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EXHIBIT 4.1
DATED 4th February 1994
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC
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(2) ENCAP INVESTMENTS L.C.
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INVESTMENT ADVISORY AGREEMENT
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Xxxxxx Xxxxxx
0 Xxxxxxx Xxxxxx
Xxxxxx XX0X 0XX
ARG/LJI/2487
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INVESTMENT ADVISORY AGREEMENT
AN AGREEMENT made the 4th day of February, One thousand nine hundred and ninety
four.
BETWEEN
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC (registered in England No.
2867571) whose registered office is at 00 Xxxxxxxxxxxx Xxxxxx, Xxxxxx
XX0X 0XX ("the Company"),
(2) ENCAP INVESTMENTS L.C., a Texas limited liability company whose
principal place of business is at 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000 XXX ("EnCap").
WHEREAS:
(A) The Company is desirous of appointing EnCap (subject as hereinafter
provided) to advise the Company in relation to the management and
investment and re-investment of the Company's Investments.
(B) EnCap is engaged in business offering investment management and
advisory services in the USA in relation to the oil and gas industry
and has considerable skill, knowledge and experience in that field.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement the following words and expressions shall
where not inconsistent with the context have the following
meanings respectively:
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"Affiliate" with regard to another person shall mean any
person directly or indirectly controlling, controlled by or
under common control with, such other person; "Control" means
the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a
person whether through the ownership of voting securities, by
contract or otherwise;
"Appointee(s)" means any person or persons to whom EnCap may
have delegated any of its functions hereunder;
"Articles" means the Articles of Association of the Company as
amended from time to time and any reference herein to an
Article shall be taken to refer to the Articles unless
otherwise specified;
"Directors" means the Board of Directors of the Company from
time to time including any duly appointed committee thereof;
"Independent Directors" means the Directors other than those
connected within the meaning of Section 346 of the Companies
Xxx 0000 with EnCap;
"the Investments" means the assets and rights from time to
time of the Company acquired pursuant to this Agreement and
held in accordance with the Memorandum of Association and
Articles of the Company;
"Investment Policy" means the investment policy of the Company
(as reviewed and amended by the Directors from time to time)
as initially stated in the Particulars and repeated in Part A
of Schedule One;
"Investment Restrictions" means the investment restrictions
(as reviewed and amended by the Directors from time to time or
as amended by statute or rules or
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regulations thereunder) as initially stated in the Particulars
and repeated in Part B of Schedule One;
"the Particulars" means the Listing Particulars of the Company
proposed to be dated 4th February 1994;
"the Partnership" means the US Limited Partnership to be
constituted between EnCap, Lincoln National Life Insurance
Company, Internationale Nederlanden (U.S.) Capital Corporation
and others to co-invest with the Company as is referred to in
the Particulars;
"the Placing" means the placing of Ordinary Shares and
Warrants described in the Particulars;
"the Placing Agreement" means the Agreement of even date
herewith made between the Company (1), Xxxxx Xxxxxxxxx & Co.
Limited (2) Xxxxxxxxx Xxxxxxxxxxx Institutional Brokers
Limited (3), and Xxxxxxxx Xxxxxx & Xxxxx Limited (4) described
in the Particulars in paragraph 7(b) of Part IV thereof under
the heading "General Information";
"Schedules" mean the Schedules annexed hereto which form part
of this Agreement;
"the Secretary" means Aberdeen Trust PLC or the Secretary of
the Company for the time being;
"subsidiary" has the meaning ascribed thereto in Section 144
of the Companies Xxx 0000;
"The London Stock Exchange" means the International Stock
Exchange of the United Kingdom and Republic of Ireland
Limited;
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Any reference to EnCap includes a reference to its duly
authorised agents or delegates.
1.2 Words and expressions contained in this Agreement (but not
defined herein) shall bear the same meanings as in the
Articles PROVIDED THAT any alteration or amendment of the
Articles shall not be effective for the purpose of this
Agreement unless any affected party (to the extent that its
rights or duties hereunder are affected by such alteration or
amendment) shall by endorsement hereon or otherwise in writing
have assented thereto.
1.3 The headings to the Clauses of this Agreement are for
convenience only and shall not affect the construction or
interpretation thereof.
2. CONDITIONAL AGREEMENT
This Agreement shall be conditional in all respects upon the Placing
Agreement becoming unconditional in all respects.
3. APPOINTMENT AND FUNCTIONS OF ENCAP
3.1 The Company HEREBY APPOINTS EnCap, subject to and in
accordance with the directions of the Directors, and in
accordance with the Investment Policy and Investment
Restrictions, as advisors and managers in respect of the
investment and re-investment of the Investments on the terms
contained herein and EnCap hereby accepts such appointment and
agrees to assume the obligations set forth herein.
3.2 Without prejudice to the generality of Clause 3.1 above, the
duties to be performed by EnCap on behalf of the Company in
accordance with the Investment Policy and the Investment
Restrictions shall include the following:
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3.2.1 EnCap shall, as and when requested by the Board, use
all reasonable endeavours to identify Investments,
conforming with the Investment Policy, for
recommendation to the Board. EnCap shall furnish to
the Directors in relation to any proposed Investment
all such information as the Directors shall
reasonably require or which is in EnCap's possession,
to enable the Directors to consider the proposed
Investment.
3.2.2 Following the identification by EnCap of a Proposed
Investment, EnCap shall conduct such further
investigations as the Directors shall reasonably
request and when reasonably requested by the
Directors, EnCap shall report and advise in relation
thereto.
3.2.3 As and when so requested by the Directors, EnCap
shall commission an independent engineering firm
approved by the Directors to furnish to the Directors
and EnCap a report in relation to the proposed
Investment. The terms of reference for such report
shall be as agreed between the Directors and EnCap.
3.2.4 EnCap shall undertake all negotiations with third
parties in relation to a proposed Investment on
behalf of the Company and shall be responsible for
procuring, in accordance with all applicable legal
requirements and best practice, the preparation and
execution of all deeds, documents of title and
agreements in relation to Investments and the
perfecting of the Company's title thereto.
3.2.5 EnCap shall be responsible for advising and
instructing the Company's Corporate Managers for the
time being and Secretary on administrative
requirements in order to implement the making of
Investments.
3.3 Subject to the terms of this Agreement, to such directions as
may from time to time be given by the Directors and to the
overall policy and supervision of the
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Directors, EnCap is authorised to act for the Company or any
subsidiary and on behalf of the Company and or any subsidiary
either itself or wholly or in part through its authorised
agents or delegates in the same manner and with the same force
and effect as the Company or any subsidiary might or could do
and to exercise the functions, duties, powers and discretions
exercisable by the Directors under the Articles (including,
without prejudice to the generality of the foregoing, the
functions duties powers and discretions specifically mentioned
in Clause 3.2 above) and to manage the investment and
re-investment of the Investments.
3.4 EnCap shall keep or cause to be kept on behalf of the Company
such books, records and statements to give a complete record
of all transactions carried out by EnCap on behalf of the
Company (or any subsidiary) in relation to the investment and
re-investment of the Investments and such other books, records
and statements as may be required to give a complete record of
all other transactions carried out by EnCap on behalf of the
Company (or any subsidiary) and shall permit the Company and
its employees and agents and the auditors for the time being
of the Company to inspect such books, records and statements
at all reasonable times.
3.5 EnCap hereby warrants that it holds all licences, permissions,
authorisations and consents necessary to enable it to carry
out its duties as advisors and managers in the ordinary course
of business. EnCap undertakes to use its best endeavours to
continue to hold all such licences, permissions,
authorisations and consents necessary for its duties hereunder
and to notify the Company immediately should any such licence,
permission, authorisation or consent cease to be in full force
and effect.
3.6 EnCap shall observe and comply with the Memorandum of
Association and Articles of the Company and with any
alterations thereto notified to EnCap by the Company and with
the applicable provisions of the Particulars and the
Investment Restrictions and all obligations deriving from
listing particulars of the Company
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from time to time issued and all resolutions of the Directors
of which it has notice and other lawful orders and directions
given to it from time to time by the Directors and all
activities engaged in by EnCap hereunder shall at all times be
subject to the control of and review by the Directors and
EnCap shall and shall procure that any person, firm or company
to whom it delegates any of its functions hereunder shall give
effect to all such decisions.
3.7 EnCap shall procure that all Investments shall be registered
in the name of the Company or any subsidiary or the nominees
of the Company.
3.8 EnCap undertakes with the Company that it will procure that,
during the continuance of this Agreement, the Company shall be
afforded the opportunity (as is provided in the Particulars)
to invest in all investments made by, and investment
arrangements entered into, by the Partnership in all respects
upon the same terms and conditions as are afforded to the
Partnership.
4. INFORMATION OBLIGATIONS OF ENCAP
4.1 EnCap shall keep the Company informed of all material matters
relating to the Investments of the Company, to such extent and
in such form and at such times as the Company shall reasonably
require.
4.2 Without limiting the generality of Clause 4.1 EnCap shall:
4.2.1 When reasonably requested by the Board deliver to the
Company in respect of each calendar month a summary
report, in such form as the Company shall reasonably
require, relating to the Company's Investments and
any proposed Investment then under consideration;
4.2.2 Within 30 days of the end of each calendar quarter,
deliver to the Company a report, in such form as the
Company shall reasonably require,
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comprising detailed financial information in relation
to each Investment of the Company and including
detailed cost and revenue allocations;
4.2.3 Within 90 days of the end of each financial year of
the Company, deliver to the Company a report, in such
form as the Company shall reasonably require,
comprising financial and taxation statements in
relation to the Company's Investments as at the end
of the financial year then ended prepared by a firm
of accountants previously approved by the Company and
reserve reports prepared in relation to the Company's
Investments as at the end of the financial year then
ended, prepared by such independent petroleum
engineer previously approved by the Company.
5. REMUNERATION
5.1 The Company shall during the continuance of this Agreement pay
to EnCap by way of remuneration for the provision of services
and advice pursuant to this Agreement an annual fee, payable
by equal quarterly instalments in arrears on 31st March, 30th
June, 30th September and 31st December in each year,
calculated at the rate of 1% of the Company's NAV as at 31st
December preceding the year in which the payments are due to
be made. For the purposes of this clause "NAV" means the
amount in US dollars of the aggregate of:
5.1.1 All cash at bank and in hand of the Company; and
5.1.2 All amounts owing to the Company, whether or not due
for payment or repayment at the relevant time,
excluding (i) any amount falling within sub-clause
5.1.4 and (ii) any amount loaned by the Company and
secured on any asset or interest in respect of oil
and gas to the extent that the present worth of
future revenue, discounted at a rate of 10 per cent
per annum, of the proved reserves (as shown in the
relevant independent petroleum engineer's reserve
report prepared as at the relevant date or the
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closest practicable date thereto) securing any such
loan does not provide a coverage ratio in respect of
the amounts advanced by the Company and all accrued
interest of at least 1:1; and
5.1.3 The present worth of the future net revenue,
discounted at 15 per cent per annum, of the proved
reserves attributable to any direct equity interests
owned by the Company in oil and gas properties (as
shown in the relevant engineer's reserve report
prepared as at the relevant date or the closest
practicable date thereto); and
5.1.4 In the case of any Investment comprising debt or
equity securities (including without limitation
shares, options, warrants and bonds) that are traded
on a recognised investment exchange, the aggregate of
the market value to the Company of such securities as
at the relevant date (it being agreed that in the
event that an Investment falls within this sub-clause
5.1.4 and any of sub-clause 5.1.2, 5.1.3 and 5.1.5,
the provisions of this sub-clause 5.1.4 shall apply
to the exclusion of the other sub-clauses for the
purposes of calculating NAV); and
5.1.5 In the case of any Investment comprising any equity
securities in any entity (whether corporate or not)
not falling within sub-clause 5.1.4, the value of
such equity securities to the Company calculated on
the basis of that proportion of such entity's NAV
attributable to the Company (the NAV of such entity
being calculated on the same basis, mutatis mutandis,
as is set out in this Clause);
less an amount equal to all indebtedness of the Company at the
relevant time, whether or not then due for payment or
repayment;
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PROVIDING that for the purposes of this clause the NAV of the
Company as at 31st December 1993 shall be deemed to be equal
to the net proceeds of the Placing having deducted all
expenses thereof.
PROVIDING further that the NAV shall be determined by the
Independent Directors using the foregoing principles and
reserve reports prepared by an independent petroleum
engineering firm, which shall use the same assumptions for
future oil and gas prices as those generally utilised by major
oil and gas lending institutions in the USA at the time the
valuation is made;
5.2 The fees payable hereunder are inclusive of all applicable
value added tax and any other sales or services taxes
whatsoever payable from time to time and whether principally
by the Company or EnCap.
5.3 The fees payable pursuant to Clause 5.1 shall be deemed to
accrue on a daily basis.
5.4 By way of further remuneration for the provision of services
and advice pursuant to this Agreement, and provided that this
Agreement shall not previously have been terminated by EnCap
pursuant to Clause 13.1 or by the Company pursuant to Clause
13.2, the Company shall pay to EnCap as soon as such amount
shall have been determined following 31st December 2001 or the
date a special resolution is passed pursuant to Section 84
Insolvency Act 1986 for the voluntary winding up of the
Company, whichever is the earlier, an amount equal to 25%. of
the Company's Adjusted NAV as at 31st December 2001 or the
date of the passing of the special resolution for the
winding-up of the Company, as appropriate.
5.5 Adjusted NAV means, at the relevant date:
(a) NAV;
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(b) less an amount equal to the aggregate of the
Company's share capital and the amount standing to
the credit of the Company's share premium account as
converted (where appropriate) into US dollars at the
actual exchange rates at which such subscriptions
were converted into US dollars; and
(c) (i) less the amount (if any) by which an 8%
annual rate of return on the aggregate of
the Company's share capital and the amount
standing to the credit of the Company's
share premium account, calculated from the
relevant dates of payment to the Company of
such share capital and share premium,
exceeds the aggregate of the dividends paid
by the Company since its incorporation,
inclusive of any tax credit in respect of
such dividends; or
(ii) aggregating therewith the amount (if any) by
which the aggregate of the dividends paid by
the Company since its incorporation,
inclusive of any tax credit in respect of
such dividends, exceeds an 8% annual rate of
return on the aggregate of the amount
standing to the credit of the Company's
share capital and share premium account
calculated from the relevant dates of
payment of such share capital and share
premium.
5.6 In the event of any dispute with regard to the determination
of any fee payable pursuant to this Clause, such dispute shall
be referred for determination to the Company's auditors, or
such other firm of Chartered Accountants as the Company and
EnCap shall agree. In making a determination such accountants
shall act as experts and not as arbitrators and they shall be
entitled to call for and inspect such documents as they shall
deem appropriate. The determination of such accountants shall
be final and binding on the Company and EnCap.
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6. ADDITIONAL SERVICES
If EnCap, being willing and having been called upon so to do, shall
render or perform extra or special services of any kind to the Company,
EnCap shall be entitled to receive such additional reasonable fees
therefor as the Directors in consultation with EnCap may from time to
time agree. If EnCap offers additional services to the Company, EnCap
may determine the level of fees or charges as it deems fit and proper
for the payment of such services and offer to provide such services to
the Company and the Company may accept or reject an offer of such
services as it so determines.
7. EXPENSES
7.1 Unless otherwise agreed between the Company and EnCap, the
Company shall pay or procure payment of the following
expenses:-
7.1.1 All accountancy fees, petroleum consultants' fees and
legal expenses incurred by the Company or EnCap or
the secretary in connection with the identifying,
negotiating and making of Investments and all other
professional and other charges in respect of services
rendered to the Company or EnCap in connection with
the matters aforesaid;
7.1.2 Any stamp and other duties, taxes, Governmental
charges, brokerage, transfer fees, registration fees
and other charges payable in respect of the
acquisition or realisation of any Investment,
including charges for the transfer of funds or
instructions for delivery of securities by telex,
cable, telephone or otherwise;
7.1.3 All taxes and corporate fees payable by the Company
to the Government or other authority or to any agency
of the Government or authority in the United States
of America or elsewhere;
7.1.4 All charges specifically incurred by EnCap on behalf
of the Company.
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EnCap will advise the Company prior to incurring any third
party fees or any third party expenses for the account of the
Company if EnCap believes that such fees or expenses will
exceed US$7,500.
7.2 EnCap shall provide at its own expense:-
7.2.1 Such staff as may be necessary for the due
performance of its duties hereunder;
7.2.2 Such office and other accommodation and office
equipment as may be necessary for the due performance
of its duties hereunder.
7.3 It is hereby expressly declared that the persons employed by
EnCap to perform its obligations under this Agreement shall be
the employees, agents or sub-contractors of EnCap and not of
the Company and accordingly shall not be regarded or treated
as employees of the Company.
7.4 Any arrangement or other fee (on the appropriate proportion
thereof) paid to EnCap in respect of any Investment shall be
paid or reimbursed by EnCap to the Company.
8. POWER OF DELEGATION
EnCap may with the consent of the Company delegate the whole or any
part of its powers, duties, discretions and functions hereunder to any
person, firm or company.
9. NON-EXCLUSIVITY
9.1 The services of EnCap hereunder are not to be deemed exclusive
to the Company and EnCap or any Affiliate thereof shall be
free to render similar services to others on such terms as
EnCap or such Affiliate may arrange so long as its services
under
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this Agreement are not thereby impaired, and to retain for its
own use and benefit fees or other moneys payable thereby, and
EnCap shall not be deemed to be affected with notice of or to
be under any duty to disclose to the Company any fact or thing
which may come to the notice of it or any servant or agent of
it in the course of EnCap rendering similar services to others
or in the course of its business in any other capacity or in
any manner whatsoever otherwise than in the course of carrying
out its duties under this Agreement.
9.2 EnCap shall procure that the Company shall have first priority
(together with the Partnership) to make Investments identified
by EnCap complying with the Investment Policy and Investment
Restrictions provided that in the absence of bad faith EnCap
shall not be liable to the Company in respect of it having
arranged any Investment made by any person (including EnCap's
affiliates) which investment the Directors may determine as
having complied with the Investment Policy and Investment
Restrictions.
10. EXERCISE OF RIGHTS ATTACHED TO INVESTMENTS
Subject as otherwise provided in this Agreement, any rights conferred
by Investments of the Company shall be exercised in such manner as the
Directors may determine and EnCap shall (in so far as it is able)
procure the exercise of such rights in accordance therewith.
11. CUSTODY
EnCap shall be responsible to the Company for procuring the safe
custody of all documents of title, deeds, certificates and agreements
in respect of the Investments of the Company unless otherwise notified
by the Company in writing.
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12. LIABILITY AND INDEMNITY
12.1 EnCap shall not be liable to the Company or any subsidiary for
any action taken or not taken by them or for any action taken
or not taken by any other person with respect to the Company
or any subsidiary or in respect of the Investments provided
that EnCap shall remain liable for any loss arising from the
fraud, negligence, wilful default, bad faith or misconduct of
EnCap, its employees and/or any of their agents.
12.2 The Company hereby indemnifies EnCap and each officer,
employee or agent of EnCap against any losses, claims, damages
or liabilities (including legal or other expenses reasonably
incurred) to which such person may become subject by reason of
its being an officer, employee or agent of EnCap (but only to
the extent and with respect to services performed by EnCap or
officers, employees or agents of EnCap for or on behalf of the
Company) or representing the Company or any subsidiary on the
Board of Directors of any company in which the Company or any
subsidiary has invested or otherwise in providing services
under this Agreement provided that this indemnity shall not
apply in cases of fraud, negligence, wilful default, bad faith
or misconduct.
13. TERMINATION
13.1 EnCap shall be entitled to resign its appointment hereunder:
(i) by giving at any time not less than one year's notice
in writing to the Company expiring not earlier than
the date of the second anniversary hereof;
(ii) at any time by notice in writing to the Company if
the Company shall go into liquidation or if a
receiver or administrative receiver or administrator
is appointed over any of the assets of the Company;
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(iii) at any time if the Company shall commit any breach of
its obligations under this Agreement and (if such
breach shall be capable of remedy) shall fail within
30 days of receipt of notice served by EnCap
requiring it so to do to make good such breach.
13.2 The Company may terminate the appointment of EnCap hereunder:
(i) if EnCap shall go into liquidation (except a
voluntary liquidation for the purposes of
reconstruction or amalgamation upon terms previously
approved in writing by the Company) or if a receiver
or administrative receiver or administrator is
appointed of any of the assets of EnCap or if a
meeting of EnCap's creditors is convened, or if any
analogous insolvency proceeding shall be taken in
respect of EnCap in any jurisdiction, or if EnCap
ceases or threatens to cease to carry on its
business;
(ii) if EnCap shall commit any significant breach of its
obligations under this Agreement and (if such breach
be capable of remedy) shall fail within 30 days of
receipt of notice served by the Company requiring
them to make good such breach.
13.3 The appointment of EnCap under this Agreement shall terminate
automatically upon the passing of a special resolution of the
Company pursuant to Section 84 of the Insolvency Xxx 0000
requiring the Company to be wound up.
13.4 On termination of the appointment of EnCap under the
provisions of this Clause, EnCap shall be entitled to receive
all fees and other moneys accrued due up to the date of such
termination but shall not be entitled to compensation in
respect of such termination and EnCap shall deliver to the
Company or as it shall direct, all books of account, records,
registers, correspondence, documents and assets relating to
the affairs of or belonging to the Company or any subsidiary
in the possession of or under the control of EnCap and take
all necessary steps to vest in
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the Company any assets previously held in the name of or to
the order of EnCap on behalf of the Company or any subsidiary.
14. CONFIDENTIALITY
14.1 Neither of the parties hereto shall during the continuance of
this Agreement or after its termination disclose to any
person, firm or fund whatsoever (except with the authority of
the relevant party or unless ordered to do so by a court of
competent jurisdiction) any information relating to the
business, investments, finances or other matters of a
confidential nature of the other party of which it may in the
course of its duties hereunder or otherwise become possessed
and each party shall use all reasonable endeavours to prevent
any such disclosure as aforesaid.
14.2 EnCap and the Company shall be permitted to refer to the
appointment hereunder in their corporate literature provided
that the text of any such reference is approved by the other,
such approval not to be unreasonably withheld or delayed.
15. RELIANCE ON DOCUMENTS
Wherever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of,
the Company (or its Directors) to EnCap, EnCap may accept as sufficient
evidence thereof:
(i) a document signed or purporting to be signed on behalf of the
issuing party or by such person or persons whose signature
EnCap is for the time being authorised by such issuing party
to accept; or
(ii) a message by tested telex, telecopler, facsimile machine, or
cable transmitted by, or on behalf of, the Company (or its
Directors) by such person or person whose messages EnCap is
for the time being authorised by the Company or its Directors
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to accept, and EnCap shall not be obliged to accept any
document or message signed or transmitted or purporting to be
signed or transmitted by any other person.
16. NOTICES
Any notice given hereunder shall be in writing and shall be served by
hand or by being sent by prepaid post or telex or telecopier or
facsimile machine in the case of the Company to its registered office
for the time being marked for the attention of the Secretary and in the
case of EnCap to Messrs Xxxxxx Xxxxxx, 0 Xxxxxxx Xxxxxx, Xxxxxx XX0X
0XX (marked for the attention of Xx X.X. Xxxxxx) or such other address
in the United Kingdom from time to time notified to the Company for the
service of notices.
17. ASSIGNMENT
Neither party hereto shall be entitled to assign or otherwise part with
any interest in this Agreement unless the prior written consent of the
other has been obtained.
18. INVALIDITY
The invalidity or unenforceability of any part of this Agreement shall
not prejudice or affect the validity or enforceability of the
remainder.
19. PROPER LAW
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of England and
the parties hereby submit to the non-exclusive jurisdiction of the
Courts of England and Wales.
IN WITNESS whereof the parties hereto have caused this Agreement to be executed
the day and year first before written.
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SCHEDULE ONE
PART A
INVESTMENT POLICY
Any investment will, at the time it is undertaken, be limited to 15 per cent of
the Company's assets. The Company will not take legal or management control of
underlying investments, nor will it be actively involved in the management of
the projects or entities which it invests.
Investments are expected to take the form of mezzanine-style debt instruments
together with long term equity in the form of royalty interests, net profit
interests, production payments, working interests and other interests in oil and
gas. The right is reserved also to hold other forms of debt or equity securities
including options or warrants and investments may take the form of partnership
arrangements, participations, joint ventures, limited liability company
interests, corporation shares and other forms of equity investment. Care will be
taken both on initial investment and on re-investment to ensure that sufficient
income will accrue to the Company as a return on capital invested to cover
administrative expenses and to permit a progressive dividend policy.
No investments will be made which require mandatory funding beyond a fixed
amount. Funding of any investment may be made in instalments.
Whilst the Company has the power to borrow up to its capital and reserves, there
is currently no intention to utilise this.
The Company will invest in project equity opportunities in the upstream sector
of the oil and gas industry where risks can be quantified by engineering
analysis. EnCap will only recommend Investments to the Directors which meet the
following criteria:
o All investments will be supported by proved oil and gas reserves.
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o The proved oil and gas reserves must have been confirmed by a
qualified, independent petroleum engineering firm chosen from a
pre-approved list. Reserves will be risk valued according to category
and specific opportunity with no value given to non-proven categories
unless geological evidence is sufficient to justify inclusion of some
probable value.
o Proposed investments must offer a pre-tax return to the Company of at
least 20% p.a. net of all fees and performance-related compensation.
Evaluations will be made on the basis of reports provided by
independent engineering firms utilising hydrocarbon price projections
generally used by major commercial banks active in energy financing.
o Neither EnCap nor the Company will act as operator for any oil and gas
properties or projects. It will propose investments only where it
believes that a proposed operator/project sponsor has experienced
management and personnel with high integrity and a proven track record
and experience in the area where the investment is to be made. The
operator must demonstrate sufficient financial strength both in terms
of net worth and cash flow, to administer and operate the project
throughout the expected term of the investment.
o No investment will be proposed where a likelihood exists of adverse
selection by the operator/project sponsor (i.e. minimal potential for
conflicts of interest).
o Each operator/project sponsor must contribute an acceptable portion of
the cost of the project on a basis that is subordinate or similar to
the investment to be made by the Company.
o No Investment will be made unless the Partnership, EnCap or other funds
managed by EnCap, or investors procured by EnCap also invest on a
substantial basis.
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SCHEDULE ONE
PART B
INVESTMENT RESTRICTIONS
(i) A reasonable spread of investments will normally be maintained, any new
investment being limited to not more than 15 per cent of the group's
assets (before deducting borrowed money) at the time it is made, for
which purpose any existing interest in the project must be aggregated
with the proposed new investment;
(ii) The policy statement set out in Schedule 1 Part A will be adhered to
for at least 3 years from the date hereof;
(iii) Dividends will only be paid to the extent that they are covered by
income received from underlying investments, shares of profits of
associated companies being unavailable for this purpose unless and
until distributed to the Company; and
(iv) Realisation of any investment carried at directors' valuation amounting
to 50 per cent or more of the portfolio will be conditional on
shareholders' approval.
None of the restrictions set out above will require the realisation of any
relevant asset of the Company where any of such restrictions is breached by
reason of any event outside the control of the Company and occurring after the
investment in the relevant asset is made or by reason of the receipt or exercise
of any rights, bonuses or benefits in the nature of capital, or any scheme of
arrangement for amalgamation, reconstruction, conversion or exchange, or of any
repayment or redemption.
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23
SIGNED by )
for and on behalf of )
ENERGY CAPITAL INVESTMENT )
COMPANY PLC )
in the presence of:- )
SIGNED by. )
for and on behalf of )
EnCAP INVESTMENTS L.C. )
in the presence of:- )
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