This Agreement is executed as of the date first written above by a duly
authorized representative of each of the Company and NGP.
COMPANY
OEDC PARTNERS, L.P.
By: OEDC, Inc., its general partner
By:
Name:
Title:
NGP
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its
general partner
By:
David R. Albin
Authorized Representative
This Agreement is joined in by the undersigned for the limited purpose
described in Section 9 above:
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:
Name:
Title:
-8-
EXHIBIT 10.32
AMENDMENT TO FINANCIAL ADVISORY SERVICES AGREEMENT
This Amendment to Financial Advisory Services Agreement dated August 30,
1996 ("Amendment") is by and among Offshore Energy Development Corporation, a
Delaware corporation ("Offshore Delaware"), OEDC Partners, L.P., a Texas limited
partnership (the "Partnership"), and Natural Gas Partners, L.P., a Delaware
limited partnership ("NGP").
1. BACKGROUND. Offshore Delaware has recently been created and organized
to become a holding company for the Partnership and its general partner, OEDC,
Inc., a Texas corporation ("OEDC"). Pursuant to an Agreement and Plan of
Reorganization dated as of August 30, 1996, Offshore Delaware will acquire all
of the limited partner interest in the Partnership and all of the capital stock
of OEDC (the "Reorganization"). Contemporaneously with the closing of the
Reorganization, Offshore Delaware intends to complete a registered public
offering of its common stock (the "Offering"). The Partnership and NGP have
entered into a Financial Advisory Services Agreement dated as of April 1, 1996
(the "Services Agreement") pursuant to which NGP provides certain services to
the Partnership. The parties hereto desire to amend the Services Agreement to
provide that, following the Reorganization, NGP will provide such services to
Offshore Delaware instead of the Partnership.
2. AMENDMENTS. In consideration of the foregoing, the parties hereto
agree that, effective upon consummation of the Reorganization and the Offering,
the Services Agreement is amended as follows:
(a) References to the "Company" are to Offshore Delaware;
(b) Paragraph (b) of Section 1 is deleted and replaced with "The
Certificate of Incorporation of the Company provides that representatives of NGP
are members of the initial board of directors of Offshore Delaware"; and
(c) The references to the "General Partner" in paragraph (d) of
Section 1, Section 2, and paragraph (a) of Section 3 are to Offshore Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first written above.
OFFSHORE ENERGY DEVELOPMENT
CORPORATION
By:_______________________________
Douglas H. Kiesewetter
Executive Vice President
OEDC PARTNERS, L.P.
By: OEDC, Inc., its general partner
By:_________________________
Douglas H. Kiesewetter
Executive Vice President
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its general partner
By:_________________________
David R. Albin
Authorized Representative
EXHIBIT 10.33
AGREEMENT OF MANAGEMENT STOCKHOLDERS
This Agreement of Management Stockholders ("Agreement") dated as of
August 30, 1996 is by and among Offshore Energy Development Corporation, a
Delaware corporation (the "Company"), and David B. Strassner, Douglas H.
Kiesewetter and R. Keith Anderson (individually a "Management Stockholder" and
collective, the "Management Stockholders").
1. INTRODUCTION. A subsidiary of the Company is a party to the Fourth
Amended and Restated General Partnership Agreement for Dauphin Island Gathering
Partners dated as of July 1, 1996 (the "Partnership Agreement"). The Partnership
Agreement provides for certain consequences that are adverse to the Company in
the event that a DIGC Change of Control (as defined in the Partnership
Agreement) occurs. The purpose of this Agreement is to restrict the Management
Stockholders from taking any action that would result in a DIGC Change of
Control.
2. RESTRICTIONS. Each of the Management Stockholders agrees with the
Company and each of the other Management Stockholders not to, prior to the
earlier of the occurrence of both MMBGC Payout and PDI Payout or February 28,
2001, voluntarily (1) cease to be actively involved as the management of and in
the operation of Dauphin Island Gathering Company, L.P. to substantially the
same degree as he was involved in such management and operation on July 1, 1996
or (2) reduce his respective ownership interest in the Company following the
initial public offering of the shares of the Company by 75% or more.
3. GOVERNING LAW. This document shall be governed by the law of the
State of Texas, without reference to any conflicts of laws provisions.
4. NO AMENDMENTS. This document may not be amended or otherwise modified
except by a written document executed by all parties hereto.
Executed as of the date first set forth above.
OFFSHORE ENERGY DEVELOPMENT
CORPORATION, a Delaware corporation
By:_______________________________
____________________________ Douglas H. Kiesewetter
R. Keith Anderson Vice President
- ----------------------------- ---------------------------------
David B. Strassner Douglas H. Kiesewetter
EXHIBIT 21
SUBSIDIARIES OF OFFSHORE ENERGY DEVELOPMENT CORPORATION
(ASSUMING CONSUMMATION OF THE COMBINATION
DESCRIBED IN THE REGISTRATION STATEMENT)
OEDC, Inc., a Texas corporation
OEDC Partners, L.P., a Texas limited partnership
OEDC Exploration & Production, L.P., a Texas limited partnership
South Dauphin Partners, Ltd., a Texas limited partnership
South Dauphin II Limited Partnership, a Texas limited partnership
Beacon Natural Gas Company, L.P., a Texas limited partnership
Dauphin Island Gathering Company, L.P., a Texas limited partnership
Dauphin Island Gathering Partners, a Texas general partnership
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Offshore Energy Development Corporation and
OEDC, Inc., and
The Partners
OEDC Partners, L.P.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report on the combined financial statements of OEDC, Inc. and OEDC Partners,
L.P. refers to a change in accounting principle for the adoption of the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of.
KPMG Peat Marwick LLP
Houston, Texas
August 30, 1996
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-1 of our reserve report to the interests of Offshore Energy
Development Corporation (the Company) dated July 18, 1996, relating to the
estimated quantities of certain of the Company's proved reserves and the related
estimates of future net revenue and present values for the year ended December
31, 1995. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
August 30, 1996
1850, 335-8th AVENUE, S.W.
CALGARY, ALBERTA T2P 1C9
TEL (405) 202-2700
FAX (403) 262-2790
600 17TH STREET, SUITE 900N
DENVER, COLORADO 80202-5401
TEL (303) 623-9147
FAX (303) 623-4258
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS OF OEDC, INC. AND OEDC PARTNERS, L.P. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 710,306 1,577,455
<SECURITIES> 0 0
<RECEIVABLES> 2,352,191 2,591,149
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,089,981 4,509,070
<PP&E> 26,483,768 26,572,788
<DEPRECIATION> 6,376,095 9,271,502
<TOTAL-ASSETS> 25,170,385 24,551,034
<CURRENT-LIABILITIES> 15,924,243 5,521,023
<BONDS> 0 0
0 0
0 0
<COMMON> 120 120
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 25,170,385 24,551,034
<SALES> 6,001,126 5,893,510
<TOTAL-REVENUES> 6,001,126 5,893,510
<CGS> 0 0
<TOTAL-COSTS> 10,058,190 5,544,904
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,498,563 1,162,132
<INCOME-PRETAX> (5,935,674) 9,806,255
<INCOME-TAX> (21,375) 13,130
<INCOME-CONTINUING> (5,914,299) 9,793,125
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,914,299) 9,793,125
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
