EXHIBIT 10.2
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made as of the _____ day of
___________, 2005 by and between Ensource Energy Partners LP, a Delaware limited
partnership ("EEP"), and Ensource Energy Company LLC, a Delaware limited
liability company ("Manager").
RECITALS:
WHEREAS, subject to the terms hereof, EEP desires to engage Manager, and
Manager desires to be engaged, to (i) manage EEP's assets and Business, (ii)
provide or cause to be provided the reports and other information described
herein relating EEP's assets and Business, and (iii) provide the other services
described herein.
NOW, THEREFORE, in consideration of the mutual covenants herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto (each, a "Party" and together, the "Parties")
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized terms used in this Agreement shall have the
meanings ascribed to them in this Section 1.1 or otherwise throughout this
Agreement regardless of whether such terms appear before or after the place
where they are defined.
"Agreement" means this Agreement, as it may be amended from time to time.
"Affiliate" means, with respect to a Person, any other Person controlling,
controlled by or under common control with such Person.
"Board" means the Board of Directors of EEP.
"Business" means the operation of EEP's business, including acting as the
general partner of the Fund and the sole member of Ensource Reserves Management
LLC, in each case as now or hereafter conducted.
"Business Day" means any day that is not a Saturday, Sunday or day on
which banks are authorized by law to close in the State of Texas.
"Confidential Information" means all information furnished to Manager or
its representatives by or on behalf of EEP or the Fund or created or developed
by Manager or its representatives relating to the Business or assets of EEP or
the Fund (irrespective of the form of communication and whether such information
is furnished before, on or after the date hereof), and all analyses,
compilations, data, studies, notes, interpretations, memoranda or other
documents prepared by Manager or its representatives containing or based in
whole or in part on any such furnished information.
"EEP" means Ensource Energy Partners LP.
"Fiscal Year" means the fiscal year of EEP for US GAAP purposes.
"Fund" means Ensource Energy Income Fund LP.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, administrative tribunal, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"LP Agreement" means the Amended and Restated Agreement of Limited
Partnership of Ensource Energy Partners LP dated as of ____________, 2005, as
amended from time to time.
"Manager" has the meaning set forth in the above preamble.
"Management Fee" means the sum of $50,000 payable to Manager pursuant to
the terms and conditions of this Agreement.
"Material Decisions" has the meaning provided in Section 3.2.
"Permits" means licenses, permits, variances, exemptions, orders,
franchises, approvals and other authorizations of or from any Governmental
Authority.
"Person" means any individual, corporation, partnership, business trust,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Proceedings" means all proceedings, actions, claims, suits and notices of
investigations by or before any arbitrator or Governmental Authority.
"Services" means the services and items provided (or to be provided) by
Manager pursuant to this Agreement.
"Taxes" means any and all foreign, federal, state, local and municipal
taxes, including ad valorem, property, gross receipts, sales, use, excise,
transaction, import duties and charges, customs broker fees and other costs of
importation, non-U.S. value-added taxes, other non-U.S. taxes or charges, or
increases in any of the foregoing, now existing or otherwise applicable, on any
item or service that is the subject of this Agreement, other than taxes (whether
foreign, federal, state, local or municipal) based on net income, net worth,
capital or profit.
"Third Party" means any Person other than Manager or EEP or any of their
respective Affiliates.
"US GAAP" means those generally accepted accounting principles and
practices that are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor).
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1.2 Other Definitions. Any capitalized term used but not defined herein
shall have the meaning given the term in the LP Agreement. Words not otherwise
defined herein (or by reference to the LP Agreement) that have well-known and
generally accepted technical or trade meanings in the oil and gas industry are
used herein in accordance with such recognized meanings.
1.3 Construction. As used in this Agreement, unless expressly stated
otherwise, references to "includes" and its derivatives mean "includes, but is
not limited to," and corresponding derivative expressions. Unless otherwise
specified, all references in this Agreement to "Sections" and "Exhibits" are
references to the corresponding sections in and exhibits attached to this
Agreement; all such exhibits are incorporated herein by reference.
ARTICLE II
MANAGER SERVICES
2.1 Services to be provided by Manager. For and in consideration of the
Management Fee and other consideration as set forth herein, Manager shall
perform all management and administrative services as may be required by EEP for
the reasonable conduct of the Business as hereafter conducted, including the
following:
(a) General Administration and Management. Manager will provide, or
will contract with Third Parties to provide, in accordance with the Annual
Budget (or other express authorization(s) of the Board): (i) management and
contract administration services in connection with the administration of EEP,
including in its role as general partner of the Fund, (ii) contract
administration services regarding contracts and agreements of EEP, and
management supervision of contractors and vendors of EEP, relating to the
operation of the Business, (iii) management services comprised of reviewing,
approving and paying authorized expenditures and all costs associated with
operating the Business, and (iv) management of the personnel needs, and
administration of any employment and consulting contracts, for any employees and
consultants of EEP or the Fund.
(b) Accounting Services. Manager shall provide (or, subject to the
other terms of this Agreement, will contract with a Third Party to provide)
financial, revenue and expense accounting services relating to the Business
(collectively, "Accounting Services"), including the following:
(i) On or before 45 days after the end of every calendar
month, Manager shall prepare a settlement statement for EEP
indicating all cash, checks or other proceeds received and
expenses during the previous calendar month. All remittances
shall be deposited into, and all expenses shall be paid from, the
appropriate bank accounts of EEP, as such bank accounts may be
designated by EEP from time to time.
(ii) Manager shall prepare and file on behalf of EEP and the
Fund applicable reporting and filing requirements of Governmental
Authorities;
(iii) Manager shall perform expenditure accounting functions,
including arranging EEP's payment of invoices;
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(iv) Within 45 days after the end of each month, Manager shall
prepare a hedging report showing the Fund's hedging positions as
of the last day of such month, and forecasting the projected
amount of production that is hedged for the one-year period
following the date of such report; and
(v) To the extent EEP or the Fund hires any employees, Manager
shall perform, or cause to be performed, all payroll and
employment benefit requirements with respect to any of EEP's or
the Fund's employees.
(c) Risk Management. Manager, subject to the other terms of this
Agreement, shall arrange for the benefit of EEP and the Fund insurance coverage
in accordance with EEP's risk management policies as established from time to
time by the Board or as required by EEP's or the Fund's contractual obligations.
(d) Purchasing. Manager, subject to the other terms of this
Agreement, shall arrange for the procurement of equipment, supplies and other
goods and services reasonably necessary for the efficient day to day operation
of the Business.
(e) Compliance. Manager shall provide (or, subject to the other
terms of this Agreement, arrange to be provided) services relating to regulatory
compliance, including arranging the application for, maintenance of and
compliance with all required Permits with respect to the Business; preparation
and filing of all applications, reports, notices and other regulatory filings or
reports required by any Governmental Authority; and participation in hearings
and other administrative Proceedings on behalf of EEP.
(f) Reporting to EEP. Manager shall prepare and submit (or, subject
to the other terms of this Agreement, arrange to be provided) to the Board the
following information and reports:
(i) Annual Budget and Operating Plan. On or before each
December 15th during the term of this Agreement with respect to
the next, entire Fiscal Year (e.g., on or before December 15,
2005, with respect to the next entire Fiscal Year commencing on
January 1, 2006), Manager will prepare for the consideration and
adoption of the Board a proposed annual operating budget, and
shall from time to time propose such amendments thereof as the
Manager deems necessary and appropriate (collectively, the
"Annual Budget"). Such Annual Budget shall set forth on a monthly
basis the estimated receipts and expenditures of EEP in
sufficient detail to provide an estimate of net income, taxable
income, cash flow and other financial requirements of EEP for
such year. The general and administrative expense estimates of
such Annual Budget will be provided separately and broken out in
detail in line item format. Each Annual Budget shall also include
such other information or other matters reasonably necessary in
order to enable the Board to make an informed decision with
respect to approval of such Annual Budget. Following any fiscal
quarter, the Manager may propose changes to any Annual Budget (or
any line item therein) previously submitted to the
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Board, and the Board will consider any such proposed changes at
the its next scheduled meeting.
(ii) Quarterly Financial Statements. Within 30 days after the
end of each fiscal quarter, Manager will provide the Board with a
balance sheet, income statement and cash statement for the
current month and year-to-date setting forth the actual results
for the periods presented together with a comparison to the
respective amounts in the Annual Budget. Except as the Manager
and the Board may otherwise agree, such financial statements
shall be prepared in accordance with US GAAP other than footnotes
and subject to year-end audit adjustments, and shall contain a
detailed narrative description of variances to the Annual Budget.
(iii) Audited Financial Statements. Manager will cause to be
prepared and will furnish to the Board within 90 days after the
end of each Fiscal Year (commencing with the Fiscal Year ending
December 31, 2005), an audited balance sheet, audited income
statement and audited statement of cash flows, all prepared in
accordance with US GAAP, together with an audit opinion from a
nationally recognized accounting firm that, to the extent
reasonably within the Manager's control, is unqualified; and such
report and opinion shall also include, on an audited basis (to
the extent the same can be practicably obtained from the auditor)
or on an unaudited basis (to the extent the same cannot be
practicably obtained from the auditor), a statement of changes in
the limited partners' equity in EEP.
(iv) Forecasted Distributions. Within 45 days after the end of
each fiscal quarter, Manager will furnish a forecast of the cash
distributions payable by the Fund to EEP in respect of any common
or subordinated units EEP may hold and the incentive distribution
rights payable to EEP as the general partner of the Fund, in each
case for the remainder of the Fiscal Year.
(v) Income Tax Returns. The Manager shall use its best efforts
to cause to be prepared federal and required state income tax
returns to be filed by EEP within 75 days after the end of a
Fiscal Year. Contemporaneously with filing by EEP, Manager shall
distribute copies of such returns and Schedule K-1 (or similar
state schedule) to the partners of EEP.
(vi) Other reports. The Manager shall provide the Board with
copies of (i) all material reports delivered to EEP and (ii) all
material information related to any pending or, to the knowledge
of Manager, threatened Proceedings, insurance or required
permits, together with such other reports and information
relating to the Business or the Services as the Board may
reasonably request, to the extent such information is in the
possession of Manager or can be readily obtained by Manager
without undue effort or unreimbursed expense.
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(vii) Meetings. At each meeting of the Board, Manager will
provide information relevant to (a) any Material Decision,
together with Manager's recommendation with respect thereto and
reasons therefor, and a summary of actions taken pursuant to
Material Decisions since the preceding meeting of the Board, (b)
any material Proceedings that are pending or, to the knowledge of
Manager, threatened against EEP in connection with the Business
and (c) any other material developments with respect to the
Business.
(g) Maintenance of Books and Records. Manager shall maintain the
books and records of EEP and the Fund. Manager agrees to retain all such books
and records in accordance with all reasonable records retention policies that
may from time to time be adopted by EEP.
2.2 Affect on the LP Agreement. Nothing in this Agreement shall be deemed
to modify the LP Agreement, affect any of EEP's obligations under the LP
Agreement, or affect the standard to which EEP is held in performing its
obligations under the LP Agreement. In connection with the performance of this
Agreement, Manager shall not take any action that would be prohibited or would
otherwise require the approval of the Board under the LP Agreement.
2.3 EEP Information. It is contemplated that during the term of this
Agreement, (a) EEP will be required to provide certain notices, information and
data necessary for Manager to perform the Services and its obligations under
this Agreement, and (b) one or more of the officers or individual members of
Manager would also be an officer of EEP or a member of the Board, and would be
involved in collecting or providing to Manager certain notices, information and
data necessary for Manager to perform the Services and its obligations under
this Agreement. However, if there is a time during the term of this Agreement
when none of the officers or individual members of Manager are officers of EEP,
or a member of the Board, then, for such period, Manager shall be permitted to
rely on any information or data provided by EEP to Manager in connection with
the performance of its duties and provision of Services under this Agreement,
except to the extent that Manager has actual knowledge that such information or
data is inaccurate or incomplete.
ARTICLE III
MATTERS RESERVED TO COMPANY
3.1 Execution of Contracts. Manager is an independent contractor of EEP.
Subject to the other terms and provisions of this Agreement, Manager may enter
into subcontracts with service providers in connection with the performance of
its obligations hereunder. Manager is authorized hereunder to execute contracts,
assignments, certificates, applications, authorizations, regulatory filings or
any other documents or instruments in EEP's name.
3.2 Further Restrictions. Manager shall not undertake any of the following
actions (each a "Material Decision") with respect to the Business without the
prior approval of the Board:
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(a) Entering into any contract, or incurring any other expense or
liability, for which Manager will seek reimbursement or payment from EEP (or
arranging for any contract or agreement to be entered into by EEP), (i) with a
term of greater than 36 months that is not included in, and even if within the
Annual Budget within the economic parameters so reflected in, such Annual Budget
or other express authority granted Manager by the Board, or (ii) involves the
incurrence of an obligation or liability by (or for the expense of) EEP or the
Fund in excess of, individually, $1,000,000, or, in the aggregate, $5,000,000,
unless otherwise previously approved by the Board or permitted in the LP
Agreement (and such $5,000,000 amount shall be in the aggregate, taking into
account all other contracts, expenses or liabilities not otherwise expressly
approved by the Board or in the Annual Budget). Any expenses or liabilities
incurred by Manager in violation of this Agreement shall be incurred at
Manager's sole risk and liability.
(b) Any other actions or restrictions identified or imposed, from
time to time, by the Board.
ARTICLE IV
STANDARD OF CARE
4.1 Standard of Care. Manager shall perform the Services in a good, safe
and workmanlike manner, with due diligence and dispatch, in accordance with good
business practice and in compliance with applicable laws, regulations,
contracts, leases, orders, security instruments and other agreements to which
EEP or the Fund is a party or by which EEP or the Fund or any of their
respective assets are bound; but in no event shall it have any liability as
Manager to EEP for losses sustained or liabilities incurred except such as may
result from gross negligence or willful misconduct.
4.2 Procurement of Goods and Services. To the extent that Manager arranges
contracts with Third Parties for goods and services in connection with the
operation of the Business, Manager shall use commercially reasonable efforts (i)
to obtain such goods and services at rates competitive with those otherwise
generally available in the area in which services or materials are to be
furnished; and (ii) to obtain from such Third Parties such customary best
warranties and guarantees as may be reasonably required with respect to the
goods and services so furnished.
4.3 Protection from Liens. Manager shall not permit any liens,
encumbrances or charges upon any of the assets of EEP or the Fund arising from
the provision of Services or materials under this Agreement except as approved,
or consented to, by the Board.
4.4 Commingling of Assets. Manager shall separately maintain and not
commingle the assets of EEP or the Fund with those of Manager.
4.5 Insurance. Manager shall obtain and maintain during the term of this
Agreement, from insurers who are reliable and acceptable to EEP and authorized
to do business in the state or states or jurisdictions in which Services are to
be performed by Manager, insurance coverages in the types and minimum limits set
forth on Exhibit A attached hereto. Manager agrees to provide the Board with
certificates of insurance evidencing such insurance coverage and, upon request
of the Board, shall furnish copies of such policies. Except with respect to
workers'
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compensation coverage, the policies shall name EEP as an additional insured and
shall contain waivers by the insurers of any and all rights of subrogation to
pursue any claims or causes of action against EEP. The policies shall provide
that they will not be cancelled or reduced without giving EEP at least 10 days'
prior written notice of such cancellation or reduction.
4.6 Intellectual Property Rights. If Manager uses intellectual property
owned by Third Parties in the performance of the Services, Manager shall obtain
and maintain any such licenses and authorizations necessary to authorize its use
of such intellectual property in connection with the Services.
ARTICLE V
MANAGER'S COMPENSATION; CONTINUING OBLIGATIONS
5.1 Management Fee; Continuing Obligations. On the first Business Day of
the second calendar month following each calendar month during the term hereof
commencing on _______, 2005, EEP shall pay Manager, in cash, the Management Fee
as a fee for Services rendered hereunder.
5.2 Other Expenditures. Manager's general and administrative costs and
similar overhead costs that are incurred by Manager in performing Services
hereunder shall be charged to EEP without xxxx-up, interest or other profit to
Manager.
5.3 Cash Advances. On or before the 15th day of each calendar month,
Manager may elect to receive a cash advance from EEP to cover the estimated
costs of Manager in the following month with respect to the performance of
Services. In the event actual expenditures are less than the amount advanced by
EEP, Manager shall apply any excess advance to the following month's estimated
expenditures. If the actual expenditures are more than the amount advanced by
EEP, Manager shall include (and EEP shall advance) any excess expenses on the
following month's estimated expenditures.
5.4 No Set-Off. All payments, including the Management Fee earned and
payable in accordance this Agreement, shall be made without deduction whether on
account of set-off or otherwise.
5.5 Taxes. EEP shall be responsible for all applicable Taxes levied on
items, goods or services that are sold, purchased or obtained pursuant to this
Agreement, including the Services, except for Taxes (whether foreign, federal,
state, local or municipal taxes) imposed on the net income, net worth, capital
or profits of Manager.
ARTICLE VI
INDEMNIFICATION; LIMITATIONS
6.1 Indemnification by Manager.
(a) Employees, Agents and Representatives of Manager. Manager hereby
agrees to DEFEND, INDEMNIFY AND HOLD HARMLESS EEP and the Fund and their
respective officers, managers, members, directors, employees, agents and
Affiliates (collectively, the "EEP Indemnitees") from any and all threatened or
actual claims, demands, causes of action,
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suits, proceedings, losses, damages, fines, penalties, liabilities, costs and
expenses of any nature, including attorneys' fees and court costs (collectively,
"Liabilities"), sustained by, incurred by, arising in favor of or asserted by
any employees, agents and representatives of Manager, or any contractors or
subcontractors of Manager, in any way relating to the performance of Services
hereunder (including any claims for personal injury, property loss or damage,
bodily injury, illness or death).
(b) Manager's own Property. Manager hereby agrees to RELEASE,
DEFEND, INDEMNIFY AND HOLD HARMLESS each member of EEP Indemnitees from any and
all Liabilities sustained or incurred by Manager with respect to any damage to
or loss of Manager's property, whether real, personal or mixed property, in any
way relating to the performance of Services hereunder.
(c) Other EEP and Third Party Claims. In addition to the indemnities
in Section 6.1(a) and Section 6.1(b), Manager hereby agrees to DEFEND, INDEMNIFY
AND HOLD HARMLESS each of the EEP Indemnitees from any and all Liabilities
sustained or incurred by any of EEP Indemnitees or asserted against any of EEP
Indemnitees by Third Parties, in any way relating to the performance of
Services, to the extent, and only to the extent, such Liabilities are finally
judicially determined not to be the result of (i) the gross negligence or
willful misconduct of EEP or such EEP Indemnitee or (ii) the breach of this
Agreement.
6.2 Indemnification by EEP.
(a) Employees, Agents and Representatives of EEP. EEP hereby agrees
to DEFEND, INDEMNIFY AND HOLD HARMLESS Manager and its respective officers,
managers, members, employees, agents and Affiliates (collectively, the "Manager
Indemnitees") from any and all Liabilities sustained by, incurred by, arising in
favor of or asserted by any employees, agents and representatives of EEP or the
Fund, in any way relating to the performance of Services hereunder (including
any claims for personal injury, property loss or damage, bodily injury, illness
or death); provided, however, that for purposes hereof, "employees, agents and
representatives of EEP" shall not include Manager, any employees, agents or
representatives of Manager or any other member of the Manager Indemnitees.
(b) Other Third Party Claims. Subject to the provisions and
indemnities set forth in Sections 6.1, EEP hereby agrees to DEFEND, INDEMNIFY
AND HOLD HARMLESS Manager Indemnitees from any and all Liabilities sustained or
incurred by or asserted against the Manager Indemnitees by Third Parties (other
than by Affiliates of Manager Indemnitees) in connection with the performance of
Services, to the extent, and only to the extent that, such Liabilities are
finally judicially determined to result from (i) the gross negligence or willful
misconduct of EEP or the Fund or (ii) the breach of this Agreement.
6.3 Negligence; Strict Liability. THE RELEASE, DEFENSE AND INDEMNITY
OBLIGATIONS IN SECTIONS 6.1 AND SECTION 6.2 SHALL APPLY REGARDLESS OF CAUSE OR
OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT
NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE),
VIOLATION OF LAW OR OTHER FAULT OF ANY INDEMNIFIED PARTY, OR ANY PRE-EXISTING
DEFECT; PROVIDED,
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HOWEVER, THAT THIS PROVISION SHALL IN NO WAY LIMIT OR ALTER ANY QUALIFICATIONS
SET FORTH IN SUCH RELEASE, DEFENSE AND INDEMNITY OBLIGATIONS EXPRESSLY RELATING
TO GROSS NEGLIGENCE, INTENTIONAL MISCONDUCT OR BREACH OF THIS AGREEMENT. BOTH
PARTIES AGREE THAT THIS STATEMENT COMPLIES WITH THE REQUIREMENT KNOWN AS THE
`EXPRESS NEGLIGENCE RULE' TO EXPRESSLY STATE IN A CONSPICUOUS MANNER AND TO
AFFORD FAIR AND ADEQUATE NOTICE THAT THIS SECTION HAS PROVISIONS REQUIRING ONE
PARTY TO BE RESPONSIBLE FOR THE NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF
ANOTHER PARTY.
6.4 Limitations of Liability.
(a) MANAGER SHALL NOT BE LIABLE OR RESPONSIBLE HEREUNDER FOR BREACH
OF WARRANTY OR STANDARD OF PERFORMANCE WITH RESPECT TO THE PROVISION OF
SERVICES, OR ACCOUNTABLE IN DAMAGES OF ANY KIND TO EEP WITH RESPECT THERETO: (I)
FOR ANY ACT, OR OMISSION PERFORMED OR OMITTED BY MANAGER IN GOOD FAITH AND IN A
MANNER REASONABLY BELIEVED BY MANAGER TO BE WITHIN THE SCOPE OF THIS AGREEMENT
AND IN THE BEST INTERESTS OF EEP, OR (II) FOR A FAILURE OR INABILITY TO ACT IN
RENDERING THE SERVICES DUE SOLELY TO A FAILURE OR NON-PERFORMANCE BY EEP;
PROVIDED, HOWEVER, THAT SUCH DAMAGES IN SUBSECTIONS (I) OR (II) DO NOT ARISE
FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF MANAGER OR FROM A BREACH OF
THIS AGREEMENT BY MANAGER.
(b) NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN CONTAINED, THE
AGGREGATE LIABILITY OF MANAGER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT AND THE PERFORMANCE OR NON-PERFORMANCE THEREOF, WHETHER BASED ON
CONTRACT, INDEMNITY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE,
SHALL IN NO EVENT EXCEED THE AMOUNT OF THE MANAGEMENT FEES PAID TO MANAGER
DURING THE PREVIOUS TWELVE (12) MONTHS PROVIDED, HOWEVER, THAT THIS LIMITATION
OF LIABILITY SHALL NOT APPLY (A) TO THE EXTENT ATTRIBUTABLE TO MANAGER'S (OR ANY
OF MANAGER INDEMNITEES') FRAUD OR INTENTIONAL MISCONDUCT, OR (B) WITH RESPECT TO
THE INDEMNITIES PROVIDED IN SECTION 6.1.
6.5 Limitations of Damages and Waiver of Damages. IN CONNECTION WITH ANY
BREACH OF THIS AGREEMENT, NO PARTY AND NONE OF THEIR AFFILIATES, OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, MEMBERS, SHAREHOLDERS, PARTNERS OR REPRESENTATIVES
SHALL BE LIABLE FOR ANY CONSEQUENTIAL OR INDIRECT LOSS OR DAMAGE OF THE
NON-BREACHING PARTY, INCLUDING LOSS OF REVENUES, COST OF CAPITAL, LOSS OF
GOODWILL, INCREASED OPERATING COSTS, DELAY COSTS OR ANY OTHER SPECIAL OR
PUNITIVE DAMAGES OF THE NON-BREACHING PARTY. THE PARTIES FURTHER AGREE THAT THE
WAIVERS AND DISCLAIMERS OF LIABILITY, RELEASES FROM LIABILITY AND LIMITATIONS ON
LIABILITY EXPRESSED IN THIS AGREEMENT SHALL SURVIVE
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TERMINATION OR EXPIRATION OF THIS AGREEMENT, AND SHALL APPLY WHETHER CLAIMS
ARISE IN CONTRACT, EQUITY, TORT OR OTHERWISE, EVEN IN THE EVENT OF THE FAULT,
NEGLIGENCE, INCLUDING SOLE NEGLIGENCE, STRICT LIABILITY OR BREACH OF THE PARTY
RELEASED OR WHOSE LIABILITIES ARE LIMITED.
6.6 No Warranties or Guarantees. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES OR GUARANTEES TO THE OTHER, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES OR ANY OTHER SUBJECT MATTER OF
THIS AGREEMENT, AND THE PARTIES DISCLAIM AND WAIVE ANY IMPLIED WARRANTIES OR
WARRANTIES IMPOSED BY APPLICABLE LAW, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.7 Anti-Indemnity. IN THE EVENT THIS AGREEMENT IS SUBJECT TO THE
INDEMNITY LIMITATIONS IN CHAPTER 127 OF THE TEXAS CIVIL PRACTICE AND REMEDIES
CODE (OR ANY SUCCESSOR STATUTE), AND SO LONG AS SUCH LIMITATIONS ARE IN FORCE
DURING THE TERM OF THIS AGREEMENT, EACH PARTY COVENANTS AND AGREES TO SUPPORT
THE MUTUAL INDEMNITY AND RELEASE OBLIGATIONS CONTAINED IN SECTION 6.1 AND
SECTION 6.2, BY CARRYING DURING THE TERM OF THIS AGREEMENT NOT LESS THAN THE
MINIMUM LIMITS AND TYPES OF INSURANCE (OR QUALIFIED SELF-INSURANCE) SPECIFIED IN
SECTION 4.5; PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL REQUIRE EEP TO OBTAIN
OR MAINTAIN WORKERS COMPENSATION OR SIMILAR INSURANCE TO THE EXTENT EEP HAS NO
EMPLOYEES.
6.8 Survival. The provisions of this Article VI shall survive the
termination of this Agreement.
ARTICLE VII
CONFIDENTIALITY
Manager shall maintain the confidentiality of all Confidential Information
with respect to EEP, the Fund and the Business; provided, however, that Manager
may disclose such Confidential Information (i) in any judicial or alternative
dispute resolution Proceeding to resolve disputes between EEP and Manager
arising hereunder; (ii) to the extent disclosure is legally required under
applicable laws (including applicable securities and tax laws) or any agreement
to which EEP is a party or by which it is bound; provided, however, that prior
to making any legally required disclosures in any judicial, regulatory or
dispute resolution Proceeding, Manager shall, if so advised by counsel, seek a
protective order or other relief to prevent or reduce the scope of such
disclosure; and (iii) to EEP's or the Fund's existing or potential lenders,
investors, joint interest owners, purchasers or other parties with whom EEP or
the Fund may enter into contractual relationships, to the extent deemed by
Manager to be reasonably necessary or desirable to enable it to perform the
Services; provided, however, that Manager shall require such Third Parties to
agree to maintain the confidentiality of the Confidential Information so
disclosed; and (iv) if authorized by the Board. Manager acknowledges that the
Confidential Information is being furnished to Manager for the sole and
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exclusive purpose of enabling it to perform the Services, and the Confidential
Information may not be used by it for any other purpose. The provisions of this
Article VII shall survive the termination of this Agreement.
ARTICLE VIII
TERM AND TERMINATION
8.1 Term.
(a) Unless sooner terminated in accordance with the provisions of
Section 8.1(b), this Agreement shall remain in force and effect for an initial
term ending on December 31, 2010 (the "Initial Term"), and shall continue on a
year-to-year basis after that unless terminated by either Party by written
notice delivered to the other Party at least 60 days prior to the end of the
Initial Term or any such year, as the case may be.
(b) Notwithstanding anything stated herein to the contrary, this
Agreement may be terminated at any time prior to the expiration of the Initial
Term, or, as the case may be, prior to the expiration of any applicable annual
term thereafter, upon any of the following:
(i) upon mutual agreement of the Parties; or
(ii) By EEP at its election upon the occurrence of any of the
following:
(A) Manager's gross negligence or willful misconduct in
the performance of the Services; or
(B) Manager's material breach of this Agreement, if such
(I)breach is not remedied within 60 days after Manager's
receipt of EEP's written notice thereof, or such longer period
as is reasonably required to cure such breach, provided that
Manager commences to cure such breach within such 60-day
period and proceeds with due diligence to cure such breach and
(II) such breach is continuing at the time notice of
termination is delivered to Manager; or
(C) the conviction of Manager or any chairman,
vice-chairman, president, chief executive officer, chief
operating officer, chief financial officer, senior vice
president or other senior executive officer of Manager of any
felony; or
(D) Manager's undertaking of material activities with
respect to the Business that are not authorized by the Board
or Manager's disregard of the Board's lawful written
instructions which undertaking or disregard continues unabated
for 30 days after Manager's receipt of written notice thereof
from the Board and is continuing at the time notice of
termination is delivered to Manager; or
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(E) the sale of all or substantially all of the assets
of EEP, either in a single transaction or series of
transactions, or a winding-up of the Business; or
(F) EEP's receipt of written notice from the majority in
interest of the ownership of EEP in the event cash
distributions paid by Ensource Energy Income Fund LP to both
common and any subordinated unitholders are less than $0.50
per unit per calendar quarter for 8 successive calendar
quarters (subject to appropriate adjustment for any split,
combination or similar transaction in respect of the common or
subordinated units); or
(iii) By Manager at its election upon:
(A) EEP's material breach of this Agreement, if (I) such
breach is not remedied within 60 days after the Board's
receipt of Manager's written notice thereof, or such longer
period as is reasonably required to cure such breach, provided
that EEP commences to cure such breach within such 60-day
period and proceeds with due diligence to cure such breach and
(II) such breach is continuing at the time notice of
termination is delivered to EEP; or
(B) Manager ceasing to own any ownership interests in
EEP.
8.2 Post-Termination Transition. Upon termination of this Agreement,
Manager will:
(a) provide to a successor Manager designated by EEP all original
files and records in Manager's possession or under Manager's control relating to
the Services rendered by Manager hereunder, excluding, however, employee records
(provided that Manager may retain a duplicate of files and records furnished to
such successor Manager);
(b) to the extent assignable, assign to EEP or its designee all
permits and licenses, if any, held by Manager on behalf of EEP that are
necessary or desirable for the continued operation of the Business in the manner
in which it was operated upon termination of this Agreement;
(c) cooperate with EEP's transfer of the management of the Business
in the manner provided under this Agreement and execute such instruments and
take such further action as EEP may reasonably request to transfer the same; and
(d) at EEP's request, provide transition services for up to 90 days
after termination of this Agreement in order to facilitate the transfer of
operations of the Business to a new operator designated by EEP; provided,
however, that during such transition period, EEP shall continue to pay Manager
the Management Fee, prorated to the number of days of transition services
provided by Manager and continue to reimburse Manager, as provided in Section
5.3, for costs and expenses incurred by Manager in connection with transition
services.
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ARTICLE IX
AUDIT RIGHTS AND DISPUTE RESOLUTION
9.1 Audit Rights. At any time during the term of this Agreement, the Board
shall have the right to review and, at EEP's expense, to copy the books and
records maintained by Manager relating to the Business. In addition, to the
extent necessary to verify the performance by Manager of its obligations under
this Agreement, the Board shall have the right, at EEP's expense, to audit,
examine and make copies of or extracts from the books and records of Manager
(the "Audit Right"). The Board may exercise the Audit Right through such
auditors as the Board may determine in its sole discretion. The Board shall (i)
exercise the Audit Right only upon reasonable notice to Manager and (ii) use
reasonable efforts to conduct the Audit Right in such a manner as to minimize
the inconvenience and disruption to Manager.
9.2 Dispute Resolution. The Parties shall use the dispute resolution
procedures set forth in Exhibit B to resolve in good faith any dispute,
controversy or claim related to this Agreement, including any dispute over the
payment of indemnification pursuant to the provisions of Article VI.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Notices. All notices or advices required or permitted to be given by
or pursuant to this Agreement, shall be given in writing. All such notices and
advices shall be (i) delivered personally, (ii) delivered by facsimile or
delivered by U.S. registered or certified mail, return receipt requested mail,
or (iii) delivered for overnight delivery by a nationally recognized overnight
courier service. Such notices and advices shall be deemed to have been given (i)
on the date of delivery if delivered personally or by facsimile, (ii) on the
third Business Day following the date of mailing if mailed by U.S. registered or
certified mail, return receipt requested, or (iii) on the date of receipt if
delivered for overnight delivery by a nationally recognized overnight courier
service. All such notices and advices and all other communications related to
this Agreement shall be given as follows:
If to EEP:
Ensource Energy Partners LP
0000 Xxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Fax: 000-000-0000
If to MANAGER:
Ensource Energy Company LLC
0000 Xxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: President
Telephone: 000-000-0000
Fax: 000-000-0000
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or to such other address as the party may have furnished to the other parties in
accordance herewith, except that notice of change of addresses shall be
effective only upon receipt.
10.2 Governing Law. This Agreement shall be subject to, and interpreted by
and in accordance with, the laws (excluding conflict of law provisions) of the
State of Texas.
10.3 Attorneys' Fees and Expenses. In any action brought by a Party to
enforce the obligations of the other Party, the prevailing Party shall be
entitled to collect from the opposing Party to such action such Party's
reasonable litigation costs and attorneys' fees and expenses (including court
costs, reasonable fees of accountants and experts and other expenses incidental
to the litigation).
10.4 Entire Agreement. This Agreement is the entire Agreement of the
Parties respecting the subject matter hereof. There are no other agreements,
representations or warranties, whether oral or written, respecting the subject
matter hereof, and this Agreement supersedes and replaces any such prior
agreements, representations or warranties.
10.5 Jointly Drafted. This Agreement, and all the provisions of this
Agreement, shall be deemed drafted by both of the Parties, and shall not be
construed against either Party on the basis of that Party's role in drafting
this Agreement.
10.6 Further Assurances. In connection with this Agreement, each Party
shall execute and deliver any additional documents and instruments and perform
any additional acts that may be necessary or appropriate to effectuate and
perform the provisions of this Agreement.
10.7 Successors and Assigns. This Agreement may not be assigned by either
Party without the prior written consent of the other Party. This Agreement shall
be binding upon and shall inure to the benefit of the Parties and their
respective successors and permitted assigns.
10.8 No Third Party Beneficiaries. Nothing in this Agreement (except as
provided in Article VI) shall provide any benefit to any Third Party or entitle
any Third Party to any claim, cause of action, remedy or right of any kind, it
being the intent of the Parties that this Agreement shall not be construed as a
third-party beneficiary contract.
10.9 Relationship of the Parties. Except as provided in Section 3.1,
nothing in this Agreement shall be construed to create a partnership or joint
venture, nor to authorize either Party to act as agent for or representative of
the other Party. Except as provided in Section 3.1, each Party shall be deemed
an independent contractor and neither Party shall act as, or hold itself out as
acting as, agent for any other Party.
10.10 No Waiver. A Party to this Agreement may decide not to require, or
fail to require, full or timely performance of any obligation arising under this
Agreement. The decision not to require, or failure of a Party to require, full
or timely performance of any obligation arising under this Agreement (whether on
a single occasion or on multiple occasions) shall not be deemed a waiver of any
such obligation. No such decisions or failures shall give rise to any claim of
estoppel, laches, course of dealing, amendment of this Agreement by course of
dealing or other defense of any nature to any obligation arising hereunder.
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10.11 Amendments. This Agreement may be amended or modified only in a
writing signed by both Parties that specifically references this Agreement.
10.12 Time of the Essence. Time is of the essence with respect to each
obligation arising under this Agreement.
10.13 Unenforceability. In the event any provision of this Agreement, or
the application of such provision to any person or set of circumstances, shall
be determined to be invalid, unlawful or unenforceable to any extent for any
reason, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful or unenforceable, shall not be affected and shall continue to
be enforceable to the fullest extent permitted by law.
10.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute but a single agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
adopted by them as of the date set forth above.
"MANAGER"
ENSOURCE ENERGY COMPANY LLC
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
"EEP"
ENSOURCE ENERGY PARTNERS LP
By: Ensource Energy Company LLC
By:__________________________
Name:________________________
Title:_______________________
Date:________________________
EXHIBIT A
MANAGER'S INSURANCE
Manager shall at all times, during the term of this Agreement, procure and
maintain with responsible insurance companies, the following minimum types and
coverages of insurance, and shall name as an additional insured (other than with
respect to worker's compensation insurance) EEP and the Fund, together with a
full waiver of subrogation against EEP and the Fund with respect thereto:
1. Workers Compensation Insurance and Employers Liability Insurance in
compliance with all applicable federal and state laws where EEP operates.
2. Onshore Property Physical Damage Insurance - replacement cost insurance
with $7,500 deductible per occurrence. Like kind and quality.
3. Directors and Officers Liability Insurance with aggregate limit of $10
million, Employment Practices claims deductible of $75,000, Securities
Claims deductible of $150,000, all other claims deductible of $150,000.
4. Comprehensive General Liability Insurance with combined single limit of
not less than $1 million per occurrence, $2 million in the aggregate and
$50,000 deductible. This policy shall be endorsed to provide coverage for:
explosion, collapse and underground damage hazards to property of others
contractual liability, disposal well operations, Louisiana pollutant and
pollutions examples, maritime operations and products and completed
operations.
EXH-A-1
EXHIBIT B
DISPUTE RESOLUTION
1. Mediation. Either Party may initiate non-binding mediation by sending notice
in writing to the other Party identifying the issues in dispute and requesting
that they be resolved through mediation and proposing a neutral mediator. The
Party receiving the request for mediation shall have 7 business days after
receipt of the request to accept or reject the mediation request and to respond
to the initiating Party's suggestion of a mediator.
2. Binding Arbitration.
(a) Any dispute arising out of or relating to this Agreement, including
claims sounding in contract, tort, statutory or otherwise (a "Dispute"), shall
be settled exclusively and finally by arbitration in accordance with this
EXHIBIT B.
(b) Such arbitration shall be governed by and conducted pursuant to the
Federal Arbitration Act (including case law), except as expressly provided
otherwise in this Agreement. The making, validity, construction and
interpretation of this EXHIBIT B, and all procedural aspects of the arbitration
conducted pursuant hereto, shall be decided by the arbitrators. Except as
modified by this Agreement the arbitration shall be conducted in accordance with
the Federal Arbitration Act and, to the extent an issue is not addressed by the
federal law of arbitration, by the Commercial Arbitration Rules of the American
Arbitration Association (collectively, the "Rules").
(c) The arbitrators shall permit discovery and rule on matters of
confidentiality as they determine is appropriate in the circumstances.
(d) All arbitration proceedings hereunder shall be conducted in Houston,
Texas or such other location as the parties to such Dispute shall mutually
agree.
(e) All arbitration proceedings hereunder shall be before a panel of 3
arbitrators consisting of individuals (which can include lawyers), having at
least 10 years of experience in or relating to the oil and gas industry. Within
30 days of the notice of initiation of the arbitration procedure, each Party
shall select 1 arbitrator. If either Party shall fail to select an arbitrator
within the required time, the other Party (that has selected an arbitrator)
shall select 2 arbitrators. The 2 arbitrators so selected shall select a third
arbitrator, failing agreement on which, the third arbitrator shall be selected
in accordance with the Rules.
(f) In deciding the substance of the Dispute, the arbitrators shall refer
to the substantive laws of the State of Texas for guidance (excluding
choice-of-law principles that might call for the application of the laws of
another jurisdiction).
(e) The arbitrators shall conduct an initial hearing as soon as reasonably
practicable but in no event later than 60 days after appointment of the third
arbitrator, and render a final decision completely disposing of the Dispute that
is the subject of such proceedings as soon as reasonably practicable but in no
event later than 15 days after the final hearing.
EXH-B-1
(g) Notwithstanding any other provision in this Agreement to the contrary,
the Parties expressly agree that the arbitrators shall have absolutely no
authority to award consequential, incidental, special, treble, exemplary or
punitive damages of any type under any circumstances regardless of whether such
damages may be available under Texas law, or any other laws, or under the
Federal Arbitration Act or the Rules.
(h) The Parties shall request that final decision of the arbitrators be in
writing, set forth the reasons for such final decision, and if the arbitrators
award monetary damages to a party, contain a certification by the arbitrators
that they have not included any consequential, incidental, special, treble,
exemplary or punitive damages. To the fullest extent permitted by law, the
arbitration proceeding and the arbitrators' decision and award shall be
maintained in confidence by the Parties and the Parties shall instruct the
arbitrators to likewise maintain such matters in confidence.
(i) The fees and expenses of the arbitrators shall be borne equally by the
parties, but the decision of the arbitrators may include such award of the
arbitrators' expenses and of other costs.
(j) The decision and award of the arbitrators shall be binding upon the
Parties and final and non-appealable to the maximum extent permitted by law, and
judgment thereon may be entered in a court of competent jurisdiction and
enforced by any Party as a final judgment of such court.
EXH-B-2
