Exhibit 10.3
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ROYALTY JOINT VENTURE
Dated: April 11, 1992
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (the "Agreement") is entered into as of the
date indicated on the signature page hereto by and between Edge Joint Venture II
(herein called "Managing Venturer") and Essex Royalty Limited Partnership, a
Connecticut Limited Partnership ("Royalty" or the "Limited Partnership").
ARTICLE I.
ORGANIZATIONAL MATTERS
1.1 FORMATION. The Venturers hereby associate themselves in the formation
of a joint venture (the "Joint Venture"), pursuant to the provisions of the
Texas Uniform Partnership Act, Tex. Rev. Civ. Stat. Xxx. Art. 6132b, as from
time to time amended (the "Act").
1.2 NAME. The name of the Joint Venture shall be the Essex Royalty Joint
Venture, and it may also be referred to as the Essex Royalty Partnership.
Moreover, the Joint Venture's business may be conducted under any other name or
names deemed advisable by the Managing Venturer.
1.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Joint Venture shall be Houston, Texas.
1.4 FILINGS. The Venturers agree to immediately execute all such
certificates and other documents as may be necessary for the Managing Venturer
to accomplish all filing, recording, publishing and other acts as may be
necessary or appropriate to comply with all requirements for the formation,
preservation and operation of the Joint Venture as a general partnership (or
equivalent business organization) in all states of the United States in which
the Joint Venture may conduct its business prior to the actual conduct of such
business in any such state.
1.5 TERM. The Joint Venture shall be effective as of the date hereof for
all purposes, and shall continue in full force and effect until April 11, 1996,
unless sooner dissolved and terminated pursuant to the terms hereof (the
"Term"). By consent of both Venturers, the term of the Venture may be extended
for up to one year to April 11, 1997. Thereafter, during the Wind-up Period, the
Joint Venture shall engage in Winding Up its business and affairs.
1.6 REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Managing Venturer represents and warrants that it is a joint
venture which has been duly formed under the laws of the State of Texas,
and is validly existing and in
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good standing with all requisite power to carry on its business.
(b) Royalty represents that it is a limited partnership, which has
been formed under the laws of the State of Connecticut, with Napamco, Ltd.,
a Connecticut corporation, as the general partner, and that it is validly
existing and in good standing with all requisite power to carry on its
business.
(c) Each Venturer represents and agrees to furnish the other with any
and all information which shall be reasonably requested, and to afford the
other the opportunity to ask questions of and receive answers from the
other and to obtain any additional information (to the extent such
information is accessible or can be obtained without unreasonable effort or
expense).
(d) Each Venturer respectively represents and warrants for itself
that (i) the execution and delivery by it of this Agreement, and
consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or partnership action as the case may
be, and (ii) this Agreement constitutes the valid and binding obligation of
each respective Venturer enforceable against it in accordance with its
terms, subject to (x) the principles of equity; and (y) bankruptcy,
insolvency, and other laws relating to creditors' rights.
(e) The Limited Partnership represents, warrants and covenants that
(a) it has requested from its prospective limited partners appropriate
information in the form of investor certifications for the purpose of
verifying that such investors are "accredited investors" as defined in SEC
Reg D; (b) it has used its best efforts to assure that its offering of
limited partnership interests is in compliance with Reg D, or with Section
4(2) or 3(b) of the Securities Act of 1933, as amended, and any applicable
state blue sky laws; and (c) it has imposed upon the holders of limited
partnership interests sufficient transfer limitations on the interests in
order that the offering of limited partnership interests in the Royalty
complies with Reg D.
ARTICLE II.
DEFINITIONS
When used herein, the following words shall have the meaning assigned to
them:
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"ADDITIONAL CAPITAL CONTRIBUTION" means the amount of additional cash the
Venturers contribute to the capital of the Joint Venture, including amounts
provided in Section 4.2.
"AFFILIATE" means, when used with reference to a specified Venturer, (a)
any Person directly or indirectly controlling, controlled by, or under common
control with such Venturer; (b) any officer, director or partner of such
Venturer; and (c) any Person in which a Venturer is a general partner.
"CAPITAL CONTRIBUTIONS" means for any Venturer, the Initial Capital
Contribution and Additional Capital Contribution of such Venturer (or the
predecessor holder of the Interest of such Venturer).
"CODE" means the Internal Revenue Code of 1986, as amended (or any
corresponding provisions of succeeding law).
"EDGE GROUP I" means the Edge Group General Partnership, a general
partnership with Edge I Limited Partnership, Edge II Limited Partnership and
Edge III Limited Partnership, as the general partners thereof, and Xxxx
Xxxxxxxxx, as the managing partner.
"EDGE JOINT VENTURE II" means the general partnership with Edge Group II
Limited Partnership, Edge Petroleum Corporation, Gulfedge Limited Partnership
and Edge Group I as Venturers, formed pursuant to a Joint Venture Agreement
dated as of April 8, 1991. Edge Joint Venture II will be the Managing Venturer
of the Essex Royalty Joint Venture.
"EFFECTIVE DATE" means the date when this Agreement is executed by both
Venturers.
"INCAPACITY" or "INCAPACITATED" means, with respect to any Venturer, (i)
the filing of a petition in bankruptcy, or (ii) the dissolution or termination
(other than by merger or consolidation), as the case may be, unless, in the case
of a dissolution, such Venturer is reconstituted and its business continued as
provided in its organizational documents.
"INITIAL CAPITAL CONTRIBUTIONS" means the cash amount contributed to the
Joint Venture by the Venturers as provided in Section 4.1.
"LEASES" means full or partial interests in the leasehold estate in oil and
gas leases covering oil, gas and other mineral rights, including applications
for federal and state leases, fee rights, licenses, concessions or other rights
authorizing the owner to explore for, drill, produce and sell oil, gas and other
hydrocarbons, as well as rights to share in revenues from such
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activities and interests, and contractual rights to acquire any such interest.
"MANAGING VENTURER" means Edge Joint Venture II.
"MINERAL INTEREST" means an interest in the fee mineral estate in the land,
is typically severed from the surface estate by prior grant or reservation, and
may be leased or unleased. Unlike a royalty interest, a mineral interest
includes the right to go upon the land for the purpose of prospecting for,
drilling, severing, and removing therefrom oil, gas or other specified minerals.
A mineral interest also includes the executive leasing right, ie., the right to
execute an oil and gas lease to a third party operator who will drill a well.
The owner of a mineral interest has the right to receive a fractional share of
the oil and gas or other minerals produced from the premises as well as any
delay rentals, bonuses or royalties paid pursuant to an oil and gas lease. The
owner of the mineral interest also has the right to receive the reversionary
interest after termination of the oil and gas lease covering the interest.
"NON-OPERATING INTEREST" means an interest in oil and gas property that
does not entitle its holder(s) to participate in decisions concerning the
testing, drilling, completion, operation or abandonment of the property and all
such decisions are controlled by the holder(s) of the Working Interest in such
property. Non-Operating Interests include Royalty Interests, Overriding Royalty
Interests, Net Profits Interests, and Production Payments, as well as oil
payments, calls on production and other miscellaneous interests similar to the
foregoing. It would not include Working Interests or Mineral Interests not
subject to an oil and gas lease since these interests bear a share of the cost
and risk of testing, drilling, completing, operating and abandoning of the
property.
"NONPROPRIETARY SEISMIC" means seismic data purchased or obtained from
third parties where the purchaser obtains the right to use such data, but may
not sell it.
"NOTIFICATION" means a writing containing the information required by this
Agreement to be communicated to any Person, sent by registered or certified
United States mail, return receipt requested, postage prepaid, to such Person at
the last known address of such Person, the date of the mailing being deemed the
date of the giving of Notification; provided, however, that any communication
containing the information sent or delivered to the Person and actually received
by the Person shall constitute Notification for all purposes of this Agreement.
"OLD JOINT VENTURE" means the old Edge Joint Venture between Edge Petroleum
Partnership and Edge Group I, evidenced by that certain Operating Agreement
dated July 1, 1987.
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"PARTNERSHIP INTEREST" means the entire ownership interest of a Venturer in
the Joint Venture at any particular time, including the rights and obligations
of such Venturer under this Agreement and the Act.
"PERSON" means any individual, partnership, corporation, trust or other
entity.
"PROPRIETARY SEISMIC" means seismic data other than Nonproprietary Seismic.
"PROSPECT" means a geographical and/or geological area deemed by the
Managing Venturer to be prospective for the accumulation of production of oil,
gas, condensate, or other hydrocarbons, or an interest therein.
"RESERVES" means the rights to ownership of oil and gas or other
hydrocarbon interests, whether by virtue of a working interest, royalty
interest, net profits interest, production payment right, back in, carried
interests, and any other similar type rights.
"ROYALTY ACRE" means the number of acres of land in which the landowner
owns a full one-eighth (1/8) royalty, i.e., if a tract of 100 acres is leased
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for a one-eighth (1/8) royalty, the landowner owns 100 Royalty Acres. If the
landowner had leased for one-fourth (1/4) royalty, he owns 200 Royalty Acres.
If the landowner had previously conveyed away a one-sixteenth (1/16) royalty
interest in the land and then leased it for one-eighth (1/8) royalty, he would
own a 1/16 royalty interest or 50 Royalty Acres.
"ROYALTY INTERESTS AND OVERRIDING ROYALTY INTERESTS" are rights to receive
a certain part of the oil and gas or income therefrom, from oil and gas
properties, such as Leases or producing xxxxx, without regard to participation
in the costs of finding and producing such income. Such interests have no right
to explore, drill, or develop the land, to execute oil and gas leases or to
receive bonuses or rentals. Royalty Interests are typically reserved to the
landowner when the land is leased to a third party operator and are defined by
the terms of the Lease. They may also be created by prior conveyance or
reservation in the chain of title and may be limited to a term of years or for
so long as there is production or may be perpetual. Overriding Royalty Interests
are carved out of a Working Interest, and their duration is limited by the term
of the Lease under which they are created.
"SHARING RATIOS" means as to each Venturer, as set forth on Exhibit A.
After the occurrence of a Sharing Ratio Shift, the Sharing Ratios of the
Venturers will be as set forth on Exhibit A.
"SHARING RATIO SHIFT" is that point in time, whether such occurs during the
Term hereof, or during the Wind-Up Period, but
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not before September 15, 1992, when the aggregate amount of a) cash actually
distributed to the Limited Partnership and/or (b) Non-Operating Interests
actually distributed to the Limited Partnership subject to the limitations of
and valued as set forth in paragraph 6.3 below, equals 110 percent of the
amount of its Capital Contribution to the Venture. Upon the occurrence of a
Sharing Ratio Shift, all subsequent distributions based upon Sharing Ratios
shall be made based upon Sharing Ratios after the Sharing Ratio Shift.
"SIMULATED DEPLETION DEDUCTIONS" means the simulated depletion allowance
computed by the Joint Venture with respect to each oil and gas property by using
either the cost depletion method or the percentage depletion method (computed in
accordance with Code Section 613 at the rates specified in Section 613(c)(5)
without regard to the limitation of Section 613A, which theoretically could
apply to any partner) for each taxable year that the property is owned by the
Joint Venture and subject to depletion, in accordance with Treas. Reg. Section
1.704-1(b)(2)(iv)(k).
"SIMULATED GAINS" and "SIMULATED LOSSES" means, respectively, the simulated
gains or simulated losses computed by the Joint Venture with respect to its oil
and gas properties pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(k).
"TAXABLE PERIOD" means each calendar year which begins hereafter.
"WINDING-UP" means the period, not to exceed six months, during which the
affairs of the Royalty Joint Venture are terminated and the liquidation and sale
of the assets of the Royalty Joint Venture is accomplished, such process
commencing when the Roalty Joint Venture is dissolved for any reason.
"WIND-UP PERIOD" means a period not to exceed six (6) months during which
Winding-Up of the affairs of the Joint Venture shall occur.
"WORKING INTEREST" means the operating or leasehold interest under an oil,
gas and mineral lease or other property interest covering a specific tract or
tracts of land which entitles the owner to explore for, drill, produce and sell
oil, gas and other minerals covered by such lease or other property interest.
ARTICLE III.
PURPOSE
The purpose of the Joint Venture is to engage in the business of purchasing
Non-Operating Interests in oil and gas properties within the domestic United
States and off-shore state waters.
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ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.1 INITIAL CAPITAL CONTRIBUTIONS. Upon the execution of this Agreement,
Royalty shall contribute $ 1,000,000 to the Venture.
4.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Royalty shall have the right to
contribute up to an additional $ 2,000,000 provided such amount is paid on or
before September 15, 1992.
Other than the foregoing, there shall be no obligation on the part of any
Venturer to make any capital contributions or additional capital contributions
to the Joint Venture.
4.3 CAPITAL ACCOUNTS.
(a) A capital account shall be established for each Venturer which
shall consist of the cash amount of such Venturer's Initial Capital
Contribution increased by (i) the cash amount of any Additional Capital
Contributions made by such Venturer to the Joint Venture pursuant to this
Agreement, and (ii) all net income and gains allocated to such Venturer
pursuant to Sections 5.1, 5.3 and 5.4; and decreased by (x) the cash or
fair market value of property distributed to such Venturer pursuant to this
Agreement, and (y) all net losses and deductions, allocated to such
Venturer pursuant to Sections 5.1 and 5.3.
(b) A Venturer's Capital Account shall be increased by the amount of
Simulated Gains allocated to such Venturer, and decreased by the amount of
simulated Depletion Deductions and Simulated Losses allocated to such
Venturer. Simulated Depletion shall be allocated to the Venturer in the
same proportion as such Venturers were properly allocated the adjusted tax
basis of such property. The aggregate Capital Account adjustments for
simulated percentage depletion allowances with respect to an oil and gas
property of the Joint Venture shall not exceed the aggregate adjusted tax
basis allocated to the Venturer with respect to such property. The Capital
Accounts of the Venturers shall be adjusted upward by the amount of any
Simulated Gain in proportion to such Venturer's allocable shares of the
portion of the total amount realized from the disposition of such property
that exceeds the Joint Venturer's simulated adjusted basis in such
property. The Capital Accounts of such Venturers shall be adjusted downward
by the amount of any Simulated Loss in proportion to such Ventures'
allocable share of the total amount realized from the disposition of such
property that represents recovery of the Joint Venture's simulated adjusted
basis in such property.
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(c) Upon the occurrence of a Sharing Ratio Shift, the contribution of
additional money or property to the Joint Venture (other than in accordance
with the then Sharing Ratios of the Venturers), the admittance of an
additional Venturer, distribution of property to a Venturer (other than
in accordance with the then Sharing Ratios of the Venturers), or upon
liquidation, the Venturers' Capital Accounts shall be adjusted to reflect a
revaluation of Joint Venture property. The adjustment shall be based on the
fair market value of the property as of the adjustment date as determined
in Section 6.3. Any such adjustments shall be allocated among the Venturers
as provided in Sections 5.1 and 5.3. Capital Accounts shall be adjusted in
accordance with Treas. Reg. Section 1.704-1 (b)(2)(iv)(g) for allocation of
depreciation, depletion, amortization, and gains or loss as computed for
book tax purposes with respect to such property. The Joint Venture's
distributive shares of depreciation, depletion, amortization, and gain or
loss, as computed for tax purposes with respect to such property, shall
take account of the variation between the adjusted tax basis and book value
of such property in the same manner as required by Code Section 704(c) with
respect to contributed property.
(d) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Regulations Section 1.704-1(b)(2)(iv), and shall be interpreted
and applied in a manner consistent with such Regulations. The Venturers
also shall make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Venturers and the
amount of Joint Venture capital reflected on the Joint Venture's balance
sheet, as computed for book purposes in accordance with Regulations Section
1.704-1(b)(2)(iv)(q).
4.4 INTEREST ON CONTRIBUTIONS. The Venturers shall receive no interest on
their contributions to the capital of the Joint Venture.
4.5 NO WITHDRAWAL OF CAPITAL CONTRIBUTIONS. No Venturer shall be entitled
to withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Joint Venture, except as provided in Articles
VI and XII.
4.6 OBLIGATION TO RESTORE NEGATIVE CAPITAL ACCOUNTS. If there should be a
deficit in any Venturer's capital account after taking into account all capital
account adjustments, the Venturer shall be required to make a Capital
Contribution equal to the deficit amount. Such contribution shall be made not
later than the end of the taxable year in which such Venturer's interest is
liquidated or, if later, within 90 days of the date of such liquidation.
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ARTICLE V.
ALLOCATIONS OF INCOME AND LOSS
5.1 INCOME AND LOSS. Except as provided in Sections 5.3 or 5.4, all net
income, gains, losses and deductions (or items thereof) for each Taxable Period
shall be allocated to the Venturers in accordance with their respective
Sharing Ratios.
5.2 CORRECTIVE ALLOCATIONS. Notwithstanding Section 5.1 and commencing at
the start of the Wind-Up Period, allocations of income (including gross income,
if necessary), gain, loss or deduction (or items thereof) shall be made in a
reasonable manner to the Venturers, as applicable and to the extent necessary,
to realign the Capital Accounts of the Venturers, to the greatest extent
possible, so that such accounts will be in accordance with the Sharing Ratios of
the Venturers at the time of the liquidation of the Joint Venture.
5.3 MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision of this
Article V, if there is a net decrease in Joint Venture minimum gain, as defined
in Reg. Section 1.704-2(b) (2) during any Joint Venture fiscal year, the
Venturers shall be allocated items of Joint Venture income and gain in
accordance with Reg. Section 1.704-2(b). This Section 5.3 is intended to comply
with the minimum gain chargeback requirement in such Section of the
Regulations and shall be interpreted consistently therewith.
5.4 TRANSFER OF INTEREST. All net income, gains, losses, and deductions
(or items thereof) of the Joint Venture allocable to any Interest which may have
been transferred during a Taxable Period shall be allocated between the
transferor and the transferee based upon that portion of the particular calendar
year during which each was recognized as owning such Interest, without regard to
the results of Joint Venture operations during particular portions of the
calendar year and without regard to whether cash distributions were made to the
transferor or transferee during such calendar year. In the event any Interest in
the Joint Venture is transferred in accordance with the terms of this Agreement,
the transferee shall succeed to the Capital Account of the transferor to the
extent it relates to the transferred Interest.
5.5 SPECIAL ALLOCATION REFLECTING RECEIPT OF DISTRIBUTIVE SHARE INTEREST
IN PROFIT OR LOSS IN EXCHANGE FOR SERVICES. Any income realized by the Joint
Venture as a result of providing for a transfer of a distributive share interest
in Joint Venture profits or losses in exchange for services which is deemed to
be recognized for Federal tax purposes before the Sharing Ratio Shift occurs
shall be specially allocated to the Joint Venturer receiving such interest. Any
income realized by the Joint Venture as a result of providing for a transfer of
a distributive share interest in Joint Venture profits or losses in exchange for
services which
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is deemed to be recognized for Federal tax purposes at the time the Sharing
Ratio Shift occurs shall be allocated 60% to the Limited Partnership and 40% to
the Managing Venturer in accordance with the Sharing Ratios. Any deduction or
deductions attributable to the transfer of a distributive share interest in
profits or losses in exchange for services shall be allocated in the same manner
as the income provided for herein.
ARTICLE VI.
CURRENT DISTRIBUTIONS AND RELATED MATTERS
6.1 CASH DISTRIBUTIONS. During the term of the Venture and prior to a
Sharing Ratio Shift, the Managing Venturer may only make cash distributions.
Additionally, cash distributions may only be made from and to the extent of cash
proceeds received from Non-Operating Interests and interest received by the
Joint Venture and not from proceeds received from the sale or exchange of
Non-Operating Interests. The above provisions shall only apply during the Term
of this Agreement, and not during the Wind Up Period. The Joint Venture shall
distribute to the Venturers, not less than quarterly, one-hundred percent of the
amount equal to revenues received from Non-Operating Interests and interest
received by the Joint Venture on its bank deposits, less a) a proportionate
share of the semi-annual management fee payable to the Managing Venturer
applicable during the period for which distributions were made and b) amounts
expended by the Venture during the period for which distributions were made for
items covered by the budget submitted by the Managing Venturer and approved by
the Limited Partnership pursuant to paragraph 7.6(m), but only within the
limits authorized by the budget. A proportionate share of the semi annual
management fee shall be one sixth of the semi annual fee for each month covered
by the period for which distributions were made. Notwithstanding the foregoing,
and regardless of expenses, fees or disbursements of the Joint Venture, the
Joint Venture must distribute for the period in question (which shall be not
less than quarterly) not less than 75% of the gross amount of revenues received
from Non-Operating Interests. Thus, if for a particular quarter, revenues
received from Non-Operating Interests are $20,000 and permitted expenses and
management fees are $7,000, the Venture would be required to distribute 75% of
$20,000, or $15,000 for the quarter involved.
6.2 DISTRIBUTION OF NON-OPERATING INTERESTS AND PROCEEDS OR CONSIDERATION
RECEIVED ON THE SALE OR EXCHANGE OF SUCH INTERESTS PRIOR TO A SHARING RATIO
SHIFT. Prior to a Sharing Ratio Switch, the managing venturers may not
distribute Non-Operating Interests or proceeds or other consideration received
on the sale of such interests. This provision shall only apply during the Term
of the Venture and not during the Wind Up period.
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6.3 PROPERTY DISTRIBUTIONS. Notwithstanding the foregoing, the Managing
Venturer may, during the term of the Venture but not before the time that the
Joint Venture shall own Non-Operating Interests on at least four different
commercially producing xxxxx, notify the Limited Partnership that it wishes the
Joint Venture to put up for sale all of the Joint Venture's Non-Operating
Interests. In such event, the Managing Venturer shall solicit and use its best
efforts to obtain bids for all of the Joint Venture's Non-Operating Interests
from third parties, subject to the condition that any party submitting a bid
must bid on 100% of the Non-Operating Interests owned by the Joint Venture on a
Prospect and tender with his bid a certified check for the amount of the bid.
The Managing Venturer shall notify the Limited Partnership of bids when and as
they are received. Either Venturer (including the Managing Venturer) may bid on
the same terms, provided that in such event the bidding Venturer shall notify
the other Venturer of its bid(s), and shall tender with its bid a certified
check covering the amount of its bid, except that the Limited Partnership, if it
submits a bid, shall only be required to tender a check for the amount of its
bid less a sum equal to the difference between 110% of its Capital Contribution
to the Venture, and cash amounts previously distributed to it. Each Venturer may
counter bids made by the other or by third parties, and shall be accorded at
least 7 days after a bid for this purpose. At the conclusion of the bidding, the
Limited Partnership (if its bid was not the high bid) shall have ten days from
receipt of notice of the amount of the high bid for each property and of the
identity of the high bidder to advise the Managing Venturer which, if any, of
the bid on Non-Operating Interests shall be retained by the Joint Venture and
distributed to the Venturers in kind, valued at the high bid as submitted by the
highest bidder, in which event said Non-Operating Interests selected by the
Limited Partnership, valued at the high bid, shall immediately be distributed in
accordance with the Sharing Ratio of the parties. Otherwise, provided that the
Joint Venture received bids on (and the Limited Partnership had the right to
take in kind) Non-Operating Interests on at least four different commercially
producing xxxxx, the Non-Operating Interests which the Limited Partnership did
not elect to take in kind shall be sold for cash to the high bidder, and the
proceeds distributed. No Venturer shall be entitled to demand and receive
property other than cash and Non-Operating Interests in return for its Capital
Contributions to the Joint Venture.
6.4 PRO RATA DISTRIBUTIONS. All distributions, whether of cash, or
otherwise shall be made pro rata among the Venturers in accordance with their
Sharing Ratios.
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ARTICLE VII.
RIGHTS, POWERS AND DUTIES OF THE VENTURERS
7.1 GENERAL. The parties hereto hereby designate Edge Joint Venture II as
the Managing Venturer of the Joint Venture, and Edge Joint Venture II accepts
such appointment. All matters to be performed by the Managing Venturer shall be
performable by it in its reasonable discretion, subject to its duty of loyalty,
unless otherwise expressly stated.
7.2 AUTHORITY AND DUTIES OF THE MANAGING VENTURER. The Managing Venturer
shall, at the Joint Venture's expense subject to the provisions of paragraph
7.6, conduct, direct and exercise full control over all activities of the Joint
Venture and its assets. Except as otherwise expressly provided herein, or
otherwise in this Agreement, all management powers over the business and affairs
of the Joint Venture shall be vested in the Managing Venturer. Without limiting
the generality of the foregoing, the Managing Venturer shall, subject to the
limitations set forth herein, perform the duties set forth below:
(a) provide all general day-to-day management functions for the Joint
Venture, and without limiting the generality of the foregoing, (i) maintain
the books and records of the Joint Venture and pay or cause to be paid all
lawful debts of the Joint Venture, (ii) provide all accounting and billing
functions, and (iii) expend all Joint Venture funds necessary to proper
operations of the Joint Venture;
(b) designate the bank or banks at which accounts shall be opened and
maintained, the signatories on such bank accounts and the removal and
replacement of such signatories;
(c) deposit Joint Venture funds which, from time to time, are not
required, in the opinion of the Managing Venturer, for the operation of the
Joint Venture in the Joint Venture bank account, in interest-bearing
accounts, certificates of deposit, or invest such funds in securities
issued or guaranteed as to principal and interest by the United States or
by a person or entity controlled or supervised by and acting as an
instrumentality of the government of the United States which have
maturities of less than one year from the date of investment or similar
securities, including, but not limited to, bank repurchase agreements, so
long as such bank repurchase agreements are for such securities or short-
term tax-exempt securities and are fully collateralized and secured;
(d) manage the Non-Operating Interests in oil and gas properties
purchased by the Joint Venture;
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(e) subject to paragraph 7.6 hereof, determine the terms and conditions of
sale of any and all Non-Operating Interests or other assets of the Joint
Venture, and enter into other agreements for the sale of Non-Operating Interests
and other assets of the Joint Venture.
(f) subject to paragraph 7.6 hereof, execute for and on behalf of the
Joint Venture any and all instruments of conveyance, assignment or other
agreements purchasing or selling Non-Operating Interests, if any, of the Joint
Venture.
(g) purchase insurance, and extend such insurance to cover the Venturers,
and any of their Affiliates, at the Joint Venture's expense to protect the Joint
Venture's properties, assets and business against loss, including liability to
third parties arising out of Joint Venture activities in such amounts and in
such kinds as the Managing Venturer shall determine;
(h) take all reasonable action that may be necessary or appropriate for
the continuation of the Joint Venture's valid existence as a partnership and for
the acquisition and holding in accordance with the provisions of this Agreement
and applicable laws and regulations, of the Joint Venture's assets;
(i) use its best efforts to cause the Joint Venture to be formed,
reformed, qualified to do business, or registered under any applicable assumed
or fictitious name, statute or similar law in any state in which the Joint
Venture then owns property or transacts business, if such formation,
reformation, qualification or registration is necessary in order to permit the
Joint Venture lawfully to own property or transact business in such state;
(j) from time to time, prepare and file all certificates (or amendments
thereto) and other similar documents that are required by law to be filed and
recorded for any reason, in the office or offices that are required under the
laws of the State of Texas or any state in which the Joint Venture is then
qualified. The Managing Venturer shall do all other acts and things (including
making publications or periodic filings of this Agreement or any certificates of
the Joint Venture or amendments thereto or other similar documents) that may now
or hereafter be required, or deemed by the Managing Venturer to be necessary,
(i) for the perfection and continued maintenance of the Joint Venture as a
partnership under the laws of each state in which the Joint Venture is then
qualified and (ii) to cause such certificates or other documents to reflect
accurately the agreement of the Venturers, the identity of the Venturers and the
amounts of their respective Capital Contributions; and
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(k) purchase Non-Operating Interests in oil and gas properties, hold
such interests for investment, sell such interests and determine and
negotiate the terms upon which the Joint Venture will purchase and sell
such interests.
7.3 RELIANCE BY THIRD PARTIES. Any Person dealing with the Joint Venture
or the Managing Venturer may rely upon a certificate signed by the Managing
Venturer, as to:
(a) the identity of the Managing Venturer or any other Venturer;
(b) the existence or nonexistence of any fact or facts that
constitute conditions to acts by the Managing Venturer or in any other
manner germane to the affairs of the Joint Venture;
(c) the persons who are authorized to execute and deliver any
instrument or document of the Joint Venture; or
(d) any act or failure to act by the Joint Venture or as to any other
matter whatsoever involving the Joint Venture or any Venturer.
7.4 MANAGEMENT PERSONNEL. Subject to paragraph 7.6 below, the Managing
Venturer may cause the Joint Venture to hire personnel to administer and
implement the business of the Joint Venture. The Managing Venturer shall also
employ itself and make available to the Joint Venture such of its personnel as
are reasonably necessary for the Managing Venturer to fulfill its duties
hereunder. In recognition of the fact that the Managing Venturer's personnel
provided to the Joint Venture under this Agreement may perform services from
time to time for itself or for others, this Agreement shall not prevent the
Managing Venturer from performing such services for itself or for others or
restrict the Managing Venturer from so using the personnel provided to the Joint
Venture under this Agreement.
7.5 ABSENCE OF AUTHORITY OF MANAGING VENTURER TO ACT AS NOMINEE. It is
expressly contemplated that the business of the Joint Venture shall be conducted
by the Joint Venture in its name and shall not be conducted by Managing Venturer
in its name. Title to all assets and properties, both real and personal, shall
be held in the name of the Joint Venture.
7.6 RESTRICTIONS OF THE AUTHORITY OF THE MANAGING VENTURER.
Notwithstanding any other provision hereof to the contrary, consent and
approval of the Limited Partnership shall be required on any of the following
matters:
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(a) the creating of any indebtedness, including the amount, terms and
conditions of any money borrowed by or loaned to the Joint Venture;
(b) the granting of any mortgage or lien on the property of the Joint
Venture;
(c) the sale of all or substantially all of the assets of the Joint
Venture, or the sale of any Non-Operating Interest on a Prospect after a well
has been completed on the Prospect;
(d) the settlement or compromise of all actions, claims and demands or
commencement or defense of any litigation by or against the Joint Venture (or
either Venturer if such action, claim or demand arises out of the ownership or
operation of the Joint Venture);
(e) the taking of any action in contravention of this Agreement;
(f) the taking of any action that would make it impossible to carry on the
ordinary business of the Joint Venture; or
(g) the confession of a judgment against the Joint Venture, except in
connection with the execution of mortgages and other security instruments;
(h) prior to the drilling of a well on a Prospect, the expenditure of more
than $40,000 in the aggregate in purchasing Royalty Interests or Overriding
Royalty Interests on the Prospect, or of more than $250 per Royalty Acre.
(i) after the drilling of a well on a Prospect, (a) the expenditure of
aggregate sums in purchasing Royalty Interests or Overriding Royalty Interests
on the Prospect which, when added to expenditures prior to drilling, would cause
aggregate expenditures in purchasing such interests on the Prospect to exceed
$150,000, or (b) the expenditures of more than $2,000 per Royalty Acre.
(j) the purchase of any Non-Operating Interests other than Royalty
Interests and Overriding Royalty Interests.
(k) the expenditure of more than 10% of the Capital Contribution of the
Limited Partnership on the purchase of Non-Operating Interests on Prospects
other than those previously sold by the Edge Group Venture II.
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(l) the purchase of Non-Operating Interests from any person or entity
who is or was employed by or affiliated with Edge Petroleum Corporation or
Edge Joint Venture II.
(m) expend any sums for any matter expense or purpose other than the
purchase of particular Non-Operating Interests (which shall include amounts
paid to Landmen and brokers in connection with the purchase of a particular
Non-Operating Interest), unless the expense was provided for in a budget
submitted by the Managing Venturer to the Limited Partnership and approved
by the Limited Partnership. The Managing Venturers shall submit its first
budget on or before July 3, 1992 and, thereafter, on or before July 31, of
each subsequent year.
7.7 AUTHORITY, RIGHTS AND DUTIES OF THE LIMITED PARTNERSHIP. In addition
to the rights set forth in other sections of this Agreement, the Limited
Partnership shall have the rights and authority as set forth below:
The Limited Partnership shall have regular meetings with the Managing
Venturer at the offices of the Managing Venturer in Houston, Texas, no
less frequently than quarterly, wherein regular reports about the business
and affairs of the Joint Venture shall be discussed. In addition to the
foregoing, at such meetings the financial affairs and commitments of the
Joint Venture shall be discussed, and the Limited Partnership shall have
the right to demand the attendance by the Controller and President of the
Managing Venturer, and any other officers of the Managing Venturer which
the Limited Partnership shall designate. The Limited Partnership shall have
the right to have in attendance at such meetings any reasonable number of
representatives and agents which it desires, at its own expense. The
Managing Venturer shall have the right to request as a condition that any
Person attending such meetings execute reasonable agreements, agreeing to
keep confidential all information disclosed at such meetings. The Limited
Partnership shall have the right to request reports and other similar
documentation be prepared for examination and use by the Limited
Partnership, provided the Managing Venturer can prepare such without undue
expense or disruption of its affairs.
7.8 COMPENSATION AND REIMBURSEMENT OF MANAGING VENTURER.
(a) DIRECT EXPENSES. The Managing Venturer shall be reimbursed for
all sums, if any, which it pays or advances on behalf of the Joint
Venture: (i) as consideration for the purchase by the Joint Venture of
Non-Operating Interests, (ii) to independent brokers in connection with the
purchase of or curing title to a particular Non-Operating Interest, (iii)
to or on account of clerical employees of the Managing Venturer
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who perform services in connection with the acquisition by the Venture of
particular Non-Operating Interests, (iv) to independent accountants who
perform billing and accounting functions for the Joint Venture, (v) office
supplies and copying, and (vi) the filing fees entailed in qualifying the
Essex Royalty Joint Venture to do business in any state.
(b) OTHER SPECIFIC BUDGETED ITEMS. The Managing Venturer shall be
reimbursed for sums which it expends as rent on office space used
exclusively by the Joint Venture and for clerical and secretarial employees
which perform services in connection with the operation or management of
the Non-Operating Interests. Additionally, in the event and so long as the
Joint Venture does not employ a full time employee to manage the affairs of
the Venture, the Managing Venturer shall be reimbursed for a proportionate
share of the salary of a single officer or employee of Edge Petroleum
Corporation or Edge Joint Venture II who devotes more than 50% of his or
her time to the affairs of the Joint Venture. Reimbursement provided under
this subparagraph shall only be within the limits authorized by the budget
submitted by the Managing Venturer and approved by the Limited Partnership
pursuant to paragraph 7.6 (m) above.
(c) MANAGEMENT FEE. During the term of the Joint Venture and prior
to a Sharing Ratio Shift, the Joint Venture shall pay to the Managing
Venturer (to be allocated to Edge Petroleum Corporation), as a semi-annual
management fee, a sum equal to 1% of the Capital Contribution of the
Limited Partnership. The first 1% shall be paid during the first six months
of the Joint Venture and 1% shall be paid during each subsequent six month
period during the term of the Joint Venture, prior to a sharing ratio
shift.
7.9 COMPENSATION AND REIMBURSEMENT OF ROYALTY. The Limited Partnership
shall receive no compensation for performing its services hereunder.
7.10 OUTSIDE ACTIVITIES. The Venturers and any director, officer, partner
or employee of the Venturers or any Affiliate thereof may have business
interests and engage in business activities in addition to those relating to the
Joint Venture, may engage in any such other businesses and activities, for their
own account and for the account of others, and may own interests in properties,
businesses and activities without having or incurring any obligation to offer
any interest in such properties, businesses or activities to the Joint Venture
or the other Venturer. No provision hereof shall be deemed to prohibit any such
Person from conducting such other businesses and activities. Neither the Joint
Venture nor any of the Venturers shall have any rights by virtue of this
Agreement or the partnership relationship created hereby in any other business
ventures of any such Person.
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The foregoing notwithstanding, during the Term, no Venturer shall directly
or indirectly engage in a business involving the purchase and sale of
Non-Operating Interests in oil and gas properties within the area specified in
Article III (except on behalf of the Joint Venture).
-------------------------------------
7.11 JOINT VENTURE FUNDS. The funds of the Joint Venture shall be
deposited in such account or accounts in the name of the Joint Venture as are
designated by the Managing Venturer. The Joint Venture's funds shall be
completely segregated from other funds of the Managing Venturer. All withdrawals
from or charges against such accounts shall be made by the Managing Venturer or
its officers or agents. Funds of the Joint Venture may be invested as determined
by the Managing Venturer, except in connection with acts prohibited by this
Agreement.
7.12 OTHER MATTERS CONCERNING MANAGING VENTURER.
(a) The Managing Venturer may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it to be genuine and to
have been signed or presented by the proper Person or parties.
(b) Any Venturer shall be entitled to consult with legal counsel
accountants, appraisers, management consultants, investment bankers and
other consultants and advisers selected by it in connection with the
ordinary and proper conduct of the business of the Joint Venture, and shall
not be liable or responsible in damages or otherwise to the Joint Venture
or any Venturer for failing to exercise due care with respect to any act or
omission taken in good faith in reliance on and in accord with such advice.
This shall not relieve any Venturer from any other liability or basis of
liability with respect to such act or omission.
ARTICLE VIII.
TRANSFERABILITY OF VENTURER'S PARTNERSHIP INTEREST
Except to the extent of an assignment of revenues made subject to the
limitations set forth below in this Article, the Venturers agree that they will
not sell, assign, transfer, pledge or encumber all or any part of their
Partnership Interest (including the revenues arising from such interest) without
the prior written consent of the other. All Venturers may, without consent,
pledge rights in up to one-half of the revenues arising from their Partnership
Interest, but only if the pledgee agrees prior to such pledge that upon a
foreclosure of the Partnership Interest, the
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other Venturers shall have a right of first refusal to purchase the Partnership
Interest to be sold on the same bona fide terms and conditions as offered by a
purchaser on a pro rata basis.
ARTICLE IX.
INCOME TAX MATTERS
9.1 PREPARATION OF TAX RETURNS. The Managing Venturer shall arrange at
the expense of the Joint Venture for the preparation and timely filing of all
returns of Joint Venture income and expense necessary for income tax purposes
and will cause copies of such returns or all pertinent information contained
therein to be furnished to the Venturers within ninety (90) days of the close of
the fiscal year.
9.2 ORGANIZATIONAL EXPENSES. The Joint Venture shall elect to deduct
expenses incurred in organizing the Joint Venture ratably over a sixty (60)
month period as provided in Section 709 of the Code.
9.3 TAXATION AS A PARTNERSHIP. No election shall be made by the Joint
Venture, or any Venturer, to be excluded from the application of any of the
provisions of Subchapter K, Chapter 1 of Subtitle A of the Code, or from any
similar provisions of any state tax laws.
9.4 TAX MATTERS PARTNER. The Managing Venturer shall be the "Tax Matters
Partner" (as defined in the Code) for the Joint Venture.
ARTICLE X.
ACCOUNTING PROCEDURE; REPORTS AND INFORMATION
10.1 FISCAL YEAR. The fiscal year of the Joint Venture shall be the
calendar year, unless otherwise determined by the Managing Venturer.
10.2 FINANCIAL RECORDS. The financial books and records of the Joint
Venture shall be kept, and tax returns shall be prepared, on the accrual basis
of accounting in accordance with generally accepted accounting principles. The
Joint Venture's books and records shall be maintained at the Joint Venture's
principal place of business and shall be available for inspection and copying by
each Venturer or its representative (at such Venturer's own expense) at all
reasonable times.
10.3 FINANCIAL REPORTS. Within one hundred twenty (120) days following
the end of each fiscal year of the Joint Venture, the
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Managing Venturer shall deliver or cause to be delivered to each Venturer an
annual report, including a statement of the Joint Venture's accounts for and as
at the end of such fiscal year (containing a balance sheet and statement of
income) prepared on the accrual basis of accounting, all of which shall be
prepared by independent certified public accountants (although certification is
not required) at the cost of the Joint Venture.
10.4 TAX REPORTS. Within ninety (90) days following the end of each
fiscal year of the Joint Venture, the Managing Venturer shall furnish to the
Venturers a statement setting forth all information relating to the Joint
Venture's operations for such fiscal year as is reasonably required by the
Venturers for the completion of their respective federal, state and other income
tax returns.
ARTICLE XI.
DISSOLUTION, LIQUIDATION AND TERMINATION
11.1 EVENTS CAUSING DISSOLUTION. The Joint Venture shall be dissolved
upon the happening of any of the following events:
(a) the expiration of its Term as provided in Section 1.5;
(b) unanimous agreement of the Venturers; or
(c) the Incapacity of any Venturer, unless the other Venturer elects
to continue the Venture.
Additionally, in the event the Edge Joint Venture II is terminated
prior to April 11, 1996, either party shall have the right and option at its
sole election to dissolve the Joint Venture within sixty (60) days after written
notice that Edge Joint Venture II was terminated.
11.2 LIQUIDATING AGENT. Upon the dissolution of the Joint Venture, the
Managing Venturer (or in the event the dissolution is caused by the Incapacity
of the Managing Venturer, such Person as the Limited Partnership shall designate
(including itself) shall act as liquidating agent (the "Liquidating Agent") and
immediately proceed to wind up and terminate the business and affairs of the
Joint Venture. During the Wind Up Period, no new Non-Operating Interests of any
sort may be acquired by the Joint Venture with Joint Venture funds. Upon
dissolution of the Joint Venture, a proper accounting shall be made of the Joint
Venture's assets and liabilities and obligations from the date of the last
previous accounting to the date of such dissolution and the Joint Venture's
business and affairs shall be liquidated in an orderly manner in no event to
exceed six (6) months (such period being called the "Wind-Up Period") and such
sales of properties of the Joint Venture as
20
may be required for such purposes shall be made by the Liquidating Agent as more
fully hereafter set forth.
11.3 TERMINATING DISTRIBUTIONS AND MATTERS. (a) Provided that a Sharing
Ratio Shift shall have occurred prior to the Termination of the Joint Venture,
the cash and other assets of the Joint Venture shall be distributed in kind 60%
to the Limited Partnership and 40% to the Managing Venturer. If a Sharing Ratio
Shift shall not have occurred prior to Termination of the Joint Venture, than
immediately upon the commencement of the Wind-Up Period, the Liquidating Agent
shall solicit and use its best efforts to obtain bids for all of the Joint
Venture's Non-Operating Interests and other assets, if any, from third parties,
subject to the condition that any party submitting a bid must tender with his
bid a certified check for the amount of the bid. The Liquidating Agent shall
notify the Limited Partnership of bids when and as they are received. Either
Venturer (including the Liquidating Agent) may bid on the same terms, provided
that in such event the bidding Venturer shall notify the other Venturer of its
bid(s), and shall tender with its bid a certified check covering the amount of
its bid, except that the Limited Partnership, if it submits a bid, shall only be
required to tender a check for the amount of its bid less a sum equal to the
difference between 110% of its Capital Contribution to the Venture, and cash
amounts previously distributed to it. Each Venturer may counter bids made by the
other or by third parties, and shall be accorded at least 7 days after a bid for
this purpose. At the conclusion of the bidding, the Limited Partnership (if its
bid was not the high bid) shall have ten days from receipt of notice of the
amount of the high bid for each property and of the identity of the high bidder
to advise the Liquidating Agent which, if any, of the bid on Non-Operating
Interests shall be retained by the Joint Venture and distributed to the
Venturers in kind, valued at the high bid as submitted by the highest bidder, in
which event said Non-Operating Interests selected by the Limited Partnership,
valued at the high bid, shall immediately be distributed in accordance with the
Sharing Ratio of the parties. Otherwise, the Non-Operating Interests which the
Limited Partnership did not elect to take in kind shall be sold for cash to the
high bidder, and the proceeds distributed. No Venturer shall be entitled to
demand and receive property other than cash and Non-Operating Interests in
return for its Capital Contributions to the Joint Venture.
(b) In the liquidation of the Joint Venture, payments shall first
be made of all expenses of liquidation (including, without limitation, any
legal and accounting expenses incurred in connection therewith) and all
debts of the Joint Venture, first, to third-party creditors and, after
payment of all third party creditors, then to any Venturer who shall
properly be a creditor of the Joint Venture or adequate provision shall be
made for the payment thereof. Thereafter the cash of the Joint Venture
shall be distributed to the Venturers and
21
thereafter Non-Operating Interests shall be distributed. Non-Operating
Interests may not be distributed until the Venture shall have completed the
distribution of cash which is on hand on the Termination date or which the
Joint Venture receives during the Wind-Up Period. Subject to the provisions
of subparagraph (d), it is the intent of the parties that Non-Operating
Interests not be distributed until the end of the Wind Up Period and the
distribution of all other assets.
(c) Any property of the Joint Venture distributed in kind in
liquidation shall be treated as if the property were sold for its fair
market value and any deemed gain or loss shall be credited to the Venturers
in accord with this Agreement.
(d) The foregoing provisions which limits the distribution of
Non-Operating Interests during the Wind Up period shall not apply if a
Sharing Ratio Switch shall have occurred during the Term of the Venture, or
if a Sharing Ratio Switch occurs during the Wind Up period as a result of
distributions.
11.4 ALLOCATION OF LIQUIDATING DISTRIBUTIONS BETWEEN THE VENTURERS. The
Venturers anticipate and expect that the Capital Accounts of the Venturers at
the time liquidating distributions are to be made will be in the same ratio as
the Sharing Ratios. If this should be the case, the making of such liquidating
distributions in accordance with the Sharing Ratios will accomplish the same
economic result as making the liquidating distributions in accordance with the
Capital Accounts of the Venturers. If the Capital Accounts (after being adjusted
for the corrective allocations pursuant to Section 5.3, the revaluation of Joint
Venture property pursuant to Section 4.3(c), and as otherwise provided by this
Agreement) at such time are not in the same ratio as the Sharing Ratios at the
time liquidating distributions are to be made, then, immediately prior thereto,
the Capital Accounts of the Venturers shall be adjusted in the manner and to the
extent necessary so that the Capital Accounts will be in the same ratio as the
Sharing Ratios at the time liquidating distributions are made.
11.5 INDEMNIFICATION OF THE LIQUIDATING AGENT. The Liquidating Agent (or
any officer, director, shareholder, partner or employee thereof) shall be
indemnified and held harmless by the Joint Venture on the same terms and
conditions as set forth in Article XIII hereof. The indemnification rights
herein contained shall be cumulative of, and in addition to, any and all other
provisions hereof, and rights, remedies and recourse to which the Liquidating
Agent (or any officer, director, shareholder, partner or employee thereof) shall
be entitled in law or at equity.
11.6 CERTAIN POWERS AND RIGHTS OF THE LIQUIDATING AGENT. The Liquidating
Agent shall have all the powers conferred upon the
22
Managing Venturer under the terms of this Agreement to the extent necessary or
desirable in the good faith judgment of the Liquidating Agent to carry out the
duties and functions of the Liquidating Agent hereunder. The Liquidating Agent
shall be entitled to receive such compensation for its services as shall be
reasonably agreed upon by the Venturers, provided that should the Liquidating
Agent be the Managing Venturer, no additional compensation shall be paid for
performing the matters set forth in Section 11.3, except as therin stated. The
Liquidating Agent may resign at any time upon the giving of fifteen (15) days
prior Notification to the Venturers and may be removed at any time, but only on
a showing of cause, by either Venturer. Upon the Incapacity, removal or
resignation of the Liquidating Agent, a successor and substitute Liquidating
Agent (who shall have and succeed to all the rights, powers and duties of the
original Liquidating Agent) shall, within thirty (30) days thereafter, be
designated by the Limited Partnership.
11.7 COMPLETE DISTRIBUTION. Distribution of the Joint Venture properties to
the Venturers in accordance with the provisions of this Article XI shall
constitute a complete return to the Venturers of their respective Capital
Contributions. If such distributions are insufficient to return to any Venturer
the full amount of its Capital Contribution, it shall have no recourse against
the Joint Venture or any other Venturer.
ARTICLE XII.
AMENDMENTS AND CONSENTS
12.1 AMENDMENTS. This Agreement may be amended only with the written
Consent of all of the Venturers.
12.2 METHOD OF GIVING CONSENT. Any consent required by this Agreement may
be given by a written consent given by the consenting Venturer at or prior to
the doing of the act or thing for which the consent is solicited, unless
otherwise indicated herein.
ARTICLE XIII.
INDEMNIFICATION AND LIABILITY
13.1 INDEMNIFICATION. All Venturers shall be indemnified by the Joint
Venture under the following circumstances and in the manner and to the extent
indicated:
(a) In any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, judicial, administrative or otherwise
("Action"), to which any Venturer
23
was or is a party, or is threatened to be made a party, by reason of the fact
that it is or was the Managing Venturer or a Venturer in the Joint Venture,
involving an alleged cause of action for liability or damages arising out of
the ordinary and proper conduct of the business i) of the Joint Venture, ii) of
the Joint Venture, and another business in which the Joint Venture had an
economic interest provided that the conduct of such other business was permitted
by this Agreement or iii) the conduct of a business in which the Joint Venture
had an economic interest, provided that such other business was permitted by
this Agreement, the Joint Venture shall indemnify to the extent provided by
Subparagraph (b) the Venturer against all expenses, including attorneys' fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by the Venturer in connection with such Action. The parties
agree, without limitation otherwise, on the meaning of the term "proper" that
the negligence of a Venturer shall not constitute improper conduct of the
business of the Joint Venture, nor a breach of trust or fiduciary duty. Hence
the parties intend that this indemnity shall apply notwithstanding the
negligence of a Venturer. The provisions of this subsection (a) shall not apply
to litigation covered by subsection (e).
(b) Where the matter arises out of the conduct of the business of the
Joint Venture and another business in which the Joint Venture had an economic
interest or another business in which the Joint Venture had an economic
interest, the indemnity shall be proportionate to the extent of the Joint
Venture's economic interest in the business activity giving rise to the
litigation.
(c) The Joint Venture shall pay or reimburse, in advance of the final
disposition of any Action, reasonable expenses incurred by the Venturer who was,
is, or is threatened to be made a named party in an Action, who shall be
entitled to indemnification under subsection (a), after:
(i) the Joint Venture receives a written affirmation by the Venturer
of the good faith belief that it has met the standards for indemnification under
subsection (a) and a written undertaking by or on behalf of the Venturer to
repay the amount paid or reimbursed if it is ultimately determined that the
Venturer has not met those requirements; and
(ii) a determination, made by independent legal counsel (i.e. without
any prior professional or business relations with the Venturers or principals of
the Venturers) in a written opinion, that it appears to those making the
determination that, based upon the facts then known to such persons, without any
independent investigation, evidence exists to support the position that the
Venturer is entitled
24
to indemnification under subsection (a) hereunder (it being agreed that the law
firm authoring such opinion shall be disclosed to the other Venturer 10 days
before any funds are paid under this subsection).
(d) The written undertaking required by subsection (c)(i) must be an
unlimited general obligation of the Venturer, and shall be accepted without
reference to financial ability to make repayment.
(e) In any Action in which the Joint Venture sues any of the Venturers
or in which one Venturer sues any other Venturer or the Joint Venture for any
reason whatsoever arising out of or connected to this Agreement, the party
losing the litigation shall bear the fees and expenses of the party which
prevails in the litigation.
(f) With respect to any Action covered by 14.1(e) herein, the Joint
Venture shall pay or reimburse in advance of the final disposition of such
Action, the reasonable expense incurred by any Venturer who was, is or is
threatened to be made a party in such Action after:
(i) the Joint Venture receives a written affirmation by the Venturer of
the good faith belief that it will prevail in the litigation and written
undertaking by or on behalf of the Venturer to repay the amount paid or
reimbursed if it is not successful in the litigation, secured by a pledge by the
Venturer as set forth in paragraph below; and
(ii) a determination, made by independent legal counsel in a written
opinion, that it appears to those making the determination that, based upon the
facts then known to such persons, without any independent investigation,
evidence exists to support the position of the Venturer seeking such advance (it
being agreed that the law firm authoring such opinion shall be disclosed to the
other Venturer 10 days before any funds are paid under this subsection).
(g) The written undertaking required by subsection (f)(i) must be an
unlimited general obligation of the Venturer and shall be accepted without
reference to financial ability to make repayment.
(h) Any Venturer receiving payment or reimbursement of legal fees prior to
disposition of any Action either under Subparagraph (c) or (f), shall be
required as a condition to receiving such payment or reimbursement to pledge one
half of the revenue interest attributable to its partnership interest held by
such Venturer free and clear of all liens and encumbrances, to secure its
obligation to repay the advance,
25
if it is determined that it was not entitled to indemnification or it does
not prevail in the litigation, as the case may be.
(i) Notwithstanding any other provision of this Article to the
contrary, the Joint Venture shall pay or reimburse expenses incurred by
any Venturer in connection with it or its employees' or agents' appearance
as a witness or other participation in an Action involving or affecting the
Joint Venture at a time when the Venturer is not a named defendant or
respondent in the Action.
(j) The Joint Venture may indemnify and advance expenses to an
employee or agent of any Venturer to the same extent that it may
indemnify and advance expenses to the Venturer under this Article, to the
extent determined by the Venture and in the case of the President, any
Vice-President, Controller, General Counsel, and any special consultants of
either Venturer, such indemnity and rights hereunder shall be mandatory.
(k) Notwithstanding any provision in this Article to the contrary, if
any or all of the indemnification provisions contained herein shall be
found invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision
hereof; and in such event this Agreement shall be deemed written as if
such provision or provisions had never been contained herein. Regardless of
any invalidity, illegality or unenforceability of any provision or
provisions contained in this Article, the parties to this Agreement intend
that the Venturers (and its employees or agents) shall be and hereby are
indemnified to the greatest extent allowable under applicable law in the
matters identified in subsections (a) through (f) above.
(l) The provisions of this indemnity shall be in addition to and not
in lieu of any other rights of indemnity which may exist under Texas law,
as it may exist from time to time.
13.2 INDEMNITY LIMITATIONS. The Joint Ventures' obligation to indemnify any
Venturer shall be limited to the assets of the Joint Venture and shall be
without recourse to the Venturers.
13.3 LIMITATIONS ON LIABILITY. No Venturer shall have any liability to the
Joint Venture or to the other Venturers for its negligent conduct, and the
negligence of a Venturer shall not be deemed a breach by a Venturer of its
fiduciary obligations to the Joint Venture, or the other Venturer. THIS
PROVISION SHALL NOT RELIEVE A VENTURER FROM ANY OTHER LIABILITY OR BASIS FOR
LIABILITY.
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13.4 PROCEDURE FOR INDEMNIFICATION. Each Venturer (the "Indemnified
Venturer") agrees to give the other (the "Other Venturers") prompt written
notice of the filing or commencement of any Action against a Venturer which may
give rise to a request for indemnification hereunder, and each party will
cooperate with the other in determining the validity of any such claim or
assertion. Upon any request for indemnity by any Venturer pursuant to subsection
14.1 (a) hereof, the Indemnified Venturer shall select counsel with respect to
the claim, loss liability which is the subject of indemnification subject to the
reasonable approval of the other Venturer. The Other Venturers shall have the
right to participate in or monitor the defense of any such third-party suits,
claims or proceedings, (but shall not have the right to invade, or otherwise
take any action to alter, modify, or destroy the attorney client relationship).
All Venturers and the Joint Venture shall cooperate with respect to any defense,
compromise or settlement. The Indemnified Venturer will not compromise or settle
any such action, suit or proceeding without the consent of the Other Venturers,
except that in any Action, if the Indemnified Venturer advises that it wishes to
accept a settlement offer, then in any subsequent litigation between the
Indemnified Venturer on the one hand, and the Joint Venture or the Other
Venturers on the other hand, arising out of such Action which the Indemnified
Venturer wished to settle, the extent of the Indemnified Venturer's liability,
if any, is the amount which the Indemnified Venturer was willing to accept in
settlement. Additionally, the Venture shall indemnify the Other Venturers for
all of the expenses, costs and fees incurred as a result of the Indemnified
Venturer's notice hereunder or claim for indemnity, including without limitation
expenses, costs, and fees incurred in participation in the selection of counsel
or participation or monitoring the defense of the action.
13.5 CONTRIBUTION OF NET PROCEEDS FROM ANY CLAIM. If any Venturer asserts
any claim against any third party including any one or more of its employees
with respect to a claim arising for which such Venturer received indemnification
or payment of legal fees or expenses under this Article, such Venturer shall
contribute the net proceeds of any recovery on the claim (after deducting legal
fees and expenses) to the Venture to be shared by the Venturers in accord with
their Profit Sharing Ratios. No Venturer shall be under no obligation to assert
any such claim.
13.6 REIMBURSEMENT. In any action arising pursuant to subsection (e) in
which the Joint Venture pays or reimburses in advance of the final disposition
of the action the reasonable expense incurred by one Venturer, the Joint Venture
shall be obligated to pay or reimburse and shall pay or reimburse in advance of
final disposition of the action the reasonable legal fees of the Other Venturers
arising out of or in connection with the indemnified claim or action provided
such Venturer shall furnish the affirmations set forth in subsection (f) (i) to
obtain such
27
reimbursement, and shall be required to pledge its revenue interests as set
forth above in subsection (h).
13.7 THIRD PARTY BENEFICIARIES. This section shall not be deemed to create
rights or remedies in third parties except to the extent expressly provided for
herein.
ARTICLE XIV.
EFFECTIVE DATE AND GENERAL PROVISIONS
14.1 EFFECTIVE DATE. This Agreement shall be effective as of the date both
parties have executed this Agreement which date shall be the date set forth
below.
14.2 SCOPE. This Agreement constitutes the entire understanding of the
Venturers with respect to the Joint Venture.
14.3 BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the Venturers, their heirs, executors, administrators, legal
representatives, successors and assigns.
14.4 HEADINGS. The headings in this Agreement are inserted for convenience
and identification only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
14.5 WAIVER OF RIGHTS TO PARTITION. Each Venturer hereby irrevocably waives
during the term of the Joint Venture any right that it may have to maintain any
action for partition with respect to any Joint Venture property.
14.6 VIOLATION. The failure of any party to seek redress for violation of
or to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation. The
rights and remedies provided by this Agreement are cumulative and the use of any
one right or remedy by any party shall not preclude or waive its right to use
any or all other remedies. Said rights and remedies are given in addition to
any other rights the parties may have by law, statute, ordinance or otherwise.
14.7 SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or the
remainder hereof.
14.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the safe effect as if all parties
28
hereto had all signed the same document. All counterparts shall be construed
together and shall constitute one agreement.
14.9 APPLICABLE LAWS. This Agreement shall be enforced in accordance with
the applicable laws of the State of Texas.
14.10 LIABILITY. Subject to the provisions of this agreement, all risks,
liabilities and expenses with respect to the operations, business and assets of
the Joint Venture shall be xxxxx by the Venturers in accordance with their
respective Sharing Ratios.
14.11 NOTICES. All notices ("Notices") or other communications required
or permitted to be given pursuant to this Agreement, unless otherwise expressly
provided herein, shall be in writing and shall be considered as properly given,
in the case of notices or communications required or permitted to be given to
any Venturer, if personally delivered or if mailed by United States first-class
mail, postage prepaid, or if sent by prepaid telegram or telecopy and addressed
or transmitted to the Venturer at the address or telecopy number as they appear
below. Any Notice or other communication shall be deemed to have been given as
of the date on which it is personally delivered, or, if mailed, on the third
business day after the day on which it is deposited in the United States mails,
or if telecopied, on the date transmitted, or if by telegraph, on the date of
actual receipt, in each case in compliance with the terms of this Section 15.10.
Notices shall be addressed as follows:
29
(a) If to Essex Royalty Joint Venture:
Essex Royalty Joint Venture with a copy to:
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxx
Telephone: (000) 000-0000
Telephone: (000) 000-0000
(b) If to the Essex Royalty Limited Partnership:
Essex Royalty Limited Partnership with a copy to:
Xxx Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxxx 00000 J. Xxxxxxx Xxxxxxxxx
Attention: Xx. Xxxx Xxxxxxxxx 000 Xxxxxxx Xxxxxx
Telephone: (000) 000-0000 Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000 Telephone: (000) 000-0000
Telecopier: (000) 000-0000
(c) If to Edge Joint Venture II:
Edge Joint Venture II with a copy to:
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxx
Telephone: (000) 000-0000
Telephone: (000) 000-0000
WITNESS THE EXECUTION HEREOF effective the 1ST day of MAY, 1992.
ESSEX ROYALTY LIMITED PARTNERSHIP
By: NAPAMCO, LTD., General Partner
/s/ Xxxx Xxxxxxxxx
By: -----------------------------
Xxxx Xxxxxxxxx, President
EDGE JOINT VENTURE II
By: Edge Petroleum Corporation, Managing Venturer
/s/ Xxxx X. Xxxxxxx
By:--------------------------------------
Xxxx X. Xxxxxxx, President
30
EXHIBIT "A"
-----------
I. Sharing Ratios Before Sharing Ratio Shift
-----------------------------------------
(a) Edge Joint Venture II 0%
(b) Essex Royalty Limited Partnership 100%
II. Sharing Ratios After Sharing Ratio Shift
----------------------------------------
(a) Edge Joint Venture II 40%*
(b) Essex Royalty Limited Partnership 60%
* to be allocated 50% to Edge Petroleum Corporation and 50% to Edge Group II
Limited Partnership, Gulfedge Limited Partnership and Edge Group
Partnership in accordance with their respective sharing ratio interests in
Edge Joint Venture II. These distributions will be allocated directly to
each Venturer outside of the Edge Joint Venture II. These distributions
will not apply or count towards a Sharing Ratio Shift in the Edge Joint
Venture II.
