EXHIBIT 10.22
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AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
by and between
TORCH ENERGY ADVISORS INCORPORATED
and
NUEVO ENERGY COMPANY
January 1, 1996
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TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS......................................................2
Section 1.1 DEFINED TERMS..............................................2
Section 1.2 CONSTRUCTION...............................................4
Section 1.3 REFERENCES.................................................5
ARTICLE II. APPOINTMENT OF TORCH............................................5
Section 2.1 APPOINTMENT................................................5
Section 2.2 ACCEPTANCE.................................................5
Section 2.3 LEGAL OWNERSHIP RETAINED IN THE COMPANY....................5
Section 2.4 DUTIES RETAINED BY THE COMPANY.............................5
Section 2.5 FUTURE ACTIVITIES..........................................5
Section 2.6 FOREIGN ACTIVITIES.........................................6
ARTICLE III. STATUS OF TORCH................................................6
ARTICLE IV. AUTHORITY AND RESPONSIBILITY OF TORCH...........................6
Section 4.1 GENERAL....................................................6
Section 4.2 COMPLIANCE WITH LAWS.......................................6
Section 4.3 COMPLIANCE WITH OBLIGATIONS................................7
Section 4.4 REQUIRED COMPANY APPROVAL..................................7
Section 4.5 RESOLUTION COMMITTEE.......................................8
ARTICLE V. ADMINISTRATIVE SERVICES..........................................8
Section 5.1 PROVISION OF ADMINISTRATIVE SERVICES.......................8
Section 5.2 ADMINISTRATIVE SERVICES FEE................................9
Section 5.3 COMPUTATION OF ADMINISTRATIVE SERVICES FEE................10
Section 5.4 AUDIT REPORT..............................................10
Section 5.5 COMPANY'S PERFORMANCE.....................................10
Section 5.6 INTERNAL TIME.............................................10
Section 5.7 PAYMENT OF OUT-OF-POCKET EXPENSES.........................10
ARTICLE VI. MARKETING......................................................11
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ARTICLE VII. OPERATIONS....................................................11
Section 7.1 OPERATIONS................................................11
Section 7.2 PT. PEDERNALES OPERATIONS.................................11
Section 7.3 CALIFORNIA ASSETS OPERATIONS..............................12
Section 7.4 RECORD OPERATORSHIP.......................................13
ARTICLE VIII. PERSONNEL ADMINISTRATION.....................................13
Section 8.1 GENERAL...................................................13
Section 8.2 EMPLOYEES.................................................13
Section 8.3 CONSULTANTS AND OTHERS....................................13
ARTICLE IX. FINANCIAL ADMINISTRATION.......................................14
Section 9.1 BUDGETS...................................................14
Section 9.2 CASH MANAGEMENT...........................................14
ARTICLE X. CONTRACTS.......................................................14
Section 10.1 CONTRACTS...............................................14
Section 10.2 PURCHASES FOR THE ACCOUNT OF THE COMPANY................14
Section 10.3 AFFILIATE TRANSACTIONS..................................15
ARTICLE XI. INDEMNITIES....................................................15
Section 11.1 INDEMNIFICATION BY TORCH................................15
Section 11.2 INDEMNIFICATION BY THE COMPANY..........................15
Section 11.3 NON-ASSUMPTION OF LIABILITIES...........................16
Section 11.4 EXPRESS NEGLIGENCE......................................16
ARTICLE XII. ACCESS TO INFORMATION, BOOKS AND RECORDS; CONFIDENTIALITY;
POWER OF ATTORNEY.....................................................17
Section 12.1 ACCESS TO BOOKS AND RECORDS.............................17
Section 12.2 CONFIDENTIALITY.........................................17
ARTICLE XIII. CONFLICTS OF INTEREST AND GOOD FAITH.........................17
Section 13.1 OTHER ACTIVITIES........................................17
ARTICLE XIV. REPRESENTATIONS AND WARRANTIES................................17
Section 14.1 REPRESENTATIONS AND WARRANTIES OF TORCH.................17
Section 14.2 REPRESENTATIONS AND WARRANTIES OF COMPANY...............19
ARTICLE XV. TERM AND TERMINATION OF AGREEMENT..............................20
Section 15.1 INITIAL TERM............................................20
Section 15.2 TERMINATION.............................................20
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Section 15.3 EFFECTS OF TERMINATION..................................22
Section 15.4 TERMINATION OF MARKETING AGREEMENT AND THE OPERATING
AGREEMENT.......................................................23
Section 15.5 RIGHTS UPON TERMINATION.................................23
ARTICLE XVI. MISCELLANEOUS.................................................24
Section 16.1 RELATIONSHIP OF PARTIES.................................24
Section 16.2 NO THIRD PARTY BENEFICIARIES............................24
Section 16.3 NOTICES.................................................25
Section 16.4 GOVERNING LAW...........................................25
Section 16.5 ASSIGNMENT..............................................25
Section 16.6 WAIVER OF BREACH........................................25
Section 16.7 ENFORCEMENT.............................................25
Section 16.8 ADDITIONAL ASSURANCES...................................25
Section 16.9 FORCE MAJEURE...........................................26
Section 16.10 SEVERABILITY............................................26
Section 16.11 ARTICLE AND SECTION HEADINGS............................26
Section 16.12 DISCRETIONARY TERMS.....................................26
Section 1613 AMENDMENTS AND CONTRACT EXECUTION.......................26
Section 16.14 INVESTMENT POLICY.......................................26
Section 16.15 PERIODIC MEETINGS.......................................26
Section 16.16 ARBITRATION.............................................27
Section 16.17 COMPANY STOCK...........................................28
ATTACHMENTS: Exhibit "A"
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AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT (this
"Agreement") is entered into effective as of the 1st day of January, 1996, by
and between TORCH ENERGY ADVISORS INCORPORATED, a Delaware corporation
("Torch"), and NUEVO ENERGY COMPANY, a Delaware corporation ("Nuevo" or "
Company"),
W I T N E S S E T H:
WHEREAS, Torch is primarily engaged in the business of providing
management and advisory services relating to oil and gas assets for corporate
and other institutional investors; and
WHEREAS, the Company is primarily engaged in the oil and gas business,
including the acquisition, development and exploration and production of oil and
gas properties and in the acquisition and ownership of gas processing plants and
gathering facilities; and
WHEREAS, in order to maximize shareholder value and in an effort to manage
its affairs in a more cost effective and efficient manner and to achieve the
lowest quartile general and administrative costs for the Company, the Company
desires to retain Torch to provide certain management, administrative and
support services to the Company, and Torch desires to render such services to
the Company, all upon the terms and conditions hereinafter set forth; and
WHEREAS, Torch, Nuevo and Energy Assets International Corporation ("EAIC")
executed a Management Agreement dated as of July 9, 1990 (as amended by the
Amendment to Management Agreement dated June 1, 1991, the Second Amendment to
Management Agreement dated May 1, 1992 and the Third Amendment to Management
Agreement dated January 1, 1995, the "Original Management Agreement"); and
WHEREAS, Torch and Nuevo desire to amend and restate the Original
Management Agreement for various purposes, including, without limitation, to
withdraw EAIC as a "Manager" thereunder;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree to
amend and restate the Original Management Agreement in its entirety as follows:
ARTICLE I. DEFINITIONS
Section 1.1 DEFINED TERMS. For the purpose of this Agreement, the
following terms shall have the meaning ascribed thereto below unless otherwise
specified or clearly required by the context in which such term is used:
AFFILIATES. "Affiliates" means, with respect to a Person, any person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person, and the term
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management, activities or policies of any
Person or entity, whether through the ownership of voting securities, by
contract, employment or otherwise.
AGREEMENT. "Agreement" means this Administrative Services Agreement, as
modified from time to time by any duly adopted amendments.
ASSET MAINTENANCE ACTIVITIES. "Asset Maintenance Activities" means all
activities of the Company incident to the operation, maintenance, upgrading,
renewal or reconstruction of the assets used in the Business.
XXXXXX RANCH. "Xxxxxx Ranch" means the oil and gas properties located in
Santa Xxxxxxx County, California and operated by TOC.
XXXXXXX GAS PLANT. "Xxxxxxx Gas Plant" means the Xxxxxxx natural gas
processing plant located in Xxxxxxx, Texas and all other assets (including
natural gas gathering systems) related thereto.
BOOK VALUE OF TOTAL ASSETS. "Book Value of Total Assets" as of any date,
means the book value of the total assets of the Company, other than cash and
cash equivalents (e.g. marketable securities), the Xxxxxxx Gas Plant, the Yombo
Field, and other assets excluded under Sections 2.5 or 2.6, at the end of each
month during such period determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied.
BRIGHT STAR SYSTEM. "Bright Star System" means the 150 mile, low pressure
gas gathering system located in Xxxx and Houston Counties, Texas.
BUSINESS. "Business" means all business activities of the Company as such
Business is now conducted or, subject to Section 2.5 and 2.6, may hereafter be
conducted in the future
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including, without limitation, all Investment Activities, Financing Activities
and Asset Maintenance Activities.
CALIFORNIA ASSETS. "California Assets" means all interests of the Company
in Pt. Pedernales and the Unocal Assets.
CHANGE OF CONTROL. "Change of Control" means any person or group of
persons shall have acquired beneficial ownership as such term is defined under
Section 13(d) of the Securities Exchange Act of 1934 of more than 50% of the
outstanding common stock of Torch or all or substantially all of the assets or
business of Torch.
COMMENCEMENT DATE. "Commencement Date" means the date when the closing of
the Company's acquisition of the Unocal Assets is consummated.
COMPANY. "Company" means collectively Nuevo Energy Company and the
Subsidiaries.
EFFECTIVE DATE. "Effective Date" means January 1, 1996.
FINANCING ACTIVITIES. "Financing Activities" means all activities of the
Company incident to the financing of its Business, including borrowing,
repayment, restructuring, renewal and compromise of indebtedness, and the
creation, issuance, redemption or repurchase, conversion, or exchange of capital
stock.
ILLINI CARRIER. "Illini Carrier" means the natural gas transmission system
located in the Metro-East St. Louis area.
INVESTMENT ACTIVITIES. "Investment Activities" means all activities of the
Company incident to the acquisition or disposition of its assets.
MARKETING ACTIVITIES. "Marketing Activities" means all activities of the
Company incident to the marketing of the Company's oil, natural gas liquids and
natural gas production from the Business.
MIDSTREAM ASSETS. "Midstream Assets" means gas processing plants, gas
storage facilities, gathering systems and pipelines; this shall include, without
limitation, the Xxxxxxx Gas Plant, the Bright Star System, Illini Carrier,
Panola Xxxx Pipeline, Richfield Gas Storage Facility and West Delta Pipeline,
but excluding any processing plants, gathering systems or pipelines located in
California.
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OPERATING CASH FLOW. "Operating Cash Flow" means, as calculated for any
period the sum of the following for the Company on a consolidated basis in
accordance with generally accepted accounting principles: net income plus all
noncash expenses included as a reduction of net income including, but not
limited to, depreciation, depletion and amortization, deferred income taxes,
amortization of financing costs, minority interest (net of tax) and asset
writeoffs and writedowns, excluding Operating Cash Flow attributable to the
business activities of the Company related to the Yombo Field and any other
operations excluded under Section 2.5 or 2.6.
PANOLA RUSK PIPELINE. "Panola Rusk Pipeline" means the 30 mile, 16 inch
intrastate pipeline located in Panola and Rusk Counties, Texas.
PERSON. "Person" means any of the following, an individual, corporation,
partnership, limited partnership, joint venture, unincorporated association,
trust, estate, or other incorporated or unincorporated entity.
PT. PEDERNALES. "Pt. Pedernales" means the Pt. Pedernales and Lompoc oil
and gas properties located in California and all assets related thereto.
RICHFIELD GAS STORAGE FACILITY. "Richfield Gas Storage Facility" means
that certain gas storage reservoir facility located in Xxxxxx County, Kansas.
SUBSIDIARIES. "Subsidiaries" means Rubicon Venture, Inc., The Rubicon
Company, L.P., Nuevo Liquids Inc., Nuevo California Company, Richfield Natural
Gas, Inc., Bright Star Partnership, Bright Star Gathering, Inc., NuStar Joint
Venture, Richfield Gas Storage System and Greenwood Gas Gathering System, as
well as any entity which becomes an Affiliate of the Company acquired or formed
by the Company after the date hereof.
TERM OF AGREEMENT. "Term of Agreement" means the period from the Effective
Date until this Agreement is terminated or otherwise expires pursuant to Article
XV hereof.
UNOCAL ASSETS. "Unocal Assets" means all oil and gas producing properties
acquired or to be acquired by the Company from Union Oil Company of California
(or a related entity) ("Unocal") pursuant to the Asset Purchase Agreement
between the Company and Unocal dated February 16, 1996.
WEST DELTA PIPELINE. "West Delta Pipeline" means the 17 mile pipeline
located in Federal Waters Offshore Louisiana connected to West Delta 152 Block.
YOMBO FIELD. "Yombo Field" means the Yombo oil production properties
located in the People's Republic of Congo and all other assets related thereto.
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Section 1.2 CONSTRUCTION. Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and plural.
Section 1.3 REFERENCES. Unless otherwise specified, the references herein
to "Sections", "Subsections" or "Articles" refer to the sections, subsections or
articles in this Agreement.
ARTICLE II. APPOINTMENT OF TORCH
Section 2.1 APPOINTMENT. The Company hereby appoints Torch to render the
services herein described with respect to the Business on behalf of, and for the
account of, the Company, pursuant to and as set forth in this Agreement. The
Company shall at all times have and retain ultimate control over its business
and operations. The services provided by Torch under this Agreement are not to
include those services provided by Torch Operating Company under the Operating
Agreement or Torch Energy Marketing, Inc. under the Marketing Agreement.
Section 2.2 ACCEPTANCE. Torch hereby accepts the appointment and agrees to
perform the duties and obligations herein imposed in a prudent manner,
consistent with generally accepted standards for businesses similar to the
Business.
Section 2.3 LEGAL OWNERSHIP RETAINED IN THE COMPANY. Torch shall not take
title to any properties owned of record or beneficially by the Company during
the Term of Agreement. Cash and cash equivalents may be invested by Torch for
the account of the Company, all of which will be segregated on the books and
records of Torch as provided in Section 9.2. Any addition to the assets of the
Company purchased, leased, or otherwise acquired with the Company's funds or
securities shall be acquired in the name of the Company.
Section 2.4 DUTIES RETAINED BY THE COMPANY. The Company shall remain
responsible for (i) making all decisions required of the Company under this
Agreement, (ii) such other duties as shall be specifically identified in writing
by the Company to Torch and (iii) authorizing (in its discretion) and executing
all agreements, contracts, and other documents in connection with its Business.
Section 2.5 FUTURE ACTIVITIES. The Business subject to this Agreement
shall include all of the assets and activities of the Company located or
conducted in the United States and adjacent waters, as now owned or conducted or
as may be owned or conducted in the future. With respect to the Company's assets
and activities located in the Yombo Field, the Business shall include services
substantially similar to those performed prior to the Commencement Date.
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Provided, however, in the event the Company acquires an asset or begins
performing an activity outside the oil and gas business or scope of Torch's
normal course of business (e.g. residential real estate acquisition and
development), the Company may request that such new assets or activity be
excluded from the Business. If, in Torch's reasonable opinion, such asset or
activity is in the normal course of Torch's and the Company's business, Torch
may submit the question of whether or not the asset or activity should be part
of the Business to the Resolution Committee as contemplated by Section 4.5, the
decision of which shall be final and binding. If the asset or activity is agreed
or determined not to be within the normal course of business, the book value of,
and operating cash flow attributable to, such asset or activity shall not be
included in the calculation of the Administrative Services Fee under Section
5.2.
Section 2.6 FOREIGN ACTIVITIES. The Company and Torch contemplates that
activities outside the United States and its adjacent waters will be part of the
Business. Provided, however, that because of the unique character of such assets
and activities, Torch and the Company agree to negotiate in good faith toward a
specific arrangement whereby any foreign assets or activities acquired by the
Company would be subject to the services provided under this Agreement. It is
understood by both the Company and Torch that this may result in fees that are
higher or lower than those that would be charged under this Agreement.
ARTICLE III. STATUS OF TORCH
Torch shall render services hereunder as the Company's agent to the extent
specifically provided herein or as further delegated from time to time by the
Company and accepted in writing by Torch. The relationship created by this
Agreement is one of principal and agent, and nothing to the contrary shall be
inferred from this Agreement.
ARTICLE IV. AUTHORITY AND RESPONSIBILITY OF TORCH.
Section 4.1 GENERAL. As agent for the Company, Torch shall have the
authority and the responsibility to render the services in connection with the
day-to-day operations of the Business herein described. As agent for and as
requested by the Company, Torch agrees, to the extent that adequate funds are
made available to Torch, to render services hereunder in a prudent manner,
consistent with generally accepted standards for businesses similar to the
Business. Except as set forth in Sections 6.3, Torch shall have no obligation to
advance funds for the account of the Company or to pay any sums of its own in
connection with the performance of the actions which it is authorized to take
hereunder. Torch's management and activities under this Agreement shall be
specifically subject to the terms hereof and the general control, direction and
supervision of the Company.
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Section 4.2 COMPLIANCE WITH LAWS. Torch shall use reasonable efforts to
insure full compliance with federal, state and municipal laws, ordinances,
regulations and orders relative to the use, operation, development and
maintenance of the Business. Torch shall use reasonable efforts to remedy any
violation of any such law, ordinance, rule, regulation or order which comes to
its attention. If the violation is one for which the Company might be subject to
penalty, Torch shall promptly notify the Company of such violation to allow
actions to be made to remedy the violation, and Torch shall transmit promptly to
the Company a copy of any citation or other communication received by Torch
setting forth any such violation.
Section 4.3 COMPLIANCE WITH OBLIGATIONS. Torch, to the extent such matters
are reasonably within its control, shall use reasonable efforts to cause
compliance with all terms and conditions contained in any contract, agreement,
judicial, administrative or governmental order, lease, mortgage, deed of trust
or other contractual or security instrument affecting the Business; PROVIDED,
however, that, except as otherwise set forth herein, Torch shall not be required
to make any payment or incur any liability on account thereof. Torch shall
promptly notify the Company of any violation of any covenant in such instruments
or agreements.
Section 4.4 REQUIRED COMPANY APPROVAL. The Company's President or Chief
Executive Officer (the "President") must approve the following matters in
writing before they are undertaken by Torch for the account of the Company, and,
notwithstanding any other provisions hereof, none of the following shall be
undertaken without the prior approval of the President:
(a) the issuance of any capital stock or security convertible into or
exchangeable for such capital stock;
(b) the approving of capital leases or approving or making of capital
expenditures in excess of $250,000;
(c) the borrowing of funds (other than trade accounts payable incurred
in the ordinary course of the Business), including the incurrence of
Out-of-Pocket Expenses and third party costs by Torch associated
with such borrowing;
(d) the pledge, hypothecation or other encumbrance of any asset of the
Company;
(e) the acquisition or disposition of any material asset of the Company,
other than in the ordinary course of business or as contemplated
herein, including the incurrence of Out-of-Pocket Expenses and third
party costs by Torch associated with such acquisition or
disposition, provided, however, Torch may incur (and be entitled to
reimbursement for) up to $5,000.00 per transaction in Out-of-Pocket
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Expenses, third party legal, engineering and other professional fees
without the prior approval of the Company; and
(f) the initiation or compromise of any litigation matter (or settling
of any single claim).
Notwithstanding any provision of this Agreement to the contrary, Torch shall
have no authority to take any action that will contravene the Company's
Certificate of Incorporation or Bylaws.
Section 4.5. RESOLUTION COMMITTEE. Torch under Section 2.5, and either the
Company or Torch under Section 2.6 and 15.4, may request the formation of a
committee ("Resolution Committee") to determine any of the matters provided for
in such sections. The Resolution Committee shall have five members, one person
selected by Torch, one member of the Company's Board of Directors selected by
the Company (which member may be an officer or employee of the Company) and
three Members of the Company's Audit Committee selected by such Audit Committee.
Each of Torch and the Company agree to select the members of the Committee to be
selected by them within ten (10) business days of the request to form the
Resolution Committee, and shall advise the other party of their respective
selections. Any determination made by the Resolution Committee shall be made by
a majority of the members thereof, and shall be given to the Company and Torch
in writing. The Company and Torch shall provide the members of the Resolution
Committee with such information as they may reasonably request. The members of
the Resolution Committee shall have no liability to Torch or the Company for
decisions made by the Committee, and shall be indemnified by Torch and the
Company for any liabilities, costs, damages and other amounts (including
reasonable legal fees and expenses) arising out of serving on such committee.
ARTICLE V. ADMINISTRATIVE SERVICES
Section 5.1 PROVISION OF ADMINISTRATIVE SERVICES. Torch shall provide
Administrative Services to the Company, subject to the general approval and
direction of the Company. Administrative Services shall mean the following:
(a) providing the Company with such office space, computers, equipment,
facilities and ordinary supplies as may be required for the
reasonable conduct of the Business;
(b) performing any or all of the management and administrative services
as may be required for the reasonable conduct of the Business,
including, without limitation, human resources, audit, accounting,
tax, land, communications, investor relations,
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information technology, geological, geophysical, insurance, payroll,
legal and financial services;
(c) performing and/or managing evaluation services as may be reasonably
required in connection with prospective acquisitions of properties
and assets by the Company, including, without limitation,
acquisition screening and due diligence;
(d) making such arrangements with and employing, at the expense and for
the benefit of the Company, such accountants, attorneys, banks,
transfer agents, custodians, underwriters, engineers, technical
consultants, insurance companies and other persons as may from time
to time be requested by the Company or may reasonably be necessary
to render services hereunder;
(e) at the request of the Company, analyzing reports, economic data and
other information relating to the Business and periodically
reporting to the executive officers or the Board of Directors of the
Company all such information obtained and analyzed, including making
recommendations with respect thereto;
(e) maintenance activities, including overseeing and managing the
interests of the Company in the various partnerships, joint
ventures, companies and other entities which the Company has an
interest in, and reporting to the executive officers of the Company
any significant fact or matter which relates to such interests;
(f) providing the Company, at its request, with relevant information for
assessing the value of, or making decisions with respect to the
acquisition, funding, management or disposition of, existing or
future assets or investments of the Company; and
(g) advising the executive officers of the Company of any potential
investments satisfying the criteria set forth on Exhibit "A".
The Company acknowledges that Torch routinely uses third party consultants
to perform many of the activities outlined in this Section 5.1 and that Torch
will continue to retain such consultants at the Company's expense, with the
Company's approval. The Company may instruct Torch to retain a specific third
party consultant not currently retained by Torch or not to use a specific
consultant. In that event, if Torch does not agree that the use of such
recommended consultant or the failure to use Torch's recommended consultant is
advisable, Torch may decline to perform the requested service.
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Section 5.2 ADMINISTRATIVE SERVICES FEE. The Company shall pay a monthly
fee to Torch for the Administrative Services provided to the Company in respect
to its Business ("Administrative Services Fee"). The Administrative Services Fee
shall equal (a) 2% of Operating Cash Flow during such month, plus (b)
one-twelfth (1/12th) of 2% of the Book Value of Total Assets at the end of such
month up to and including $250,000,000.00, plus (c) one-twelfth (1/12th) of 1%
of the Book Value of Total Assets at the end of such month above
$250,000,000.00, less (d) one-twelfth (1/12th) of $900,000.00. The
Administrative Services Fee shall be due and payable in arrears within ten (10)
days of the end of each month.
Section 5.3 COMPUTATION OF ADMINISTRATIVE SERVICES FEE.
(a) The Company shall estimate the Administrative Services Fee based on
its unaudited monthly financial statements. In the event that the year end audit
of the Company's accounts results in an adjustment to any of the components used
to compute the Administrative Services Fee, the Company shall promptly recompute
such fee and, if the amount paid to Torch was less than the amount actually
owed, promptly pay such difference to Torch. If any such year-end adjustment
causes the fee paid to Torch to be in excess of the amount actually owed, Torch
shall promptly refund such excess.
(b) In the event that the Company acquires or disposes of a material asset
during any month, the Book Value of Total Assets component of the Administrative
Services Fee shall be recomputed to reflect the amount of time that the Company
owned such asset during such month.
(c) The Administrative Services Fee shall be reduced by twenty percent
(20%) of all monthly overhead operating, drilling, construction and similar fees
which Torch or TOC collects during the relevant month from the Company in its
performance of operating the Company's assets pursuant to the operating
agreements applicable to such assets (excluding any fees Torch collects from the
Company related to the California Assets or the Midstream Assets).
Section 5.4 AUDIT REPORT. If requested by Torch, the Company shall cause
its independent auditors to prepare a report to Torch indicating that the
computation of the Administrative Services Fee by the Company was accurate.
Section 5.5 COMPANY'S PERFORMANCE. The Company may begin performing (at
its own expense) any of the Administrative Services without the assistance of
Torch by requesting in writing that Torch no longer provide such Administrative
Service. Provided, however, there shall be no reduction in the Administrative
Services Fee on account of the Company's performance of Administrative Services
unless otherwise agreed to by Torch and the Company.
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Section 5.6 INTERNAL TIME. Torch shall pay all of its own internal
personnel and equipment/facility costs with respect to activities performed
under this Agreement, without reimbursement from the Company.
Section 5.7 PAYMENT OF OUT-OF-POCKET EXPENSES. In addition to the
Administrative Services Fee, Torch shall pay all out-of-pocket expenses of Torch
and its employees, agents and consultants including the following: travel, food,
lodging, entertainment and similar expenses, as well as any out of the ordinary
business supplies ("Out-of-Pocket Expenses"), pursuant to the policies and
procedures established by Torch for the payment or reimbursement of such costs
with respect to activities conducted by the Company under this Agreement.
Transportation costs shall be charged to the Company at commercial rates in the
event Torch's employees, agents or consultants use transportation supplied by
Torch. The Company shall reimburse Torch, within thirty days after the end of
each month during the Term of Agreement, for all such Out-of-Pocket Expenses
paid by Torch on behalf of the Company or in connection with the business of the
Company during such month.
ARTICLE VI. MARKETING
The Company shall retain Torch Energy Marketing, Inc. ("TEMI") to handle
all Marketing Activities under that certain Marketing Agreement dated as of the
Commencement Date, by and between the Company and TEMI (the "Marketing
Agreement"). The Marketing Agreement shall not be in full force and effect until
the Commencement Date.
ARTICLE VII. OPERATIONS
Section 7.1 OPERATIONS. The Company shall continue to retain Torch
Operating Company ("TOC") under that certain Agreement for Contract Operations
dated as of November 11, 1991, by and between the Company and TOC (the
"Operating Agreement") to operate its oil and gas producing properties until the
expiration of this Agreement. Torch shall cause TOC to review the Operating
Agreement with the Company and to amend the Operating Agreement if necessary to
accurately reflect the activities performed by TOC thereunder.
TOC and/or Torch currently operates all of the Company's Midstream Assets
for the Company's benefit. TOC shall continue to receive and retain any
operator's overhead from the Company, and any third party participants,
associated with the Midstream Assets without credit or reimbursement to the
Company.
Section 7.2 PT. PEDERNALES OPERATIONS. Pt. Pedernales shall continue to be
operated by TOC under the applicable joint operating agreements between all
joint interest owners. Provided, however, notwithstanding Section 7.1 above,
effective as of January 1, 1996, the
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Company shall not be required to pay TOC any share of operator's overhead under
such joint operating agreements on both the interest the Company owned in Pt.
Pedernales prior to the Commencement Date, and any share of operator's overhead
on the interest in Pt. Pedernales which it acquires from Torch California
Company, Torch Inland Company or Express Acquisition Company. TOC shall
reimburse the Company for any operator's overhead it collects from other joint
interest owners at Pt. Pedernales after January 1, 1996. In consideration of
TOC's services under the Operating Agreement with respect to Pt. Pedernales from
January 1, 1996 until the Commencement Date, the Company shall reimburse TOC its
actual costs associated with such operations (including, without limitation,
lease operating expenses, insurance, utility fees, office expenses, employee
salaries, bonuses and burdens and Out-of-Pocket Expenses) and shall pay TOC a
monthly fee of $16,700.00 (prorated for any partial month). To the extent Torch
has not been reimbursed for such cost or has not been paid any such fees prior
to the Commencement Date, the Company will remit such payments to Torch within
thirty (30) days of the Commencement Date.
Section 7.3 CALIFORNIA ASSETS OPERATIONS. The Company anticipates
acquiring the Unocal Assets. After the Commencement Date, notwithstanding the
above Sections 7.1 and 7.2, all of the Company's interest in the California
Assets shall be operated by TOC under the Operating Agreement; provided,
however, Section 2.04 of the Operating Agreement shall not apply to the
California Assets and the following shall be substituted in its place:
"In consideration of TOC's services under the Operating Agreement with
respect to the California Assets, the Company shall reimburse TOC its
costs associated with any TOC operations in California (including, without
limitation, lease operating expenses, insurance, utility fees, office
expenses, employee salaries, bonuses paid to TOC Field/Non-Exempt
Employees (such bonuses to be subject to the approval of the Company) and
burdens, and Out-of-Pocket Expenses) and shall pay TOC a monthly fee of
$166,666.00 (prorated for any partial month). TOC shall annually prepare
and submit to the Company for its approval a budget for TOC's operations
in California. Notwithstanding anything above to the contrary, bonuses
paid by TOC to its California Office Supervisory Employees shall be
handled as follows:
An officer of Torch shall meet with the Company's Chief Executive
Officer annually to make recommendations to the Compensation
Committee regarding the bonuses to be paid to TOC Office Supervisory
Employees in California. Upon approval of the bonuses by the
Compensation Committee, the Company shall be required to reimburse
TOC fifty percent of the cost of such bonus payments. The Company
and Torch agree that it is the intent of
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both parties to pay bonuses based on the performance of those TOC
California Office Supervisory Employees.
Office Supervisory Employees shall mean exempt employees (those
employees who are exempt from the provisions of the Fair Labor
Standards Act) working in TOC office locations in California;
Field/Non-Exempt Employees shall mean all employees (whether exempt
or non-exempt) working in TOC field locations in California and all
non-exempt (those employees who are not exempt from the provisions
of the Fair Labor Standards Act) employees working in TOC office
locations in California.
The Company shall reimburse TOC within thirty days after the end of each
month during the Term of Agreement for all costs incurred by TOC during
such month and shall pay TOC the monthly fee for each month within ten
days after the end of such month during the Term of Agreement. TOC shall
be entitled to receive and retain operator's overhead from other joint
interest owners in any properties located in California and operated by
TOC as of January 1, 1996, but shall give a reasonable credit or
reimbursement to the Company for services performed by TOC in connection
with such properties."
Section 7.4 RECORD OPERATORSHIP. As soon as reasonably possible after a
written request from the Company, Torch shall execute, acknowledge and deliver,
or cause TOC to execute, acknowledge and deliver, such instruments and take such
other action as may be reasonably necessary to transfer record operatorship and
operating authority to the Company under applicable governmental regulations and
third party operating agreements for all or a portion of the Company's oil and
gas properties, at the Company's sole expense. Notwithstanding such transfer of
record operations, TOC shall continue to operate the Company's oil and gas
properties in accordance with this Agreement and the Operating Agreement.
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ARTICLE VIII. PERSONNEL ADMINISTRATION
Section 8.1 GENERAL. Torch shall have in its employ or available to it at
all times during the Term of Agreement a sufficient number of personnel to
enable it to properly and adequately manage, operate, maintain, and account for
the Business as herein provided. All matters pertaining to the employment,
supervision, compensation, promotion and discharge of any employees or personnel
of Torch are the responsibility of Torch, which is in all respects the employer
of any such employees. All such employment arrangements are solely Torch's
concern and, other than as set forth in Article VI hereof, the Company shall
have no liability with respect thereto.
Section 8.2 EMPLOYEES. Torch shall determine the number and qualifications
of employees needed in the operation of the Business and shall consult with the
Company regarding its employee policies.
Section 8.3 CONSULTANTS AND OTHERS. Except as otherwise provided herein
and in accordance with Section 5.1, Torch shall have the power and authority to
retain and pay as independent contractors, on behalf of and for the account of
the Company, lawyers, accountants, engineers, contractors, technical
consultants, architects, and others in connection with the conduct of the
Business.
ARTICLE IX. FINANCIAL ADMINISTRATION
Section 9.1 BUDGETS. Torch will provide the Company with all data
necessary to prepare its operating budgets in a timely manner. Within 30 days
after the end of each fiscal year of the Company during the Term of Agreement,
the Company shall prepare and submit to Torch, a budget (a "Budget") for the
operation of the Business for the ensuing year, setting forth anticipated
income, operating expenses and anticipated capital expenditures. Such proposed
Budget shall include an explanation of anticipated changes in asset utilization,
payroll rates and positions, non-wage costs increases and other items expected
to differ significantly from the previous year. Such Budget shall serve as a
guide for the operation of the Business in the ordinary course of the Company's
business during the periods covered thereby. Torch shall employ reasonable
efforts to ensure that the actual costs of managing and operating the Business
shall not exceed the approved Budget either in total or in any one accounting
category.
Section 9.2 CASH MANAGEMENT. Torch shall implement a cash management
system for the cash and cash equivalents of the Company. Torch may invest the
funds of the Company in common investments with the cash and cash equivalents of
Torch and its Affiliates, provided, that Torch shall maintain accurate records
segregating the cash and cash equivalents of the Company from those of Torch and
its Affiliates.
ARTICLE X. CONTRACTS
Section 10.1 CONTRACTS. The management of the Business by Torch shall
include negotiating, administering and terminating contracts, by and on behalf
of the Company, in the ordinary course of Business. All such contracts shall be
executed by duly authorized officers of the Company.
Section 10.2 PURCHASES FOR THE ACCOUNT OF THE COMPANY.
(a) Day-to-day operation of the Business shall include the purchase (or
lease) of such equipment, supplies and other goods necessary for the efficient
operation of the Business.
(b) Purchases shall be made only at reasonable costs pursuant to the
"prudent buyer" principle. Torch is not a merchant, as that term is defined in
the Uniform Commercial Code, and makes no warranty, express or implied,
including, without limitation, that of fitness for a particular purpose, for any
item purchased for the administration of the Business or on behalf of the
Company.
(c) In order to facilitate the performance by Torch of its obligations
hereunder, the Company agrees to make available, upon the request of Torch, such
additional amounts as may be needed, in the good faith judgment of Torch to
render services hereunder.
Section 10.3 AFFILIATE TRANSACTIONS. Torch shall not make or cause the
Company to make any contract with or purchase or sell goods or services from
Torch or any Affiliate of Torch or any entity with which Torch has any agreement
or understanding except in accordance with procedures established by the
independent members of the Board of Directors of the Company.
ARTICLE XI. INDEMNITIES
Section 11.1 INDEMNIFICATION BY TORCH. Torch shall protect, indemnify,
defend and hold harmless the Company and its officers, directors, shareholders
and Affiliates from any and all threatened or actual claims, demands, causes of
action, suits, proceedings (formal or informal), losses, damages, fines,
penalties, liabilities, costs and expenses of any nature, including attorneys'
fees and court costs, sustained or incurred by or asserted against the Company
or its Affiliates by any person, firm, corporation, governmental authority,
partnership or other entity by reason of or arising out of: (i) any breach of
this Agreement by Torch, its Affiliates, agents, or employees; or (ii) any act
of fraud, willful misconduct or gross negligence of Torch and its Affiliates or
any of its respective employees, or acts or omission outside the
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scope of Torch's authorized duties and responsibilities contained herein. In
case any action or proceeding shall be brought against the Company or its
Affiliates in respect of which the indemnification contemplated by this Section
11.1 may be sought against Torch, Torch, upon the receipt of notice from the
Company, shall defend such action or proceeding by counsel reasonably
satisfactory to the Company and Torch, and Torch shall pay for all expenses
therefor unless such action or proceeding is resisted and defended by counsel
for any carrier of public liability insurance that benefits the Company or
Torch. The Company shall promptly give written notice to Torch when a claim is
made against the Company for which indemnity is owed to the Company by Torch
pursuant to this Section 11.1. Torch shall participate at its own expense in
defense of such claims, but the Company shall have the right to employ its own
separate counsel. The Company shall assist Torch in the defense of any claim for
which Torch owes indemnification hereunder and is undertaking to provide a
defense, by making available to Torch such records and personnel as may be
reasonably requested in the defense of such claim.
Section 11.2 INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to
indemnify, defend, and hold harmless Torch and its officers, directors,
shareholders, employees, agents and Affiliates from any and all threatened or
actual claims, demands, causes of action, suits, proceedings (formal or
informal), losses, damages, fines, penalties, liabilities, costs and expenses of
any nature, including attorneys' fees and court costs, sustained or incurred by
or asserted against Torch or its Affiliates, officers, directors, employees and
agents by any person, firm, corporation, governmental authority, partnership or
other entity by reason of or arising out of: (i) the conduct of the Company,
other than conduct by or at the direction of Torch; (ii) the conduct of the
Business or the provision of services by Torch pursuant to this Agreement,
except to the extent Torch indemnifies the Company under the foregoing Section
11.1; or (iii) that certain Guaranty to be executed by Torch in favor of Union
Oil Company of California and Unocal California Pipeline Company. In case any
action or proceeding shall be brought against Torch in respect to which the
indemnity contemplated by this Section 11.2 may be sought against the Company,
Torch shall give notice of such action to the Company, and the Company shall
defend such action or proceeding by counsel reasonably satisfactory to the
Company and Torch, and the Company shall pay for all expenses therefor unless
such action or proceeding is resisted and defended by counsel for any carrier of
public liability insurance that benefits the Company or Torch. Torch shall
promptly give written notice to the Company when a claim is made against Torch
for which indemnity is owed to Torch by the Company pursuant to this Section
11.2. The Company shall participate in defense of such claims, but Torch shall
have the right to employ its own separate counsel, and Torch shall assist the
Company in the defense of any claim for which the Company owes indemnification
hereunder and is undertaking to provide a defense, by making available to the
Company such records and personnel of Torch as may be reasonably requested.
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Section 11.3 NON-ASSUMPTION OF LIABILITIES. Torch shall not, by entering
into this Agreement, assume or become liable for any of the obligations, debts
or other liabilities of the Company in existence or arising on or after the date
hereof. Other than with respect to any damages caused by the fraud, willful
misconduct or gross negligence of Torch in rendering services hereunder, and
except as provided in Section 11.1, Torch shall not, by providing management
services to the Company, assume or become liable for any of the obligations,
debts or other liabilities of the Company.
Section 11.4 EXPRESS NEGLIGENCE. THE INDEMNIFICATION, RELEASE AND
ASSUMPTION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER
OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN
PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR
OTHER FAULT OF ANY INDEMNIFIED PARTY. THE COMPANY AND TORCH ACKNOWLEDGE THAT
THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
ARTICLE XII. ACCESS TO INFORMATION, BOOKS AND RECORDS;
CONFIDENTIALITY; POWER OF ATTORNEY
Section 12.1 ACCESS TO BOOKS AND RECORDS. Torch and its duly authorized
representatives shall have complete access to the Company's offices, facilities
and records wherever located, in order to discharge Torch's responsibilities
hereunder. All records and materials furnished to Torch by the Company in
performance of this Agreement shall at all times during the Term of Agreement
remain the property of the Company. The Company and its duly authorized
representatives shall have complete access to records and other information
concerning the Company used by Torch in performance of its duties hereunder.
Section 12.2 CONFIDENTIALITY. For at least two years after the Term of
Agreement, Torch agrees to keep confidential all non-public information
concerning the Company acquired by Torch or its Affiliates during the Term of
Agreement. For the purpose of this Section 12.2, confidential information shall
not include any information available to or otherwise disclosed by the Company
to third parties generally. Nothing in this Section 12.2 shall prohibit any
announcement or disclosure by a Party that such Party determines is required to
be disclosed by applicable law or court order or is necessary to be disclosed in
connection with litigation.
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ARTICLE XIII. CONFLICTS OF INTEREST AND GOOD FAITH
Section 13.1 OTHER ACTIVITIES. The Company acknowledges that Torch and its
Affiliates own, manage and/or operate assets that compete directly with the
business of the Company and may own, manage and/or operate additional business
and assets in the future that may compete with the business of the Company, and
the Company agrees that Torch shall have no liability or accountability to the
Company for any such competing activities or interests or any profits or value
generated therefrom. The obligation of Torch to refer investment opportunities
to the Company is attached as Exhibit "A" and incorporated herein by reference.
ARTICLE XIV. REPRESENTATIONS AND WARRANTIES
Section 14.1 REPRESENTATIONS AND WARRANTIES OF TORCH. Torch represents and
warrants to the Company as follows:
(a) Torch has the full power and authority to conduct its business and
perform its obligations and consummate the transactions contemplated
hereunder.
(b) This Agreement has been duly executed and delivered by Torch.
(c) This Agreement is valid and legally binding obligation of Torch
enforceable against Torch in accordance with its terms, and the
Company is entitled to the benefits thereof.
(d) Torch is not in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority, or in
the payment of any indebtedness for borrower money or under the
terms or provisions of any agreement or instrument evidencing or
securing any such indebtedness.
(e) No representation or warranty of Torch contained in this Agreement
and no statement of Torch contained in any monthly or interim
request for funds, certificate, schedule, list, financial statement
or other instrument furnished to the Company pursuant to this
Agreement contains, or will contain, any untrue statement of
material facts, or omits, or will omit, to state a material fact
necessary to make the statements contained herein or therein not
misleading.
(f) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened against Torch or
to which Torch is a party or which any property of Torch is subject,
which, if determined adversely to Torch,
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would materially affect the operations or financial position of
Torch or its ability to perform hereunder.
(g) Torch is validly existing and in good standing under the laws of the
State of Delaware and Torch possesses all licenses, consents,
approvals, authorizations and qualifications the absence of which
would, individually or in the aggregate, materially adversely affect
the business or properties of Torch.
(h) Neither the execution and delivery of this Agreement, nor the
performance or compliance with the terms and conditions hereof,
conflict with, or will result in a breach by Torch of, or constitute
a default under, or result in the creation of any lien, charge or
encumbrance upon, any asset of Torch pursuant to any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or
Bylaws of Torch, (ii) any mortgage, deed of trust, lease, contract,
agreement or other instrument to which Torch is a party or by which
Torch may be bound or affected, or (iii) any writ, order, judgment,
decree, statute, ordinance, regulation or any other restriction of
any kind or character, to which Torch is subject, or by which Torch
may be bound or affected.
(i) All covenants, agreements, representations and warranties made by
Torch in this Agreement, shall survive the execution and deliver of
this Agreement.
Section 14.2 REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company
represents and warrants to Torch as follows:
(a) The Company has the full power and authority to conduct its business
and perform all its obligations and consummate the transactions
contemplated hereunder.
(b) This Agreement has been duly executed and delivered by the Company.
(c) This Agreement is the valid and legally binding obligation of the
Company enforceable against the Company in accordance with its
terms, and Torch are entitled to the benefits thereof.
(d) The Company is not in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental
authority, or in the payment of any indebtedness for borrowed money
or under the terms or provisions of any agreement or instrument
evidencing or securing any such indebtedness.
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(e) No representation or warranty of the Company contained in this
Agreement or other instrument furnished by the Company to Torch
pursuant to this Agreement contains, or will contain, any untrue
statement of material fact, or omits, or will omit, to state a
material fact necessary to make the statements contained herein or
therein not misleading.
(f) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened against the
Company or to which the Company is a party or to which any property
of the Company is subject, which if determined adversely to the
Company, would materially affect the operations or financial
position of the Company, except for those which the Company has to
date disclosed to Torch.
(g) The Company is duly incorporated and validly existing and in good
standing under the laws of the State of Delaware and the Company
possesses all licenses, consents, approvals, authorizations and
qualifications (including qualifications to do business as a foreign
corporation) the absence of which would individually or in the
aggregate, materially adversely affect the business or properties of
the Company.
(h) Neither the execution and delivery of this Agreement, nor the
performance or compliance with the terms and conditions hereof,
conflict with, or will result in a breach by the Company of, or
constitute a default under, or result in the creation of any lien,
charge or encumbrance upon, any asset of the Company pursuant to any
of the terms, conditions or provisions of (i) the Certificate of
Incorporation or Bylaws of the Company, (ii) any mortgage, deed of
trust, lease, contract, agreement or other instrument to which the
Company is a party or by which the Company may be bound or affected,
or (iii) any writ, order, judgment, decree, statute, ordinance,
regulation or any other restriction of any kind or character, to
which the Company is subject, or by which the Company may be bound
or affected.
(i) All covenants, agreements, representations and warranties made by
the Company in this Agreement, shall survive the execution and
deliver of this Agreement.
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ARTICLE XV. TERM AND TERMINATION OF AGREEMENT
Section 15.1 INITIAL TERM. The initial term of this Agreement shall be for
a 3-year period beginning on the Effective Date ("Initial Term"). Thereafter,
this Agreement shall automatically renew for successive one-year periods until
terminated by either party in accordance with the provisions of this Article XV.
Provided, however, this Agreement shall not be effective, and the relationship
of the parties shall continue to be governed by the Original Management
Agreement, until the Commencement Date. In the event the Company does not
consummate its acquisition of the Unocal Assets, this Agreement shall have no
force or effect, except that Section 5.2 of the Original Management Agreement
shall be deleted and the Section 5.2 contained in this Agreement, with related
definitions, shall be substituted therein effective January 1, 1996.
Section 15.2 TERMINATION. This Agreement shall be terminated on the first
to occur of the following:
(a) In the event the parties shall mutually agree in writing, this
Agreement may be terminated on the terms and dates stipulated
therein.
(b) Subject to Section 15.3, prior to the expiration of the Initial
Term, the Company may, with or without cause, terminate this
Agreement on the first day of any month during the term of this
Agreement by giving to Torch at least one month's advance written
notice of its intent to terminate, whereupon this Agreement shall
terminate on the future date specified in such notice.
(c) Subject to Section 15.3, after the expiration of the Initial Term,
the Company may, with or without cause, terminate this Agreement on
the first day of any month during the term of this Agreement by
giving Torch at least 12 months' advance written notice of its
intent to terminate, whereupon this Agreement shall terminate on the
future date specified in such notice. Subject to Section 15.3, on
and after January 1, 2000, Torch may, with or without cause,
terminate this Agreement on the first day of any month during the
term of this Agreement by giving the Company at least 12 months'
advance written notice of its intent to terminate, whereupon this
Agreement shall terminate on the future date specified in such
notice.
(d) Subject to events of force majeure (as provided in Section 16.9
hereof), in the event either party shall fail to discharge any of
its material obligations hereunder, in the Marketing Agreement or
the Operating Agreement, including, without limitation, the
obligation to render services in connection with the Business in a
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prudent manner, or shall commit a material breach of this Agreement,
the Marketing Agreement or the Operating Agreement and such failure,
default or breach shall continue for a period of thirty (30) days
after the other party has served written notice of such default,
this Agreement may then be terminated at the option of the
non-breaching party by written notice thereof to the breaching
party.
(e) The Company shall have the right to terminate this Agreement
following the dissolution or termination of the corporate existence
of Torch or cessation on Torch's part to continue to do business.
(f) The Company shall have the right to terminate this Agreement if
there is instituted by or against Torch any proceedings under the
Bankruptcy Reform Act of 1978, as amended, under any other
bankruptcy law, or under any other law for the relief of debtors now
or hereafter existing, or a receiver is appointed for all or
substantially all of the assets of Torch and such proceeding is not
dismissed or such receiver is not discharged, as the case may be,
within thirty (30) days thereafter.
(g) The Company shall have the right to terminate this Agreement if
Torch shall (i) become insolvent, (ii) generally fail to, or admit
in writing its inability to, pay debts as they become due, (iii)
make a general assignment for the benefit of creditors, (iv) apply
for, consent to or acquiesce in the appointment of a trustee,
receiver or other custodian.
(h) The Company shall have the right to terminate this Agreement if a
substantial portion of the assets or properties of Torch shall be
seized or taken by order of a governmental or judicial authority, if
any order of attachment, garnishment, or any other writ shall be
issued against Torch or any of its assets, or if any other lawful
creditor's remedy shall be asserted or exercised with respect
thereof.
(i) The Company shall have the right to terminate this Agreement in the
event a Change of Control occurs without the Company's consent, such
consent not to be withheld unreasonably.
The Company may exercise its right to terminate this Agreement under
paragraphs (e) through (i) of this Section 15.2 by giving Torch not less than
thirty (30) and not more than one hundred eighty (180) days written notice of
such termination in which case this Agreement shall terminate on the date
specified in such notice.
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Section 15.3 EFFECTS OF TERMINATION. The termination of this Agreement in
accordance with the provisions of this Article XV shall have the following
effects:
(a) Except for the mutual indemnities, covenants or other provisions
herein that by their terms expressly extend beyond the Term of
Agreement, the Parties' obligations hereunder are limited to the
Term of Agreement.
(b) In the event this Agreement is terminated for any reason, Torch
shall immediately deliver possession to the Company of all assets,
books and records of the Company in Torch's possession and shall
provide the Company with copies of all assets, books and records
(including electronic copies in the format requested by the Company
and reasonably within Torch's capability) relating to the businesses
of the Company in Torch's possession.
(c) Upon a termination of this Agreement, the Marketing Agreement and/or
the Operating Agreement (for whatever cause), the Company shall pay
to Torch the amount of any and all costs and expenses accrued to the
date of such termination which are payable by the Company to Torch
in accordance with the provisions hereof.
(d) Upon termination of this Agreement, the Marketing Agreement and/or
the Operating Agreement by the Company, the Company shall reimburse
Torch for all reasonable amounts incurred by Torch in connection
with its activities under this Agreement. Without limiting the
foregoing, the Company shall (i) hire or pay all reasonable costs of
terminating all of Torch's employees used to conduct the Company's
Business, (ii) lease, sublease or reimburse Torch for all or a
portion of the rental of any facilities or equipment used by Torch
under the Agreement which use was discontinued or reduced by
termination of this Agreement, and (iii) succeed to or indemnify
Torch for any insurance, bonds, contracts or agreements entered into
by Torch relating to the Business.
(e) In addition to any other requirement in this Article XV, if the
Company terminates this Agreement upon the expiration of the Initial
Term, other than pursuant to Section 15.2(d),(e), (f), (g), (h) or
(i), the Company shall pay to Torch a fee equal to one year's fee
under this Agreement, the Operating Agreement and the Marketing
Agreement (the "Break-up Fee"), provided that no such fee will be
payable if a fee is payable under subsection (f) of this Section
15.3. The Break-up Fee shall be calculated based on the total fee
paid for the twelve months immediately preceding the date this
Agreement terminates and shall be payable on the termination date.
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(f) In addition to any other requirement in this Article XV, in the
event the Company terminates this Agreement (i) prior to the
expiration of the first year of the Initial Term, other than
pursuant to Section 15.2(d), (e), (f), (g), (h) or (i), the Company
shall pay to Torch a fee of $30,000,000.00; (ii) during the second
year of the Initial Term, other than pursuant to Section 15.2(d),
(e), (f), (g), (h), or (i), the Company shall pay to Torch a fee of
$25,000,000.00; or (iii) during the third year of the Initial Term,
other than pursuant to Section 15.2 (d), (e), (f), (g), (h) or (i),
the Company shall pay to Torch a fee of $20,000,000.00.
Section 15.4 TERMINATION OF THE MARKETING AGREEMENT AND THE OPERATING
AGREEMENT. Notwithstanding anything herein, in the Marketing Agreement or in the
Operating Agreement to the contrary, in the event the Company is not reasonably
satisfied with the performance of TEMI under the Marketing Agreement or TOC
under the Operating Agreement, the Company may terminate the applicable
agreement by giving TEMI or TOC, as appropriate, three (3) months' advance
written notice of its intent to terminate. The Company acknowledges that the
fees payable under this Agreement and the Marketing Agreement and Operating
Agreement are interdependent, and agrees that the amount of such fees under the
Marketing Agreement or Operating Agreement or the Company's ability to receive
similar services for a lower fee shall not constitute a reason to terminate this
Agreement. Furthermore, such termination shall not impair the effectiveness of
this Agreement or any other agreement between Torch and the Company. The Company
hereby acknowledges that as of the date hereof, it is satisfied with Torch's,
TEMI's and TOC's performance hereunder, under the Operating Agreement and under
the Marketing Agreement and is unaware of any reason it would have to exercise
such termination option. In the event TOC or TEMI disputes the company's ability
to trigger the above termination option, they may request that the Resolution
Committee formed under Section 4.5 determine whether or not the Company
terminates the Marketing Agreement or the Operating Agreement because the
Company was not reasonably satisfied with the performance of TEMI or TOC as
provided above. The decision of the Resolution Committee shall be final and
binding upon Torch and the Company.
Section 15.5. RIGHTS UPON TERMINATION. Torch agrees that promptly after it
receives notice of termination of this Agreement, Torch shall provide the
Company access to all books, records and other documents in Torch's possession
or within its control regarding the Company's business, and shall provide, at
the Company's expense, copies (including electronic copies in the format
requested by the Company and reasonably within Torch's capability) of all files
and other information regarding the Company's operations within Torch's
possession or control. Within the later of sixty (60) days prior to termination
hereunder by Nuevo or sixty (60) days following notice of termination hereunder
by Nuevo, Torch shall also identify to the Company those employees of Torch or
its Affiliates which the Company will be required to hire or pay
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reasonable severance under Section 15.3(d), and will permit the Company to meet
and negotiate with such personnel for the purpose of hiring any such personnel
as the Company may elect to hire following the termination of this Agreement.
Torch will provide the Company with all relevant employment files and other
information about such employees requested by the Company and as permitted by
applicable law, provided that prior to releasing any such information, Torch
shall receive an indemnification reasonably satisfactory to it covering Nuevo's
use of such information. Torch agrees to cooperate in good faith with the
Company following the notice of termination of this Agreement in order to permit
the Company to succeed to and perform the services provided by Torch under this
Agreement.
ARTICLE XVI. MISCELLANEOUS
Section 16.1 RELATIONSHIP OF PARTIES. This Agreement does not create a
partnership, joint venture or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or xxxxxx and
bailee. Nothing contained in this Agreement or in any agreement made pursuant
hereto shall ever by construed to create a partnership, joint venture or
association, or the relationship of lessor and lessee or xxxxxx and bailee, or
to impose any duty, obligation or liability that would arise therefrom with
respect to either or both of the Parties except as otherwise expressly provided
in this Agreement or any agreement made pursuant hereto. Specifically, but not
by way of limitation, except as otherwise expressly provided for herein, nothing
contained herein shall be construed as imposing any responsibility on Torch for
the debts or obligation of the Company or any of its Affiliates. It is expressly
understood that Torch is hereby engaged by the Company to manage the Business
only as an agent of the Company. Subject to the terms of this Agreement, Torch
and its Affiliates shall have the right to render similar services for other
business entities and persons, including its own, whether or not engaged in the
same business as the Company.
Section 16.2 NO THIRD PARTY BENEFICIARIES. Except to the extend a third
party is expressly given rights herein, any agreement to pay an amount and any
assumption of liability herein contained, expressed or implied, shall be only
for the benefit of the parties and their respective legal representatives,
successors and assigns, and such agreement or assumption shall not injure to the
benefit of the obligors of any indebtedness of any party whomsoever, it being
the intention of the parties hereto that no person or entity shall be deemed a
third party beneficiary of this Agreement except to the extent a third party is
expressly given rights herein.
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Section 16.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be deemed effectively given
when personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:
(i) if to the Company to:
Nuevo Energy Company
0000 Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: President
(ii) if to Torch, to:
Torch Energy Advisors Incorporated
0000 Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: President
or to such other address and to the attention of such other person or officer as
either Party may designate by written notice pursuant to this Section 16.3.
Section 16.4 GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED
IN AND SHALL BE INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 16.5 ASSIGNMENT. No assignment of this Agreement or any of the
rights or obligations set forth herein by either party shall be valid without
the specific written consent of the other party.
Section 16.6 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or any other
provision hereof.
Section 16.7 ENFORCEMENT. In the event either party shall resort to legal
action to enforce the terms and provisions of this Agreement, the prevailing
party may recover from the other party the costs of such action including,
without limitation, reasonable attorneys' fees.
Section 16.8 ADDITIONAL ASSURANCES. The provisions of this Agreement shall
be self-operative and shall not require further accord between the parties
except as may herein
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specifically be provided to the contrary; provided, however, that upon the
request of either party, the other party shall execute such additional
instruments and take such additional actions as shall be necessary to effectuate
this Agreement.
Section 16.9 FORCE MAJEURE. Neither party shall be liable nor deemed to be
in default for any delay or failure of performance under this Agreement or other
interruption of service or employment resulting directly or indirectly from acts
of God, civil or military authority, acts of public enemy, war, accidents,
fires, explosions, earthquakes, floods, failure of transportation, strikes or
other war, interruptions by either party's employees or agent or any similar or
dissimilar cause beyond the reasonable control of either party.
Section 16.10 SEVERABILITY. In the event any provisions of this Agreement
is held to be unenforceable for any reason, such provision shall be severable
from this Agreement if it is capable of being identified with and apportioned to
reciprocal consideration or to the extent that it is a provision that is not
essential and the absence of which would not have prevented the parties from
entering into this Agreement. The unenforceability of a provision that has been
performed shall not be grounds for invalidation of this Agreement under
circumstances in which the true controversy between the parties does not involve
such provision.
Section 16.11 ARTICLE AND SECTION HEADINGS. The articles and section
headings contained in this Agreement are for reference purposes only and shall
not effect in any way the meaning or interpretation of this Agreement.
Section 16.12 DISCRETIONARY TERMS. Determination of "necessary",
"appropriate" and other discretionary terms as used herein shall be according to
the judgment and discretion of the respective parties in accordance with
generally accepted standards of the oil and gas industry.
Section 16.13 AMENDMENTS AND CONTRACT EXECUTION. This Agreement supersedes
all previous contracts between the parties and constitutes the entire Agreement
between the parties with respect to the subject matter of this Agreement. No
oral statement or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Agreement shall be recognized unless incorporated herein by amendment, such
amendment to become effective on the date stipulated therein.
Section 16.14 INVESTMENT POLICY. The Investment Policy and Procedures is
attached hereto as Exhibit "A".
Section 16.15 PERIODIC MEETINGS. At the Company's request, Torch will meet
with the executive officers of the Company to discuss any questions the
executive officers of the Company might have regarding the performance of
Administrative Services and the costs and
-27-
expenses relative thereto. Torch and Company agree to negotiate diligently and
in good faith to resolve any issues presented at the periodic meetings.
Section 16.16. ARBITRATION. The parties hereto agree to the following:
(a) Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in
accordance with such rules as may be agreed upon by the parties
hereto, or failing agreement, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the
"AAA") as such rules may be modified herein.
(b) An award rendered in connection with an arbitration pursuant to this
section shall be final and binding, and judgment upon such an award
may be entered and enforced in any court of competent jurisdiction.
(c) The forum for arbitration under this section shall be Houston,
Xxxxxx County, Texas and the governing law for such arbitration
shall be laws of the State of Texas.
(d) Either of the parties hereto shall have the right to commence an
arbitration by sending a notice to the other which shall state INTER
ALIA: (i) the amount of the controversy (ii) the nature of the
controversy and (iii) that party's nominee, if any, for arbitrator.
(e) Arbitration under this section shall be conducted by a single
arbitrator selected by negotiations between an authorized attorney
for each party. If after a period of 30 days from the demand for
arbitration no single arbitrator is selected, then such single
arbitrator shall be selected in accordance with Rule 13 of the AAA
Commercial Arbitration Rules (as amended). In connection with the
selection of such single arbitrator, consideration shall be given to
familiarity with the oil and gas business and experience in dispute
resolution between parties, as a judge or otherwise.
(f) If the arbitrator cannot continue to serve, a successor shall be
selected by the procedures set forth in Section 16.16(e) hereof.
(g) The arbitrator shall be guided, but not bound, by the Federal Rules
of Evidence and by the procedural rules, including discovery
provisions, of the Federal Rules of Civil Procedure. Any discovery
shall be limited to information directly
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relevant to the controversy or claim in arbitration. The
arbitrator's ruling on discovery and procedural matters shall be
binding on the parties.
(h) The parties shall each be responsible for their own costs and
expenses, except for the fees and expenses of the arbitrator, which
shall be shared equally by the parties hereto.
Section 16.17 COMPANY STOCK. Torch will acquire shares of Company common
stock as of the Commencement Date. For so long as Torch continues to own such
Company common stock and this Agreement remains in full force and effect, Torch
agrees to vote all of its shares of Company stock in accordance with the
Company's instructions. Provided however, such instructions are made by
two-thirds (2/3) of the Company Board of Directors.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized representatives as of the day and year first
above written.
TORCH ENERGY ADVISORS INCORPORATED
By: ___________________________________________
Name: Xxxxxxx X. Xxxxxx
Title: President & Chief Operating Officer
NUEVO ENERGY COMPANY
By: ___________________________________________
Name: Xxxxxxx X. Xxxxxxx
Title: President
WITHDRAWAL AS A MANAGER
ACKNOWLEDGED AND AGREED TO
this ____ day of January, 1996.
ENERGY ASSETS INTERNATIONAL CORPORATION
By: _____________________________
Name: ___________________________
Title: __________________________
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EXHIBIT "A"
Nuevo Energy Company
Bellwether Exploration Company
Torch Energy Advisors Incorporated
Investment Policies and Procedures
Affiliated Transactions
Torch Energy Advisors Incorporated ("Torch") currently renders services in
connection with the day to day affairs of Nuevo Energy Company ("Nuevo") and
Bellwether Exploration Company ("Bellwether") pursuant to management agreements
("Agreements"). The Agreements contemplate that Torch may generate prospects and
other investment opportunities (collectively, "Investments") in the ordinary
course of its business, and will offer to Nuevo and Bellwether the opportunity
to purchase all or a portion of the Investments.
Torch and its affiliates also render oil and gas management and advisory
services to institutional investors under contractual arrangements, and act as
general partner or managing partner of limited partnerships and general
partnerships that invest in oil and gas assets (such contractual arrangements or
partnerships currently existing or formed in the future are referred to as the
"Institutional Programs"). The Institutional Programs have agreements with Torch
or its affiliates regarding the parameters for Investments which the
Institutional Programs will make. It is anticipated that future Institutional
Programs shall also have specified parameters.
It is the policy of Nuevo and Bellwether to participate in those
Investments brought to it by Torch that are not within the investment parameters
of the Institutional Programs. Nuevo and Bellwether are aware of the current
investment parameters of the Institutional Programs, and Torch will provide
Nuevo and Bellwether access to any investment parameters for Institutional
Programs formed in the future. Nuevo and Bellwether further are aware that Torch
is obligated to offer to the Institutional Programs Investments that are within
their respective investment parameters.
Torch shall offer all Investments (i) that are not within the investment
parameters of the Institutional Programs and (ii) that the Institutional
Programs elect not to pursue, to Nuevo and Bellwether, if the Investment is
within the scope of Nuevo's or Bellwether's business.
As between Nuevo and Bellwether, Torch will determine whether to make an
opportunity available to Nuevo or Bellwether based on the following:
(a) If the Investment is located in Nuevo's Area of Exclusive Interest,
Torch will offer the Investment first to Nuevo. Nuevo's Areas of
Exclusive Interest are (i) if the Investment is an oil and gas
property acquisition, those geographic areas in which Nuevo owns (at
the time of the proposed Investment) properties (1) that produce
from the same formation and (2) that had a present value of
discounted future net cash flows in excess of $5,000,000
attributable to estimated proved reserves (prepared in accordance
with Securities and Exchange Commission rules) as of the end of the
immediately preceding year (which may be on a pro forma basis
assuming any acquisitions during the year) or is in a geographic
area where Nuevo has a significant acreage position and (ii) if the
Investment is not a property acquisition, the immediate geographic
area in which Nuevo has assets with a book value of over $1,000,000.
(b) If the Investment is located in Bellwether's Areas of Exclusive
Interest, Torch will offer the Investment first to Bellwether.
Bellwether's Areas of Exclusive Interest are (i) if the Investment
is an oil and gas property acquisition, those geographic areas in
which Bellwether owns (at the time of the proposed Investment)
properties that (1) that produce from the same formation and (2)
that had a discounted present value of future net cash flows in
excess of $500,000 attributable to estimated proved reserves
(prepared in accordance with Securities and Exchange Commission
rules) as of the end of the immediately preceding year (which may be
on a pro forma basis assuming any acquisitions during the year) and
(ii) if the Investment is not a property acquisition, the immediate
geographic area in which Bellwether has assets with a book value of
over $100,000.
(c) All Investments outside of the Areas of Exclusive Interest will be
offered jointly to Nuevo and Bellwether. Unless Nuevo and Bellwether
otherwise agree among themselves, Nuevo will be entitled to purchase
an undivided 80% interest in each Investment and Bellwether will be
entitled to purchase an undivided 20% interest in each Investment.
With respect to assets that form part of an Investment which are not
capable of division, Torch will allocate such assets between Nuevo
and Bellwether in a manner deemed fair and reasonable by Torch,
whose decision shall be final and binding.
Page 2 of Exhibit "A"
Torch shall offer Investments to Nuevo or Bellwether by notifying the
executive employees of Nuevo or Bellwether who are not employees of Torch, by
any course of conduct deemed acceptable to Nuevo and Bellwether, and Nuevo and
Bellwether shall accept or reject such offers orally or in writing. If Torch,
Nuevo or Bellwether requests a written confirmation of an offer or acceptance
from the another party, such other party shall deliver it promptly. Neither
Nuevo nor Bellwether shall have any responsibility or liability for Torch's
determination to offer or not offer an Investment to an Institutional Program.
At the request from time to time of Nuevo or Bellwether, Torch shall make
available information regarding the Investments not offered to Nuevo or
Bellwether, subject to any confidentiality arrangements regarding such
information. The executive management of Nuevo and Bellwether who are not
employees of Torch shall follow a policy of reviewing with the members of their
respective boards of directors who are not employees of Torch, on a quarterly
basis, all Investments proposed by Torch, the Investments of Torch not offered
to Nuevo or Bellwether, and the performance of Torch during such quarter. Torch
understands that the Bellwether Agreement may be terminated by such independent
committee.
Except as contemplated in that certain agreement dated effective March 31,
1994, between Nuevo and Bellwether, pursuant to which Bellwether is entitled to
certain prospects generated by a subsidiary of Nuevo, Nuevo shall have no right
to participate in an Investment generated by Bellwether, and Bellwether shall
have no right to participate in an Investment generated by Nuevo.
Torch agrees not to acquire for its own account (other than pursuant to
the Institutional Programs) any Investment that is in an Area of Exclusive
Interest of Nuevo or Bellwether without the prior consent of Nuevo or
Bellwether, as the case may be. Such Consent shall be given by approval of the
directors of Nuevo or Bellwether who are not employees of Torch.
Page 3 of Exhibit "A"
