<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 28, 1997
----------------------------
AMERAC ENERGY CORPORATION
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-9933 75-2181442
----------------- ------------ -------------------
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
1201 LOUISIANA, SUITE 3350; HOUSTON, TEXAS 77002
- -------------------------------------------- -------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 308-5250
----------------------------
N/A
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 5. OTHER EVENTS
In February 1997, Amerac Energy Corporation (the "Company") executed an
Exploitation Agreement with a group of private investors (the "Investors") that
provided among other things that the Investors would participate in a program of
three dimensional seismic evaluation, lease acquisition, drilling and
development operations in certain undeveloped properties in a defined area on
the Eastern Shelf of the Permian Basin. The Investors are to invest up to $1.2
million for 50% of the Company's interest in these properties. After payout, the
Company will receive reversionary interests of 20% on the first ten prospects
and 10% on the next ten prospects. The Company will also receive reimbursement
of a portion of its related general and administrative costs. For each $1,000
invested in this project by an Investor, the Investor will receive a warrant to
purchase Common Stock ("Warrant") that allows the investor to purchase 41.667
shares of the Company's Common Stock at $5.76 per share. The Warrants will
expire on November 18, 1999 and the maximum number of shares that can be
obtained by all the Investors through the Warrants will be 50,000 shares. The
Company shall only be obligated to issue Warrants on the last business day of
each calendar year during which the Investors make the required investments.
Pursuant to a Registration Rights Agreement with each of the Investors,
the Company at any time after issuance of the Warrants and before the date three
years thereafter, upon request of Investors holding an aggregate of a majority
of the Common Stock issuable upon exercise of the Warrants, is required to file
a "shelf" registration statement covering the registration of all, or any
portion in excess of fifty percent (50%), of such Common Stock. With certain
exceptions, the Registration Rights Agreement also requires the Company to
notify the Investors of any proposed filing of a registration statement with
respect to any offering of securities of the Company and to include Common Stock
owned by the Investors in the registration statement for such offering.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
See the accompanying Exhibit Index.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERAC ENERGY CORPORATION
By: ________________________________
Richard B. Hallett
Vice President, Chief Financial Officer
and Secretary
Date: February 28, 1997
<PAGE>
EXHIBIT INDEX
4(i).1 Certificate of Incorporation of Wolverine Exploration Company
(incorporated by reference as Exhibit 3-(1) to the Company's
Registration Statement No. 33-21824 filed May 13, 1988).
4(i).2 Amendment to Certificate of Incorporation of Wolverine Exploration
Company dated September 12, 1988 (incorporated by reference as
Exhibit 3-(1)(a) to the Company's Registration Statement No. 33-24429
filed September 28, 1988).
4(i).3 Amendment to Certificate of Incorporation of Wolverine Exploration
Company dated March 28, 1995 (incorporated by reference to Annex IV to
Exhibit (a)(1) to Schedule 13E-4, dated November 15, 1994).
4(i).4 Amendment to Certificate of Incorporation of Amerac Energy Corporation
dated July 12, 1996.
4(i).5 Amendment to Certification of Incorporation of Amerac Energy Corporation
dated July 12, 1996.
4(i).6 Amendment to Certificate of Incorporation of Amerac Energy Corporation
dated November 21, 1996.
4(i).7 Corporate Bylaws (incorporated by reference to Exhibit C to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1987, File No. 0-5003).
4(i).8 Exploitation Agreement, dated effective January 1, 1997, between Amerac
Energy Corporation and the parties identified therein.
4(i).9 Form of Warrant Agreement (Included as Exhibit VI to the Exploitation
Agreement).
4(i).10 Form of Warrant (Included as Exhibit I to the Warrant Agreement).
4(i).11 Registration Rights Agreement (Included as Exhibit VII to the
Exploitation Agreement).
<PAGE>
EXHIBBIT 4(i).4
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF AMERAC ENERGY CORPORATION
AMERAC ENERGY CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), pursuant to the provisions of
the General Corporation Law of the State of Delaware (the "GCL"), DOES HEREBY
CERTIFY as follows:
FIRST: The Certificate of Incorporation is hereby amended by deleting the
first paragraph of Article Fourth of the Certificate of Incorporation in its
present form and substituting, therefore, a new first paragraph of Article
Fourth in the following form:
"ARTICLE FOURTH" The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is One Hundred and Ten
Million (110,000,000) shares, consisting of One Hundred Million
(100,000,000) shares of Common Stock, par value $0.05 per share (the
"Common Stock") and Ten Million (10,000,000) shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock").
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the GCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Jeffrey B. Robinson, its President, this 12th day of
July 1996.
AMERAC ENERGY CORPORATION
By: /s/ JEFFREY B. ROBINSON
-------------------------------------
Jeffrey B. Robinson, President
<PAGE>
EXHIBIT 4(i).5
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF AMERAC ENERGY CORPORATION
AMERAC ENERGY CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), pursuant to the provisions of
the General Corporation Law of the State of Delaware (the "GCL"), DOES HEREBY
CERTIFY as follows:
FIRST: The Certificate of Incorporation is hereby amended by adding to the
Certificate of Designations of the Corporation's $4.00 Senior Preferred Stock,
$1.00 par value, which was filed with the Secretary of State of the State of
Delaware on March 20, 1995, which is a part of the Corporation's Certificate of
Incorporation, a new Section 9 in the following form:
"Section 9. Conversion. Notwithstanding anything to the contrary contained
herein, at 9:00 A.M., Texas Time, on July 12, 1996 (the "Effective Time"),
by virtue of this Section 9 and without any action on the part of any
holder of the Senior Preferred Stock, each issued and outstanding share of
the Senior Preferred Stock, shall be converted into nine (9) shares of
Common Stock. As the Effective Time each share of outstanding Senior
Preferred Stock shall automatically be canceled on the books of the Company
and each such share of Senior Preferred Stock shall at such time be
replaced on the books of the Company with nine (9) shares of Common Stock
and each holder of Senior Preferred Stock immediately prior to the
Effective Time shall, at the Effective Time, cease being a holder of the
Senior Preferred Stock and will commence being a holder of the Common
Stock. As soon as practicable subsequent to the Effective Time, the
Company's transfer agent shall deliver to each former Senior Preferred
Stock holderg certificates evidencing nine (9) shares of Common Stock for
each share of Senior Preferred Stock held immediately prior to the
Effective Time, by such holder.
SECOND: The amendment to the Certificate of Incorporation set forth in
this Certificate of Amendment has been duly adopted in accordance with the
provisions of Section 242 of the GCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Jeffrey B. Robinson, its President, this 12th day of
July 1996.
AMERAC ENERGY CORPORATION
By: /s/ JEFFREY B. ROBINSON
-------------------------------------
Jeffrey B. Robinson, President
<PAGE>
EXHIBIT 4(i).6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERAC ENERGY CORPORATION
Pursuant to Section 242 of the Delaware
General Corporation Law
Amerac Energy Corporation, a Delaware corporation (the "Corporation"),
hereby certifies as follows:
FIRST: The name of the Corporation is Amerac Energy Corporation.
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended to effect a one-for fifteen reverse split of the Common Stock by adding
a new paragraph after the first paragraph of Article FOURTH to read as follows:
"Simultaneously with the effective date of this amendment (the
"Effective Date"), each share of the Common Stock issued and outstanding
immediately prior to the Effective Date and each such share held in the
Corporation's treasury (the "Old Common Stock") shall automatically and
without any action on the part of the holder thereof be reclassified as and
changed into one-fifteenth (1/15) of a share of the Common Stock, par value
$.05 per share (the "Common Stock"), subject to the treatment of fractional
share interests as described below. Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of the Old Common Stock (the "Old Common Certificates,"
whether one or more) shall be entitled to receive, upon surrender of the
Old Common Certificates to the Corporation's Exchange Agent for
cancellation, a certificate or certificates representing the number of
whole shares of the Common Stock (the "Common Certificates") into which and
for which the shares of the Old Common Stock, formerly represented by the
Old Common Certificates so surrendered, are reclassified under the terms
hereof. From and after the Effective Date, the Old Common Certificates
shall represent only the right to receive the Common Certificates (and,
where applicable, cash in lieu of fractional shares, as provided below)
pursuant to the provisions hereof. No certificate or scrip representing
fractional share interests in the Common Stock will be issued, and no such
fractional share interest will entitle the holder thereof to vote or to any
rights of a stockholder of the Corporation. Fractional shares otherwise
issuable will be aggregated and purchased by the Corporation at the closing
asked price on November 20, 1996, for the first $15,000 of fractional
shares determined by the Exchange Agent based upon Old Common Certificates
it has received and the remaining fractional shares, if any, will be sold,
by an agent, selected by the Corporation, and the cash proceeds from such
sales will be distributed (on a weighted average basis) to such holders
together with their Common Certificates following their surrender of their
Old Common Certificates. If more than one Old Common Certificate shall be
surrendered at one time for the account of the same stockholder, the number
of full shares of Common Stock for which Common Certificates
<PAGE>
shall be issued shall be computed on the basis of the aggregate number of
shares represented by the Old Common Certificates so surrendered.
In the event that the Corporation's Exchange Agent determines that a
holder of Old Common Certificates has not tendered all of his or her
certificates for exchange, the Exchange Agent shall carry forward any
fractional share until all certificates of such holder have been presented
for exchange so that payment for fractional shares to such holder shall not
exceed the value of one (1) whole share of the Common Stock as a result of
the rounding up of fractional shares. If any Common Certificate is to be
issued in a name other than that in which the Old Common Certificates
surrendered for exchange are issued, the Old Common Certificates so
surrendered shall be properly endorsed and otherwise be in proper form for
transfer, and the person or persons requesting such exchange shall affix
any requisite stock transfer tax stamps to the Old Common Certificates
surrendered, or provide funds for their purchase, or establish to the
satisfaction of the Exchange Agent that such taxes are not payable."
THIRD: Article FOURTH of the Certificate of Incorporation, as amended
to date, shall be amended as follows:
The first paragraph of Article FOURTH shall be amended to read in its
entirety as follows:
FOURTH. The aggregate number of shares of stock which the
corporation shall have the authority to issue is 30,000,000 shares, of
which 10,000,000 shares shall be Preferred Stock, par value $1.00 per
share, and 20,000,000 shares shall be Common Stock, par value $0.05
per share.
FOURTH: This Certificate of Amendment of Certificate of Incorporation
shall be effective as of November 20, 1996.
FIFTH: This Certificate of Amendment of Certificate of Incorporation
was duly adopted by the requisite vote of the Board of Directors and by the vote
of the holders of a majority of the outstanding shares of the Corporation
entitled to vote thereon in accordance with Section 242 of the Delaware General
Corporation Law.
2
<PAGE>
IN WITNESS WHEREOF, Amerac Energy Corporation has caused this
Certificate of Amendment of Certificate of Incorporation to be executed by its
President and attested by its Secretary this 20th day of November, 1996.
AMERAC ENERGY CORPORATION
By:
-------------------------------------
Jeffrey B. Robinson
President
ATTEST:
- -----------------------------------
Jeffrey L. Stevens
Secretary
3
<PAGE>
EXHIBIT A
FORM OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
Upon approval of the proposed one-for-fifteen reverse stock split of the
Company's Common Stock, par value $0.05 per share, Article FOURTH of the
Certificate of Incorporation, as amended to date, shall be amended as follows:
The first paragraph of Article FOURTH shall be amended to read in its
entirety as follows:
FOURTH. The aggregate number of shares of stock which the
corporation shall have the authority to issue is 30,000,000 shares, of
which 10,000,000 shares shall be Preferred Stock, par value $1.00 per
share, and 20,000,000 shares shall be Common Stock, par value $0.05 per
share.
At the effective time of this amendment each share of Common Stock, par
value $0.05 per share, authorized immediately prior to this amendment shall be
reclassified into one-fifteenth of one fully paid and non-assessable share of
Common Stock, par value $0.05 per share, so that every fifteen shares of Common
Stock, par value $0.05 per share, authorized immediately prior to this amendment
shall be combined together to form one full share of Common Stock, par value
$0.05 per share. No scrip or certificates for fractional shares of Common Stock
will be issued by reason of this amendment.
<PAGE>
- --------------------------------------------------------------------------------
EXPLOITATION AGREEMENT
BETWEEN
AMERAC ENERGY CORPORATION
AND
THE PARTIES IDENTIFIED HEREIN
AS "NON-OPERATORS"
January 1, 1997
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<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I DEFINITIONS AND INTERPRETATION.......................... 1
1.1 Defined Terms.............................................. 1
1.2 References................................................. 6
1.3 Articles and Sections...................................... 6
1.4 Number and Gender.......................................... 6
ARTICLE II. AGREEMENT TO PARTICIPATE;
CASH CONSIDERATION; WARRANTS............................ 6
2.1 Agreement to Participate................................... 6
2.2 Term....................................................... 7
2.3 Cash Consideration......................................... 7
2.4 Warrants................................................... 7
2.5 Limitation on Obligations of Amerac........................ 7
2.6 Relationship of Parties.................................... 8
ARTICLE III. OPERATING AGREEMENT..................................... 9
3.1 Scope; Conflicts........................................... 9
3.2 Third Party Agreements..................................... 9
3.3 Additional Documentation................................... 10
ARTICLE IV. PHASE I PROSPECTS....................................... 10
4.1 Participation of Non-Operators and Funding Commitment...... 10
4.2 Identification and Acquisition of Fourth Phase I Prospect.. 11
4.3 Drilling of Initial Exploitation Well...................... 12
4.4 Substitute Initial Exploitation Well....................... 12
4.5 Additional Operations Prior to Completion.................. 13
ARTICLE V. PHASE II PROSPECTS, PHASE III
PROSPECTS, PHASE IV PROSPECTS........................... 14
5.1 Identification and Acquisition of Phase II
Prospects, Phase III Prospects, and Phase IV Prospects..... 14
5.2 Proposals for Initial Exploitation Well.................... 17
5.3 Abandonment or Completion of Initial Exploitation Well..... 20
5.4 Substitute Initial Exploitation Well....................... 22
5.5 Additional Operations Prior to Completion.................. 23
5.6 Consequences of Participation and Non-Participation........ 23
ARTICLE VI. OWNERSHIP OF ACQUIRED PROPERTY INTERESTS................ 24
6.1 Assignments................................................ 24
6.2 Reversionary Interest...................................... 25
ARTICLE VII. ADDITIONAL REPRESENTATIONS AND COVENANTS................ 25
7.1 Evaluation Work............................................ 25
7.2 General Overhead Cost Reimbursement........................ 26
7.3 Invoicing and Payment of Estimated Costs................... 27
-i-
<PAGE>
7.4 Allocation of Taxes........................................ 28
7.5 Further Assurances......................................... 28
7.6 Confidentiality............................................ 28
7.7 Non-Competition............................................ 29
7.8 Withdrawal................................................. 29
7.9 Right of First Offer....................................... 30
7.10 Representations of Non-Operators........................... 31
7.11 TEXAS DECEPTIVE TRADE PRACTICES ACT........................ 32
ARTICLE VIII. TERMINATION............................................. 32
8.1 Events of Termination...................................... 32
8.2 Effect of Bankruptcy....................................... 33
8.3 Mechanics of Termination................................... 33
8.4 Effect of Termination...................................... 34
ARTICLE IX. TAXATION................................................ 34
ARTICLE X. MISCELLANEOUS........................................... 35
10.1 Exhibits................................................... 35
10.2 Successors and Assigns..................................... 35
10.3 Notices.................................................... 35
10.4 ENTIRE AGREEMENT; CONFLICTS................................ 36
10.5 No Third Party Beneficiaries............................... 36
10.6 Amendment.................................................. 37
10.7 Waiver; Rights Cumulative.................................. 37
10.8 GOVERNING LAW; JURISDICTION, VENUE......................... 37
10.9 Severability............................................... 37
10.10 Counterparts............................................... 37
EXHIBIT I Schedule of Initial Participant Interests; Non-Operator Cash
Consideration; Maximum Individual Funding Commitment; Maximum
Individual Warrants
EXHIBIT II Description of North Blackwell Area, Nolan County, Texas
EXHIBIT III-A Descriptions of Hickman Prospect, Suggs Field, Nolan
County, Texas, Rawlings Prospect, Coke County, Texas,
and Mesquite Prospect, Nolan County, Texas
EXHIBIT III-B Acreage Covered by Three Dimensional Seismic Survey
Acquired from Enserch Exploration Company
EXHIBIT IV Form of Partial Assignment of Oil and Gas Leases
EXHIBIT V Form of Operating Agreement
EXHIBIT VI Warrant Agreement
-ii-
<PAGE>
EXHIBIT VII Registration Rights Agreement
EXHIBIT VIII Accredited Investor Certificate
EXHIBIT IX Assignment and Bill of Sale - Section 7.9
-iii-
<PAGE>
EXHIBIT 4(i).8
EXPLOITATION AGREEMENT
THIS EXPLOITATION AGREEMENT ("Agreement") is executed effective as of
---------
January 1, 1997 (the "Effective Date"), and is between AMERAC ENERGY
--------------
CORPORATION, a Delaware corporation, having as its address 1201 Louisiana, Suite
3350, Houston, Texas 77002-5609 ("Amerac"), and the parties identified as "Non-
------
Operators" on the signature pages to this Agreement, each such party having the
address set forth adjacent to such party's name on such signature pages
(collectively, "Non-Operators").
-------------
R E C I T A L S:
- - - - - - - -
WHEREAS, Amerac desires to undertake a program of three dimensional
seismic evaluation, lease acquisition, and drilling and development operations
in the "Area of Interest" defined hereinafter for the purpose of exploitation of
----------------
the Ellenburger and other formations as encountered on the Eastern Shelf of the
Permian Basin; and
WHEREAS, Non-Operators desire to participate with Amerac in such
exploitation program in accordance with the provisions of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein, the benefits to be derived by each party hereunder, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Amerac and Non-Operators agree as follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms. In addition to the terms defined in the introductory
-------------
paragraph and the Recitals of this Agreement, for purposes hereof, the following
expressions and terms shall have the meanings set forth in this Article I,
unless the context otherwise requires:
"Accredited Investor" shall have the meanings set forth in Rule 501(a)
-------------------
under the 1933 Act.
"Acquired Property Interest" means any Property Interest acquired by
--------------------------
Amerac for the joint account of Amerac and Non-Operators pursuant to this
Agreement.
"AFE" means an authority for expenditure prepared by Amerac for
---
purposes of estimating the costs and expenses incurred in Evaluation Work,
Property Interest acquisitions, or drilling operations conducted hereunder.
"Amerac Common Stock" means the common stock, par value $.05 per
-------------------
share, of Amerac.
<PAGE>
"Area of Interest" means all of Coke, Nolan, Mitchell, and Fisher
----------------
Counties, Texas, LESS AND EXCEPT the North Blackwell Area in Nolan County,
Texas, described more particularly on Exhibit II.
"Assignment" means the form of Partial Assignment of Oil and Gas
----------
Leases attached hereto as Exhibit IV.
"Downstream Facilities" means all plants, pipelines, equipment, and
---------------------
facilities relating to the gathering, dehydration, compression, processing,
transportation, and refining of Hydrocarbons which facilities are located
downstream of the "production facilities", as defined hereinafter, installed by
Amerac in connection with each well drilled pursuant to this Agreement and the
Operating Agreement. For purposes of this definition, the phrase "production
facilities" refers to all facilities installed in connection with the production
of Hydrocarbons after the completion of a Hydrocarbon well, including, without
limitation, Christmas tree, pumping equipment, wellhead compressors, flow lines,
lease separators, storage tanks, treating equipment, saltwater disposal
equipment, and other, similar facilities and equipment.
"Drilling Costs" means all costs and expenses incurred in drilling
--------------
each Initial Exploitation Well to its total depth, conducting all necessary
logging, coring, and testing therein prior to a decision concerning a completion
attempt, and plugging and abandoning the same if a dry hole (including, without
limitation, the costs of surface restoration of the drillsite premises) or
completing and equipping the same for production (including, without limitation,
the costs of casing, tubing, christmas tree, and other wellhead facilities and
pumping equipment, flowlines, separators, storage tanks, salt water disposal
equipment, and other similar production facilities). "Drilling Costs" shall
also include the costs and expenses incurred in any additional operations
conducted by Amerac in an Initial Exploitation Well in accordance with Section
4.5 or Section 5.6.
"Evaluation/Acquisition Costs" means all costs and expenses incurred
----------------------------
in connection with the evaluation of Prospects and the acquisition of Property
Interests in such Prospects hereunder, including, without limitation: (a) all
costs incurred in connection with any Evaluation Work on a Prospect; (b) all
bonuses and other consideration paid for any Property Interest (including,
without limitation, Property Interests on which one (1) or more wells capable of
producing Hydrocarbons are located at the time of acquisition by Amerac), or to
extend, renew, or replace any expiring Hydrocarbon lease comprising an Acquired
Property Interest; (c) title insurance and title examination costs, recording
and filing fees, and fees and expenses of independent landmen and lease brokers;
and (d) the travel, telephone, and other direct expenses incurred in connection
with the acquisition of Property Interests.
"Evaluation Work" means all work, activity, and operations conducted
---------------
and performed to identify and locate Hydrocarbons in and under the Area of
Interest, including, without limitation, aerial surveys, geological,
geochemical, geophysical, and seismographic surveys (including three dimensional
seismic surveys), reserve engineering analyses, and related studies carried out
on the Area of Interest. Evaluation Work shall not include the drilling and
---
completion and equipping for production or plugging and abandonment of any
Hydrocarbon well or any subsequent operations conducted therein.
2
<PAGE>
"Funding Commitment" shall have the meaning set forth in Section
------------------
4.1(a).
"General Overhead Costs" means the customary and routine costs and
----------------------
expenses of Amerac associated with its business and activities that are not
directly chargeable to a particular Prospect or Acquired Property Interest,
including, without limitation: (a) all salaries and related payroll expenses
and benefits of all employees of Amerac; (b) occupancy and other related costs,
such as rent, office space, duplication, telephone, and postage; (c) travel and
entertainment expenses; and (d) normal engineering, bookkeeping, accounting,
legal, and other fees and indirect costs attributable to the conduct of the
business and activities of Amerac.
"General Overhead Cost Reimbursement" shall have the meaning set forth
-----------------------------------
in Section 7.2(a).
"Hydrocarbons" means oil, gas, casinghead gas, gas condensate,
------------
distillate, sulphur, and all other liquid or gaseous hydrocarbons and other
marketable substances produced in association therewith.
"Initial Exploitation Well" means the first Hydrocarbon well drilled
-------------------------
on a Prospect subject to and in accordance with this Agreement.
"Lease Burdens" means all lessors' royalties, overriding royalties,
-------------
production payments, net profits interests, and similar contractual burdens
upon, payable out of, or measured by Hydrocarbons produced from or attributable
to Acquired Property Interests.
"1933 Act" means the Securities Act of 1933, as amended.
--------
"Operating Agreement" means the AAPL Form 610-1989 Model Form
-------------------
Operating Agreement, and the modifications and additions thereto, attached to
this Agreement as Exhibit V.
"Participant Interests" means, initially, fifty percent (50%) for
---------------------
Amerac and, in the aggregate, fifty percent (50%) for Non-Operators. The
initial Participant Interest in effect under this Agreement for each Non-
Operator is set forth in Exhibit I under the column captioned "Initial
Participant Interests." Each such initial Participant Interest is equal to the
product obtained by multiplying (a) 50%, by (b) a fraction, the numerator of
----------- --
which is the "Maximum Individual Funding Commitment" set forth for the relevant
Non-Operator on Exhibit I, and the denominator of which is the total Funding
Commitment. The Participant Interests of Amerac and Non-Operators are subject
to adjustment in accordance with the provisions of Sections 4.4, 5.1, 5.2, 5.3,
5.4, and 5.5.
"Permitted Affiliate" means, with respect to each Non-Operator, (a)
-------------------
any limited liability company or corporation in which (i) such Non-Operator
owns, directly or indirectly, more than fifty percent (50%) of the equity
interests having ordinary voting power and (ii) all other holders of equity
interests (if any) are Accredited Investors; (b) any general or limited
partnership in which (i) such Non-Operator is either the general partner or
owns, directly or indirectly, more than fifty percent (50%) of the equity
interests having ordinary voting power and (ii) all other partners, whether
general or limited, are Accredited Investors; and (c) any trust
3
<PAGE>
(i) in which such Non-Operator and/or his or her spouse and/or his or her direct
lineal descendants are the beneficiaries and either (ii) the beneficiaries of
which are all Accredited Investors, or (iii) that itself qualifies as an
Accredited Investor.
"Phase I Prospects" means the first four (4) Prospects designated in
-----------------
the Area of Interest by Amerac under this Agreement.
"Phase II Prospects" means, for each Non-Operator, the fifth (5th)
------------------
through and including the tenth (10th) Prospects designated by Amerac in the
Area of Interest and in which such Non-Operator elects to participate under
Section 5.1 of this Agreement.
"Phase III Prospects" means, for each Non-Operator, the eleventh
-------------------
(11th) through and including the twentieth (20th) Prospects designated by Amerac
in the Area of Interest and in which such Non-Operator elects to participate
under Section 5.1 of this Agreement.
"Phase IV Prospects" means, for each Non-Operator, the twenty-first
------------------
(21st) and all subsequent Prospects designated by Amerac in the Area of Interest
and in which such Non-Operator elects to participate under Section 5.1 of this
Agreement.
"Producing Property" means one (1) or more Hydrocarbon leases and the
------------------
lands covered thereby on which one (1) or more wells capable of producing
Hydrocarbons in commercial quantities are located at the time that Amerac
identifies or otherwise becomes aware of such property.
"Production Taxes" means all ad valorem, production, severance,
----------------
gathering, excise, and other similar taxes assessed against the Acquired
Property Interests or Hydrocarbons produced therefrom.
"Program Interests" mean, with respect to a Non-Operator in a
-----------------
particular Prospect, all of the rights, titles, and interests of such non-
Operator in and to the relevant Prospect, including, without limitation, (i) all
Acquired Property Interests pertaining thereto, (ii) all wells drilled and other
personal property and equipment located thereon, and (iii) all geological and
geophysical information, logs, work maps, and other data acquired by such Non-
Operator as the result of Evaluation Work performed by Amerac on such Prospect
pursuant to this Agreement.
"Property Agreement" means any and all farmout agreements, farmin
------------------
agreements, participation agreements, operating agreements, purchase and sale
agreements, exchange agreements, and other agreements concerning the acquisition
by Amerac of Property Interests within the Area of Interest.
"Property Interests" means (a) any Hydrocarbon lease (including,
------------------
without limitation, any applications for Hydrocarbon leases covering lands owned
by the United States or the State of Texas), (b) money or acreage contributions,
(c) contractual rights, (d) seismic or other options, (e) licenses, (f)
concessions, and (g) any and all other rights relating to the acquisition,
production, or development of Hydrocarbons from Prospects within the Area of
4
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Interest in which Amerac acquires, or has the opportunity to acquire, an
undivided interest pursuant to a Property Agreement with third parties.
"Prospect" means a specific geographic area designated either by
--------
Amerac or third parties covering a particular geological trend located within
the Area of Interest that, in the opinion of Amerac, based upon supporting three
dimensional seismic or other data, is deemed to have sufficient potential for
the discovery of Hydrocarbons in commercial quantities to justify the
acquisition by Amerac of Property Interests therein for purposes of this
Agreement. The term "Prospect" includes Producing Properties located within the
Area of Interest that, in Amerac's reasonable judgment, possess potential for
additional exploitation and development hereunder. The term "Prospect" does not
include, however, (a) Producing Properties located within the Area of Interest
that, in Amerac's sole judgment, do not possess potential for additional
---
exploitation and development hereunder, or (b) Producing Properties located
within the Area of Interest that Amerac has the opportunity to acquire either
(i) directly from the owner thereof as part of an acquisition of assets that are
located, in part, outside the four-county area included within the Area of
Interest, or (ii) pursuant to the acquisition of all or a portion of the capital
stock of the owner thereof, in either case regardless of whether the relevant
Producing Properties possess potential for additional exploitation and
development hereunder; provided, however, that if, pursuant to an acquisition of
the type described in the preceding clause (b), Amerac acquires either Producing
Properties or undeveloped Hydrocarbon leases or other rights relating to the
acquisition, production, or development of Hydrocarbons covering, in either
case, lands located within the geographic area of a Prospect that, prior to the
consummation of such acquisition, had been identified by Amerac for Non-
Operators pursuant to notices given under either Article IV or Article V, as
applicable, the interest in any such Producing Property or undeveloped
Hydrocarbon leases or other rights thus acquired by Amerac shall be treated, for
all purposes under this Agreement, as Acquired Property Interests comprising, in
part, the relevant Prospect in which Non-Operators are entitled to participate
as provided herein. The Evaluation/Acquisition Costs allocable to any such
Acquired Property Interests shall equal (y) the value (if any) allocated to such
Acquired Property Interests in the applicable Property Agreement, or (z) if no
such allocation of value is included in the applicable Property Agreement, the
portion of the total purchase price paid by Amerac pursuant to such Property
Agreement that Amerac, in the exercise of its reasonable judgment, determines to
represent the value of such Acquired Property Interests.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement between Amerac and each Non-Operator to whom Warrants are issued
hereunder in substantially the form attached hereto as Exhibit VII, to be
executed by Amerac and each such Non-Operator in conjunction with each issuance
of Warrants by Amerac to such Non-Operator pursuant to Section 2.4.
"Right of First Offer" shall have the meaning set forth in Section
--------------------
7.9(a).
"SEC" means the Securities Exchange Commission, or any successor
---
agency.
"Substitute Initial Exploitation Well" shall have the meaning set
------------------------------------
forth in Section 4.4(a).
5
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"Third Party Operating Agreement" shall have the meaning set forth in
-------------------------------
Section 3.2.
"Unallocated Non-Participating Interests" shall have the meaning set
---------------------------------------
forth in Sections 5.1(c) and 5.1(d).
"Warrant Agreement" means the Warrant Agreement between Amerac and
-----------------
Petroleum Financial Inc., as Warrant Agent, in substantially the form attached
hereto as Exhibit VI, to be executed by Amerac and each such Non-Operator in
conjunction with each issuance of Warrants by Amerac to Non-Operators pursuant
to Section 2.4.
"Warrants" shall have the meaning set forth in Section 2.4.
--------
1.2 References. The words "hereby," "herein," "hereinabove,"
----------
"hereinafter," "hereinbelow," "hereof," "hereto," "hereunder," and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular article, section, or provision of this
Agreement. References in this Agreement to "the parties" and to articles,
sections, exhibits, or schedules are to the parties to, and to articles,
sections, exhibits, or schedules of, this Agreement unless otherwise specified.
1.3 Articles and Sections. This Agreement, for convenience only, has been
---------------------
divided into articles and sections. The rights and other legal relations of the
parties hereto shall be determined from this Agreement as an entirety and
without regard to the aforesaid division into articles and sections and without
regard to headings prefixed to such articles and sections.
1.4 Number and Gender. Whenever the context requires, reference herein
-----------------
made to a single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Words denoting sex
shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative. Definitions of terms defined in
the singular or plural shall be equally applicable to the plural or singular, as
applicable, unless otherwise indicated.
ARTICLE II.
AGREEMENT TO PARTICIPATE;
CASH CONSIDERATION; WARRANTS
2.1 Agreement to Participate. Subject to and in accordance with the
------------------------
provisions of this Agreement, Amerac agrees to engage in a program of (a)
performing Evaluation Work in the Area of Interest for the purpose of
identifying Prospects, (b) acquiring Property Interests within the Prospects
thus identified, and (c) drilling such Hydrocarbon wells as Amerac deems
necessary or appropriate to exploit the Ellenburger and other formations
underlying such Prospects and Acquired Property Interests for the production of
Hydrocarbons. Subject to and in accordance with the provisions of this
Agreement, Non-Operators agree to participate with Amerac in such program.
6
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2.2 Term. Unless earlier terminated as provided below in Article VIII,
----
this Agreement and the Area of Interest created pursuant hereto shall remain in
effect for a term of four (4) years commencing on the Effective Date. The term
of this Agreement may be extended by agreement of Amerac and Non-Operators.
2.3 Cash Consideration. As part of the consideration payable by Non-
------------------
Operators to Amerac hereunder, each Non-Operator, concurrently with his
execution of this Agreement, has paid to Amerac, by bank wire transfer of
immediately available funds, an amount set forth for such Non-Operator on
Exhibit I under the column captioned "Non-Operator Cash Consideration," with the
total cash consideration paid by all Non-Operators being equal to $190,755.36.
The total "Non-Operator Cash Consideration" represents (a) Non-Operators'
collective Participant Interest shares of all Evaluation/Acquisition Costs
incurred by Amerac prior to the Effective Date in connection with the Hickman
Prospect, Suggs Field, Nolan County, Texas, the Rawlings Prospect, Coke County,
Texas, and the Mesquite Prospect, Nolan County, Texas, all as described more
particularly on Exhibit III-A, (b) an overhead charge to Non-Operators of
$10,000.00 per Prospect for each of such Prospects, and (c) the first
installment of the General Overhead Cost Reimbursement to be paid by Non-
Operators pursuant to Section 7.2(a) for the three-month period beginning on the
Effective Date. The portion of such "Non-Operator Cash Consideration" described
in the preceding clause (a) shall be applied against the Funding Commitment of
Non-Operators. The portions of such "Non-Operator Cash Consideration" described
in the preceding clauses (b) and (c), however, shall not be applied against, but
shall be in addition to, the Funding Commitment.
2.4 Warrants. In addition to the interests in the Acquired Property
--------
Interests to be conveyed by Amerac to the Non-Operators pursuant to Article VI,
Amerac agrees to grant to each Non-Operator warrants to acquire 41.66666667
shares of Amerac Common Stock ("Warrants") for each denomination of $1,000.00
--------
paid by such Non-Operator for Evaluation/Acquisition Costs and Drilling Costs
incurred under this Agreement up to an amount equal to the sum set forth for
such Non-Operator on Exhibit I under the caption "Maximum Individual Funding
Commitment." The maximum number of Warrants that each Non-Operator is eligible
to receive hereunder is also set forth on Exhibit I under the column captioned
"Maximum Individual Warrants." All such Warrants shall be issued pursuant to
and in accordance with the provisions of the Warrant Agreement and the
Registration Rights Agreement. Amerac shall only be obligated to grant the
Warrants to a Non-Operator under this Section 2.4 on the last business day of
each calendar year during the term hereof during which such Non-Operator has
paid Evaluation/Acquisition Costs and/or Drilling Costs. Amerac shall not grant
any Warrants to acquire fractional shares of Amerac Common Stock unless and
until all such fractional amounts issuable to a Non-Operator during the term of
this Agreement have been aggregated and rounded up on the last date on which
Warrants earned under this Agreement are granted pursuant hereto.
2.5 Limitation on Obligations of Amerac.
-----------------------------------
(a) Notwithstanding any provision of this Agreement to the contrary,
Amerac shall have no obligation to Non-Operators with respect to, and Non-
Operators shall have no right hereunder to participate in, any Producing
Property located within the Area of Interest and acquired by Amerac during the
term of this Agreement that does not qualify as a "Prospect", as that term is
defined herein.
7
<PAGE>
(b) Amerac shall be entitled to acquire, construct, operate, and own
Downstream Facilities located in the Area of Interest for its own account and
without obligation to Non-Operators to the extent that, at the time that Amerac
acquires or begins construction of the relevant Downstream Facilities, such
Downstream Facilities are being utilized, or, in the reasonable judgment of
Amerac, are expected to be utilized, in connection with Hydrocarbon production
from properties other than Prospects acquired and developed pursuant to this
Agreement. If, however, Amerac elects to acquire or construct Downstream
Facilities that, at the time that Amerac acquires or begins construction of the
relevant Downstream Facilities are being utilized, or, in the reasonable
commercial judgment of Amerac, are expected to be utilized, solely in connection
with Hydrocarbon production from Prospects acquired and developed pursuant to
this Agreement, Amerac shall provide to Non-Operators written notice summarizing
its proposal concerning the relevant Downstream Facilities, including their
location, the terms of the proposed acquisition (if applicable), the estimated
time of completion and particulars of construction (if applicable), any economic
analysis of such Downstream Facilities prepared by or provided to Amerac, and an
estimate of the costs to be incurred in connection therewith. Each Non-Operator
shall have fifteen (15) days after receipt of Amerac's notice under this Section
2.5(b) within which to elect whether to participate in such proposed acquisition
or construction of Downstream Facilities. The failure of any Non-Operator to
respond to Amerac's notice within such fifteen-day period shall constitute an
election by such Non-Operator not to participate. If no Non-Operators elect to
participate in the proposed acquisition or construction of such Downstream
Facilities, Amerac shall be entitled, at its option, to proceed with the
acquisition or construction of such Downstream Facilities for its own account,
at its sole cost, risk, liability, and expense, and without further obligation
to Non-Operators. If some or all Non-Operators elect to participate, Amerac and
the participating Non-Operators shall proceed to acquire or construct such
proposed Downstream Facilities. Such Downstream Facilities shall be owned, and
all costs, risks, liabilities, and expenses incurred in connection therewith
shall be borne, in each case by Amerac and the participating Non-Operators in
the proportions that the individual Participant Interests of Amerac and each
participating Non-Operator bear to the aggregate Participant Interests of Amerac
and all participating Non-Operators. All other matters pertaining to the
acquisition, construction, ownership, and operation of any such Downstream
Facilities jointly acquired by Amerac and the participating Non-Operators shall
be outside the scope of this Agreement and shall be subject to, and governed by,
the terms and provisions of such additional construction, acquisition,
operating, and other agreements and documents as Amerac and the participating
Non-Operators deem necessary or appropriate. Amerac and all such participating
Non-Operators agree to endeavor in good faith to consummate any such additional
agreements and documents as expeditiously as possible.
2.6 Relationship of Parties. It is not the purpose or intention of this
-----------------------
Agreement to create, and this Agreement shall not be construed to create, a
joint venture, partnership, or other relation whereby any party shall be liable
for the acts, either of omission or commission, of any other party hereto. The
respective rights and obligations of the parties hereto shall in all respects be
several and not joint and shall be governed by the expressed provisions hereof.
In addition, this Agreement shall not be deemed to designate Amerac as the agent
or fiduciary of Non-Operators or otherwise to create a relationship of special
trust and confidence between Amerac and Non-Operators. The standard of duty
owed by Amerac to Non-Operators under this
8
<PAGE>
Agreement shall be the standard applicable to the operator under the terms of
the Operating Agreement as set forth in Article V thereof.
ARTICLE III.
OPERATING AGREEMENT
3.1 Scope; Conflicts. As between Amerac and Non-Operators, Amerac shall
----------------
serve as operator during all operations conducted jointly by Amerac and Non-
Operators on the Area of Interest. In addition to the provisions of this
Agreement, all of such operations shall be conducted in accordance with, and the
rights, interests, duties, obligations, and liabilities of Amerac and Non-
Operators in connection with such operations shall be governed by, the
applicable terms and provisions of the Operating Agreement, counterparts of
which have been executed by Amerac and Non-Operators concurrently with the
execution of this Agreement, to the extent that such terms and provisions are
not inconsistent with the provisions of this Agreement. All Prospects and
Property Interests acquired pursuant hereto shall be deemed to be a single
"Contract Area" (as defined in the Operating Agreement) subject to one and the
same Operating Agreement, and the provisions of the Operating Agreement shall be
deemed to be effective as between Amerac and Non-Operators as of the Effective
Date, notwithstanding the date on which a particular Prospect or Property
Interest is acquired pursuant hereto. In the event of a conflict between the
provisions of the Operating Agreement and the provisions of this Agreement, the
provisions of this Agreement shall govern and control; provided, however, that
the inclusion in the Operating Agreement of terms and provisions not addressed
in this Agreement shall not be deemed a conflict, and all such provisions shall
be given full force and effect, subject to the provisions of this Article III.
3.2 Third Party Agreements. Amerac and Non-Operators contemplate that,
----------------------
from time to time, Amerac may enter into Property Agreements with third parties
who are not parties to this Agreement to acquire Property Interests in a
Prospect that constitute less than the full oil and gas leasehold estate in such
Prospect. In that event, Amerac, acting on its own behalf and as nominee for
Non-Operators, and the relevant third parties shall be the sole parties in
interest to such Property Agreements; and the rights, interests, obligations,
and liabilities of Amerac and such third parties with respect to the affected
Prospect shall be governed by the provisions of such Property Agreements,
including any joint operating agreement executed by Amerac and such third
parties in conjunction therewith ("Third Party Operating Agreement"). As
between Amerac and Non-Operators, however, the Prospect and Property Interests
therein thus acquired by Amerac, and the rights, interests, obligations, and
liabilities of Amerac and Non-Operators with respect thereto, shall continue to
be governed by the provisions of this Agreement and the Operating Agreement.
Proposals for operations made under the applicable Property Agreements,
including any applicable Third Party Operating Agreement, shall be submitted by
Amerac to Non-Operators as operations proposed under the terms of this Agreement
and the Operating Agreement. If the relevant Property Agreements, including any
applicable Third Party Operating Agreement, establish notice and/or response
periods or other deadlines for action that differ from those provided in this
Agreement or the Operating Agreement, then this Agreement and the Operating
Agreement, insofar only as such agreements pertain to the relevant Prospect and
Acquired Property Interests, shall be deemed to have been amended to conform
with the applicable provisions of such Property Agreements. Similarly, to the
extent that one (1) or both of the fixed overhead rates provided for drilling
wells and/or producing wells in the accounting
9
<PAGE>
procedure attached to the applicable Third Party Operating Agreement differ from
those set forth in Section III.1.A of Exhibit "C" to the Operating Agreement,
the fixed overhead rates charged by Amerac to Non-Operators with respect to the
relevant Prospect and Acquired Property Interests under the Operating Agreement
shall conform to the rates provided for in the Third Party Operating Agreement.
3.3 Additional Documentation. When each Prospect is designated by Amerac
------------------------
and Property Interests are acquired therein as provided hereinafter, Amerac and
the Non-Operators participating in such Prospect and Acquired Property Interests
shall execute an amendment to the Operating Agreement which amends Exhibit A
thereto to add to the "Contract Area" covered by the Operating Agreement each
such Prospect and the Acquired Property Interests comprising the same, together
with the Participant Interests of Amerac and the participating Non-Operators.
In addition, concurrently with the execution of each such amendment to the
Operating Agreement, Amerac and each participating Non-Operator shall execute,
and Amerac shall record and file in the appropriate public records, a
counterpart of the Memorandum of Operating Agreement and Financing Statement
attached to the Operating Agreement as Exhibit H, covering the Prospect and
Acquired Property Interests described in the relevant amendment to the Operating
Agreement. From time to time thereafter, Amerac and the relevant participating
Non-Operators shall execute such supplements to each Memorandum of Operating
Agreement and Financing Statement as are necessary to perfect, or to continue
the perfection of, the liens and security interests created under the Operating
Agreement in the Prospects and Acquired Property Interests subject thereto in
accordance with applicable laws.
ARTICLE IV.
PHASE I PROSPECTS
4.1 Participation of Non-Operators and Funding Commitment.
-----------------------------------------------------
(a) Except to the extent otherwise provided in the succeeding
provisions of this Article IV, the execution and delivery by Non-Operators of
this Agreement indicates the agreement by all Non-Operators to participate in
all Evaluation Work conducted by Amerac to identify the Phase I Prospects, all
acquisitions of Property Interests undertaken by Amerac covering the Phase I
Prospects, and all operations relating to the Initial Exploitation Well on each
Phase I Prospect described below in Sections 4.3, 4.4, and 4.5 (collectively,
"Phase I Prospect Work"), and Non-Operators shall not have an independent
- ----------------------
election whether to participate in any such Phase I Prospect Work proposed by
Amerac. In this regard, Non-Operators commit to expend, in the aggregate, an
amount equal to the lesser of (i) $1,200,000.00, or (ii) the sum of all
Evaluation/Acquisition Costs and Drilling Costs incurred in connection with the
performance of Phase I Prospect Work (the "Funding Commitment"). The maximum
------------------
portion of the Funding Commitment to be borne by each Non-Operator is set forth
on Exhibit I under the column captioned "Maximum Individual Funding Commitment."
(b) If Non-Operators do not expend the maximum Funding Commitment of
$1,200,000.00 in connection with the performance of the Phase I Prospect Work
contemplated hereinafter in this Article IV, Non-Operators shall not be
obligated to expend additional funds in connection with the performance of
Evaluation Work, the acquisition of Property Interests, or the drilling of or
other operations in any Hydrocarbon wells located on the Phase II
10
<PAGE>
Prospects, Phase III Prospects, or Phase IV Prospects under the terms of this
Agreement, unless such Non-Operator elects to participate in such Evaluation
Work, Property Interest acquisition, or drilling or other operation in
accordance with the applicable provisions of this Agreement or the Operating
Agreement.
(c) If, at any time prior to the completion of all Phase I Prospect
Work, Amerac determines that the then-unexpended portion of the Funding
Commitment is insufficient to fund all or a portion of Non-Operators' aggregate
Participant Interest share of the Evaluation/Acquisition Costs and/or Drilling
Costs estimated by Amerac to be required in the performance of Phase I Prospect
Work on one or more Phase I Prospects, Amerac shall provide to Non-Operators
written notice of such fact. Thereafter, notwithstanding the provisions of
Section 4.1(a) to the contrary, Non-Operators shall not be obligated to
participate in any Phase I Prospect Work subsequently proposed by Amerac. Each
remaining Phase I Prospect shall be treated as if it were a Phase II Prospect,
with the result that each Non-Operator shall have the elections concerning its
participation in the activities proposed by Amerac with respect to the relevant
Phase I Prospect provided for in the applicable provisions of Article V.
(d) If, with respect to any Phase I Prospect Work as to which Non-
Operators are obligated to participate under this Agreement, the actual
Evaluation/Acquisition Costs and/or Drilling Costs incurred by Amerac in the
performance of such Phase I Prospect Work (including, without limitation, the
costs of any operations conducted by Amerac pursuant to Section 4.5) exceed the
portion of the Funding Commitment that was unexpended and available at the time
such Phase I Prospect Work was commenced, Non-Operators shall nevertheless be
obligated to expend the funds required to pay their Participant Interest shares
of such actual costs in excess of the Funding Commitment.
4.2 Identification and Acquisition of Fourth Phase I Prospect.
---------------------------------------------------------
(a) All Prospects identified or to be identified as Phase I Prospects
hereunder shall have as their target the Ellenburger formation as encountered on
the Eastern Shelf of the Permian Basin. Any Prospect proposed by Amerac
hereunder that does not have such formation as its target shall be deemed to be
a Phase II Prospect, Phase III Prospect, or Phase IV Prospect, as applicable,
and shall be governed by the provisions of Article V.
(b) Non-Operator understands and agrees that, as of the date of
execution of this Agreement, Amerac has identified and acquired Property
Interests in the Hickman Prospect, Suggs Field, Nolan County, Texas, the
Rawlings Prospect, Coke County, Texas, and the Mesquite Prospect, Nolan County,
Texas, as such Prospects are described more particularly on Exhibit III-A. Such
Prospects shall constitute the initial three (3) Phase I Prospects. Amerac
represents that it has also acquired from Enserch Exploration Company ("EEX")
the right to review and interpret a three dimensional seismic survey performed
by EEX covering 38 square miles of land located in the northwestern portion of
Nolan County, Texas. The geographic area covered by such three dimensional
seismic survey is described on Exhibit III-B. Amerac anticipates that it will
identify additional Prospects hereunder as the result of its review and analysis
of the three dimensional seismic survey acquired from EEX.
11
<PAGE>
(c) During the term of this Agreement, Amerac shall endeavor to
conduct such Evaluation Work as Amerac determines is useful or appropriate in
identifying the remaining Phase I Prospect. As soon as reasonably practicable
after Amerac's completion of the Evaluation Work that identifies the fourth
Phase I Prospect, Amerac shall provide to Non-Operators written notice setting
forth Amerac's summary of the results of such Evaluation Work and Amerac's
intended course of action as the result thereof. Subject to the provisions of
Section 4.1, all Evaluation/Acquisition Costs, risks, liabilities, and expenses
incurred in connection with the relevant Phase I Prospect shall be borne and
paid by Amerac and Non-Operators in accordance with their respective Participant
Interests.
4.3 Drilling of Initial Exploitation Well.
-------------------------------------
(a) When Amerac, based upon its analysis of the Evaluation Work
performed or acquired by Amerac on a Phase I Prospect, determines that it is
appropriate to drill the Initial Exploitation Well on such Phase I Prospect
(which may constitute the initial well required under the terms of a Property
Agreement as a condition of Amerac's right to acquire Property Interests in the
relevant Phase I Prospect), Amerac shall provide to Non-Operators written notice
setting forth the location of the relevant Initial Exploitation Well, its
proposed total depth and objective formation, and an AFE setting forth the
estimated Drilling Costs to be incurred in connection therewith on both a "dry
hole" basis and "completed well" basis. Following the delivery of such notice
to Non-Operators, Amerac shall proceed to drill the Initial Exploitation Well to
its total depth and to conduct such coring, logging, and testing therein as
would a reasonably prudent operator.
(b) If, when the Initial Exploitation Well on a Phase I Prospect has
been drilled to its total depth and all logging, coring, and testing have been
completed therein, Amerac elects to attempt to complete such Initial
Exploitation Well as a producer of Hydrocarbons, Amerac shall perform such
completion operations and, if such operations are successful, shall equip such
Initial Exploitation Well for production. If Amerac determines that such
Initial Exploitation Well should be plugged and abandoned as a dry hole, or
Amerac attempts to complete such Initial Exploitation Well as a producer of
Hydrocarbons, but such completion attempt is unsuccessful, then, subject to the
provisions of Section 4.4 and Section 4.5, Amerac shall plug and abandon such
Initial Exploitation Well and shall restore the drillsite premises thereof
pursuant to the requirements of the applicable oil and gas leases and all
applicable laws and regulations.
(c) Subject to the provisions of Section 4.1, all Drilling Costs,
risks, liabilities, and expenses incurred in connection with such operations in
the Initial Exploitation Well on each Phase I Prospect (including, without
limitation, actual costs and expenses in excess of the estimated Drilling Costs
for such Initial Exploitation Well set forth in the AFE applicable thereto)
shall be borne and paid by Amerac and Non-Operators in accordance with their
respective Participant Interests.
4.4 Substitute Initial Exploitation Well.
------------------------------------
(a) If Amerac (i) is unable to reach the total depth in the Initial
Exploitation Well on a Phase I Prospect, or having reached such total depth, is
unable to complete such
12
<PAGE>
Initial Exploitation Well because of subsurface conditions or formations
(including, without limitation, heaving shale, domal formations, and excessively
high pressure water sands or cavities) that would render further drilling
operations by a prudent operator impractical, or because of mechanical
conditions in such Initial Exploitation Well beyond the control of Amerac, or
(ii) reaches the total depth in such Initial Exploitation Well but determines
that such Initial Exploitation Well should be plugged and abandoned as a dry
hole, or (iii) reaches the total depth in such Initial Exploitation Well but
unsuccessfully attempts to complete the same, then following the plugging and
abandonment of such Initial Exploitation Well in accordance with the provisions
of Sections 4.3(b) and 4.3(c), Amerac shall be entitled, in its sole discretion,
to commence, or to cause to be commenced, the drilling of one (1) or more
substitute Hydrocarbon wells (the "Substitute Initial Exploitation Well") at
------------------------------------
locations selected by Amerac on the relevant Phase I Prospect. If Amerac elects
to commence the drilling of such a Substitute Initial Exploitation Well on a
Phase I Prospect, Amerac shall provide to Non-Operators written notice setting
forth the location of such Substitute Initial Exploitation Well, its proposed
total depth and objective formation, and an AFE setting forth the estimated
Drilling Costs to be incurred in connection therewith on both a "dry hole" basis
and "completed well" basis. If Amerac drills and successfully completes such a
Substitute Initial Exploitation Well as a producer of Hydrocarbons, such
Substitute Initial Exploitation Well shall become the "Initial Exploitation
Well" on the relevant Phase I Prospect for purposes of this Agreement, and, as
used herein, the term "Initial Exploitation Well", when used with reference to
the relevant Phase I Prospect, shall refer to such successfully completed
Substitute Initial Exploitation Well. Thereafter, all subsequent operations on
the relevant Phase I Prospect shall be governed by the provisions of the
Operating Agreement.
(b) Non-Operators agree with Amerac to participate in any such
Substitute Initial Exploitation Well undertaken on a Phase I Prospect, and all
Drilling Costs, risks, liabilities, and expenses incurred in connection
therewith shall be borne and paid by Amerac and Non-Operators in accordance with
their respective Participant Interests; provided, however, that if, when Amerac
determines to commence the drilling of such a Substitute Initial Exploitation
Well, the then-unexpended portion of the Funding Commitment is insufficient to
fund all or a portion of Non-Operators' Participant Interest share of the
estimated Drilling Costs to be incurred in connection therewith, no Non-Operator
shall be obligated to participate in such Substitute Initial Exploitation Well.
In that event, such Substitute Initial Exploitation Well shall be treated in the
same manner as an Initial Exploitation Well drilled on a Phase II Prospect, with
the result that each Non-Operator shall have the elections concerning its
participation in such Substitute Initial Exploitation Well provided for in
Sections 5.2 and 5.3.
4.5 Additional Operations Prior to Completion. Notwithstanding the
-----------------------------------------
provisions of Section 4.3(b), if, after the Initial Exploitation Well on a Phase
I Prospect has been drilled to its total depth, Amerac elects not to attempt to
complete such Initial Exploitation Well, Amerac may elect to conduct additional
deepening, sidetracking, plugging back, fracturing or other formation
stimulation, or other operations in such Initial Exploitation Well prior to the
plugging and abandonment thereof; provided, however, that no such operations may
be undertaken unless conducted in the order of priority set forth in Article
XV.F of the Operating Agreement. If Amerac elects to perform any such
additional operation, Amerac shall provide to Non-Operators written notice
setting forth the nature of the operation, the formation or formations to be
affected thereby, and an estimate of the costs and expenses to be incurred in
connection therewith, which
13
<PAGE>
costs and expenses shall be treated as "Drilling Costs" for purposes of this
Agreement. Non-Operators agree to participate in any such additional operation
undertaken by Amerac in the Initial Exploitation Well on a Phase I Prospect, and
subject to the provisions of Section 4.1, all Drilling Costs, risks,
liabilities, and expenses incurred in connection with such additional operations
shall be borne and paid by Amerac and Non-Operators in accordance with their
respective Participant Interests.
ARTICLE V.
PHASE II PROSPECTS, PHASE III
PROSPECTS, PHASE IV PROSPECTS
5.1 Identification and Acquisition of Phase II Prospects, Phase III
---------------------------------------------------------------
Prospects, and Phase IV Prospects.
- ---------------------------------
(a) During the term of this Agreement, Amerac shall conduct such
Evaluation Work as Amerac determines is useful or appropriate in identifying
Phase II Prospects, Phase III Prospects, and Phase IV Prospects. The Evaluation
Work conducted by Amerac hereunder shall emphasize the Ellenburger formation as
encountered on the Eastern Shelf of the Permian Basin, but shall not be
exclusively limited to that formation. As soon as reasonably practicable prior
to the proposed commencement date of any such Evaluation Work, Amerac shall
provide to Non-Operators written notice summarizing the Evaluation Work to be
performed, its location, the estimated time of completion, a description of the
Property Interests to be acquired as part of such Evaluation Work, and an
estimate of the Evaluation/Acquisition Costs to be incurred in connection
therewith. Each Non-Operator shall have fifteen (15) days after receipt of
Amerac's notice under this Section 5.1(a) within which to elect whether to
participate in the proposed Evaluation Work and associated Property Interest
acquisition. The failure of any Non-Operator to respond to Amerac's notice
within such fifteen-day period shall constitute an election by such Non-Operator
not to participate.
(b) If all Non-Operators elect to participate, Amerac shall perform
and consummate the proposed Evaluation Work and Property Interest acquisition,
and all Evaluation/Acquisition Costs, risks, liabilities, and expenses incurred
in connection therewith shall be borne and paid by Amerac and the Non-Operators
in accordance with their respective Participant Interests. If no Non-Operators
elect to participate in the proposed Evaluation Work and associated Property
Interest acquisition, Amerac shall be entitled, at its option and upon notice to
Non-Operators, to proceed with the proposed Evaluation Work and associated
Property Interest acquisition for its own account and at its sole cost, risk,
liability, and expense. If Amerac elects to perform and consummate such
Evaluation Work and Property Interest acquisition, all Non-Operators, upon
receipt of notice of such election from Amerac, shall surrender and relinquish
to Amerac all of their rights, titles, and interests in and to the Prospect to
which the proposed Evaluation Work and associated Property Interest acquisition
relates. All Property Interests previously or subsequently acquired by Amerac
in the relevant Prospect shall be the sole property of Amerac and shall not
become subject to the provisions of this Agreement or the Operating Agreement.
(c) If some, but less than all, Non-Operators elect to participate in
Evaluation Work and the associated acquisition of Property Interests proposed
pursuant to Section 5.1(a),
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then immediately following the expiration of the applicable notice period,
Amerac shall provide written notice to all Non-Operators of the total
Participant Interests of the parties electing to participate in the proposed
Evaluation Work and Property Interest acquisition and its conclusion concerning
whether the proposed Evaluation Work and Property Interest acquisition should
proceed. If Amerac concludes that the proposed Evaluation Work and Property
Interest acquisition should not proceed, Amerac's proposal under Section 5.1(a)
with respect thereto shall be deemed to have been withdrawn. If Amerac
concludes that the proposed Evaluation Work and Property Interest acquisition
should proceed, the participating Non-Operators shall bear the interests of the
non-participating Non-Operators in the relevant Prospect in the proportions that
the individual Participant Interests of each participating Non-Operator bear to
the aggregate Participant Interests of all participating Non-Operators;
provided, however, that in no event shall any participating Non-Operator be
required to increase its Participant Interest in a Prospect under this Section
5.1(c) by a factor of more than twenty percent (20%). A participating Non-
Operator who thus becomes entitled to limit its participation in the proposed
Evaluation Work and Property Interest acquisition shall have five (5) days
(exclusive of Saturdays, Sundays, and legal holidays) after receipt of Amerac's
notice under this Section 5.1(c) within which to notify Amerac of such
intention. The failure of a participating Non-Operator to notify Amerac within
such notice period of such party's intention to limit its participation shall
constitute an election by such participating Non-Operator not to limit its
---
participation.
(d) Any interest of any non-participating Non-Operator in a Prospect
subject to a proposal for Evaluation Work and associated Property Interest
acquisitions under Section 5.1(a) that is not borne by a participating Non-
Operator pursuant to Section 5.1(c) ("Unallocated Non-Participating Interest")
shall be deemed to be borne by Amerac; provided, however, that in no event shall
Amerac be required to increase its Participant Interest in a Prospect under this
Section 5.1(d) by a factor of more than twenty percent (20%). If Amerac's
Participant Interest in a Prospect would thus be increased by a factor of more
than twenty percent (20%), Amerac may, at its option:
(i) agree to bear the full amount of the Unallocated Non-
Participating Interests in the relevant Prospect and perform and consummate
the proposed Evaluation Work and Property Interest acquisition in
accordance with Section 5.1(e); or
(ii) withdraw its proposal under Section 5.1(a) with respect to such
Evaluation Work and Property Interest acquisition; or
(iii) limit its participation in the proposed Evaluation Work and
Property Interest acquisition as permitted in this Section 5.1(d) and seek
one (1) or more additional third parties acceptable to Amerac to acquire
the portion of the Unallocated Non-Participating Interest in the relevant
Prospect that Amerac has elected not to bear, and to participate in the
proposed Evaluation Work and Property Interest acquisition as provided
herein.
Amerac shall have five (5) days (exclusive of Saturdays, Sundays, and legal
holidays) after the expiration of the five-day notice period provided for in
Section 5.1(c) within which to provide to the participating Non-Operators
written notice of its election hereunder. The failure of
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Amerac to notify the participating Non-Operators of its election within such
notice period shall constitute an election by Amerac of the option described
above in clause (i). If Amerac elects the option described above in clause
(iii), Amerac's notice to the participating Non-Operators shall also state
whether Amerac intends (y) to defer the commencement of the proposed Evaluation
Work and Property Interest acquisition until Amerac has identified one (1) or
more appropriate third party participants, or (z) proceed with the proposed
Evaluation Work and Property Interest acquisition while its search for such
third party participant(s) continues. If Amerac elects to defer the
commencement of the proposed Evaluation Work and Property Interest acquisition,
then if Amerac fails to identify one (1) or more acceptable third party
participants prior to the expiration of ninety (90) days after the notice period
provided for in this Section 5.1(d), Amerac's proposal under Section 5.1(a)
concerning the relevant Evaluation Work and Property Interest acquisition shall
be deemed to have been withdrawn. If Amerac elects to proceed with the proposed
Evaluation Work and Property Interest acquisition while its search for one (1)
or more third party participants continues, Amerac shall be entitled to
negotiate with any third party participant(s) thus selected such arrangements as
Amerac deems appropriate concerning the reimbursement of Amerac by such third
party participant(s) for the portion of the Evaluation/Acquisition Costs
incurred in such Evaluation Work and Property Interest acquisition that are
attributable to the Unallocated Non-Participating Interests in the relevant
Prospect acquired by such third party participant(s) and that were paid by
Amerac prior to such third party participant's acquisition of interests therein.
The acquisition by such a third party participant of interests in a Prospect
pursuant to this Section 5.1(d) shall not be deemed to be a transfer by Amerac
of its rights and interests under this Agreement and shall not, therefore,
require the consent of any Non-Operator. Any such third party participant with
which Amerac reaches an agreement under this Section 5.1(d) shall agree to
participate in the Evaluation Work and Property Interest acquisition proposed
for the relevant Prospect under Section 5.1(a) subject to and in accordance with
the provisions of this Agreement and the Operating Agreement, and shall
otherwise expressly assume and agree to be bound by, and to perform, all of the
terms and provisions of this Agreement and the Operating Agreement, insofar only
as such agreements relate to the Prospect in which such third party participant
has acquired its interest. For purposes hereof, such a third party participant
shall be deemed for all purposes to be a participating Non-Operator under this
Section 5.1 solely in the Prospect in which it has acquired its interest, and
its Participant Interest in such Prospect shall be equal to the portion of the
Unallocated Non-Participating Interest in such Prospect not borne by Amerac.
The acquisition by such a third party participant of an interest in a Prospect
pursuant to this Section 5.1(d) shall not entitle such third party participant
to participate in any other Prospects identified by Amerac pursuant to this
Agreement.
(e) If Amerac and the participating Non-Operators proceed with the
proposed Evaluation Work and Property Interest acquisition in accordance with
Sections 5.1(c) and 5.1(d), the non-participating Non-Operators, upon receipt of
notice of such decision to proceed from Amerac, shall surrender and relinquish
to the participating Non-Operators and, if applicable, Amerac, in the
proportions determined in accordance with Sections 5.1(c) and 5.1(d), all of the
right, title, and interest of the non-participating Non-Operators under this
Agreement in and to the relevant Prospect. Thereafter, Amerac shall perform
and consummate the proposed Evaluation Work and associated Property Interest
acquisition, and all Evaluation/Acquisition Costs incurred in connection
therewith shall be borne and paid, and all of the surrendered rights, titles,
and interests of such non-participating Non-Operators shall be owned, in each
case by the
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participating Non-Operators and, if applicable, Amerac in accordance with their
respective Participant Interests, as such Participant Interests are adjusted in
accordance with Sections 5.1(c) and 5.1(d) to reflect such parties' acquisition
of the surrendered interests of the non-participating Non-Operators. For
purposes of this Agreement, the Participant Interests of the participating Non-
Operators and, if applicable, Amerac in the relevant Prospect shall thereafter
be deemed to have been adjusted permanently in accordance with such acquisition
of interests.
5.2 Proposals for Initial Exploitation Well.
---------------------------------------
(a) As soon as reasonably practicable after Amerac has identified a
Phase II Prospect, Phase III Prospect, or Phase IV Prospect in which Amerac
desires to acquire Property Interests and to drill the Initial Exploitation Well
thereon, Amerac shall provide written notice of such facts to the Non-Operators
(or to those Non-Operators who participated in any Evaluation Work relating to
such Prospect if less than all Non-Operators participated therein). Such notice
shall set forth a report concerning (i) the results of any Evaluation Work
performed by Amerac in the relevant Prospect, (ii) the character and quantum of
Property Interests in the relevant Prospect then owned by Amerac, the acreage
covered thereby, and the Lease Burdens applicable thereto, (iii) the quantity of
acreage in the relevant Prospect not then subject to Hydrocarbon leases and/or
the terms and provisions of any Property Agreement negotiated by Amerac with
third parties relating to the acquisition of Property Interests in the relevant
Prospect, including, without limitation, a description of any wells to be
drilled as a condition of Amerac's right to acquire Property Interests
thereunder, and (iv) an AFE setting forth the estimated Evaluation/Acquisition
Costs to acquire the necessary outstanding Property Interests. Such notice
shall also set forth the location of the proposed Initial Exploitation Well on
the relevant Prospect (which may constitute the initial well required under the
terms of a Property Agreement as a condition of Amerac's right to acquire
Property Interests in the relevant Prospect), its proposed total depth and
objective formation, and an AFE setting forth the estimated Drilling Costs to be
incurred in connection therewith on both a "dry hole" basis and "completed well"
basis. The Non-Operators receiving such notice shall have fifteen (15) days
after receipt of such notice (or such shorter period of time stated in such
notice as may be required because of drilling deadlines in the applicable
Property Agreement) within which to elect whether to participate in the proposed
acquisition of Property Interests and the drilling of the proposed Initial
Exploitation Well thereon to its total depth, the performance of all logging,
coring, and testing therein prior to completion, and the plugging and
abandonment thereof as a dry hole. The failure of any such Non-Operator to
respond to Amerac's notice under this Section 5.2(a) within such notice period
shall constitute an election by such Non-Operator not to participate.
(b) If all Non-Operators to whom Amerac delivers notices under Section
5.2(a) elect to participate in the proposed acquisition of Property Interests
in, and the drilling of the Initial Exploitation Well on, the relevant Prospect,
Amerac shall acquire such additional Property Interests and drill such Initial
Exploitation Well to its total depth and conduct such coring, logging, and
testing therein prior to completion as would a reasonably prudent operator. All
Drilling Costs, additional Evaluation/Acquisition Costs, and other risks,
liabilities, and expenses incurred in connection therewith shall be borne and
paid by Amerac and the participating Non-Operators in accordance with their
respective Participant Interests. If none of such Non-Operators elect to
participate, Amerac shall be entitled, at its option and upon notice to such
17
<PAGE>
Non-Operators, to proceed with the acquisition of such Property Interests and
the drilling of the Initial Exploitation Well for its own account and at its
sole cost, risk, liability, and expense. If Amerac elects to acquire such
Property Interests and drill such Initial Exploration Well, all of such Non-
Operators, upon receipt of notice of Amerac's decision to proceed for its own
account, shall relinquish and surrender to Amerac all of the rights, titles, and
interests of such Non-Operators in and to the relevant Prospect and all Property
Interests acquired by Amerac pertaining thereto. All Property Interests
previously or subsequently acquired by Amerac in the relevant Prospect shall be
the sole property of Amerac, and all such Acquired Property Interests shall
cease to be subject to the provisions of this Agreement and the Operating
Agreement.
(c) If some, but less than all, Non-Operators to whom Amerac delivers
notice under Section 5.2(a) elect to participate in the acquisition of Property
Interests in, and the drilling of the Initial Exploitation Well on, the relevant
Prospect, then immediately following the expiration of the applicable notice
period, Amerac shall provide notice to all Non-Operators of the total
Participant Interests of the parties electing to participate in the proposed
acquisition of Property Interests in, and the drilling of the Initial
Exploitation Well on, the relevant Prospect and its conclusion concerning
whether the proposed acquisition and drilling operations should proceed. If
Amerac concludes that the proposed acquisition and drilling operations should
not proceed, Amerac's proposal under Section 5.2(a) with respect thereto shall
be deemed to have been withdrawn. If Amerac concludes that the proposed
acquisition and drilling operations should proceed, the participating Non-
Operators shall bear the interests of the non-participating Non-Operators in the
relevant Prospect and all Acquired Property Interests relating thereto in the
proportions that the individual Participant Interests of each participating Non-
Operator bear to the aggregate Participant Interests of all participating Non-
Operators; provided, however, that in no event shall any participating Non-
Operator be required to increase its Participant Interest in a Prospect and
related Acquired Property Interests under this Section 5.2(c) by a factor of
more than twenty percent (20%). A participating Non-Operator who thus becomes
entitled to limit its participation in the proposed Property Interest
acquisition and drilling operations shall have five (5) days (exclusive of
Saturdays, Sundays, and legal holidays), or such shorter period of time stated
in Amerac's notice in this Section 5.2(c) as may be required because of
operation deadlines in the applicable Property Agreements, after receipt of
Amerac's notice under this Section 5.2(c) within which to notify Amerac of such
intention. The failure of a participating Non-Operator to notify Amerac within
such notice period of such party's intention to limit its participation shall
constitute an election by such participating Non-Operator not to limit its
---
participation.
(d) Any interest of any non-participating Non-Operator in a Prospect
subject to a proposal for Property Interest acquisitions and drilling operations
under Section 5.2(a) that is not borne by a participating Non-Operator pursuant
to Section 5.2(c) ("Unallocated Non-Participating Interest") shall be deemed to
be borne by Amerac; provided, however, that in no event shall Amerac be required
to increase its Participant Interest in a Prospect under this Section 5.2(d) by
a factor of more than twenty percent (20%). If Amerac's Participant Interest in
a Prospect would thus be increased by a factor of more than twenty percent
(20%), Amerac may, at its option:
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(i) agree to bear the full amount of the Unallocated Non-
Participating Interests in the relevant Prospect and perform the proposed
Property Interest acquisitions and drilling operations in accordance with
Section 5.2(e); or
(ii) withdraw its proposal under Section 5.2(a) with respect to such
Property Interest acquisitions and drilling operations; or
(iii) limit its participation in the proposed Property Interest
acquisitions and drilling operations as permitted in this Section 5.2(d)
and seek one (1) or more additional third parties acceptable to Amerac to
acquire the portion of the Unallocated Non-Participating Interest in the
relevant Prospect that Amerac has elected not to bear and to participate in
the proposed Property Interest acquisitions and drilling operations as
provided herein; provided, however, that the option provided in this clause
(iii) shall not be available to Amerac in the case of a proposal under
Section 5.2(a) concerning the drilling of an Initial Exploitation Well that
is required to be drilled under the terms of an applicable Property
Agreement on a schedule that is inconsistent with the notice period
provided immediately hereinafter.
Amerac shall provide to the participating Non-Operators prompt written notice of
its election hereunder, consistent with any drilling deadlines in any applicable
Property Agreement, but in no event later than five (5) days (exclusive of
Saturdays, Sundays, and legal holidays) after the expiration of the notice
period provided for in Section 5.2(c). The failure of Amerac to notify the
participating Non-Operators of its election within such notice period shall
constitute an election by Amerac of the option described above in clause (i).
If Amerac is entitled to elect, and does, in fact, elect, the option described
above in clause (iii), Amerac's notice to the participating Non-Operators shall
also state whether Amerac intends (y) to defer the commencement of the proposed
Property Interest acquisitions and drilling operations until Amerac has
identified one (1) or more appropriate third party participants, or (z) proceed
with the proposed Property Interest acquisitions and drilling operations while
its search for such third party participant(s) continues. If Amerac elects to
defer the commencement of the proposed Property Interest acquisitions and
drilling operations, then if Amerac fails to identify one (1) or more acceptable
third party participants prior to the expiration of ninety (90) days after the
notice period provided for in this Section 5.2(d), Amerac's proposal under
Section 5.2(a) concerning the relevant Property Interest acquisitions and
drilling operations shall be deemed to have been withdrawn. If Amerac elects to
proceed with the proposed Property Interest acquisitions and drilling operations
while its search for one (1) or more third party participants continues, Amerac
shall be entitled to negotiate with any third party participant(s) thus selected
such arrangements as Amerac deems appropriate concerning the reimbursement of
Amerac by such third party participant(s) for the portion of the
Evaluation/Acquisition Costs and Drilling Costs incurred in such Property
Interest acquisitions and drilling operations that are attributable to the
Unallocated Non-Participating Interests in the relevant Prospect acquired by
such third party participant(s) and that were paid by Amerac prior to such third
party participant's acquisition of interests therein. The acquisition by such a
third party participant of interests in a Prospect pursuant to this Section
5.2(d) shall not be deemed to be a transfer by Amerac of its rights and
interests under this Agreement and shall not, therefore, require the consent of
any Non-Operator. Any such third party participant with which Amerac reaches
agreement under
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this Section 5.2(d) shall agree to participate in the Property Interest
acquisitions and drilling operations proposed for the relevant Prospect under
Section 5.2(a) subject to and in accordance with the provisions of this
Agreement and the Operating Agreement, and shall otherwise expressly assume and
agree to be bound by, and to perform, all of the terms and provisions of this
Agreement and the Operating Agreement, insofar only as such agreements relate to
the Prospect in which such third party participant has acquired its interest.
For purposes hereof, such a third party participant shall be deemed for all
purposes to be a participating Non-Operator solely in the Prospect in which it
has acquired its interest, and its Participant Interest in such Prospect shall
be equal to the portion of the Unallocated Non-Participating Interest in such
Prospect not borne by Amerac. The acquisition by such a third party participant
of an interest in a Prospect pursuant to this Section 5.2(d) shall not entitle
such third party participant to participate in any other Prospects identified by
Amerac pursuant to this Agreement.
(e) If Amerac and the participating Non-Operators and, if applicable,
Amerac proceed with the proposed acquisition of Property Interests in, and the
drilling of the Initial Exploitation Well on, the relevant Prospect in
accordance with Sections 5.2(c) and 5.2(d), the non-participating Non-Operators,
upon receipt of notice of such decision to proceed from Amerac, shall surrender
and relinquish to the participating Non-Operators and, if applicable, Amerac, in
the proportions determined in accordance with Sections 5.2(c) and 5.2(d), all of
the right, title, and interest of the non-participating Non-Operators under this
Agreement in and to the relevant Prospect and all Acquired Property Interests
relating thereto. Thereafter, Amerac shall acquire the proposed Property
Interests and drill the proposed Initial Exploitation Well to its total depth
and conduct such logging, coring, and testing therein prior to completion as
would a reasonably prudent operator, and all Drilling Costs, additional
Evaluation/Acquisition Costs, and other risks, liabilities, and expenses
incurred in connection with such Property Interest acquisition and drilling
operations shall be borne and paid, and all of the surrendered rights, titles,
and interests of such non-participating Non-Operators shall be owned, in each
case by the participating Non-Operators and, if applicable, Amerac in accordance
with their respective Participant Interests, as such Participant Interests are
adjusted in accordance with Sections 5.2(c) and 5.2(d) to reflect such
acquisition of the surrendered interests of the non-participating Non-Operators.
For purposes of this Agreement, the Participant Interests of the participating
Non-Operators and, if applicable, Amerac in the relevant Prospect and Acquired
Property Interests shall thereafter be deemed to have been adjusted permanently
in accordance with such acquisition of interest.
5.3 Abandonment or Completion of Initial Exploitation Well.
------------------------------------------------------
(a) If, when the Initial Exploitation Well on a Phase II Prospect,
Phase III Prospect, or Phase IV Prospect has been drilled to its total depth and
all logging, coring, and testing have been completed therein, (i) Amerac
determines that such Initial Exploitation Well should be plugged and abandoned
as a dry hole, or (ii) Amerac attempts to complete such Initial Exploitation
Well as a producer of Hydrocarbons, but such completion attempt is unsuccessful,
then, subject to the provisions of Sections 5.4 and 5.5, Amerac shall plug and
abandon such Initial Exploitation Well and shall restore the drillsite premises
thereof pursuant to the requirements of the applicable oil and gas leases and
all applicable laws and regulations. All
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Drilling Costs, risks, liabilities, and expenses incurred in connection with the
plugging and abandonment of such Initial Exploitation Well shall be borne and
paid by Amerac and the Non-Operators who participated in the drilling thereof in
accordance with their respective Participant Interests.
(b) The decision whether to attempt to complete the Initial
Exploitation Well on a Phase II Prospect, Phase III Prospect, or Phase IV
Prospect as a well capable of producing Hydrocarbons shall be governed by the
relevant provisions of the Operating Agreement, except to the extent that such
provisions conflict with the terms hereof. If all Non-Operators who
participated in the drilling of such Initial Exploitation Well elect to
participate in a proposed completion attempt therein, Amerac shall perform such
completion operations and, if such operations are successful, shall equip such
Initial Exploitation Well for production. All Drilling Costs, risks,
liabilities, and expenses incurred in connection with such completion operations
shall be borne and paid by Amerac and the participating Non-Operators in
accordance with their respective Participant Interests. If none of the Non-
Operators who participated in the drilling of such Initial Exploitation Well
elect to participate in a proposed completion attempt therein, Amerac shall be
entitled, at its option and upon notice to such Non-Operators, to proceed with
the proposed completion attempt at its sole cost, risk, liability, and expense.
If Amerac elects to conduct the proposed completion attempt, all of such Non-
Operators, upon receipt of notice of Amerac's decision to proceed for its own
account, shall be deemed to have surrendered and relinquished to Amerac all of
the rights, titles, and interests of such Non-Operators in and to such Initial
Exploitation Well, the Prospect on which such well is located, and all Acquired
Property Interests comprising such Prospect. Such Initial Exploitation Well
and all Acquired Property Interests comprising such Prospect shall become the
sole property of Amerac, and such Initial Exploitation Well and Acquired
Property Interests shall thereupon cease to be subject to the provisions of this
Agreement and the Operating Agreement.
(c) If some, but less than all, Non-Operators who participated in the
drilling of the relevant Initial Exploitation Well elect not to participate in a
proposed completion attempt therein, then immediately following the expiration
of the applicable notice period, Amerac shall provide notice to all Non-
Operators of the total Participant Interests of the parties electing to
participate in the proposed completion attempt in the Initial Exploitation Well
and its conclusion concerning whether such proposed completion attempt should
proceed. If Amerac concludes that the proposed completion attempt in the
Initial Exploitation Well should proceed, the participating Non-Operators shall
bear the interests of the non-participating Non-Operators in the Initial
Exploitation Well, the Prospect on which such well is located, and all Acquired
Property Interests relating thereto in the proportions that the individual
Participant Interests of each participating Non-Operator bear to the aggregate
Participant Interests of all participating Non-Operators; provided, however,
that in no event shall any participating Non-Operator be required to increase
its Participant Interest in such an Initial Exploitation Well, the Prospect on
which such well is located, and all Acquired Property Interests relating thereto
under this Section 5.3(c) by a factor of more than twenty percent (20%). A
participating Non-Operator who thus becomes entitled to limit its participation
in the proposed completion attempt in the Initial Exploitation Well shall have
twenty-four (24) hours (exclusive of Saturdays, Sundays, and legal holidays)
after receipt of Amerac's notice under this Section 5.3(c) within which to
notify Amerac of such intention. The failure of a participating Non-Operator to
notify Amerac within such notice period of such party's intention to limit its
participation shall constitute an election
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by such participating Non-Operator to limit its participation. Any interest of
any non-participating Non-Operator in such an Initial Exploitation Well, the
Prospect on which such well is located, and all Acquired Property Interests
relating thereto that is not borne by a participating Non-Operator pursuant to
this Section 5.3(c) shall be deemed to be borne by Amerac.
(d) If Amerac and the participating Non-Operators proceed with the
proposed completion attempt in the Initial Exploitation Well in accordance with
Section 5.3(c), the non-participating Non-Operators, upon receipt of notice of
such decision to proceed from Amerac shall surrender and relinquish to the
participating Non-Operators and, if applicable, Amerac, in the proportions
determined in accordance with Section 5.3(c), all of the right, title, and
interest of the non-participating Non-Operators in and to such Initial
Exploitation Well, the Prospect on which such well is located, and all Acquired
Property Interests relating thereto. Thereafter, Amerac shall conduct such
completion operations and, if such operations are successful, shall equip such
Initial Exploitation Well for production. All Drilling Costs, risks,
liabilities, and expenses incurred in connection with such completion operations
shall be borne and paid, and all of the surrendered rights, titles, and
interests of such non-participating Non-Operators shall be owned, in each case
by the participating Non-Operators and, if applicable, Amerac in accordance with
their respective Participant Interests, as such Participant Interests are
adjusted in accordance with Section 5.3(c) to reflect such acquisition of the
surrendered interests of the non-participating Non-Operators. For purposes of
this Agreement, the Participant Interests of the participating Non-Operators
and, if applicable, Amerac in the relevant Initial Exploitation Well, Prospect,
and Acquired Property Interests shall thereafter be deemed to have been adjusted
permanently in accordance with such acquisition of interests.
5.4 Substitute Initial Exploitation Well.
------------------------------------
(a) If Amerac (i) is unable to reach the total depth in the Initial
Exploitation Well on a Phase II Prospect, Phase III Prospect, or Phase IV
Prospect, or having reached such total depth, is unable to complete such Initial
Exploitation Well because of subsurface conditions or formations (including,
without limitation, heaving shale, domal formations, and excessively high
pressure water sands or cavities) that would render further drilling operations
by a prudent operator impractical, or because of mechanical conditions in such
Initial Exploitation Well beyond the control of Amerac, or (ii) reaches the
total depth in such Initial Exploitation Well but determines that such Initial
Exploitation Well should be plugged and abandoned as a dry hole, or (iii)
reaches the total depth in such Initial Exploitation Well but unsuccessfully
attempts to complete the same, then following the plugging and abandonment of
such Initial Exploitation Well in accordance with the provisions of Section
5.3(a), Amerac shall be entitled, in its sole discretion, to commence, or to
cause to be commenced, the drilling of one (1) or more Substitute Initial
Exploitation Wells at locations selected by Amerac on the relevant Prospect. If
Amerac elects to commence the drilling of such a Substitute Initial Exploitation
Well, Amerac shall provide to the Non-Operators who participated in the drilling
of the Initial Exploitation Well written notice setting forth the location of
such Substitute Initial Exploitation Well, its proposed total depth and
objective formation, and an AFE setting forth the estimated Drilling Costs to be
incurred in connection therewith on both a "dry hole" basis and "completed well"
basis. Such Non-Operators shall have fifteen (15) days (or such shorter period
of time stated in such notice as may be required because of drilling deadlines
in the applicable Property Agreement) after receipt of such notice within which
to elect whether to participate in the
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drilling of such Substitute Initial Exploitation Well to its total depth, the
performance of all logging, coring, and testing therein prior to completion, and
the plugging and abandonment thereof as a dry hole. The failure of any such
Non-Operator to respond to Amerac's notice within such notice period shall
constitute an election by such Non-Operator not to participate. The elections
of such Non-Operators concerning their participation in such a Substitute
Initial Exploitation Well and the consequences of such elections shall be the
same as, and shall be governed by, the provisions of Sections 5.2(b), 5.2(c),
5.2(d), and 5.2(e) and Section 5.3.
(b) If a Substitute Initial Exploitation Well is drilled on a Phase II
Prospect, Phase III Prospect, or Phase IV Prospect and completed as a producer
of Hydrocarbons, such Substitute Initial Exploitation Well shall become the
"Initial Exploitation Well" on the relevant Prospect for purposes of this
Agreement, and, as used herein, the term "Initial Exploitation Well", when used
with reference to such Prospect, shall refer to such successfully completed
Substitute Initial Exploitation Well. Thereafter, all subsequent operations on
the relevant Prospect shall be governed by the provisions of the Operating
Agreement.
5.5 Additional Operations Prior to Completion. Notwithstanding the
-----------------------------------------
provisions of Section 5.3, if, after the Initial Exploitation Well on a Phase II
Prospect, Phase III Prospect, or Phase IV Prospect has been drilled to its total
depth, Amerac elects not to attempt to complete such Initial Exploitation Well,
Amerac may elect to conduct additional deepening, sidetracking, plugging back,
fracturing or other formation stimulation, or other operations in such Initial
Exploitation Well prior to the plugging and abandonment thereof; provided,
however, that no such operations may be undertaken unless conducted in the order
of priority set forth in Article XV.F of the Operating Agreement. If Amerac
elects to perform any such additional operation, Amerac shall provide to the
Non-Operators who participated in the drilling of the Initial Exploitation Well
written notice setting forth the nature of the operation, the formation or
formations to be affected thereby, and an estimate of the costs and expenses to
be incurred in connection therewith, which costs and expenses shall be treated
as "Drilling Costs" for purposes of this Agreement. Such Non-Operators shall
have five (5) days (exclusive of Saturdays, Sundays, and legal holidays), or
such shorter period of time stated in such notice as may be required because of
operation deadlines in the applicable Property Agreements (but in all cases
twenty-four (24) hours if a drilling rig is on location), after receipt of such
notice within which to elect whether to participate in the proposed additional
operation. The failure of any such Non-Operator to respond to Amerac's notice
within such notice period shall constitute an election by such Non-Operator to
participate. The elections of such Non-Operators concerning their participation
in such a proposed additional operation and the consequences of such elections
shall be the same as, and shall be governed by, the provisions of Sections
5.3(b), 5.3(c), and 5.3(d).
5.6 Consequences of Participation and Non-Participation.
---------------------------------------------------
(a) If a Non-Operator elects to participate in Evaluation Work, or the
acquisition of Property Interests, or operations pertaining to an Initial
Exploitation Well in each case proposed pursuant to this Article V, such
participating Non-Operator (including, without limitation, any third party
participant in a Prospect deemed to be a participating Non-Operator therein
under Section 5.1(d) or Section 5.2(d)) shall bear and pay its Participant
Interest share
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of all Evaluation/Acquisition Costs and/or Drilling Costs, as applicable,
incurred in connection with such Evaluation Work, Property Interest acquisition,
or Initial Exploitation Well operations, including, without limitation, all
actual costs and expenses in excess of the estimated Evaluation/Acquisition
Costs and/or Drilling Costs, as applicable, set forth in the relevant AFE.
(b) If a Non-Operator elects not to participate in Evaluation Work, or
a Property Interest acquisition, or operations pertaining to an initial
Exploitation Well, in each case proposed pursuant to this Article V, the
surrender of rights by such a non-participating Non-Operator under the relevant
provisions of this Article V shall relieve the non-participating Non-Operator of
all further obligations under this Agreement with respect to the Phase II
Prospect, Phase III Prospect, or Phase IV Prospect as to which such Non-Operator
has surrendered its interest, all wells drilled thereon, and all Acquired
Property Interests relating thereto; provided, however, that nothing contained
in this Section 5.6(b) shall be deemed to relieve any such non-participating
Non-Operator of any liability incurred in operations on the relevant Prospect or
the Acquired Property Interests relating thereto prior to such surrender of
interests by such non-participating Non-Operator; and provided, further, that no
such surrender of interests shall create an obligation on the part of Amerac to
reimburse such a non-participating Non-Operator for any sums previously paid by
such non-participating Non-Operator under the terms of this Agreement. Subject
to the provisions of Section 8.1, the election by a Non-Operator not to
participate in Evaluation Work, a Property Interest acquisition, or operations
in an Initial Exploration Well proposed pursuant to this Article V with respect
to a particular Phase II Prospect, Phase III Prospect, or Phase IV Prospect
shall not operate as a waiver of, or affect in any way, the right of such Non-
Operator to participate in Prospects subsequently proposed by Amerac hereunder.
Each non-participating Non-Operator shall execute any assignments, conveyances,
or other documents in favor of Amerac or Amerac and the participating Non-
Operators (including, without limitation, any third party participant in a
Prospect deemed to be a participating Non-Operator therein under Section 5.1(d)
or Section 5.2(d)), as applicable, necessary to divest such non-participating
Non-Operator of any rights, titles and interests surrendered and relinquished as
provided herein. All such assignments shall be made without expressed or
implied warranty of title, but shall be free and clear of any "Subsequently
Created Interests" (as defined in the Operating Agreement), liens, security
interests, and encumbrances placed on the relinquished interest by the relevant
non-participating Non-Operator.
ARTICLE VI.
OWNERSHIP OF ACQUIRED PROPERTY INTERESTS
6.1 Assignments. No later than thirty (30) days after Amerac's receipt
-----------
from each participating Non-Operator under Article IV or Article V of such Non-
Operator's Participant Interest share of the Evaluation/Acquisition Costs and
estimated Drilling Costs for the Initial Exploitation Well on each Prospect in
which such Non-Operator is obligated, or has elected, to participate hereunder,
Amerac shall assign to such participating Non-Operator, by recordable instrument
of conveyance substantially in the form of the Assignment, an undivided interest
equal to such participating Non-Operator's Participant Interest in such Prospect
in and to the Acquired Property Interests comprising the relevant Prospect. The
interests thus assigned by Amerac to the participating Non-Operators shall be
free and clear of all liens and encumbrances and all Lease Burdens, except for
(a) applicable lessor's royalties, (b) an aggregate undivided
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two percent (2%) of eight/eighths (8/8) overriding royalty interest owed by
Amerac to David M. Mitchell and Ronald M. Frederick under the terms of
consulting agreements between Amerac and such parties relating to Prospects
designated by Amerac within the Area of Interest, and (c) any other Lease
Burdens that Amerac is obligated to bear under the terms of the applicable
Property Agreement or otherwise with respect to the relevant Acquired Property
Interests. Amerac shall be responsible for the recording of all Assignments
executed and delivered pursuant to this Section 6.1, and all costs and expenses
incurred in connection with the recording of such Assignments shall be charged
to the joint account under the terms of the Operating Agreement.
6.2 Reversionary Interest. Upon the occurrence of "Prospect Payout" (as
---------------------
defined in the Assignment) for each Phase I Prospect, Phase II Prospect, and
Phase III Prospect, there shall revert to and vest in Amerac, subject to and in
accordance with the procedures set forth in the Assignment, a reversionary
leasehold interest equal to the following percentages of the interests in each
such Prospect assigned by Amerac to the participating Non-Operators pursuant to
Section 5.1:
% Reversionary Prospect
--------
Interest
--------
20% Phase I Prospects
Phase II Prospects
10% Phase III Prospects
Amerac shall receive no reversionary leasehold interest in any Phase IV
Prospects. The determination whether a particular Prospect is a Phase II
Prospect, Phase III Prospect, or Phase IV Prospect shall be made individually
with respect to each Non-Operator and shall be determined by reference to the
total number of Prospects (exclusive of Phase I Prospects) in which each such
Non-Operator has participated hereunder.
ARTICLE VII.
ADDITIONAL REPRESENTATIONS AND COVENANTS
7.1 Evaluation Work. Amerac shall conduct, or shall cause to be
---------------
conducted, all Evaluation Work in a good and workmanlike manner, in accordance
with sound industry practice, and in compliance with all applicable federal,
state, and local laws, rules, and regulations. Amerac shall obtain all
licenses, permits, and authorizations from federal, state, and local
governmental or regulatory bodies or agencies necessary for the performance of
Evaluation Work hereunder. Amerac shall retain in its possession at its offices
in Houston, Texas, all geological and geophysical information, work maps, and
other data generated by Amerac pursuant to the performance of Evaluation Work
hereunder. Non-Operators and their representatives shall have the right, at all
reasonable times during the term of this Agreement, to inspect and to make
copies of all such geological and geophysical information, work maps, and other
data, all at Non-Operators' sole cost and expense.
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7.2 General Overhead Cost Reimbursement.
-----------------------------------
(a) Non-Operators shall reimburse Amerac for a share (determined as
provided hereinafter) of the portion of Amerac's General Overhead Costs
applicable to the program described in this Agreement ("General Overhead Cost
Reimbursement"). The total General Overhead Cost Reimbursement for the first
twelve (12) months of the term of this Agreement shall be $200,000.00, which
amount shall borne and paid by all Non-Operators in the proportions,
respectively, that the individual Participant Interests of each Non-Operator
bear to the aggregate Participant Interests of all Non-Operators. The annual
General Overhead Cost Reimbursement shall be payable in four (4) equal
installments. No later than thirty (30) days prior to the end of each three-
month period during the term of this Agreement, Amerac shall invoice Non-
Operators for the installment of such General Overhead Cost Reimbursement due
for the next succeeding three-month period. The full amount of each such
installment shall be due and payable as provided below in Section 7.3.
(b) With respect to the second and subsequent twelve-month periods
during the term of this Agreement, Amerac and a designee of Non-Operators shall
negotiate in good faith to determine the manner of calculation and the amount of
the General Overhead Cost Reimbursement to be payable by Non-Operators for the
next succeeding twelve-month period. If Amerac and at least fifty percent (50%)
in interest of Non-Operators agree upon a redetermined General Overhead Cost
Reimbursement for such next succeeding twelve-month period, the redetermined
General Overhead Cost Reimbursement thus agreed upon shall become effective as
to all Non-Operators on the first day of the next succeeding twelve-month period
during the term of this Agreement. If Amerac and at least fifty percent (50%)
in interest of Non-Operators are unable to agree on the redetermined amount of
the General Overhead Cost Reimbursement on or before sixty (60) days prior to
the beginning of the next succeeding twelve-month period during the term of this
Agreement, such dispute shall be submitted to binding arbitration in accordance
with the provisions of this Section 7.2(b). Either Amerac or any Non-Operator
acting on behalf of all Non-Operators may initiate arbitration under this
Section 7.2(b) by giving written notice to the other parties. Non-Operators
shall be required to act collectively in any such arbitration, and no Non-
Operator shall be entitled individually to initiate arbitration under this
Section 7.2(b) separately from the other Non-Operators. The dispute shall be
determined in a single arbitration proceeding by one (1) arbitrator with over
ten (10) years of professional experience in the oil and gas industry and who
has not been previously employed by any party and does not have a direct or
indirect interest in any party. Such arbitrator shall be selected under the
expedited rules of the American Arbitration Association ("AAA"). Such
arbitration shall be held in Houston, Harris County, Texas. No later than seven
(7) days prior to the hearing date set by the arbitrator, Non-Operators, acting
collectively, and Amerac each shall submit to the arbitrator a brief setting
forth a single dollar figure for settlement of the dispute. The hearing will be
scheduled within seven (7) days following submission of the settlement figures,
or as soon thereafter as is acceptable to the arbitrator, and shall be conducted
on a confidential basis without continuance or adjournment. The arbitrator
shall render his decision within three (3) days after the hearing, unless the
parties reach agreement prior thereto and withdraw the dispute from arbitration.
The arbitrator shall be limited to selecting only one or the other of the two
dollar figures submitted by the parties. Amerac and Non-Operators shall bear
and pay the costs of the hearing in accordance with their respective Participant
Interests, and each of Amerac and Non-Operators shall be responsible for
26
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its own expenses and those of its counsel or other representatives. The rules
of the AAA shall apply to the extent not inconsistent with the foregoing rules.
The law governing any such dispute shall be the laws of the State of Texas
without regard to conflicts of law principles. Amerac and each Non-Operator
hereby irrevocably waives, to the full extent permitted by law, any objection it
may have to the arbitrability of any such dispute and further agrees that a
final determination in any such arbitration proceeding shall be conclusive and
binding on each party.
(c) The term "General Overhead Costs" shall not include administrative
---
overhead expenses directly chargeable to a particular Prospect or Acquired
Property Interest in accordance with the provisions of the Operating Agreement,
and all such direct administrative overhead expenses charged to Non-Operators
under the Operating Agreement shall be in addition to the General Overhead Cost
Reimbursement.
7.3 Invoicing and Payment of Estimated Costs.
----------------------------------------
(a) Amerac shall invoice Non-Operators on or before the last day of
each month during the term of this Agreement for all Evaluation/Acquisition
Costs and Drilling Costs incurred during the preceding month on any Prospect
designated by Amerac hereunder, accompanied by all relevant supporting data.
Amerac, at its election, shall have the right, from time to time, to demand and
receive from Non-Operators payment in advance of the estimated
Evaluation/Acquisition Costs and Drilling Costs to be incurred on any Prospect
designated by Amerac hereunder. Amerac may exercise such right by submitting to
each Non-Operator an itemized invoice covering such Non-Operator's Participant
Interest share of such estimated Evaluation/Acquisition Costs and/or Drilling
Costs in conjunction with Amerac's delivery to such Non-Operator of the AFEs
pertaining thereto. Subject to the right of a Non-Operator to elect not to
participate in certain matters under the terms of Articles IV and V, all actual
and estimated costs and expenses invoiced by Amerac to Non-Operators pursuant to
this Section 7.3, as well as all General Overhead Cost Reimbursements invoiced
by Amerac to Non-Operators pursuant to Section 7.2, shall be due and payable in
accordance with the provisions of Exhibit "C" to the Operating Agreement.
(b) If Amerac does not receive payment from a Non-Operator of an
invoice sent pursuant to this Agreement within the time period prescribed in
Exhibit "C" to the Operating Agreement, the Non-Operator who fails to make
timely payment shall be deemed to be in default under this Agreement, and, in
addition to any other remedies available to Amerac hereunder, at law, or in
equity, Amerac may select from the remedies available to the operator under the
terms of the Operating Agreement in the event a party fails to discharge any
financial obligation thereunder; provided, however, that if a Non-Operator fails
to pay in a timely manner as provided in Exhibit "C" to the Operating Agreement
its Participant Interest share of the estimated Evaluation/Acquisition Costs
and/or Drilling Costs to be incurred on any Phase I Prospect, or if a Non-
Operator fails to pay its proportionate share of any General Overhead Cost
Reimbursement that becomes due hereunder, then in addition to the other remedies
available to Amerac under the Operating Agreement, Amerac shall be entitled to
treat such defaulting Non-Operator as having withdrawn from this Agreement
subject to and in accordance with the provisions of Section 7.8.
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<PAGE>
(c) All other matters relating to invoicing and payment under this
Agreement shall be governed by the applicable provisions of the Operating
Agreement.
7.4 Allocation of Taxes.
-------------------
(a) Subject to the provisions of Article IX, each Non-Operator and
Amerac shall assume responsibility for and pay, and shall file all returns and
perform all reporting required in connection with, the federal income taxes,
state income taxes, and other similar taxes (including any applicable interest
or penalties) incurred or imposed against such party with respect to the
transactions described in this Agreement.
(b) From and after the Effective date, Amerac shall be responsible
for, and shall bear and pay, the portion of all Production Taxes assessed by any
taxing authority against Hydrocarbon production from the Acquired Property
Interests or the proceeds thereof owned by or payable to Amerac, and Non-
Operators shall be responsible for, and shall bear and pay, the portion of all
Production Taxes assessed by any taxing authority against Hydrocarbon production
from the Acquired Property Interests or the proceeds thereof owned by or payable
to Non-Operators. Amerac shall file all returns and perform all reporting
required in connection with the payment of such Production Taxes and shall treat
such Production Taxes as a charge to the joint account under the terms of the
Operating Agreement.
7.5 Further Assurances. Amerac and Non-Operators shall execute and
------------------
deliver, or shall cause to be executed and delivered from time to time, such
further instruments of conveyance, division orders, transfer orders, and other
documents and agreements, and shall take such other actions as any party hereto
may reasonably request, as may be necessary to carry out the intents and
purposes of this Agreement.
7.6 Confidentiality. Amerac and Non-Operators shall treat as confidential
---------------
information all geological and geophysical information, logs, work maps, and
other data generated or purchased by Amerac pursuant to any Evaluation Work
performed under this Agreement or prior to the date of this Agreement. Non-
Operators and Amerac agree to keep confidential all such geological and
geophysical information, logs, work maps, and other data, and neither Amerac nor
any Non-Operator shall disclose or disseminate any such information, data, or
material to any third party without the written consent of the other party
hereto until the expiration of one (1) year following the date on which this
Agreement is finally terminated as to all parties pursuant to Article VIII.
Notwithstanding the preceding sentence of this Section 7.6 to the contrary,
Amerac and Non-Operators shall be entitled to disclose such information, data,
or material without the prior written consent of the other party to those
persons who have a clear need to know, including, without limitation, (a)
employees, officers, and directors of the relevant party, (b) accountants,
attorneys, petroleum engineers, and other consultants of the relevant party, and
(c) employees, officers and directors of any of the relevant party's agents,
advisors, or financers; provided, however, that the party who thus discloses
such information, data, or material shall remain responsible for assuring that
all persons to whom such information, data, and material is disclosed shall keep
such information confidential and shall not disclose or divulge the same to any
unauthorized person. In no event shall the obligations contained in this
Section 7.6 apply to information (x) required to be disclosed by any law, order,
rule, regulation, or proceeding, (y) that is or becomes public knowledge, other
than as a result of a breach by
28
<PAGE>
either Amerac or any Non-Operator of this Agreement, and (z) that Amerac or any
Non-Operator obtains from third parties when such transfer by the third party
does not violate any confidentiality obligation of such third party.
7.7 Non-Competition. During the term of this Agreement and for a period
---------------
of two (2) years after the date on which this Agreement is finally terminated as
to all parties pursuant to Article VIII, each Non-Operator agrees that it shall
not acquire or seek to acquire directly, or indirectly through any of its
affiliates, agents, employers, employees, or representatives, any right, title,
or interest in any Property Interest or other mineral rights or interests or
interest in any Downstream Facilities in or with respect to the Area of Interest
other than pursuant to the provisions of this Agreement.
7.8 Withdrawal.
----------
(a) If, at any time after the expenditure in full of the Funding
Commitment by Non-Operators, a Non-Operator determines that it no longer desires
to continue to participate hereunder, such Non-Operator may withdraw from this
Agreement by giving sixty (60) days prior written notice to Amerac and the
remaining Non-Operators of such intention to withdraw. Thereafter, the
withdrawing Non-Operator shall relinquish and surrender to Amerac and the non-
withdrawing Non-Operators, effective as of the sixtieth (60th) day after such
notice of withdrawal, in the proportions that the individual Participant
Interests of Amerac and each non-withdrawing Non-Operator bear to the aggregate
Participant Interests of Amerac and all non-withdrawing Non-Operators, all of
the right, title and interest of the withdrawing Non-Operator in and to all
future Prospects designated by Amerac hereunder and all Acquired Property
Interests pertaining thereto.
(b) As the result of such a surrender and relinquishment of interests,
all such subsequently designated Prospects and the Acquired Property Interests
pertaining thereto shall be owned, and all costs, risks, liabilities, and
expenses incurred in connection with Evaluation Work, Property Interest
acquisition, and well operations relating thereto shall be borne and paid, in
each case by Amerac and the non-withdrawing Non-Operators in accordance with
their respective Participant Interests, as the same are adjusted to reflect such
proportionate acquisition of the surrendered interests of the withdrawing Non-
Operator. For purposes of this Agreement, the Participant Interests of Amerac
and the non-withdrawing Non-Operators in all such subsequently designated
Prospects and Acquired Property Interests shall thereafter be deemed to have
been adjusted permanently in accordance with such proportionate acquisition of
interests.
(c) Nothing contained in this Section 7.8 shall be deemed to relieve
the withdrawing Non-Operator of any liability or obligation of such Non-Operator
under this Agreement with respect to the Phase I Prospects or that otherwise
accrued prior to effective date of such party's withdrawal. Similarly, the
withdrawing Non-Operator shall retain all of its rights, titles, interests,
obligations, and liabilities in, under, and with respect to all Prospects and
Acquired Property Interests jointly owned by the withdrawing Non-Operator with
Amerac and the non-withdrawing Non-Operators at the time of such party's
withdrawal, and nothing contained in this Section 7.8 shall be deemed to relieve
the withdrawing Non-Operator of any obligation or liability with respect to such
jointly owned Prospects and Acquired Property
29
<PAGE>
Interests. The withdrawal by the withdrawing Non-Operator from this Agreement
shall not create an obligation on the part of Amerac to reimburse the
withdrawing Non-Operator for any sums previously expended by that party under
this Agreement. The withdrawing Non-Operator shall execute any assignments,
conveyances, or other documents in favor of Amerac and the non-withdrawing Non-
Operators necessary to divest the withdrawing Non-Operator of the rights,
titles, and interests surrendered and relinquished as provided herein. Upon the
execution and delivery of such assignment, as between Amerac and the non-
withdrawing Non-Operators on the one hand, and the withdrawing Non-Operator on
the other hand, this Agreement shall terminate, except for the provisions of
Sections 7.5, 7.6, 7.7, 7.9, and Article VIII which shall survive any such
termination. Subsequent operations on all jointly owned Prospects and Acquired
Property Interests acquired prior to the effective date of the Non-Operator's
withdrawal shall continue to be governed by the provisions of the Operating
Agreement.
7.9 Right of First Offer.
--------------------
(a) If, at any time, any Non-Operator desires to sell all or any
portion of its Program Interests in one (1) or more Prospects, such Non-Operator
shall, upon written notice to Amerac concerning such desire to sell and prior to
offering such interests for sale to any third party, offer Amerac the first
opportunity to purchase all of the Program Interests of such Non-Operator in and
to the relevant Prospect(s), subject to and in accordance with the provisions of
this Section 7.9 and the form of Assignment and Bill of Sale attached hereto as
Exhibit IX (the "Right of First Offer"). Amerac shall have ten (10) days after
its receipt of the selling Non-Operator's notice within which to advise such
Non-Operator whether Amerac desires to exercise its Right of First Offer with
respect to the relevant Prospect(s). The failure of Amerac to provide to the
selling Non-Operator such written notice prior to the expiration of such ten-day
period shall constitute an election by Amerac not to exercise the Right of First
Offer. If Amerac elects to exercise the Right of First Offer, Amerac and the
selling Non-Operator shall endeavor in good faith to consummate the sale to
Amerac of the Program Interests of such Non-Operator in the relevant Prospect(s)
as expeditiously as possible. Following the consummation of any such sale, the
Participant Interests of Amerac in the relevant Prospect(s) shall be deemed to
have been adjusted permanently in accordance with Amerac's acquisition of the
Program Interests of the selling Non-Operator therein. If Amerac and the
selling Non-Operator fail to consummate such sale prior to the expiration of
sixty (60) days after the date on which such Non-Operator received Amerac's
notice of exercise, the selling Non-Operator shall have the right to declare
Amerac's Right of First Offer with respect to such Prospect(s) terminated. If
Amerac elects not to exercise the Right of First Offer with respect to one (1)
or more Prospects, or such Right of First Offer is thus terminated, the selling
Non-Operator shall be free to sell all or a portion of its Program Interests in
the relevant Prospect(s) to any third party subject to the applicable provisions
of this Agreement and the Operating Agreement, and neither Amerac nor such Non-
Operator shall have any liability to the other party as the result of such
failure to consummate the sale to Amerac of the Program Interests of such Non-
Operator in the relevant Prospect(s). Notwithstanding any other provision of
this Section 7.9(a) to the contrary, Amerac shall not be entitled to exercise a
Right of First Offer with respect to a sale by a Non-Operator who is an
original, signatory party to this Agreement (or a Permitted Affiliate of such an
original, signatory Non-Operator) of such Non-Operator's Program Interests in
one (1) or more Prospects to another Non-Operator who is also an original,
signatory party hereto (or a Permitted Affiliate of such an original, signatory
Non-Operator).
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(b) The sale to Amerac of a Non-Operator's Program Interests in one
(1) or more Prospects pursuant to this Section 7.9 shall not operate to release
such Non-Operator from, or to terminate this Agreement as to such Non-Operator
with respect to, (i) any unfulfilled obligation or undischarged liability of
such Non-Operator on the effective date of such sale, or (ii) the consequences
of any breach or default of any warranty, covenant, term, or provision contained
in this Agreement or the Operating Agreement. Further, the selling Non-Operator
shall retain all of its rights, titles, interests, obligations, and liabilities
under this Agreement and the Operating Agreement in and with respect to all
other Prospects and Acquired Property Interests then jointly owned by the
selling Non-Operator with Amerac and the non-selling Non-Operators, as well as
the right to participate under the terms of this Agreement in all Prospects and
Property Interests subsequently acquired pursuant hereto. Nothing contained in
this Section 7.9 shall be deemed to relieve the selling Non-Operator of any
obligation or liability with respect to any such existing or future Prospects
and Acquired Property Interests in which such Non-Operator participates
hereunder. No sale by a Non-Operator of its Program Interests in one (1) or
more Prospects pursuant to this Section 7.9 shall create an obligation on the
part of Amerac to reimburse such Non-Operator for amounts previously paid by
such Non-Operator under this Agreement. The Program Interests assigned to
Amerac by such a Non-Operator shall be free and clear of any "Subsequently
Created Interests" (as defined in the Operating Agreement) placed on such
Program Interests by the relevant Non-Operator. In addition to the Assignment
and Bill of Sale attached hereto as Exhibit IX, each Non-Operator that sells its
Program Interests in one (1) or more Prospects to Amerac pursuant to this
Section 7.9 shall execute and deliver to Amerac such other documents and
instruments as are necessary to divest such Non-Operator of its Program
Interests in the relevant Prospect(s) in favor of Amerac.
7.10 Representations of Non-Operators.
--------------------------------
(a) Each Non-Operator represents and warrants that such Non-Operator
is an Accredited Investor and warrants that it has accurately completed and
delivered an Accredited Investor Certificate in the form of Exhibit VIII hereto.
(b) Each Non-Operator represents and warrants to Amerac that, as
applied solely to itself, all of the following representations and warranties
are, as of the date of this Agreement, true and correct:
(i) such Non-Operator is acquiring the Warrants and its
Participant Interest in each Acquired Property Interest pursuant to this
Agreement solely for its account, for investment purposes only, and with no
intention or plan to distribute, sell, or otherwise dispose of any of same.
Such Non-Operator will not sell, hypothecate, or otherwise transfer any
securities acquired hereunder or pursuant to the exercise of any Warrant or
right granted hereunder unless (A) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering
any such transaction involving such securities or (B) in the opinion of
counsel, concurred in by counsel to Amerac, an exemption from the
registration requirements of the 1933 Act and such state laws is available
for the relevant transactions;
(ii) such Non-Operator is not a party to any agreement or other
arrangement for the disposition of any of such securities other than this
Agreement; and
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(iii) such Non-Operator: (A) is able to bear the economic risk of
an investment in the Warrants and Acquired Property Interests acquired
pursuant to this Agreement; (B) can afford to sustain a total loss of that
investment; (C) has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
proposed investment in the Warrants and Acquired Property Interests; (D)
has had an adequate opportunity, or the representative (if any) of such
Non-Operator has had an adequate opportunity, to ask questions and receive
answers from the officers of Amerac concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Amerac and
the plans for the operations of the business of Amerac; and (E) has asked,
or the representative (if any) of such Non-Operator has asked, all
questions of the nature described in preceding clause (D), and all those
questions have been answered to such Non-Operator's satisfaction and the
satisfaction of its representative (if any).
7.11 TEXAS DECEPTIVE TRADE PRACTICES ACT. EACH NON-OPERATOR EXPRESSLY
-----------------------------------
WAIVES THE PROVISIONS OF CHAPTER XVII, SUBCHAPTER E, SECTIONS 17.41 THROUGH
17.63, INCLUSIVE (OTHER THAN SECTION 17.55, WHICH IS NOT WAIVED), VERNON'S TEXAS
BUSINESS AND COMMERCE CODE ANNOTATED.
ARTICLE VIII.
TERMINATION
8.1 Events of Termination.
---------------------
(a) This Agreement shall terminate as to Operator and all Non-
Operators (i) automatically upon the expiration of the term hereof pursuant to
Section 2.2, (ii) automatically at such earlier time as all of the Acquired
Property Interests cease to be maintained in force and effect by production,
operations, lease maintenance payments, extension, renewal, or otherwise, or
(iii) at any time after the execution of this Agreement by mutual agreement of
Amerac and at least fifty percent (50%) in interest of Non-Operators.
(b) Amerac, at its election, may terminate this Agreement with respect
to any one (1) or more Non-Operators upon the occurrence of any of following:
(i) the commission by a Non-Operator of a material breach or default of its
obligations under this Agreement or the Operating Agreement, which breach or
default shall continue unremedied for thirty (30) days after the receipt by such
Non-Operator of notice from Amerac concerning the relevant breach or default;
(ii) at any time following the proposal by Amerac of the sixth Prospect
(exclusive of Phase I Prospects) hereunder if a Non-Operator has elected,
pursuant to either Section 5.1 or 5.2, not to participate in either Evaluation
Work and Property Interest acquisitions, or the drilling of the Initial
Exploitation Well, proposed for fifty percent (50%) or more of the total number
of Prospects (exclusive of Phase I Prospects) proposed by Amerac hereunder;
(iii) following the proposal by Amerac of the sixth Prospect (exclusive of Phase
I Prospects) hereunder, within thirty (30) days after a Non-Operator elects,
pursuant to either Section 5.1 or 5.2, not to participate in either Evaluation
Work and Property Interest acquisitions relating to, or the drilling of the
Initial Exploitation Well on, the third of three (3) consecutive Prospects
32
<PAGE>
(exclusive of Phase I Prospects) proposed by Amerac hereunder; (iv) the
termination by such Non-Operator of its legal existence, except as part of a
corporate merger or reorganization; (v) subject to the provisions of Section
8.2, the adjudication of a Non-Operator as a bankrupt or an insolvent, or the
taking of proceedings for liquidation by arrangement or composition with its
individual creditors, or the placement of such Non-Operator in receivership; or
(vi) the occurrence of any circumstance that makes it unlawful for the business
of Amerac or a Non-Operator under the terms of this Agreement to be continued.
(c) As between itself and Amerac, each Non-Operator, at its election,
may terminate this Agreement upon the occurrence of any of the following: (i)
the commission by Amerac of a material breach or default of its obligations
under this Agreement or the Operating Agreement, which breach or default shall
continue unremedied for thirty (30) days after the receipt by Amerac of notice
from such Non-Operator concerning the relevant breach or default; (ii) the
termination by Amerac of its legal existence, except as part of a corporate
merger or reorganization; (iii) subject to the provisions of Section 8.2, the
adjudication of Amerac as bankrupt or insolvent, or the taking of proceedings
for liquidation by arrangement or composition with its individual creditors, or
the placement of Amerac in receivership; or (iv) the occurrence of any
circumstance that makes it unlawful for the business of Amerac or such Non-
Operator under the terms of this Agreement to be continued. If fifty percent
(50%) in interest or more of the Non-Operators elect to terminate this Agreement
pursuant to this Section 8.1(c), this Agreement shall be deemed to have been
finally terminated as between Amerac and all Non-Operators.
---
8.2 Effect of Bankruptcy. If a petition for relief under Title 11 of the
--------------------
United States Code is filed by or against one of the parties, and the
termination of this Agreement as to such party is prevented by the United States
Bankruptcy Court, this Agreement shall remain in force and effect as to the
party which is subject to such proceedings until such party has elected to
assume or reject this Agreement pursuant to Title 11 of the United States Code.
An election to reject this Agreement by such party as a debtor in possession, or
by a trustee in bankruptcy, shall be deemed to constitute a breach of this
Agreement which shall terminate this Agreement as to such party without further
action by any other party hereto, except as provided otherwise in this Article
VIII.
8.3 Mechanics of Termination. If this Agreement is terminated as between
------------------------
Amerac and a Non-Operator pursuant to either Section 8.1(b) or 8.1(c), such Non-
Operator shall be treated as having withdrawn from this Agreement effective as
of the relevant date of termination, and the provisions of Section 7.8 shall
govern and control except to the extent inconsistent with the provisions of this
Article VIII. Upon the final termination of this Agreement as between Amerac
and all Non-Operators, Amerac and Non-Operators shall proceed to wind up the
business and activities conducted hereunder in accordance with the following
provisions:
(a) Amerac shall give written notice of such termination to such third
parties as may be necessary to enable Non-Operators independently to own,
operate, manage, and deal with their interests in the Acquired Property
Interests, including, without limitation, all purchasers of Hydrocarbons
produced therefrom and all state and federal agencies having jurisdiction
thereover. In addition, at any time or from time to time after the termination
of this Agreement, Amerac and Non-Operators shall execute and deliver, or cause
to be executed and
33
<PAGE>
delivered, all such deeds, assignments, division orders, transfer orders,
consents, documents, and instruments, and shall take or cause to be taken all
such other actions, as either party may reasonably deem necessary or desirable
to effect the termination of this Agreement in an orderly manner.
(b) As soon as is reasonably practicable after the final termination
of this Agreement, Amerac and Non-Operators shall enter into a final accounting
of all things relating to the business and activities conducted hereunder. Upon
the completion of such an accounting, Amerac and Non-Operators shall each pay to
the other such amounts as are necessary to accomplish the purposes of such
accounting. Nothing contained in this Section 8.3(b) shall be deemed to
conflict with the provisions regarding accounting contained in the Operating
Agreement, including, without limitation, the Accounting Procedure attached
thereto as Exhibit C.
(c) Following the termination of this Agreement, all subsequent
operations on those Acquired Property Interests jointly owned by Amerac and Non-
Operators shall continue to be subject to and governed by the Operating
Agreement, which shall survive the termination of this Agreement.
8.4 Effect of Termination. The termination of this Agreement as to any or
---------------------
all parties shall not operate to relieve any party from, or terminate this
Agreement with respect to, (a) any liability or obligation under Sections 7.5,
7.6, 7.7, 7.9, and this Article VIII, (b) any unfulfilled obligation or
undischarged liability of such party on the date of such termination, or (c) the
consequences of any breach or default of any warranty or covenant contained in
this Agreement. All such obligations and liabilities, and the applicable
provisions of this Agreement creating or relating to such obligations and
liabilities, shall survive such termination.
ARTICLE IX.
TAXATION
For purposes of United States federal and state income taxation,
Amerac and Non-Operators each elects to be excluded from the application of all
of the provisions of Subchapter "K," Chapter 1, Subtitle "A," of the Internal
Revenue Code of 1986, as amended ("Code"), as permitted and authorized by
Section 761 of the Code and the regulations promulgated thereunder. Amerac is
authorized and directed to execute on behalf of Non-Operators such evidence of
this election as may be required by law. If there is any requirement that each
party hereto give further evidence of this election, each party shall execute
such documents and furnish such other evidence as may be required by law or as
may otherwise be necessary to evidence this election. No party to this
Agreement shall give notices or take any other action inconsistent with the
election made pursuant to this Article XII. If any present or future income tax
laws of the State of Texas, or any future income tax laws of the United States,
contain provisions similar to those in Subchapter "K," Chapter 1, Subtitle "A,"
of the Code, under which an election similar to that provided in Section 761 of
the Code is permitted, Amerac and Non-Operators shall make such elections as may
be permitted or required by such law.
34
<PAGE>
ARTICLE X.
MISCELLANEOUS
10.1 Exhibits. All of the exhibits referred to in this Agreement are
--------
hereby incorporated to this Agreement by reference and constitute a part of this
Agreement. Each party to this Agreement has received a complete set of exhibits
prior to and as of the execution of this Agreement.
10.2 Successors and Assigns. No Non-Operator shall assign to any third
----------------------
party any of its rights, titles, interests, obligations or liabilities under
this Agreement without the prior written consent of Amerac. Amerac shall not
assign to any third party any of its rights, titles, interests, obligations, or
liabilities under this Agreement without the prior written consent of at least
fifty percent (50%) in interest of Non-Operators. No consent to assignment shall
be required, however, for any Non-Operator in the case of a transfer by such
Non-Operator of all or any portion of its Program Interests to any Permitted
Affiliate of such Non-Operator, provided that such Permitted Affiliate
accurately completes and delivers to Amerac an Accredited Investor Certificate
in the form of Exhibit VIII hereto and makes the representations and warranties
to Amerac contained in Section 7.10. No consent to assignment shall be required
for any party in those cases in which a party wishes to mortgage its interests,
or to transfer title to its interests to its mortgagee in lieu of or pursuant to
foreclosure of a mortgage of its interests. The provisions of Articles VIII.D
and XV.L of the Operating Agreement are also expressly made applicable to this
Agreement. No assignment of rights hereunder by either party shall relieve such
party of any obligations and responsibilities under this Agreement, unless
otherwise expressly consented to by Amerac in the case of an assignment by a
Non-Operator, or fifty percent (50%) in interest of Non-Operators in the case of
anassignment by Amerac. To the extent that any transferee of rights under this
Agreement expressly assumes the obligations of the transferring party under this
Agreement, such transferee shall become primarily liable for all such
obligations assumed. Notwithstanding any such assumption, if such transferee
fails to perform any of the obligations thus assumed, the transferring party
shall remain liable for the performance thereof. Subject to the foregoing
provisions of this Section 10.2, the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of Amerac and Non-Operators and
their respective heirs, legal representatives, successors, and assigns.
10.3 Notices. All notices and communications required or permitted
-------
to be given hereunder shall be in writing and shall be delivered personally, or
sent by bonded courier, or mailed by U.S. Express Mail or by certified or
registered United States Mail with all postage fully prepaid, or sent by prepaid
telegram, or by telex or facsimile transmission confirmed either orally or in
writing, addressed to the appropriate party at the address for such party shown
below or at such other address as such party shall have theretofore designated
by written notice delivered to the party giving such notice:
35
<PAGE>
(a) If to Amerac:
------------
Amerac Energy Corporation
1201 Louisiana, Suite 3350
Houston, Texas 77002-5609
Attention: Mr. Jeffrey B. Robinson
Telephone No.: (713) 308-5260
Facsimile No.: (713) 308-5285
(b) If to Non-Operators:
-------------------
The address, telephone number, and facsimile number of each Non-
Operator is set forth opposite the name and signature of each
Non-Operator on the signature pages of this Agreement.
Notwithstanding the preceding provisions of this Section 10.3 to the contrary,
all notices required to be given by Amerac to Non-Operators under Articles IV
and V of this Agreement shall be delivered personally, or sent by bonded
courier, or by telex or facsimile transmission confirmed either orally or in
writing, addressed as provided herein. Any notice given in accordance herewith
shall be deemed to have been received by the party to whom the notice is
directed hereunder when delivered to the addressee in person, or delivered to
the telegraph company or transmitted by telex or facsimile transmission, or one
(1) day after such notice has been delivered to a bonded courier, or five (5)
days after such notice has been deposited in the United States Mail, as the case
may be. The parties hereto may change the address, telephone numbers, and
facsimile numbers to which such communications are to be addressed by giving
written notice to the other parties in the manner provided in this Section 10.3.
10.4 ENTIRE AGREEMENT; CONFLICTS. THIS AGREEMENT, THE OPERATING AGREEMENT,
---------------------------
AND THE EXHIBITS HERETO AND THERETO COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT
AMONG NON-OPERATORS AND AMERAC PERTAINING TO THE SUBJECT MATTER HEREOF AND
SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS,
WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES
RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS ARE SPECIFICALLY SET FORTH IN
THIS AGREEMENT, THE OPERATING AGREEMENT, AND THE EXHIBITS HERETO AND THERETO AND
NEITHER NON-OPERATORS NOR AMERAC SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED
REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET
FORTH.
10.5 No Third Party Beneficiaries. No person other than Non-Operators and
----------------------------
Amerac shall have any right, benefit, priority, or interest under this Agreement
or as a result hereof or have standing to require satisfaction of the provisions
hereof in accordance with their terms.
36
<PAGE>
10.6 Amendment. This Agreement may be amended only by an instrument in
---------
writing executed by the parties hereto against whom enforcement is sought.
10.7 Waiver; Rights Cumulative. Any of the terms, covenants,
-------------------------
representations, warranties, or conditions hereof may be waived only by a
written instrument executed by or on behalf of the party hereto waiving
compliance. No course of dealing on the part of any Non-Operator or Amerac, or
their respective officers, employees, agents, or representatives, nor any
failure by any Non-Operator or Amerac to exercise any of its rights under this
Agreement shall operate as a waiver thereof or affect in any way the right of
such party at a later time to enforce the performance of such provision. No
waiver by any party of any condition, or any breach of any term, covenant,
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 a waiver of any other condition or of any
breach of any other term, covenant, representation, or warranty. The rights and
remedies of Non-Operators and Amerac under this Agreement shall be cumulative,
and the exercise or partial exercise of any such right or remedy shall not
preclude the exercise of any other right or remedies available hereunder or at
law or in equity.
10.8 GOVERNING LAW; JURISDICTION, VENUE. THIS AGREEMENT AND THE LEGAL
----------------------------------
RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE
THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER
JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION
IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY ACTION ARISING OUT OF
THIS AGREEMENT. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR
INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT SHALL
BE LITIGATED IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS.
10.9 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner to
any party. Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
10.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all of such counterparts shall constitute for all purposes one
agreement.
37
<PAGE>
IN WITNESS WHEREOF, Non-Operators and Amerac have executed this
Agreement on the dates set forth below, effective as of the Effective Date.
AMERAC ENERGY CORPORATION
Date: By:
--------------------- ---------------------------------------------
Jeffrey B. Robinson
President and Chief Executive Officer
38
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Frederick B. Whittemore
Morgan Stanley & Co.
1251 Avenue of the Americas, 23F
New York, New York 10020
Telephone No.: 212/703-7735
Facsimile No.: 212/703-4790
39
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Jonathan R. Longley
Jennison Associates
1 Financial Center, 44th Floor
Boston, Massachusetts 02111
Telephone No.: 617/523-1700
Facsimile No.: 617/951-2743
40
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Walter C. Wilson
2002 Kirby Drive, Suite 1107
Houston, Texas 77019
Telephone No.: 713/520-5350
Facsimile No.: 713/520-5950
41
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Breene M. Kerr
115 Bay Street
Easton, Maryland 21601
Telephone No.: 410/820-9676
Facsimile No.: 410/822-3137
42
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Thomas F. Doyle
Jennison Associates
1 Financial Center, 44th Floor
Boston, Massachusetts 02111
Telephone No.: 617/523-1700
Facsimile No.: 617/951-2743
43
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
J. Hugh Roff
Petrounited Terminals, Inc.
333 Clay Street, Suite 4300
Houston, Texas 77002
Telephone No.: 713/655-5320
Facsimile No.: 713/655-7146
44
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Morton Swinsky
33 East 70th Street
New York, New York 10021
Telephone No.: 212/528-3472
Facsimile No.: 212/786-3347
45
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date:
-------------------- ------------------------------------------
Vincent J. Dowling
Dowling Partners
36 Trumbull
Hartford, Connecticut 06103
Telephone No.: 860/570-8600
Facsimile No.: 860/560-8615
46
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
NORVILLE OIL CO., L.L.C.
Date: By:
------------------------- ---------------------------------------
Robert G. Harris
Manager
ATTEST: 101 Park Avenue, Suite 600
Oklahoma City, Oklahoma 73102
By: Telephone No.: 405/236-4361
---------------------------
Printed Name: Facsimile No.: 405/236-4395
-----------------
Title:
------------------------
47
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date: By:
------------------------- ---------------------------------------
Richard C. Nelson
Petrounited Terminals, Inc.
333 Clay Street, Suite 4300
Houston, Texas 77002
Telephone No.: 713/655-5320
Facsimile No.: 713/655-7146
48
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date: By:
------------------------- ---------------------------------------
Gene P. Morrell
Petrounited Terminals, Inc.
333 Clay Street, Suite 4300
Houston, Texas 77002
Telephone No.: 713/655-5320
Facsimile No.: 713/655-7146
49
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date: By:
------------------------- ---------------------------------------
Charles E. Ramsey, Jr.
3374 Plantation Point
Athens, Texas 75751
Telephone No.: 903/675-5886
Facsimile No.: 903/675-5886
50
<PAGE>
SIGNATURE PAGE
--------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
NON-OPERATOR:
Date: By:
------------------------- ---------------------------------------
John Robert Porter
Earth Satellite Corporation
6011 Executive Road, Suite 400
Rockville, Maryland 20852-3801
Telephone No.: 301/231-0660
Facsimile No.: 301/231-5020
51
<PAGE>
EXHIBIT I
ATTACHED TO AND MADE A PART OF
EXPLOITATION AGREEMENT BETWEEN AMERAC ENERGY CORPORATION
AND WALTER C. WILSON, ET AL.
<TABLE>
<CAPTION>
PARTIES INITIAL PARTICIPANT
INTERESTS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amerac Energy Corp. .500000
<CAPTION>
NON-OPERATORS NON-OPERATOR CASH MAXIMUM INDIVIDUAL MAXIMUM INDIVIDUAL
CONSIDERATION FUNDING COMMITMENT WARRANTS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick B. Whittemore .083333 $ 31,792.43 $ 200,000 8,333
Jonathan R. Longley .062500 23,844.42 150,000 6,250
Walter C. Wilson .052917 20,188.40 127,000 5,292
Breene M. Kerr .052083 19,870.22 125,000 5,208
Thomas F. Doyle .041667 15,896.41 100,000 4,167
J. Hugh Roff .041667 15,896.41 100,000 4,167
Morton Swinsky .041666 15,896.03 100,000 4,167
Vincent J. Dowling .031250 11,922.21 75,000 3,125
Norville Oil Co., L.L.C. .031250 11,922.21 75,000 3,125
Richard C. Nelson .020833 7,948.01 50,000 2,083
Gene P. Morrell .016667 6,358.64 40,000 1,667
Charles E. Ramsey, Jr. .013750 5,285.77 33,000 1,375
John Robert Porter .010417 3,934.20 25,000 1,042
TOTALS 1.000000 $190,755.36 $1,200,000 50,000
====================================================================================================
</TABLE>
<PAGE>
EXHIBIT II
----------
Attached to and made a part of Exploitation Agreement
between Amerac Energy Corporation
and Walter C. Wilson, et al.
DESCRIPTION OF NORTH BLACKWELL AREA
NOLAN COUNTY, TEXAS
T.&P. Railway Company Survey, Block Z
-------------------------------------
Section 22: S/2
Section 23: SE/4
Section 25: S/2
Section 26: S/2, NE/4
Section 27: All
Section 28: W/2
Section 29: W/2
Section 36: NW/4
Section 30: All
Section 31: All
Section 32: All
Section 33: All
Section 34: All
Section 35: W/2, NE/4
H.&T.C. Railway Company Survey, Block 1-A
-----------------------------------------
Section 27: All
Section 28: All
Section 29: W/2
Section 32: W/2
Section 203: All
Section 204: All
Section 251: All
W.E. McRorey Survey, A-1679, Section 12: All
T.&P. Railway Company Survey, Block A, Section 2,
All lying in Nolan County, Texas
E.W. Yardley Survey, Certificate No. 1155: All
<PAGE>
J.H. Herndon Survey, A-472:
All lying in Nolan County, Texas
G.A. McRorey Survey, SF1070, Section 13: All
Section 473, Block 9, Certificate No. 126,
Nathan Brookshire Survey: All
The Townsite of Blackwell, Texas,
insofar as that portion that lies in Nolan County, Texas
<PAGE>
EXHIBIT II
----------
DESCRIPTION OF NORTH BLACKWELL AREA
NOLAN COUNTY, TEXAS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT "III-A"
---------------
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
DESCRIPTION OF HICKMAN PROSPECT
OIL AND GAS LEASES AND TERM ASSIGNMENTS
NOLAN COUNTY, TEXAS
LEASES:
- -------
LEASE NO.: TX858001A
LESSOR: A. E. Pool and wife, Gloria Pool
LESSEE: Amerac Energy Corporation
DATED: August 29, 1996
RECORDED: Book 372, Page 243 of the Official Records of Nolan
County, Texas
DESCRIPTION: A 157.24 acre tract out of the SW/4 of Section 206, and
a 2/76 acre tract out of the NW/4 of Section 249, Block
1-A, H&TC Ry. Company Survey, being a total of 160
acres and more particularly described by metes and
bounds in that certain Warranty Deed from A. E. Pool
and wife, Gloria Pool, to James C. Shelton and wife,
Blanche M. Shelton, dated February 15, 1978 and
recorded in Volume 237, Page 650, Deed Records, Nolan
County, Texas.
LEASE NO.: TX858001B
LESSOR: Ray A. Johnson and wife, Glenna Johnson
LESSEE: Amerac Energy Corporation
DATED: September 16, 1996
RECORDED: Book 378, Page 310 of the Official Records of Nolan
County, Texas
DESCRIPTION: A 157.24 acre tract out of the SW/4 of Section 206, and
a 2.76 acre tract out of the NW/4 of Section 249, Block
1-A, H&TC Ry. Company Survey, being a total of 160
acres and more particularly described by metes and
bounds in that certain Warranty Deed from A. E. Pool
and wife, Gloria Pool, to James C. Shelton and wife,
Blanche M. Shelton, dated February 15, 1978 and
recorded in Volume 237, Page 650, Deed Records, Nolan
County, Texas
III-A-i
<PAGE>
LEASE NO.: TX858002
LESSOR: The Atchison, Topeka and Santa Fe Railway Company
LESSEE: Amerac Energy Corporation
DATED: September 6, 1996
RECORDED: Book 383, Page 29 of the Official Records of Nolan
County, Texas
DESCRIPTION: 14.95 acres of land, more or less, located in Section
25, Block 1-A, H&TC Ry. Company Survey, A-15, Nolan
County, Texas
LEASE NO.: TX858003A
LESSOR: Hickman-Jordan-Halligan Ranches
LESSEE: Amerac Energy Corporation
DATED: August 1, 1996
RECORDED: Book 373, Page 235 of the Official Records of Nolan
County, Texas
DESCRIPTION: 325 acres of land, more or less, located in E/2 of
Section 206, Block 1-A, H&TC Ry. Co. Survey, Nolan
County, Texas.
LEASE NO.: TX858003B
LESSOR: Suzanne Bucholz
LESSEE: Amerac Energy Corporation
DATED: August 1, 1996
RECORDED: Book 375, Page 276 of the Official Records of Nolan
County, Texas
DESCRIPTION: 325 acres of land, more or less, located in E/2 of
Section 206, Block 1-A, H&TC Ry. Co. Survey, Nolan
County, Texas.
LEASE NO.: TX858004A
LESSOR: Scott and White Memorial Hospital and Scott, Sherwood
and Brindley Foundation
LESSEE: Amerac Energy Corporation
DATED: August 1, 1996
RECORDED: Book 378, Page 313 of the Official Records of Nolan
County, Texas
DESCRIPTION: 80 acres of land, more or less, located in E/4 S/2 of
Section 34, Block 1-A, H&TC Ry. Co. Survey, Nolan
County, Texas.
III-A-ii
<PAGE>
LEASE NO.: TX858004B
LESSOR: W. A. Hickman and wife, Jeraldine Hickman
LESSEE: Amerac Energy Corporation
DATED: August 1, 1996
RECORDED: Book 373, Page 238 of the Official Records of Nolan
County, Texas
DESCRIPTION: 80 acres of land, more or less, located in E/4 S/2 of
Section 34, Block 1-A, H&TC Ry. Co. Survey, Nolan
County, Texas.
LEASE NO.: TX858005
LESSOR: Cecil L. Smith and wife, Verla Mae Smith
LESSEE: Amerac Energy Corporation
DATED: June 10, 1996
RECORDED: Book 375, Page 157 of the Official Records of Nolan
County, Texas
DESCRIPTION: 300.0 acres of land, more or less, out of Section 25,
Block 1-A, H&TC Ry. Company Survey, Nolan County, Texas
and being all that portion of said Section 25 lying
South and West of the KCM &O Ry. Co. Right of Way and
being the same lands described in that certain Warranty
Deed dated January 23, 1993, from Thelma H. Smith and
Spurgeon Clarence Smith to Cecil Lewis Smith and
recorded in Volume 248, Page 177 of the Official Public
Records of Nolan County, Texas.
LEASE NO.: TX858006
LESSOR: Mary Ellen Little and Edna Kathryn Little, Both Dealing
in their Separate Property
LESSEE: Amerac Energy Corporation
DATED: June 4, 1996
RECORDED: Book 367, Page 186,of the Official Records of Nolan
County, Texas
DESCRIPTION: 309.0 acres of land, more or less, out of Section 25,
Block 1-A, H&TC Ry. Company Survey, Nolan County, Texas
and being the same lands described in that certain
Warranty Deed dated October 9, 1945 from C. J. Harris
and wife, Effie Harris to James H. Michaels and wife,
Kate Michaels and recorded in Volume 119, Page 474 of
the Deed Records of Nolan County, Texas.
III-A-iii
<PAGE>
LEASE NO.:
LESSOR: Billie W. Alderman and Lenore W. Rallis
LESSEE: Amerac Energy Corporation
DATED: October 7, 1996
RECORDED: Book 383, Page 39, of the Official Records of Nolan
County, Texas
DESCRIPTION: 440.0 acres of land, more or less, being NE/4, N/2
SE/4, of Section 66; and East 200 acres of the N/2 of
Section 67; all located in Block 1-A, H&TC Ry. Co.
Survey, Nolan County, Texas.
TERM ASSIGNMENTS:
- -----------------
LEASE NO:
ASSIGNOR: Ray Alderman and wife, Billie W. Alderman
ASSIGNEE: Amerac Energy Corporation
DATED: December 2, 1996
RECORDED: Book 383, Page 42 of the Official Records of Nolan
County, Texas
LESSOR: Billie W. Alderman and Lenore W. Rallis
LESSEE: Ray Alderman
DATED: June 22, 1984
RECORDED: Volume 111, Page 389 of the Oil & Gas Records of Nolan
County, Texas.
DESCRIPTION: Insofar and only insofar as said lease covers the
following described lands as to all depths below 5,600
feet: All of the S/2 SE/4 of Section 66, Block 1-A,
H&TC Ry. Co. Survey, Nolan County, Texas;
LESSOR: Billie W. Alderman and Lenore W. Rallis
LESSEE: Ray Alderman
DATED: August 15, 1983
RECORDED: Volume 107, Page 619 of the Oil & Gas Records of Nolan
County, Texas.
DESCRIPTION: Insofar and only insofar as said lease covers the
following described lands as to all depths below 5,600
feet: All of the SE/4 of Section 67, Block 1-A, H&TC
Ry. Co. Survey, Nolan County, Texas.
LEASE NO:
ASSIGNOR: W. H. Price, et al.
ASSIGNEE: Amerac Energy Corporation
III-A-iv
<PAGE>
DATED: November 11, 1996
RECORDED: Book 379, Page 117 of the Official Records of Nolan
County, Texas
LESSOR: Billie Whiteside Alderman, et al.
LESSEE: Richard F. Williamson
DATED: June 20, 1978
RECORDED: Book 86, Page 344, of the Deed Records of Nolan County,
Texas
DESCRIPTION: Insofar and only insofar as said lease covers the
following described lands as to all depths below 5,600
feet: Western-most 120 acres of the NW/4 of Section 67,
Block 1-A, H&TC Ry. Co. Survey, A-591, Nolan County,
Texas.
LESSOR: Erma Lowe
LESSEE: Richard F. Williamson
DATED: June 12, 1978
RECORDED: Book 86, Page 521, of the Deed Records of Nolan County,
Texas
DESCRIPTION: Insofar and only insofar as said lease covers the
following described lands as to all depths below 5,600
feet: Western-most 120 acres of the NW/4 of Section 67,
Block 1-A, H&TC Ry. Co. Survey, A-591, Nolan County,
Texas.
LESSOR: Maralo, Inc.
LESSEE: Richard F. Williamson
DATED: June 12, 1978
RECORDED: Book 86, Page 523, of the Deed Records of Nolan County,
Texas
DESCRIPTION: Insofar and only insofar as said lease covers the
following described lands as to all depths below 5,600
feet: Western-most 120 acres of the NW/4 of Section 67,
Block 1-A, H&TC Ry. Co. Survey, A-591, Nolan County,
Texas.
LESSOR: Elmer Jordan, et ux
LESSEE: W. H. Price
DATED: September 12, 1978
RECORDED: Book 87, Page 183, of the Deed Records of Nolan County,
Texas
DESCRIPTION: Insofar and only insofar as said lease covers all
depths below 5,600 feet: SW/4 and W/2 SE/4 of Section
34, Block 1-A, H&TC Ry. Co. Survey, A-591, Nolan
County, Texas.
III-A-v
<PAGE>
LESSOR: Elmer Jordan, et ux
LESSEE: W. H. Price
DATED: August 22, 1978
RECORDED: Book 86, Page 877, of the Deed Records of Nolan County,
Texas
DESCRIPTION: Insofar and only insofar as said lease covers all
depths below 5,600 feet: NW/4 of Section 34, Block 1-A,
H&TC Ry. Co. Survey, A-591, Nolan County, Texas.
LESSOR: Elmer Jordan, et ux
LESSEE: W. H. Price
DATED: January 16, 1979
RECORDED: Book 87, Page 856, of the Deed Records of Nolan County,
Texas
DESCRIPTION: Insofar and only insofar as said lease covers all
depths below 5,600 feet: NE/4 of Section 34, Block 1-A,
H&TC Ry. Co. Survey, A-591, Nolan County, Texas.
III-A-vi
<PAGE>
EXHIBIT "III-A"
---------------
DESCRIPTION OF HICKMAN PROSPECT
NOLAN COUNTY, TEXAS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT "III-A"
---------------
Attached to and made a part of Exploitation Agreement
between Amerac Energy Corporation
and Walter C. Wilson, et al.
DESCRIPTION OF RAWLINGS PROSPECT
OIL AND GAS LEASES AND OPTION AGREEMENTS
COKE COUNTY, TEXAS
LEASES:
- -------
LEASE NO.:
LESSOR: Jeffrey B. Copeland and wife, Shari Copeland
LESSEE: Amerac Energy Corporation
DATED: August 30, 1996
RECORDED: Volume 83, Page 31 of the Official Records of Coke
County, Texas.
DESCRIPTION: Tract 1: 80.0 acres, more or less, being the North One-
--------
Half of the Northwest One-Quarter (N/2 NW/4) of Section
397, Block 1-A, H&TC Ry. Company Survey, Coke County,
Texas.
Tract 2: 665.0 acres, more or less, being all of
--------
Section 398, Block 1 A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 3: 320.0 acres, more or less, being the East
--------
One-Half (E/2) of Section 399, Block 1-A, H&TC Ry.
Company Survey, Coke County, Texas.
LEASE NO.:
LESSOR: Leslie A. Hobgood, et al.
LESSEE: Amerac Energy Corporation
DATED: July 18, 1996
RECORDED: Volume 83, Page 28 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 160.0 acres, more or less, being all of the
--------
NW/4 of Section 367, Block 1-A, H&TC Ry. Company
Survey, A-328, and being the same land as described in
Partition Deed dated 3/18/42 from W. A. Robbins Estate
to Lula B. Perry, Recorded in Volume 62, Page 137, Deed
Records of Coke County, Texas.
Tract 2: 141.25 acres, more or less, being all of the
--------
NE/4 of Section 368, Block 1-A, H&TC Ry. Company
Survey,
III-A-i
<PAGE>
A-1445, LESS AND EXCEPT the N/2 NE/4NE/4 of Section
368, and being the same land as described in Partition
Deed dated 3/18/42 from W. A. Robbins Estate to Lula B.
Perry, Recorded in Volume 62, Page 137, Deed Records of
Coke County, Texas.
LEASE NO.:
LESSOR: Harry Shourie
LESSEE: Amerac Energy Corporation
DATED: November 20, 1996
RECORDED: Volume __, Page __ of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 160.0 acres, more or less, being all of the
--------
NW/4 of Section 367, Block 1-A, H&TC Ry. Company
Survey, A-328, and being the same land as described in
Partition Deed dated 3/18/42 from W. A. Robbins Estate
to Lula B. Perry, Recorded in Volume 62, Page 137, Deed
Records of Coke County, Texas.
Tract 2: 141.25 acres, more or less, being all of the
--------
NE/4 of Section 368, Block 1-A, H&TC Ry. Company
Survey, A-1445, LESS AND EXCEPT the N/2 NE/4NE/4 of
Section 368, and being the same land as described in
Partition Deed dated 3/18/42 from W. A. Robbins Estate
to Lula B. Perry, Recorded in Volume 62, Page 137, Deed
Records of Coke County, Texas.
OPTION AGREEMENTS:
- ------------------
OPTION NO.:
OPTIONOR: T. P. Linney, Guardian of the Estate of Edna Earl Box,
N.C.M.
OPTIONEE: Amerac Energy Corporation
DATED: July 16, 1996
RECORDED: Volume 82, Page 132 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 640.0 acres, more or less, being all of
--------
Section 351, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 2: 648.58 acres, more or less, being all of
--------
Section 352, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 3: 540.0 acres, more or less, being all of
--------
Section 365, Block 1-A, H&TC Ry. Company Survey, Coke
III-A-ii
<PAGE>
County, Texas, SAVE AND EXCEPT the North 100 acres of
the East One-Half of said Section 365.
Tract 4: 497.25 acres, more or less, being the South
--------
One-Half (S/2) and Northwest One-Quarter (NW/4) of
Section 366, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 5: 165.75 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 366, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 6: 480.0 acres, more or less, being the North
--------
One-Half (N/2) and the Southeast One-Quarter (SE/4) of
Section 388, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 7: 160.0 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 389, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 8: 480.0 acres, more or less, being the South
--------
One-Half (S/2) and Northwest One-Quarter (NW/4) of
Section 389, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 9: 662.5 acres, more or less, being all of
--------
Section 390, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 10: 640.0 acres, more or less, being all of
---------
Section 391, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 11: 160.0 acres more or less, being the
---------
Southeast One-Quarter (SE/4) of Section 397, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
And Containing a total of 5,074.08 gross acres, more or
less.
OPTION NO.:
- -----------
OPTIONOR: Tom C. Rawlings, et al.
OPTIONEE: Amerac Energy Corporation
DATED: July 16, 1996
RECORDED: Volume 82, Page 132 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 640.0 acres, more or less, being all of
--------
Section 351, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 2: 648.58 acres, more or less, being all of
--------
Section 352, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
III-A-iii
<PAGE>
Tract 3: 540.0 acres, more or less, being all of
--------
Section 365, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas, SAVE AND EXCEPT the North 100 acres of
the East One-Half of said Section 365.
Tract 4: 497.25 acres, more or less, being the South
--------
One-Half (S/2) and Northwest One-Quarter (NW/4) of
Section 366, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 5: 165.75 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 366, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 6: 480.0 acres, more or less, being the North
--------
One-Half (N/2) and the Southeast One-Quarter (SE/4) of
Section 388, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 7: 160.0 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 389, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 8: 480.0 acres, more or less, being the South
--------
One-Half (S/2) and Northwest One-Quarter (NW/4) of
Section 389, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 9: 662.5 acres, more or less, being all of
--------
Section 390, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 10: 640.0 acres, more or less, being all of
---------
Section 391, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 11: 160.0 acres more or less, being the
---------
Southeast One-Quarter (SE/4) of Section 397, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 12: 80.0 acres, more or less, being the North
---------
One-Half of the Northwest One-Quarter (N/2 NW/4) of
Section 397, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas
Tract 13: 665.0 acres, more or less, being all of
---------
Section 398, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 14: 320.0 acres, more or less, being the East
---------
One-Half (E/2) of Section 399, Block 1-A, H&TC Ry.
Company Survey, Coke County, Texas.
And containing a total of 6,139.08 gross acres, more or
less.
III-A-iv
<PAGE>
OPTION NO.:
OPTIONOR: Marian Alice Bird
OPTIONEE: Amerac Energy Corporation
DATED: July 17, 1996
RECORDED: Volume 83, Page 123 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 640.0 acres, more or less, being all of
--------
Section 351, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 2: 648.58 acres, more or less, being all of
--------
Section 352, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 3: 540.0 acres, more or less, being all of
--------
Section 365, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas, SAVE AND EXCEPT the North 100 acres of
the East One-Half of said Section 365.
Tract 4: 497.25 acres, more or less, being the South
--------
One-Half (S/2) and Northwest One-Quarter (NW/4) of
Section 366, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 5: 165.75 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 366, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 6: 480.0 acres, more or less, being the North
--------
One-Half (N/2) and the Southeast One-Quarter (SE/4) of
Section 388, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 7: 160.0 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 389, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 8: 480.0 acres, more or less, being the South
--------
One-Half and Northwest One-Quarter (NW/4) of Section
389, Block 1-A, H&TC Ry. Company Survey, Coke County,
Texas.
Tract 9: 662.5 acres, more or less, being all of
--------
Section 390, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 10: 640.0 acres, more or less, being all of
---------
Section 391, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 11: 160.O acres more or less, being the
---------
Southeast One-Quarter (SE/4) of Section 397, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 12: 80.0 acres, more or less, being the North
---------
One-Half of the Northwest One-Quarter (N/2 NW/4) of
Section
III-A-v
<PAGE>
397, Block 1-A, H&TC Ry. Company Survey, Coke County,
Texas
Tract 13: 665.0 acres, more or less, being all of
---------
Section 398, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 14: 320.0 acres, more or less, being the East
---------
One-Half of Section 399, Block 1-A, H&TC Ry. Company
Survey, Coke County, Texas.
And containing a total of 6,139.08 gross acres, more or
less.
OPTION NO.:
OPTIONOR: Beth Rawlings Edwards
OPTIONEE: Amerac Energy Corporation
DATED: July 17, 1996
RECORDED: Volume 83, Page 125 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 640.0 acres, more or less, being all of
--------
Section 351, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 2: 648.58 acres, more or less, being all of
--------
Section 352, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 3: 540.0 acres, more or less, being all of
--------
Section 365, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas, SAVE AND EXCEPT the North 100 acres of
the East One-Half of said Section 365.
Tract 4: 497.25 acres, more or less, being the South
--------
One-Half (S/2) and Northwest One-Quarter (NW/4) of
Section 366, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 5: 165.75 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 366, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 6: 480.0 acres, more or less, being the North
--------
One-Half (N/2) and the Southeast One-Quarter (SE/4) of
Section 388, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 7: 160.0 acres, more or less, being the
--------
Northeast One-Quarter (NE/4) of Section 389, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 8: 480.0 acres, more or less, being the South
--------
One-Half and Northwest One-Quarter (NW/4) of Section
389, Block 1-A, H&TC Ry. Company Survey, Coke County,
Texas.
III-A-vi
<PAGE>
Tract 9: 662.5 acres, more or less, being all of
--------
Section 390, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 10: 640.0 acres, more or less, being all of
---------
Section 391, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 11: 160.0 acres more or less, being the
---------
Southeast One-Quarter (SE/4) of Section 397, Block 1-A,
H&TC Ry. Company Survey, Coke County, Texas.
Tract 12: 80.0 acres, more or less, being the North
---------
One-Half of the Northwest One-Quarter (N/2 NW/4) of
Section 397, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas
Tract 13: 665.0 acres, more or less, being all of
---------
Section 398, Block 1-A, H&TC Ry. Company Survey, Coke
County, Texas.
Tract 14: 320.0 acres, more or less, being the East
---------
One-Half of Section 399, Block 1-A, H&TC Ry. Company
Survey, Coke County, Texas.
And containing a total of 6,139.08 gross acres, more or
less.
OPTION NO.:
OPTIONOR: Carroll J. Robbins, et al.
OPTIONEE: Amerac Energy Corporation
DATED: July 3, 1996
RECORDED: Volume 83, Page 123 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 320.0 acres, more or less, being the East One-
--------
Half (E/2) of Section 367, A-328, Block 1-A, H&TC Ry.
Company Survey, Coke County, Texas.
Tract 2: 160.0 acres, more or less, being the
--------
Southwest One-Quarter (SW/4) of Section 367, A-328,
Block 1-A, H&TC Ry. Company Survey, Coke County, Texas.
Tract 3: 260.6 acres, more or less, being 100 acres
--------
out of the Southeast One-Quarter of Section 387, A-334,
Block 1-A, H&TC Ry. Company Survey, Coke County, Texas
and 160.6 acres being the Southwest One Quarter (SW/4)
of Section 388, Block 1-A, H&TC Ry. Company Survey,
Coke County, Texas, said lands being more particularly
described as Parcel A: Tract Two and Tract Three in
that certain Gift Deed dated August 30, 1990 from C. J.
Robbins a/k/a Carroll Robbins and wife, Lillian Robbins
to Carroll A. Robbins and Ronnie L. Robbins as recorded
III-A-vii
<PAGE>
in Volume 286, Page 183 of the Deed Records of Coke
County, Texas.
Tract 4: 160.0 acres, more or less, being the
--------
Northwest One-Quarter (NW/4) of Section 423, A-349,
Block 1-A, H&TC Ry. Company Survey, Coke County, Texas.
Tract 5: 180.0 acres, more or less, being described as
--------
240.0 acres, more or less, and being the Southwest One-
Quarter (SW/4) and the South One-Half of the Northwest
One-Quarter (S/2 NW/4) of Section 397, A-345, Block 1-
A, H&TC Ry. Company Survey, Coke County, Texas; SAVE
AND EXCEPT 60.0 acres out of the Southeast corner of
said Southwest One-Quarter, said 60.0 acres being more
particularly described in that certain Mineral Deed
dated January 23, 1919 from M.G. Reed and Bessie Reed
to Dan Herndon and J. D. Graham and recorded in Volume
35, Page 625 of the Deed Records of Coke County, Texas.
Tract 6: 60.0 acres, more or less, out of the
--------
Southeast corner of the Southwest One-Quarter (SW/4) of
Section 397, A-345, Block 1-A, H&TC Ry. Company Survey,
Coke County, and being more particularly described in
that certain Mineral Deed dated January 23, 1919 from
M. G. Reed and Bessie Reed to Dan Herndon and FJ. D.
Graham and recorded in Volume 35, Page 625 of the Deed
Records of Coke County, Texas.
And containing a total of 1,140.6 gross acres, more or
less.
OPTION NO.:
OPTIONOR: Frank Robbins, Jr., dealing in his separate property
OPTIONEE: Amerac Energy Corporation
DATED: July 8, 1996
RECORDED: Volume 83, Page 127 of the Official Records of Coke
County, Texas
DESCRIPTION: Tract 1: 320.0 acres, more or less, being the East One-
--------
Half of Section 367s, A-328, Block 1-A, H&TC Ry.
Company Survey, Coke County, Texas.
Tract 2: 160.0 acres, more or less, being the
--------
Southwest One-Quarter (SW/4) of Section 367, A-328,
Block 1-A, H&TC Ry. Company Survey, Coke County, Texas.
Tract 3: 160.0 acres, more or less, being the
--------
Northwest One-Quarter (NMW/4) of Section 423, A-349,
Block 1-A, H&TC Ry. Company Survey, Coke County, Texas.
III-A-viii
<PAGE>
EXHIBIT "III-A"
---------------
DESCRIPTION OF RAWLINGS PROSPECT
COKE COUNTY, TEXAS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT "III-A"
---------------
DESCRIPTION OF MESQUITE PROSPECT
NOLAN COUNTY, TEXAS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT "III-B"
---------------
ACREAGE COVERED BY THREE DIMENSIONAL SEISMIC SURVEY ACQUIRED
FROM ENSERCH EXPLORATION COMPANY
NOLAN COUNTY, TEXAS
[MAP APPEARS HERE]
<PAGE>
EXHIBIT IV
Attached to and made a part of Exploitation Agreement
between Amerac Energy Corporation and
Walter C. Wilson, et al.
PARTIAL ASSIGNMENT OF OIL AND GAS LEASES
----------------------------------------
THIS PARTIAL ASSIGNMENT OF OIL AND GAS LEASES ("Assignment") is executed
and effective this ____ day of __________________, 199_, and is from AMERAC
ENERGY CORPORATION, a Delaware corporation having as its address 1201 Louisiana,
Suite 3350, Houston, Texas 77002-5609 ("Assignor"), to FREDERICK B. WHITTEMORE,
having as his address 1251 Avenue of the Americas, 23rd Floor, New York, New
York 10020, JONATHAN R. LONGLEY, having as his address 1 Financial Center, 44th
Floor, Boston, Massachusetts 02111, WALTER C. WILSON, having as his address 2002
Kirby Drive, Suite 1107, Houston, Texas 77019, BREENE M. KERR, having as his
address 115 Bay Street, Easton, Maryland 21601, MORTON SWINSKY, having as his
address 33 East 70th Street, New York, New York 10021, THOMAS F. DOYLE, having
as his address 1 Financial Center, 44th Floor, Boston, Massachusetts 02111, J.
HUGH ROFF, having as his address 333 Clay Street, Suite 4300, Houston, Texas
77002, VINCENT J. DOWLING, having as his address 36 Trumbull, Hartford,
Connecticut 06103, NORVILLE OIL CO., L.L.C., having as its address 101 Park
Avenue, Suite 600, Oklahoma City, Oklahoma 73102, RICHARD C. NELSON, having as
his address 333 Clay Street, Suite 4300, Houston, Texas 77002, GENE P. MORRELL,
having as his address 333 Clay Street, Suite 4300, Houston, Texas 77002, CHARLES
E. RAMSEY, JR., having as his address 3374 Plantation Point, Athens, Texas
75751, and JOHN ROBERT PORTER, having as his address 6011 Executive Road, Suite
400, Rockville, Mayland 20852-3801 (collectively, "Assignees").
I.
GRANTING AND HABENDUM CLAUSES
1.1 Grant. For and in consideration of Ten and No/100 Dollars ($10.00) and
-----
other good and valuable consideration, the receipt and sufficiency of which
Assignor hereby acknowledges, Assignor has GRANTED, TRANSFERRED, BARGAINED,
SOLD, CONVEYED, and ASSIGNED, and does hereby GRANT, TRANSFER, BARGAIN, SELL,
CONVEY, and ASSIGN to Assignees, in the proportions identified below in Section
1.2 hereof, [AND SUBJECT TO THE REVERSIONARY INTEREST RESERVED BY ASSIGNOR
PURSUANT TO ARTICLE IV HEREOF,] an aggregate undivided fifty percent (50%)
interest in and to the following property and rights:
(a) the undivided oil and gas leasehold interest, and the associated net
revenue interest, in each case set forth on the attached Exhibit "A"
in and to those certain oil, gas, and mineral leases also described
more particularly on the attached Exhibit "A" (the "Leases"), together
with any and all other
<PAGE>
rights, titles, and interests of Assignor in and to (i) the Leases and
the leasehold estates created thereby as to all depths, subject to the
terms, conditions, covenants, and obligations set forth in the Leases,
and (ii) the lands covered by the Leases or included in units with
which the Leases may have been pooled or unitized (the "Lands");
(b) like undivided interests in and to all oil and gas wells located on
the Leases and the Lands or on other leases or lands with which the
Leases and/or the Lands may have been pooled or unitized
(collectively, the "Wells"), and all oil, gas, and other hydrocarbons
produced therefrom or allocated thereto;
(c) like undivided interests in and to all equipment, machinery, fixtures,
and other real, personal, and mixed property located on the Leases,
Lands, and Wells, to the extent used in connection with or
attributable to the Leases, Lands, and Wells, including, without
limitation, saltwater disposal wells, injection wells, well equipment,
casing, rods, tanks, boilers, tubing, pumps, motors, machinery,
compression equipment, flow lines, pipelines, and other improvements
used in the operation thereof ("Personal Property"); and
(d) all of the rights, titles, and interests of Assignor in and to all of
the permits; licenses; servitudes; easements; rights-of-way; orders;
farm-in and farm-out agreements; bottom hole agreements; crude oil,
condensate, and natural gas purchase and sale, gathering,
transportation, and marketing agreements; hydrocarbon storage
agreements; acreage contribution agreements; operating agreements;
balancing agreements; pooling and/or unitization agreements and the
units created thereby; processing agreements; saltwater disposal
agreements; options; and other contracts, agreements, and rights owned
by Assignor, in whole or in part, to the extent that they are (i)
appurtenant to or affect the Lands, Leases, and Wells, or (ii) used or
held for use in connection with the ownership or operation thereof or
the production, treatment sale, or disposal of oil, gas, and other
hydrocarbons, water or associated substances produced from the Lands,
Leases, and Wells ("Property Agreements").
For purposes of this Assignment, the Leases, the Lands, the Wells, the Personal
Property, the Property Agreements, and all other rights, interests, and items of
property described in the preceding sub-paragraphs (a), (b), (c), and (d) will
be referred to hereinafter as the "Acquired Property Interests"; and the
interests in the Acquired Property Interests conveyed to Assignees pursuant
hereto shall be collectively referred to hereinafter as the "Assigned
Interests."
1.2 Allocation. Assignor and Assignees intend that the Acquired Property
----------
Interests shall be owned by Assignor and Assignees in accordance with their
respective "Participant Interests", as that term is defined in that certain
Exploration Agreement dated effective as of January 1, 1997, between Assignor
and Assignees (the "Exploitation
2
<PAGE>
Agreement"), such that, as the result of the foregoing conveyance, Assignor and
Assignees stipulate and agree that the Acquired Property Interests are owned as
follows:
Amerac Energy Corporation .500000
Frederick B. Whittemore .083333
Jonathan R. Longley .062500
Walter C. Wilson .052917
Breene M. Kerr .052083
Morton Swinsky .041666
Thomas F. Doyle .041667
J. Hugh Roff .041667
Vincent J. Dowling .031250
Norville Oil Co., L.L.C. .031250
Richard C. Nelson .020833
Gene P. Morrell .016667
Charles E. Ramsey, Jr. .013750
John Robert Porter .010417
TOTAL: 1.000000
1.3 Habendum. TO HAVE AND TO HOLD, subject to the terms, exceptions,
--------
reservations, and other provisions herein stated, the Assigned Interests unto
Assignees and their heirs, successors, and assigns forever.
II.
WARRANTIES; DISCLAIMERS
2.1 Limited Warranty; Subrogation. Assignor warrants and agrees forever to
----------------
defend the title of Assignees and their respective successors and assigns to the
Assigned Interests, but only with respect to the claims of persons arising by,
through, or under Assignor, and not otherwise, with full rights of substitution
and subrogation with respect to the right to enforce the covenants and
warranties, if any, that Assignor is entitled to enforce in connection with the
Assigned Interests against Assignor's predecessors in title to the Assigned
Interests.
2.2 Disclaimer. Assignor and Assignee agree that to the extent required by
----------
applicable law to be operative, the disclaimers of certain warranties contained
in this Section 2.2 are "conspicuous" disclaimers for the purposes of any
applicable law, rule, or order. EXCEPT AS OTHERWISE PROVIDED FOR HEREIN, ALL
INTERESTS IN THE PERSONAL PROPERTY SOLD HEREUNDER ARE CONVEYED WITHOUT
REPRESENTATION OR WARRANTY, EITHER EXPRESSED, IMPLIED AT COMMON LAW, BY STATUTE,
OR OTHERWISE (ALL OF WHICH ASSIGNOR HEREBY DISCLAIMS), RELATING TO (I)
MERCHANTABILITY, DESIGN, OR QUALITY, (II) FITNESS FOR ANY PARTICULAR PURPOSE,
(III) COMPLIANCE WITH SPECIFICATIONS OR CONDITIONS REGARDING OPERATION, (IV)
ABSENCE OF LATENT DEFECTS, OR (V) ANY OTHER MATTER WHATSOEVER.
3
<PAGE>
III.
GOVERNING AGREEMENTS
This Assignment is expressly made subject to the terms, provisions,
exceptions, and reservations contained in (a) the Leases, (b) the Exploitation
Agreement, (c) that certain Operating Agreement dated effective as of January 1,
1997, between Assignor, as Operator, and Assignees, as Non-Operators (the
"Operating Agreement"), and (d) the Property Agreement(s) identified on the
attached Exhibit "A". Assignees shall comply with and, by their acceptance of
this Assignment, do hereby assume and agree to perform all expressed and implied
covenants, obligations, terms, conditions, exceptions, and reservations
contained in the Leases and the Property Agreements. As the result of this
Assignment, and subject to the provisions of the Exploitation Agreement, all
oil, gas, and related hydrocarbons produced from or allocable to the Assigned
Interests after the effective date of this Assignment, and the proceeds thereof,
shall be owned by and/or payable, and all costs, risks, liabilities, and
expenses incurred in connection with the ownership and operation of the Assigned
Interests shall be borne and paid by in each case Assignees in accordance with
their respective interests as set forth above in Section 1.2 hereof[, AS SUCH
INTERESTS MAY BE REDUCED PURSUANT TO SECTION 4.1]. The Assigned Interests shall
be subject to, and shall bear, their respective proportionate shares of all
lessor's royalties, overriding royalties, production payments, net profits
interests, and other burdens upon, measured by, or payable out of production
from the Acquired Property Interests that were taken into account in the
calculation of the net revenue interest in the Acquired Property Interests set
forth in the attached Exhibit "A". In the event of a conflict between the terms
and provisions of this Assignment and the terms and provisions of the
Exploitation Agreement or the Operating Agreement, the terms and provisions of
the Exploitation Agreement or the Operating Agreement, as applicable, shall
govern and control; provided, however, that the inclusion in this Assignment of
terms and provisions not addressed in the Exploitation Agreement or the
Operating Agreement shall not be deemed a conflict, and all such additional
provisions contained in this Assignment shall be given full force and effect,
subject to the provisions of this Article III.
[NOTE: ARTICLE IV DOES NOT APPLY IN
CASE OF PHASE IV PROSPECTS.]
IV.
REVERSIONARY INTEREST
4.1 Reversion of Interest. Assignor excepts and reserves under Assignor and
---------------------
Assignor's successors and assigns a reversionary leasehold interest in and to
the Acquired Property Interests equal to [FOR PHASE I PROSPECTS AND PHASE II
PROSPECTS: TWENTY PERCENT (20%)] [FOR PHASE III PROSPECTS: TEN PERCENT (10%)] of
the Assigned Interests. Such reversionary leasehold interest shall revert to and
vest in Assignor without further action on the part of Assignor upon the
occurrence of "Prospect Payout", as that term is defined below in Section 4.2.
Such reversionary leasehold interest shall be borne by each Assignee in the
proportion that the individual Assigned Interest of each Assignee bears to the
aggregate Assigned Interests of all Assignees. Following the reversion of such
leasehold interest to Assignor, Assignor and Assignees stipulate and agree that
the Acquired Property Interests shall be owned as follows:
4
<PAGE>
[IF PHASE I PROSPECT
OR PHASE II PROSPECT [IF PHASE III PROSPECT
-------------------- ----------------------
Amerac Energy Corporation .600000 .550000
Frederick B. Whittemore .066666 .075000
Jonathan R. Longley .050000 .056250
Walter C. Wilson .042334 .047625
Breene M. Kerr .041666 .046875
Morton Swinsky .033334 .037500
Thomas F. Doyle .033334 .037500
J. Hugh Roff .033334 .037500
Vincent J. Dowling .025000 .028125
Norville Oil Co., L.L.C. .025000 .028125
Richard C. Nelson .016666 .018750
Gene P. Morrell .013333 .015000
Charles E. Ramsey, Jr. .011000 .012375
John Robert Porter .008333 .009375
TOTAL: 1.000000] 1.000000]
4.2 Prospect Payout.
---------------
(a) For purposes of this Assignment, the term "Prospect Payout" shall
mean the point in time when the proceeds from the sale of all oil, gas, and
related hydrocarbons produced from or attributable to all oil and gas wells
located on the Acquired Property Interests or on lands pooled or unitized
therewith, including, without limitation, the "Initial Exploitation Well"
located thereon, (after deducting therefrom (a) all ad valorem, production,
severance, gathering, excise, and other taxes on or burdening the Acquired
Property Interests and production therefrom, and (b) all royalties,
overriding royalties, net profits interests, production payments, and other
burdens upon, measured by, or payable out of production from the Acquired
Property Interests that were taken into account in the calculation of the
net revenue interests applicable thereto set forth in Exhibit "A" attached
hereto), equal "the Prospect Payout Amount," as defined hereinafter. For
purposes hereof, the term "Prospect Payout Amount" means an amount of money
equal to the sum of (x) all "Evaluation/Acquisition Costs", plus (y) all
costs and expenses incurred in the drilling and completion and equipping
for production or plugging and abandonment of all wells drilled on the
Acquired Property Interests or on lands pooled or unitized therewith
pursuant to the Exploitation Agreement and the Operating Agreement prior to
the occurrence of Prospect Payout (including, without limitation, all
"Drilling Costs" incurred in connection with the "Initial Exploitation
Well" for the Acquired Property Interests), and (z) all costs of operating
all such wells (including, without limitation, any reworking, deepening,
sidetracking, plugging back, recompletion, enhanced recovery, and similar
operations) prior to the occurrence of Prospect Payout.
(b) For purposes of computing Prospect Payout, such operating costs
shall be determined in accordance with the Accounting Procedure attached as
Exhibit "C" to the
5
<PAGE>
Operating Agreement. Neither the overhead charges described in clause (b) of
Section 2.3 of the Exploitation Agreement nor the General Overhead Cost
Reimbursement paid by Assignees to Assignor pursuant to Section 7.2 of the
Exploitation Agreement shall be included in the calculation of the Prospect
Payout Amount. Prospect Payout shall not become effective with respect to the
Acquired Property Interests until the first day of the month following the month
in which Prospect Payout occurs with respect thereto. The termination of the
Exploitation Agreement according to its terms shall have no effect on the
calculation or timing of Prospect Payout for the Acquired Property Interests.
The terms "Initial Exploitation Well", "Evaluation/Acquisition Costs", "Drilling
Costs," and "General Overhead Cost Reimbursement" all are defined in Section 1.1
of the Exploitation Agreement, and such definitions are incorporated into this
Assignment by this reference for all purposes.
IV. [V.]
MISCELLANEOUS
4.1 [5.1] Further Assurances. The parties agree to take all such further
------------------
actions and execute, acknowledge, and deliver all such further documents as are
necessary or useful in carrying out the purposes of this Assignment.
4.2 [5.2] Successors and Assigns. No Assignee shall assign to any third
----------------------
party any portion of the Assigned Interests without the prior written consent of
Assignor. Assignor shall not assign to any third party any portion of its
rights, titles, interests, obligations, or liabilities in the Acquired Property
Interests without the prior written consent of at least fifty percent (50%) in
interest of Assignees. No consent to assignment shall be required, however, for
any Assignee in the case of a transfer by such Assignee of all or any portion of
the Assigned Interests to any "Permitted Affiliate" (as defined in the
Exploitation Agreement) of such Assignee, provided that such Permitted Affiliate
complies with the provisions of Section 7.10 of the Exploitation Agreement. No
consent to assignment shall be required for any party in those cases in which a
party wishes to mortgage its interests, or to transfer title to its interests to
its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its
interests. The provisions of Articles VIII.D and XV.L of the Operating Agreement
are also expressly made applicable to this Assignment. No assignment of rights
hereunder by either Assignor or any Assignee shall relieve such party of any
obligations and responsibilities under this Assignment or the Exploitation
Agreement, unless otherwise expressly consented to by Assignor in the case of an
assignment by an Assignee, or fifty percent (50%) in interest of Assignees in
the case of an assignment by Assignor. To the extent that any transferee of
interests in the Acquired Property Interests from any party to this Assignment
expressly assumes the obligations of the transferring party under this
Assignment or the Exploitation Agreement, such transferee shall become primarily
liable for all such obligations assumed. Notwithstanding any such assumption, if
such transferee fails to perform any of the obligations thus assumed, the
transferring party shall remain liable for the performance thereof. Subject to
the foregoing provisions of this Section 4.2 [5.2], the provisions of this
Assignment shall be covenants running with the land, and this Assignment shall
bind and inure to the benefit of Assignor and Assignees and their respective
heirs, successors and assigns.
6
<PAGE>
4.3 [5.3] Notices. All notices and communications required or permitted to
-------
be given hereunder shall be in writing and shall be delivered in accordance with
the provisions of Section 10.3 of the Exploitation Agreement, the terms and
provisions of which are expressly incorporated into this Assignment by this
reference for all purposes.
4.4 [5.4] GOVERNING LAW. THIS ASSIGNMENT AND THE LEGAL RELATIONS BETWEEN
-------------
ASSIGNOR AND ASSIGNEES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE
THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER
JURISDICTION.
4.5 [5.5] Exhibits. All exhibits attached hereto are hereby made a part
--------
hereof and incorporated herein by this reference. References in such exhibits to
instruments on file in the public records are made for all purposes. Unless
provided otherwise, all recording references in such exhibits are to the
appropriate records of the county in which the Acquired Property Interests are
located.
4.6 [5.6] Captions. The captions and article and section numbers in this
--------
Assignment are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Assignment.
4.7 [5.7] Counterparts. This Assignment may be executed in one or more
------------
originals, but all of which together shall constitute one and the same
instrument.
EXECUTED AND EFFECTIVE as of the date first above written.
ASSIGNOR:
--------
AMERAC ENERGY CORPORATION
By:
------------------------------------------
Jeffrey B. Robinson
President and Chief Executive Officer
ASSIGNEES:
---------
---------------------------------------------
FREDERICK B. WHITTEMORE
7
<PAGE>
---------------------------------------------
JONATHAN R. LONGLEY
---------------------------------------------
WALTER C. WILSON
---------------------------------------------
BREENE M. KERR
---------------------------------------------
MORTON SWINSKY
---------------------------------------------
THOMAS F. DOYLE
---------------------------------------------
J. HUGH ROFF
---------------------------------------------
VINCENT J. DOWLING
ATTEST: NORVILLE OIL CO., L.L.C.
By: By:
--------------------------- ------------------------------------------
Printed Name: Robert G. Harris
----------------- Manager
Title:
------------------------
---------------------------------------------
RICHARD C. NELSON
8
<PAGE>
---------------------------------------------
GENE P. MORRELL
---------------------------------------------
CHARLES E. RAMSEY, JR.
---------------------------------------------
JOHN ROBERT PORTER
THE STATE OF TEXAS (S)
(S)
COUNTY OF ___________ (S)
BEFORE ME, the undersigned authority, on this day personally appeared
Jeffrey B. Robinson, President and Chief Executive Officer of AMERAC ENERGY
CORPORATION, a Delaware corporation, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, as the act of
such corporation, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of _________, 199__.
---------------------------------------------
NOTARY PUBLIC in and for
STATE OF TEXAS
My Commission Expires:
- ---------------------- ---------------------------------------------
(Printed Name of Notary Public)
9
<PAGE>
THE STATE OF _____________ (S)
(S)
COUNTY OF ________________ (S)
This instrument was acknowledged before me on _________________, 199__,
by FREDERICK B. WHITTEMORE.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF ______________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by JONATHAN R. LONGLEY.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS_________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by WALTER C. WILSON.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
---------------------------------------------
(Printed Name of Notary Public)
10
<PAGE>
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ________________, 199__,
by BREENE M. KERR.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _________ (S)
(S)
COUNTY OF ____________ (S)
This instrument was acknowledged before me on ________________, 199__,
by MORTON SWINSKY.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ________________, 199__,
by THOMAS F. DOYLE.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- ---------------------- ---------------------------------------------
(Printed Name of Notary Public)
11
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by J. HUGH ROFF.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF ______________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by VINCENT J. DOWLING.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF ______________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by ROBERT G. HARRIS, Manager of NORVILLE OIL CO., L.L.C.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
12
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by RICHARD C. NELSON.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by GENE P. MORRELL.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by CHARLES E. RAMSEY, JR.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
13
<PAGE>
THE STATE OF ______________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ________________, 199__,
by JOHN ROBERT PORTER.
---------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- --------------------------- ---------------------------------------------
(Printed Name of Notary Public)
14
<PAGE>
EXHIBIT V
Attached to and made a part of Exploitation Agreement
between Amerac Energy Corporation, as Operator, and
Walter C. Wilson, et al., as Non-Operators.
[ARTWORK APPEARS HERE]
A.A.P.I. FORM 610-1989
MODEL FORM OPERATING AGREEMENT
OPERATING AGREEMENT
DATED
, 19
------------ ----,
OPERATOR AMERAC ENERGY CORPORATION
-----------------------------------------------
CONTRACT AREA Ellenburger Trend, Eastern Shelf of Permian
--------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Counties of Coke, Nolan, Mitchell, and Fisher
COUNTY OR PARISH OF , STATE OF Texas
---------------- ------------
COPYRIGHT 1989 - ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS, 76137, APPROVED FORM.
A.A.P.L. NO. 610 - 1989
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Title Page
- ------- ----- ----
<S> <C> <C>
I. DEFINITIONS............................................................1
-----------
II. EXHIBITS...............................................................1
--------
III. INTERESTS OF PARTIES...................................................2
--------------------
A. INTERESTS OF PARTIES IN COSTS AND PRODUCTION:.......................2
B. SUBSEQUENTLY CREATED INTERESTS:.....................................2
IV. TITLES.................................................................2
------
A. TITLE EXAMINATION:..................................................2
B. LOSS OR FAILURE OF TITLE:...........................................3
1. Other Losses.....................................................3
V. OPERATOR...............................................................4
--------
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR:.......................4
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR.......4
1. Resignation or Removal of Operator...............................4
2. Selection of Successor Operator..................................4
3. Effect of Bankruptcy.............................................4
C. EMPLOYEES AND CONTRACTORS:..........................................4
D. RIGHTS AND DUTIES OF OPERATOR:......................................4
1. Competitive Rates and Use of Affiliates..........................4
2. Discharge of Joint Account Obligations...........................4
3. Protection from Liens............................................4
4. Custody of Funds.................................................5
5. Access to Contract Area and Records..............................5
6. Filing and Furnishing Governmental Reports.......................5
7. Drilling and Testing Operations..................................5
8. Cost Estimates...................................................5
9. Insurance........................................................5
VI. DRILLING AND DEVELOPMENT...............................................5
------------------------
A. INITIAL WELL:.......................................................5
B. SUBSEQUENT OPERATIONS:..............................................5
1. Proposed Operations..............................................5
2. Operations by Less Than All Parties..............................6
3. Stand-By Costs...................................................7
4. Deepening........................................................8
5. Sidetracking.....................................................8
6. Conformity to Spacing Pattern....................................9
7. Paying Wells.....................................................9
C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:...................9
1. Completion.......................................................9
2. Rework, Recomplete or Plug Back..................................9
D. OTHER OPERATIONS:...................................................9
E. ABANDONMENT OF WELLS:...............................................9
1. Abandonment of Dry Holes.........................................9
2. Abandonment of Wells That Have Produced.........................10
3. Abandonment of Non-Consent Operations...........................10
F. TERMINATION OF OPERATIONS:.........................................10
G. TAKING PRODUCTION IN KIND..........................................10
(Option 1) Gas Balancing Agreement.................................10
(Option 2) No Gas Balancing Agreement..............................11
VII. EXPENDITURES AND LIABILITY OF PARTIES.................................11
-------------------------------------
A. LIABILITY OF PARTIES:..............................................11
B. LIENS AND SECURITY INTERESTS:......................................11
C. ADVANCES:..........................................................12
D. DEFAULTS AND REMEDIES:.............................................12
1. Suspension of Rights............................................13
2. Suit for Damages................................................13
3. Deemed Non-Consent..............................................13
4. Advance Payment.................................................13
5. Costs and Attorney's Fees.......................................13
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:..............13
F. TAXES:.............................................................13
VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST......................14
------------------------------------------------
A. SURRENDER OF LEASES:...............................................14
B. RENEWAL OR EXTENSION OF LEASES:....................................14
C. ACREAGE OR CASH CONTRIBUTIONS:.....................................14
</TABLE>
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
TABLE OF CONTENTS
-----------------
D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: ................... 15
E. WAIVER OF RIGHTS TO PARTITION: ................................. 15
IX. INTERNAL REVENUE CODE ELECTION .................................... 15
------------------------------
X. CLAIMS AND LAWSUITS ............................................... 15
-------------------
XI. FORCE MAJEURE ..................................................... 16
-------------
XII. NOTICES ........................................................... 16
-------
XIII. TERM OF AGREEMENT ................................................. 16
-----------------
XIV. COMPLIANCE WITH LAWS AND REGULATIONS .............................. 16
------------------------------------
A. LAWS, REGULATIONS AND ORDERS: .................................. 16
B. GOVERNING LAW: ................................................. 16
C. REGULATORY AGENCIES: ........................................... 16
XV. MISCELLANEOUS ..................................................... 17
-------------
A. EXECUTION: ..................................................... 17
B. SUCCESSORS AND ASSIGNS: ........................................ 17
C. COUNTERPARTS: .................................................. 17
D. SEVERABILITY: .................................................. 17
XVI. OTHER PROVISIONS .................................................. 17
----------------
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
OPERATING AGREEMENT
THIS AGREEMENT, entered into by and between Amerac Energy Corporation ,
---------------------------
hereinafter designated and referred to as "Operator," and the signatory party or
parties other than Operator, sometimes hereinafter referred to individually as
"Non-Operator," and collectively as "Non-Operators."
WITNESSETH:
WHEREAS, the parties to this agreement are owners of Oil and Gas Leases
in the land identified in Exhibit "A," and the parties hereto have reached an
agreement to explore and develop these Leases for the production of Oil and Gas
to the extent and as hereinafter provided,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "AFE" shall mean an Authority for Expenditure prepared by a
party to this agreement for the purpose of estimating the costs to be incurred
in conducting an operation hereunder.
B. The term "Completion" or "Complete" shall mean a single operation
intended to complete a well as a producer of Oil and Gas in one or more Zones,
including, but not limited to, the setting of production casing, perforating,
well stimulation and production testing conducted in such operation.
C. The term "Contract Area" shall mean all of the lands, Oil and Gas
Leases and/or Oil and Gas Interests intended to be developed and operated for
Oil and Gas purposes under this agreement. Such lands, Oil and Gas Leases and
Oil and Gas Interests are described in Exhibit "A."
D. The term "Deepen" shall mean a single operation whereby a well is
drilled to an objective Zone below the deepest Zone in which the well was
previously drilled, or below the Deepest Zone proposed in the associated AFE,
whichever is the lesser.
E. The terms "Drilling Party" and "Consenting Party" shall mean a party
who agrees to join in and pay its share of the cost of any operation conducted
under the provisions of this agreement.
F. The term "Drilling Unit" shall mean the area fixed for the drilling
of one well by order or rule of any state or federal body having authority. If
a Drilling Unit is not fixed by any such rule or order, a Drilling Unit shall be
the drilling unit as established by the pattern of drilling in the Contract Area
unless fixed by express agreement of the Drilling Parties.
G. The term "Drillsite" shall mean the Oil and Gas Lease on which a
proposed well is to be located.
I. The term "Non-Consent Well" shall mean a well in which less than all
parties have conducted an operation as provided in Article VI.B.2.
J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean
a party who elects not to participate in a proposed operation.
K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas
condensate, and/or all other liquid or gaseous hydrocarbons and other marketable
substances produced therewith, unless an intent to limit the inclusiveness of
this term is specifically stated.
M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean
the oil and gas leases or interests therein covering tracts of land lying within
the Contract Area which are owned by the parties to this agreement.
N. The term "Plug Back" shall mean a single operation whereby a deeper
Zone is abandoned in order to attempt a Completion in a shallower Zone.
O. The term "Recompletion" or "Recomplete" shall mean an operation
whereby a Completion in one Zone is abandoned in order to attempt a Completion
in a different Zone within the existing wellbore.
P. The term "Rework" shall mean an operation conducted in the wellbore
of a well after it is Completed to secure, restore, or improve production in a
Zone which is currently open to production in the wellbore. Such operations
include, but are not limited to, well stimulation operations but exclude any
routine repair or maintenance work or drilling, Sidetracking, Deepening,
Completing, Recompleting, or Plugging Back of a well.
Q. The term "Sidetrack" shall mean the directional control and
intentional deviation of a well from vertical so as to change the bottom hole
location unless done to straighten the hole or to drill around junk in the hole
to overcome other mechanical difficulties.
R. The term "Zone" shall mean a stratum of earth containing or thought
to contain a common accumulation of Oil and Gas separately producible from any
other common accumulation of Oil and Gas.
S. The term "Exploitation Agreement means the Exploitation Agreement
dated effective January 1, 1997, between Amerac Energy Corporation and Walter C.
Wilson, et al.
Unless the context otherwise clearly indicates, words used in the
singular include the plural, the word "person" includes natural and artificial
persons, the plural includes the singular, and any gender the masculine,
feminine, and neuter.
ARTICLE II.
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
X A. Exhibit "A," shall include the following information:
----- (1) Description of lands subject to this agreement,
(2) Restrictions, if any, as to depths, formations, or
substances,
(3) Parties to agreement with addresses and telephone numbers
for notice purposes,
(4) Percentages or fractional interests of parties to this
agreement,
(5) Oil and Gas Leases and/or Oil and Gas Interests subject
to this agreement,
(6) Burdens on production.
B. Exhibit "B," Form of Lease.
-----
X C. Exhibit "C," Accounting Procedure.
-----
X D. Exhibit "D," Insurance.
-----
E. Exhibit "E," Gas Balancing Agreement.
-----
F. Exhibit "F," Non-Discrimination and Certification of
----- Non-Segregated Facilities.
G. Exhibit "G," Tax Partnership.
-----
X H. Other: Memorandum of Operating Agreement and Financing
----- -----------------------------------------------
Statement
- ---------
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If any provision of any exhibit, except Exhibit "E" is
inconsistent with any provision contained in the body of this agreement, the
provisions in the body of this agreement shall prevail.
ARTICLE III.
INTERESTS OF PARTIES
B. Interests of Parties in Costs and Production:
Unless changed by other provisions, all costs and liabilities incurred
in operations under this agreement shall be borne and paid, and all equipment
and materials acquired in operations on the Contract Area shall be owned, by the
parties as their interests are set forth in Exhibit "A." In the same manner, the
parties shall also own all production of Oil and Gas from the Contract Area
subject, however, to the payment of royalties and other burdens on production as
described hereafter.
Subject to the provisions of Article XVI.B of this agreement, regardless
of which party has contributed any Oil and Gas Lease on which royalty or
other burdens may be payable and except as otherwise expressly provided in this
agreement, each party shall be liable for the payment of, all burdens on its
share of the production from the Contract Area up to, but not in excess of,
the burdens indentified on Exhibit "A", and shall indemnify, defend and hold the
other parties free from any liability therefor. Except as otherwise expressly
provided in this agreement, if any party has contributed hereto any Lease which
is burdened with any royalty, overriding royalty, production payment or other
burden on production in excess of the amounts stipulated above, such party so
burdened shall assume and alone bear all such excess obligations and shall
indemnify, defend and hold the other parties hereto harmless from any and all
claims attributable to such excess burden. However, so long as the Drilling Unit
for the productive Zone (s) is identical with the Contract Area, each party
shall be liable for the payment of all burdens on production from the Contract
Area due under the terms of the Oil and Gas Lease(s) which such party has
contributed to this agreement, and shall indemnify, defend and hold the other
parties free from any liability therefor.
No party shall ever be responsible, on a price basis higher than the price
received by such party, to any other party's lessor or royalty owner, and if
such other party's lessor or royalty owner should demand and receive settlement
on a higher price basis, the party contributing the affected Lease shall bear
the additional royalty burden attributable to such higher price.
Nothing contained in this Article III.B. shall be deemed an assignment or
cross-assignment of interests covered hereby, and in the event two or more
parties contribute to this agreement jointly owned Leases, the parties'
undivided interests in said Leaseholds shall be deemed separate leasehold
interests for the purposes of this agreement. In addition, see Article C.
Subsequently Created Interests:
If any party has contributed hereto a Lease that is burdened with an
assignment of production given as security for the payment of money, or if,
after the date of this agreement, any party creates an overriding royalty,
production payment, net profits interest, assignment of production or other
burden payable out of production attributable to its working interest hereunder,
such burden shall be deemed a "Subsequently Created Interest." Further, if any
party has contributed hereto a Lease burdened with an overriding royalty,
production payment, net profits interest, or other burden payable out of
production created prior to the date of this agreement, and such burden is not
shown on Exhibit "A," such burden also shall be deemed a Subsequently Created
Interest to the extent such burden causes the burdens on such party's Lease to
extend to exceed the amount stipulated in Article III.B. above.
The party whose interest is burdened with the Subsequently Created Interest
(the "Burdened Party") shall assume and alone bear, pay and discharge the
Subsequently Created Interest and shall indemnify, defend and hold harmless the
other parties from and against any liability therefor. Further, if the Burdened
Party fails to pay, when due, its share of expenses chargeable hereunder, all
provisions of Article VII.B. shall be enforceable against the Subsequently
Created Interest in the same manner they are enforceable against the working
interest of the Burdened Party. If the Burdened Party is required under this
agreement to assign or relinquish to any other party, or parties, all or a
portion of its working interest and/or the production attributable thereto, said
other party, or parties, shall receive said assignment and/or production free
and clear of said Subsequently Created Interest, and the Burdened Party shall
indemnify, defend and hold harmless said other party, or parties, from any and
all claims and demands for payment asserted by owners of the Subsequently
Created Interest.
ARTICLE IV.
TITLES
A. Title Examination:
Title examination shall be made on the Drillsite of any proposed well prior
to commencement of drilling operations and , if Operator so elects, title
examination shall be made on the entire Drilling Unit, or the maximum
anticipated Drilling Unit, of the proposed well. The opinion will include the
ownership of the working interest, minerals, royalty, overridding royalty and
production payments under the applicable Leases. Each party contributing Leases
to be in the Drillsite or Drilling Unit, if appropriate, shall furnish to
Operator all abstracts (including federal lease status reports), title opinions,
title papers and curative material in its possession free of charge. All such
information not in the possession of or made available to Operator by the
parties, but necessary for the examination of the title, shall be obtained by
Operator. Operator shall cause title to be examined by attorneys on it staff or
by outside attorneys. Copies of all title options shall be furnished to each
Drilling Party. Costs incurred by Operator in procuring abstracts, fees paid
outside attorneys for title examination (including preliminary, supplemental,
shut-in royalty opinions and division order title opinions) and other direct
charges as provided in Exhibit "C" shall be borne by the Drilling Parties in the
proportion that the interest of each Drilling Party bears to the total interest
of all Drilling Parties as such interests appear in Exhibit "A." Operator shall
make no charge for services rendered by its staff attorneys or other personnel
in the performance of the above functions.
Each party shall be responsible for securing curative matter and pooling
amendments or agreements required in connection with Leases contributed by such
party. Operator shall be responsible for the preparation and recording of
pooling designations or declarations and communitization agreements as well as
the conduct of hearings before governmental agencies for the securing of
spacing or pooling orders or any other orders necessary or appropriate to the
conduct of operations hereunder. This shall not prevent any party from appearing
on its own behalf at such hearings. Costs incurred by Operator, including fees
paid to the outside attorneys, which are associated with hearings before
governmental agencies, and which costs are necessary and proper for the
activities contemplated under this agreement, shall be direct charges to the
joint account and shall not be covered by the administrative overhead charges as
provided in Exhibit "C."
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
Operator shall make no charge for services rendered by its staff attorney or
other personnel in the performance of the above functions.
No well shall be drilled on the Contract Area until after (1) the title
to the Drillsite or Drilling Unit, if appropriate, has been examined as above
provided, and (2) the title has been approved by the examining attorney or title
has been accepted by all of the Drilling Parties in such well.
B. Loss or Failure of Title:
3. Other Losses: All losses of Leases committed to this agreement
above, shall be joint losses and shall be borne by all parties in proportion to
their interests shown on Exhibit "A." This shall include but not be limited to
the loss of any through failure to develop or because express or implied
covenants have not been performed (other than performance which requires only
the payment of money), and the loss of any Lease by expiration at the end of its
primary term if it is renewed or extended. There shall be no readjustment of
interests in the remaining portion of the Contract Area on account of any joint
loss.
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
ARTICLE V.
OPERATOR
A. Designation and Responsibilities of Operator:
Amerac Energy Corporation shall be the Operator of the Contract Area, and
-------------------------
shall conduct and direct and have full control of all operations on the Contract
Area as permitted and required by, and within the limits of this agreement. In
its performance of services hereunder for the Non-Operators, Operator shall be
an independent contractor not subject to the control or direction of the Non-
Operators except as to the type of operation to be undertaken in accordance with
the election procedures contained in this agreement. Operator shall not be
deemed, or hold itself out as, the agent of the Non-Operators with authority to
bind them to any obligation or liability assumed or incurred by Operator as to
any third party. Operator shall conduct its activities under this agreement as a
reasonable prudent operator, in a good and workmanlike manner, with due
diligence and dispatch, in accordance with good oilfield practice, and in
compliance with applicable law and regulation, but in no event shall it have any
liability as Operator to the other parties for losses sustained or liabilities
incurred except such as may result from gross negligence or willful misconduct.
B. Resignation or Removal of Operator and Selection of Successor:
1. Resignation or Removal of Operator: Operator may resign at any time by
-----------------------------------
giving written notice thereof to Non-Operators. If Operator terminates its
legal existence, no longer owns an interest hereunder in the Contract Area, or
is no longer capable of serving as Operator, Operator shall be deemed to have
resigned without any action by Non-Operators, except the selection of a
successor. Operator may be removed only for good cause by the affirmative vote
of Non-Operators owning a majority interest based on ownership as shown on
Exhibit "A" remaining after excluding the voting interest of Operator, such vote
shall not be deemed effective until a written notice has been delivered to the
Operator by a Non-Operator detailing the alleged default and Operator has
failed to cure the default within thirty (30) days from its receipt of the
notice or, if the default concerns an operation then being conducted, within
forty-eight (48) hours of its receipt of the notice. For purposes hereof, "good
cause" shall mean not only gross negligence or willful misconduct but also the
material breach of or inability to meet the standards of operation contained in
Article V.A. or material failure or inability to perform its obligations under
this agreement.
Subject to Article VII.D.1., such resignation or removal shall not become
effective until 7:00 o'clock A.M. on the first day of the calendar month
following the expiration of ninety (90) days after the giving of notice of
resignation of Operator or action by the Non-Operators to remove Operator,
unless a successor Operator has been selected and assumes the duties of Operator
at an earlier date. Operator, after effective date of resignation or removal,
shall be bound by the terms hereof as a Non-Operator. A change of a corporate
name or structure of Operator or transfer of Operator's interest to any single
subsidiary, parent or successor corporation shall not be the basis for removal
of Operator.
2. Selection of Successor Operator: Upon the resignation or removal of
--------------------------------
Operator under any provision of this agreement, a successor Operator shall be
selected by the parties. The successor Operator shall be selected from the
parties owning an interest in the Contract Area at the time such successor
Operator is selected. The successor Operator shall be selected by the
affirmative vote of two (2) or more parties owning a majority interest based on
ownership as shown on Exhibit "A"; provided, however, if an Operator which has
been removed or is deemed to have resigned fails to vote or votes only to
succeed itself, the successor Operator shall be selected by the affirmative
vote of the party or parties owning a majority interest based on ownership as
shown on Exhibit "A: remaining after excluding voting interest of the Operator
that was removed or resigned. The former Operator shall promptly deliver to the
successor Operator all records and data relating to the operations conducted by
the former Operator to the extend such records and data are not already in the
possession of the successor operator. Any cost of obtaining or copying the
former Operator's records and data shall be charged to the joint account.
3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is
---------------------
placed in receivership, it shall be deemed to have resigned without any action
by Non-Operators, except the selection of successor. If a petition for relief
under the federal bankruptcy laws is filed by or against Operator, and the
removal of Operator is prevented by the federal bankruptcy court, all
Non-Operators and Operators shall comprise an interim operating committee to
serve until Operator has elected to reject or assume this agreement pursuant to
the Bankruptcy Code, and an election to reject this agreement by Operator as a
debtor in possession, or by a trustee in bankruptcy, shall be deemed a
resignation as Operator without any action by Non-Operators, except selection of
successor. During the period of time the operating committee control
operations, all actions shall require the approval of two (2) or more parties
owning a majority interest based on ownership as shown on Exhibit "A". In the
event there are only two (2) parties to this agreement, during the period of
time and operating committed controls operations, a third party acceptable to
Operator, Non-Operator and the federal bankruptcy court shall be selected as a
member of the operating committee, and all actions shall require the approval of
two (2) members of the operating committee without regard for their interests in
the Contract Area based on Exhibit "A."
C. Employees and Contractors:
The number of employees or contractors used by Operator in conducting
operations hereunder, their selection, and the hours of labor and the
compensation for services performed shall be determined by Operator, and all
such employees or contractors shall be the employees or contractors of Operator.
D. Rights and Duties of Operator:
1. Competitive Rates and Use of Affiliates: All wells drilled on the contract
----------------------------------------
Area shall be drilled on a competitive contract basis at the usual rates
prevailing in the area. If it so desires, Operator may employ its own tools
and equipment in the drilling of wells, but its charges therefore shall not
exceed the prevailing rates in the area and the rate of such charges shall be
agreed upon by the parties in writing before drilling operations are commenced,
and such work shall be performed by Operator under the same terms and conditions
as are customary and usual in the area in contracts of independent contractors
who are doing work of a similar nature. All work performed or materials
supplied by affiliates or related parties of Operator shall be performed or
supplied at competitive rates, pursuant to written agreement, and in accordance
with customs and standards prevailing in the industry.
2. Discharge of Joint Account Obligations: Except as herein otherwise
---------------------------------------
specifically provided, Operator shall promptly pay and discharge expenses
incurred in the development and operation of the Contract Area pursuant to this
agreement and shall charge each of the parties hereto with their respective
proportionate shares upon the expense basis provided in Exhibit "C" Operator
shall keep an accurate record of the joint account hereunder, showing expenses
incurred and charges and credits made and received.
3. Protection from Liens: Operator shall pay, or cause to be paid, as and
----------------------
when they become due and payable, all accounts of contractors and suppliers and
wages and salaries for services rendered or performed, and for materials
supplied on, to or in respect of the Contract Area or any operations for the
joint account thereof, and shall keep the Contract Area free from
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
liens and encumbrances resulting therefrom except for those resulting from a
bona fide dispute as to services rendered or materials supplied.
4. Custody of Funds: Operator shall hold for the account of the Non-Operators
-----------------
any funds of the Non-Operators advanced or paid to the Operator, either for the
conduct of operations hereunder or as a result of the sale of production from
the Contract Area, and such funds shall remain the funds of the Non-Operators on
whose account they are advanced or paid until used for their intended purpose or
otherwise delivered to the Non-Operators or applied toward the payment of debts
as provided in Article VII.B. Nothing in this paragraph shall be construed to
establish a fiduciary relationship between Operator and Non-Operators for any
purpose other than to account for Non-Operator funds as herein specifically
provided. Nothing in this paragraph shall require the maintenance by Operator of
separate accounts for the funds of Non-Operators unless the parties otherwise
specifically agree.
5. Access to Contract Area and Records: Operator shall, except as otherwise
------------------------------------
provided herein, permit each Non-Operator or its duly authorized representative,
at the Non-Operator's sole risk and cost, full and free access at all reasonable
times to all operations of every kind and character being conducted for the
joint account on the Contract Area and to the records of operations conducted
thereon or production therefrom, including Operator's books and records relating
thereto. Such access rights shall not be exercised in a manner interfering with
Operator's conduct of an operation hereunder and shall not obligate Operator to
furnish any geologic or geophysical data of an interpretive nature unless the
cost of preparation of such interpretive data was charged to the joint account.
Operator will furnish to each Non-Operator upon request copies of any and all
reports and information obtained by Operator in connection with production and
related items, including, without limitation, meter and chart reports,
production purchaser statements, run tickets and monthly gauge reports, but
excluding purchase contracts and pricing information to the extent not
applicable to the production of the Non-Operator seeking the information. Any
audit of Operator's records relating to amounts expended and the appropriateness
of such expenditures shall be conducted in accordance with the audit protocol
specified in Exhibit "C."
6. Filing and Furnishing Governmental Reports: Operator will file, and upon
-------------------------------------------
written request promptly furnish copies to each requesting Non-Operator not in
default of its payment obligations, all operational notices, reports or
applications required to be filed by local, State, Federal or Indian agencies or
authorities having jurisdiction over operations hereunder. Each Non-Operator
shall provide to Operator on a timely basis all information necessary to
Operator to make such filings.
7. Drilling and Testing Operations: The following provisions shall apply to
--------------------------------
each well drilled hereunder:
(a) Operator will promptly advise Non-Operators of the date on which the
well is spudded, or the date on which drilling operations are commenced.
(b) Operator will send to Non-Operators such reports, test results and
notices regarding the progress of operations on the well as the Non-Operators
shall reasonably request, including, but not limited to, daily drilling reports,
completion reports, and well logs.
(c) Operator shall adequately test all Zones encountered which may
reasonably be expected to be capable of producing Oil and Gas in paying
quantities as a result of examination of the electric log or any other logs or
cores or tests conducted hereunder.
8. Cost Estimates: Upon request of any Consenting Party, Operator shall
---------------
furnish estimates of current and cumulative costs incurred for the joint account
at reasonable intervals during the conduct of any operation pursuant to this
agreement. Operator shall not be held liable for errors in such estimates so
long as the estimates are made in good faith.
9. Insurance: At all times while operations are conducted hereunder,
----------
Operator shall comply with the workers compensation law of the state where the
operations are being conducted; provided, however, that Operator may be a
self-insurer for liability under said compensation laws in which event the only
charge that shall be made to the joint account shall be as provided in Exhibit
"C." Operator shall also carry or provide insurance for the benefit of the
joint account of the parties as outlined in Exhibit "D" attached hereto and made
a part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to comply with the workers compensation law of the state where
the operations are being conducted and to maintain such other insurance as
Operator may require.
In the event automobile liability insurance is specified in said Exhibit "D",
or subsequently receives the approval of the parties, no direct charge shall be
made by Operator for premiums paid for such insurance for Operator's automotive
equipment.
ARTICLE VI.
DRILLING AND DEVELOPMENT
B. Subsequent Operations:
1. Proposed Operations: If Operator should desire to drill any well on the
--------------------
Contract Area other than the "Initial Exploitation Well" on a "Prospect"
included in the Contract Area (as those terms are defined in the Exploitation
Agreement) or if Operator should desire to Rework, Sidetrack, Deepen, Recomplete
or Plug Back a dry hole or any well no longer capable of producing in paying
quantities in which such party has not otherwise relinquished its interest in
the proposed objective Zone under this agreement, Operator shall give written
notice of the proposed operation to Non-Operators
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
specifying the work to be performed, the location, proposed depth,
objective Zone and the estimated cost of the operation. Each Non-Operator,
if such Non-Operator has not otherwise relinquished its working interest in
the relevant well or in any event in the case of a proposal for
Sidetracking or Deepening, shall have fifteen (15) days after receipt of
the notice within which to notify Operator whether such Non-Operator elect
to participate in the cost of the proposed operation. If a drilling rig is
on location, notice of a proposal to Rework, Sidetrack, Recomplete, Plug
Back or Deepen may be given by telephone and the response period shall be
limited to twenty-four (24) hours, exclusive of Saturday, Sunday and legal
holidays. Failure of any Non-Operator to reply within the period above
fixed shall constitute an election by such Non-Operator not to participate
in the cost of the proposed operation. Any proposal by Operator to conduct
an operation conflicting with the operation initially proposed shall be
delivered to Non-Operators within the time and in the manner provided in
Article VIB.6.
If all Non-Operators elect to participate in such a proposed
operation, the parties shall be contractually committed to participate
therein provided such operations are commenced with the time period
hereafter set forth, and Operator shall, no later than one hundred twenty
(120) days after expiration of the notice period of fifteen (15) days (or
as promptly as practicable after the expiration of the twenty-four (24)
hour period when a drilling rig is on location, as the case may be),
actually commence the proposed operation and thereafter complete it with
due diligence at the risk and expense of the parties participating therein;
provided, however, said commencement date may be extended upon written
notice of same by Operator to Non-Operators, for a period of up to thirty
(30) additional days if, in the sole opinion of Operator, such additional
time is reasonably necessary to obtain permits from governmental
authorities, surface rights (including rights-of-way) or appropriate
drilling equipment, or to complete title examination or curative matter
required for title approval or acceptance. If the actual operation has not
been commenced within the time provided (including any extension thereof as
specifically permitted herein or in the force majeure provisions of Article
XI) and if Operator still desires to conduct said operation, written notice
proposing same must be resubmitted to Non-Operators in accordance herewith
as if no prior proposal had been made. If a Non-Operator did not
participate in the drilling of a well for which a proposal to Deepen or
Sidetrack is made hereunder such Non-Operator shall, if such Non-Operator
desires to participate in the proposed Deepening or Sidetracking operation,
reimburse the Drilling Parties in accordance with Article VIB.4. in the
event of a Deepening operation and in accordance with Article VIB.5. in the
event of a Sidetracking operation.
2. Operations by Less Than All Parties:
------------------------------------
(a) Determination of Participation. If a Non-Operator, after
-------------------------------
receipt of such notice as provided in Article VIB.1. or VIC.1. (Option No.
2) elects not to participate in the proposed operation, then in order to be
entitled to the benefits of this Article, Operator and such other Non-
Operators as shall elect to participate in the operation shall, no later
than ninety (90) days after the expiration of the notice period of fifteen
(15) days (or as promptly as practicable after the expiration of the
twenty-four (24) hour period when a drilling rig is on location, as the
case may be) actually commence the proposed operation and complete it with
due diligence. Operator shall perform all work for the account of the
Consenting Parties; provided, however, if no drilling rig or other
equipment is on location, and if Operator is a Non-Consenting Party, the
Consenting Parties shall either: (i) request Operator to perform the work
required by such proposed operation for the account of the Consenting
Parties, or (ii) designate one of the Consenting Parties as Operator to
perform such work. The rights and duties granted to and imposed upon the
Operator under this agreement are granted to and imposed upon the party
designated as Operator for an operation in which the original Operator is a
Non-Consenting Party. Consenting Parties, when conducting operations on the
Contract Area pursuant to this Article VIB.2., shall comply with all terms
and conditions of this agreement.
If less than all Non-Operators approve any proposed operation,
Operator, immediately after the expiration of the applicable notice period,
shall advise all Parties of the total interest of the parties approving
such operation and its recommendation as to whether the Consenting Parties
should proceed with the operation as proposed. Each Consenting Party,
within twenty-four (24) hours (exclusive of Saturday, Sunday and legal
holidays) after delivery of such notice, shall advise the Operator of its
desire to (i) limit participation to such party's interest as shown on
Exhibit "A" or (ii) carry only its proportionate part (determined by
dividing such party's interest in the Contract Area by the interests of all
Consenting Parties in the Contract Area) of Non-Consenting Parties'
interests, or (iii) carry its proportionate part (determined as provided in
(ii)) of Non-Consenting Parties' interests together with all or a portion
of its proportionate part of any Non-Consenting Parties' interests than any
Consenting Party did not elect to take. Any interest of Non-Consenting
Parties that is not carried by a Consenting Party shall be deemed to be
carried by Operator if Operator does not withdraw its proposal. Failure to
advise the proposing party with the time required shall be deemed an
election under (i). In the event a drilling rig is on location, notice may
be given by telephone, and the time permitted for such a response shall not
exceed a total of twenty-four (24) hours (exclusive of Saturday, Sunday and
legal holidays). Operator, at its election, may withdraw such proposal if
there is less than 100% participation and shall notify all parties of such
decision within ten (10) days, or within twenty-four (24) hours if a
drilling rig is on location, following expiration of the applicable
response period. If 100% subscription to the proposed operation is
obtained, the proposing party shall promptly notify the Consenting Parties
of their proportionate interests in the operation and the party serving as
Operator shall commence such operation within the period provided in
Article VIB.1., subject to the same extension right as provided therein.
(b) Relinquishment of Interest for Non-Participation. The entire
-------------------------------------------------
cost and risk of conducting such operations shall be borne by the
Consenting Parties in the proportions they have elected to bear same under
the terms of the preceding paragraph. Consenting Parties shall keep the
leasehold estates involved is such operations free and clear of all liens
and encumbrances of every kind created by or arising from the operations of
the Consenting Parties. If such an operation results in a dry hole, then
subject to Articles VIB.6. and VIE.3., the Consenting Parties shall plug
and abandon the well and restore the surface location at their sole cost,
risk and expense; provided, however, that those Non-Consenting Parties that
participated in the drilling, Deepening or Sidetracking of the well shall
remain liable for, and shall pay, their proportionate shares of the cost of
plugging and abandoning the well and restoring the surface location insofar
only as those costs were not increased by the subsequent operations of the
Consenting Parties. If any well drilled, Reworked, Sidetracked, Deepened,
Recompleted or Plugged Back under the provisions of this Article results in
a well capable of producing Oil and/or Gas in paying quantities, the
Consenting Parties shall Complete and equip the well to produce at their
sole cost and risk, and the well shall then be turned over to Operator (if
the Operator did not conduct the operation) and shall be operated by it at
the expense and for the account of the Consenting Paries. Upon commencement
of operations for the drilling, Reworking, Sidetracking, Recompleting,
Deepening, or Plugging Back of any such well by Consenting Parties in
accordance with the provisions of this Article, each Non-Consenting Party
shall be deemed to have relinquished to Consenting Parties, and the
Consenting Parties shall own and be entitled to receive, in proportion to
their respective interests, all of such Non-Consenting Party's interest in
the well and share of production therefrom or, in the case of a Reworking,
Sidetracking,
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article
VI.C.1. Option No. 2, all of such Non-Consenting Party's interest in the
production obtained from the operation in which the Non-Consenting Party did not
elect to participate. Such relinquishment shall be effective until the proceeds
of the sale of such share, calculated at the well, or market value thereof if
such share is not sold (after deducting applicable ad valorem, production,
severance, and excise taxes, royalty, overriding royalty and other interests not
expected by Article III.C. payable out of or measured by the production from
such well accruing with respect to such interest until it reverts), shall equal
the total of the following:
(i) 100% of each such Non-Consenting Party's share of the cost of any
newly acquired surface equipment beyond the wellhead connections (including but
not limited to stock tanks, separators, treaters, pumping equipment and piping),
plus 100% of each such Non-Consenting Party's share of the cost of operation of
the well commencing with first production and continuing until each such
Non-Consenting Party's relinquished interest shall revert to it under other
provisions of this Article, it being agreed that each Non-Consenting Party's
share of such costs and equipment will be that interest which would have been
chargeable to such Non-Consenting Party had it participated in the well from the
beginning of the operations; and
(ii) 300% of (a) that portion of the costs and expenses of drilling,
Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing, and
Recompleting, after deducting any cash contributions received under Article
VIII.C., and of (b) that portion of the cost of newly acquired equipment in the
well (to and including the wellhead connections), which would have been
chargeable to such Non-Consenting Party if it had participated therein.
Notwithstanding anything to the contrary in this Article VI.B., if the
well does not reach the deepest objective Zone described in the notice proposing
the well for reasons other than the encountering of granite or practically
impenetrable substance or other condition in the hole rendering further
operations impracticable, Operator shall give notice thereof to each Non-
Consenting Party who submitted or voted for an alternative proposal under
Article VI.B.6. to drill the well to a shallower Zone than the deepest objective
Zone proposed in the notice under which the well was drilled, and each such Non-
Consenting Party shall have the option to participate in the initial proposed
Completion of the well by paying its share of the cost of drilling the well to
its actual depth, calculated in the manner provided in Article VI.B.4. (a). If
any such Non-Consenting Party does not elect to participate in the first
Completion proposed for such well, the relinquishment provisions of this Article
VI.B.2. (b) shall apply to such party's interest.
(c) Reworking, Recompleting or Plugging Back. An election not to
-----------------------------------------
participate in the drilling, Sidetracking or Deepening of a well shall be deemed
an election not to participate in any Reworking, Plugging Back, or Recompletion
operation proposed in such a well, or portion thereof, to which the initial
non-consent election applied that is conducted at any time prior to full
recovery by the Consenting Parties of the Non-Consenting Party's recoupment
amount. Similarly, an election not to participate in the Completing or
Recompleting of a well shall be deemed an election not to participate in any
Reworking or Plugging Back operation proposed in such a well, or portion
thereof, to which the initial non-consent election applied that is conducted at
any time prior to full recovery by the Consenting Parties of the Non-Consenting
Party's recoupment amount. Any such Reworking, Recompleting or Plugging Back
operation conducted during the recoupment period shall be deemed part of the
cost of operation of said well and there shall be added to the sums to be
recouped by the Consenting Parties 100% of that portion of the costs of the
Reworking, Recompleting or Plugging Back operation which would have been
chargeable to such Non-Consenting Party had it participated therein. If such a
Reworking, Recompleting or Plugging Back operation is proposed during such
recoupment period, the provisions of this Article VI.B. shall be applicable as
between said Consenting Parties in said well.
(d) Recoupment Matters. During the period of time Consenting Parties are
-------------------
entitled to receive Non-Consenting Party's share of production, or the proceeds
therefrom, Consenting Parties shall be responsible for the payment of all ad
valorem, production, severance, excise, gathering and other taxes, and all
royalty, overriding royalty and other burdens applicable to Non-Consenting
Party's share of production not excepted by Article III.C.
In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or
Deepening operation, the Consenting Parties shall be permitted to use, free of
cost, all casing, tubing and other equipment in the well, but the ownership of
all such equipment shall remain unchanged; and upon abandonment of a well after
such Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the
Consenting Parties shall account for all such equipment to the owners thereof,
with each party receiving its proportionate part in kind or in value, less cost
of salvage.
Within ninety (90) days after the completion of any operation under this
Article, Operator shall furnish each Non-Consenting Party with an inventory of
the equipment in and connected to the well, and an itemized statement of the
cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,
Recompleting, and equipping the well for production; or, at its option.
Operator, in lieu of an itemized statement of such costs of operation, may
submit a detailed statement of monthly billings. Each month thereafter, during
the time the Consenting Parties are being reimbursed as provided above, Operator
shall furnish the Non-Consenting Parties with an itemized statement of all costs
and liabilities incurred in the operation of the well, together with a statement
of the quantity of Oil and Gas produced from it and the amount of proceeds
realized from the sale of the well's working interest production during the
preceding month. In determining the quantity of Oil and Gas produced during any
month, Consenting Parties shall use industry accepted methods such as but not
limited to metering or periodic well tests. Any amount realized from the sale or
other disposition of equipment newly acquired in connection with any such
operations which would have been owned by a Non-Consenting Party had it
participated therein shall be credited against the total unreturned costs of the
work done and of the equipment purchased in determining when the interest of
such Non-Consenting Party shall revert to it as above provided; and if there is
a credit balance, it shall be paid to such Non-Consenting Party.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished interests
of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on
the day following the day on which such recoupment occurs, and, from and after
such reversion, such Non-Consenting Party shall own the same interest in such
well, the material and equipment in or pertaining thereto, and the production
therefrom as such Non-Consenting Party would have been entitled to had it
participated in the drilling, Sidetracking, Reworking, Deepening, Recompleting
or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be
charged with and shall pay its proportionate part of the further costs of the
operation of said well in accordance with the terms of this agreement and
Exhibit "C" attached hereto.
3. Stand-By Costs: When a well which has been drilled or Deepened has
---------------
reached its authorized depth and all tests have been completed and the results
thereof furnished to the parties, or when operations on the well have been
otherwise terminated pursuant to Article VI.F., stand-by costs incurred pending
response to Operator's notice proposing a Reworking,
- 7 -
<PAGE>
A.A.P.L FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in
such a well (including the period required under Article VI.B.6. to resolve
competing proposals) shall be charged and borne as part of the drilling or
Deepening operation just completed. Stand-by costs subsequent to all parties
responding, or expiration of the response time permitted, whichever first
occurs,and prior to agreement as to the participating interests of all
Consenting Parties pursuant to the terms of the second grammatical paragraph of
Article VI.B.2. (a), shall be charged to and borne as part of the proposed
operation, but if the proposal is subsequently withdrawn because of insufficient
participation, such stand-by costs shall be allocated between the Consenting
Parties in the proportion each Consenting Party's interest as shown on Exhibit
"A" bears to the total interest as shown on Exhibit "A" of all Consenting
Parties.
In the event that notice for a Sidetracking operation is given while the
drilling rig to be utilized is on location, any Non-Operator may request and
receive up to five (5) additional days after expiration of the twenty-four (24)
hour response period specified in Article VI.B.1 within which to respond by
paying for all stand-by costs and other costs incurred during such extended
response period; Operator may require such Non-Operator to pay the estimated
stand-by time in advance as a condition to extending the response period. If
more than one party elects to take such additional time to respond to the
notice, standby costs shall be allocated between the parties taking additional
time to respond on a day-to-day basis in the proportion each electing party's
interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit
"A" of all the electing parties.
4. Deepening: If less than all the parties elect to participate in a
---------
drilling, Sidetracking, or Deepening operation proposed pursuant to Article
VI.B.1, the interest relinquished by the Non-Consenting Parties to the
Consenting Parties under Article VI.B.2, shall relate only and be limited to the
lesser of (i) the total depth actually drilled or (ii) the objective depth or
Zone of which the parties were given notice under Article VI.B.1 ("Initial
Objective"). Such well shall not be Deepened beyond the Initial Objective
without first complying with this Article to afford the Non-Consenting Parties
the opportunity to participate in the Deepening operation.
In the event Operator desires to drill or Deepen a Non-Consent Well to a
depth below the Initial Objective, Operator shall give notice thereof, complying
with the requirements of Article VI.B.1, to all Non-Operators (including Non-
Consenting Parties). Thereupon, Articles VI.B1. and 2. shall apply and all Non-
Operators receiving such notice shall have the right to participate or not
participate in Deepening of such well pursuant to said Articles VI.B.1 and 2. If
a Deepening operation is approved pursuant to such provisions, and if any Non-
Consenting Party elects to participate in the Deepening operation, such Non-
Consenting Party shall pay or make reimbursement (as the case may be) of the
following costs and expenses:
(a) If the proposal to Deepen is made prior to the Completion of such
well as a well capable of producing in paying quantities, such Non-Consenting
Party shall pay (or reimburse Consenting Parties for, as the case may be) that
share of costs and expenses incurred in connection with the drilling of said
well from the surface to the Initial Objective which Non-Consenting Party would
have paid had such Non-Consenting Party agreed to participate therein, plus the
Non-Consenting Party's share of the cost of Deepening and of participants in any
further operations on the well in accordance with the other provisions of this
Agreement; provided, however, all costs for testing and Completion or attempted
Completion of the well incurred by Consenting Parties prior to the point of
actual operations to Deepen beyond the Initial Objective shall be for the sole
account of Consenting Parties.
(b) If the proposal is made for a Non-Consent Well that has been
previously Completed as a well capable of producing in paying quantities, but is
no longer capable of producing in paying quantities, such Non-Consenting Party
shall pay (or reimburse Consenting Parties for, as the case may be) its
proportionate share of all costs of drilling, Completing, and equipping said
well from the surface to the Initial Objective, calculated in the manner
provided in paragraph (a) above, less those costs recouped by the Consenting
Parties from the sale of production from the well. The Non-Consenting Party
shall also pay its proportionate share of all costs of re-entering said well.
The Non-Consenting Parties' proportionate part (based on the percentage of such
well Non-Consenting Party would have owned had it previously participated in
such Non-Consent Well) of the costs of salvable materials and equipment
remaining in the hole and salvable surface equipment used in connection with
such well shall be determined in accordance with Exhibit "C." If the Consenting
Parties have recouped the cost of drilling, Completing and equipping the well at
the time such Deepening operation is conducted, then a Non-Consenting Party may
participate in the Deepening of the well with no payment for costs incurred
prior to re-entering the well for Deepening.
The foregoing shall not imply a right of Operator to propose any
Deepening for a Non-Consent Well prior to the drilling of such well to its
Initial Objective without the consent of the other Consenting Parties as
provided in Article VI.F.
5. Sidetracking: If Operator desires to perform a Sidetracking operation
------------
in a Non-Consent Well, Operator shall give notice thereof, complying with the
requirements of Article VI.B.1, to all Non-Operators (including Non-Consenting
Parties). Thereupon, Articles VI.B.1 and VI.B.2. shall apply and all parties
receiving such notice shall have the right to participate or not participate in
the Sidetracking of such Well pursuant to Articles VI.B.1 and VI.B.2 and VI.B.2.
If a Sidetracking operation is approved pursuant to such provisions, and if any
Non-Consenting Party elects to participate in the Sidetracking operation, such
Non-Consenting Party shall, upon electing to participate, tender to the
Consenting Parties proportionate share (equal to its interest in the
Sidetracking operation) of the value of that portion of the existing wellbore to
be utilized as follows:
(a) If the proposal is for Sidetracking an existing dry hole,
reimbursement shall be on the basis of the actual costs incurred in the initial
drilling of the well down to the depth at which the Sidetracking operation is
initiated.
(b) If the proposal is for Sidetracking a well which has previously
produced reimbursement shall be on the basis of such party's proportionate share
of drilling and equipping costs not previously paid by the Non-Consenting Party
incurred in the initial drilling of the well down to the depth at which the
Sidetracking operation is conducted, calculated in the manner described in
Article VI.B.4(b) above. Such party's proportionate share of the cost of the
well's salvable materials and equipment down to the depth at which the
Sidetracking operation is initiated shall be determined in accordance with the
provisions of Exhibit "C."
<PAGE>
A.A.P.1 FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
7. Conformity to Spacing Pattern. Notwithstanding the provisions of this
-----------------------------
Article VI.B.2., it is agreed that no wells shall be proposed to be drilled to
or Completed in or produced from a Zone from which a well located elsewhere on
the Contract Area is producing, unless such well conforms to the then-existing
well spacing pattern for such Zone.
8. Paying Wells. Operator shall not conduct any Reworking, Deepening, Plugging
------------
Back, Completion, Recompletion, or Sidetracking operation under this agreement
with respect to any well then capable of producing in paying quantities except
with the consent of all Non-Operators that have not relinquished interests in
the well at the time of such operation.
C. Completion of Wells; Reworking and Plugging Back:
1. Completion: Without the consent of all parties, no well shall be drilled,
----------
Deepened or Sidetracked, except any well drilled, Deepened or Sidetracked
pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the
drilling, Deepening or Sidetracking shall include:
[_] Option No. 1: All necessary expenditures for the drilling, Deepening or
------------
Sidetracking, testing, Completing and equipping of the well, including
necessary tankage and/or surface facilities.
[X] Option No. 2: All necessary expenditures for the drilling, Deepening or
------------
Sidetracking and testing of the well. When such well has reached its
authorized depth, and all logs, cores and other tests have been
completed, and the results thereof furnished to the parties, Operator
shall give immediate notice to the Non-Operators having the right to
participate in a Completion attempt whether or not Operator recommends
attempting to Complete the well, together with Operator's AFE for
Completion costs if not previously provided. The parties receiving such
notice shall have twenty-four (24) hours inclusive of Saturday, Sunday
and legal holidays) in which to elect by delivery of notice to Operator
to participate in a recommended Completion attempt. Election to
participate in a Completion attempt shall include consent to all
necessary expenditures for the Completing and equipping of such well,
including necessary tankage and/or surface facilities but excluding any
stimulation operation not contained on the Completion AFE. Failure of
any party receiving such notice to reply within the period above fixed
shall constitute an election by that party to participate in the cost of
the Completion attempt; provided, that Article XI.F shall control in the
case of conflicting Completion proposals. If one or more, but less than
all of the parties, elect to attempt a Completion, the provisions of
Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening,
Recompleting or Plugging Back" as contained in Article VI.B.2. shall be
deemed to include "Completing") shall apply to the operations thereafter
conducted by less than all parties; provided, however, that Article
VI.B.2. shall apply separately to each separate Completion or
Recompletion attempt undertaken hereunder, and an election to become a
Non-Consenting Party as to one Completion or Recompletion attempt shall
not prevent a party from becoming a Consenting Party in subsequent
Completion or Recompletion attempts regardless whether the Consenting
Parties as to earlier Completions or Recompletions have recouped their
costs pursuant to Article VI.B.2.; provided further, that any recoupment
of costs by a Consenting Party shall be made solely from the production
attributable to the Zone in which the Completion attempt is made.
Election by a previous Non-Consenting Party to participate in a
subsequent Completion or Recompletion attempt in a Non-Consent Well
shall require such party to pay its proportionate share of the cost of
salvable materials and equipment installed in the Non-Consent Well
pursuant to the previous Completion or Recompletion attempt, insofar and
only insofar as such materials and equipment benefit the Zone in which
such party participates in a Completion attempt.*
2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted
-------------------------------
or Plugged Back except a well Reworked, Recompleted, or Plugged Back pursuant
to the provisions of Article V1.B.2. of this agreement. Consent to the
Reworking, Recompleting or Plugging Back of a well shall include all necessary
expenditures in conducting such operations and Completing and equipping of said
well, including necessary tankage and/or surface facilities.
D. Other Operations:
Operator shall not undertake any single project reasonably estimated to
require an expenditure in excess of Twenty-five Thousand Dollars ($25,000.00)
except in connection with the drilling, Sidetracking, Reworking, Deepening,
Completing, Recompleting or Plugging Back of a well that has been previously
authorized by or pursuant to this agreement; provided, however, that, in case
of explosion, fire, flood or other sudden emergency, whether of the same or
different nature, Operator may take such steps and incur such expenses as in
its opinion are required to deal with the emergency to safeguard life and
property but Operator, as promptly as possible, shall report the emergency to
the other parties. If Operator prepares an AFE for its own use, Operator shall
furnish any Non-Operator so requesting an information copy thereof for any
single project costing in excess of Twenty-five Thousand Dollars ($25,000.00).
Any party who has not relinquished its interest in a well shall have the right
to propose that Operator perform repair work or undertake the installation of
artificial lift equipment or ancillary production facilities such as salt water
disposal wells or to conduct additional work with respect to a well drilled
hereunder or other similar project (but not including the installation of
gathering lines or other transportation or marketing facilities, the
installation of which shall be governed by separate agreement between the
parties) reasonably estimated to require an expenditure in excess of the amount
first set forth above in this Article VI.D. (except in connection with an
operation required to be proposed under Articles VI.B.1. or VI.C.1. Option No.
2, which shall be governed exclusively by those Articles). Operator shall
deliver such proposal to all parties entitled to participate therein. If within
thirty (30) days thereof Operator secures the written consent of any party or
parties owning at least 50% of the interests of the parties entitled to
participate in such operation, each party having the right to participate in
such project shall be bound by the terms of such proposed and shall be
obligated to pay its proportionate share of the costs of the proposal project
as if it had consented to such project pursuant to the terms of the proposal.
E. Abandonment of Wells:
1. Abandonment of Dry Holes: Except for any well drilled or Deepened
------------------------
pursuant to Article VI.B.2., any well which has been drilled or Deepened under
the terms of this agreement and is proposed to be completed as a dry hole shall
not be
*, in addition to all other amounts that such Non-Consenting Party is
obligated to pay under Article VI.B.4, Article VI.B.5, or otherwise under this
agreement.
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
plugged and abandoned without the consent of all parties. Should Operator,
after diligent effort, be unable to contact any party, or should any party fail
to reply within twenty-four (24) hours (inclusive of Saturday, Sunday and legal
holidays) after delivery of notice of the proposal to plug and abandon such
well, such party shall be deemed to have consented to the proposed abandonment.
All such wells shall be plugged and abandoned in accordance with applicable
regulations and at the cost, risk and expense of the parties who participated in
the cost of drilling or Deepening such well. Any party who objects to plugging
and abandoning such well by notice delivered to Operator within twenty-four (24)
hours (inclusive of Saturday, Sunday and legal holidays) after delivery of
notice of the proposed plugging shall take over the well as of the end of such
twenty-four (24) hour notice period and conduct further operations in search of
Oil and/or Gas subject to the provisions of Article VI.B.; failure of such party
to provide proof reasonably satisfactory to Operator of its financial capability
to conduct such operations or to take over the well within such period or
thereafter to conduct operations on such well or plug and abandon such well
shall entitle Operator to retain or take possession of the well and plug and
abandon the well. The party taking over the well shall indemnify Operator (if
Operator is an abandoning party) and the other abandoning parties against
liability for any further operations conducted on such well except for the costs
of plugging and abandoning the well and restoring the surface, for which the
abandoning parties shall remain proportionately liable.
2. Abandonment of Wells That Have Produced: Except for any well in which a
----------------------------------------
Non-Consent operation has been conducted hereunder for which the Consenting
Parties have not been fully reimbursed as herein provided, any well which has
been completed as a producer shall not be plugged and abandoned without the
consent of all parties. If all parties consent to such abandonment, the well
shall be plugged and abandoned in accordance with applicable regulations and at
the cost, risk, and expense of all the parties hereto. Failure of a party to
reply within sixty (60) days of delivery of notice of proposed abandonment shall
be deemed an election to consent to the proposal. If, within sixty (60) days
after delivery of notice of the proposed abandonment of any well, all parties do
not agree to the abandonment of such well, those wishing to continue its
operation from the Zone then open to production shall be obligated to take over
the well as of the expiration of the applicable notice period and shall
indemnify Operator (if Operator is an abandoning party) and the other abandoning
parties against liability for any further operations on the well conducted by
such parties. Failure of such party or parties to provide proof reasonably
satisfactory to Operator of their financial capability to conduct such
operations or to take over the well within the required period or thereafter to
conduct operations on such well shall entitle Operator to retain or take
possession of such well and plug and abandon the well.
Parties taking over a well as provided herein shall tender to each of the
other parties its proportionate share of the value of the well's salvable
material and equipment, determined in accordance with the provisions of Exhibit
"C", less the estimated cost of salvaging and the estimated cost of plugging and
abandoning and restoring the surface; provided, however, that in the event the
estimated plugging and abandoning and surface restoration costs and the
estimated cost of salvaging are higher than the value of the well's salvable
material and equipment, each of the abandoning parties shall tender to the
parties continuing operations their proportionate shares of the estimated excess
cost. Each abandoning party shall assign to the non-abandoning parties, without
warranty, express or implied, as to title or as to quantity, or fitness for use
of the equipment and material, all of its interest in the wellbore of the well
and related equipment, together with its interest in the Leasehold insofar and
only insofar as such Leasehold covers the right to obtain production from that
wellbore in the Zone then open to production. The assignments so limited shall
encompass the Drilling Unit upon which the well is located. The payments by,
and the assignments to, the assignees shall be in a ratio based upon the
relationship of their respective percentage of participation in the
Prospect included in the Contract Area on which such well is located to the
aggregate of the percentages of participation in such Prospect Area of all
assignees. There shall be no readjustment of interests in the remaining portions
of the Contract Area.
Thereafter, abandoning parties shall have no further responsibility,
liability, or interest in the operation of or production from the well in the
Zone then open. Upon request, Operator shall continue to operate the assigned
well for the account of the non-abandoning parties at the rates and charges
contemplated by this agreement, plus any additional cost and charges which may
arise as the result of the separate ownership of the assigned well. Upon
proposed abandonment of the producing Zone assigned, the assignor shall then
have the option to repurchase its prior interest in the well (using the same
valuation formula) and participate in further operations therein subject to the
provisions hereof.
3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1.
--------------------------------------
or VI.E.2. above shall be applicable as between Consenting Parties in the event
of the proposed abandonment of any Non-Consent Well excepted from said Articles;
provided, however, no well shall be permanently plugged and abandoned unless and
until all parties having the right to conduct further operations therein have
been notified of the proposed abandonment and afforded the opportunity to elect
to take over the well in accordance with the provisions of this Article VLE; and
provided further, that Non-Consenting Parties who own an interest in a portion
of the well shall pay their proportionate shares of abandonment and surface
restoration costs for such well as provided in Article VI.B.2.(b).
F. Termination of Operations:
Upon the commencement of an operation for the drilling, Reworking,
Sidetracking, Plugging Back, Deepening, testing, Completion or plugging of a
well, such operation shall not be terminated without consent of parties bearing
100% of the costs of such operation; provided, however, that in the event
granite or other practically impenetrable substance or condition in the hole is
encountered which renders further operations impractical, provisions of Article
VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.
G. Taking Production in Kind:
<PAGE>
[X] Option No. 2: No Gas Balancing Agreement:
-------------
Each party shall take in kind or separately dispose of its
proportionate share of all Oil and Gas produced from the Contracts Area,
exclusive of production which may be used in development and producing
operations and in preparing and treating Oil and Gas for marketing
purposes and production unavoidably lost. Any extra expenditure incurred
in the taking in kind or separate disposition by any party of its
proportionate share of the production shall be borne by such party. Any
party taking its share of production in kind shall be required to pay for
only its proportionate share of such part of Operator's surface facilities
which it uses.
Each party shall execute such division orders and contracts as may be
necessary for the sale of its interest in production from the Contract
Area, and, except as provided in Article VII.B., shall be entitled to
receive payment directly from purchaser thereof for its share of all
production.
If any party fails to make the arrangement necessary to take in kind or
separately dispose of its proportionate share of the Oil and/or Gas
produced from the Contract Area, Operator shall purchase such Oil and/or
Gas or sell it to others at any time and from time to time, for the
account of the non-taking party. Any such purchase or sale by Operator may
be terminated by Operator upon at least ten (10) days written notice to
the owner of said production shall be subject always to the right of the
owner of the production upon at least ten (10) days written notice to
Operator to exercise its right to take in kind, or separately dispose of,
its share of all Oil and/or Gas not previously delivered to a purchaser;
provided, however, that the effective date of any such revocation may be
deferred at Operator's election for a period not to exceed ninety (90)
days if Operator has committed such production to a purchase contract
having a term extending beyond such ten (10) -day period. Any purchase or
sale by Operator of any other party's share of Oil and/or Gas shall be
only for such reasonable periods of time as are consistent with the
minimum needs of the industry under the particular circumstances, but in
no event for a period in excess of one (1) year. In addition, see Article
XVI.3 below.
Subject to the provisions of Article XV.J, any such sale by Operator
shall be in a manner commercially reasonable under the circumstances, but
Operator shall have no duty to share any existing market or transportation
arrangement or to obtain a price or transportation fee equal to that
received under any existing market or transportation arrangement. The sale
of delivery by Operator of a non-taking party's share of production under
the terms of any existing contract of Operator shall not give the non-
taking party any interest in or make the non-taking party a party to said
contract. No purchase of Oil and Gas and no sale of Gas shall be made by
Operator without first giving the non-taking party ten days written notice
of such intended purchase or sale and the price to be paid or the pricing
basis to be used. Operator shall give notice to all parties of the first
sale of Gas from any well under this Agreement.
All parties shall give timely written notice to Operator of their Gas
marketing arrangements for the following month, excluding price, and shall
notify Operator immediately in the event of a change in such arrangements.
Operator shall maintain records of all marketing arrangement, and of
volumes sold or transported, which records shall be made available to Non-
Operators upon reasonable requests.
ARTICLE VII.
EXPENDITURES AND LIABILITY OF PARTIES
A. Liability
The liability of the parties shall be several, not joint or collective. Each
party shall be responsible only for its obligations, and shall be liable only
for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the parties in Article
VII.B. are given to secure only the debts of each severally, and no party shall
have any liability to third parties hereunder to satisfy the default of any
other party in the payment of any expense or obligation hereunder. It is not
the intention of the parties to create, nor shall this agreement be construed as
creating, a mining or other principals. In their relations with each other
under this agreement, the parties shall not be considered fiduciaries or to have
established a confidential relationship but rather shall be free to act on an
arm's-length basis in accordance with their own respective self-interest,
subject, however, to the obligation of the parties to act in good faith in their
dealings with each other with respect to activities hereunder.
<PAGE>
B. Liens and Security Interests:
Each party grants to the other parties hereto a lien upon any interest
it now owns or hereafter acquires in Oil and Gas Leases in the Contract Area,and
a security interest and/or purchase money security interest in any interest it
now owns or hereafter acquires in personal property and fixtures on or used or
obtained for use in connection therewith, to secure performance of all of its
obligations under this agreement including but not limited to payment of
expense, interest and fees, the proper disbursement of all monies paid
hereunder, the assignment or relinquishment of interest in Oil and Gas Leases as
required hereunder, and the proper performance of operations hereunder. Such
lien and security interest granted by each party hereto shall include such
party's leasehold interests, working interests, operating rights, and royalty
and overriding royalty interests in the Contract Area now owned or hereafter
acquired and in lands pooled or utilized therewith or otherwise becoming subject
to this agreement, the Oil and Gas when extracted therefrom and equipment
situated thereon or used or obtained for use in connection therewith (including,
without limitation, all wells, tools, and tubular goods), and accounts
(including, without limitation, accounts arising from gas imbalances or from the
sale of Oil and/or Gas at the wellhead), contract rights, inventory and general
intangibles relating thereto or rising therefrom, and all proceeds and products
of the foregoing. Some of the foregoing items of personal property and equipment
is or will become fixtures on the Contract Area, and the interest of each party
in and to the Oil and Gas when extracted from the Contract Area and the accounts
receivable accruing or arising as the result of the sale thereof shall be
financed at the wellhead of the well or wells located on the Contract Area.
To perfect the lien and security agreement provided herein, each party
hereto shall execute and acknowledge the recording supplement and/or any
financing statement prepared and submitted by any party hereto in conjunction
herewith or any time following execution hereof, and Operator is authorized to
file this agreement (including a carbon, photographic, or other reproduction
hereof) or the recording supplement executed herewith as a lien or
mortgage in the applicable real estate records and as a financing statement with
the proper officer under the Uniform Commercial Code in the state in which the
Contract Area is situated and such other states as Operator shall deem
appropriate to perfect the security interest granted hereunder. Any party may
file this agreement, the recording supplement executed herewith, or such other
documents as it deems necessary as a lien or mortgage in the applicable real
estate records and/or a financing statement with the proper officer under the
Uniform Commercial Code.
Each party represents and warrants to the other parties hereto that the
lien and security interest granted by such party to the other parties shall be a
first and prior lien, and each party hereby agrees to maintain the priority of
said lien and security interest against all persons acquiring an interest in Oil
and Gas Leases covered by this agreement by, through or under such party. All
parties acquiring an interest in Oil and Gas Leases covered by this agreement,
whether by assignment, merger, mortgage, operation of law, or otherwise, shall
be deemed to have taken subject to the lien and security interest granted by
this Article VILB. as to all obligations attritibutable to such interest
hereunder whether or not such obligations arise before or after such interest is
acquired.
To the extent that parties have a security interest under the Uniform
Commercial Code of the state in which the Contract Area is situated, they shall
be entitled to exercise the rights and remedies of a secured party under the
Code. The bringing of a suit and the obtaining of judgment by a party for the
secured indebtedness shall not be deemed an election of remedies or otherwise
affect the lien rights or security interest as security for the payment thereof.
In addition, upon default by any party in the payment of its share of expenses,
interests or fees, or upon the improper use of funds by the Operator, the other
parties shall have the right, without prejudice to other rights or remedies, to
collect from the purchaser the proceeds from the sale of such defaulting party's
share of Oil and Gas until the amount owed by such party, plus interest provided
in "Exhibit C," has been received,and shall have the right to offset the amount
owed against the proceeds from the sale of such defaulting party's share of Oil
and Gas. All purchasers of production may rely on a notification of default from
the non-defaulting party or parties stating the amount due as a result of the
default, and all parties waive any recourse available against purchasers for
releasing production proceeds as provided in this paragraph.
If any party fails to pay its share of cost within one hundred twenty
(120) days after rendition of a statement therefor by Operator, the non-
defaulting parties, including Operator, shall, upon request by Operator, pay the
unpaid amount in the proportion that the interest of each such party bears to
the interest of all such parties. The amount paid by each party so paying its
share of the unpaid amount shall be secured by the liens and security rights
described in Article VIL.B., and each paying party may independently pursue any
remedy available hereunder or otherwise.
If any party does not perform all of its obligations hereunder, and the
failure to perform subjects such party to foreclosure or execution proceedings
pursuant to the provisions of this agreement, to the extent allowed by governing
law, the defaulting party waives any available right of redemption from and
after the date of judgment, any required valuation or appraisement of the
mortgaged or secured property prior to sale, any available right to stay
execution or to require a marshalling of assets and any required bond in the
event a receiver is appointed. In addition, to the extent permitted by
applicable law, each party hereby grants to the other parties a power of sale as
to any property that is subject to the lien and security rights granted
hereunder, such power to be exercised in the manner provided by applicable law
or otherwise in a commercially reasonable manner and upon reasonable notice. See
Article XVI.I below.
Each party agrees that the other parties shall be entitled to utilize
the provisions of Oil and Gas lien law or other lien law of any state in which
the Contract Area is situated to enforce the obligations of each party
hereunder. Without limiting the generality of the foregoing, to the extent
permitted by applicable law, Non-Operators agree that Operator may invoke or
utilize the mechanics' or materialmen's lien law of the state in which the
Contract Area is situated in order to secure the payment to Operator of any sum
due hereunder for services performed or materials supplied by Operator.
C. Advances:
Operator, at its election, shall have the right from time to time to
demand and receive from one or more of the other parties payment in advance of
their respective shares of the estimated amount of the expense to be incurred in
operations hereunder during the next succeeding month, which right may be
exercised only by submission to each such party of an itemized statement of such
estimated expense, together with an invoice for its share thereof. Each such
statement and invoice for the payment in advance of estimated expense shall be
submitted on or before the 20th day of the next preceding month. Each party
shall pay to Operator its proportionate share of such estimate within fifteen
(15) days after such estimate and invoice is received. If any party fails to pay
its share of said estimate within said time, the amount due shall bear interest
as provided in Exhibit "C" until paid. Proper adjustment shall be made monthly
between advances and actual expense to the end that each party shall bear and
pay its proportionate share of actual expense incurred, and no more. In
addition, see Article XVI.H below.
D. Defaults and Remedies:
If any party fails to discharge any financial obligations under this
agreement, including without limitation the failure to make any advance under
the preceding Article VII.C Article XVI.H. of any other provision of this
agreement, within the period required for such payment hereunder, then in
addition to the remedies provided in Article VII.B. or elsewhere in this
agreement, the remedies specified below shall be applicable. For purposes of
this Article VII.D., all notices and elections shall be delivered
17
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
only by Operator, except that Operator shall deliver any such notice and
election requested by a non-defaulting Non-Operator, and when Operator is the
party in default, the applicable notices and elections can be delivered by any
Non-Operator. Election of any one or more of the following remedies shall not
preclude the subsequent use of any other remedy specified below or otherwise
available to a non-defaulting party.
1.Suspension of Rights: Any party may deliver to the party in default a Notice
--------------------
of Default, which shall specify the default, specify the action to be taken to
cure the default, and specify that failure to take such action will result in
the exercise of one or more of the remedies provided in this Article. If the
default is not cured within thirty (30) days of the delivery of such Notice of
Default, all of the rights of the rights of the defaulting party granted by this
agreement may upon notice be suspended until the default is cured, without
prejudice to the right of the non-defaulting party or parties to continue to
enforce the obligations of the defaulting party previously accrued or thereafter
accruing under this agreement. If Operator is the party in default; the Non-
Operators shall have in addition the right, by vote of Non-Operators owning a
majority in interest in the Contract Area after excluding the voting interest of
Operator, to appoint a new Operator effective immediately. The rights of a
defaulting party that may be suspended hereunder at the election of the non-
defaulting parties shall include, without limitation, the right to receive
information as to any operation conducted hereunder during the period of such
default, the right to elect to participate in an operation proposed under
Article VI.B. of this agreement, the right to participate in an operation being
conducted under this agreement even if the party has previously elected to
participate in such operation, and the right to receive proceeds of production
from any well subject to this agreement.
2.Suit for Damages: Non-defaulting parties or Operator for the benefit of
----------------
non-defaulting parties may sue (at joint account expense) to collect the amounts
in default, plus interest accruing on the amounts recovered from the date of
default until the date of collection at the rate specified in Exhibit "C"
attached hereto. Nothing herein shall prevent any party from suing any
defaulting party to collect consequential damages accruing to such a party as a
result of the default.
3.Deemed Non-Consent: The non-defaulting party may deliver a written Notice of
------------------
Non-Consent Election to the defaulting party at any time after the expiration of
the thirty-day cure period following delivery of the Notice of Default, in which
event if the billing is for the drilling of a new well or the Plugging Back,
Sidetracking, Reworking or Deepening of a well, or for the Completion or
Recompletion of any well, the defaulting party will be conclusively deemed to
have elected not to participate in the operation and to be a Non-Consenting
Party with respect thereto under Article VI.B. or VI.C., as the case may be, to
the extent of the costs unpaid by such party, notwithstanding any election to
participate theretofore made. If election is made to proceed under this
provision, then the non-defaulting parties may not elect to sue for the unpaid
amount pursuant to Article VII.D.2.
Under the delivery of such Notice of Non-Consent Election to the defaulting
party, such party shall have the right to cure its default by paying its unpaid
share of costs plus interest at the rate set forth in Exhibit "C," provided,
however, such payment shall not prejudice the rights of the non-defaulting
parties to pursue remedies for damages incurred by the non-defaulting parties as
a result of the default. Any interest relinquished pursuant to this Article
VII.D.3. shall be offered to the non-defaulting parties in proportion to their
interests, and the non-defaulting parties electing to participate in the
ownership of such interest shall be required to contribute their shares of the
defaulted amount upon their election to participate therein.
4.Advance Payment: If a default is not cured within thirty (30) days of the
---------------
delivery of a Notice of Default, Operator, or Non-Operators if Operator is the
defaulting party, may thereafter require advance payment from the defaulting
party of such defaulting party's anticipated share of any item of expense for
which Operator, or Non-Operators, as the case may be, would be entitled to
reimbursement under any provision of this agreement, whether or not such expense
was the subject of previous default. Such right includes, but is not limited to,
the right to require advance payment for the estimated costs of drilling a well
or Completion of a well as to which an election to participate in drilling or
Completion has been made. If the defaulting party fails to pay the required
advance payment, the non-defaulting parties may pursue any of the remedies
provided in the Article VII.D. or any other default remedy provided elsewhere in
this agreement. Any excess of funds advanced remaining when the operation is
completed and all costs have been paid shall be promptly returned to the
advancing party.
5.Costs and Attorneys' Fees. In the event any party is required to bring legal
-------------------------
proceedings to enforce any financial obligation of a party hereunder, the
prevailing party in such action shall be entitled to recover all court costs,
costs of collection, and a reasonable attorney's fee, which the lien provided
for herein shall also secure.
E.Rentals, Shut-in Well Payments and Minimum Royalties: See Articles XVI.C and
XVI.E below.
Operator shall notify Non-Operators of the anticipated completion of a shut-in
well, or the shutting in or return to production of a producing well, at least
five (5) days (excluding Saturday, Sunday and legal holidays) prior to taking
such action, or at the earliest opportunity permitted by circumstances, but
assumes no liability for failure to do so. In the event of failure by Operator
to so notify Non-Operators, the loss of any lease contributed hereto by
Non-Operators for failure to make timely payments of any shut-in well payment
shall be borne jointly by the parties hereto under the provisions of Article
IV.B.3.
F.Taxes:
Beginning with the first calendar year after the effective date hereof,
Operator shall render for ad valorem taxation all property subject to this
agreement which by law should be rendered for such taxes, and it shall pay all
such taxes assessed thereon before they become delinquent. Prior to the
rendition date, each Non-Operator shall furnish Operator information as to
burdens (to include, but not be limited to, royalties, overriding royalties and
production payments) on Leases contributed by such Non-Operator. If the assessed
valuation of any Lease is reduced by reason of its being subject to outstanding
excess royalties, overriding royalties or production payments, the reduction in
ad valorem taxes resulting therefrom shall inure to the benefit of the owner or
owners of such Lease, and Operator shall adjust the charge to such owner or
owners so as to reflect the benefit of such reduction. If the ad valorem taxes
based in whole or in part upon separate valuations of each party's working
interest, then notwithstanding anything to the contrary herein, charges to the
joint account shall be made and paid by the parties hereto in accordance with
the tax value generated by each party's working interest. Operator shall bill
the other parties for their proportionate shares of all tax payments in the
manner provided in Exhibit "C."
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<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner prescribed by law, and prosecute
the protest to a final determination, unless all parties agree to abandon the
protest prior to final determination. During the pendency of administrative or
judicial proceedings, Operator may elect to pay, under protest, all such taxes
and any interest and penalty. When any such protested assessment shall have been
finally determined, Operator shall pay the tax for the joint account, together
with any interest and penalty accrued, and the total cost shall then be assessed
against the parties, and be paid by them, as provided in Exhibit "C. "
Each party shall pay or cause to be paid all production, severance,
excise, gathering and other taxes imposed upon or with respect to the production
or handling of such party's share of Oil and Gas produced under the terms of
this agreement.
ARTICLE VIII.
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
A. Surrender of Leases:
The Leases covered by this agreement, insofar as they embrace acreage in
the Contract Area, shall not be surrendered in whole or in part unless all
parties consent thereto .
However, should any party desire to surrender its interest in the Lease
comprising a "Prospect" (as defined in the Exploitation Agreement), such party
shall give written notice of the proposed surrender to all parties in interest
in the relevant Prospect, and the parties to whom such notice is delivered shall
have thirty (30) days after delivery of the notice within which to notify the
party proposing the surrender whether they elect to consent thereto. Failure of
a party to whom such notice is delivered to reply within said 30-day period
shall constitute a consent to the surrender of the Prospect described in the
notice. If all parties in interest do not agree or consent thereto, the party
desiring to surrender shall assign, without express or implied warranty of
title, all of its interest in such Prospect and the Leases compromising the same
and any well, material and equipment which may be located thereon and any rights
in production thereafter secured, to the parties not consenting to such
surrender. Upon such assignment or lease, the assigning party shall be relieved
from all obligations thereafter accruing, but not therefore accrued, with
respect to the interest assigned and the operation of any well attributable
thereto, and the assigning party shall have no further interest in the assigned
premises and its equipment and production. The party assignee shall pay to the
party assignor the reasonable salvage value of the latter's interest in any
well's salvable materials and equipment attributable to the assigned acreage.
The value of all salvable materials and equipment shall be determined in
accordance with the provisions of Exhibit "C," less the estimated cost of
salvaging and the estimated cost of plugging and abandoning and restoring the
surface. If such value is less than such costs, then the party assignor shall
pay to the party assignee the amount of such deficit. If the assignment is in
favor of more than one party, the interest shall be shared by such parties in
the proportions that the interest of each bears to the total interest of all
such parties. If the interest of the parties to whom the assignment is to be
made varies according to depth, then the interest assigned shall similarly
reflect such variances .
Any assignment or surrender made under this provision shall not reduce
or change the assignor's or surrendering party's interest as it was immediately
before the assignment or surrender in the balance of the Contract Area.
B. Renewal of Extension of Leases:
If any party secures a renewal or replacement of an Oil and Gas Lease
subject to this agreement, then all other parties in interest in such Lease
shall be notified promptly upon such acquisition or, in the case of a
replacement Lease taken before expiration of an existing Lease, promptly upon
expiration of the existing Lease. The parties notified shall have the right for
a period of thirty (30) days (or twenty-four (24) hours, inclusive of Saturdays,
Sundays, and legal holidays, if a drilling rig is on location on the Contract
Area) following delivery of such notice in which to elect to participate in the
ownership of the renewal or replacement Lease, insofar as such Lease affects
lands within the Contract Area, by paying to the party who acquired it their
proportionate shares of the acquisition cost allocated to that part of such
Lease within the Contract Area, which shall be in proportion to the interests
held at that time by the parties in the Prospect included in the Contract Area
in which the relevant lease is located. Each party who participates in the
purchase of a renewal or replacement Lease shall be given an assignment of its
proportionate interest therein by the acquiring party.
If some, but less than all, of the parties elect to participate in the
purchase of a renewal or replacement Lease , it shall be owned by the parties
who elect to participate therein, in a ratio based upon the relationship of
their respective percentage of participation in the Prospect in which the
relevant Lease is located to the aggregate of the percentages of participation
in such Prospect of all parties participating in the purchase of such renewal or
replacement Lease. The acquisition of a renewal or replacement Lease by any or
all of the parties hereto shall not cause a readjustment of the interests of the
parties stated in Exhibit "A," With respect to the remainder of the Contract
Area. Any renewal or replacement Lease in which less than all parties elect to
participate shall be deemed to be a separate Prospect included in the Contract
Area subject to this Operating Agreement in the form of this agreement .
If the interests of the parties in the Contract Area vary according to
depth, then their right to participate proportionately in renewal or replacement
Leases and their right to receive an assignment of interest shall also reflect
such depth variances.
The provisions of this Article shall apply to renewal or replacement
Leases whether they are for the entire interest covered by the expiring Lease or
cover only a portion of its area or an interest therein. Any renewal or
replacement Lease taken before the expiration of its predecessor Lease, or
taken or contracted for or becoming effective within six (6) months after the
expiration of the existing Lease, shall be subject to this provision so long as
this agreement is in effect at the time of such acquisition or at the time the
renewal or replacement Lease becomes effective; but any Lease taken or
contracted for more than six (6) months after the expiration of an existing
Lease shall not be deemed a renewal or replacement Lease and shall not be
subject to the provisions of this agreement.
The provisions in this Article shall also be applicable to extensions of
Oil and Gas Leases.
C. Acreage or Cash Contributions:
While this agreement is in force, if any party contracts for a
contribution of cash towards the drilling of a well or, any other operation on
the Contract Area, such contribution shall be paid to the party who conducted
the drilling or other operation and shall be applied by it against the cost of
such drilling or other operation. If the contribution be in the form of acreage,
the party to whom the contribution is made shall promptly tender an assignment
of the acreage, without warranty of title, to the Drilling Parties in the
proportions said Drilling Parties shared the cost of drilling the well. Such
acreage shall become a separate Prospect within the Contract Area and, to the
extent possible, be governed by the provisions of this agreement. Each party
shall promptly notify all other parties of any acreage or cash contributions it
may obtain in support of any well or any other operation on the Contract Area.
The above provisions shall also be applicable to optional rights to earn acreage
outside the Contract Area which are in support of well drilled inside the
Contract Area.
<PAGE>
A.A.P.I FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If any party contracts for any consideration relating to disposition of such
party's share of substances produced hereunder, such consideration shall not be
deemed a contribution as contemplated in this Article VIII.C.
D. Assignment; Maintenance of Uniform Interest:
For the purpose of maintaining uniformity of ownership in each "Prospect" (as
defined in the Exploitation Agreement) included in the Contract Area and the Oil
and Gas Leases, wells, equipment and production covered by this agreement, no
party shall sell, encumber, transfer or make other disposition of its interest
in the Oil and Gas Leases embraced within a particular Prospect included in the
Contract Area or in wells, equipment and production located thereon unless such
disposition covers either:
1. the entire interest of the party in all Oil and Gas Leases, wells,
equipment and production, comprising the relevant Prospect
2. an equal undivided percent of the party's present interest in all Oil
and Gas Leases, wells, equipment and production comprising the relevant
Prospect.
Every sale, encumbrance, transfer or other disposition made by any party
shall be made expressly subject to this agreement and shall be made without
prejudice to the right of the other parties, and any transferee of an ownership
interest in any Oil and Gas Lease shall be deemed a party to this agreement as
to the interest conveyed from and after the effective date of the transfer of
ownership; provided, however, that subject to the provisions of Article XVI.L,
the other parties shall not be required to recognize any such sale, encumbrance,
transfer or other disposition for any purpose hereunder until thirty (30) days
after they have received a copy of the instrument of transfer or other
satisfactory evidence thereof in writing from the transferor or transferee. No
assignment or other disposition of interest by a party shall relieve such party
of obligations previously incurred by such party hereunder with respect to the
interest transferred, including without limitation the obligation of a party to
pay all costs attributable to an operation conducted hereunder in which such
party has agreed to participate prior to making such assignment, and the lien
and security interest granted by Article VII.B. shall continue to burden the
interest transferred to secure payment of any such obligations.
Subject to the provisions of Article XVI.I if at any time the interest of
any party is divided among and owned by one or more co-owners, Operator, at its
discretion, may require such co-owners to appoint a single trustee or agent with
full authority to receive notices, approve expenditures, receive billings for
and approve and pay such party's share of the joint expenses, and to deal
generally with, and with power to bind, the co-owners of such party's interest
within the scope of the operations embraced in this agreement; however, all such
co-owners shall have the right to enter into and execute all contracts or
agreements for the disposition of their respective shares of the Oil and Gas
produced from the Contract Area and they shall have the right to receive,
separately, payment of the sale proceeds thereof, subject, however, to the
provisions of Articles XV.J and XV.K.
E. Waiver of Rights to Partition:
If permitted by the laws of the state or states in which the property
covered hereby is located, each party hereto owning an undivided interest in the
Contract Area waives any and all rights it may have to partition and have set
aside to it in severalty its undivided interest therein.
ARTICLE IX.
INTERNAL REVENUE CODE ELECTION
If, for federal income tax purposes, this agreement and the operations
hereunder are regarded as a partnership, and if the parties have not otherwise
agreed to form a tax partnership pursuant to other agreement between them, each
party thereby affected elects to be excluded from the application of all of the
provisions of Subchapter "K", Chapter I, Subtitle "A", of the Internal Revenue
Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of
the Code and the regulations promulgated thereunder. Operator is authorized and
directed to execute on behalf of each party hereby affected such evidence of
this election as may be required by the Secretary of the Treasury of the United
States or the Federal Internal Revenue Service, including specifically, but not
by way of limitation, all of the returns, statements, and the data required by
Treasury Regulations (S)1.761. Should there be any requirement that each party
hereby affected give further evidence of this election, each such party shall
execute such documents and furnish such other evidence as may be required by the
Federal Internal Revenue Service or as may be necessary to evidence this
election. No such party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income tax
laws of the state or states in which the Contract Area is located or any future
income tax laws of the United States contain provisions similar to those in
Subchapter "K" Chapter 1, Subtitle "A", of the Code, under which an election
similar to that provided by Section 761 of the Code is permitted, each party
hereby affected shall make such election as may be permitted or required by such
laws. In making the foregoing election, each such party states that the income
derived by such party from operations hereunder can be adequately determined
without the computation of partnership taxable income.
ARTICLE X.
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed Twenty-five
Thousand Dollars ($25,000.00) and if the payment is in complete settlement of
such claim or suit. If the amount required for settlement exceeds the above
amount, the parties hereto shall assume and take over the further handling of
the claim or suit, unless such authority is delegated to Operator. All costs and
expenses of handling, settling, or otherwise discharging such claim or suit
shall be at the joint expense of the parties participating in the operation from
which the claim or suit arises. If a claim is made against any party or if any
party is sued on account of any matter arising from operations hereunder over
which such individual has no control because of the rights given Operator by
this agreement, such party shall immediately notify all other parties, and the
claim or suite shall be treated as any other claim or suit involving operations
hereunder.
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
ARTICLE XI.
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
indemnify or make money payments or furnish security, that party shall give to
all other parties prompt written notice of the force majeure with reasonably
full particulars concerning it; thereupon, the obligations of the party giving
the notice, so far as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force majeure. The term
"force majeure," as here employed, shall mean an act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockade, public
riot, lightning, fire, storm, flood or other act of nature, explosion,
governmental action, governmental delay, restraint or inaction, unavailability
of equipment, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonably within the control of the party
claiming suspension.
The affected party shall use all reasonable diligence to remove the
force majeure situation as quickly as practicable. The requirement that any
force majeure shall be remedied with all reasonable dispatch shall not require
the settlement of strikes, lockouts, or other labor difficulty by the party
involved, contrary to its wishes; how all such difficulties shall be handled
shall be entirely within the discretion of the party concerned.
ARTICLE XII.
NOTICES
All notices authorized or required between the parties by any of the
provisions of this agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, telex, telecopier or any other form of facsimile, postage or charges
prepaid, and addresses to such parties at the address listed on each of the
signature pages hereto. All telephone or oral notices permitted by this
agreement shall be confirmed immediately thereafter by written notice. The
originating notice given under any provision hereof shall be deemed delivered
only when received by the party to whom such notice is directed, and the time
for such party to deliver any notice in response thereto shall run from the date
the originating notice is received. "Receipt" for purposes of this agreement
with respect to written notice delivered hereunder shall be actual delivery of
the notice to the address of the party to be notified specified in accordance
with this agreement, or to the telecopy, facsimile or telex machine of such
party. The second or any responsive notice shall be deemed delivered when
deposited in the United States mail or at the office of the courier or telegraph
service, or upon transmittal by telex, telecopy or facsimile, or when personally
delivered to the party to be notified, provided, that when response is required
within 24 or 48 hours, such response shall be given orally or by telephone,
telex, telecopy or other facsimile within such period. Each party shall have the
right to change its address at any time, and from time to time, by giving
written notice thereof to all other parties. If a party is not available to
receive notice orally or by telephone when a party attempts to deliver a notice
required to be delivered within 24 or 48 hours, the notice may be delivered in
writing by any other method specified herein and shall be deemed delivered in
the same manner provided above for any responsive notice.
ARTICLE XIII.
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Oil and
Gas Leases and/or Oil and Gas Interests subject hereto for the period of time
selected below; provided, however, no party hereto shall ever be construed as
having any right, title or interest in or to any Lease or Oil and Gas Interest
contributed by any other party beyond the term of this agreement.
[_] Option No. 1: So long as any of the Oil and Gas Leases subject
to this agreement remain or are continued in force as to any
part of the Contract Area, whether by production, extension,
renewal or otherwise.
The termination of this agreement shall not relieve any party hereto
from any expense, liability or other obligation or any remedy therefor which
has accrued or attached prior to the date of such termination.
Upon termination of this agreement and the satisfaction of all
obligations hereunder, in the event a memorandum of this Operating Agreement has
been filed of record, Operator is authorized to file of record in all necessary
recording offices a notice of termination, and each party hereto agrees to
execute such a notice of termination as to Operator's interest, upon request of
Operator, if Operator has satisfied all its financial obligations.
ARTICLE XIV.
COMPLIANCE WITH LAWS AND REGULATIONS
A. Laws, Regulations and Orders:
This agreement shall be subject to the applicable laws of the state in
which the Contract Area is located, to the valid rules, regulations, and orders
of any duly constituted regulatory body of said state; and to all other
applicable federal, state, and local laws, ordinances, rules, regulations and
orders.
B. Governing Law:
This agreement and all matters pertaining hereto, including but not
limited to matters of performance, non-performance, breach, remedies,
procedures, rights, duties, and interpretation or construction, shall be
governed and determined by the law of the state in which the Contract Area is
located. All of the parties hereto consent to the exercise of jurisdiction in
personam by the courts of the State of Texas for any action arising out of this
agreement. All actions or proceedings with respect to or arising directly or
indirectly out of or related in any way to this agreement shall be litigated in
courts having situs in Houston, Harris County, Texas.
C. Regulatory Agencies:
Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any rights, privileges, or
obligations which Non-Operators may have under federal or state laws or under
rules, regulations or
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
orders promulgated under such laws in reference to oil, gas and mineral
operations, including the location, operation, or production of wells, on tracts
offsetting or adjacent to the Contract Area.
With respect to the operations hereunder, Non-Operators agree to release
Operator from any and all losses, damages, injuries, claims and causes of action
arising out of, incident to or resulting directly or indirectly from Operator's
interpretation or application of rules, rulings, regulations or orders of the
Department of Energy or Federal Energy Regulatory Commission or predecessor or
successor agencies to the extent such interpretation or application was made in
good faith and does not constitute gross negligence. Each Non-Operator further
agrees to reimburse Operator for such Non-Operator's share of production or any
refund, fine, levy or other governmental sanction that Operator may be required
to pay as a result of such an incorrect interpretation or application, together
with interest and penalties thereon owing by Operator as a result of such
incorrect interpretation or application.
ARTICLE XV.
MISCELLANEOUS
A. Execution:
This agreement shall be binding upon each Non-Operator when this agreement
or a counterpart thereof has been executed by such Non-Operator and Operator
notwithstanding that this agreement is not then or thereafter executed by all of
the parties to which it is tendered or which are listed on Exhibit "A" as owning
an interest in the Contract Area or which own, in fact, an interest in the
Contract Area.
B. Successors and Assigns:
This agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, devisees, legal representatives,
successors and assigns, and the terms hereof shall be deemed to run with the
Leases included within the Contract Area.
C. Counterparts:
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
D. Severability:
For the purposes of assuming or rejecting this agreement as an executory
contract pursuant to federal bankruptcy laws, this agreement shall not be
severable, but rather must be assumed or rejected in its entirety, and the
failure of any party to this agreement to comply with all of its financial
obligations provided herein shall be a material default.*
ARTICLE XVI.
OTHER PROVISIONS
* The invalidity of any provision of this agreement, as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
SEE ARTICLES XVI. A THROUGH XVI.N, BEGINNING ON PAGE 18.
<PAGE>
A. PRECEDENCE OF ARTICLE XVI:
-------------------------
The provisions of this Article XVI shall take precedence over any
provisions in this agreement which may be in conflict therewith.
B. PAYMENT OF ROYALTIES:
--------------------
Subject to the provisions of Article III.B of this agreement, Operator
shall disburse, on behalf of itself and Non-Operators, all burdens upon or
payable out of production from the Contract Area up to, but not in excess of,
the burdens identified on Exhibit "A" (the "Existing Burdens"), and shall submit
evidence of each payment to Non-Operators as soon after the date of such payment
as is practicable. The amounts of such payments, as well as all costs incurred
by Operator in making such payments (including, without limitation, all costs
incurred by Operator in the preparation and circulation of division orders),
shall be charged by Operator to the joint account of the parties and shall be
treated in all respects the same as costs incurred in the development and
operation of the Contract Area. Operator shall diligently attempt to make
proper payment, but Operator shall not be liable in damages to Non-Operators for
the loss of any Oil and Gas Lease or interest therein or otherwise if such
payments are not paid or are erroneously paid unless such non-payment or
erroneous payment results from the gross negligence or willful misconduct of
Operator. The loss of any Oil and Gas Lease or interest therein that results
from the failure to pay or an erroneous payment of any Existing Burden payable
with respect to production from the Contract Area shall be a joint loss borne by
the parties in interest therein in accordance with the interests shown on
Exhibit "A," and there shall be no readjustment of interests in the remaining
portion of the Contract Area. If any party secures a new Oil and Gas Lease
covering the terminated interests, such acquisition shall be subject to the
provisions of Article VIII.B of this agreement. If any Non-Operator elects to
take in kind or separately dispose of its proportionate share of the production
from the Contract Area, however, such Non-Operator shall assume and alone bear
the Existing Burdens attributable to its share of such production and shall
account for, or cause to be accounted for, such share of the Existing Burdens to
the owners thereof, and shall indemnify, defend, and hold the other parties
hereto free from any liability therefor.
C. PAYMENT OF DELAY RENTALS, SHUT-IN ROYALTY, AND MINIMUM ROYALTIES:
----------------------------------------------------------------
Operator shall pay, on behalf of itself and Non-Operators, all delay
rentals, shut-in well payments, and minimum royalties that may be required under
the terms of the Oil and Gas Leases. The amount of such payments, as well as
all costs incurred by Operator in making such payments, shall be charged by
Operator to the joint account of the parties and treated in all respects the
same as costs incurred in the development and operation of the Contract Area.
Operator shall diligently attempt to make, or cause to be made, proper payment,
but shall not be held liable to the other parties in damages for the loss of any
Oil and Gas Lease or interest therein if any rental, shut-in well payment, or
minimum royalty is not paid or is erroneously paid unless such non-payment or
erroneous payment results from the gross negligence or willful misconduct of
Operator. The loss of any Oil and Gas Lease or interest therein that results
from the failure to pay or an erroneous payment of rental, shut-in well
payments, or minimum royalties shall be a joint loss borne by the parties in
interest therein in accordance with the
18
<PAGE>
interests shown on Exhibit "A," and there shall be no readjustment of interests
in the remaining portion of the Contract Area. If any party secures a new Oil
and Gas Lease covering the terminated interests, such acquisition shall be
subject to the provisions of Article VIII.B of this agreement.
D. OPERATIONS NECESSARY TO MAINTAIN LEASE:
--------------------------------------
Notwithstanding the provisions of Article VI of this Operating Agreement,
if any proposed operations are necessary to maintain in full force and effect
either an Oil and Gas Lease or an agreement to earn an interest in an Oil and
Gas Lease that would otherwise expire, any party that elects not to participate
in such operations (the "Non-Consenting Party") shall not be penalized pursuant
to Article VI.B.2 of this agreement, but shall assign to each party that elects
to participate in such operations (the "Consenting Party"), in the proportion
that each Consenting Party's interest bears to the total interest of all
Consenting Parties, all of such Non-Consenting Party's right, title, and
interest in and to the acreage covered by the expiring Oil and Gas Lease or
agreement, and all other Oil and Gas Leases comprising the "Prospect" (as
defined in the Exploitation Agreement) of which the expiring Oil and Gas Lease
or agreement was a part, without expressed or implied warranty of title (but
free and clear of any Subsequently Created Interest placed on such Oil and Gas
Lease or agreement by the relevant Non-Consenting Party). For purposes of this
Article XVI.D, operations to which this Article XVI.D applies include, without
limitation, an operation commenced within six (6) months prior to the date on
which an Oil and Gas Lease or an agreement to earn an interest in an Oil and Gas
Lease would expire in the absence of the relevant operation or an operation that
is obligatory under the terms of an Oil and Gas Lease, including the drilling of
an offset well. Following any such assignment, such acreage shall be deemed to
be a separate Prospect included in the Contract Area subject to this Agreement.
E. ELECTION NOT TO PAY DELAY RENTALS, SHUT-IN WELL PAYMENTS, OR MINIMUM
--------------------------------------------------------------------
ROYALTIES:
---------
Subject to the provisions of Article XV.C of this agreement, each party
shall be obligated to bear its proportionate part of any and all delay rentals,
shut-in well payments, minimum royalties, and other payments necessary to
continue in force and effect the Oil and Gas Leases covered by this agreement
unless and until such party timely gives the notice provided for in the next
sentence hereof. If any party does not wish to bear its proportionate part of
any such payment necessary to continue in force any Oil and Gas Lease covered by
this agreement (the "Non-Paying Party"), the Non-Paying Party shall give all
other parties hereto written notice of such election at least thirty (30) days
prior to the date upon which such payment is due, and the Non-Paying Party shall
be released from its obligation to bear its proportionate part of the relevant
payment that accrues under the terms of the Oil and Gas Lease or Leases
specified in such written notice at any time after the date on which the first
of such other parties receives the foregoing written notice from the Non-Paying
Party. Unless mutually agreed otherwise, the proportionate part of the relevant
payment attributable to any such Oil and Gas Lease that would have been borne by
the Non-Paying Party shall be borne by the parties hereto that do not exercise
the foregoing election (the "Paying Parties"), in the proportion that the
interest of each Paying Party bears to the total interests of all Paying
Parties, and the Non-Paying Party shall assign to the Paying Parties, without
expressed or implied warranty of title (but free and clear
19
<PAGE>
of any Subsequently Created Interest placed on such Oil and Gas Lease or Leases
by such party), all of its interest in the Oil and Gas Lease or Leases specified
in such written notice, and all other Oil and Gas Leases comprising the
"Prospect" (as defined in the Exploitation Agreement) of which the expiring Oil
and Gas Lease or agreement was a part, in the respective proportions that the
Paying Parties bear the relevant payment on any such Oil and Gas Lease or
Leases. If the Non-Paying Party fails to provide the notice provided herein,
the reassignment by the Non-Paying Party provided herein shall in no manner
restrict or limit Operator's recourse against the Non-Paying Party for breach of
its obligations hereunder and any resulting damage to Operator or the other
parties hereto. Following any such assignment, the relevant Oil and Gas Leases
shall be deemed to be a separate "Prospect" (as defined in the Exploitation
Agreement) included in the Contract Area subject to this Agreement.
F. CONFLICTING OPERATIONS:
----------------------
If, after operations are proposed by one party pursuant to Article VI.B.1
of this agreement and prior to the expiration of the applicable response period
pursuant to Article VI.B.1, conflicting operations are proposed by one or more
other parties in interest in the subject well, the order of priority of
operations on the subject well shall be as follows:
(i) perform additional logging, coring, or testing;
(ii) Rework and/or Complete at the existing depth;
(iii) Rework, Plug-Back, and/or Complete at a lesser depth;
(iv) Deepen; or
(v) Sidetrack.
If one or more parties owning a majority in interest in the subject well, at the
time of such election, agree to operations other than those that would follow in
the ordinary course of the foregoing schedule of priorities, such parties shall
be entitled to conduct such agreed upon operations. Operator, after having been
advised of such agreed upon operations (if proposed by a party other than
Operator), shall give an additional notice to all parties, as provided in
Article VI.B.1 of this agreement, that indicates that the proposed operation has
been agreed upon by the necessary majority in interest in the subject well.
Following such notice, all parties shall have an opportunity to participate in
the proposed operation, and the provisions of Article VI.B.1 of this agreement
shall apply with respect to timely response to Operator's notice. To the extent
that less than all parties participate in additional logging, coring, or
testing, the parties participating in such logging, coring, or testing shall do
so at their own cost and expense without penalty to the parties not
participating therein, except that such non-participating parties shall not be
entitled to any of the logs, cores, or test results thus obtained.
20
<PAGE>
G. NOTICES OF MULTIPLE OPERATIONS:
------------------------------
No notice shall be given under Article VI.B of this Operating Agreement
that proposes the drilling of more than one well, except by mutual consent of
all parties hereto. Further, the provisions of Article VI.B, insofar as such
provisions pertain to notification by a party of its desire to drill a well,
shall be suspended for so long as (a) a prior notice proposing the drilling of a
well has been given that is still in force and effect and the period of time
during which the relevant well may be commenced has not expired, or (b) a well
is then drilling hereunder. This Article XVI.G shall not apply under those
circumstances in which the well to which notice is directed is a well that is
required under the terms of an Oil and Gas Lease or contract or one required to
maintain an Oil and Gas Lease or portion of an Oil and Gas Lease in force.
H. ADVANCE BILLING FOR CERTAIN OPERATIONS:
--------------------------------------
In addition to the rights granted to Operator pursuant to Article VII.C of
this agreement, Operator, at its election, shall have the right from time to
time to demand and receive in advance from Non-Operators payment of their
respective proportionate shares of the estimated costs to be incurred in
connection with any drilling, Reworking, Deepening, Sidetracking, Plugging Back,
Completion, or Recompletion operation proposed hereunder. In the case of a
proposal for the drilling of a well, any such advance invoice shall cover only
the estimated cost to drill the relevant well to its total depth, to conduct
open-hole tests therein prior to a Completion attempt, and to plug and abandon
the same as a dry hole. Each Non-Operator shall pay to Operator its
proportionate share of such estimated costs in accordance with the provisions of
Article VII.C. Proper adjustment between such advances and the actual expenses
incurred shall be made upon the completion of the relevant operation to the end
that each party shall bear and pay its proportionate share of the actual
expenses incurred, and no more.
I. POWER OF SALE:
-------------
Subject to the provisions of Article VII.B hereof, if a party should elect
to foreclose the lien granted to such party (the "Foreclosing Party") pursuant
to Article VII.B ("Operator's Lien") against the interests in the leasehold
estate of any Oil and Gas Lease comprising the Contract Area ("Real Property
Interest") of a party that has failed to perform all of its obligations
hereunder (the "Defaulting Party"), this agreement does hereby include
provisions for non-judicial sale under the laws of the State of Texas, and
Michael P. Pearson is hereby appointed as Trustee for such purpose. Upon such
default, the Trustee shall, at least twenty-one (21) days preceding the date of
non-judicial sale, serve written notice of the proposed sale by certified mail
on the Defaulting Party according to the records of Operator. Service of such
notice shall be deemed completed upon the deposit in a post office or other
official depository under the care and custody of the United States Postal
Service of such notice enclosed in a postpaid wrapper properly addressed to the
Defaulting Party, together with each other party obligated to pay the
obligations secured by Operator's Lien, at the most recent address or addresses
shown on the records of Operator. The affidavit of any person having knowledge
of the facts to the effect that such service was completed shall be prima facie
evidence of the facts of service. After such notice, the Trustee shall proceed
to sell all of the Real Property Interest of the Defaulting Party in the
Contract Area at public auction to the highest bidder for cash after having
given notice of the time and place of sale and in the manner and after the
advertisement
21
<PAGE>
of such sale as is now required by the statutes of the State of Texas in making
sales of real estate under deeds of trust. Sale of a part of the Defaulting
Party's Real Property Interest in the Contract Area shall not exhaust the power
of sale, and subsequent sales may be made from time to time until all of such
Real Property Interest is sold or the obligations of the Defaulting Party
secured by Operator's Lien are paid in full. The Trustee shall have the
authority to appoint an attorney in fact to act as Trustee in conducting the
foreclosure sale and executing a deed to the purchasers. It is further agreed
that the Trustee or his successor may sell the full Real Property Interest of
the Defaulting Party in the Contract Area or may limit such sale to such
portions of the Real Property Interest of the Defaulting Party in the Contract
Area as the Trustee shall deem expedient. After the completion of any sale
pursuant hereto, the Trustee shall make, execute, and deliver to the purchaser
or purchasers of the Real Property Interest of the Defaulting Party in the
Contract Area good and sufficient deeds, assignments, or other lawful
conveyances to vest in such purchaser or purchasers title to such Real Property
Interest in fee simple together with all personal property used or obtained in
connection therewith and together with all of the proceeds of production
attributable thereto, including proceeds of production held by any party for
payment to the Defaulting Party. From the proceeds of such sale, the Trustee
shall make disbursements in the following order:
(i) pay all charges, costs, and expenses of executing these provisions;
(ii) pay any sums due by the Trustee for taxes in the preservation of the
security;
(iii) pay to the Foreclosing Party up to the amount necessary to satisfy
the Defaulting Party's debts hereunder; and
(iv) the balance, if any, shall be paid to the Defaulting Party.
It is agreed that such sale shall be a perpetual bar against the Defaulting
Party and its heirs, successors, assigns,legal representatives, and all other
persons claiming under him, them, or any of them. It is further agreed that the
Trustee, or any holder or holders of the obligation of the Defaulting Party, or
the Foreclosing Party shall have the right to become the purchaser or purchasers
at such sale if such party is the highest bidder or bidders, in which event the
bid or bids may be credited upon the indebtedness of the Defaulting Party. It
is stipulated and agreed that, in case of any sale hereunder by Trustee or his
successor, all prerequisites of such sale shall be presumed to have been
performed; and any conveyance given hereunder and all statements of fact or
recitals therein made as to (i) the nonpayment of money secured, (ii) any
default under the terms hereof, (iii) the request of the Trustee to enforce this
trust, (iv) the proper and due appointment of any successor or substitute
Trustee, (v) the advertisement of sale, (vi) the time, place, and terms of sale,
or (vi) any other preliminary act or thing shall be taken in all courts of law
and equity as prima facie evidence that the facts so stated are true. Operator
may appoint a substitute or successor Trustee in the event the Trustee above
named resigns or is unable for any reason to serve.
J. OPERATOR AS DISBURSING AGENT FOR NON-OPERATORS:
----------------------------------------------
Unless and until Non-Operators provide to Operator written notice to the
contrary, Non-Operators hereby designate Operator to act as agent on behalf of
Non-Operators for purposes
22
<PAGE>
of marketing Non-Operators' shares of the Oil and/or Gas produced from the
Contract Area and receiving and disbursing the proceeds received by Operator
from the sale of Non-Operators' shares of such production. Operator shall
market Non-Operators' shares of the Oil and/or Gas produced from the Contract
Area in accordance with the provisions of Article VI.G of this agreement;
provided, however, that if Operator markets any Non-Operator's share of the Oil
and/or Gas produced from the Contract Area to an "affiliate" (as defined
hereinafter) of Operator, Operator shall account to such Non-Operator for the
portion of such Non-Operator's Oil and/or Gas production from the Contract Area
marketed to Operator's affiliate on the basis of the higher of (i) the actual
proceeds received by Operator from the sale of such Non-Operator's Oil and/or
Gas production to Operator's affiliate, or (ii) the arithmetic average of the
prices quoted by three (3) third parties not affiliated with Operator with
respect to an arm's-length purchase of the relevant quantity of Oil and/or Gas,
after taking into account applicable adjustments reflecting reimbursement for
taxes, costs associated with the dehydration, compression, treatment,
processing, gathering, transportation, and marketing of such Oil and/or Gas, and
applicable basis differentials to the extent that the quoted prices are
calculated at points of delivery that vary from the points of delivery
applicable to such Non-Operator's Oil and/or Gas production. For purposes of
this Articles XV.J, the term "affiliate" means, with respect to any person, any
other person (other than an individual) that, directly or indirectly, through
one (1) or more intermediaries, controls, or is controlled by, or is under
common control with, such person. In this regard, the term "control" means the
direct or indirect ownership of more than fifty percent (50%) of the outstanding
capital stock or other equity interests having ordinary voting power. Operator
shall remit to each Non-Operator its proportionate share of the proceeds from
the sale of such Non-Operator's share of the Oil and/or Gas produced from the
Contract Area within thirty (30) days after the receipt by Operator of such
proceeds. All costs incurred by Operator in making such disbursements
(including, without limitation, all costs incurred by Operator in the
preparation and circulation of division orders) shall be charged by Operator to
the joint account of the parties and shall be treated in all respects the same
as costs incurred in the development and operation of the Contract Area. Any
Non-Operator may terminate the authority of Operator to act on behalf of such
Non-Operator by providing to Operator and the relevant purchaser or purchasers
of production the written notices provided for in Article VI.G upon the exercise
by such Non-Operator of its right to take in kind.
K. RIGHT TO DEDUCT COSTS FROM REVENUES:
-----------------------------------
Notwithstanding any other provision hereof to the contrary, if any Non-
Operator becomes a Defaulting Party as defined above in Article XVI.I of this
agreement, Operator shall have the right, from time to time, in lieu of
invoicing the Defaulting Party for its proportionate share of the costs and
expenses of operation of the Contract Area hereunder and in lieu of demanding
and receiving from the Defaulting Party payment in advance of its share of the
estimated amounts of the costs to be incurred in the operation of the Contract
Area hereunder, to deduct from the gross revenues from the Contract Area
attributable to the interests therein of the Defaulting Party, as they are
received by Operator or Operator's agent, such Defaulting Party's proportionate
share of the aggregate actual costs and expenses incurred in the operation of
the Contract Area prior to the date such revenues are received by Operator and
to distribute to the Defaulting Party its proportionate share of the remaining
balances of all such revenues, together with an itemized statement of all such
costs and expenses deducted therefrom.
23
<PAGE>
L. BILLING ASSIGNEES:
-----------------
Notwithstanding any other provision of this agreement or the accounting
procedure attached hereto as Exhibit "C" to the contrary, the parties to this
agreement agree that Operator shall not be required to make more than one
billing for the entire interest credited to each party on Exhibit "A." If any
party to this agreement (hereinafter referred to as "Selling Party") disposes of
all or any part of its interest in the Contract Area, the Selling Party will be
solely responsible for billing its assignee or assignees and shall remain
primarily liable to the other parties for the interest or interests assigned and
shall make prompt payment to Operator for the entire amount of statements and
billings rendered to it.
M. THIRD PARTY BENEFICIARIES:
-------------------------
It is not the intention of the parties hereto that this agreement is made
or intended for the benefit of any third person not a party hereto.
N. OPERATING AGREEMENT SUBJECT TO EXPLOITATION AGREEMENT:
-----------------------------------------------------
This agreement is expressly made subject to the terms and provisions of the
Exploitation Agreement. In the event of a conflict between the provisions of
this agreement and those of the Exploitation Agreement, the terms and provisions
of the Exploitation Agreement shall govern and control.
IN WITNESS WHEREOF, Operator and Non-Operators have executed this agreement
on the dates set forth below, effective as of _________________, 1997.
OPERATOR:
Date:
---------------------- AMERAC ENERGY CORPORATION
By:
----------------------------------------------
Jeffrey B. Robinson
President and Chief Executive Officer
1201 Louisiana, Suite 3350
Houston, Texas 77002-5609
Telephone No.: 713/308-5250
Facsimile No.: 713/308-5285
24
<PAGE>
NON-OPERATORS:
Date:
----------------------- ------------------------------------------------
FREDERICK B. WHITTEMORE
Morgan Stanley & Co.
1251 Avenue of the Americas, 23F
New York, New York 10020
Telephone No.: 212/703-7735
Facsimile No.: 212/703-4790
Date:
----------------------- ------------------------------------------------
JONATHAN R. LONGLEY
Jennison Associates
1 Financial Center, 44th Floor
Boston, Massachusetts 02111
Telephone No.: 617/523-1700
Facsimile No.: 617/951-2743
Date:
----------------------- ------------------------------------------------
WALTER C. WILSON
2002 Kirby Drive, Suite 1107
Houston, Texas 77019
Telephone No.: 713/520-5350
Facsimile No.: 713/520-5950
Date:
----------------------- ------------------------------------------------
BREENE M. KERR
115 Bay Street
Easton, Maryland 21601
Telephone No.: 410/820-9676
Facsimile No.: 410/822-3137
Date:
----------------------- ------------------------------------------------
MORTON SWINSKY
33 East 70th Street
New York, New York 10021
Telephone No.: 212/528-3472
Facsimile No.: 212/786-3347
25
<PAGE>
Date:
----------------------- ------------------------------------------------
THOMAS F. DOYLE
Jennison Associates
1 Financial Center, 44th Floor
Boston, Massachusetts 02111
Telephone No.: 617/523-1700
Facsimile No.: 617/951-2743
Date:
----------------------- ------------------------------------------------
J. HUGH ROFF
Petrounited Terminals, Inc.
333 Clay Street, Suite 4300
Houston, Texas 77002
Telephone No.: 713/655-5320
Facsimile No.: 713/655-7146
Date:
----------------------- -------------------------------------------------
VINCENT J. DOWLING
Dowling Partners
36 Trumbull
Hartford, Connecticut 06103
Telephone No.: 860/570-8600
Facsimile No.: 860/560-8615
Date: NORVILLE OIL CO., L.L.C.
-----------------------
ATTEST:
By: By:
------------------------- -------------------------------------------------
Printed Name: Robert G. Harris
--------------- Manager
Title: 101 Park Avenue, Suite 600
---------------------- Oklahoma City, Oklahoma 73102
Telephone No.: 405/236-4361
Facsimile No.: 405/236-4395
Date:
----------------------- -------------------------------------------------
RICHARD C. NELSON
Petrounited Terminals, Inc.
333 Clay Street, Suite 4300
Houston, Texas 77002
Telephone No.: 713/655-5320
Facsimile No.: 713/655-7146
26
<PAGE>
Date:
----------------------- -------------------------------------------------
GENE P. MORRELL
Petrounited Terminals, Inc.
333 Clay Street, Suite 4300
Houston, Texas 77002
Telephone No.: 713/655-5320
Facsimile No.: 713/655-7146
Date:
----------------------- -------------------------------------------------
CHARLES E. RAMSEY, JR.
3374 Plantation Point
Athens, Texas 75751
Telephone No.: 903/675-5886
Facsimile No.: 903/675-5886
Date:
----------------------- -------------------------------------------------
JOHN ROBERT PORTER
Earth Satellite Corporation
6011 Executive Road, Suite 400
Rockville, Maryland 20852-3801
Telephone No.: 301/231-0660
Facsimile No.: 301/231-5020
THE STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
BEFORE ME, the undersigned authority, on this day personally appeared
Jeffrey B. Robinson, President and Chief Executive Officer of AMERAC ENERGY
CORPORATION, a Delaware corporation, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, as the act of
such corporation, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of ____________,
1997.
-------------------------------------------------
NOTARY PUBLIC in and for
STATE OF TEXAS
My Commission Expires:
- ---------------------------- -------------------------------------------------
(Printed Name of Notary Public)
27
<PAGE>
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by FREDERICK B. WHITTEMORE.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
-------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by JONATHAN R. LONGLEY.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
-------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by WALTER C. WILSON.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
-------------------------------------------------
(Printed Name of Notary Public)
28
<PAGE>
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by BREENE M. KERR.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
-------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by MORTON SWINSKY.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
-------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by THOMAS F. DOYLE.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
29
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by J. HUGH ROFF.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF ______________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ____________________,
199__, by VINCENT J. DOWLING.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF ______________ (S)
(S)
COUNTY OF _________________ (S)
This instrument was acknowledged before me on ____________________,
199__, by RICHARD G. HARRIS, Manager of NORVILLE OIL CO., L.L.C.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
30
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by RICHARD C. NELSON.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by GENE P. MORRELL.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by CHARLES E. RAMSEY, JR.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
31
<PAGE>
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
This instrument was acknowledged before me on ____________________,
199__, by JOHN ROBERT PORTER.
-------------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-----------------------------------------
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
32
<PAGE>
EXHIBIT "A"
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator,
and Walter C. Wilson, et al., as Non-Operators
This Operating Agreement covers the following described Contract Area, which
consists of each of the "Prospects" (as defined in the Exploitation Agreement),
described hereinafter:
I. Prospect 1 - .
---------- -----------------------------------------------------------
Prospect 1 is a "Phase __ Prospect," as defined in the Exploitation
Agreement.
A. Lands and Leases Comprising Prospect 1
--------------------------------------
B. Royalties, Overriding Royalties, and Other Production Burdens
-------------------------------------------------------------
The aggregate of all Lessor's royalties, overriding royalties, and
other burdens upon or payable out of production from the Oil and Gas Leases
comprising Prospect 1 will not exceed ________________________, so that
such Oil and Gas Leases will yield net revenue interests of not less than
_________________.
C. Ownership Interests and Allocation of Costs and Revenues
--------------------------------------------------------
Party Working Interest
----- ----------------
Amerac Energy Corporation .500000
Frederick B. Whittemore .083333
Jonathan R. Longley .062500
Walter C. Wilson .052917
Breene M. Kerr .052083
Morton Swinsky .041666
Thomas F. Doyle .041667
J. Hugh Roff .041667
Vincent J. Dowling .031250
33
<PAGE>
Norville Oil Co., L.L.C. .031250
Richard C. Nelson .020833
Gene P. Morrell .016667
Charles E. Ramsey, Jr. .013750
John Robert Porter .010417
34
<PAGE>
EXHIBIT B
---------
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator,
and Walter C. Wilson, et al., as Non-Operators
THERE IS NO EXHIBIT B
35
<PAGE>
COPAS . 1984 - ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
- --------------------------------------------------------------------------COPAS-
EXHIBIT " C "
Attached to and made a part of Operating Agreement between Amerac Energy
Corporation, as Operator, and Walter C. Wilson, et al., as Non-Operators
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the
agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared
by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties to this agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function
in Joint Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a field operating
capacity.
"Technical Employees" shall mean those employees having special and specific
engineering, geological or other professional skills, and whose primary
function in Joint Operations is the handling of specific operating
conditions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
2. Statement and Billings
Operator shall bill Non-Operators on or before the last day of each month
for their proportionate share of the Joint Account for the preceding month.
Such bills will be accompanied by statements which identify the authority
for expenditure, lease or facility, and all charges and credits summarized
by appropriate classifications of investment and expense except that items
of Controllable Material and unusual charges and credits shall be separately
identified and fully described in detail. If requested to do so, Operator
shall furnish to Non-Operators copies of actual invoices for third party
services, and Operator shall charge Non-Operator for its cost of furnishing
same.
3. Advances and Payments by Non-Operators
A. Unless otherwise provided for in the agreement, the Operator may require
the Non-Operators to advance their share of estimated cash outlay for
the succeeding month's operations within fifteen (15) days after receipt
of the billing or by the first day of the month for which the advance is
required, whichever is later. Operator shall adjust each monthly billing
to reflect advances received from the Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at Bank One, Texas, N.A. on the first day of the month in which
delinquency occurs plus 1% or the maximum legal rate permitted by the
applicable usury laws in the state in which the Joint Property is
located, whichever is the lesser, plus attorney's fees, court costs, and
other costs in connection with the collection of unpaid amounts. In no
event shall the rate of interest charged exceed the maximum legal rate
allowed under the usury laws of the State of Texas.
4. Adjustments
Payment of any such bills shall not prejudice the right of any Non-Operator
to protest or question the correctness thereof; provided, however, all bills and
statements rendered to Non-Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
(24) month period a Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
Controllable Material as provided for in Section V.
COPYRIGHT(C) 1985 by the Council of Petroleum Accountants Societies.
-1-
- --------------------------------------------------------------------------------
<PAGE>
5. Audits
A. A Non-Operator, upon notice in writing to Operator and all other Non-
Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within the
twenty-four (24) month period following the end of such calendar year;
provided, however, the making of an audit shall not extend the time for
the taking of written exception to and the adjustments of accounts as
provided for in Paragraph 4 of this Section I. Where there are two or
more Non-Operators, the Non-Operators shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators' audit cost incurred under this paragraph
unless agreed to by the Operator. The audits shall not be conducted
more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. Approval By Non-Operators
Where an approval or other agreement of the parties or Non-Operators is
expressly required under other sections of this Accounting Procedures and
if the agreement to which this Accounting Procedure is attached contains no
contrary provisions in regard thereto, Operator shall notify all Non-
Operators of the Operator's proposal, and the agreement or approval of a
majority of the Non-Operators shall be controlling on all Non-Operators.
II. DIRECT CHARGES
Operators shall charge the Joint Account with the following items:
1. Ecological and Environmental
Costs incurred for the benefit of the Joint Property as a result of
governmental of regulatory requirements to satisfy environmental
considerations applicable to Joint Operations. Such costs may include
surveys of an ecological or archaeological nature and pollution control
procedures as required by applicable laws and regulations.
2. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
3. Labor
A. (1) Salaries and wages of Operator's field employees directly employed
on the Joint Property in the conduct of Joint Operations.
(2) Salaries of First Level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly employed on the
Joint Property if such charges are excluded form the overhead
rates.
(4) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of
the Joint Property if such charges are excluded from the overhead
rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 3A of this
Section II. Such costs under this Paragraph 3B may be charged on a
"when and as paid basis" or by "percentage assessment" on the amount of
salaries and wages chargeable to the Joint Account under Paragraph 3A
of this Section II. If percentage assessment is used, the rate shall be
based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraph 3A and 3B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 3A of this Section II.
4. Employee Benefits
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to the
Operator's labor cost chargeable to the Joint Account under Paragraph 3A
and 3B of this Section II shall be Operator's actual cost not to exceed
the percent most recently recommended by the Council of Petroleum Accounts
Societies.
5. Material
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for immediate use and
is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
6. Transportation
Transportation of employees and Material necessary for the Joint Operations
but Subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Parties.
-2-
<PAGE>
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint Account for a distance
greater than the distance to the nearest reliable supply store where
like material is normally available, or railway receiving point nearest
the Joint Property unless agreed to by the Parties. No charge shall be
made to the Joint Account for moving Material to other properties
belonging to Operator, unless agreed to by the Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking costs is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will be
adjusted to the amount most recently recommended by the Council of
Petroleum Accountants Societies.
7. Services
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 10 of Section II and
Paragraph i, ii, and iii, of Section III. The cost of professional
consultant services and contract services of technical personnel directly
engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract
services of technical personnel not directly engaged on the Joint Property
shall not be charged to the Joint Account unless previously agreed to by
the Parties.
8. Equipment and Facilities Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator owned
equipment and facilities at rates commensurate with costs of ownership
and operation. Such rates shall include costs of maintenance, repairs,
other operating expense, insurance, taxes, depreciation, and interest
on gross investment less accumulated depreciation not to exceed ten
percent (10%) per annum. Such rates shall not exceed average commercial
rates currently prevailing in the immediate area of the Joint Property.
B. In lieu of charges in paragraph 8A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the Joint
Property less 20%. For automotive equipment, Operator may elect to use
rates published by the Petroleum Motor Transport Association.
9. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other cause, except those resulting from
Operator's gross negligence or willful misconduct. Operator shall furnish
Non-Operator written notice of damages or losses incurred as soon as
practicable after a report thereof has been received by Operator.
10. Legal Expense
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payment of judgements and amounts paid for settlement
of claims incurred in or resulting from operations under the agreement or
necessary to protect or recover the Joint Property, except that no charge
for services of Operator's legal staff or fees or expense of outside
attorneys shall be made unless previously agreed to by the Parties. All
other legal expense is considered to be covered by the overhead provisions
of Section III unless otherwise agreed to by the Parties, except as
provided as provided in Section I. Paragraph 3; provided, however, that if
any Non-Operator fails timely to pay its proportionate part of any charge
to the Joint Account, Operator shall be entitled to charge such Non-
Operator for any legal expenses and attorneys' fees incurred in connection
with the collection of such charge.
11. Taxes
All taxes of every kind and nature assessed or levied upon or in connection
with the Joint Property, the operation thereof, or the production
therefrom, and which taxes have been paid by the Operator for the benefit
of the Parties. If the ad valorem taxes are based in whole or in part upon
separate valuations of each party's working interest, then notwithstanding
anything to the contrary herein, charges to the Joint Account shall be made
and paid by the Parties hereto in accordance with the tax value generated
by each party's working interest.
12. Insurance
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint Operations
are conducted in a state in which Operator may act as self-insurer for
Worker's Compensation and/or Employers Liability under the respective
state's laws, Operator may, at its election, include the risk under its
self-insurance program and in that event, Operator shall include a charge
at Operator's cost not to exceed manual rates.
13. Abandonment and Reclamation
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
14. Communications
Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave facilities
directly serving the Joint Property. In the event communication
facilities/systems serving the Joint Property are Operator owned, charges
to the Joint Account shall be made as provided in Paragraph 8 of this
Section II.
15. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing provisions
of this Section II, or in Section III and which is of direct benefit to the
Joint Property and is incurred by the Operator in the necessary and proper
conduct of the Joint Operations.
<PAGE>
III. OVERHEAD
1. Overhead - Drilling and Producing Operations
i. As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge drilling and producing
operations on either:
(X) Fixed Rate Basis, Paragraph 1A, or
( ) Percentage Basis, Paragraph 1B
Unless otherwise agreed to by the Parties, such charge shall be in
lieu of costs and expenses of all offices and salaries or wages plus
applicable burdens and expenses of all personnel, except those
directly chargeable under Paragraph 3A, Section II. The cost and
expense of services from outside sources in connection with matters
of taxation, traffic, accounting or matters before or involving
governmental agencies shall be considered as included in the overhead
rates provided for in the above selected Paragraph of this Section
III unless such cost and expense are agreed to by the Parties as a
direct charge to the Joint Account.
ii. The salaries, wages and Personal Expenses of Technical Employees
and/or the cost of professional consultant services and contract
services of technical personnel directly employed on the Joint
Property:
( ) shall be covered by the overhead rates, or
(X) shall not be covered by the overhead rates.
iii. The salaries, wages and Personal Expenses of Technical Employees
and/or costs of professional consultant services and contract
services of technical personnel either temporarily or permanently
assigned to and directly employed in the operation of the Joint
Property:
( ) shall be covered by the overhead rates, or
(X) shall not be covered by the overhead rates.
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month:
Drilling Well Rate $ 4,500.00
-----------------
(Prorated for less than a full month)
Producing Well Rate $ 450.00
----------------
(2) Application of Overhead - Fixed Rate Basis shall be as follows:
(a) Drilling Well Rate
(1) Charges for drilling wells shall begin on the date the
well is spudded and terminate on the date the drilling
rig, completion rig, or other units used in completion
of the well is released, whichever is later, except
that no charge shall be made during suspension of
drilling or completion operations for fifteen (15) or
more consecutive calendar days.
(2) Charges for wells undergoing any type of workover or
recompletion for a period of five (5) consecutive work
days or more shall be made at the drilling well rate.
Such charges shall be applied for the period from date
workover operations, with rig or other units used in
workover, commence through date of rig or other unit
release, except that no charge shall be made during
suspension of operations for fifteen (15) or more
consecutive calendar days.
(b) Producing Well Rates
(1) An active well either produced or injected into for any
portion of the month shall be considered as a one-well
charge for the entire month.
(2) Each active completion in a multi-completed well in
which production is not commingled down hole shall be
considered as a one-well charge providing each
completion is considered a separate well by the
governing regulatory authority.
(3) An inactive gas well shut in because of overproduction
or failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well
is directly connected to a permanent sales outlet.
(4) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on
any well. This one-well charge shall be made whether or
not the well has produced except when drilling well
rate applies.
(5) All other inactive wells (including but not limited to
inactive wells covered by unit allowable, lease
allowable, transferred allowable, etc.) shall not
qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to which
this Accounting Procedure is attached. The adjustment shall be
computed by multiplying the rate currently in use by the
percentage increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers for the last
calendar year compared to the calendar year preceding as shown
by the index of average weekly earnings of Crude Petroleum and
Gas Production Workers as published by the United States
Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian index as published by Statistics Canada,
as applicable. The adjusted rates shall be the rates currently
in use, plus or minus the computed adjustment.
-4-
<PAGE>
- --------------------------------------------------------------------------------
2. Overhead - Major Construction
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development
and operation of the Joint Property, Operator shall either negotiate a rate
prior to the beginning of construction, or shall charge the Joint Account
for overhead based on the following rates for any Major Construction project
in excess of $25,000.00:
----------
A. 5 % of first $100,000 or total cost if less, plus
-------
B. 3 % of costs in excess of $100,000 but less than $1,000,000 plus
-------
C. 1 % of costs in excess of $1,000,000.
-------
Total cost shall mean the gross cost of any one project. For the purpose of
this paragraph, the component parts of a single project shall not be treated
separately and the cost of drilling and workover wells and artificial lift
equipment shall be excluded.
3. Catastrophe Overhead
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from the occurrence due to oil spill, blowout,
explosion, fire, storm, hurricane, or other catastrophes as agreed to by the
Parties, which are necessary to restore the Joint Property to the equivalent
condition that existed prior to the event causing the expenditures. Operator
shall either negotiate a rate prior to charging the Joint Account or shall
charge the Joint Account for overhead based on the following rates:
A. 5 % of the total costs through $100,000; plus
-------
B. 3 % of total costs in excess of $100,000 but less than $1,000,000;
-------
plus
C. 1 % of total costs in excess of $1,000,000.
-------
Expenditures subject to the overheads above will not be reduced by insurance
recoveries, and no other overhead provisions of this Section III shall
apply.
4. Amendment of Rates
The overhead rates provided for in this Section III may be amended from time
to time only by mutual agreement between the Parties hereto if, in practice,
the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall be under no obligation to purchase, interest of Non-Operators in surplus
condition A or B Material. The disposal of surplus Controllable Material not
purchased by the Operator shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from
the Joint Property or disposed of by the Operator, unless otherwise agreed
to by the Parties, shall be priced on the following basis exclusive of cash
discounts:
-5-
<PAGE>
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2 3/8 inches OD and larger, except line pipe,
shall be priced at Eastern mill published carload base prices
effective as of date of movement plus transportation cost using the
80,000 pound carload weight basis to the railway receiving point
nearest the Joint Property for which published rail rates for
tubular goods exist. If the 80,000 pound rail rate is not offered,
the 70,000 pound or 90,000 pound rail rate may be used. Freight
charges for tubing will be calculated from Lorain, Ohio and casing
from Youngstown, Ohio.
(b) For grades which are special to one mill only, prices shall be
computed at the mill base of that mill plus transportation cost from
that mill to the railway receiving point nearest the Joint Property
as provided above in Paragraph 2.A.(1)(a). For transportation cost
from points other than Eastern mills, the 30,000 pound Oil Field
Haulers Association interstate truck rate shall be used.
(c) Special end finish tubular goods shall be priced at the lowest
published out-of-stock price f.o.b. Houston, Texas, plus
transportation cost, using Oil Field Haulers Association interstate
30,000 pound truck rate, to the railway receiving point nearest the
Joint Property.
(d) Macaroni tubing (size less than 2 3/8 inch OD) shall be priced at
the lowest published out-of-stock prices f.o.b. the supplier plus
transportation costs, using the Oil Field Haulers Association
interstate truck rate per weight of tubing transferred, to the
railway receiving point nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with walls
3/4 inch and over) 30,000 pounds or more shall be priced under
provisions of tubular goods pricing in Paragraph A.(1)(a) as
provided above. Freight charges shall be calculated from Lorain,
Ohio.
(b) Line pipe movements (except size 24 inch OD and larger with walls
3/4 inch and over) less than 30,000 pounds shall be priced at
Eastern mill published carload base prices effective as of date of
shipment, plus 20 percent, plus transportation costs based on
freight rates as set forth under provisions of tubular goods pricing
in Paragraph A.(1)(a) as provided above. Freight charges shall be
calculated from Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger shall be
priced f.o.b. the point of manufacture at current new published
prices plus transportation cost to the railway receiving point
nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and conduit
not listed on published price lists shall be priced at quoted prices
plus freight to the railway receiving point nearest the Joint
Property or at prices agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in effect at
date of movement, as listed by a reliable supply store nearest the Joint
Property, or point of manufacture, plus transportation costs. If
applicable, to the railway receiving point nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint Property
shall be priced at the current new price, in effect on date of movement,
as listed by a reliable supply store nearest the Joint Property, or
point of manufacture, plus transportation costs, if applicable, to the
railway receiving point nearest the Joint Property. Unused new tubulars
will be priced as provided above in Paragraph 2A(1) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse without
reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined by
Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined by
Paragraph A, if Material was originally charged to the Joint Account
as new Material or
(b) At sixty-five percent (65%) of current new price, as determined by
Paragraph A, if Material was originally charged to the Joint Account
as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined by
Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the transferring
property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until after reconditioning shall be
priced at fifty percent (50%) of current new price as determined by
Paragraph A. The cost of reconditioning shall be charged to the
receiving property, provided Condition C value plus cost of
reconditioning does not exceed Condition B value.
-6-
<PAGE>
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on a
basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable
size and weight. used casing, tubing or drill pipe utilized
as line pipe shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g. power oil lines, shall
be priced under normal pricing procedures for casing,
tubing, or drill pipe. Upset tubular goods shall be priced
on a non upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under procedures normally utilized by
Operator without prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function
but condition and/or value of such Material is not equivalent to that
which would justify a price as provided above may be specially priced
as agreed to by the Parties. Such price should result in the Joint
Account being charged with the value of the service rendered by such
Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five cents (25 cent) per hundred weight on all
tubular goods movements, in lieu of actual loading or unloading
costs sustained at the stocking point. The above rate shall be
adjusted as of the first day of April each year following January
1, 1985 by the same percentage increase or decrease used to
adjust overhead rates in Section III, Paragraph 1.A(3). Each
year, the rate calculated shall be rounded to the nearest cent
and shall be the rate in effect until the first day of April next
year. Such rate shall be published each year by the Council of
Petroleum Accountants Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over which
the Operator has no control, the Operator may charge the Joint Account for
the required Material at the Operator's actual cost incurred in providing
such Material, in making it suitable for use, and in moving it to the Joint
Property; provided notice in writing is furnished to Non-Operators of the
proposed charge prior to billing Non-Operators for such material. Each Non-
Operator shall have the right, by so electing and notifying Operator within
ten days after receiving notice from Operator, to furnish in kind all or
part of his share of such Material suitable for use and acceptable to
Operator.
4. Warranty of Material Furnished By Operator
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by Operator of the Joint
Account Controllable Material. Written notice of intention to take inventory
shall be given by Operator at least thirty (30) days before any inventory is
to begin so that Non-Operators may be represented when any inventory is
taken. Failure of Non-Operators to be represented at an inventory shall bind
Non-Operators to accept the inventory taken by Operator.
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the Joint
Account for overages and shortages, but, Operator shall be held accountable
only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the duty
of the party selling to notify all other Parties as quickly as possible
after the transfer of interest takes place. in such cases, both the seller
and the purchaser shall be governed by such inventory. In cases involving a
change of Operator, all Parties shall be governed by such inventory.
4. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be charged to
the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except inventories required due to
change of Operator shall be charged to the Joint Account.
-7-
<PAGE>
EXHIBIT D
---------
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator,
and Walter C. Wilson, et al., as Non-Operators
Operator shall carry for the benefit and the expense of the Joint Account
insurance with responsible carriers as follows:
A. WORKER'S COMPENSATION AND EMPLOYER'S LIABILITY
----------------------------------------------
1. State Statutory Requirements for Workman's Liability.
2. Employer's Liability: $100,000 each person/$100,000 each
accident/$500,000 policy limit
B. COMPREHENSIVE GENERAL LIABILITY
-------------------------------
Combined single limit of $1,000,000 for bodily injury and property damage
per occurrence, no aggregate.
C. AUTOMOBILE LIABILITY (INCLUDING HIRED AND NON-OWNED VEHICLES)
-------------------------------------------------------------
1. Bodily injury with limits of $500,000 each person/$500,000
aggregate/$1,000,000 each accident
2. Property Damage with limits of: $1,000,000 each accident.
D. CONTROL OF WELL AND UNDERGROUND DAMAGE
--------------------------------------
With limitations and deductibles as currently maintained in force and
effect by Operator
E. EXCESS LIABILITY
----------------
Umbrella coverage as from time to time applicable to Operator's activities
but not to exceed $25,000,000 per occurrence.
F. OTHER INSURANCE
---------------
Operator shall not be obligated to provide for any other insurance for the
Joint Account of the parties hereto. Any party may, at its own expense,
acquire such insurance as it deems proper to protect itself against any
claim, losses, damages, or destruction arising out of operation of the
Contract Area.
D-i
<PAGE>
G. NON-OPERATORS
-------------
Operator shall require the insurance carrier to furnish waiver of
subrogation rights against Non-Operators and to name Non-Operators as
additional assured under the policies.
All premiums paid on such insurance shall be charged to the Joint Account.
Except by mutual consent of the parties, no other insurance shall be
maintained for the Joint Account. Each drilling or other contractor
performing work for the Joint Account shall be required to maintain in
force, with respect to the work performed by such contractor, the same
insurance as those specified in Subsections A, B and C above, when
applicable. Operator shall make a diligent effort to require each drilling
contractor to carry casualty insurance on the replacement value of the
surface equipment used at the drillsite and to require each drilling
contractor to furnish Certificates of Insurance to Operator and Non-
Operators as additional assureds under the policies and waiving subrogation
rights against the Operator and Non-Operators. Whenever Operator performs
a drilling or reworking operation for the Joint Account with its own
equipment, Operator, at its own expense shall provide the same insurance
coverage in respect thereof as would be required if the work were performed
by an independent contractor. Operator shall furnish each Non-Operator
with appropriate certificates showing the insurance coverage and companies
with whom covered prior to commencing operations hereunder and thereafter
as such insurance is acquired.
D-ii
<PAGE>
EXHIBIT E
---------
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator,
and Walter C. Wilson, et al., as Non-Operators
THERE IS NO EXHIBIT E
E-i
<PAGE>
EXHIBIT F
---------
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator,
and Walter C. Wilson, et al., as Non-Operators
THERE IS NO EXHIBIT F
F-i
<PAGE>
EXHIBIT G
---------
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator,
and Walter C. Wilson, et al., as Non-Operators
THERE IS NO EXHIBIT G
G-i
<PAGE>
EXHIBIT H
---------
Attached to and made a part of Operating Agreement
between Amerac Energy Corporation, as Operator
and Walter C. Wilson, et al., as Non-Operators
MEMORANDUM OF OPERATING AGREEMENT
AND FINANCING STATEMENT
THE STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF _______________ (S)
1. This Memorandum of Operating Agreement and Financing Statement (this
"Memorandum") is executed to be effective as of __________________, 199__,
pursuant to the provisions of that certain Operating Agreement dated effective
as of January 1, 1997 (the "Operating Agreement"), by and between AMERAC ENERGY
CORPORATION ("Operator"), having as its address 1201 Louisiana, Suite 3350,
Houston, Texas 77002-5609, and FREDERICK B. WHITTEMORE, having as his address
1251 Avenue of the Americas, 23rd Floor, New York, New York 10020, JONATHAN R.
LONGLEY, having as his address 1 Financial Center, 44th Floor, Boston,
Massachusetts 02111, WALTER C. WILSON, having as his address 2002 Kirby Drive,
Suite 1107, Houston, Texas 77019, BREENE M. KERR, having as his address 115 Bay
Street, Easton, Maryland 21601, MORTON SWINSKY, having as his address 33 East
70th Street, New York, New York 10021, THOMAS F. DOYLE, having as his address 1
Financial Center, 44th Floor, Boston, Massachusetts 02111, J. HUGH ROFF, having
as his address 333 Clay Street, Suite 4300, Houston, Texas 77002, VINCENT J.
DOWLING, having as his address 36 Trumbull, Hartford, Connecticut 06103,
NORVILLE OIL CO., L.L.C., having as its address 101 Park Avenue, Suite 600,
Oklahoma City, Oklahoma 73102, RICHARD C. NELSON, having as his address 333
Clay Street, Suite 4300, Houston, Texas 77002, GENE P. MORRELL, having as his
address 333 Clay Street, Suite 4300, Houston, Texas 77002, CHARLES E. RAMSEY,
JR., having as his address 3374 Plantation Point, Athens, Texas 75751, and JOHN
ROBERT PORTER, having as his address 6011 Executive Road, Suite 400, Rockville,
Maryland 20852-3801 (collectively, "Non-Operators").
2. True, correct, and genuine executed counterparts of the Operating
Agreement are on file in the offices of Operator at the address reflected above.
Reference is hereby made to the Operating Agreement for all purposes, and its
terms and provisions are incorporated herein by this reference to the same
extent as if the Operating Agreement had been reproduced verbatim as part of
this Memorandum. The Operating Agreement covers the oil, gas, and mineral
leases (the "Oil and Gas Leases" or "Leases") and the lands described more
particularly on Exhibit "A" attached hereto and made a part hereof for all
purposes (the Oil and Gas Leases and such lands being referred to hereinafter as
the "Contract Area"). Other capitalized terms used in this Memorandum shall
have the meanings given to such terms in the Operating Agreement unless
expressly indicated otherwise.
H-i
<PAGE>
3. The Operating Agreement contains the following provisions:
A. Article VII.B of the Operating Agreement, captioned "Liens and
Security Interests," provides as follows:
Each party grants to the other parties hereto a lien upon any
interest it now owns or hereafter acquires in Oil and Gas Leases in
the Contract Area, and a security interest and/or purchase money
security interest in any interest it now owns or hereafter acquires in
personal property and fixtures on or used or obtained for use in
connection therewith, to secure performance of all of its obligations
under this agreement including but not limited to payment of expense,
interest, and fees, the proper disbursement of all monies paid
hereunder, the assignment or relinquishment of interest in Oil and Gas
Leases as required hereunder, and the proper performance of operations
hereunder. Such lien and security interest granted by each party
hereto shall include such party's leasehold interests, working
interests, operating rights, and royalty and overriding royalty
interests in the Contract Area now owned or hereafter acquired and in
lands pooled or unitized therewith or otherwise becoming subject to
this agreement, the Oil and Gas when extracted therefrom and equipment
situated thereon or used or obtained for use in connection therewith
(including, without limitation, all wells, tools, and tubular goods),
and accounts (including, without limitation, accounts arising from gas
imbalances or from the sale of Oil and/or Gas at the wellhead),
contract rights, inventory and general intangibles relating thereto or
arising therefrom, and all proceeds and products of the foregoing.
Some of the foregoing items of personal property and equipment are or
will become fixtures on the Contract Area, and the interest of each
party in and to the Oil and Gas when extracted from the Contract Area
and the accounts receivable accruing or arising as the result of the
sale thereof shall be financed at the wellhead of the well or wells
located on the Contract Area.
To perfect the lien and security agreement provided herein, each
party hereto shall execute and acknowledge the recording supplement
and/or any financing statement prepared and submitted by any party
hereto in conjunction herewith or at any time following execution
hereof, and Operator is authorized to file this agreement (including a
carbon, photographic, or other reproduction hereof) or the recording
supplement executed herewith as a lien or mortgage in the applicable
real estate records and as a financing statement with the proper
officer under the Uniform Commercial Code in the state in which the
Contract Area is situated and such other states as Operator shall deem
appropriate to perfect the security interest granted hereunder. Any
party may file this agreement, the recording supplement executed
herewith, or such other documents as it deems necessary as a lien or
mortgage in the applicable real estate records and/or a financing
statement with the proper officer under the Uniform Commercial Code.
H-ii
<PAGE>
Each party represents and warrants to the other parties hereto
that the lien and security interest granted by such party to the other
parties shall be a first and prior lien, and each party hereby agrees
to maintain the priority of said lien and security interest against
all persons acquiring an interest in Oil and Gas Leases covered by
this agreement by, through or under such party. All parties acquiring
an interest in Oil and Gas Leases covered by this agreement, whether
by assignment, merger, mortgage, operation of law, or otherwise, shall
be deemed to have taken subject to the lien and security interest
granted by this Article VII.B as to all obligations attributable to
such interest hereunder whether or not such obligations arise before
or after such interest is acquired.
To the extent that parties have a security interest under the
Uniform Commercial Code of the state in which the Contract Area is
situated, they shall be entitled to exercise the rights and remedies
of a secured party under the Code. The bringing of a suit and the
obtaining of a judgment by a party for the secured indebtedness shall
not be deemed an election of remedies or otherwise affect the lien
rights or security interest as security for the payment thereof. In
addition, upon default by any party in the payment of its share of
expenses, interests or fees, or upon the improper use of funds by the
Operator, the other parties shall have the right, without prejudice to
other rights or remedies, to collect from the purchaser the proceeds
from the sale of such defaulting party's share of Oil and Gas until
the amount owed by such party, plus interest as provided in "Exhibit
C," has been received, and shall have the right to offset the amount
owed against the proceeds from the sale of such defaulting party's
share of Oil and Gas. All purchasers of production may rely on a
notification of default from the non-defaulting party or parties
stating the amount due as a result of the default, and all parties
waive any recourse available against purchasers for releasing
production proceeds as provided in this paragraph.
If any party fails to pay its share of cost within one hundred
twenty (120) days after rendition of a statement therefor by Operator,
the non-defaulting parties, including Operator, shall, upon request by
Operator, pay the unpaid amount in the proportion that the interest of
such party bears to the interest of all such parties. The amount paid
by each party so paying its share of the unpaid amount shall be
secured by the liens and security rights described in Article VII.B,
and each paying party may independently pursue any remedy available
hereunder or otherwise.
If any party does not perform all of its obligations hereunder,
and the failure to perform subjects such party to foreclosure or
execution proceedings pursuant to the provisions of this agreement, to
the extent allowed by governing law, the defaulting party waives any
available right of redemption from and after the date of judgment, any
required valuation or appraisement of the mortgaged or secured
property prior to sale, any available right to stay execution or to
require a marshalling of assets and any required bond in the event a
receiver is appointed. In addition, to the extent permitted by
applicable law, each party
H-iii
<PAGE>
hereby grants to the other parties a power of sale as to any property
that is subject to the lien and security rights granted hereunder,
such power to be exercised in the manner provided by applicable law or
otherwise in a commercially reasonable manner and upon reasonable
notice. See Article XVI.I below.
Each party agrees that the other parties shall be entitled to
utilize the provisions of Oil and Gas lien law or other lien law of
any state in which the Contract Area is situated to enforce the
obligations of each party hereunder. Without limiting the generality
of the foregoing, to the extent permitted by applicable law, Non-
Operators agree that Operator may invoke or utilize the mechanics' or
materialmen's lien law of the state in which the Contract Area is
situated in order to secure the payment to Operator of any sum due
hereunder for services performed or materials supplied by Operator.
B. Article XVI.I of the Operating Agreement, captioned "POWER OF
SALE," provides as follows:
Subject to the provisions of Article VII.B hereof, if a party
should elect to foreclose the lien granted to such party (the
"Foreclosing Party") pursuant to Article VII.B ("Operator's Lien")
against the interests in the leasehold estate of any Oil and Gas Lease
comprising the Contract Area ("Real Property Interest") of a party
that has failed to perform all of its obligations hereunder (the
"Defaulting Party"), this agreement does hereby include provisions for
non-judicial sale under the laws of the State of Texas, and Michael P.
Pearson is hereby appointed as Trustee for such purpose. Upon such
default, the Trustee shall, at least twenty-one (21) days preceding
the date of non-judicial sale, serve written notice of the proposed
sale by certified mail on the Defaulting Party according to the
records of Operator. Service of such notice shall be deemed completed
upon the deposit in a post office or other official depository under
the care and custody of the United States Postal Service of such
notice enclosed in a postpaid wrapper properly addressed to the
Defaulting Party, together with each other party obligated to pay the
obligations secured by Operator's Lien, at the most recent address or
addresses shown on the records of Operator. The affidavit of any
person having knowledge of the facts to the effect that such service
was completed shall be prima facie evidence of the facts of service.
After such notice, the Trustee shall proceed to sell all of the Real
Property Interest of the Defaulting Party in the Contract Area at
public auction to the highest bidder for cash after having given
notice of the time and place of sale and in the manner and after the
advertisement of such sale as is now required by the statutes of the
State of Texas in making sales of real estate under deeds of trust.
Sale of a part of the Defaulting Party's Real Property Interest in the
Contract Area shall not exhaust the power of sale, and subsequent
sales may be made from time to time until all of such Real Property
Interest is sold or the obligations of the Defaulting Party secured by
Operator's Lien are paid in full. The Trustee shall have the
authority to appoint an attorney in fact to act as
H-iv
<PAGE>
Trustee in conducting the foreclosure sale and executing a deed to the
purchasers. It is further agreed that the Trustee or his successor
may sell the full Real Property Interest of the Defaulting Party in
the Contract Area or may limit such sale to such portions of the Real
Property Interest of the Defaulting Party in the Contract Area as the
Trustee shall deem expedient. After the completion of any sale
pursuant hereto, the Trustee shall make, execute, and deliver to the
purchaser or purchasers of the Real Property Interest of the
Defaulting Party in the Contract Area good and sufficient deeds,
assignments, or other lawful conveyances to vest in such purchaser or
purchasers title to such Real Property Interest in fee simple together
with all personal property used or obtained in connection therewith
and together with all of the proceeds of production attributable
thereto, including proceeds of production held by any party for
payment to the Defaulting Party. From the proceeds of such sale, the
Trustee shall make disbursements in the following order:
(i) pay all charges, costs, and expenses of executing these
provisions;
(ii) pay any sums due by the Trustee for taxes in the
preservation of the security;
(iii) pay to the Foreclosing Party up to the amount necessary to
satisfy the Defaulting Party's debts hereunder; and
(iv) the balance, if any, shall be paid to the Defaulting Party.
It is agreed that such sale shall be a perpetual bar against the
Defaulting Party and its heirs, successors, assigns,legal
representatives, and all other persons claiming under him, them, or
any of them. It is further agreed that the Trustee, or any holder or
holders of the obligation of the Defaulting Party, or the Foreclosing
Party shall have the right to become the purchaser or purchasers at
such sale if such party is the highest bidder or bidders, in which
event the bid or bids may be credited upon the indebtedness of the
Defaulting Party. It is stipulated and agreed that, in case of any
sale hereunder by Trustee or his successor, all prerequisites of such
sale shall be presumed to have been performed; and any conveyance
given hereunder and all statements of fact or recitals therein made as
to (i) the nonpayment of money secured, (ii) any default under the
terms hereof, (iii) the request of the Trustee to enforce this trust,
(iv) the proper and due appointment of any successor or substitute
Trustee, (v) the advertisement of sale, (vi) the time, place, and
terms of sale, or (vi) any other preliminary act or thing shall be
taken in all courts of law and equity as prima facie evidence that the
facts so stated are true. Operator may appoint a substitute or
successor Trustee in the event the Trustee above named resigns or is
unable for any reason to serve.
4. The reciprocal liens and security interests of Operator and Non-
Operators created in Article VII.B of the Operating Agreement cover all of the
interests of each of Operator and
H-v
<PAGE>
Non-Operators in and to each such party's leasehold interests, working
interests, operating rights, and royalty and overriding royalty interests in the
Contract Area now owned or hereafter acquired and in lands pooled or unitized
therewith or otherwise becoming subject to the Operating Agreement, the Oil and
Gas when extracted therefrom, the equipment situated thereon or used or obtained
for use in connection therewith (including, without limitation, all wells,
tools, and tubular goods), all accounts (including, without limitation, accounts
arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),
contract rights, inventory, and general intangibles relating thereto or arising
therefrom, and all proceeds and products of the foregoing.
5. To the extent that this Memorandum constitutes a financing statement,
the security interest created in Article VII.B of the Operating Agreement covers
minerals or the like (including oil and gas) and accounts subject to subsection
(e) of Section 9.103, Texas Business and Commerce Code. In addition, this
Memorandum also constitutes a financing statement filed as a fixture filing. If
this Memorandum is tendered for filing as a financing statement to the County
Clerk of the county or counties in which the Contract Area is located, it shall
be filed for record in both the Uniform Commercial Code and the real estate
records maintained for each such county.
6. This Memorandum may be executed in multiple counterparts, each of
which shall constitute an original and all of which together shall constitute
but one and the same instrument.
7. The respective addresses of Operator, as both secured party and
debtor, and Non-Operators, as both debtors and secured parties, at which
information respecting the security interests created in the Operating Agreement
can be obtained are set forth in Paragraph 1 of this Memorandum.
THUS EXECUTED on the respective dates appearing in the acknowledgments
of the parties executing this counterpart to be EFFECTIVE for all purposes as
hereinabove set forth.
OPERATOR:
AMERAC ENERGY CORPORATION
By:
--------------------------------------
Jeffrey B. Robinson
President and Chief Executive Officer
NON-OPERATORS:
-----------------------------------------
FREDERICK B. WHITTEMORE
H-vi
<PAGE>
-----------------------------------------
JONATHAN R. LONGLEY
-----------------------------------------
WALTER C. WILSON
-----------------------------------------
BREENE M. KERR
-----------------------------------------
MORTON SWINSKY
-----------------------------------------
THOMAS F. DOYLE
-----------------------------------------
J. HUGH ROFF
-----------------------------------------
VINCENT J. DOWLING
ATTEST: NORVILLE OIL CO., L.L.C.
By: By:
-------------------------------- --------------------------------------
Printed Name: Robert G. Harris
----------------------
Title: Manager
-----------------------------
H-vii
<PAGE>
-------------------------------------------------
RICHARD C. NELSON
-------------------------------------------------
GENE P. MORRELL
-------------------------------------------------
CHARLES E. RAMSEY, JR.
-------------------------------------------------
JOHN ROBERT PORTER
THE STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on ______________, 199__,
by Jeffrey B. Robinson, President and Chief Executive Officer of AMERAC
ENERGY CORPORATION, a Delaware corporation, on behalf of said corporation.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
H-viii
<PAGE>
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by FREDERICK B. WHITTEMORE.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by JONATHAN R. LONGLEY.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by WALTER C. WILSON.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
---------------------------
----------------------------------------------
(Printed Name of Notary Public)
H-ix
<PAGE>
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by BREENE M. KERR.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by MORTON SWINSKY.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by THOMAS F. DOYLE.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
H-x
<PAGE>
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by J. HUGH ROFF.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
---------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by VINCENT J. DOWLING.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by ROBERT G. HARRIS, Manager of NORVILLE OIL CO., L.L.C.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
H-xi
<PAGE>
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by RICHARD C. NELSON.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
---------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by GENE P. MORRELL.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
---------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by CHARLES E. RAMSEY, JR.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF T E X A S
---------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
H-xii
<PAGE>
THE STATE OF _______________ (S)
(S)
COUNTY OF __________________ (S)
This instrument was acknowledged before me on _______________, 199__,
by JOHN ROBERT PORTER.
----------------------------------------------
NOTARY PUBLIC for the
My Commission Expires: STATE OF
-------------------------------------
- ---------------------- ----------------------------------------------
(Printed Name of Notary Public)
H-xiii
<PAGE>
EXHIBIT VI
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT is made as of ________________, 199__, between
Amerac Energy Corporation, a Delaware corporation, herein called the Company,
and Petroleum Financial Inc., a Texas corporation, herein called the Warrant
Agent.
WHEREAS, the Company has determined to issue and deliver Stock Purchase
Warrants, hereinafter called Warrants, entitling the holders thereof to purchase
___________ shares (the "Warrant Shares") of Common Stock, par value $.05 per
share, of the Company (the "Common Stock"); and
WHEREAS, the Company desires to provide for the form and provisions of the
Warrants, the terms upon which they shall be issued and exercised, and the
respective rights, limitation of rights, and immunities of the Company, the
Warrant Agent, and the bearers of the Warrants; and
WHEREAS, all acts and things necessary to make the Warrants when executed
on behalf of the Company and countersigned by or on behalf of the Warrant Agent,
as in this agreement provided, the valid, binding, and legal obligations of the
Company, and to authorize the execution and delivery of this agreement, have
been done and performed;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
Article I
Execution and Countersignature of Warrants
Section 1.1 Execution and countersignature of Warrants.
------------------------------------------
(a) Each Warrant, whenever issued, shall be dated November 18, 1996, shall
be in substantially the form of Exhibit 1 hereto, shall be signed by, or bear
the facsimile signature of, the President or a Vice President of the Company and
shall bear a facsimile of the Company's seal. In case any officer whose
facsimile signature has been placed upon any Warrant shall have ceased to be
such before such Warrant is issued, it may be issued with the same effect as if
such officer had not ceased to be such at the date of issuance. No Warrant may
be exercised until it has been countersigned by the Warrant Agent as provided in
paragraph (b) below.
WARRANT AGREEMENT
<PAGE>
(b) The Warrant Agent shall countersign a Warrant only
(i) if the Warrant is to be issued in exchange or substitution for one
or more previously countersigned Warrants, as hereinafter provided, or
(ii) if the Company instructs the Warrant Agent to do so.
(c) Unless and until countersigned by the Warrant Agent pursuant to this
agreement, a Warrant shall be invalid and of no effect.
Article II
Warrant Price, Duration and Exercise of Warrants
Section 2.1 Warrant Price. Each Warrant shall, when countersigned by the
-------------
Warrant Agent, entitle the bearer thereof, subject to the provisions thereof and
of this agreement, to purchase from the Company the number of Warrant Shares
stated therein, at the price of $0.384 per share, subject to adjustment as
provided in Article III hereof. The term Warrant Price as used in this
agreement refers to the price per share at which Common Stock may be purchased
at the time a Warrant is exercised.
Section 2.2 Duration of Warrants. Warrants may be exercised only on or
--------------------
before November 18, 1999, hereinafter called the expiration date. Each Warrant
not exercised on or before the expiration date shall become void, and all rights
thereunder and all rights in respect thereof under this agreement shall cease at
the close of business on the expiration date.
Section 2.3 Exercise of Warrants.
--------------------
(a) A Warrant, when countersigned by the Warrant Agent, may be exercised by
surrendering it, at the corporate trust office of the Warrant Agent in Fort
Worth, Texas, with the subscription form set forth in the Warrant duly executed,
and by paying in full, in lawful money of the United States, the Warrant price
for each full share of Common Stock as to which the Warrant is exercised and any
applicable taxes.
(b) As soon as practicable after the exercise of any Warrant, the Company
shall issue to or upon the order of the bearer of such Warrant a certificate or
certificates for the number of full Warrant Shares to which he is entitled,
registered in such name or names as may be directed by him, and, if such Warrant
shall not have been exercised in full (except with respect to a remaining
fraction of a share), a new countersigned Warrant for the number of Warrant
Shares (including fractional shares) as to which such Warrant shall not have
been exercised. In the event that the same holder of one or more Warrants
exercises the purchase rights thereunder in the same transaction in a manner
which leaves the right to purchase a fraction of a share unexercised, the
Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the current market price of a share of
Common Stock on the business day which next precedes the day of exercise reduced
by the same fraction of the
WARRANT AGREEMENT 2
<PAGE>
Warrant Price of a share of Common Stock on such day. For such purpose, the
current market price shall be the last sale price of the Common Stock on such
next preceding business day, or, if no sale takes place on such day, the average
of the closing bid and asked prices on such day, as officially quoted, as
reported in the principal reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on any
such date the Common Stock is not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of Directors of the
Company. If on any such date no such market maker is making a market in the
Common Stock the fair value of the Common Stock on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(c) All Warrant Shares issued upon the exercise of a Warrant shall be
validly issued, and the Company shall pay all taxes in respect of the issue
thereof. The Company shall not be required, however, to pay any tax imposed in
connection with any transfer involved in the issue of a certificate for shares
of Common Stock in any name other than that of the bearer of the Warrant
surrendered in connection with the purchase thereof; and in such case the
Company shall not be required to issue or deliver any stock certificate until
such tax shall have been paid.
(d) Each person in whose name any such certificate for Warrant Shares is
issued shall for all purposes be deemed to have become the holder of record of
such shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
Article III
Adjustments
Section 3.1 Stock dividends--split-ups. If after the date hereof, and
--------------------------
subject to the provisions of Section 3.7 below, the number of outstanding shares
of Common Stock is increased by a stock dividend payable in shares of Common
Stock or by a split-up of shares of Common Stock, then, on the date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend or split-up, the number of shares issuable on exercise of each Warrant
shall be increased in proportion to such increase in outstanding shares and the
then applicable Warrant Price shall be correspondingly decreased.
Section 3.2 Aggregation of shares. If after the date hereof, and subject
---------------------
to the provisions of Section 3.7, the number of outstanding shares of Common
Stock is decreased by a combination or reclassification of shares of Common
Stock, then, upon the effective date of
WARRANT AGREEMENT 3
<PAGE>
such combination or reclassification, the number of shares issuable on exercise
of each Warrant shall be decreased in proportion to such decrease in outstanding
shares and the then applicable Warrant Price shall be correspondingly increased.
Section 3.3 Special stock dividends. If after the date hereof shares of
-----------------------
any class of the Company (other than Common Stock) are issued by way of a stock
dividend on outstanding Common Stock, then, commencing with the date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend, in addition to any share of Common Stock receivable upon exercise of
the Warrants, the Warrant holders shall, upon such exercise of the Warrants, be
entitled to receive, as nearly as practicable, the same number of shares of
dividend stock, plus any shares issued upon any subsequent change, replacement,
subdivision, or combination thereof to which the holders would have been
entitled had their Warrants been exercised immediately prior to such stock
dividend. No adjustment in the Warrant Price shall be made merely by virtue of
the happening of any event specified in this Section 3.3.
Section 3.4 Reorganization, merger and asset sales. If after the date
--------------------------------------
hereof any capital reorganization or reclassification of the Common Stock of the
Company, or consolidation or merger of the Company with another corporation, or
the sale of all or substantially all of its assets to another corporation shall
be effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, or sale, lawful and fair provision shall be made whereby
the warrant holders shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in the Warrants and in
lieu of the shares of Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented thereby,
such shares of stock, securities, or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented by the
Warrants had such reorganization, reclassification, consolidation, merger, or
sale not taken place, and in any such case appropriate provision shall be made
with respect to the rights interests of the Warrant holders to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Warrant Price and of the number of shares purchasable upon the exercise of
the Warrants) shall thereafter be applicable, as nearly as may be in relation to
any share of stock, securities, or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such consolidation, merger,
or sale unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing such assets, shall assume by written instrument executed
and delivered to the Warrant Agent the obligation to deliver to the Warrant
holders such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase.
Section 3.5 Notice of changes in Warrants. Upon any adjustment of the
-----------------------------
Warrant Price or the number of shares issuable on exercise of a Warrant, then
and in each such case the Company shall promptly give written notice thereof to
the Warrant Agent, which notice shall state the Warrant Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of a Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
WARRANT AGREEMENT 4
<PAGE>
The Company shall also mail such notice to the address on the records of the
Warrant Agent. Failure to give or publish such notice, or any defect therein,
shall not affect the legality or validity of the subject adjustments.
Section 3.6 Other notices. In case at any time:
-------------
(a) the Company shall pay any dividends payable in stock upon its Common
Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders of its
Common Stock any additional shares of stock of any class or other rights;
(c) there shall be any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation; and
(d) there shall be a voluntary or involuntary dissolution, liquidation, or
winding up of the Company;
then, in any one or more of such cases, the Company shall give written notice
and publish the same in the manner set forth in Section 3.5, of the date on
which (i) the books of the Company shall close or a record shall be taken for
such dividend, distribution, or subscription rights, or (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution, or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the case may be. Such
notice shall be given and published at least 20 days prior to the action in
question and not less than 20 days prior to the record date or the date on which
the Company's transfer books are closed in respect thereto. Failure to give or
publish such notice, or any defect therein, shall not affect the legality or
validity of any of the matters set forth in the foregoing clauses (a) to (d),
both inclusive.
Section 3.7 Limitation on fractions. Anything in Section 3.1 or 3.2 to
-----------------------
the contrary notwithstanding, upon exercise of the Warrants cumulative
adjustments in the number of shares issuable on exercise of Warrants shall be
made only to the nearest multiple of one-tenth of a share, i.e., fractions of
less than five-hundredths of a share shall be disregarded and fractions of five-
hundredths of a share, or more, shall be treated as being one-tenth of a share.
Section 3.8 Form of Warrant. The form of Warrant need not be changed
---------------
because of any change pursuant to this Article, and Warrants issued after such
change may state the same Warrant Price and the same number of shares as is
stated in the Warrants initially issued pursuant to this agreement. However,
the Company may at any time in its sole discretion (which shall be conclusive)
make any change in the form of Warrant that the Company may deem appropriate and
that does not affect the substance thereof; and any Warrant thereafter
WARRANT AGREEMENT 5
<PAGE>
issued or countersigned, whether in exchange or substitution for an outstanding
Warrant or otherwise, may be in the form as so changed.
Article IV
Other Provisions Relating to Rights of Bearers of Warrants
Section 4.1 No rights as shareholder conferred by Warrants. A Warrant
----------------------------------------------
does not entitle the bearer thereof to any of the rights of a shareholder of the
Company.
Section 4.2 Lost, stolen, mutilated, or destroyed Warrants. If any
----------------------------------------------
Warrant is lost, stolen, mutilated, or destroyed, the Company and the Warrant
Agent may, on such terms as to indemnify or otherwise as they may in their
discretion impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination, tenor, and date as
the Warrant so lost, stolen, mutilated, or destroyed. Any such new Warrant
shall constitute an original contractual obligation of the Company, whether or
not the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any
time enforceable by anyone.
Section 4.3 Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available a number of its authorized but unissued shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants.
Article V
Transfer and Exchange of Warrants
Section 5.1 Negotiability and ownership of Warrants. Warrants issued
---------------------------------------
hereunder shall be transferable of record only by the Warrant Agent.
Section 5.2 Exchange of Warrants. After countersignature by the Warrant
--------------------
Agent in accordance with the provisions of this agreement, one or more Warrants
may be surrendered to the Warrant Agent for exchange and, upon cancellation
thereof, the Warrant Agent shall countersign and deliver in exchange therefor
one or more new Warrants, as requested by the bearer of the canceled Warrant or
Warrants, for the same aggregate number of shares as were evidenced by the
Warrant or Warrants so canceled.
Article VI
Concerning the Warrant Agent and Other Matters
Section 6.1 Payment of taxes. The Company will from time to time promptly
----------------
pay all taxes and charges that may be imposed upon the Company or the Warrant
Agent in respect of the issuance or delivery of shares of Common Stock upon the
exercise of Warrants, but the
WARRANT AGREEMENT 6
<PAGE>
Company shall not be obligated to pay any transfer taxes in respect of the
Warrants or such shares.
Section 6.2 Resignation, consolidation. or merger of Warrant Agent.
------------------------------------------------------
(a) The Warrant Agent, or any successor to it hereafter appointed, may
resign its duties and be discharged from all further duties and liabilities
hereunder after giving one month's notice in writing to the Company, except that
such shorter notice may be given as the Company shall, in writing, accept as
sufficient. If the office of the Warrant Agent becomes vacant by resignation or
incapacity to act or otherwise, the Company shall appoint in writing a successor
Warrant Agent in place of the Warrant Agent. If the Company shall fail to make
such appointment within a period of 30 days after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the bearer of a Warrant (who shall, with such notice, submit
his Warrant for inspection by the Company), then the bearer of any Warrant may
apply to any court of competent jurisdiction for the appointment of a successor
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing business under the
laws of the United States of America or of the States of Texas or New York (or
if any other state of the United States so long as such corporation is
authorized to do business as a banking institution in either the States of New
York or Texas) in good standing and having its principal office in such state,
and authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by federal or state authority and having a combined
capital and surplus of not less than $25,000,000. The combined capital and
surplus of any such successor Warrant Agent shall be deemed to be the combined
capital and surplus as set forth in the most recent report of its condition
published prior to its appointment, provided that such reports are published at
least annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After appointment, any successor Warrant
Agent shall be vested with all the authority, powers, rights, immunities,
duties, and obligations of its predecessor Warrant Agent with like effect as if
originally named as Warrant Agent hereunder, without any further act or deed;
but if for any reason it becomes necessary or appropriate, the predecessor
Warrant Agent shall execute and deliver, at the expense of the Company, an
instrument transferring to such successor Warrant Agent all the authority,
powers, and rights of such predecessor Warrant Agent hereunder; and upon request
of any successor Warrant Agent the Company shall make, execute, acknowledge, and
deliver any and all instruments in writing for more fully and effectually
vesting in and confirming to such successor Warrant Agent all such authority,
powers, rights, immunities, duties, and obligations. Not later than the
effective date of any such appointment the Company shall give notice thereof to
the predecessor Warrant Agent and each transfer agent for the Common Stock, and
shall forthwith publish a copy of such notice once in an Authorized Newspaper.
Failure to give or publish such notice, or any defect therein, shall not affect
the validity of the appointment of the successor Warrant Agent. The Warrant
Agent may he changed by a majority vote of the holders of a majority of the
outstanding Warrants, to a Warrant Agent acceptable to the Company.
(b) Any corporation into which the Warrant Agent may be, merged or with
which it may be consolidated or any corporation resulting from any merger or
consolidation to which the
WARRANT AGREEMENT 7
<PAGE>
Warrant Agent shall be a party shall be the successor Warrant Agent under this
agreement without any further act.
Section 6.3 Fees and expenses of Warrant Agent. The Company agrees:
----------------------------------
(a) that it will pay the Warrant Agent reasonable remuneration for its
services as such Warrant Agent hereunder and will reimburse the Warrant Agent
upon demand for all out of pocket expenditures that the Warrant Agent may
reasonably incur in the execution of its duties hereunder; and
(b) that it will perform, execute, acknowledge, and deliver or cause to be
performed, executed, acknowledged, and delivered all such further and other
acts, instruments, and assurances as may reasonably be required by the Warrant
Agent for the carrying out or performing of the provisions of this agreement.
(c) to indemnify and hold harmless the Warrant Agent against any loss,
liability or expense (including reasonable attorney's fees) incurred without
gross negligence, willful misconduct or bad faith on the part of the Warrant
Agent arising out of or in connection with the acceptance or administration of
its duties under the Warrant Agreement, including the costs and expenses of
defending against any such claim.
Section 6.4 Additional provisions.
---------------------
(a) The Warrant Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Warrant Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion. The
Warrant Agent may execute any of the powers hereof and perform the duties
required of it hereunder by or through attorneys, agents, receivers or employees
and shall be entitled to advice of counsel concerning all matters of agency and
its duty hereunder.
(b) Whenever in the performance of its duties under this agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a statement signed by the President or a Vice President or the
Treasurer or the Controller or the Secretary of the Company and delivered to the
Warrant Agent; and such statement shall be full warrant to the Warrant Agent for
any action taken or suffered in good faith by it under the provisions of this
agreement in reliance upon such statement; but in its discretion the Warrant
Agent may in lieu thereof accept other evidence of such fact or matter or may
require such further or additional evidence as to it may seem reasonable.
(c) The Warrant Agent shall be liable hereunder only for its own negligence
or willful misconduct.
WARRANT AGREEMENT 8
<PAGE>
(d) The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this agreement or in the Warrants
(except its countersignature thereof) or be required to verify the same, but all
such statements and recitals are and shall be deemed to have been made by the
Company only.
(e) The Warrant Agent shall not be under any responsibility in respect of
the validity of this agreement or the execution and delivery hereof or in
respect of the validity or execution of any Warrant (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this agreement or in any Warrant; nor shall
it be responsible for the making of any adjustments required under the
provisions of Article III or responsible for the manner, method, or amount of
any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock to be issued pursuant to this agreement or any Warrant or
as to whether any shares of Common Stock will when issued be validly issued and
fully paid and nonassessable.
Section 6.5 Acceptance of agency.
--------------------
(a) The Warrant Agent hereby accepts the agency established by this
agreement and agrees to perform the same upon the terms and conditions herein
set forth and, among other things, shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all moneys
received by the Warrant Agent for the purchase of shares of the Company's stock
through the exercise of Warrants.
(b) The Warrant Agent shall not be required to give any bond or surety in
respect of the execution of such agency, powers, duties or otherwise.
Section 6.6 Modification of agreement. The Warrant Agent may, without the
-------------------------
consent or concurrence of the bearers of the Warrants, by supplemental agreement
or otherwise concur with the Company in making any changes or corrections in
this agreement that it shall have been advised by counsel (who may be counsel
for the Company) are required to cure any ambiguity or to correct any defective
or inconsistent provision or clerical omission or mistake or manifest error
herein contained.
Section 6.7 Right to inspect. At any reasonable time, the Warrant Agent,
----------------
the Company and their respective duly authorized representatives shall have the
right to fully inspect any and all books, papers and records of the Company
pertaining to the Warrants and to make memoranda therefrom.
Section 6.8 Obligation to take action. The permissive authority of the
-------------------------
Warrant Agent to act pursuant to this agreement shall not be construed as a duty
to exercise such authority.
WARRANT AGREEMENT 9
<PAGE>
Section 6.9 Reliance on documents.
---------------------
(a) The Warrant Agent shall incur no liability in acting or proceeding in
good faith upon any resolution, telegram, request, consent, waiver, certificate,
statement, affidavit, voucher, bond, requisition or other paper or document
prepared and furnished pursuant to any of the Warrants that it in good faith
believes to be genuine.
(b) The Warrant Agent may accept and rely upon such materials as conclusive
evidence of the truth and accuracy of such statements and shall not be required
to investigate any matters contained in any such documents.
(c) The Warrant Agent is not bound to recognize any Person as the holder of
any Warrant or to take any action at his request unless such Warrant is
deposited with the Warrant Agent or evidence satisfactory to the Warrant Agent
of the ownership of such Warrant is furnished to the Warrant Agent.
(d) No provision of this agreement shall require the Warrant Agent to
expend or risk its own funds or otherwise incur financial liability in the
performance of its duties hereunder or in the exercise of any of its rights or
powers if it has reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
Section 6.10 Successors. All the covenants and provisions of this
----------
agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 6.11 Notices and demands to Company and Warrant Agent. Any notice
------------------------------------------------
or demand authorized by this agreement to be given or made by the Warrant Agent
or by the bearer of any Warrant to or on the Company shall be sufficiently given
or made if sent by mail first-class or registered, postage prepaid, addressed
(until another address is filed in writing by the Company with the Warrant
Agent), as follows:
Amerac Energy Corporation
1201 Louisiana, Suite 3350
Houston, TX 77002
Any notice or demand authorized by this agreement to be given or made by the
bearer of any Warrant or by the Company to the Warrant Agent shall be
sufficiently given or made if sent by mail first-class or registered, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company), as follows:
Petroleum Financial Inc.
306 W. 7th Street, Suite 1025
Fort Worth, TX 76102
WARRANT AGREEMENT 10
<PAGE>
Section 6.12 Applicable law. The validity, interpretation, and
--------------
performance of this agreement and of the Warrants shall be governed by the law
of the State of Texas.
Section 6.13 Persons having rights under this agreement. Nothing in this
------------------------------------------
agreement expressed and nothing that may be implied from any of the provisions
hereof is intended, or shall be construed, to confer upon, or give to, any
person or corporation other than the parties hereto and the bearers of the
Warrants any right, remedy, or claim under or by reason of this agreement or of
any covenant, condition, stipulation, promise, or agreement hereof, and all
covenants, conditions, stipulations, promises, and agreements in this agreement
contained shall be for the sole and exclusive benefit of the parties hereto and
their successors and of the bearers of the Warrants.
Section 6.14 Examination of agreement. A copy of this agreement shall be
------------------------
available at all reasonable times at the corporate trust office of the Warrant
Agent in the City of Fort Worth, State of Texas, for inspection by the bearer of
any Warrant. The Warrant Agent may require any such bearer to submit his
Warrant for inspection by it.
Section 6.15 Effect of headings. The Article and Section headings herein
------------------
are for convenience only and are not part of this agreement and shall not affect
the interpretation thereof.
In witness whereof this agreement has been duly executed by the parties
hereto under their respective corporate seals as of the day and year first above
written.
ATTEST: AMERAC ENERGY CORPORATION
By:
- ---------------------------------- -------------------------------------
ATTEST: PETROLEUM FINANCIAL INC.
By:
- ---------------------------------- -------------------------------------
WARRANT AGREEMENT 11
<PAGE>
EXHIBIT 1
(Form of Warrant]
Warrant to Purchase_________
Shares of Common Stock
Amerac Energy Corporation
Warrant to Purchase Common Stock
Void After November 18, 1999
This certifies that,___________________________________________________
hereinafter called the holder hereof, is entitled to purchase, at any time on or
before November 18, 1999, ______ shares of Common Stock, par value $.05 per
share, of Amerac Energy Corporation, a Delaware corporation, hereinafter called
the Company, as such stock is constituted at the date of this warrant, at the
Warrant Price of $.384 per share, but such number of shares and the Warrant
Price per share may be adjusted from time to time upon the occurrence of certain
events as provided in the Warrant Agreement hereinafter referred to, by
surrendering this Warrant, with the subscription form on the reverse side hereof
duly executed, at the office of the Warrant Agent, whose address will be
supplied by Petroleum Financial Inc., and by paying in lawful money of the
United States, the then current Warrant Price as to which this Warrant is
exercised, but only subject to the conditions set forth herein and in the
Warrant Resolution.
Upon exercise of this Warrant, for only a portion of the full shares
represented hereby, there shall be countersigned and issued to or upon the order
of the holder hereof a new Warrant in respect of the shares of Common Stock as
to which this Warrant shall not have been exercised.
This Warrant may be exchanged either separately or in combination with one
or more other countersigned Warrants for one or more new countersigned Warrants
for the same aggregate number of shares of Common Stock represented by the
Warrant or Warrants exchanged.
No fractional shares will be issued upon the exercise of rights to purchase
hereunder but a cash adjustment in respect thereof will be made by the Company
as provided in the hereinafter referred to Warrant Agreement.
This Warrant is issued under and in accordance with the Warrant Agreement
dated as of __________________, 199__, between the Company and the Warrant Agent
and is subject to the terms and provisions contained in such Warrant Agreement,
to all of which terms and provisions the holder of this Warrant consents by
acceptance hereof.
WARRANT AGREEMENT 12
<PAGE>
This Warrant is issued subject to the condition, and every holder hereof by
accepting the same agrees with every subsequent holder hereof and with the
Company, that delivery hereof by any person in possession of the same, however
such possession may have been acquired, if properly assigned in blank, or if
properly assigned to a specified person, by delivery hereof to such person,
shall vest title hereof and all rights hereunder in the transferee to the same
extent and for all purposes as would delivery under like circumstances of any
negotiable instrument; and that the Company may treat the record holder hereof
for the time being, or when presented properly assigned to a specified person,
the person to whom assigned, or, when presented properly assigned in blank, the
bearer hereof, as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
This Warrant does not entitle any holder hereof to any of the rights of a
stockholder of the Company.
Dated as of , 1996.
---------------------------
AMERAC ENERGY CORPORATION
By:
------------------------------------
COUNTERSIGNED:
PETROLEUM FINANCIAL INC.
WARRANT AGENT
BY:
----------------------------------
Exercisable Only if Countersigned by the Warrant Agent.
WARRANT AGREEMENT 13
<PAGE>
EXHIBIT VII
Attached to and made a part of
Exploitation Agreement between Amerac Energy
Corporation and Walter C. Wilson, et al.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of __________________, 199__,
(this "Agreement"), is by and among Amerac Energy Corporation, a Delaware
corporation (the "Issuer"), and Messrs. _____________________________________
(collectively the "Holders" and individually a "Holder").
WHEREAS, the Holders are this date accepting from the Issuer a warrant or
warrants (the "Warrants") to purchase Common Stock, par value $.05 per share, of
Amerac Energy Corporation ("Stock"), pursuant to a private offering in
connection with the Holders' participation in that certain Exploitation
Agreement dated effective as of January 1, 1997, between Issuer, the Holders, et
al.;
WHEREAS, the Stock would require a legend restricting the transferability,
Issuer has agreed to duly execute and deliver this Agreement; and
WHEREAS, as a condition to its acceptance of Warrants, each Holder is
requiring Issuer to enter in this Agreement relating to the registration of
shares of Stock which may be issued upon exercise of a Warrant, and Issuer has
agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Securities Subject
(a) Definitions.
As used herein, the following terms have the indicated meanings, unless the
context otherwise requires:
"Act" means the Securities Act of 1933, as amended.
"Commission" means the Securities and Exchange Commission.
"Registrable Securities" means the Stock issued upon exercise of any
Warrant and any securities issued as a distribution with respect thereto or in
exchange therefor, provided that such Stock or securities have not theretofore
been registered under the Act.
<PAGE>
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
(b) Registrable Securities. Any Registrable Security will cease to be a
Registrable Security when (i) a registration statement covering such Registrable
Security has been declared effective by the Commission and it has been disposed
of pursuant to such effective registration statement, (ii) it is distributed to
the public pursuant to Rule 144 (or any similar or successor rule or provision
then in force) under the Act, or (iii) it may be otherwise transferred without
restriction under Rule 144(k) (or any similar successor rule or provision then
in force.
2. Shelf Registration
(a) At any time after __________________, and before the date three (3)
years after ____________________, one or more of Holders of Registrable
Securities holding an aggregate of a majority of the Registrable Securities may
request in writing that the Issuer file a "shelf" registration statement on an
appropriate form pursuant to Rule 415 (or any successor provision that may be
adopted by the Commission) under the Act covering the registration of all, or
any portion in excess of 50%, of the Registrable Securities for the resale
thereof pursuant to a plan of distribution described in such request (the "Shelf
Registration"). Within five business days of receipt of such request, the Issuer
shall give notice of such request to all of the remaining Holders of Registrable
Securities of its receipt of such request from such Holder or Holders. Upon the
written request of any such Holder delivered to the Issuer within 10 days after
receipt from the Issuer of such notification (the "Determination Date"), the
Issuer will use its best efforts to cause such of the Registrable Securities as
may be requested by any such Holder (including the Holder or Holders of
Registrable Securities giving the initial request to register hereunder) to be
registered under the Act in accordance with the terms of this Section 2.
(b) Issuer agrees to use its best efforts to file with the Commission
within thirty (30) days of the Determination Date the Shelf Registration, have
the Shelf Registration declared effective as soon as practicable after the
filing thereof and to keep the Shelf Registration continuously effective until
three years after the date of this Agreement or until there are no more
Registrable Securities, whichever shall occur first. Issuer further agrees to
supplement or amend the Shelf Registration, (i) if required by the Act or (ii)
to update information with respect to the Holders or the plan of distribution if
requested by the Holders of a majority of the Registrable Securities, and Issuer
agrees to furnish to the Holders copies of any such supplement or amendment
promptly after its being filed with the Commission. Issuer will make available
to its securityholders (i) as soon as reasonably practicable, from time to time,
for three years, statements of operations covering each successive three-month
period, commencing on the first day of the fiscal quarter next succeeding the
effective date of such Shelf Registration and (ii) as soon as reasonably
practicable after twelve (12) months have elapsed from such date, a statement of
operations covering a period of twelve (12) months, which earnings statements
shall satisfy the provisions of Section 11(a) of the Act.
(c) The Holders of a majority of the Registrable Securities, in their sole
discretion, shall determine whether to proceed with, withdraw from or terminate
the Shelf
2
<PAGE>
Registration. If the Shelf Registration is withdrawn or terminated pursuant to
the foregoing clause and the Holders pay all Registration Expenses (as defined
below) incurred by Issuer in connection with the terminated or withdrawn
registration statement, such registration statement shall not constitute the
Shelf Registration pursuant to this Section 2.
3. Piggy-Back Registration
(a) If, at any time beginning on the date hereof and ending three (3)
years after such date, the Issuer proposes to file a registration statement
under the Act with respect to any offering of any securities of Issuer (other
than a registration statement on Form S-4 or S-8 (or any substitute form for
comparable purposes that may be adopted by the Commission) or a registration
statement filed in connection with an exchange offer or an offering of
securities solely to Issuer's existing securityholders), then Issuer shall in
each such case give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable (but in no event less than ten
(10) days before the anticipated filing date), and such notice shall offer such
Holders the opportunity to register such number of shares of Registrable
Securities for sale pursuant to the plan of distribution for such offering as
each such Holder may request.
(b) Issuer shall use its best efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in the registration statement for such
offering to be included on the same terms and conditions as any similar
securities of Issuer or of any other selling securityholders included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering determines that because of the size of the offering which the
Holders of such Registrable Securities, the Issuer, and such other persons
intend to make, the success of the offering of the Issuer's securities could
reasonably be expected to be materially and adversely affected by inclusion of
the Registrable Securities requested to be included, then the managing
underwriters shall provide written notice of such determination to the Holders
of the Registrable Securities, and the amount of securities to be offered for
the accounts of Holders shall be reduced pro rata among the Holders to the
extent necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters;
provided that if securities are being offered for the account of other persons
or entities other than Issuer, then the proportion by which the amount of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of securities intended to be offered by such
other persons or entities other than Issuer is reduced. Issuer will bear all
Registration Expenses in connection with a piggy-back registration.
(c) As a condition to a Holder's participation in any underwriting with
respect to Issuer pursuant to this Section 3, the Holder shall be required to
enter into customary agreements (including an underwriting agreement in
customary form) and take such other actions as are reasonably required by the
underwriters in order to include the Registrable Securities for sale pursuant to
such underwritten offering.
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<PAGE>
4. Holdback Agreements
(a) Restrictions on Public Sale Holder of Registrable Securities. To
the extent not inconsistent with applicable law, each Holder whose securities
are included in a registration statement pursuant to Section 3 agrees not to
effect any public sale or distribution of the issue being registered or a
similar security of Issuer, or any securities convertible into or exchangeable
or exercisable for such securities, including a sale pursuant to Rule 144 under
the Act, during the fourteen (14) days prior to, and during the ninety-day
period beginning on, the effective date of such registration statement (except,
in each case, as part of such registration), if and to the extent requested by
the managing underwriter or underwriters.
(b) Postponement of Sale under Shelf Registration Statement. Each Holder
agrees not to effect any public sale or distribution pursuant to any Shelf
Registration pursuant to this Agreement at any time that Issuer shall have
advised the Holders in writing that the sale by such Holders pursuant to such
Shelf Registration could reasonably be expected to (i) adversely affect, or
require the premature disclosure of any proposed acquisition, disposition or
other transaction involving Issuer or (ii) materially and adversely affect any
proposed underwritten public offering of Stock if the managing underwriter
thereof shall have advised the Holders that any such sales could reasonably be
expected to jeopardize the success of the offering; provided, however, in each
such case Issuer may not restrict any such sales unless at least five (5) days
prior written notice is provided to each Holder and provided further Issuer may
not restrict sales by Holders (x) for a total of more than ninety (90) days
during any one-year period or (y) for more than sixty (60) consecutive days
after the date of the prospectus for any such underwritten public offering.
5. Registration Procedures
Whenever Registrable Securities are required to be registered pursuant to
Section 3 hereof, Issuer will use its best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request and with the Shelf Registration, Issuer will, as expeditiously
as possible:
(a) (i) prior to filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to one counsel selected by the
Holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
will be subject to the review of such counsel, (ii) as soon as reasonably
possible, furnish to each Selling Holder, prior to filing a registration
statement, copies of such registration statement as proposed to be filed, and
thereafter furnish to such Selling Holder such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such Selling Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder, and
(iii) after the filing of the registration statement, promptly notify each
Selling Holder of Registrable Securities covered by such registration
<PAGE>
statement of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the registration statement as may be necessary to keep
the registration statement effective for (i) a period of not less than three (3)
years in the case of a registration statement on Forms S-1 or S-2, or (ii) an
indefinite period in the case of a registration statement on Form S-3 (or such
shorter period which will terminate when all Registrable Securities covered by
such registration statement have been sold or withdrawn, but not prior to the
expiration of the 25-day period referred to in Section 4(3) of the Act and Rule
174 thereunder, if applicable); cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act; and comply with the provisions of the Act applicable to
it with regard to the disposition of all securities covered by such registration
statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such registration statement
or supplement to the prospectus;
(c) if requested by the managing underwriter or underwriters or any Holder
of Registrable Securities covered by the registration statement, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or such holder, as the
case may be, reasonably requested to be included therein, including, without
limitation, information with respect to the number of Registrable Securities
being sold by such holder to an underwriter or underwriters, the purchase price
being paid therefor by such underwriter or underwriters and with respect to any
other terms of the underwritten offering of the Registrable Securities to be
sold in such offering, and promptly make all required filings of such prospectus
supplement or post-effective amendment;
(d) enter into such customary agreements (including an underwritten
agreement in customary form with provisions as may be reasonably required by the
managing underwriter retained by the holder of Registrable Securities) and take
all such other actions as the holders of a majority of the Registrable
Securities being sold or the managing underwriter or underwriters retained by
holders participating in an underwritten public offering, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities in each case to the same extent as if all the securities then being
offered were for the account of the Company;
(e) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any Selling Holder reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such Selling Holder; provided that Issuer will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (b), (ii) subject itself
to taxation or qualification in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;
5
<PAGE>
(f) notify each Selling Holder of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Act, of the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
promptly make available to each Selling Holder any such supplement or amendment;
(g) enter into customary agreements (including an underwriting agreement
in customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable Securities;
(h) make available for inspection on a confidential basis by any Selling
Holder of such Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other professional retained by any such Selling Holder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of Issuer and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause Issuer's and its
subsidiaries' officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such registration
statement;
(i) in the event such sale is pursuant to an underwritten offering, use
its best efforts to obtain a comfort letter or comfort letters from Issuer's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters as the Selling Holders of a
majority in aggregate principal amount or number of shares, as the case may be,
of the Registrable Securities being sold or the managing underwriter reasonably
request and an opinion of outside counsel to Issuer covering such matters as are
customarily covered by such opinions;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of
twelve (12) months, beginning within three (3) months after the effective date
of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act; and
(k) use its best efforts to cause all such Registrable Securities to be
listed on each securities exchange on which the Stock of Issuer is then listed.
Issuer may require each Selling Holder of Registrable Securities as to
which any registration is being effected to furnish to Issuer such information
regarding the distribution of such Registrable Securities as Issuer may from
time to time reasonably request in writing and such other information as may be
legally required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from Issuer of
the happening of any event of the kind described in Section 5(c) hereof, such
Selling Holder will
6
<PAGE>
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Selling
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5(c) hereof, and, if so directed by Issuer, such Selling
Holder will deliver to Issuer (at Issuer's expense) all copies, other than
permanent file copies, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event Issuer shall give
any such notice, Issuer shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 2(b) hereof) by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 5(c) hereof to and
including the date when each Selling Holder of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 5(c) hereof.
6. Registration Expenses
All expenses incident to Issuer's performance of or compliance with this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger and
delivery expenses, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchanges and fees and
disbursements of counsel for Issuer and its independent certified public
accountants (including the expenses of any special audit or comfort letters
required by or incident to such performance), securities acts liability
insurance (if Issuer elects to obtain such insurance) and the reasonable fees
and expenses of any special experts retained by Issuer in connection with such
registration, fees and expenses of other persons retained by Issuer (all such
expenses being herein called "Registration Expenses"), will be borne by Issuer.
Registration Expenses shall not include the fees and expenses of any counsel for
the Holders, any underwriting discounts, commissions, or similar charges
attributable to the sale of Registrable Securities or any other expenses of the
Holders, all of which shall be paid by the Holders.
7. Indemnification; Contribution
(a) Indemnification by Issuer. Issuer agrees to indemnify and hold
harmless each Selling Holder, its officers, directors, partners and agents and
each person, if any, who controls such Selling Holder within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended, from and against any and all losses, claims, damages (whether in
contract, tort or otherwise), liabilities and expenses (including reasonable
costs of investigation) whatsoever (as incurred or suffered) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon 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, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to Issuer by such Selling Holder or on such
7
<PAGE>
Selling Holder's behalf expressly for use therein. Issuer also agrees to
indemnify any underwriters of the Registrable Securities, their officers,
partners and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 7 or such other indemnification customarily
obtained by underwriters at the time of offering.
(b) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Selling Holder (or its officers, directors, partners or
agents) or any person controlling any such Selling Holder in respect of which
indemnity may be sought from Issuer, Issuer shall, at its expense, assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Selling Holder. Such Selling Holder or any controlling person of such
Selling Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Selling Holder or such controlling
person unless (i) Issuer has agreed to pay such fees and expenses or (ii) the
named parties to any such action or proceeding (including any impleaded parties)
include both such Selling Holder or such controlling person and Issuer, and such
Selling Holder or such controlling person shall have been advised by counsel
that there may be one or more legal defenses available to such Selling Holder or
such controlling person which are different from or additional to those
available to Issuer (in which case, if such Selling Holder or such controlling
person notifies Issuer in writing that it elects to employ separate counsel at
the expense of Issuer, Issuer shall not have the right to assume the defense of
such action or proceeding on behalf of such Selling Holder or such controlling
person; it being understood, however, that Issuer shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all the Selling Holders and such controlling persons,
which firm shall be designated in writing by a majority of the Selling Holders).
Issuer shall not be liable for any settlement of any such action or proceeding
effected without Issuer's written consent, but if settled with its written
consent, or if there be a final judgment no longer subject to appeal for the
plaintiff in any such action or proceeding, Issuer agrees to indemnify and hold
harmless such Selling Holder and such controlling person from and against any
loss or liability (to the extent stated above) by reason of such settlement or
judgment.
(c) Indemnification by Holders of Registrable Securities. Each Selling
Holder agrees, severally but not jointly, to indemnify and hold harmless Issuer,
its directors and officers and each person, if any, who controls Issuer within
the meaning of either Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended, to the same extent as the foregoing indemnity
from Issuer to such Selling Holder, but only with respect to information
furnished in writing by such Selling Holder or on such Selling Holder's behalf
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be brought
against Issuer or its directors or officers, or any such controlling person, in
respect of which indemnity may be sought against such Selling Holder, such
Selling Holder shall have the rights and duties given to Issuer, and Issuer or
its directors or officers or such controlling person shall have the rights and
duties given to such Selling Holder, by the
8
<PAGE>
preceding paragraph. Each Selling Holder also agrees to indemnify and hold
harmless underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of Issuer provided in this Section 7.
(d) Contribution. If the indemnification provided for in this Section 7 is
unavailable to Issuer, the Selling Holders or the underwriters in respect of any
losses, claims, damages, liabilities or judgments referred to herein, then each
such 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 and judgments (i) as between Issuer
and the Selling Holders on the one hand and the underwriters on the other, in
such proportion as is appropriate to reflect the relative benefits received by
Issuer and the Selling Holders on the one hand and the underwriters on the other
from the offering of the Registrable Securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of Issuer and the
Selling Holders on the one hand and of the underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations and (ii) as between Issuer, on the one hand, and each
Selling Holder on the other, in such proportion as is appropriate to reflect the
relative fault of Issuer and of each Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by Issuer and the Selling Holders on the one hand
and the underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by Issuer and the Selling
Holders bear to the total underwriting discounts and commissions received by the
underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of Issuer and the Selling Holders on the one hand
and of the underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by Issuer and the Selling Holders or by the underwriters.
The relative fault of Issuer on the one hand and of each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Issuer and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the
9
<PAGE>
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Each Selling Holder's obligation to
contribute is several in the proportion that the proceeds of the offering
received by such Selling Holder bears to the total proceeds of the offering, and
not joint.
(e) Limitation of Liability. In no event shall any Selling Holder be
liable under this Section 7 or otherwise in respect of any offering for amounts
in excess of the net proceeds received by such Selling Holder from the sale of
Registrable Securities in such offering.
8. Participation in Underwritten Registrations
No person may participate in any underwritten registration hereunder unless
such person (a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and this
Agreement.
9. Rule 144
Issuer covenants that it will file any reports required to be filed by it
under the Act and the Securities Exchange Act of 1934, as amended, and that it
will take such further action as any Holder may reasonably request, all to the
extent required from time to time to (i) maintain its eligibility to use Form S-
3 under the Act to register the Registrable Securities and (ii) enable Holders
to sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 under the 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, Issuer will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
10. Transfer of Registration Rights
The registration rights provided to the Holders of the Registrable
Securities under Sections 2 and 3 hereof may be transferred in whole or in part
to any other person in connection with a transfer of a Warrant that complies
with the Act and any applicable state securities or blue sky laws. Any such
transferee who is also a transferee of the registration rights provided
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<PAGE>
under Sections 2 and 3 hereof shall be a Holder of Registrable Securities within
the meaning of this Agreement and shall have the rights as such hereunder.
11. Miscellaneous
(a) Binding Effect. Unless otherwise provided herein, the provisions of
this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs, legal representatives, transferees,
successors and assigns.
(b) Amendment. This Agreement may be amended or terminated only by a
written instrument signed by Issuer and the holders of a majority of the
Registrable Securities.
(c) Applicable Law. The internal laws of the State of Texas shall govern
the interpretation, validity and performance of the terms of this Agreement.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or when received if
sent by registered or certified mail, return receipt requested, or by facsimile
transmission to the parties at the following addresses (or at such other address
as a party may specify by like notice):
(i) If to Holders:
-------------
----------------------------
----------------------------
----------------------------
Telephone No.:
Facsimile No.:
(ii) If to Amerac Energy Corporation:
-------------------------------
Amerac Energy Corporation
1201 Louisiana, Suite 3350
Houston, Texas 77002-5630
Attention: Mr. Jeffrey B. Robinson
Telephone No.: (713) 308-5250
Facsimile No.: (713) 308-5285
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one instrument.
(f) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ISSUER:
-------
AMERAC ENERGY CORPORATION
By:
---------------------------------------------
Jeffrey B. Robinson
President and Chief Executive Officer
HOLDERS:
--------
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------------------------------------------------
------------------------------------------------
12
<PAGE>
EXHIBIT VIII
------------
Attached to and made a part of
Exploitation Agreement between Amerac Energy
Corporation and Walter C. Wilson, et al.
ACCREDITED INVESTOR CERTIFICATE
-------------------------------
The undersigned hereby certifies that he is an Accredited Investor as that
term is defined in Rule 501(a) adopted pursuant to the Securities Act of 1933,
as amended (the "Act"). The specific category(s) of Accredited Investor
applicable to the undersigned is checked below.
_____________ a. A natural person whose individual net worth, or joint
net worth with that person's spouse, exceeds $1,000,000.
_____________ b. A natural person who had an individual income in excess
of $200,000 in 1994 and 1995 or joint income with that person's
spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in 1996.
_____________ c. A bank as defined in Section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act, whether acting in its individual
or fiduciary capacity; any broker or dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Act; an
investment company registered under the Investment Company Act of
1940 (the "1940 Act") or a business development company as
defined in Section 2(a)(48) of the 1940 Act; a Small Business
Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; or an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974 ("ERISA"), if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of ERISA, which is either
a bank, savings and loan association, insurance company or
registered investment adviser, or if the employee benefit plan
has total assets in excess of $5,000,000 or, if a self-directed
plan, with investment decisions made solely by persons that are
accredited investors.
_____________ d. A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
_____________ e. An organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, with total assets in
excess of $5,000,000.
1
<PAGE>
_____________ f. An entity in which all of the equity owners are accredited
investors under paragraphs (a), (b), (c), (d) or (e) above.
IN WITNESS WHEREOF, the undersigned has executed this Accredited Investor
Certificate this ______ day of _____________, 199__.
___________________________________
Signature
___________________________________
Printed Name
___________________________________
Number and Street
___________________________________
City, State and Zip
Mailing Address
(if different)
___________________________________
Number and Street Subscriber's Social Security Number
or Tax Identification Number
_______________________________
City, State and Zip
___________________________________
Signature of Co-owner if
applicable
If joint ownership, check one (all parties must sign above)
( ) Joint Tenants with ( ) Tenants in Common
Right of Survivorship
( ) Community Property
If fiduciary, partnership, or corporation, or other entity, check one:
( ) Trust ( ) Estate ( ) Power of Attorney
( ) Corporation ( ) Partnership
2
<PAGE>
EXHIBIT IX
Attached to and made a part of Exploitation
Agreement between Amerac Energy Corporation
and Walter C. Wilson, et al.
ASSIGNMENT AND BILL OF SALE
---------------------------
THIS ASSIGNMENT AND BILL OF SALE ("Assignment") is executed on this
____ day of __________________, 199_, and is from ______________________________
______________________________________________________ ("Assignor"), to AMERAC
ENERGY CORPORATION, a Delaware corporation having as its address 1201 Louisiana,
Suite 3350, Houston, Texas 77002-5609 ("Assignee").
I.
GRANTING AND HABENDUM CLAUSES
For ten dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which Assignor hereby acknowledges, Assignor has
granted, transferred, bargained, sold, conveyed, and assigned, and does hereby
grant, transfer, bargain, sell, convey, and assign to Assignee, effective for
all purposes as of ______________, 199__, at 7:00 a.m., Central [Standard]
[Daylight] Time (the "Effective Time"), the following properties and assets
(collectively, the "Program Interests"):
(a) the undivided oil and gas leasehold interests, and the associated
net revenue interests, in each case set forth in Exhibit A attached hereto
in and to the oil and gas leases also described more particularly on the
attached Exhibit A (collectively, the "Leases"), together with any and all
other rights, titles, and interests of Assignor in and to (i) the Leases
and the leasehold estates created thereby as to all depths, subject to the
terms, conditions, covenants, and obligations set forth in the Leases, and
(ii) the lands covered by the Leases or included in units with which the
Leases may have been pooled or unitized (the "Lands"), including in each
case, without limitation, fee interests, royalty interests, overriding
royalty interests, production payments, net profits interests, carried
interests, reversionary interests, possibilities of reverter, conversion
rights and options, and all other interests of any kind or character;
(b) all of the rights, titles, and interests of Assignor in and to
all oil and gas wells located on the Leases and the Lands or on other
leases or lands with which the Leases and/or the Lands may have been pooled
or unitized (collectively, the "Wells"), and all oil, gas, and other
hydrocarbons produced therefrom or allocated thereto (the Leases, the
Lands, and the Wells being collectively referred to hereinafter as the
"Properties");
<PAGE>
(c) all of the rights, titles, and interests of Assignor in and to
all other rights, privileges, benefits, and powers conferred upon the owner
of an interest in the Properties, and all rights and interests in, under,
or derived from all unitization and pooling agreements in effect with
respect to the Properties and the units created thereby which accrue or are
attributable to the interests of Assignor in the Properties;
(d) all of the rights, titles, and interests of Assignor in and to
all of the permits; licenses; servitudes; easements; rights-of-way; orders;
farm-in and farm-out agreements; bottom hole agreements; crude oil,
condensate, and natural gas purchase and sale, gathering, transportation,
and marketing agreements; hydrocarbon storage agreements; acreage
contribution agreements; operating agreements; balancing agreements;
pooling agreements; unitization agreements; processing agreements;
saltwater disposal agreements; options; building leases; facilities or
equipment leases; and other contracts, agreements, and rights owned by
Assignor, in whole or in part, to the extent that they are (i) appurtenant
to or affect the Properties or (ii) used or held for use in connection with
the ownership or operation of the Properties or the production or treatment
of oil, gas, and other hydrocarbons on or produced from the Properties, or
the sale or disposal of water, oil, gas, and other hydrocarbons, or
associated substances ("Property Agreements");
(e) all of the rights, titles, and interests of Assignor in and to
all equipment, machinery, fixtures, and other real, personal, and mixed
property located on the Properties, to the extent used in connection with
or attributable to the Properties, including, without limitation, saltwater
disposal wells, injection wells, well equipment, casing, rods, tanks,
boilers, tubing, pumps, motors, machinery, compression equipment, flow
lines, pipelines, and other improvements used in the operation thereof
("Personal Property"); and
(f) all of the rights, titles, and interests of Assignor in and to
all of the files, records, information, and data, whether written or
electronically stored, relating to the interests of Assignor in the
Properties, including, without limitation: (i) land and title records
(including abstracts of title, title opinions, and title curative
documents); (ii) contract files; (iii) correspondence; (iv) operations,
environmental, production, and accounting records; (v) facility and well
records; and (vi) geological, geophysical, and other scientific and
technical information logs, workmaps, and other data relating to the
Properties, including, without limitation, all such data and information
acquired by Assignor as the result of "Evaluation Work" (as that term is
defined in the "Exploitation Agreement" described below in Section 3.1)
performed by Assignee on the Properties ("Records").
TO HAVE AND TO HOLD, subject to the terms, exceptions and other
provisions herein stated, the Program Interests unto Assignee and its successors
and assigns forever.
IX-ii
<PAGE>
II.
WARRANTIES; DISCLAIMERS
2.1 Limited Warranty; Subrogation. Assignor agrees to warrant and forever
-----------------------------
defend title to the Program Interests unto Assignee and its successors and
assigns, but subject to the documents identified below in Article III of this
Assignment and operator's liens under joint operating or similar agreements and
liens securing obligations that are not yet due, against the claims and demands
of all persons claiming, or to claim the same, or any part thereof, by, through,
or under Assignor, but not otherwise, so that the Program Interests so warranted
shall entitle Assignee and its successors and assigns to receive not less than
the share of production from each Well equal to the "Net Revenue Interest" set
forth for such Well on Exhibit A hereto, and shall obligate Assignee and its
successors and assigns to bear not more than the share of the costs and expenses
of operating each Well equal to the "Working Interest" set forth for such Well
on such Exhibit A. Except as provided in the immediately preceding sentence of
this Section 2.1, this Assignment is made without warranty of title, expressed,
implied, or statutory, and without recourse, even as to the return of the
purchase price or other consideration, but with full substitution and
subrogation of Assignee, and all persons claiming by, through, and under
Assignee, to the extent assignable, in and to all covenants and warranties of
Assignor's predecessors in title and with full subrogation of all rights
accruing under the statutes of limitation or prescription applicable to the
Program Interests and all rights of action of warranty against all former owners
of the Program Interests.
2.2 Further Disclaimers. Assignor and Assignee agree that to the extent
-------------------
required by applicable law to be operative, the disclaimers of certain
warranties contained in this Section 2.2 are "conspicuous" disclaimers for the
purposes of any applicable law, rule, or order. EXCEPT AS OTHERWISE PROVIDED
FOR HEREIN, ASSIGNEE SPECIFICALLY AGREES THAT ASSIGNOR IS CONVEYING THE PERSONAL
PROPERTY WITHOUT REPRESENTATION OR WARRANTY, EITHER EXPRESSED, IMPLIED AT COMMON
LAW, BY STATUTE, OR OTHERWISE (ALL OF WHICH ASSIGNOR HEREBY DISCLAIMS), RELATING
TO (i) MERCHANTABILITY, DESIGN, OR QUALITY, (ii) FITNESS FOR ANY PARTICULAR
PURPOSE, (iii) COMPLIANCE WITH SPECIFICATIONS OR CONDITIONS REGARDING
OPERATION, (iv) ABSENCE OF LATENT DEFECTS, OR (v) ANY OTHER MATTER WHATSOEVER.
III.
GOVERNING AGREEMENTS
This Assignment is expressly made subject to the terms, provisions,
exceptions, and reservations contained in (a) the Leases, (b) that certain
Exploitation Agreement dated effective as of January 1, 1997, between Amerac
Energy Corporataion and Walter C. Wilson, et al. (the "Exploitation Agreement"),
(c) that certain Operating Agreement dated effective as of January 1, 1997,
between Assignee as Operator, and Assignor, et al., as Non-Operators (the
"Operating Agreement"), and (d) the Property Agreement(s) identified on the
attached Exhibit A. The delivery of this Assignment shall not affect, enlarge,
diminish, or otherwise impair any of the representations, warranties, covenants,
conditions, indemnities, terms, or provisions of the Exploitation Agreement and
the Operating Agreement, and all of the representations,
IX-iii
<PAGE>
warranties, covenants, conditions, indemnities, terms, and provisions contained
in the Exploitation Agreement and Operating Agreement shall survive the delivery
of this Assignment to the extent, and in the manner, set forth in the
Exploitation Agreement. In the event of a conflict between the terms and
provisions of this Assignment and the terms and provisions of the Exploitation
Agreement or the Operating Agreement, the terms and provisions of the
Exploitation Agreement or the Operating Agreement, as applicable, shall govern
and control; provided, however, that the inclusion in this Assignment of terms
and provisions not addressed in the Exploitation Agreement or the Operating
Agreement shall not be deemed a conflict, and all such additional provisions
contained in this Assignment shall be given full force and effect, subject to
the provisions of this Article III.
IV.
ALLOCATIONS OF PRODUCTION, REVENUES,
AND COSTS; ASSUMPTION OF OBLIGATIONS
Subject to the provisions of this Assignment, Assignor shall remain
entitled to all of the rights of ownership (including, without limitation, the
right to all production, proceeds of production, and other proceeds), and shall
remain subject to the duties and obligations of such ownership, in each case
attributable to the Program Interests for the period of time prior to the
Effective Time. Subject to the provisions hereof, Assignee shall be entitled to
all of the rights of ownership (including, without limitation, the right to all
production, proceeds of production, and other proceeds), and shall be subject to
all of the duties and obligations of ownership associated with the Program
Interests that accrue or arise from and after the Effective Time. Consequently,
all expenses and costs attributable to the operation of the Program Interests,
as well as all amounts payable as royalty on production from or allocable to the
Program Interests and all other amounts payable in connection with lease
maintenance or otherwise under the terms of the Leases and attributable to the
Program Interests, in each case that are: (i) incurred with respect to
operations conducted or production prior to the Effective Time shall be paid by
or allocated to Assignor; and (ii) incurred with respect to operations conducted
or production after the Effective Time shall be paid by or allocated to
Assignee. All hydrocarbons produced from or allocable to the Program Interests
and located in tanks or other storage facilities located upstream from the
delivery points to the relevant purchasers of production as of the Effective
Time shall belong to Assignor, and all hydrocarbons produced from or allocable
to the Program Interests placed in tanks or other storage facilities after the
Effective Time shall belong to Assignee.
V.
ACCOUNTING; TAXES
5.1 Mechanics of Accounting. As soon as is reasonably practicable after
-----------------------
the date hereof, but in no event more than sixty (60) days thereafter, Assignor
and Assignee shall enter into an accounting for the purpose of bringing into
balance, in accordance with Article IV above, the amount of the proceeds from
the sale of production from or attributable to the Program Interests received,
and the amount of the costs and expenses attributable to the Program
IX-iv
<PAGE>
Interests incurred and paid, in each case during the period from the Effective
Time through the date hereof. No later than thirty (30) days after the
completion of such accounting, Assignor and Assignee shall each pay to the other
such amounts as are necessary to accomplish the purposes of such accounting.
5.2 Further Assurances. Following the date of this Assignment, Assignor
------------------
and Assignee agree to execute such division orders, transfer orders, letters in
lieu of transfer orders, and other documentation as may be required by the
purchasers of hydrocarbons produced from the Program Interests to cause future
distributions of the proceeds from the sale of such production to be made to
Assignee in accordance with the provisions of this Assignment, and otherwise
shall execute, acknowledge, and deliver such further instruments, and take such
other actions, as may be reasonably requested by one of such parties in order
more effectively to assure to such parties all of the respective properties,
rights, titles, interests, and estates intended to be assigned and delivered
pursuant to this Assignment. If, after the date hereof, either Assignor or
Assignee receives monies belonging to the other party, such amounts shall
immediately be paid over to the proper party. If an invoice or other evidence
of an obligation is received by either Assignor or Assignee, and such invoice
represents either an obligation of the other party or an obligation of both
Assignor and Assignee, then Assignor and Assignee shall consult and cooperate
with each other to the end that such invoice is paid in a timely manner by the
proper party or parties. No later than ten (10) days following the date of this
Assignment, Assignee shall deliver to Assignor the Records, including all
photocopies or reproductions thereof.
5.3 Taxes. Assignor shall assume responsibility for, and shall bear and
-----
pay, all federal income taxes, state income taxes, and other similar taxes
(including any applicable interest or penalties) incurred or imposed with
respect to the transactions described in this Assignment. Assignee shall assume
responsibility for, and shall bear and pay, all state sales and use taxes
(including any applicable interest or penalties) incurred or imposed with
respect to the transactions described in this Assignment. Assignor shall assume
responsibility for, and shall bear and pay, all ad valorem, property, severance,
production, excise, and similar taxes and assessments based upon or measured by
the ownership of the Program Interests, the production of hydrocarbons, or the
receipt of proceeds therefrom, but exclusive of income taxes (including any
applicable penalties and interest), assessed against the Program Interests by
any taxing authority for any period prior to the Effective Time, and Assignee
shall be responsible for, and shall bear and pay, all such taxes and assessments
assessed against the Program Interests by any taxing authority for any period
that begins on or after the Effective Time.
VI.
MISCELLANEOUS
6.1 Successors and Assigns. The provisions of this Assignment shall be
----------------------
covenants running with the land, and this Assignment shall bind and inure to the
benefit of Assignor and Assignees and their respective successors and assigns.
6.2 Notices. All notices and communications required or permitted to be
-------
given hereunder shall be in writing and shall be delivered in accordance with
the provisions of Section
IX-v
<PAGE>
10.3 of the Exploitation Agreement, the terms and provisions of which are
expressly incorporated into this Assignment by this reference for all purposes.
6.3 GOVERNING LAW. THIS ASSIGNMENT AND THE LEGAL RELATIONS BETWEEN
-------------
ASSIGNOR AND ASSIGNEE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE
THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER
JURISDICTION.
6.4 Exhibits. All exhibits attached hereto are hereby made a part hereof
--------
and incorporated herein by this reference. References in such exhibits to
instruments on file in the public records are made for all purposes. Unless
provided otherwise, all recording references in such exhibits are to the
appropriate records of the county in which the relevant Property is located.
6.5 Captions. The captions and article and section numbers in this
--------
Assignment are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Assignment.
6.6 Counterparts. This Assignment may be executed in one or more
------------
originals, but all of which together shall constitute one and the same
instrument.
EXECUTED as of the date first above written, but effective as of the
Effective Time.
ASSIGNOR:
--------
-------------------------------------------------
By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------
IX-vi
<PAGE>
ASSIGNEE:
--------
AMERAC ENERGY CORPORATION
By:
----------------------------------------------
Jeffrey B. Robinson
President and
Chief Executive Officer
IX-vii
<PAGE>
THE STATE OF __________ (S)
(S)
COUNTY OF _____________ (S)
BEFORE ME, the undersigned authority, on this day personally appeared
________________________________________________, known to me to be the person
whose name is subscribed to the foregoing instrument, and acknowledged to me
that he executed the same for the purposes and consideration therein expressed
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of ____________,
199__.
-------------------------------------------------
NOTARY PUBLIC in and for
STATE OF
My Commission Expires: -----------------------------------------
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
THE STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
BEFORE ME, the undersigned authority, on this day personally appeared
Jeffrey B. Robinson, President and Chief Executive Officer of AMERAC ENERGY
CORPORATION, a Delaware corporation, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, as the act of
such corporation, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of ____________,
199__.
-----------------------------------------------
NOTARY PUBLIC in and for
STATE OF TEXAS
My Commission Expires:
- --------------------------- -------------------------------------------------
(Printed Name of Notary Public)
IX-viii
