AMENDED RIGHT OF FIRST REFUSAL AGREEMENT
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This Right of First Refusal Agreement ("Agreement") is entered into as of
December 30, 2005 ("Effective Date") between ROCK ENERGY PARTNERS OPERATING,
L.P. ("REP") and PEC ENERGY CORPORATION ("PEC").
RECITALS:
A. PEC, through its several existing subsidiaries, is in the business
of locating, acquiring and developing oil and gas prospects in several oil and
gas producing regions of the United States and has implemented a business plan
to expand its available inventory of assets which are currently producing and/or
potentially productive upon successful development.
B. PEC and REP desire to implement a relationship with one another
allowing REP an opportunity to acquire, on a right of first refusal basis,
participation rights in certain newly acquired projects, subject to the specific
terms, conditions and limitations described herein.
TERMS OF AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
PEC and REP agree as follows:
1. PROJECTS COVERED BY THIS AGREEMENT. This Agreement shall apply only
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to those projects: a) made available to PEC during the Term (hereinafter
defined) in which PEC has committed to participate for not less than ten percent
(10%) of the total project interest made available to PEC (hereinafter called
"Qualified Projects"); and b) which are actually offered to REP in writing under
the terms of this Agreement. PEC shall have no obligation under this Agreement
to offer participation rights to REP in all of its available Qualified Projects.
The particular Qualified Projects which are offered by PEC to REP under this
Agreement shall be selected by PEC in its sole discretion, but PEC agrees to
offer sufficient Qualified Projects during the Term (or any extended term
hereinafter described) which, if accepted by REP, would permit REP to achieve
its Minimum Funding Threshold (hereinafter defined).
2. RIGHT OF REFUSAL. PEC hereby grants to REP during the Term
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(hereinafter defined) a right of first refusal to acquire not less than ten
percent (10%) and up to but not more than forty percent (40%) of the interests
committed by PEC in the Qualified Projects offered by PEC to REP under this
Agreement. As to each such Qualified Prospect offered by PEC to REP under this
Agreement, the Parties agree to follow the notice, acceptance and funding
procedures set forth hereinbelow.
3. TERM OF AGREEMENT. The initial term ("Initial Term") under which
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this Agreement shall continue in force and effect shall be the period from the
Effective Date above until the close of business on December 31, 2006. The
Initial Term shall be
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automatically extended from year-to-year after December 31, 2006 (e.g. until
December 31, 2007, 2008, etc., as applicable) [hereinafter collectively called,
with the Initial Term, the "Term"] upon the occurrence of any one (1) of the
following three (3) events, conditions or circumstances: a) REP expends
$3,000,000 in the 2006 calendar year or $3,000,000 in any subsequent calendar
year of the Term (hereinafter called the "Minimum Funding Threshold") toward a
combination of acquisition costs, drilling costs of the initial well on a
project and front end costs (e.g. bonus consideration, etc.); b) PEC fails to
offer to REP sufficient Qualified Projects such that the acceptance of, and
participation in, by REP in 50% of the Qualified Projects offered with twenty
five percent (25%) of PEC's available interest would have theoretically resulted
in the expenditure by REP of the Minimum Funding Threshold for that calendar
year; or c) more than fifty percent (50%) of the Qualified Projects offered by
PEC to REP in a calendar year are presented during October, November or December
of that calendar year. For purposes of achieving the Minimum Funding Threshold,
the Parties agree that expenditures by REP above the Minimum Funding Threshold
during a calendar year shall not carry over to the succeeding calendar year as a
credit toward the succeeding year's Minimum Funding Threshold.
4. SUBMISSION OF AVAILABLE INFORMATION. PEC shall forward to REP
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detailed summary information in its possession regarding the Qualified Prospect
at the time of presentment. REP shall have not less than ten (10) business days
following receipt of the detailed summary information to respond. REP shall
have the right to request additional information which it believes is reasonably
necessary to evaluate the Qualified Project, but such request by REP for
additional information shall not extend the period within which REP must
exercise its participation election, unless the parties otherwise agree provided
that PEC furnishes the information requested by REP (if the requested
information is available) within 3 business days of request.
5. NOTICE, ELECTION AND FUNDING PROCEDURES. Upon presentation by PEC
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of a Qualified Project to REP, REP shall have not less than fifteen (15) days
nor more than thirty (30) days to notify PEC in writing of its election to
participate and the percentage of its participation. All front end payment
requirements related to the Qualified Project offered to and accepted by REP
(e.g. acreage reimbursement costs payable to PEC) shall be limited to the higher
of a) the actual costs incurred by PEC in acquiring the Qualified Project (which
shall include the actual cost of leases for a Qualified Project which is a
drilling project and which shall include the actual expenditures for due
diligence for a Qualified Project which is a production acquisition), and b)
REP's proportionate share of the front end fees paid to PEC by other third
parties whose participation in the Qualified Project is on an arms length basis.
Such front end costs shall be funded by REP on or before thirty (30) days after
presentation of the Qualified Project by PEC unless otherwise agreed by the
Parties. To the extent that PEC's opportunity to acquire the Qualified Project
requires a cash payment to an arms length third party by a date certain in order
to avoid forfeiture of PEC's opportunity to acquire the Qualified Project (e.g.
pursuant to an option to purchase from the third party), then PEC shall so
advise REP and REP shall pay its proportionate share of the front end payment in
accordance with the applicable deadline as a further condition to exercise of
its right to participate (provided that such required payment is not due to the
arms length third party less than fifteen [15] days after presentation of the
Qualified Project to REP).
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6. ASSIGNMENT OF INTERESTS IN LEASES AND XXXXX AND REVERSIONARY
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INTEREST. PEC shall transfer title to REP as to the interest purchased by REP at
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the later to occur of a) acquisition of title by PEC as to the Qualified Project
(or leases within the Qualified Project) and b) upon payment by REP to PEC of
REP's applicable front end acquisition fees based upon the percentage
participation elected by REP. PEC shall retain an after payout twenty five
percent (25%) reversionary interest in each interest in a Qualified Project
acquired by REP pursuant to this Agreement, with such reversionary interest
being proportionate to the interest actually acquired by REP (e.g. if REP
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acquires a 10% leasehold interest by exercise of its right of first refusal,
then the after payout reversionary interest of PEC shall be 25% of 10%). The
following stipulations shall apply to the after payout reversionary interest of
PEC: (i) if the Qualified Project is a drilling project without existing
production, then payout shall be computed on a well-by-well basis; (ii) if the
Qualified Project is a project with existing production, then payout shall be
computed on a project-wide basis, inclusive of the costs associated with any
developmental drilling performed on the Qualified Project; and (iii) PEC's after
payout reversionary interest shall be reduced on a "favored nations" basis to be
equivalent to any terms given by PEC to a third party in the same Qualified
Project (whether before or after the offer to REP) which are financially
superior to REP's participation terms after consideration of any promotion to
PEC relative to the third party which results in the financial equivalent of
less than a 25% after payout interest to PEC in the third party's interest.
7. OPERATIONS BY PEC'S AFFILIATE. The operations on the Qualified
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Project shall be subject to a joint operating agreement with attached
accounting procedure which has been agreed by the Parties and is consistent with
the terms of the form of the Approved Operating Agreement, as that term is
defined in the Agreement dated effective December 30, 2003 by and between
Petrosearch Energy Corporation, Petrosearch Operating Company, L.L.C., Buena
Vista Petrosearch, L.L.C., Pursuit Petrosearch, L.L.C., Rocky Mountain
Petrosearch, L.L.C., Big Sky Petrosearch, L.L.C., Great Buffalo Petrosearch,
L.L.C., Rock Energy Partners Operating, L.P. and Rock Energy Partners, L.P., and
attached as an exhibit thereto.
8. TIME IS OF ESSENCE/ATTORNEYS FEES. Time is of the essence with
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respect to this Agreement and each party hereto shall have the right to specific
performance as to the obligations set forth herein. In the event that either
party seeks enforcement of this Agreement in any legal or equitable proceeding,
including arbitration proceedings, the prevailing party in such proceeding shall
be entitled to recover from the other party all expenses attributable to such
proceeding, including interest, court costs and attorneys fees.
9. ENTIRE AGREEMENT. This Agreement, the documents to be executed
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hereunder, and each Exhibit attached hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the Parties pertaining to the subject matter hereof.
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10. WARRANTIES AND REPRESENTATIONS. There are no warranties,
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representations or other agreements between the Parties in connection with the
subject matter hereof except as specifically set forth herein or in documents
delivered pursuant hereto.
11. AMENDMENTS. No supplement, amendment, alteration, modification,
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waiver or termination of this Agreement shall be binding unless executed in
writing by the Parties hereto.
12. WAIVER. No waiver of any of the provisions of this Agreement will
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be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided in writing.
13. CAPTIONS. The captions in this Agreement are for convenience only
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and may not be considered a part of or as affecting the construction or
interpretation of any provision of this Agreement.
14. NON-ASSIGNABILITY. REP may not assign any of its rights hereunder
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without PEC's written consent except that REP may assign, without PEC's consent,
to its lenders, in connection with any recapitalization or reorganization, to
REP's designee, or in connection with REP's funding arrangements, including to a
newly created funding vehicle. This Agreement binds and inures to the benefit
of the Parties hereto and their respective heirs, successors, representatives,
assigns and transferees, subject to this prohibition against non-approved
assignments.
15. APPLICABLE LAW/CHOICE OF VENUE. THIS AGREEMENT, OTHER DOCUMENTS
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DELIVERED PURSUANT HERETO AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE
VALIDITY OF THE VARIOUS CONVEYANCES AFFECTING THE TITLE TO REAL PROPERTY SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE
PROPERTY IS LOCATED. THIS AGREEMENT IS PERFORMABLE IN AND VENUE SHALL LIE IN
XXXXXX COUNTY, TEXAS TO THE EXCLUSION OF OTHER VENUES.
16. BINDING ARBITRATION. ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
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RELATING TO THIS AGREEMENT, OR THE CONSTRUCTION, INTERPRETATION OR ALLEGED
BREACH THEREOF, SHALL BE SETTLED BY FINAL AND BINDING ARBITRATION IN HOUSTON,
TEXAS IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES ("RULES") OF THE
AMERICAN ARBITRATION ASSOCIATION IN EFFECT AT THE TIME THE CONTROVERSY OR CLAIM
IS SUBMITTED TO ARBITRATION. THE ARBITRATOR SHALL HAVE JURISDICTION TO
DETERMINE ANY SUCH CLAIM AND MAY GRANT ANY RELIEF OTHER THAN PUNITIVE OR
EXEMPLARY DAMAGES AUTHORIZED BY LAW FOR SUCH CLAIM, INCLUDING SPECIFIC
PERFORMANCE. ANY SUCH
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ARBITRATION SHALL BE CONCLUDED WITHIN 120 DAYS OF INITIATION OF THE ARBITRATION.
ANY CONTROVERSY OR CLAIM WHICH IS THE SUBJECT OF ARBITRATION SHALL BE DEEMED
WAIVED AND SHALL BE FOREVER BARRED IF ARBITRATION IS NOT INITIATED BY THE
AGGRIEVED PARTY BY MAKING DEMAND FOR ARBITRATION AND TENDERING THE APPLICABLE
AMERICAN ARBITRATION ASSOCIATION FILING FEE TO THE AMERICAN ARBITRATION
ASSOCIATION WITHIN 6-MONTHS OF THE DATE THE CONTROVERSY OR CLAIM FIRST ARISES.
IN ANY ARBITRATION UNDER THIS PARAGRAPH, ANY AND ALL RULES OF DISCOVERY SET
FORTH IN THE TEXAS RULES OF CIVIL PROCEDURE SHALL BE APPLICABLE. EACH PARTY TO
THE ARBITRATION SHALL BEAR THE INITIAL FILING FEES AND CHARGES REQUIRED BY THE
AMERICAN ARBITRATION ASSOCIATION, PROVIDED, HOWEVER, THAT THE ARBITRATOR SHALL
AWARD REIMBURSEMENT OF ALL SUCH COSTS AND FEES TO THE PREVAILING PARTY AS A PART
OF ITS AWARD. THIS PARAGRAPH SHALL LIKEWISE BE SPECIFICALLY ENFORCEABLE IN A
COURT OF COMPETENT JURISDICTION SHOULD THE PARTY NOT DEMANDING ARBITRATION
REFUSE TO PARTICIPATE IN OR FULLY COOPERATE WITH THE ARBITRATION PROCESS.
17. NOTICES. Any notice, communication, request, instruction or other
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document required or permitted hereunder shall be given in writing by certified
mail, return receipt requested, postage prepaid, or by overnight courier,
prepaid telegram, facsimile or personal delivery to following address, unless
written notice of an alternate address is delivered to the sending party prior
to its dispatch of the notice or communication:
If to PEC: Petrosearch Energy Corporation
000 Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxxxxx, COO
(Fax) 000-000-0000
If to REP: Rock Energy Partners Operating, L.P.
00000 Xxxxxxxx Xxx., Xxxxx 0000
Xxxxxxx, Xxxxx, 00000
Attention: Xxxxx Xxxxx
(Fax) 000-000-0000
All notices will be deemed to have been given as of the date of receipt.
18. EXPENSES. Except as otherwise provided herein, each party shall be
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solely responsible for all expenses incurred by it in connection with this
Agreement, including, without limitation, fees and expenses of its own counsel
and accountants, and shall not be entitled to any reimbursement therefore from
any other party hereto.
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19. COUNTERPARTS/FACSIMILE SIGNATURES. This Agreement may be executed
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in counterpart originals, each of which shall be treated as a fully executed
original hereof when all parties hereto have executed such a counterpart. A
facsimile signature shall be treated as an original signature unless an original
signature is required by law.
EXECUTED as of the Effective Date set forth above.
PETROSEARCH ENERGY CORPORATION
By:
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Xxxxxxx X. Xxxx, President and CEO
ROCK ENERGY PARTNERS OPERATING, L.P.
By:
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Name:
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Title:
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