EXHIBIT 10.2
PARTICIPATION AGREEMENT BETWEEN DOLPHIN ENERGY CORPORATION
AND XXXX X. XXXXXX DATED FEBRUARY 23, 2005
PARTICIPATION AGREEMENT
This Participation Agreement (this "Agreement") is entered into this
23rd day of February, 2005, by and between Dolphin Energy Corporation, a Nevada
corporation, with offices at 0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx,
Xxxxxxxx 00000 ("Dolphin"), and Xxxx X. Xxxxxx ("Xxxxxx"), c/o Patton Xxxxx LLP,
0000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000. Dolphin and Xxxxxx may
be referred to herein individually as a "Party" and collectively as the
"Parties."
RECITALS:
A. Dolphin entered into that certain Lease Acquisition and Development
Agreement, dated February 22, 2005, by and between Dolphin, as Buyer,
and ATEC Energy Ventures, LLC ("ATEC") and Apollo Energy, LLC
("Apollo"), jointly as Seller (the "Dolphin/Apollo Agreement").
X. Xxxxxx intends to enter into a proposed Lease Acquisition and
Development Agreement, to be dated February 23, 2005, by and between
Xxxxxx, as Buyer, and ATEC and Apollo, jointly as Seller (the
"Xxxxxx/Apollo Agreement"). The Dolphin/Apollo Agreement and the
Xxxxxx/Apollo Agreement are referred to herein collectively as the
"Apollo Agreements."
C. The Parties wish to set forth herein their agreement as to certain
rights and obligations as between the Parties pertaining to the Apollo
Agreements.
AGREEMENT:
NOW, THEREFORE, the Parties agree as follows:
1. DEFINED TERMS. The terms defined in Apollo Agreements shall have the
same meanings when used herein.
2. INITIAL CAPITAL. Dolphin will deposit into escrow pursuant to the
Dolphin/Apollo Agreement $7,000,000 and Xxxxxx will deposit into escrow pursuant
to the Xxxxxx/Apollo Agreement $5,000,000 to acquire 4,000 Net Mineral Acres in
Leases under the Apollo Agreements (the "Existing Leases"). Following such
acquisitions, without further capital contributions under this Agreement, the
Parties' undivided ownership interests in the Leases so acquired would be
Dolphin 58?% and Xxxxxx 41?%.
3. XXXXXX ADDITIONAL CAPITAL CONTRIBUTION. Xxxxxx shall have the right,
but not the obligation, to deposit into escrow on or before August 1, 2005, up
to $25,000,000 (in addition to the $5,000,000 referred to in Section 2, above)
to be used to increase Xxxxxx'x undivided ownership interest in the Existing
Leases and/or to acquire an ownership interest in additional Leases or pay
Project Costs.
4. DOLPHIN ADDITIONAL CAPITAL CONTRIBUTION. Dolphin shall have the
right, but not the obligation, to deposit into escrow on or before December 1,
2005 up to $3,000,000 (in addition to the $7,000,000 referred to in Section 2)
to be used to acquire an undivided ownership interest in additional Leases or to
pay Project Costs.
5. ADJUSTMENT OF OWNERSHIP INTERESTS. It is the intent of the Parties
that their respective undivided ownership interests be uniform in all of the
Leases acquired pursuant to
the Apollo Agreements. Therefore, by way of example, if neither Party
contributes into escrow any additional capital pursuant to Sections 3 or 4,
their ownership interests in the Leases shall remain Dolphin 58?% and Xxxxxx
41?%. Conversely, if they each contribute into escrow the maximum additional
capital by the dates specified in Sections 3 and 4, above, their ownership
interests in the Leases acquired pursuant to the Apollo Agreements shall be
Dolphin 25% and Xxxxxx 75%. Commencing January 1, 2006 and on each January 1
thereafter during the term of the Apollo Agreements, the Parties shall execute
and file of record cross assignments to accurately reflect their ownership
interests in the Leases.
6. PROJECT COSTS. The amounts deposited into escrow and actually used
to acquire Leases shall be the basis for each Party's ownership interest in the
Leases. No such amounts shall be credited or used for operations. Each Party
shall be responsible for its/his respective share of the cost of operations in
accordance with the terms of the Operating Agreement, with such share based on
the ownership interest at the time such cost is incurred.
7. OPERATORSHIP. (a) Dolphin and Xxxxxx (or his assignee) shall be
jointly designated as Operator under the Apollo Agreements. Provided, however,
for the first thirty-six (36) months of operations under the Operating
Agreement, commencing on the effective date of the Operating Agreement, Xxxxxx
hereby assigns all his rights and obligations as operator, and Dolphin agrees to
assume all rights and obligations as operator, under the Apollo Agreements, such
that Dolphin shall be contract operator or sub-operator under the Operating
Agreement.
(b) Notwithstanding anything in the Operating Agreement to the
contrary, Dolphin shall be entitled to a management fee of ten percent (10%) of
its costs as Operator. Within sixty (60) days after the date of this Agreement,
the Parties shall amend the Operating Agreement (including the XXXXX) to provide
for such fee.
(c) At least thirty (30) days, but not more than sixty (60) days,
prior to the end of such 36-month period, Xxxxxx or Xxxxxx'x assignee shall have
the right, but not the obligation, to provide written notice to Dolphin stating
that Xxxxxx (or his assignee) elects to replace Dolphin as Operator on the basis
that Dolphin has not conducted operations on the Leases in a reasonable and
prudent manner and in accordance with accepted industry standards. Said notice
shall include the specific bases, including relevant documentation, supporting
said determination. If Dolphin does not agree with such determination, the
Parties shall submit the issue to binding arbitration before a three arbitrator
panel (each Party selecting one arbitrator and the two arbitrators then
selecting the third arbitrator) to be governed by the arbitration procedure set
forth in the Definitive Agreement referred to in Section 8. If the Parties do
not, for any reason, enter into the Definitive Agreement, the arbitration shall
commence in Denver, Colorado, within sixty (60) days after Xxxxxx'x (or his
assignee's) receipt of Dolphin's written objection to said determination, and
shall be governed by the rules of the Judicial Advocacy Group.
8. DEFINITIVE AGREEMENT. This Agreement sets forth the basic terms and
conditions agreed to by the Parties concerning the subject matter referred to
herein and shall be binding upon the Parties whether or not a definitive
agreement supplementing and amending this Agreement is signed by the Parties;
however, the Parties agree to use their best efforts to negotiate and sign by
April 1, 2005, an agreement between the Parties (the "Definitive Agreement")
that more fully sets forth the terms and conditions that will govern the
relationship between the Parties during the term of one or both of the Apollo
Agreements.
9. BOARD APPROVAL. Notwithstanding anything in this Agreement to the
contrary, Dolphin's rights and obligations under this Agreement are subject to
approval by Dolphin's
2
Board of Directors, which shall be communicated to Xxxxxx no later than 4:00
p.m. (Mountain Time), February 24, 2005.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
DOLPHIN ENERGY CORPORATION
/s/ XXXX X. XXXXXX By: /s/ XXXX XXXXXX
---------------------------------- --------------------------------------
Xxxx X. Xxxxxx, Individually Xxxx X. Xxxxxx, President
3
