OPERATING AGREEMENT
EXHIBIT
10.10
THIS
OPERATING AGREEMENT (the “Agreement”) is made as of the 12th day of November,
2007 (the “Effective
Date”),
by
and among Refinery Science Corporation, a corporation duly formed and existing
under the laws of Texas, USA (“RESI”);
Cancen Oil Processors Inc., a corporation duly formed and existing under the
laws of Alberta, Canada (“COPI”);
and
Upgrader Marketing Inc., a corporation duly formed and existing under the laws
of Alberta, Canada (“UMI”).
RESI,
COPI and UMI, and their respective successors and assignees, if any, may
sometimes individually be referred to as “Party” and collectively as the
“Parties”.
WITNESSETH:
WHEREAS,
the Parties have entered into that certain non-binding Memorandum of
Understanding dated August 15, 2007, to form a business relationship with
respect to the upgrading, marketing and sale of heavy crude oil;
WHEREAS,
RESI has exclusive rights to certain patented and patent pending intellectual
property related to upgrading crude oil and production of steam useful in oil
production throughout the world, and has developed, constructed, and
demonstrated the unique upgrader technology to a pilot level and derived data
sufficient to warrant commercial demonstration;
WHEREAS,
COPI has demonstrated expertise in oil processing site preparation, operation,
and permitting and owns an oil processing site complete with power, disposal
xxxxx tankage, and where both heavy oil and light oil lines transverse the
property and adjacent undeveloped property;
WHEREAS,
UMI has demonstrated expertise in transportation, logistics, purchasing and
marketing crude and refined petroleum products and electricity;
WHEREAS,
the parties wish to contribute their skills and resources to a project to build,
operate, and share profits from a facility used to upgrade crude oil and produce
electric power in the Province of Alberta; and
WHEREAS,
the Parties desire to define their respective rights and obligations with
respect to the foregoing recitals;
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements and obligations set out below and to be performed, the Parties agree
as follows:
ARTICLE
1
DEFINITIONS
As
used
in this Agreement, the following words and terms shall have the meaning ascribed
to them below:
| 1.1 |
Accounting
Procedure
means the rules, provisions and conditions contained in Exhibit
A.
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1.2
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AFE
means an authorization for expenditure pursuant to Article
6.7.
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1.3
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Affiliate
means a legal entity which Controls, or is Controlled by, or which
is
Controlled by an entity which Controls, a Party.
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1.4
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Agreed
Interest Rate
means interest compounded on a semi-annual basis means the prime
lending
rate of the Bank of Montreal as published from time to time plus
2
percentage points applicable on the first Business Day prior to the
due
date of payment and thereafter on the first Business Day of each
succeeding calendar month.
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1.5
|
Agreement
means this Agreement, together with the Exhibits attached to this
agreement, and any extension, renewal or amendment hereof agreed
to in
writing by the Parties.
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1.6
|
Business
Day
means a Day on which the banks in Edmonton, Alberta are customarily
open
for business.
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1.7
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Calendar
Quarter
means a period of three (3) months commencing with January 1 and
ending on the following March 31, a period of three (3) months commencing
with April 1 and ending on the following June 30, a period of three
(3)
months commencing with July 1 and ending on the following September
30, or a period of three (3) months commencing with October 1 and
ending
on the following December 31.
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1.8
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Consenting
Party
means a Party who agrees to participate in and pay its share of the
cost
of an Exclusive Operation.
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1.9
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Consequential
Loss
means any loss, damages, costs, expenses or liabilities caused (directly
or indirectly) by any of the following arising out of, relating to,
or
connected with this Agreement or the operations carried out under
this
Agreement: (i) reservoir or formation damage; (ii) inability to produce,
use or dispose of Hydrocarbons; (iii) loss or deferment of income;
(iv)
punitive damages; or (v) other indirect damages or losses whether
or not
similar to the foregoing.
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1.10
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Control
means the ownership directly or indirectly of more than fifty (50)
percent
of the voting rights in a legal entity. “Controls”,
“Controlled
by”, “in common Control with”
and other derivatives shall be construed accordingly.
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1.11
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Crude
Oil
means all crude oils, condensates, and natural gas liquids at atmospheric
pressure which are used in Joint
Operations.
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1.12
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Day
means a calendar day unless otherwise specifically
provided.
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1.13
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Dispute
means any dispute, controversy or claim (of any and every kind or
type,
whether based on contract, tort, statute, regulation, or otherwise)
arising out of, relating to, or connected with this Agreement or
the
operations carried out under this Agreement, including any dispute
as to
the construction, validity, interpretation, enforceability or breach
of
this Agreement.
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1.14
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Entitlement
means that quantity of upgraded Hydrocarbons (excluding all quantities
used or lost in Joint Operations) of which a Party has the right
and
obligation to take delivery pursuant to the terms of this Agreement,
as
such rights and obligations may be adjusted by the terms of any blending
and other disposition agreements entered into pursuant to Article
8.
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1.15
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Environmental
Loss
means any loss, damages, costs, expenses or liabilities (other than
Consequential Loss) caused by a discharge of Hydrocarbons, pollutants
or
other contaminants into or onto any medium (such as land, surface
water,
ground water and/or air) arising out of, relating to, or connected
with
this Agreement or the operations carried out under this Agreement,
including any of the following: (i) injury or damage to, or destruction
of, natural resources or real or personal property; (ii) cost of
pollution
control, cleanup and removal; (iii) cost of restoration of natural
resources; and (iv) fines, penalties or other assessments.
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1.16
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Exclusive
Operation
means those operations and activities carried out pursuant to this
Agreement, the costs of which are chargeable to the account of less
than
all the Parties.
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1.17
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Government
means the government of Canada and any political subdivision, agency
or
instrumentality thereof.
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2
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1.18
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Gross
Negligence / Willful Misconduct
means any act or failure to act (whether sole, joint or concurrent)
by any
person or entity which was intended to cause, or which was in reckless
disregard of or wanton indifference to, harmful consequences such
person
or entity knew, or should have known, such act or failure would have
on
the safety or property of another person or entity.
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1.19
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Hydrocarbons
means all substances which are subject to and covered by the Joint
Operations, including, but not limited to, upgraded hydrocarbons,
Crude
Oil and Natural Gas, and all electricity and other energy produced
in
connection with the Joint
Operations.
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1.20
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Joint
Account
means the accounts maintained by Operator in accordance with the
provisions of this Agreement, including the Accounting
Procedure.
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1.21
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Joint
Operations
means those operations and activities carried out by Operator and
Parties
pursuant to this Agreement, the costs of which are chargeable to
all
Parties.
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1.22
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Joint
Property
means, at any point in time, all facilities, equipment, materials,
information, funds and property (other than Hydrocarbons) held for
use in
Joint Operations.
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1.23
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Laws
/ Regulations
means those laws, statutes, rules and regulations governing activities
under this Agreement.
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1.24
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Natural
Gas
means all gaseous hydrocarbons (including wet gas, dry gas and residue
gas) which are subject to and covered by the Joint Operations, but
excluding Crude Oil.
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1.25
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Non-Consenting
Party
means each Party who elects not to participate in an Exclusive Operation.
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1.26
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Non-Operator
means each Party to this Agreement other than
Operator.
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1.27
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Operating
Committee
means the committee constituted in accordance with Article
5.
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1.28
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Operator
means a Party to this Agreement designated as such in accordance
with
Articles 4 or 7.12(F).
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1.29
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Participating
Interest
means as to any Party, the undivided interest of such Party (expressed
as
a percentage of the total interests of all Parties) in the rights
and
obligations derived from the Parties’ interest in this Agreement.
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1.30
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Security
means (i) a guarantee or standby letter of credit issued by a bank;
(ii)
an on-demand bond issued by a surety corporation; (iii) a corporate
guarantee; (iv) any financial security required by this Agreement;
and (v)
any financial security agreed from time to time by the Parties; provided,
however, that the bank, surety or corporation issuing the guarantee,
standby letter of credit, bond or other security (as applicable)
has a
credit rating indicating it has a sufficient worth to pay its obligations
in all reasonably foreseeable
circumstances.
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1.31
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Senior
Supervisory Personnel
means, with respect to a Party, any individual who functions as its
senior
resident manager who directs all operations and activities of such
Party,
any manager who directly reports to such senior resident manager,
and, in
any of the above alternatives, any individual who functions for such
Party
or one of its Affiliates at a management level equivalent to or superior
to the tier selected, or any officer or director of such Party or
one of
its Affiliates.
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1.32
|
Urgent
Operational Matters
has the meaning ascribed to it in Article 5.12(A)(1).
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1.33
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Work
Program and Budget
means a work program for Joint Operations and budget therefor as
described
and approved in accordance with Article
6.
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3
ARTICLE
2
EFFECTIVE
DATE, TERM AND FORMATION OF CORPORATION
| 2.1 |
Scope
|
This
Agreement shall have effect from the Effective Date (as defined in the preamble
to this Agreement) and shall continue in effect until the following occur in
accordance with the terms of this Agreement: all materials, equipment and
personal property used in connection with Joint Operations or Exclusive
Operations have been disposed of or removed; and final settlement (including
settlement in relation to any financial audit carried out pursuant to the
Accounting Procedure) has been made. Notwithstanding the preceding sentence:
(i) Article 4.5, Article 7, Article 12.2, Article 15 and the
indemnity obligation under Article 16.1 (A) shall remain in effect until all
obligations have been extinguished and all Disputes have been resolved.
Termination of this Agreement shall be without prejudice to any rights and
obligations arising out of or in connection with this Agreement which have
vested, matured or accrued prior to such termination.
| 2.2 |
Organization
and Formation of
Corporation
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The
Parties hereby agree to, as soon as practicable, organize and form an Alberta
corporation with the name “Alberta Upgrader Energy Inc.” (the “Operating
Corporation”)
under
which all activities under this Agreement shall be performed by the Parties
and
in which the rights and privileges of the Parties, as agreed to in this
Agreement, shall be embodied. The Parties shall execute and file such
instruments as are necessary to form the Operating Corporation and shall file
any necessary amendments to reflect the formal agreements contained herein.
The
Parties further agree that both (i) until such time as the Operating Corporation
is formed and (ii) after the Operating Corporation is formed, the terms and
conditions of this Agreement shall governing the relationship of the Parties,
and any Articles of Incorporation or other charter document, Bylaws or other
governance document, or any agreement by and between the Operating Corporation
and any of the Parties, shall not contain terms or conditions which conflict
with or are otherwise inconsistent with this Agreement.
ARTICLE
3
SCOPE
| 3.1 |
Scope
and General
Responsibilities
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(A)
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The
purpose of this Agreement is to establish the respective rights and
obligations of the Parties with regard to the construction, operation
and
distribution of profits from a facility used to upgrade crude oil
and
other Hydrocarbons, and produce electric power, in the Province of
Alberta, Canada. The facility shall be built in 1000 barrel per day
increments, with a maximum production capacity of 6000 barrels of
processed oil per day at the existing COPI processing site located
in
Alberta, Canada. The general responsibilities of the Parties are
as
follows:
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(1)
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RESI
shall be responsible for all issues directly related to the construction,
operation, and maintenance of any crude oil upgraders and power generation
facilities. RESI shall also pay all costs associated with design,
development, and construction of the first 1,000 barrel per day upgrader
and 5 megawatt power unit. Delivery shall be made FOB to the COPI
plant
site. Additionally, RESI shall be responsible for all costs in connection
with delivering an operational upgrader. All costs of maintaining
any
upgrader shall be borne by the Operating
Corporation.
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(2)
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COPI
shall be responsible for all issues directly related to the facility
site.
COPI shall provide all necessary permits and pay all costs necessary
to
prepare a suitable space on their current site to locate the first
1,000
barrel/day upgrader unit, and space for one 5 megawatt steam
turbine/electrical generator. COPI shall be responsible for all costs
for
two 1,000 barrels oil storage tanks and all costs required to connect
the
facility to oil pipelines, the electrical transmission grid, and
utilities.
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4
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(3)
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UMI
shall (i) advance up to $500,000 to pay for operating costs in each
of the
first two years of the Operating Corporation, as and when required
by the
Operating Committee and (ii) be responsible for all issues related
directly to the acquisition, distribution, and sale of petroleum
products
and electricity produced at the facility. UMI shall bear all costs
required to prepare initial energy sales contracts and bid documents
with
the Province of Alberta, Canada, and to arrange for feedstock delivery
to
the facility and pipeline distribution of upgraded petroleum products
from
the facility to customers.
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(B)
|
After
successful technical and economic demonstration of the first 1000
barrel/day upgrader unit, the Parties intend that the decision to
expand
the project to include facilities capable of processing up to an
additional 5000 barrels/day of upgraded crude oil will be determined
by a
vote of the Operating Committee, pursuant to the terms and conditions
of
this Agreement. Should the Operating Committee vote to expand the
project
as described, then RESI shall provide to the Joint Operations the
required
additional upgraders at a purchase price equal to the sum of (i) the
product cost (the “Product Cost”) for any additional upgraders, which
shall be defined as: direct materials cost, direct labor and an
agreed 15% for administration costs plus 15% of the aforesaid total.
Product cost will be subject to acceptance of all invoices by
the Operating Corporation. All purchase prices shall be ex works
RESI, and
the Operating Corporation shall be responsible for all freight, duty
and
insurance costs regarding any shipment of additional upgraders. All
purchase prices shall be ex works RESI, and the Operating Corporation
shall be responsible for all freight, duty and insurance costs regarding
any shipment of additional upgraders. The price of the first
upgrader should be verified to satisfaction of the parties and the
same
procedure with any other upgrader and COPI shall provide a suitable
site
to the Joint Operations, at prevailing commercial lease rates or
sell the
parties sufficient suitable real property, at fair value, to expand
the
Joint Operations. In addition, should the Operating Committee vote
not to
proceed with the described expansion, COPI and/or UMI shall have
180 days
after commissioning of the first 1,000 barrel/day operation to elect
to
continue the expansion of the project independently subject to providing
to RESI written evidence of financing available to COPI to purchase
a
minimum 1,000 to a maximum of 5,000 barrel/day upgrader and placement
of
an agreed non-refundable deposit to RESI for commencement of construction,
design, and engineering of the additional upgraders. COPI and/or
UMI shall
continue to have the right to expand the site up to a maximum of
incremental 5,000 barrel/day upgrader 180 days after each minimum
expansion of 1,000 barrel/day up to this maximum. Notwithstanding
the
aforementioned any increments greater than 1,000 barrels/day prior
to
completion of subsequent 1,000 barrels/day expansion must have unanimous
consent of all the Parties to this agreement.
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| (C) |
For
greater certainty, the Parties confirm that the rights to construct,
operate and distribute profits from a facility using technology licensed
from RESI to upgrade crude oil and other Hydrocarbons, and produce
electric power or other energy outside of the existing COPI sites
located
in the Province of Alberta, Canada, are outside of the scope of this
Agreement and are not addressed herein.
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5
| 3.2 |
Participating
Interest; Distribution of Net Profits; Entitlement
Amounts
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(A)
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The
Participating Interests of the Parties as of the Effective Date are:
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RESI 45%
COPI 45%
UMI 10%
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(B)
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If
a Party transfers all or part of its Participating Interest pursuant
to
the provisions of this Agreement, the Participating Interests of
the
Parties shall be revised
accordingly.
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(C)
|
The
Parties acknowledge that capital expenditures for the delivery and
operation of the first 1000 barrel/day upgrader are expected to be
proportionally higher for RESI than for COPI and UMI (estimated at
approximately 78% for RESI,
15% for COPI, and 7% for UMI). Accordingly, the net profits (total
revenues from the sale of Hydrocarbons and of all other operations,
less
the cost of feedstock, transportation, operating and maintenance
costs and
other costs customarily determined in connection with determining
net
profits) of the Operating Corporation shall be distributed on a pro
rata
basis based on the contribution of the parties, until such time as
the
Parties have recovered their respective capital investments in the
Joint
Operations plus the Agreed Interest Rate. Thereafter, the net profits
of
the Operating Corporation shall be distributed to the parties in
accordance with their respective Participating Interests, i.e.,
(i) 45% of net profits to RESI, (ii) 45% of net profits to
COPI and
(iii) 10% of net profits to UMI.
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(D)
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Each
Party shall have title and rights to its Entitlement in an amount
equal to
the amount of net profits that such Party has rights under this Article
3.2.
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3.3 Ownership,
Obligations and Liabilities
|
(A)
|
Unless
otherwise provided in this Agreement, all Joint Property, and any
Hydrocarbons produced from the Joint Operations shall be owned by
the
Parties in accordance with their respective Participating
Interests.
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(B)
|
Unless
otherwise provided in this Agreement, all liabilities and expenses
incurred by Operator in connection with Joint Operations shall be
charged
to the Joint Account and all credits to the Joint Account shall be
shared
by the Parties, in accordance with their respective Participating
Interests.
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(C)
|
Each
Party shall pay when due, in accordance with the Accounting Procedure,
its
Participating Interest share of Joint Account expenses, including
cash
advances and interest, accrued pursuant to this Agreement. A Party’s
payment of any charge under this Agreement shall be without prejudice
to
its right to later contest the
charge.
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(D)
|
RESI
will make available to the Operating Corporation all improvements,
advances, changes which are developed in connection with any upgrader
and
the up-grading technology.
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ARTICLE
4
OPERATOR
|
4.1
|
Designation
of Operator
|
COPI
is
designated as Operator and agrees to act as such in accordance with this
Agreement.
6
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4.2
|
Rights
and Duties of
Operator
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(A)
|
Subject
to the terms and conditions of this Agreement, Operator shall have
all of
the rights, functions and duties of Operator and shall have exclusive
charge of and shall conduct all Joint Operations. Operator may employ
independent contractors and agents (which independent contractors
and
agents may include an Affiliate of Operator, a Non-Operator, or an
Affiliate of a Non-Operator) in such Joint
Operations.
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(B)
|
In
the conduct of Joint Operations Operator
shall:
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(1)
|
perform
Joint Operations in accordance with the provisions of this Agreement,
the
Laws / Regulations, this Agreement, and the decisions of the Operating
Committee not in conflict with this
Agreement;
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(2)
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conduct
all Joint Operations in a diligent, safe and efficient manner in
accordance with such good and prudent petroleum industry practices
and
field conservation principles as are generally followed by the
international petroleum industry under similar
circumstances;
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(3)
|
exercise
due care with respect to the receipt, payment and accounting of funds
in
accordance with good and prudent practices as are generally followed
by
the international petroleum industry under similar circumstances;
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(4)
|
subject
to Article 4.6 and the Accounting Procedure, neither gain a profit
nor
suffer a loss as a result of being the Operator in its conduct of
Joint
Operations, provided that Operator may rely upon Operating Committee
approval of specific accounting practices not in conflict with the
Accounting Procedure;
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(5)
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perform
the duties for the Operating Committee set out in Article 5, and
prepare
and submit to the Operating Committee proposed Work Programs and
Budgets
and (if required) AFEs, as provided in Article
6;
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(6)
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acquire
all licenses, permits, consents, approvals or other rights that may
be
required for or in connection with the conduct of Joint
Operations;
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(7)
|
upon
receipt of reasonable advance notice, permit the representatives
of any of
the Parties to have at all reasonable times during normal business
hours
and at their own risk and expense reasonable access to the Joint
Operations with the right to observe all Joint Operations and to
inspect
all Joint Property and to conduct financial audits as provided in
the
Accounting Procedure;
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(8)
|
undertake
to maintain Joint Operations in full force and effect in accordance
with
such good and prudent petroleum industry practices as are generally
followed by the Alberta petroleum industry under similar circumstances.
Operator shall timely pay and discharge all liabilities and expenses
incurred in connection with Joint Operations and use its reasonable
endeavors to keep and maintain the Joint Property free from all liens,
charges and encumbrances arising out of Joint
Operations;
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(9)
|
pay
to the Government for the Joint Account, within the periods and in
the
manner prescribed by the Laws / Regulations, all periodic payments,
royalties, taxes, fees and other payments pertaining to Joint Operations
but excluding any taxes measured by the incomes of the
Parties;
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(10)
|
have,
in accordance with any decisions of the Operating Committee, the
exclusive
right and obligation to represent the Parties in all dealings with
the
Government with respect to matters arising under this Agreement and
Joint
Operations. Operator shall notify the other Parties as soon as possible
of
such meetings. Subject to this Agreement and any necessary Government
approvals, Non-Operators shall have the right to attend any meetings
with
the Government with respect to such matters, but only in the capacity
of
observers. Nothing contained in this Agreement shall restrict any
Party
from holding discussions with the Government with respect to any
issue
peculiar to its particular business interests arising under this
Agreement, but in such event such Party shall promptly advise the
Parties,
if possible, before and in any event promptly after such discussions,
provided that such Party shall not be required to divulge to the
Parties
any matters discussed to the extent the same involve proprietary
information or matters not affecting the
Parties;
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7
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(11)
|
in
case of an emergency (including a significant fire, explosion, Natural
Gas
release, Crude Oil release, or sabotage; incident involving loss
of life,
serious injury to an employee, contractor, or third party, or serious
property damage; strikes and riots; or evacuations of Operator personnel):
(i) take all necessary and proper measures for the protection of
life,
health, the environment and property; and (ii) as soon as reasonably
practicable, report to Non-Operators the details of such event and
any
measures Operator has taken or plans to take in response
thereto;
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(12)
|
establish
and implement pursuant to Article 4.12 an HSE plan to govern Joint
Operations which is designed to ensure compliance with applicable
HSE
laws, rules and regulations and this
Agreement;
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(13)
|
include,
to the extent practical, in its contracts with independent contractors
and
to the extent lawful, provisions
which:
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(a)
|
establish
that such contractors can only enforce their contracts against Operator;
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(b)
|
permit
Operator, on behalf of itself and Non-Operators, to enforce contractual
indemnities against, and recover losses and damages suffered by them
(insofar as recovered under their contracts) from, such contractors;
and
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(c)
|
require
such contractors to take insurance required by Article
4.7(H).
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4.3
|
Information
Supplied by Operator
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(A)
|
Operator
shall provide Non-Operators with the following data and reports (to
the
extent to be charged to the Joint Account) as they are currently
produced
or compiled from Joint Operations:
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(1)
|
copies
of all purchase orders, contracts or other documentation evidencing
the
purchase or supply of Crude Oil or other Hydrocarbons, in both paper
and
digitally recorded format.
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(2)
|
daily
processing reports of Hydrocarbons, including all disposals to disposal
xxxxx with reconciliations to daily sales reports of upgraded
Hydrocarbons
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(3)
|
copies
of all test and analysis reports of Hydrocarbons supplied and upgraded
Hydrocarbons sold
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8
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(4)
|
engineering
studies, development schedules and quarterly progress reports on
development projects;
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(5)
|
as
requested by a Non-Operator, (i) copies of all material reports relating
to Joint Operations furnished by Operator to the Government; and
(ii)
other material studies and reports relating to Joint Operations;
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(6)
|
such
additional information as a Non-Operator may reasonably request,
provided
that the requesting Party or Parties pay the costs of preparation
of such
information and that the preparation of such information will not
unduly
burden Operator’s administrative and technical personnel. Only
Non-Operators who pay such costs will receive such additional information;
and
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(7)
|
other
reports as directed by the Operating
Committee.
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(B)
|
Operator
shall give Non-Operators access at all reasonable times during normal
business hours to all data and reports (other than data and reports
provided to Non-Operators in accordance with Article 4.4(A)) acquired
in the conduct of Joint Operations, which a Non-Operator may reasonably
request. Any Non-Operator may make copies of such other data at its
sole
expense.
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4.5
|
Settlement
of Claims and
Lawsuits
|
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(A)
|
Operator
shall promptly notify the Parties of any and all material claims
or suits
that relate in any way to Joint Operations. Operator shall represent
the
Parties and defend or oppose the claim or suit. Operator may in its
sole
discretion compromise or settle any such claim or suit or any related
series of claims or suits for an amount not to exceed the equivalent
of
Five Thousand ($5,000) U.S. dollars, exclusive of legal fees. Operator
shall obtain the approval and direction of the Operating Committee
on
amounts in excess of the above-stated amount. Without prejudice to
the
foregoing, each Non-Operator shall have the right to be represented
by its
own counsel at its own expense in the settlement, compromise or defense
of
such claims or suits.
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(B)
|
Any
Non-Operator shall promptly notify the other Parties of any claim
made
against such Non-Operator by a third party that arises out of or
may
affect the Joint Operations, and such Non-Operator shall defend or
settle
the same in accordance with any directions given by the Operating
Committee. Those costs, expenses and damages incurred pursuant to
such
defense or settlement which are attributable to Joint Operations
shall be
for the Joint Account.
|
|
(C)
|
Notwithstanding
Article 4.5(A) and Article 4.5(B), each Party shall have the right
to
participate in any such suit, prosecution, defense or settlement
conducted
in accordance with Article 4.5(A) and Article 4.5(B), at its sole
cost and
expense; provided always that no Party may settle its Participating
Interest share of any claim without first satisfying the Operating
Committee that it can do so without prejudicing the interests of
the Joint
Operations.
|
|
4.6
|
Limitation
on Liability of
Operator
|
|
(A)
|
Except
as set out in Article 4.6(C), neither Operator nor any other Indemnitee
(as defined below) shall bear (except as a Party to the extent of
its
Participating Interest share) any damage, loss, cost, expense or
liability
resulting from performing (or failing to perform) the duties and
functions
of Operator, and the Indemnitees are hereby released from liability
to
Non-Operators for any and all damages, losses, costs, expenses and
liabilities arising out of, incident to or resulting from such performance
or failure to perform, even though caused in whole or in part by
a
pre-existing defect, or the negligence (whether sole, joint or
concurrent), gross negligence, willful misconduct, strict liability
or
other legal fault of Operator (or any such
Indemnitee).
|
9
|
(B)
|
Except
as set out in Article 4.6(C), the Parties shall (in proportion to
their
Participating Interests) defend and indemnify Operator and its Affiliates,
and their respective directors, officers, and employees (collectively,
the
“Indemnitees”),
from any and all damages, losses, costs, expenses (including reasonable
legal costs, expenses and attorneys’ fees) and liabilities incident to
claims, demands or causes of action brought by or on behalf of any
person
or entity, which claims, demands or causes of action arise out of,
are
incident to or result from Joint Operations, even though caused in
whole
or in part by a pre-existing defect, or the negligence (whether sole,
joint or concurrent), gross negligence, willful misconduct, strict
liability or other legal fault of Operator (or any such Indemnitee).
|
|
(C)
|
Notwithstanding
Articles 4.6(A) or 4.6(B), if any Senior Supervisory Personnel of
Operator
or its Affiliates engage in Gross Negligence / Willful Misconduct
which
proximately causes the Parties to incur damage, loss, cost, expense
or
liability for claims, demands or causes of action referred to in
Articles
4.6(A) or 4.6(B), then, in addition to its Participating Interest
share,
Operator shall bear all such damages, losses, costs, expenses and
liabilities.
|
|
(D)
|
Nothing
in this Article 4.6 shall be deemed to relieve Operator from its
Participating Interest share of any damage, loss, cost, expense or
liability arising out of, incident to, or resulting from Joint Operations.
|
|
4.7
|
Insurance
Obtained by Operator
|
|
(A)
|
Operator
shall procure and maintain for the Joint Account all insurance in
the
types and amounts required by the Laws /
Regulations.
|
|
(B)
|
Operator
shall procure and maintain any further insurance, at reasonable rates,
as
the Operating Committee may from time to time require. In the event
that
such further insurance is, in Operator’s reasonable opinion, unavailable
or available only at an unreasonable cost, Operator shall promptly
notify
the Non-Operators in order to allow the Operating Committee to reconsider
such further insurance.
|
|
(C)
|
Operator
shall, with respect to all insurance obtained under this Article
4.7:
|
|
(1)
|
use
reasonable endeavors to procure or cause to be procured such insurance
prior to or concurrent with, the commencement of relevant operations
and
maintain or cause to be maintained such insurance during the term
of the
relevant operations or any longer term required under the Laws /
Regulations;
|
|
(2)
|
promptly
inform the participating Parties when such insurance is obtained
and
supply them with certificates of insurance or copies of the relevant
policies when the same are issued;
|
|
(3)
|
arrange
for the participating Parties, according to their respective Participating
Interests, to be named as co-insureds on the relevant policies with
waivers of subrogation in favor of all the Parties but only with
respect
to their interests under this
Agreement;
|
|
(4)
|
use
reasonable endeavors to ensure that each policy shall survive the
default
or bankruptcy of the insured for claims arising out of an event before
such default or bankruptcy and that all rights of the insured shall
revert
to the Parties not in default or bankruptcy;
and
|
10
|
(5)
|
duly
file all claims and take all necessary and proper steps to collect
any
proceeds and credit any proceeds to the participating Parties in
proportion to their respective Participating
Interests.
|
|
(H)
|
Operator
shall use its reasonable endeavors to require all contractors performing
work with respect to Joint Operations to:
|
|
(1)
|
obtain
and maintain any and all insurance in the types and amounts required
by
the Laws / Regulations or any decision of the Operating
Committee;
|
|
(2)
|
name
the Parties as additional insureds on the contractor’s insurance policies
and obtain from their insurers waivers of all rights of recourse
against
Operator, Non-Operators and their insurers;
and
|
|
(3)
|
provide
Operator with certificates reflecting such insurance prior to the
commencement of their services.
|
|
4.8
|
Commingling
of Funds
|
Operator
may not commingle with Operator’s own funds the monies which Operator receives
from or for the Joint Account pursuant to this Agreement.
The
Operating Committee may decide that monies Operator receives for the Joint
Account shall be deposited in an interest-bearing account at any
time. Interest
earned shall be allocated among the Parties on an equitable basis taking into
account the date of the funding by each Party and its share of the Joint Account
monies. Operator shall apply such earned interest to the next succeeding cash
call or, if directed by the Operating Committee, pay it to the Parties.
|
4.9
|
Resignation
of Operator
|
Subject
to Article 4.11, Operator may resign as Operator at any time by so notifying
the
other Parties at least one hundred and twenty (120) Days prior to the effective
date of such resignation.
|
4.10
|
Removal
of Operator
|
|
(A)
|
Subject
to Article 4.11, Operator shall be removed upon receipt of notice
from any
Non-Operator if:
|
|
(1)
|
Operator
becomes insolvent or bankrupt, or makes an assignment for the benefit
of
creditors;
|
|
(2)
|
an
order is made by a court or an effective resolution is passed for
the
reorganization under any bankruptcy law, dissolution, liquidation,
or
winding up of Operator;
|
|
(3)
|
a
receiver is appointed for a substantial part of Operator’s assets;
or
|
|
(4)
|
Operator
dissolves, liquidates, is wound up, or otherwise terminates its existence.
|
11
|
(B)
|
Subject
to Article 4.11, Operator may be removed by the decision of the
Non-Operators if Operator has committed a material breach of this
Agreement and has either failed to commence to cure that breach within
thirty (30) Days of receipt of a notice from Non-Operators detailing
the
alleged breach or failed to diligently pursue the cure to completion.
Any
decision of Non-Operators to give notice of breach to Operator or
to
remove Operator under this Article 4.10(B) shall be made by an affirmative
vote of one (1) or more of the total number of Non-Operators holding
a
combined Participating Interest of at least fifty and one-tenth percent
(50.10%). However, if Operator disputes such alleged commission of
or
failure to cure a material breach and dispute or claim resolution
proceedings are initiated in relation to such breach, then Operator
shall
remain appointed and no successor Operator may be appointed pending
the
conclusion or abandonment of such proceedings, subject to the terms
of
Article 7.3 with respect to Operator’s breach of its payment
obligations.
|
|
(C)
|
If
Operator together with any Affiliates of Operator is or becomes the
holder
of a Participating Interest of less than forty-five percent (45%),
then
Operator shall be required to promptly notify the other Parties.
The
Operating Committee shall then vote within thirty (30) Days of such
notification on whether or not a successor Operator should be named
pursuant to Article 4.11.
|
|
(D)
|
If
there is a direct or indirect change in Control of Operator (other
than a
transfer of Control to an Affiliate of Operator), Operator shall
be
required to promptly notify the other Parties. The Operating Committee
shall vote within thirty (30) Days of such notification on whether
or not
a successor Operator should be named pursuant to Article
4.11.
|
|
(E)
|
Subject
to Article 4.11, Operator may be removed at any time without cause
by the
affirmative vote of one (1) or more of the total number of Non-Operators
holding a combined Participating Interest of at least fifty and one
tenth
percent (50.10%).
|
|
4.11
|
Appointment
of Successor
|
When
a
change of Operator occurs pursuant to Article 4.9 or Article 4.10:
|
(A)
|
The
Operating Committee shall meet as soon as possible to appoint a successor
Operator pursuant to the voting procedure of Article 5.9. No Party
may be
appointed successor Operator against its
will.
|
|
(B)
|
If
Operator is removed, other than in the case of Article 4.10(C) or
Article
4.10(D), neither Operator nor any Affiliate of Operator shall have
the
right to be considered as a candidate for the successor
Operator.
|
|
(C)
|
The
resigning or removed Operator shall be compensated out of the Joint
Account for its reasonable expenses directly related to its resignation
or
removal, except in the case of Article
4.10(B).
|
|
(D)
|
The
resigning or removed Operator and the successor Operator shall arrange
for
the taking of an inventory of all Joint Property and Hydrocarbons
both
Crude oil and Upgraded Hydrocarbons located in tanks at site, and
an audit
of the books and records of the removed Operator. Such inventory
and audit
shall be completed, if possible, no later than the effective date
of the
change of Operator and shall be subject to the approval of the Operating
Committee. The liabilities and expenses of such inventory and audit
shall
be charged to the Joint Account.
|
|
(E)
|
The
resignation or removal of Operator and its replacement by the successor
Operator shall not become effective prior to receipt of any necessary
Government approvals.
|
12
|
(F)
|
Upon
the effective date of the resignation or removal, the successor Operator
shall succeed to all duties, rights and authority prescribed for
Operator.
The former Operator shall transfer to the successor Operator custody
of
all Joint Property, books of account, records and other documents
maintained by Operator pertaining to the Joint Operations. Upon delivery
of the above-described property and data, the former Operator shall
be
released and discharged from all obligations and liabilities as Operator
accruing after such date.
|
|
4.12
|
Health,
Safety and Environment (“HSE”)
|
|
(A)
|
With
the goal of achieving safe and reliable operations in compliance
with
applicable HSE laws, rules and regulations (including avoiding significant
and unintended impact on the safety or health of people, on property,
or
on the environment), Operator shall in the conduct of Joint
Operations:
|
|
(1)
|
establish
and implement an HSE plan in a manner consistent with standards and
procedures generally followed in the international petroleum industry
under similar circumstances;
|
|
(2)
|
design
and operate Joint Property consistent with the HSE plan;
and
|
|
(3)
|
conform
with locally applicable HSE laws, rules and regulations and other
HSE-related statutory requirements that may
apply.
|
|
(B)
|
The
Operating Committee shall be provided by Operator, on an annual basis,
with an HSE letter of assurance providing adequate evidence that
an HSE
plan is in place and that any major HSE issues have been brought
to the
attention of the Operating Committee and are being properly
managed.
|
|
(C)
|
In
the conduct of Joint Operations, Operator shall establish and implement
a
program for regular HSE assessments. The purpose of such assessments
is to
periodically review HSE systems and procedures, including actual
practice
and performance, to verify that the HSE plan is being implemented
in
accordance with the policies and standards of the HSE plan. Operator
shall, at a minimum, conduct such an assessment before entering into
significant new Joint Operations and before undertaking any major
changes
to existing Joint Operations. Upon reasonable notice given to Operator,
Non-Operators shall have the right to participate in such HSE
assessments.
|
|
(D)
|
Operator
shall require its contractors, consultants and agents undertaking
activities for the Joint Account to manage HSE risks in a manner
consistent with the requirements of this Article
4.12.
|
|
(E)
|
Operator
shall establish and enforce rules consistent with those generally
followed
in the international petroleum industry under similar circumstances
that,
at a minimum, prohibit the
following:
|
|
(1)
|
possession,
use, distribution or sale of firearms, explosives, or other weapons
without the prior written approval of senior management of
Operator;
|
|
(2)
|
possession,
use, distribution or sale of alcoholic beverages without the prior
written
approval of senior management of Operator;
and
|
|
(3)
|
possession,
use, distribution or sale of illicit or non-prescribed controlled
substances and the misuse of prescribed
drugs.
|
13
|
(F)
|
Without
prejudice to a Party’s rights under Article 4.2(B)(7), with reasonable
advance notice, Operator shall permit each Non-Operator to have at
all
reasonable times during normal business hours (and at its own risk
and
expense) the right to conduct its own HSE
audit.
|
ARTICLE
5
OPERATING
COMMITTEE
|
5.1
|
Establishment
of Operating
Committee
|
To
provide for the overall supervision and direction of Joint Operations, there
is
established an Operating Committee composed of representatives of each Party
holding a Participating Interest. Each Party shall appoint one (1)
representative and one (1) alternate representative to serve on the Operating
Committee. Each Party shall as soon as possible after the date of this Agreement
give notice in writing to the other Parties of the name and address of its
representative and alternate representative to serve on the Operating Committee.
Each Party shall have the right to change its representative and alternate
at
any time by giving notice of such change to the other Parties.
|
5.2
|
Powers
and Duties of Operating
Committee
|
The
Operating Committee shall have power and duty to authorize and supervise Joint
Operations that are necessary or desirable to fulfill the purpose of this
Agreement and in a manner appropriate in the circumstances.
|
5.3
|
Authority
to Vote
|
The
representative of a Party, or in his absence his alternate representative,
shall
be authorized to represent and bind such Party with respect to any matter which
is within the powers of the Operating Committee and is properly brought before
the Operating Committee. Each such representative shall have a vote equal to
the
Participating Interest of the Party such person represents. Each alternate
representative shall be entitled to attend all Operating Committee meetings
but
shall have no vote at such meetings except in the absence of the representative
for whom he is the alternate. In addition to the representative and alternate
representative, each Party may also bring to any Operating Committee meetings
such technical and other advisors as it may deem appropriate.
|
5.4
|
Subcommittees
|
The
Operating Committee may establish such subcommittees, including technical
subcommittees, as the Operating Committee may deem appropriate. The functions
of
such subcommittees shall be in an advisory capacity or as otherwise determined
unanimously by the Parties. Each Party shall have the right to appoint a
representative to each subcommittee.
|
5.5
|
Notice
of Meeting
|
Any
Party
may call a meeting of the Operating Committee by giving notice to the Parties
at
least five (5) Days in advance of such meeting. Such five-day notice period
above may only be waived with the unanimous consent of all the
Parties.
|
5.6
|
Contents
of Meeting Notice
|
|
(A)
|
Each
notice of a meeting of the Operating Committee as provided by a Party
shall contain:
|
|
(1)
|
the
date, time and location of the meeting;
|
14
|
(2)
|
an
agenda of the matters and proposals to be considered and/or voted
upon;
and
|
|
(3)
|
copies
of all proposals to be considered at the meeting (including all
appropriate supporting information not previously distributed to
the
Parties).
|
|
(B)
|
A
Party, by notice to the other Parties given not less than two (2)
Days
prior to a meeting, may add additional matters to the agenda for
a
meeting.
|
|
(C)
|
On
the request of a Party, and with the unanimous consent of all Parties,
the
Operating Committee may consider at a meeting a proposal not contained
in
such meeting agenda.
|
|
5.7
|
Location
of Meetings
|
All
meetings of the Operating Committee shall be held in Calgary, Alberta, Canada,
or elsewhere as the Operating Committee may decide. Any member of the Operating
Committee may attend a meeting of the Operating Committee by telephone
conference call.
|
5.8
|
Operator’s
Duties for Meetings
|
|
(A)
|
With
respect to meetings of the Operating Committee and any subcommittee,
the
duties of a Party who calls a meeting of the Operating Committee
shall
include:
|
|
(1)
|
timely
preparation and distribution of the agenda;
|
|
(2)
|
organization
and conduct of the meeting; and
|
|
(3)
|
preparation
of a written record or minutes of each meeting.
|
|
(B)
|
Operator
shall have the right to appoint the chairman of the Operating Committee
and all subcommittees.
|
|
5.9
|
Voting
Procedure
|
Except
as
otherwise expressly provided in this Agreement, all decisions, approvals and
other actions of the Operating Committee on all proposals coming before it
shall
be decided by the affirmative vote of one (1) or more Parties which are not
Affiliates then having collectively at least fifty and one-tenth percent
(50.10%) of the Participating Interests.
|
5.10
|
Record
of Votes
|
The
chairman of the Operating Committee shall appoint a secretary who shall make
a
record of each proposal voted on and the results of such voting at each
Operating Committee meeting. Each representative shall sign and be provided
a
copy of such record at the end of such meeting, and it shall be considered
the
final record of the decisions of the Operating Committee.
|
5.11
|
Minutes
|
The
secretary shall provide each Party with a copy of the minutes of the Operating
Committee meeting within fifteen (15) Business Days after the end of the
meeting. Each Party shall have fifteen (15) Days after receipt of such minutes
to give notice to the secretary of its objections to the minutes. A failure
to
give notice specifying objection to such minutes within said fifteen (15) Day
period shall be deemed to be approval of such minutes. In any event, the votes
recorded under Article 5.10 shall take precedence over the minutes described
above.
15
|
5.12
|
Voting
by Notice
|
|
(A)
|
In
lieu of a meeting, any Party may submit any proposal to the Operating
Committee for a vote by notice. The proposing Party or Parties shall
notify Operator who shall give each Party’s representative notice
describing the proposal so submitted and whether Operator considers
such
operational matter to require urgent determination. Operator shall
include
with such notice adequate documentation in connection with such proposal
to enable the Parties to make a decision. Each Party shall communicate
its
vote by notice to Operator and the other Parties within one of the
following appropriate time periods after receipt of Operator’s notice:
|
|
(1)
|
Twelve
(12) hours in the case of operations which involve the use of equipment
that is standing by and such other operational matters reasonably
considered by Operator to require by their nature urgent determination
(such operations and matters being referred to as “Urgent
Operational Matters”);
and
|
|
(2)
|
Three
(3) Days in the case of all other
proposals.
|
|
(B)
|
Except
in the case of Article 5.12(A)(1), any Party may, by notice delivered
to
all Parties within one (1) Day of receipt of Operator’s notice, request
that the proposal be decided at a meeting rather than by notice.
In such
an event, that proposal shall be decided at a meeting duly called
for that
purpose.
|
|
(C)
|
Except
as provided in Article 9, any Party failing to communicate its vote
in a
timely manner shall be deemed to have voted for such proposal.
|
|
(D)
|
If
a meeting is not requested, then at the expiration of the appropriate
time
period, Operator shall give each Party a confirmation notice stating
the
tabulation and results of the vote.
|
|
5.13
|
Effect
of Vote
|
All
decisions taken by the Operating Committee pursuant to this Article 5 shall
be
conclusive and binding on all the Parties.
ARTICLE
6
WORK
PROGRAMS AND BUDGETS
|
6.1
|
Plan
of Operations
|
|
(A)
|
Within
thirty (30) Days after the Effective Date, Operator shall deliver
to the
Parties a proposed Work Program and Budget detailing the Joint Operations
to be performed for the remainder of the current Calendar Year and,
if
appropriate, for the following Calendar Year. Within fifteen (15)
Days of
such delivery, the Operating Committee shall meet to consider and
to
endeavor to agree on a Work Program and
Budget.
|
|
(B)
|
On
or before the 15th Day of September of each Calendar Year, Operator
shall
deliver to the Parties a proposed Work Program and Budget detailing
the
Joint Operations to be performed for the following Calendar Year.
Within
fifteen (15) Days of such delivery, the Operating Committee shall
meet to
consider and to endeavor to agree on a Work Program and Budget.
|
|
(C)
|
If
within the time periods prescribed in this Article 6.1 the Operating
Committee is unable to agree on such a Work Program and Budget, then
the
proposal capable of satisfying the Joint Operations for the Calendar
Year
in question that receives the largest Participating Interest vote
(even if
less than the applicable percentage under Article 5.9) shall be deemed
adopted as part of the annual Work Program and Budget. If competing
proposals receive equal votes, then Operator shall choose between
those
competing proposals.
|
16
|
(D)
|
Any
approved Work Program and Budget may be revised by the Operating
Committee
from time to time. To the extent such revisions are approved by the
Operating Committee, the Work Program and Budget shall be amended
accordingly.
|
|
6.3
|
Production
|
On
or
before the 15th Day of September of each Calendar Year, Operator shall deliver
to the Parties a proposed thorough put processing of hydrocarbons schedule,
Work
Program and Budget detailing the Joint Operations to be performed and the
projected production and sales schedule for the following Calendar Year. Within
fifteen (15) Days of such delivery, the Operating Committee shall agree upon
a
production Work Program and Budget.
|
6.4
|
Itemization
of Expenditures
|
|
(A)
|
During
the preparation of the proposed Work Programs and Budgets contemplated
in
this Article 6, Operator shall consult with the Operating Committee
or the
appropriate subcommittees regarding the contents of such Work Programs
and
Budgets.
|
|
(B)
|
Each
Work Program and Budget submitted by Operator shall contain an itemized
estimate of the costs of Joint Operations and all other expenditures
to be
made for the Joint Account during the Calendar Year in question and
shall,
inter
alia:
|
|
(1)
|
identify
each work category in sufficient detail to afford the ready identification
of the nature, scope and duration of the activity in
question;
|
|
(2)
|
include
such reasonable information regarding Operator’s allocation procedures and
estimated manpower costs as the Operating Committee may determine;
and
|
(3) contain
an estimate of funds to be expended by Calendar Quarter; and
|
(C)
|
The
Work Program and Budget shall specify the kind and extent of such
operations in such detail as the Operating Committee may deem
suitable.
|
|
6.5
|
Multi-Year
Work Program and
Budget
|
Any
work
that cannot be efficiently completed within a single Calendar Year may be
proposed in a multi-year Work Program and Budget. Upon approval by the Operating
Committee, such multi-year Work Program and Budget shall, subject only to
revisions approved by the Operating Committee thereafter: (i) remain in effect
as between the Parties (and the associated cost estimate shall be a binding
pro-rata obligation of each Party) through the completion of the work; and
(ii) be reflected in each annual Work Program and Budget.
17
|
6.6
|
Contract
Awards
|
Operator
shall award contracts to the best qualified contractor as determined by cost
and
ability to perform the contract without the obligation to tender and without
informing or seeking the approval of the Operating Committee, except that before
entering into contracts with Affiliates of Operator exceeding Five Thousand
($5,000) U.S. Dollars, Operator shall obtain the approval of the Operating
Committee.
|
6.7
|
Authorization
for Expenditure (“AFE”)
Procedure
|
|
(A)
|
Prior
to incurring any commitment or expenditure for the Joint Account,
which is
estimated to be in excess of Five Thousand ($5,000) U.S. Dollars
in a
development or production Work Program and Budget, Operator shall
send to
each Non-Operator an AFE as described in Article 6.7(C).
|
|
(B)
|
Prior
to making any expenditures or incurring any commitments for work
subject
to the AFE procedure in Article 6.7(A), Operator shall obtain the
approval of the Operating Committee. If the Operating Committee approves
an AFE for the operation within the applicable time period under
Article
5.12(A), Operator shall be authorized to conduct the operation under
the
terms of this Agreement. If the Operating Committee fails to approve
an
AFE for the operation within the applicable time period, the operation
shall be deemed rejected. When an operation is rejected under this
Article
6.7(B) or an operation is approved for differing amounts than those
provided for in the applicable line items of the approved Work Program
and
Budget, the Work Program and Budget shall be deemed to be revised
accordingly.
|
|
(C)
|
Each
AFE proposed by Operator shall:
|
|
(1)
|
identify
the operation by specific reference to the applicable line items
in the
Work Program and Budget;
|
|
(2)
|
describe
the work in detail;
|
|
(3)
|
contain
Operator’s best estimate of the total funds required to carry out such
work;
|
|
(4)
|
outline
the proposed work schedule;
|
|
(5)
|
provide
a timetable of expenditures, if known;
and
|
|
(6)
|
be
accompanied by such other supporting information as is necessary
for an
informed decision.
|
| 6.8 |
Overexpenditures
of Work Programs and
Budgets
|
|
(A)
|
For
expenditures on any line item of an approved Work Program and Budget,
Operator shall be entitled to incur without further approval of the
Operating Committee an overexpenditure for such line item up to ten
percent (10%) of the authorized amount for such line item; provided
that
the cumulative total of all overexpenditures for a Calendar Year
shall not
exceed five percent (5%) of the total annual Work Program and Budget
in
question.
|
|
(B)
|
At
such time Operator reasonably anticipates the limits of Article 6.8(A)
will be exceeded, Operator shall furnish to the Operating Committee
a
supplemental AFE for the estimated expenditures for the Operating
Committee’s approval, and Operator shall provide reasonable details of
such overexpenditures. The Work Program and Budget shall be revised
accordingly and the overexpenditures permitted in Article 6.8(A)
shall be
based on the revised Work Program and Budget. Operator shall promptly
give
notice of the amounts of overexpenditures when actually
incurred.
|
18
|
(C)
|
The
restrictions contained in this Article 6 shall be without prejudice
to
Operator’s rights to make expenditures for Urgent Operational Matters and
measures set out in Article 12.5 without the Operating Committee’s
approval.
|
ARTICLE
7
DEFAULT
|
7.1
|
Default
and Notice
|
| (A) |
Except
with respect to the first upgrader delivered by RESI, any Party that
fails
to:
|
|
(1)
|
pay
when due its share of Joint Account expenses (including cash advances
and
interest); or
|
|
(2)
|
obtain
and maintain any Security required of such Party this Agreement;
|
shall
be
in default under this Agreement (a “Defaulting
Party”).
Operator, or any non-defaulting Party in case Operator is the Defaulting Party,
shall promptly give notice of such default (the “Default
Notice”)
to the
Defaulting Party and each of the non-defaulting Parties.
|
(B)
|
For
the purposes of this Article 7, “Default
Period”
means the period beginning five (5) Business Days from the date that
the
Default Notice is issued in accordance with this Article 7.1 and
ending
when all the Defaulting Party’s defaults pursuant to this Article 7.1 have
been remedied in full.
|
|
7.2
|
Operating
Committee Meetings and
Data
|
|
(A)
|
Notwithstanding
any other provision of this Agreement, the Defaulting Party shall
have no
right, during the Default Period,
to:
|
|
(1)
|
call
or attend Operating Committee or subcommittee
meetings;
|
|
(2)
|
vote
on any matter coming before the Operating Committee or any
subcommittee;
|
|
(3)
|
access
any data or information relating to any operations under this Agreement;
|
|
(4)
|
consent
to or reject data trades between the Parties and third parties, nor
access
any data received in such data trades;
|
|
(5)
|
Transfer
(as defined in Article 11.1) all or part of its Participating Interest,
except to non-defaulting Parties in accordance with this Article
7;
|
|
(6)
|
consent
to or reject any Transfer (as defined in Article 11.1) or otherwise
exercise any other rights in respect of Transfers under this Article
7 or
under Article 11;
|
19
|
(7)
|
receive
its Entitlement in accordance with Article
7.4;
|
|
(8)
|
withdraw
from this Agreement under Article 12;
or
|
|
(9)
|
take
assignment of any portion of another Party’s Participating Interest in the
event such other Party is either in default or withdrawing from this
Agreement.
|
|
(B)
|
Notwithstanding
any other provisions in this Agreement, during the Default
Period:
|
|
(1)
|
unless
agreed otherwise by the non-defaulting Parties, the voting interest
of
each non-defaulting Party shall be equal to the ratio such non-defaulting
Party’s Participating Interest bears to the total Participating Interests
of the non-defaulting Parties;
|
|
(2)
|
any
matters requiring a unanimous vote or approval of the Parties shall
not
require the vote or approval of the Defaulting Party;
|
|
(3)
|
the
Defaulting Party shall be deemed to have elected not to participate
in any
operations that are voted upon during the Default Period, to the
extent
such an election would be permitted by Article 5.13;
and
|
|
(4)
|
the
Defaulting Party shall be deemed to have approved, and shall join
with the
non-defaulting Parties in taking, any other actions voted on during
the
Default Period.
|
|
7.3
|
Allocation
of Defaulted Accounts
|
|
(A)
|
The
Party providing the Default Notice pursuant to Article 7.1 shall
include
in the Default Notice to each non-defaulting Party a statement of
the sum
of money that the non-defaulting Party shall pay as its portion of
the
Amount in Default. Unless otherwise agreed, the obligations for which
the
Defaulting Party is in default shall be satisfied by the non-defaulting
Parties in proportion to the ratio that each non-defaulting Party’s
Participating Interest bears to the Participating Interests of all
non-defaulting Parties. For the purposes of this Article 7:
|
“Amount
in Default”
means
the Defaulting Party’s share of Joint Account expenses which the Defaulting
Party has failed to pay when due pursuant to the terms of this Agreement (but
excluding any interest owed on such amount); and
“Total
Amount in Default”
means
the following amounts: (i) the Amount in Default; (ii) third-party costs of
obtaining and maintaining any Security incurred by the non-defaulting Parties
or
the funds paid by such Parties in order to allow Operator to obtain or maintain
Security, in accordance with Article 7.3(A)(ii); plus (iii) any interest at
the
Agreed Interest Rate accrued on the amount under (i) from the date this amount
is due by the Defaulting Party until paid in full by the Defaulting Party and
on
the amount under (ii) from the date this amount is incurred by the
non-defaulting Parties until paid in full by the Defaulting Party.
|
(B)
|
If
the Defaulting Party remedies its default in full before the Default
Period commences, the notifying Party shall promptly notify each
non-defaulting Party by facsimile or telephone and by email, and
the
non-defaulting Parties shall be relieved of their obligations under
Article 7.3(A). Otherwise, each non-defaulting Party shall satisfy
its
obligations under Article 7.3(A)(i) before the Default Period commences
and its obligations under Article 7.3(A)(ii) within ten (10) Days
following the Default Notice. If any non-defaulting Party fails to
timely
satisfy such obligations, such Party shall thereupon be a Defaulting
Party
subject to the provisions of this Article 7. The non-defaulting Parties
shall be entitled to receive their respective shares of the Total
Amount
in Default payable by such Defaulting Party pursuant to this Article
7.
|
20
|
(C)
|
If
Operator is a Defaulting Party, then all payments otherwise payable
to
Operator for Joint Account costs pursuant to this Agreement shall
be made
to the notifying Party instead until the default is cured or a successor
Operator appointed. The notifying Party shall maintain such funds
in a
segregated account separate from its own funds and shall apply such
funds
to third party claims due and payable from the Joint Account of which
it
has notice, to the extent Operator would be authorized to make such
payments under the terms of this Agreement. The notifying Party shall
be
entitled to xxxx or cash call the other Parties in accordance with
the
Accounting Procedure for proper third party charges that become due
and
payable during such period to the extent sufficient funds are not
available. When Operator has cured its default or a successor Operator
is
appointed, the notifying Party shall turn over all remaining funds
in the
account to Operator and shall provide Operator and the other Parties
with
a detailed accounting of the funds received and expended during this
period. The notifying Party shall not be liable for damages, losses,
costs, expenses or liabilities arising as a result of its actions
under
this Article 7.3(C), except to the extent Operator would be liable
under
Article 4.6.
|
|
7.4
|
Remedies
|
|
(A)
|
During
the Default Period, the Defaulting Party shall not have a right to
its
Entitlement, which shall vest in and be the property of the non-defaulting
Parties. Operator (or the notifying Party if Operator is a Defaulting
Party) shall be authorized to sell such Entitlement in an arm’s-length
sale on terms that are commercially reasonable under the circumstances
and, after deducting all costs, charges and expenses incurred in
connection with such sale, pay the net proceeds to the non-defaulting
Parties in proportion to the amounts they are owed by the Defaulting
Party
as a part of the Total Amount in Default (in payment of first the
interest
and then the principal) and apply such net proceeds toward the
establishment of the Reserve Fund (as defined in Article 7.4(C)),
if
applicable, until all such Total Amount in Default is recovered and
such
Reserve Fund is established. Any surplus remaining shall be paid
to the
Defaulting Party, and any deficiency shall remain a debt due from
the
Defaulting Party to the non-defaulting Parties. When making sales
under
this Article 7.4(A), the non-defaulting Parties shall have no obligation
to share any existing market or obtain a price equal to the price
at which
their own production is sold.
|
|
(B)
|
If
Operator disposes of any Joint Property or if any other credit or
adjustment is made to the Joint Account during the Default Period,
Operator (or the notifying Party if Operator is a Defaulting Party)
shall
be entitled to apply the Defaulting Party’s Participating Interest share
of the proceeds of such disposal, credit or adjustment against the
Total
Amount in Default (against first the interest and then the principal)
and
toward the establishment of the Reserve Fund (as defined in Article
7.4(C)), if applicable. Any surplus remaining shall be paid to the
Defaulting Party, and any deficiency shall remain a debt due from
the
Defaulting Party to the non-defaulting Parties.
|
|
(C)
|
The
non-defaulting Parties shall be entitled to apply the net proceeds
received under Articles 8.4(A) and 8.4(B) toward the creation of a
reserve fund (the “Reserve
Fund”)
in an amount equal to the Defaulting Party’s Participating Interest share
of: (i) the estimated cost to abandon any Joint Operations and property
in
which the Defaulting Party participated; (ii) the estimated cost of
severance benefits for local employees upon cessation of operations;
and
(iii) any other identifiable costs that the non-defaulting Parties
anticipate will be incurred in connection with the cessation of
operations. Upon the conclusion of the Default Period, all amounts
held in
the Reserve Fund shall be returned to the Party previously in
Default.
|
21
| (D) |
(1) If
a Defaulting Party fails to fully remedy all its defaults by the
thirtieth
(30th) Day following the date of the Default Notice, then, without
prejudice to any other rights available to each non-defaulting Party
to
recover its portion of the Total Amount in Default, each non-defaulting
Party shall have the option, exercisable at anytime thereafter during
the
Default Period, to require that the Defaulting Party completely withdraw
from this Agreement. Such option shall be exercised by notice to
the
Defaulting Party and each non-defaulting Party. If such option is
exercised, the Defaulting Party shall be deemed to have transferred,
pursuant to Article 12.6, effective on the date of the non-defaulting
Party’s or Parties’ notice, its Participating Interest to the
non-defaulting Parties. Notwithstanding the terms of Article 12,
in the
absence of an agreement among the non-defaulting Parties to the contrary,
any transfer to the non-defaulting Parties following a withdrawal
pursuant
to this Article 7.4(D)(1) shall be in proportion to the Participating
Interests of the non-defaulting Parties.
|
(2) A
Party
which is held in default under this Agreement (and subsequently cures such
default) shall be subject to the provisions of this Article 7.4(D)(2) for a
period of thirty (30) Days following the last Day of the Default Period
associated with such initial occurrence of default. If such Party fails to
remedy a subsequent default by the fifteenth (15th) Day following the date
of
the Default Notice associated with such subsequent occasion of default (a
“Repeat
Defaulting Party”),
then,
without prejudice to any other rights available to each non-defaulting Party
to
recover its portion of the Total Amount in Default, each non-defaulting Party
shall have the option, exercisable at any time thereafter until the Repeat
Defaulting Party has completely cured its defaults, to require that the Repeat
Defaulting Party completely withdraw from this Agreement. Such option shall
be
exercised by notice to the Repeat Defaulting Party and each non-defaulting
Party. If such option is exercised, the Repeat Defaulting Party shall be deemed
to have transferred, pursuant to Article 12.6, effective on the date of the
non-defaulting Party’s or Parties’ notice, its Participating Interest to the
non-defaulting Parties. Notwithstanding the terms of Article 12, in the absence
of an agreement among the non-defaulting Parties to the contrary, any transfer
to the non-defaulting Parties following a withdrawal pursuant to this Article
7.4(D)(2) shall be in proportion to the Participating Interests of the
non-defaulting Parties
|
(E)
|
In
addition to the other remedies available to the non-defaulting Parties
under this Article 7 and any other rights available to each non-defaulting
Party to recover its portion of the Total Amount in Default, in the
event
a Defaulting Party fails to remedy its default within thirty (30)
Days of
the Default Notice, the non-Defaulting Parties may elect to enforce
a
mortgage and security interest on the Defaulting Party’s Participating
Interest as set forth below, subject to the Laws /
Regulations.
|
|
(1)
|
Each
Party grants to each of the other Parties, in pro rata shares based
on
their relative Participating Interests, a mortgage and security interest
on its Participating Interest, whether now owned or hereafter acquired,
together with all products and proceeds derived from that Participating
Interest (collectively, the “Collateral”)
as security for (i) the payment of all amounts owing by such Party
(including interest and costs of collection) under this Agreement.
|
|
(2)
|
Should
a Defaulting Party fail to remedy its default by the thirtieth (30th)
Day
following the date of the Default Notice, then, each non-defaulting
Party
shall have the option, exercisable at any time thereafter during
the
Default Period, to foreclose its mortgage and security interest against
its pro rata share of the Collateral by any means permitted under
the Laws
/ Regulations and to sell all or any part of that Collateral in public
or
private sale after providing the Defaulting Party and other creditors
with
any notice required by the Laws / Regulations, and subject to the
provisions of Article 11. Except as may be prohibited by the Laws /
Regulations, the non-defaulting Party that forecloses its mortgage
and
security interest shall be entitled to become the purchaser of the
Collateral sold and shall have the right to credit toward the purchase
price the amount to which it is entitled under Article 7.4. Any
deficiency in the amounts received by the foreclosing party shall
remain a
debt due by the Defaulting Party. The foreclosure of mortgages and
security interests by one non-defaulting Party shall neither affect
the
amounts owed by the Defaulting Party to the other non-defaulting
Parties
nor in any way limit the rights or remedies available to them. Each
Party
agrees that, should it become a Defaulting Party, it waives the benefit
of
any appraisal, valuation, stay, extension or redemption law and any
other
debtor protection law that otherwise could be invoked to prevent
or hinder
the enforcement of the mortgage and security interest granted
above.
|
22
|
(3)
|
Each
Party agrees to execute such memoranda, financing statements and
other
documents, and make such filings and registrations, as may be reasonably
necessary to perfect, validate and provide notice of the mortgages
and
security interests granted by this Article
7.4(E).
|
|
(F)
|
For
purposes of Articles 8.4(D) and 8.4(E), the Defaulting Party shall,
without delay following any request from the non-defaulting Parties,
do
any act required to be done by the Laws / Regulations and any other
applicable laws in order to render the transfer of its Participating
Interest legally valid, including obtaining all governmental consents
and
approvals, and shall execute any document and take such other actions
as
may be necessary in order to effect a prompt and valid transfer.
The
Defaulting Party shall be obligated to promptly remove any liens
and
encumbrances which may exist on its assigned Participating Interests.
In
the event all Government approvals are not timely obtained, the Defaulting
Party shall hold the assigned Participating Interest in trust for
the
non-defaulting Parties who are entitled to receive it. Each Party
constitutes and appoints each other Party its true and lawful attorney
to
execute such instruments and make such filings and applications as
may be
necessary to make such transfer legally effective and to obtain any
necessary consents of the Government. Actions under this power of
attorney
may be taken by any Party individually without the joinder of the
others.
This power of attorney is irrevocable for the term of this Agreement
and
is coupled with an interest. If requested, each Party shall execute
a form
prescribed by the Operating Committee setting forth this power of
attorney
in more detail.
|
|
(G)
|
The
non-defaulting Parties shall be entitled to recover from the Defaulting
Party all reasonable attorneys’ fees and all other reasonable costs
sustained in the collection of amounts owing by the Defaulting
Party..
|
|
(H)
|
The
rights and remedies granted to the non-defaulting Parties in this
Article
7 shall be cumulative, not exclusive, and shall be in addition to
any
other rights and remedies that may be available to the non-defaulting
Parties, whether at law, in equity or otherwise. Each right and remedy
available to the non-defaulting Parties may be exercised from time
to time
and so often and in such order as may be considered expedient by
the
non-defaulting Parties in their sole
discretion.
|
|
7.5
|
Survival
|
The
obligations of the Defaulting Party and the rights of the non-defaulting Parties
shall survive abandonment of Joint Operations and termination of this
Agreement.
23
|
7.6
|
No
Right of Set Off
|
Each
Party acknowledges and accepts that a fundamental principle of this Agreement
is
that each Party pays its Participating Interest share of all amounts due under
this Agreement as and when required. Accordingly, any Party which becomes a
Defaulting Party undertakes that, in respect of either any exercise by the
non-defaulting Parties of any rights under or the application of any of the
provisions of this Article 7, such Party hereby waives any right to raise by
way
of set off or invoke as a defense, whether in law or equity, any failure by
any
other Party to pay amounts due and owing under this Agreement or any alleged
claim that such Party may have against Operator or any Non-Operator, whether
such claim arises under this Agreement or otherwise. Each Party further agrees
that the nature and the amount of the remedies granted to the non-defaulting
Parties hereunder are reasonable and appropriate in the
circumstances.
ARTICLE
8
DISPOSITION
OF HYDROCARBONS
|
8.1
|
Right
and Obligation to Take in
Kind
|
Except
as
otherwise provided in this Article 8, otherwise determined by the Operating
Committee or as otherwise agreed by the Parties, each Party shall have the
right
and obligation to own, take in kind and separately dispose of its Entitlement.
|
8.2
|
Disposition
of Hydrocarbons
|
The
Parties shall in good faith, and not less than three (3) months prior to the
anticipated first delivery of Hydrocarbons, as promptly notified by Operator,
negotiate and endeavor to conclude the terms of an agreement to cover the
disposition of Hydrocarbons by the Joint Operations, it being intended by the
parties that the Operator shall dispose of and sell Hydrocarbons in a manner
the
most economically efficient for the Operating Corporation.
24
ARTICLE
9
TRANSFER
OF INTEREST OR RIGHTS AND CHANGES IN CONTROL
|
9.1
|
Obligations
|
|
(A)
|
Any
Transfer (except Transfers pursuant to Article 7 or Article 10) shall
be
effective only if it satisfies the terms and conditions of Article
9.2;
and a Party subject to a Change in Control must satisfy the terms
and
conditions of Article 9.3. Should a Transfer subject to this Article
or a
Change in Control occur without satisfaction (in all material respects)
by
the transferor or the Party subject to the Change in Control, as
applicable, of the requirements hereof, then each other Party shall
be
entitled to enforce specific performance of the terms of this Article,
in
addition to any other remedies (including damages) to which it may
be
entitled. Each Party agrees that monetary damages alone would not
be an
adequate remedy for the breach of any Party’s obligations under this
Article.
|
| (B) |
For
purposes of this Agreement:
|
“Cash
Transfer”
means
any Transfer where the sole consideration (other than the assumption of
obligations relating to the transferred Participating Interest) takes the form
of cash, cash equivalents, promissory notes or retained interests (such as
production payments) in the Participating Interest being transferred;
and
“Cash
Value”
means
the portion of the total monetary value (expressed in U.S. dollars) of the
consideration being offered by the proposed transferee (including any cash,
other assets, and tax savings to the transferor from a non-cash deal) that
reasonably should be allocated to the Participating Interest subject to the
proposed Transfer or Change in Control.
“Change
in Control”
means
any direct or indirect change in Control of a Party (whether through merger,
sale of shares or other equity interests, or otherwise) through a single
transaction or series of related transactions, from one or more transferors
to
one or more transferees, in which the market value of the Party’s Participating
Interest represents more than fifty percent (50%) of the aggregate market value
of the assets of such Party and its Affiliates that are subject to the change
in
Control. For the purposes of this definition, market value shall be determined
based upon the amount in cash a willing buyer would pay a willing seller in
an
arm’s length transaction.
“Encumbrance”
means a
mortgage, lien, pledge, charge or other encumbrance.
“Encumber”
and
other derivatives shall be construed accordingly.
“Transfer”
means
any sale, assignment, Encumbrance or other disposition by a Party of any rights
or obligations derived from this Agreement (including its Participating
Interest), other than its Entitlement and its rights to any credits, refunds
or
payments under this Agreement, and excluding any direct or indirect change
in
Control of a Party.
|
9.2.
|
Transfer
|
|
(A)
|
Except
in the case of a Party transferring all of its Participating Interest,
no
Transfer shall be made by any Party which results in the transferor
or the
transferee holding a Participating Interest of less than ten percent
(10%)
or any interest other than a Participating Interest in this
Agreement.
|
|
(B)
|
Subject
to the terms of Articles 4.9 and 4.10, the Party serving as Operator
shall remain Operator following Transfer of a portion of its Participating
Interest. In the event of a Transfer of all of its Participating
Interest,
except to an Affiliate, the Party serving as Operator shall be deemed
to
have resigned as Operator, effective on the date the Transfer becomes
effective under this Article 9, in which event a successor Operator
shall
be appointed in accordance with Article 4.11. If Operator transfers
all of its Participating Interest to an Affiliate, that Affiliate
shall
automatically become the successor Operator, provided that the
transferring Operator shall remain liable for its Affiliate’s performance
of its obligations.
|
25
|
(C)
|
Both
the transferee, and, notwithstanding the Transfer, the transferring
Party,
shall be liable to the other Parties for the transferring Party’s
Participating Interest share of any obligations (financial or otherwise)
which have vested, matured or accrued under the provisions of this
Agreement prior to such Transfer. Such obligations, shall include
any
proposed expenditure approved by the Operating Committee prior to
the
transferring Party notifying the other Parties of its proposed
Transfer.
|
|
(D)
|
A
transferee shall have no rights in this Agreement (except any notice
and
cure rights or similar rights that may be provided to a Lien Holder
(as
defined in Article 9.2(E)) by separate instrument signed by all Parties)
unless and until:
|
|
(1)
|
it
expressly undertakes in an instrument reasonably satisfactory to
the other
Parties to perform the obligations of the transferor under this Agreement
in respect of the Participating Interest being transferred and obtains
any
necessary Government approval for the Transfer and furnishes any
guarantees required by the Government on or before the applicable
deadlines; and
|
|
(2)
|
except
in the case of a Transfer to an Affiliate, each Party has consented
in
writing to such Transfer, which consent shall be denied only if the
transferee fails to establish to the reasonable satisfaction of each
Party
its financial capability to perform its payment obligations under
this
Agreement.
|
No
consent shall be required under this Article 9.2(D)(2) for a Transfer to an
Affiliate if the transferring Party agrees in an instrument reasonably
satisfactory to the other Parties to remain liable for its Affiliate’s
performance of its obligations.
|
(E)
|
Nothing
contained in this Article 9 shall prevent a Party from Encumbering
all or
any undivided share of its Participating Interest to a third party
(a
“Lien Holder”)
for the purpose of security relating to finance, provided
that:
|
|
(1)
|
such
Party shall remain liable for all obligations relating to such
interest;
|
|
(2)
|
the
Encumbrance shall be subject to any necessary approval of the Government
and be expressly subordinated to the rights of the other Parties
under
this Agreement;
|
|
(3)
|
such
Party shall ensure that any Encumbrance shall be expressed to be
without
prejudice to the provisions of this Agreement;
and
|
|
(F)
|
Any
Transfer of all or a portion of a Party’s Participating Interest, other
than a Transfer to an Affiliate or the granting of an Encumbrance
as
provided in Article 9.2(E), shall be subject to the following procedure.
|
26
|
(1)
|
Once
the final terms and conditions of a Transfer have been fully negotiated,
the transferor shall disclose all such final terms and conditions
as are
relevant to the acquisition of the Participating Interest (and, if
applicable, the determination of the Cash Value of the Participating
Interest) in a notice to the other Parties, which notice shall be
accompanied by a copy of all instruments or relevant portions of
instruments establishing such terms and conditions. Each other Party
shall
have the right to acquire the Participating Interest subject to the
proposed Transfer from the transferor on the terms and conditions
described in Article 9.2(F)(3) if, within thirty (30) Days of the
transferor’s notice, such Party delivers to all other Parties a
counter-notification that it accepts such terms and conditions without
reservations or conditions (subject to Articles 12.2(F)(3) and 12.2(F)(4),
where applicable). If no Party delivers such counter-notification,
the
Transfer to the proposed transferee may be made, subject to the other
provisions of this Article 9, under terms and conditions no more
favorable
to the transferee than those set forth in the notice to the Parties,
provided that the Transfer shall be concluded within one hundred
eighty
(180) Days from the date of the notice plus such additional period
as may
be required to secure governmental approvals. No Party shall have
a right
under this Article 9.2(F) to acquire any asset other than a Participating
Interest, nor may any Party be required to acquire any asset other
than a
Participating Interest, regardless of whether other properties are
included in the Transfer.
|
|
(2)
|
If
more than one Party counter-notifies that it intends to acquire the
Participating Interest subject to the proposed Transfer, then each
such
Party shall acquire a proportion of the Participating Interest to
be
transferred equal to the ratio of its own Participating Interest
to the
total Participating Interests of all the counter-notifying Parties,
unless
the counter-notifying Parties otherwise
agree.
|
|
(3)
|
In
the event of a Cash Transfer that does not involve other properties
as
part of a wider transaction, each other Party shall have a right
to
acquire the Participating Interest subject to the proposed Transfer
on the
same final terms and conditions as were negotiated with the proposed
transferee. In the event of a Transfer that is not a Cash Transfer
or
involves other properties included in a wider transaction (package
deal),
the transferor shall include in its notification to the other Parties
a
statement of the Cash Value of the Participating Interest subject
to the
proposed Transfer, and each other Party shall have a right to acquire
such
Participating Interest on the same final terms and conditions as
were
negotiated with the proposed transferee except that it shall pay
the Cash
Value in immediately available funds at the closing of the Transfer
in
lieu of the consideration payable in the third party offer, and the
terms
and conditions of the applicable instruments shall be modified as
necessary to reflect the acquisition of a Participating Interest
for cash.
In the case of a package sale, no Party may acquire the Participating
Interest subject to the proposed package sale unless and until the
completion of the wider transaction (as modified by the exclusion
of
properties subject to preemptive rights or excluded for other reasons)
with the package sale transferee. If for any reason the package sale
terminates without completion, the other Parties’ rights to acquire the
Participating Interest subject to the proposed package sale shall
also
terminate.
|
27
|
(4)
|
For
purposes of Article 9.2(F)(3), the Cash Value proposed by the transferor
in its notice shall be conclusively deemed correct unless any Party
(each
a “Disagreeing
Party”)
gives notice to the transferor with a copy to the other Parties within
ten
(10) Days of receipt of the transferor’s notice stating that it does not
agree with the transferor’s statement of the Cash Value, stating the Cash
Value it believes is correct, and providing any supporting information
that it believes is helpful. In such event, the transferor and the
Disagreeing Parties shall have fifteen (15) Days in which to attempt
to
negotiate an agreement on the applicable Cash Value. If no agreement
has
been reached by the end of such fifteen (15) Day period, either the
transferor or any Disagreeing Party shall be entitled to refer the
matter
to an independent expert as provided in Article 16.3 for determination
of
the Cash Value.
|
|
(5)
|
If
the determination of the Cash Value is referred to an independent
expert
and the value submitted by the transferor is no more than five percent
(5%) above the Cash Value determined by the independent expert, the
transferor’s value shall be used for the Cash Value and the Disagreeing
Parties shall pay all costs of the expert. If the value submitted
by the
transferor is more than five percent (5%) above the Cash Value determined
by the independent expert, the independent expert’s value shall be used
for the Cash Value and the transferor shall pay all costs of the
expert.
Subject to the independent expert’s value being final and binding in
accordance with Article 16.3, the Cash Value determined by the procedure
shall be final and binding on all Parties.
|
|
(6)
|
Once
the Cash Value is determined under Article 9.2(F)(5), Operator shall
provide notice of such Cash Value to all Parties and the transferor
shall
be obligated to sell and the Parties which provided notice of their
intention to purchase the transferor’s Participating Interest pursuant to
Article 9.2(F)(1) shall be obligated to buy the Participating Interest
at
said value.
|
|
(F)
|
Any
Transfer (other than a Transfer to an Affiliate and the granting
of an
Encumbrance as provided in Article 9.2(E)) shall be subject to the
following procedure.
|
|
(1)
|
In
the event that a Party wishes to transfer any part or all of its
Participating Interest, prior to the transferor entering into a written
agreement providing for such a Transfer (whether or not such agreement
is
binding) the transferor shall send the other Parties notice of its
intention and invite them to submit offers for the Participating
Interest
subject to the Transfer. The other Parties shall have thirty (30)
Days
from the date of such notification to deliver a counter-notification
with
a binding offer in accordance with Article 9.2(F)(3). If the transferor
notifies the offering Party or Parties that the binding offer presents
an
acceptable basis for negotiating a Transfer agreement, the transferor
and
that offering Party or Parties shall have the next sixty (60) Days
in
which to negotiate in good faith and execute the terms and conditions
of a
mutually acceptable Transfer agreement. If the transferor does not
find
that any Party’s offer presents an acceptable basis for negotiating a
Transfer agreement, or if the above sixty (60) Days elapse and the
transferor in its sole discretion believes that a fully negotiated
agreement based on the offer deemed acceptable by the transferor
with all
offering Parties is not imminent, the transferor shall be entitled
for a
period of one hundred eighty (180) Days from the expiration of the
thirty
(30) Day offer period or the sixty (60) Day negotiation period,
respectively, plus such additional period as may be necessary to
secure
governmental approvals, to Transfer all or such portion of its
Participating Interest to a third party, subject to the obligations
set
forth in this Article 9.
|
28
|
(2)
|
If
more than one Party counter-notifies the transferor that it intends
to
acquire the Participating Interest subject to the proposed Transfer,
then
each such Party shall acquire a proportion of the Participating Interest
to be transferred equal to the ratio of its own Participating Interest
to
the total Participating Interests of all the counter-notifying Parties,
unless the counter-notifying Parties otherwise
agree.
|
|
(3)
|
All
Parties desiring to give such a counter-notice shall meet to formulate
a
joint offer. Each such Party shall make known to the other Parties
the
highest price or value that it is willing to offer to the transferor.
The
proposal with the highest price or value shall be offered to the
transferor as the joint proposal of the Parties still willing to
participate in such offer under the provisions of Article 9.2(F)(1)
above.
|
|
9.3
|
Change
in Control
|
|
(A)
|
If
required by law, a Party subject to a Change in Control shall obtain
any
necessary Government approval with respect to the Change in Control
and
furnish any replacement Security required by the Government on or
before
the applicable deadlines.
|
|
(B)
|
A
Party subject to a Change in Control shall provide evidence reasonably
satisfactory to the other Parties that following the Change in Control
such Party shall continue to have the financial capability to satisfy
its
payment obligations this Agreement. Should the Party that is subject
to
the Change in Control fail to provide such evidence, any other Party,
by
notice to such Party, may require such Party to provide Security
satisfactory to the other Parties with respect to its Participating
Interest share of any obligations or liabilities which the Parties
may
reasonably be expected to incur under this
Agreement.
|
|
(C)
|
Any
Change in Control of a Party, other than to an Affiliate, shall be
subject
to the following procedure. For purposes of this 12.3, the term
“acquired
Party”
shall refer to the Party that is subject to the Change in
Control.
|
|
(1)
|
In
the event that the Affiliates of a Party wish to enter into a transaction
that will result in a Change in Control of the Party, prior to such
Affiliates entering into a written agreement (whether or not such
agreement is binding) the acquired Party shall send the other Parties
notice of its Affiliates’ intention and invite them to submit offers for
the Participating Interest subject to the Change in Control. The
other
Parties shall have thirty (30) Days from the date of such notification
to
deliver a counter-notification with a binding offer in accordance
with
Article 9.3(C)(3). If the acquired Party notifies an offering Party
or
Parties that their binding offer presents an acceptable basis for
negotiating a transfer agreement, the acquired Party and the offering
Party or Parties shall have the next sixty (60) Days in which to
negotiate
in good faith and execute the terms and conditions of a mutually
acceptable transfer agreement. If the acquired Party does not find
that
any Party’s offer presents an acceptable basis for negotiating a transfer
agreement, or if the above sixty (60) Days elapse and the acquired
Party
in its sole discretion believes that a fully negotiated agreement
with an
offering Party or Parties is not imminent, the Change in Control
may
proceed without further notice, subject to the obligations set forth
in
this Article 9, provided that the Change in Control shall be concluded
within one hundred eighty (180) Days from the expiration of the thirty
(30) Day offer period or the sixty (60) Day negotiation period,
respectively, plus such additional period as may be necessary to
secure
governmental approvals.
|
29
|
(2)
|
If
more than one Party counter-notifies the acquired Party that it intends
to
acquire the Participating Interest subject to the proposed Change
in
Control, then each such Party shall acquire a proportion of the
Participating Interest equal to the ratio of its own Participating
Interest to the total Participating Interests of all the counter-notifying
Parties, unless the counter-notifying Parties otherwise
agree.
|
|
(3)
|
All
Parties desiring to give such a counter-notice shall meet to formulate
a
joint offer. Each such Party shall make known to the other Parties
the
highest price or value which it is willing to offer to the acquired
Party.
The proposal with the highest price or value shall be offered to
the
acquired Party as the joint proposal of the Parties still willing
to
participate in such offer under the provisions of Article 9.3(C)(1)
above.
|
ARTICLE
10
WITHDRAWAL
FROM AGREEMENT
|
10.1
|
Right
of Withdrawal
|
|
(A)
|
Subject
to the provisions of this Article 10, any Party not in default may
at its
option withdraw from this Agreement by giving notice to all other
Parties
stating its decision to withdraw. Such notice shall be unconditional
and
irrevocable when given, except as may be provided in Article
10.7.
|
|
(B)
|
The
effective date of withdrawal for a withdrawing Party shall be the
end of
the calendar month following the calendar month in which the notice
of
withdrawal is given, provided that if all Parties elect to withdraw,
the
effective date of withdrawal for each Party shall be the date determined
by Article 10.9.
|
|
10.2
|
Partial
or Complete
Withdrawal
|
|
(A)
|
Within
thirty (30) Days of receipt of each withdrawing Party’s notification, each
of the other Parties may also give notice that it desires to withdraw
from
this Agreement. Should all Parties give notice of withdrawal, the
Parties
shall proceed to abandon the Joint Operations and terminate this
Agreement. If less than all of the Parties give such notice of withdrawal,
then the withdrawing Parties shall take all steps to withdraw from
this
Agreement on the earliest possible date and execute and deliver all
necessary instruments and documents to assign their Participating
Interest
to the Parties which are not withdrawing, without any compensation
whatsoever, in accordance with the provisions of Article
10.6.
|
|
(B)
|
Any
Party withdrawing under Article 10.2 or under this Article 12 shall
withdraw from the Joint Operations, and thus abandon to the other
Parties
not joining in its withdrawal all its rights to Hydrocarbons generated
by
operations after the effective date of such withdrawal and all rights
in
associated Joint Property.
|
30
|
10.3
|
Rights
of a Withdrawing
Party
|
A
withdrawing Party shall have the right to receive its Entitlement produced
through the effective date of its withdrawal. The withdrawing Party shall be
entitled to receive all information to which such Party is otherwise entitled
under this Agreement until the effective date of its withdrawal. After giving
its notification of withdrawal, a Party shall not be entitled to vote on any
matters coming before the Operating Committee, other than matters for which
such
Party has financial responsibility.
|
10.4
|
Obligations
and Liabilities of a Withdrawing
Party
|
|
(A)
|
A
withdrawing Party shall, following its notification of withdrawal,
remain
liable only for its share of the
following:
|
|
(1)
|
costs
of Joint Operations, and Exclusive Operations in which it has agreed
to
participate, that were approved by the Operating Committee or Consenting
Parties as part of a Work Program and Budget (including a multi-year
Work
Program and Budget under Article 6.5) or AFE prior to such Party’s
notification of withdrawal, regardless of when they are
incurred;
|
|
(2)
|
expenditures
described in Articles 4.2(B)(13) and 11.5 related to an emergency
occurring prior to the effective date of a Party’s withdrawal, regardless
of when such expenditures are
incurred;
|
|
(3)
|
all
other obligations and liabilities of the Parties or Consenting Parties,
as
applicable, with respect to acts or omissions under this Agreement
prior
to the effective date of such Party’s withdrawal for which such Party
would have been liable, had it not withdrawn from this Agreement;
and
|
|
(4)
|
in
the case of a partially withdrawing Party, any costs and liabilities
with
respect to Exploitation Areas, Commercial Discoveries and Discoveries
from
which it has not withdrawn.
|
Any
mortgages, liens, pledges, charges or other encumbrances which were placed
on
the withdrawing Party’s Participating Interest prior to such Party’s withdrawal
shall be fully satisfied or released, at the withdrawing Party’s expense, prior
to its withdrawal. A Party’s withdrawal shall not relieve it from liability to
the non-withdrawing Parties with respect to any obligations or liabilities
attributable to the withdrawing Party under this Article 10 merely because
they
are not identified or identifiable at the time of withdrawal.
|
(B)
|
Notwithstanding
the foregoing, a Party shall not be liable for any operations or
expenditures it voted against (other than operations and expenditures
described in Article 10.4(A)(2) or Article 10.4(A)(3)) if it sends
notification of its withdrawal within five (5) Days (or within twenty-four
(24) hours for Urgent Operational Matters) of the Operating Committee
vote
approving such operation or expenditure.
|
|
10.5
|
Emergency
|
If
equipment catches fire or explodes, sabotage or other emergency occurs prior
to
the effective date of a Party’s withdrawal, the withdrawing Party shall remain
liable for its Participating Interest share of the costs of such emergency,
regardless of when they are incurred.
|
10.6
|
Assignment
|
A
withdrawing Party shall assign its Participating Interest free of cost to each
of the non-withdrawing Parties in the proportion which each of their
Participating Interests (prior to the withdrawal) bears to the total
Participating Interests of all the non-withdrawing Parties (prior to the
withdrawal), unless the non-withdrawing Parties agree otherwise. The expenses
associated with the withdrawal and assignments shall be borne by the withdrawing
Party.
31
|
10.7
|
Approvals
|
A
withdrawing Party shall promptly join in such actions as may be necessary or
desirable to obtain any Government approvals required in connection with the
withdrawal and assignments. The non-withdrawing Parties shall use reasonable
endeavors to assist the withdrawing Party in obtaining such approvals. Any
penalties or expenses incurred by the Parties in connection with such withdrawal
shall be borne by the withdrawing Party. If the Government does not approve
a
Party’s withdrawal and assignment to the other Parties, then the withdrawing
Party shall at its option either (1) retract its notice of withdrawal by notice
to the other Parties and remain a Party as if such notice of withdrawal had
never been sent, or (2) hold its Participating Interest in trust for the sole
and exclusive benefit of the non-withdrawing Parties with the right to be
reimbursed by the non-withdrawing Parties for any subsequent costs and
liabilities incurred by it for which it would not have been liable, had it
successfully withdrawn.
|
10.8
|
Security
|
A
Party
withdrawing from this Agreement pursuant to this Article 10 shall provide
Security satisfactory to the other Parties to satisfy any obligations or
liabilities for which the withdrawing Party remains liable in accordance with
Article 10.4, but which become due after its withdrawal, including Security
to
cover the costs of an abandonment, if applicable.
|
10.9
|
Withdrawal
or Abandonment by All
Parties
|
In
the
event all Parties decide to withdraw, the Parties agree that they shall be
bound
by the terms and conditions of this Agreement for so long as may be necessary
to
wind up the affairs of the Parties with the Government, to satisfy any
requirements of the Laws / Regulations and to facilitate the sale, disposition
or abandonment of property or interests held by the Joint Account, all in
accordance with Article 2.
ARTICLE
11
RELATIONSHIP
OF PARTIES AND TAX
|
11.1
|
Relationship
of Parties for the Purposes of Parties Subject to U.S. Tax
Laws
|
The
rights, duties, obligations and liabilities of the Parties under this Agreement
shall be individual, not joint or collective. It is not the intention of the
Parties to create, nor shall this Agreement be deemed or construed to create,
a
mining or other partnership, joint venture or association or (except as
explicitly provided in this Agreement) a trust. This Agreement shall not be
deemed or construed to authorize any Party to act as an agent, servant or
employee for any other Party for any purpose whatsoever except as explicitly
set
forth in this Agreement. In their relations with each other under this
Agreement, the Parties shall not be considered fiduciaries except as expressly
provided in this Agreement.
|
11.2
|
Tax
|
Each
Party shall be responsible for reporting and discharging its own tax measured
by
the profit or income of the Party and the satisfaction of such Party’s share of
all contract obligations under this Agreement. Each Party shall protect, defend
and indemnify each other Party from any and all loss, cost or liability arising
from the indemnifying Party’s failure to report and discharge such taxes or
satisfy such obligations. The Parties intend that all income and all tax
benefits (including deductions, depreciation, credits and capitalization) with
respect to the expenditures made by the Parties hereunder will be allocated
by
the Government tax authorities to the Parties based on the share of each tax
item actually received or borne by each Party. If such allocation is not
accomplished due to the application of the Laws / Regulations or other
Government action, the Parties shall attempt to adopt mutually agreeable
arrangements that will allow the Parties to achieve the financial results
intended. Operator shall provide each Party, in a timely manner and at such
Party’s sole expense, with such information with respect to Joint Operations as
such Party may reasonably request for preparation of its tax returns or
responding to any audit or other tax proceeding.
32
|
11.3
|
United
States Tax Election
|
|
(A)
|
If,
for United States federal income tax purposes, this Agreement and
the
operations under this Agreement are regarded as a partnership and
if the
Parties have not agreed to form a tax partnership, each U.S. Party
elects
to be excluded from the application of all of the provisions of Subchapter
“K”, Chapter 1, Subtitle “A” of the United States Internal Revenue Code of
1986, as amended (the “Code”),
to the extent permitted and authorized by Section 761(a) of the Code
and
the regulations promulgated under the Code. Operator, if it is a
U.S.
Party, is authorized and directed to execute and file for each U.S.
Party
such evidence of this election as may be required by the Internal
Revenue
Service, including all of the returns, statements, and data required
by
United States Treasury Regulations Sections 1.761-2 and
1.6031(a)-1(b)(5) and shall provide a copy thereof to each U.S. Party.
However, if Operator is not a U.S. Party, the Party who holds the
greatest
Participating Interest among the U.S. Parties shall fulfill the
obligations of Operator under this Article 13.3. Should there be
any
requirement that any U.S. Party give further evidence of this election,
each U.S. Party shall execute such documents and furnish such other
evidence as may be required by the Internal Revenue Service or as
may be
necessary to evidence this
election.
|
|
(B)
|
No
Party shall give any notice or take any other action inconsistent
with the
foregoing election. If any income tax laws of any state or other
political
subdivision of the United States or any future income tax laws of
the
United States or any such political subdivision contain provisions
similar
to those in Subchapter “K”, Chapter 1, Subtitle “A” of the Code, under
which an election similar to that provided by Section 761(a) of the
Code
is permitted, each U.S. Party shall make such election as may be
permitted
or required by such laws. In making the foregoing election or elections,
each U.S. Party states that the income derived by it from operations
under
this Agreement can be adequately determined without the computation
of
partnership taxable income.
|
|
(C)
|
Unless
approved by every Non-U.S. Party, no activity shall be conducted
under
this Agreement that would cause any Non-U.S. Party to be deemed to
be
engaged in a trade or business within the United States under United
States income tax laws and
regulations.
|
|
(D)
|
A
Non-U.S. Party shall not be required to do any act or execute any
instrument which might subject it to the taxation jurisdiction of
the
United States.
|
|
(E)
|
For
the purposes of this Article 13.3, “U.S.
Party”
shall mean any Party that is subject to the income tax law of the
United
States in respect with operations under this Agreement. “Non-U.S.
Party”
shall mean any Party that is not subject to such income tax law.
|
33
ARTICLE
12
VENTURE
INFORMATION - CONFIDENTIALITY - INTELLECTUAL PROPERTY
|
12.1
|
Venture
Information
|
|
(A)
|
Except
as otherwise provided in this Article 12 or in Articles 4.4 and 8.4(A),
each Party will be entitled to receive all Venture Information related
to
operations in which such party is a participant. “Venture
Information” means
any information and results developed or acquired as a result of
Joint
Operations and shall be owned exclusively by RESI. By way of example
and
not limitation, Venture Information shall include all designs,
documentation, methods, processes, improvements, inventions, works
and
other related information resulting Joint Operations or joint development
efforts hereunder, including without limitation all patents (and
all
applications for the same whether in process or not), copyrights
(and all
applications for the same whether in process or not), marks, trade
secrets
and other intellectual and property rights in or based upon the foregoing,
in whole or in part. RESI grants each Party the right to use all
Venture
Information it receives solely to copy, review and further Joint
Operations. Such right shall not include rights to disclose, license,
distribute, sell or any other right not expressly granted herein.
|
|
(B)
|
Each
Party may extend the right to use Venture Information to each of
its
Affiliates which are obligated to terms not less restrictive that
this
Article 12.
|
|
(C)
|
All
Venture Information received by a Party under this Agreement is received
on an “as is” basis without warranties, express or implied, of any kind.
Any use of such Venture Information by a Party shall be at such Party’s
sole risk.
|
|
12.2
|
Confidentiality
|
|
(A)
|
Subject
to the provisions of this Article 12, the Parties agree that all
information in relation with Joint Operations or Exclusive Operations
shall be considered confidential and shall be kept confidential and
not be
disclosed during the course of any Joint Operations and for a period
of
twenty (20) years thereafter to any person or entity not a Party
to this
Agreement, except:
|
|
(1)
|
to
an Affiliate pursuant to Article 12.1(B);
|
|
(2)
|
to
the extent such information is required to be furnished in compliance
with
the applicable law or regulations, or pursuant to any legal proceedings
or
because of any order of any court binding upon a Party;
|
|
(3)
|
to
prospective or actual attorneys engaged by any Party where disclosure
of
such information is essential to such attorney’s work for such
Party;
|
|
(4)
|
to
prospective or actual contractors and consultants engaged by any
Party
where disclosure of such information is essential to such contractor’s or
consultant’s work for such Party;
|
|
(5)
|
to
a bona fide prospective transferee of a Party’s Participating Interest to
the extent appropriate in order to allow the assessment of such
Participating Interest (including an entity with whom a Party and/or
its
Affiliates are conducting bona fide negotiations directed toward
a merger,
consolidation or the sale of a majority of its or an Affiliate’s
shares);
|
34
|
(6)
|
to
a bank or other financial institution to the extent appropriate to
a Party
arranging for funding;
|
|
(7)
|
to
the extent such information must be disclosed pursuant to any rules
or
requirements of any government or stock exchange having jurisdiction
over
such Party, or its Affiliates; provided that if any Party desires
to
disclose information in an annual or periodic report to its or its
Affiliates’ shareholders and to the public and such disclosure is not
required pursuant to any rules or requirements of any government
or stock
exchange;
|
|
(8)
|
to
its respective employees for the purposes of Joint Operations or
Exclusive
Operations as the case may be, subject to each Party taking customary
precautions to ensure such information is kept confidential;
and
|
|
(9)
|
any
information which, through no fault of a Party, becomes a part of
the
public domain.
|
|
(B)
|
Disclosure
as pursuant to Articles 12.2(A)(5), (6), and (7) shall not be made
unless
prior to such disclosure the disclosing Party has obtained a written
undertaking from the recipient party to keep the information strictly
confidential for at least ten (10) years and to use the information
for
the sole purpose described in Articles 12.2(A)(5), (6), and (7),
whichever
is applicable, with respect to the disclosing
Party.
|
|
12.3
|
Intellectual
Property
|
|
(A)
|
Subject
to Articles 15.3(C) and 15.5, title to all intellectual property
rights in
the Venture Information shall be owned exclusively by, and hereby
vests
in, RESI. RESI hereby grants to the Parties a limited, perpetual,
royalty-free, irrevocable license to use, all such intellectual property
rights solely in the Joint Operations. If any Venture Information
amounts
to a patentable invention, RESI shall be entitled to seek patent
protection for such invention. The Parties shall perform all acts
necessary to vest ownership of the development technology in RESI,
including but not limited to executing the documents necessary to
file,
amend, prosecute and assign patents, copyrights and other intellectual
property. The Parties hereby assign all Venture Information to
RESI.
|
|
(B)
|
Nothing
in this Agreement shall be deemed to require a Party to (i) divulge
proprietary technology to any of the other Parties; or (ii) grant
a
license or other rights under any intellectual property rights owned
or
controlled by such Party or its Affiliates to any of the other Parties.
|
|
(C)
|
If
in the course of carrying out activities charged to the Joint Account,
a
Party or an Affiliate of a Party makes or conceives any inventions,
discoveries, or improvements which primarily relate to or are primarily
based on the proprietary technology of RESI or its Affiliates, or
is
related to Joint Operations, then all intellectual property rights
to such
inventions, discoveries, or improvements shall vest exclusively in
RESI,
provided,
however,
each other Party shall have a perpetual, royalty-free, irrevocable
license
to use such inventions, discoveries, or improvements, but only in
connection with the Joint
Operations.
|
|
(D)
|
Subject
to Article 4.6(B), all costs and expenses of defending, settling
or
otherwise handling any claim which is based on the actual or alleged
infringement of any intellectual property right shall be for the
account
of the operation from which the claim arose, whether Joint Operations
or
Exclusive Operations.
|
35
|
12.4
|
Continuing
Obligations
|
Any
Party
ceasing to own a Participating Interest during the term of this Agreement shall
nonetheless remain bound by the obligations of confidentiality in Article
12.2.
ARTICLE
13
FORCE
MAJEURE
|
13.1
|
Obligations
|
If
as a
result of Force Majeure any Party is rendered unable, wholly or in part, to
carry out its obligations under this Agreement, other than the obligation to
pay
any amounts due or to furnish Security, then the obligations of the Party giving
such notice, so far as and to the extent that the obligations are affected
by
such Force Majeure, shall be suspended during the continuance of any inability
so caused and for such reasonable period thereafter as may be necessary for
the
Party to put itself in the same position that it occupied prior to the Force
Majeure, but for no longer period. The Party claiming Force Majeure shall notify
the other Parties of the Force Majeure within a reasonable time after the
occurrence of the facts relied on and shall keep all Parties informed of all
significant developments. Such notice shall give reasonably full particulars
of
the Force Majeure and also estimate the period of time which the Party will
probably require to remedy the Force Majeure. The affected Party shall use
all
reasonable diligence to remove or overcome the Force Majeure situation as
quickly as possible in an economic manner but shall not be obligated to settle
any labor dispute except on terms acceptable to it, and all such disputes shall
be handled within the sole discretion of the affected Party.
|
13.2
|
Definition
of Force Majeure
|
For
the
purposes of this Agreement, “Force
Majeure”
shall
mean circumstances which were beyond the reasonable control of the Party
concerned and shall include strikes, lockouts and other industrial disturbances
even if they were not “beyond the reasonable control” of the Party.
ARTICLE
14
NOTICES
Except
as
otherwise specifically provided, all notices authorized or required between
the
Parties by any of the provisions of this Agreement shall be in writing (in
English) and delivered in person or by courier service or by any electronic
means of transmitting written communications which provides written confirmation
of complete transmission, and addressed to such Parties. Any notice delivered
via e-mail shall be Received (as defined below) provided that the receiving
party responds to such e-mail or otherwise acknowledges in writing receipt
of
such e-mail. Oral communication does not constitute notice for purposes of
this
Agreement, and e-mail addresses and telephone numbers for the Parties are listed
below as a matter of convenience only. A notice given under any provision of
this Agreement shall be deemed delivered only when received by the Party to
whom
such notice is directed, and the time for such Party to deliver any notice
in
response to such originating notice shall run from the date the originating
notice is received. “Received”
for
purposes of this Article 15 shall mean actual delivery of the notice to the
address of the Party specified hereunder or to be thereafter notified in
accordance with this Article 15. Each Party shall have the right to change
its
address at any time and/or designate that copies of all such notices be directed
to another person at another address, by giving written notice thereof to all
other Parties.
| If to RESI: |
000
X.
Xxxxxxxxxx Xxx., #000 Xxxxxx Xxxx
Xx
Xxxx,
Xxxxx 00000
XXX
Tel:
(000) 000-0000
Fax:
(000) 000-0000
E-mail:
xxxxxxxxx0@xxxxxxx.xxx
Attn:
Xxxxx Xxxxxxx, President and Chief Executive Officer
36
| If to COPI: |
Cancen
Oil Producers Inc.
|
0000
-
00xx Xxxxxx
Xxxxxxxx,
Xxxxxxx
Xxxxxx
X0X 0X0
Tel:
(000) 000-0000
Fax:
(000) 000-0000
E-mail:
xxxxxxxx@xxxxx.xxx
Attn:
Xxxxx Xxxxxx, President
| If to UMI: |
Upgrader
Marketing Inc.
|
Xxxxx
000, Xxxxx-Xxxxxx Xxxxxx
000
- 000
Xxxxx Xxxxxx
Xxxxxxx,
Xxxxxxx
Xxxxxx
X0X 0X0
Tel:
(000) 000-0000
Fax:
(000) 000-0000
E-mail:
xxxx@xxxxxxxxxx.xxx
Attn:
Xxx
Xxxx, President
ARTICLE
15
APPLICABLE
LAW - DISPUTE RESOLUTION - WAIVER OF SOVEREIGN IMMUNITY
|
15.1
|
Applicable
Law
|
The
substantive laws of the Province of Alberta apply exclusive of any conflicts
of
laws principles that could require the application of any other law, shall
govern this Agreement for all purposes, including the resolution of all Disputes
between or among Parties.
|
15.2
|
Dispute
Resolution
|
|
(A)
|
Notification.
A
Party who desires to submit a Dispute for resolution shall commence
the
dispute resolution process by providing the other parties to the
Dispute
written notice of the Dispute (“Notice
of Dispute”).
The Notice of Dispute shall identify the parties to the Dispute and
contain a brief statement of the nature of the Dispute and the relief
requested. The submission of a Notice of Dispute shall toll any applicable
statutes of limitation related to the Dispute, pending the conclusion
or
abandonment of dispute resolution proceedings under this Article
15.
|
37
|
(B)
|
Negotiations.
The parties to the Dispute shall seek to resolve any Dispute by
negotiation between Senior Executives. A “Senior
Executive”
means any individual who has authority to negotiate the settlement
of the
Dispute for a Party. Within thirty (30) Days after the date of the
receipt
by each party to the Dispute of the Notice of Dispute (which notice
shall
request negotiations among Senior Executives), the Senior Executives
representing the parties to the Dispute shall meet at a mutually
acceptable time and place to exchange relevant information in an
attempt
to resolve the Dispute. If a Senior Executive intends to be accompanied
at
the meeting by an attorney, each other party’s Senior Executive shall be
given written notice of such intention at least three (3) Days in
advance
and may also be accompanied at the meeting by an attorney.
|
| 15.3 |
Forum
for Arbitration
|
Any
dispute between the Parties pertaining to this Agreement shall be resolved
through binding arbitration. The parties agree that any arbitration proceeding
shall be conducted in Vancouver, British Columbia and consent to exclusive
jurisdiction and venue there. The award of the arbitrator(s) shall be final
and
binding, and the parties waive any right to appeal the arbitral award, to the
extent that a right to appeal may be lawfully waived. Each party retains the
right to seek judicial assistance (a) to compel arbitration, (b) to obtain
injunctive relief and interim measures of protection pending arbitration, and
(c) to enforce any decision of the arbitrator(s), including but not limited
to
the final award.
ARTICLE
16
GENERAL
PROVISIONS
|
16.1
|
Conduct
of the Parties
|
|
(A)
|
Each
Party agrees to (i) maintain adequate internal controls; (ii) properly
record and report all transactions; and (iii) comply with the laws
applicable to it. Each Party must rely on the other Parties’ system of
internal controls, and on the adequacy of full disclosure of the
facts,
and of financial and other data regarding the Joint Operations undertaken
under this Agreement. No Party is in any way authorized to take any
action
on behalf of another Party that would result in an inadequate or
inaccurate recording and reporting of assets, liabilities or any
other
transaction, or which would put such Party in violation of its obligations
under the laws applicable to the operations under this Agreement.
|
|
16.2
|
Conflicts
of Interest
|
|
(A)
|
Operator
undertakes that it shall avoid any conflict of interest between its
own
interests (including the interests of Affiliates) and the interests
of the
other Parties in dealing with suppliers, customers and all other
organizations or individuals doing or seeking to do business with
the
Parties in connection with activities contemplated under this
Agreement.
|
|
(B)
|
The
provisions of the preceding paragraph shall not apply to: (1) Operator’s
performance which is in accordance with the local preference laws
or
policies of the Government; or (2) Operator’s acquisition of products or
services from an Affiliate, or the sale thereof to an Affiliate,
made in
accordance with the terms of this
Agreement.
|
|
(C)
|
Unless
otherwise agreed, the Parties and their Affiliates are free to engage
or
invest (directly or indirectly) in an unlimited number of activities
or
businesses, any one or more of which may be related to or in competition
with the business activities contemplated under this Agreement, without
having or incurring any obligation to offer any interest in such
business
activities to any Party.
|
38
|
16.3
|
Public
Announcements
|
|
(A)
|
Operator
shall be responsible for the preparation and release of all public
announcements and statements regarding this Agreement or the Joint
Operations; provided that no public announcement or statement shall
be
issued or made unless, prior to its release, all the Parties have
been
furnished with a copy of such statement or announcement and the approval
of at least two (2) Parties which are not Affiliates of Operator
holding
fifty percent (50%) or more of the Participating Interests not held
by
Operator or its Affiliates has been obtained. Where a public announcement
or statement becomes necessary or desirable because of danger to
or loss
of life, damage to property or pollution as a result of activities
arising
under this Agreement, Operator is authorized to issue and make such
announcement or statement without prior approval of the Parties,
but shall
promptly furnish all the Parties with a copy of such announcement
or
statement.
|
|
(B)
|
If
a Party wishes to issue or make any public announcement or statement
regarding this Agreement or the Joint Operations, it shall not do
so
unless, prior to the release of the public announcement or statement,
such
Party furnishes all the Parties with a copy of such announcement
or
statement, and obtains the approval of at least two (2) Parties which
are
not Affiliates holding fifty percent (50%) or more of the Participating
Interests not held by such announcing Party or its Affiliates; provided
that, notwithstanding any failure to obtain such approval, no Party
shall
be prohibited from issuing or making any such public announcement
or
statement if it is necessary to do so in order to comply with the
applicable laws, rules or regulations of any government, legal proceedings
or stock exchange having jurisdiction over such Party or its Affiliates
as
set forth in Article 14.2.
|
|
16.4
|
Successors
and Assigns
|
Subject
to the limitations on Transfer contained in Article 11, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the
Parties.
|
16.5
|
Waiver
|
No
waiver
by any Party of any one or more defaults by another Party in the performance
of
any provision of this Agreement shall operate or be construed as a waiver of
any
future default or defaults by the same Party, whether of a like or of a
different character. Except as expressly provided in this Agreement no Party
shall be deemed to have waived, released or modified any of its rights under
this Agreement unless such Party has expressly stated, in writing, that it
does
waive, release or modify such right.
|
16.6
|
No
Third Party
Beneficiaries
|
Except
as
provided under Article 4.6 (B), the interpretation of this Agreement shall
exclude any rights under legislative provisions conferring rights under a
contract to persons not a party to that contract.
|
16.7
|
Joint
Preparation
|
Each
provision of this Agreement shall be construed as though all Parties
participated equally in the drafting of the same. Consequently, the Parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable to this
Agreement.
39
| 16.8 |
Severance
of Invalid Provisions
|
If
and
for so long as any provision of this Agreement shall be deemed to be judged
invalid for any reason whatsoever, such invalidity shall not affect the validity
or operation of any other provision of this Agreement except only so far as
shall be necessary to give effect to the construction of such invalidity, and
any such invalid provision shall be deemed severed from this Agreement without
affecting the validity of the balance of this Agreement.
|
16.9
|
Modifications
|
Except
as
is provided in Articles 11.2(B) and 16.8, there shall be no modification of
this
Agreement, except by written consent of all Parties.
|
16.10
|
Interpretation
|
|
(A)
|
Headings.
The topical headings used in this Agreement are for convenience only
and
shall not be construed as having any substantive significance or
as
indicating that all of the provisions of this Agreement relating
to any
topic are to be found in any particular
Article.
|
|
(B)
|
Singular
and Plural.
Reference to the singular includes a reference to the plural and
vice
versa.
|
|
(C)
|
Gender.
Reference to any gender includes a reference to all other
genders.
|
|
(D)
|
Article.
Unless otherwise provided, reference to any Article or an Exhibit
means an
Article or Exhibit of this
Agreement.
|
|
(E)
|
Include.
“include”
and “including”
shall mean include or including without limiting the generality of
the
description preceding such term and are used in an illustrative sense
and
not a limiting sense.
|
|
16.11
|
Counterpart
Execution
|
This
Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed an original Agreement for all purposes; provided
that no Party shall be bound to this Agreement unless and until all Parties
have
executed a counterpart. For purposes of assembling all counterparts into one
document, Operator is authorized to detach the signature page from one or more
counterparts and, after signature thereof by the respective Party, attach each
signed signature page to a counterpart.
|
16.12
|
Entirety
|
With
respect to the subject matter contained herein, this Agreement (i) is the entire
agreement of the Parties; and (ii) supersedes all prior understandings and
negotiations of the Parties, including but not limited to that certain
Memorandum of Understanding dated August 15, 2007, by and among the
Parties.
[signature
page follows]
40
IN
WITNESS of their agreement each Party has caused its duly authorized
representative to sign this instrument on the date indicated below such
representative’s signature.
|
RESI:
|
||
| |
|
|
| By: | ||
|
Name:
Xxxxx Xxxxxxx
Title:
President
|
||
|
COPI:
CANCEN OIL PROCESSORS INC.
|
||
| |
|
|
| By: | ||
|
Name:
Xxxxx Xxxxxx
Title:
President
|
||
|
UMI:
UPGRADER
MARKETING INC.
|
||
| |
|
|
| By: | ||
|
Name:
Xxxxxx Xxxx
Title:
President
|
||
41
