EXHIBIT 99.5
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MANAGEMENT AND ADMINISTRATIVE
SERVICES AGREEMENT
BY AND BETWEEN
BLUE DOLPHIN SERVICES, INC.
AND
AMERICAN RESOURCES OFFSHORE, INC.
DECEMBER 2, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS....................................................1
1.2 OTHER TERMS......................................................2
1.3 CONSTRUCTION.....................................................2
ARTICLE 2
SERVICES PROVIDED BY BDSI
2.1 APPOINTMENT......................................................3
2.2 ACCEPTANCE.......................................................3
2.3 LEGAL OWNERSHIP..................................................3
2.4 DUTIES RETAINED BY ARO...........................................3
2.5 EVIDENCE OF AUTHORITY; ATTORNEY-IN-FACT..........................3
2.6 AUTHORIZED PERSONNEL.............................................3
ARTICLE 3
MANAGEMENT SERVICES
3.1 GENERAL..........................................................3
3.2 MANAGEMENT SERVICES..............................................4
(a) ACCOUNTING.................................................4
(b) CASH MANAGEMENT............................................4
(c) GENERAL LAND FUNCTIONS; LAND TITLE AND LEASE RECORDS.......4
(d) CONTRACTS..................................................4
(e) CONTRACT ADMINISTRATION....................................4
(f) REPORTING TO AND MEETING WITH ARO..........................5
(g) MANAGEMENT REPORTS.........................................5
(h) SEC COMPLIANCE.............................................5
(i) RECORDS....................................................5
(j) AFE'S......................................................5
(k) TECHNICAL AND OPERATIONAL EXPERTISE........................6
(l) COMPLIANCE AND REGULATORY FILINGS..........................6
(m) INSURANCE..................................................6
(n) MARKETING..................................................6
(o) ADMINISTRATIVE FUNCTIONS...................................6
(p) TAX........................................................6
(q) LEGAL PROCEEDINGS..........................................6
(r) OTHER......................................................6
3.3 SUPERVISION OF BDSI..............................................6
3.4 SPECIAL SERVICES.................................................7
3.5 FILES AND RECORDS................................................7
3.6 BILLING AND PAYMENT..............................................7
ARTICLE 4
MANAGEMENT FEE
4.1 MANAGEMENT FEE...................................................7
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TABLE OF CONTENTS
(Continued)
PAGE
4.2 SUPPLEMENTAL SERVICES FEES.......................................7
4.3 MISCELLANEOUS EXPENSES...........................................7
4.4 REMEDIES FOR FAILURE TO PAY......................................8
(a) INTEREST...................................................8
(b) COST OF COLLECTION.........................................8
ARTICLE 5
INDEMNITY
5.1 BDSI'S INDEMNIFICATION...........................................8
5.2 ARO'S INDEMNIFICATION............................................8
5.3 NO ASSUMPTION OF LIABILITIES.....................................9
ARTICLE 6
CONFIDENTIALITY
ARTICLE 7
CONFLICTS
ARTICLE 8
ACCESS AND AUDIT
8.1 BOOKS AND RECORDS...............................................10
8.2 RIGHT TO AUDIT..................................................10
8.3 MAINTENANCE OF RECORDS..........................................10
ARTICLE 9
RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS...................................................10
9.2 TAXATION........................................................10
ARTICLE 10
REPRESENTATION AND WARRANTIES
10.1 REPRESENTATION AND WARRANTIES OF BDSI...........................11
(a) ORGANIZATION..............................................11
(b) AUTHORITY AND CONFLICTS...................................11
(c) AUTHORIZATION.............................................11
(d) ENFORCEABILITY............................................11
10.2 REPRESENTATIONS AND WARRANTIES OF ARO...........................12
(a) ORGANIZATION..............................................12
(b) AUTHORITY AND CONFLICTS...................................12
(c) AUTHORIZATION.............................................12
(d) ENFORCEABILITY............................................12
(e) COMPLIANCE WITH LAW AND PERMITS...........................12
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TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE 11
TERM
11.1 TERM............................................................13
11.2 HOLD OVER.......................................................13
ARTICLE 12
NOTICES
ARTICLE 13
GENERAL
13.1 GOVERNING LAW...................................................14
13.2 ASSIGNMENT......................................................14
13.3 INTEGRATION.....................................................14
13.4 WAIVER OR MODIFICATION..........................................14
13.5 INVALID PROVISIONS..............................................14
13.6 FORCE MAJEURE...................................................15
13.7 MULTIPLE COUNTERPARTS...........................................15
13.8 DISPUTE RESOLUTION..............................................15
LIST OF EXHIBITS
Exhibit A Dispute Resolution Procedures
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MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
THIS MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT (this "AGREEMENT")
is dated effective as of December 2, 1999 and is by and between AMERICAN
RESOURCES OFFSHORE, INC., a Delaware corporation ("ARO"), and BLUE DOLPHIN
SERVICES, INC., a Delaware corporation ("BDSI"). ARO and BDSI may be referred to
collectively as the "PARTIES" or individually as a "PARTY".
RECITALS:
A. ARO is engaged in the business of exploring for and producing oil
and gas in the Gulf of Mexico.
B. Blue Dolphin Exploration Company ("BDEX"), an affiliate of BDSI, has
entered into that certain Investment Agreement dated July 30, 1999
(the "INVESTMENT AGREEMENT") whereby BDEX will acquire 75% of the
issued and outstanding common stock of ARO.
C. It is the intention of the Parties that BDSI will manage the
business and operations of ARO.
NOW, THEREFORE, for and in consideration of the mutual and dependent
covenants, conditions, and agreements hereinafter set forth, the Parties agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following
capitalized terms shall have the meaning ascribed to them in this Section unless
otherwise specified or clearly required by the context in which such term is
used:
"AFE" shall mean authority for expenditures.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph hereof.
"AGREEMENT YEAR" shall have the meaning ascribed in SECTION 11.1.
"ARO" shall have the meaning set forth in the introductory
paragraph hereof.
"BDEX" shall have the meaning set forth in the Recitals hereof.
"BDSI" shall have the meaning set forth in the introductory
paragraph hereof.
"BUSINESS DAY" shall mean a day other than any day that banking
institutions are required or permitted to be closed under the laws of the
State of Texas.
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"CODE" shall have the meaning set forth in SECTION 9.2.
"COMMENCEMENT DATE" shall mean December 2, 1999.
"CONFIDENTIAL INFORMATION" shall mean all information disclosed by
either Party to the other Party relating to the disclosing Party's
business and operations.
"ENFORCEABILITY LIMITATIONS" shall mean applicable bankruptcy,
reorganization or moratorium statutes, equitable principles or other
similar laws affecting the rights of creditors generally.
"HYDROCARBON" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
"INVESTMENT AGREEMENT" shall have the meaning set forth in the
Recitals hereof.
"IRS" shall have the meaning set forth in SECTION 9.2.
"LIABILITY" shall have the meaning set forth in SECTION 5.1.
"MANAGEMENT FEE" shall have the meaning set forth in SECTION 4.1.
"MANAGEMENT SERVICES" shall have the meaning set forth in
SECTION 3.2.
"TERM" shall mean the term of this Agreement as set forth in
ARTICLE 11.1.
"TERMINATION DATE" shall have the meaning set forth in
ARTICLE 11.1.
1.2 OTHER TERMS. Other capitalized terms used in this Agreement and not
defined in SECTION 1.1 shall have the meanings given them throughout this
Agreement.
1.3 CONSTRUCTION. The headings in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of this
Agreement. Whenever the context requires, each term stated in either the
singular or the plural shall include the singular or the plural, and the gender
of all words used in this Agreement includes the masculine, the feminine and the
neuter. Except as otherwise noted, references to Articles and Sections refer to
articles and sections of this Agreement, and all references to Exhibits are to
exhibits attached hereto, each of which is made a part hereof for all purposes.
Use of the word "including" shall mean, without limitation, by reason of
enumeration. The use of the words "hereof," "hereunder," "hereto," "herein,"
"hereinafter," "hereinabove" and "hereinbelow" shall be references to this
Agreement in its entirety and not only to a particular Article, Section or
Exhibit in which such reference appears.
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ARTICLE 2
SERVICES PROVIDED BY BDSI
2.1 APPOINTMENT. ARO hereby appoints BDSI to provide the Management
Services by and on behalf of, and for the account of, ARO, pursuant to and as
set forth in this Agreement.
2.2 ACCEPTANCE. BDSI hereby accepts the appointment provided for above and
agrees to perform the duties and obligations herein imposed in a good and
workmanlike manner as a reasonable person in the industry in material compliance
with all applicable agreements, laws, rules and regulations and using a good
faith effort which BDSI reasonably believes advances and protects the interests
of ARO.
2.3 LEGAL OWNERSHIP. BDSI shall not take title to any properties owned of
record or beneficially by ARO during the Term of this Agreement. Any addition to
the assets of ARO by purchase, lease or otherwise on behalf of ARO shall be
acquired in the name of ARO.
2.4 DUTIES RETAINED BY ARO. ARO shall be responsible for all duties and
obligations which BDSI is not specifically required or authorized to perform on
behalf of ARO pursuant to the terms of this Agreement.
2.5 EVIDENCE OF AUTHORITY; ATTORNEY-IN-FACT. If BDSI determines it is
necessary to fulfill its obligations under this Agreement, BDSI shall prepare
and ARO shall execute and deliver to BDSI (i) letters of instruction to all
appropriate third parties instructing such third parties to deal with BDSI with
respect to all matters relating to ARO and to provide directly to BDSI all
payments, invoices, notices, requests, demands, and other communications
relating to ARO and its properties and assets; and (ii) powers of attorney
authorizing and empowering certain employees of BDSI to carry out the rights and
duties set forth herein.
2.6 AUTHORIZED PERSONNEL. With respect to any approval or consent required
from ARO pursuant to the terms of this Agreement, BDSI may rely on any
authorization, consent or other instructions received from either President or
Vice President. ARO may remove the authority granted to the foregoing
individuals and/or authorize additional individuals to provide such consents,
approvals or instructions by providing BDSI with a written statement of
authorization signed by the president of ARO.
ARTICLE 3
MANAGEMENT SERVICES
3.1 GENERAL. BDSI will provide competent and suitable qualified personnel
to perform the Management Services and agrees to use all reasonable efforts to
fulfill such services diligently in accordance with the standards imposed on
BDSI in this Agreement.
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3.2 MANAGEMENT SERVICES. The management, administrative and advisory
services to be provided by BDSI to ARO pursuant to this Agreement shall include
the following (the "MANAGEMENT SERVICES"):
(a) ACCOUNTING. BDSI shall maintain in good order the books and
accounts, ledgers and records of ARO shall perform all day-to-day
accounting functions of ARO including, without limitation, accounting
matters relating to paying and receiving, billing, gas balancing,
repayments under external or internal loan arrangements and contract
coordination. In addition, BDSI shall do all things necessary and usual
and customary in the industry to assist the outside auditors in completing
ARO's annual financial audit.
(b) CASH MANAGEMENT. BDSI shall deposit all monies received by ARO
into a centralized cash management account of ARO ("CASH ACCOUNT").
Consistent with existing cash management practices of BDSI for managed
accounts, such Cash Account will be utilized for the receipt of monies to
satisfy obligations pertaining to ARO.
To the extent ARO has funds available in the Cash Account pertaining
to ARO and subject to the approval rights provided below, all costs,
expenditures, fees, and other payments due by ARO shall be paid out of the
Cash Account. BDSI shall never be obligated to make advances to ARO for
the purpose of covering shortfalls in the Cash Account. Notwithstanding
BDSI's payment of expenses on behalf of ARO, ARO shall be responsible for
all amounts due and expenses incurred in connection with the organization
and operation of ARO. To the extent that BDSI becomes aware of a cash
shortfall with respect to ARO's funds in the Cash Account, BDSI shall
notify ARO of such shortfall.
(c) GENERAL LAND FUNCTIONS; LAND TITLE AND LEASE RECORDS. BDSI shall
perform all day-to-day general land functions relating to ARO's assets
including, without limitation, the maintenance of all oil and gas lease
and land files, title conveyances, payment of delay rentals and shut-in
well reports. BDSI shall liaise with any outside legal counsel approved by
ARO for land and related matters where required and shall provide land
information for audit and tax returns.
(d) CONTRACTS. BDSI shall negotiate all contracts for ARO including,
but not limited to loan agreements, leases, AFEs, proposed operations
under joint operating agreements, division orders, gas sales contracts,
pooling agreements, assignments, gas balancing agreements, farmout and
farmin agreements and unit declarations, the purchase of land and the
acquisition of permits, easements, rights-of-way and other property rights
necessary for ARO's assets, with such persons as may be reasonable or
necessary. BDSI shall notify ARO of any significant procurement of
materials.
(e) CONTRACT ADMINISTRATION. BDSI shall administer all
agreements of ARO including, without limitation:
(i) compliance with insurance requirements established by
ARO from time to time;
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(ii) establishment and maintenance of bank accounts;
(iii) review of all invoices, preparation of recommendations
for payment of all, or specified portions, of invoiced
costs;
(iv) settlement recommendations for any disputes arising from
invoices; and
(v) delivery of lien waivers, or releases, in form and
substance reasonably acceptable to ARO, to lenders under
any credit agreement or a title company issuing an
owner's or mortgagee's title insurance policy, as may be
applicable and compliance with all applicable federal,
state and local taxes (including excise and sales taxes)
which may be applicable to ARO's assets.
(f) REPORTING TO AND MEETING WITH ARO. BDSI shall prepare and
furnish periodic progress and status reports to ARO and such other reports
as ARO may from time to time request. All reports furnished to ARO by BDSI
shall be in a form acceptable to ARO, in ARO's reasonable discretion.
Additionally, BDSI shall cause its personnel to meet with representatives
of ARO from time to time as reasonably requested by ARO to review the
reports provided to ARO.
(g) MANAGEMENT REPORTS. BDSI shall provide ARO with reports which
are consistent, in form and substance, with reports prepared by ARO prior
to the Parties entering into this Agreement.
(h) SEC COMPLIANCE. BDSI shall prepare or cause to be prepared all
filings necessary or required by the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, and applicable laws
of any exchange upon which the shares of the ARO's stock are traded.
(i) RECORDS. BDSI shall maintain on behalf of ARO all certificates,
licenses, permits and approvals from all governmental agencies with
jurisdiction over ARO's assets, all contracts (including, without
limitation, purchase orders) negotiated with persons providing services in
connection with ARO's assets, the results of any tests or analyses
obtained in connection with ARO's assets and copies of invoices, checks
and other accounting materials related to ARO's assets as may be
reasonably requested by ARO for tax and accounting purposes. BDSI shall
prepare revisions to the plans and specifications of ARO's assets to
reflect the final configuration of ARO's assets and maintain such
additional records relating to ARO's assets as may be reasonable or
necessary to permit ARO to operate, maintain and, if applicable, further
expand the existing ARO assets. All records shall be maintained in strict
compliance with all regulatory requirements of the Federal Energy
Regulatory Commission, Department of Transportation and any other state,
federal or local governmental agency having jurisdiction over all or any
portion of ARO's assets.
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(j) AFESS. Review and make decisions with respect to AFES's proposed
by the operators or other interest owners of the properties owned by ARO.
(k) TECHNICAL AND OPERATIONAL EXPERTISE. Provide ARO with technical
and operational expertise to assist ARO in connection with decisions
regarding the operations of ARO's assets, including capital expenditures
and major repairs and maintenance requirements. BDSI's responsibility in
this regard shall include without limitation, the duty to review and
timely respond to election notices and AFEs sent by all operators of ARO's
assets.
(l) COMPLIANCE AND REGULATORY FILINGS. Use all reasonable efforts to
ensure that ARO complies fully with all federal, state and municipal laws,
ordinances, regulations and orders relative to ARO's assets and shall
prepare and file all regulatory filings required to be filed by ARO with
respect to its assets. BDSI shall use all reasonable efforts to cause the
appropriate parties to remedy any violation of any such law, ordinance,
rule, regulation or order which comes to its attention and shall promptly
notify ARO of any such violation.
(m) INSURANCE. Provide the necessary insurance for ARO as determined
by ARO's Board of Directors or as required under the insurance provisions
of the applicable operating agreement for properties owned by ARO to the
extent such insurance is not provided to ARO by the operator. Such
insurance shall be provided at ARO's cost and expense and the cost of such
insurance is not included in the Management Fee.
(n) MARKETING. Market or cause to be marketed ARO's share of
Hydrocarbon production from its properties to the extent ARO has the right
to market such production under the terms of the applicable operating
agreement. Any third-party costs and expenses incurred in connection with
such marketing efforts shall be borne by ARO.
(o) ADMINISTRATIVE FUNCTIONS. Perform all other reasonable or
necessary administrative functions relating to ARO and its assets not
specifically set forth in SECTION 3.2, including accounting, engineering,
planning, financial, reporting, public relations, governmental, technical
services and such other services necessary for ARO to continue its
business and operations.
(p) TAX. Prepare or cause to be prepared all required tax filings
and retain all legal and accounting professionals as deemed necessary by
BDSI.
(q) LEGAL PROCEEDINGS. Institute or defend claims and other legal
actions or proceedings relating to ARO or its accounts or operations. BDSI
shall have the right to select the legal counsel .
(r) OTHER. Provide such other services and support consistent with
the foregoing duties and obligations.
3.3 SUPERVISION OF BDSI. ARO has entered into this Agreement to delegate
the day-to-day management of ARO to BDSI as an agent of ARO subject to the
control and supervision of
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ARO's Board of Directors and subject to the various provisions contained within
this Agreement. The Parties agree that:
(a) All actions of BDSI undertaken pursuant to this Agreement shall
be subject to the general direction of ARO's Board of Directors, and BDSI
shall promptly respond to all notices, requests or inquiries from ARO's
Board of Directors to permit ARO to direct BDSI's performance of the
Management Services. ARO, however, shall not have the right to exercise
control over BDSI's day-to-day actions in providing Management Services
under this Agreement;
(b) BDSI shall not be obligated to perform the Management Services
or any other or additional act for, or on behalf of, ARO requiring it to
incur, directly or indirectly, any cost or expense which is not paid for,
or reimbursed by, ARO pursuant to ARTICLE 4 hereof except as provided
herein; and
(c) All activities, duties and responsibilities not specifically
retained by ARO are hereby delegated to BDSI; PROVIDED, HOWEVER, that ARO
may at any time and from time to time perform activities, duties and
responsibilities not specifically delegated to BDSI in this Agreement by
notifying BDSI of such activity, duty and responsibility to be performed
by ARO.
3.4 SPECIAL SERVICES. In addition to the Management Services set out in
SECTION 3.2, ARO may request additional services which, if agreed to in writing
by BDSI, shall be subject to additional billing in an amount mutually agreed on
by BDSI and ARO.
3.5 FILES AND RECORDS. All files and records maintained by BDSI regarding
ARO's assets shall be the property of BDSI. However, ARO shall be entitled to
review BDSI's files from time to time during regular business hours and shall be
entitled (at ARO's sole cost and expense) to copies of such files to the extent
such files affect ARO's assets.
3.6 BILLING AND PAYMENT. BDSI shall submit an invoice on or before the
fifteenth (15th) day of each month. The invoice shall specify the amounts due to
BDSI by ARO including, without limitation, the Management Fee for the month and
any other amounts which may be due to BDSI by ARO pursuant to this Agreement.
All invoices rendered to ARO shall be due and payable within twenty (20) days
following receipt thereof.
ARTICLE 4
MANAGEMENT FEE
4.1 MANAGEMENT FEE. In consideration for the performance of the Management
Services by BDSI, ARO shall pay to BDSI a fee (the "MANAGEMENT FEE") equal to
ONE MILLION AND NO/100 DOLLARS ($1,000,000) per year, payable in monthly
installments of EIGHTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE DOLLARS
($83,333).
4.2 SUPPLEMENTAL SERVICES FEES. Fees, if any, for special services
pursuant to SECTION 3.4 are in addition to the Management Fee.
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4.3 MISCELLANEOUS EXPENSES. The Management Fee shall be inclusive of all
reasonable out-of-pocket expenses, administrative support costs (including,
without limitation, costs related to the operation of ARO's Metairie, Louisiana
office) and other costs other than those specified in this Agreement or charged
by outside tax, legal, engineering and other professional advisers appointed by
BDSI pursuant to this Agreement or otherwise approved by ARO. Such charges by
outside consultants shall be borne directly by ARO or, if paid by BDSI, shall be
reimbursed by ARO on receipt of a copy of the relevant invoice from BDSI.
4.4 REMEDIES FOR FAILURE TO PAY. In the event that ARO shall fail to pay
any invoice for the Management Fee or any other amount due to BDSI under this
Agreement by the date it is due:
(a) INTEREST. Except as to any portions of the applicable past due
amounts that are subject to a bona fide dispute by ARO of which ARO has
advised BDSI in writing, BDSI shall be entitled to receive interest on any
such past due amounts at a monthly rate equal to the lesser of (x) the
prime rate (or reference rate, as the case may be) per annum of Chase Bank
of Texas plus two percent (2%) per annum or (y) the maximum non-usurious
rate permitted under applicable law; and
(b) COST OF COLLECTION. BDSI shall be entitled to receive
reimbursement from ARO for any and all costs and expenses incurred in
collecting past due amounts from ARO, including without limitation
attorney's fees, legal expenses and court costs.
ARTICLE 5
INDEMNITY
5.1 BDSI'S INDEMNIFICATION. TO THE EXTENT PERMITTED BY LAW AND
NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT OR ANY JOINT OPERATING
AGREEMENT TO THE CONTRARY, BDSI, FROM AND AFTER THE COMMENCEMENT DATE, SHALL
DEFEND, INDEMNIFY AND HOLD ARO HARMLESS FROM AND AGAINST ANY AND ALL DAMAGE,
LOSS, COST, EXPENSE, OBLIGATION, CLAIM OR LIABILITY, INCLUDING REASONABLE
COUNSEL FEES AND REASONABLE EXPENSES OF INVESTIGATING, DEFENDING AND PROSECUTING
LITIGATION (COLLECTIVELY, "LIABILITY") SUFFERED BY ARO AS A RESULT OF (i) ANY
MATERIAL BREACH OF THIS AGREEMENT BY BDSI EXCEPT TO THE EXTENT BDSI IS
EXCULPATED FROM LIABILITY FROM SUCH BREACH UNDER THE EXPRESS TERMS OF THIS
AGREEMENT WHICH PRESCRIBE STANDARDS OF CARE BY WHICH BDSI MUST PERFORM HEREUNDER
OR (ii) ANY ACT OF FRAUD, WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF BDSI.
5.2 ARO'S INDEMNIFICATION. TO THE EXTENT PERMITTED BY LAW AND
NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT OR ANY JOINT OPERATING
AGREEMENT TO THE CONTRARY, ARO, FROM AND AFTER THE COMMENCEMENT DATE, SHALL
DEFEND, INDEMNIFY AND HOLD BDSI HARMLESS FROM AND AGAINST ANY AND ALL LIABILITY
SUFFERED BY BDSI AS A RESULT OF ITS PERFORMANCE UNDER THIS AGREEMENT, OTHER THAN
SUCH LIABILITY THAT ARISES AS A RESULT OF (i) ANY MATERIAL BREACH OF THIS
AGREEMENT BY BDSI
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OR (ii) ANY ACT OF FRAUD, WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF BDSI, BUT
INCLUDING WITHOUT LIMITATION LIABILITIES ARISING OUT OF THE SOLE OR CONCURRENT
NEGLIGENCE (BUT NOT GROSS NEGLIGENCE) OF BDSI OR BDSI'S STRICT LIABILITY OR THE
CONDITION OF THE ASSETS.
5.3 NO ASSUMPTION OF LIABILITIES. BDSI has not assumed or accepted any
liability for any of the obligations, debts or liabilities of ARO either related
to ARO's assets or otherwise. ARO has not assumed or accepted any liability for
any of the obligations, debts or liabilities of BDSI either related to ARO's
assets or otherwise.
ARTICLE 6
CONFIDENTIALITY
The Parties hereto agree to hold the Confidential Information in the
strictest of confidence and shall not disclose such Confidential Information to
any third party. Further, each Party agrees not to copy or reproduce the
Confidential Information without the prior written consent of the other Party
hereto. However, a Party may disclose the Confidential Information to its
respective responsible officers, directors, employees, consultants, commercial
lenders, and legal counsel, but only to the extent necessary to carry out the
purposes for which the Confidential Information was disclosed, and each Party
agrees to instruct all such persons not to disclose such Confidential
Information to third parties without the prior written consent of the other
Party hereto. The obligations set out in this ARTICLE 6 shall not apply to
Confidential Information (if any) which is already known to a Party hereto at
the time that it is disclosed, or which, before being divulged by the receiving
Party: (a) has become publicly known through no wrongful act of the receiving
Party; (b) has been rightfully received from a third party without restriction
on disclosure and without breach of this ARTICLE 6; (c) has been independently
developed by the receiving Party; (d) has been approved for release by written
authorization of the non-receiving Party; or (e) has been disclosed pursuant to
requirements of a governmental agency, a law, or an order of a court having
competent jurisdiction. The Parties hereby acknowledge that the unauthorized
disclosure or use of such Confidential Information could cause irreparable harm
and significant injury, the extent of which may be difficult or impossible to
ascertain. Accordingly, the Parties agree that each shall have the right to seek
an immediate injunction enjoining any breach of this ARTICLE 6. The Parties
recognize and agree that nothing contained in this Agreement shall be construed
as granting any rights, by way of license or otherwise, to any Confidential
Information disclosed pursuant to this Agreement. All analyses, compilations,
studies and other documents which are prepared for the internal use of a Party
and which reflect any of the Confidential Information will be kept confidential
to the same extent as the Confidential Information.
ARTICLE 7
CONFLICTS
ARO acknowledges that BDSI or its affiliates (other than ARO) may own,
manage and operate additional oil and gas properties and interest in the future
that may compete with ARO's business. Specifically, BDSI or its affiliates
(other than ARO) may own or acquire interest in the oil and gas properties
comprising ARO's assets or in oil and gas properties adjacent to or in the
vicinity of ARO's assets. ARO acknowledges and agrees that neither BDSI or its
affiliates shall have any
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liability or accountability to ARO for any such competing activities or
interests or any profits or value generated therefrom.
ARTICLE 8
ACCESS AND AUDIT
8.1 BOOKS AND RECORDS. All books, records, files, data and other
information relating to ARO's assets or the operation of this Agreement shall be
available for inspection by ARO and its employees and agents during normal
business hours on three (3) Business Days prior notice; provided, however, to
the extent possible, BDSI shall provide ARO's employees with inspection rights
for less substantial reviews upon receipt of reasonable notice.
8.2 RIGHT TO AUDIT. ARO by itself or through its appointed representatives
shall have the right to audit the above mentioned books and records not more
than once per year on sixty (60) days prior notice and for twenty four (24)
months after the termination of this Agreement.
8.3 MAINTENANCE OF RECORDS. BDSI shall maintain and make available for the
purposes of audit all books and records of account and supporting documentation
for a period of at least twenty four (24) months following the end of the year
to which they relate. Thereafter they shall be presumed to be correct save to
the extent that exceptions have been raised by ARO as a result of any audit. In
the event of any dispute, the Parties shall agree on the appointment of an
independent, nationally recognized firm of accountants who shall be appointed to
adjudicate the dispute and whose decision shall be final and binding in the
absence of manifest error. In connection with any such dispute, the unsuccessful
Party shall be responsible for all third party costs incurred with respect to
such adjudication and each Party shall be responsible for their own costs
incurred in connection with the adjudication of such dispute.
ARTICLE 9
RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS. BDSI shall perform its duties hereunder as an
independent contractor and it is expressly agreed that this Agreement shall not
create a partnership, joint venture or association. This Agreement shall not
impose a fiduciary duty, or any other heightened standard, upon BDSI in the
performance of its duties hereunder. All matters pertaining to the employment,
supervision, compensation, promotion and discharge of any employees or personnel
of BDSI are the responsibility of BDSI, which is in all respects the employer of
such employees. All such employment arrangements are solely BDSI's concern and
ARO shall have no liability with respect thereto.
9.2 TAXATION. This Agreement is not intended to create, and shall not be
construed to create, a relationship, a partnership, or an association for profit
between or among the Parties. Notwithstanding any provisions herein that the
rights and liabilities hereunder are several and not joint or collective, or
that this Agreement and operations hereunder shall not constitute a partnership,
if for federal income tax purposes, this Agreement and the operation hereunder
are regarded as a partnership, each Party thereby affected ELECTS TO BE EXCLUDED
from the application of all of the provisions of Subchapter "K", Chapter 1,
Subtitle "A", of the Internal Revenue Code of 1986, as amended (the "CODE"), as
permitted and authorized by Section 761 of the Code and the regulations
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promulgated thereunder. BDSI is authorized and directed to execute on behalf of
each Party hereby affected such evidence of this election as may be required by
the Secretary of the Treasury of the United States or the Federal Internal
Revenue Service ("IRS"), including, specifically, but not by way of limitation,
all of the returns, statements, and the data required by Federal Regulation
1.761(2). Should there be any requirements that each Party hereby affected give
further evidence of this election, each such Party shall execute such documents
and furnish such other evidence as may be required by the IRS or as may be
necessary to evidence this election. No Party shall give any notices or take any
other action inconsistent with the election made hereby. If any present or
future income tax laws of the State or States in which the area covered by this
Agreement is located or any future income tax laws of the United States 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 of the
Code is permitted, each Party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each Party
states that the income derived by such Party from operations hereunder can be
adequately determined without the computation of partnership taxable income.
ARTICLE 10
REPRESENTATION AND WARRANTIES
10.1 REPRESENTATION AND WARRANTIES OF BDSI. BDSI agrees and represents and
warrants to ARO as follows:
(a) ORGANIZATION. BDSI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) AUTHORITY AND CONFLICTS. BDSI has full corporate power and
authority to carry on its business as presently conducted, to enter into
this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by BDSI does not, and the
consummation of the transactions contemplated by this Agreement shall not,
(i) violate or be in conflict with, or require the consent of any person
or entity under, any provision of BDSI's Certificate of Incorporation or
other governing documents, (ii) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice,
or both, would constitute a default) under, or require any consent,
authorization or approval under any agreement or instrument to which BDSI
is a party or is bound, or (iii) violate any provision of or require any
consent, authorization or approval under any judgment, decree, judicial or
administrative order, award, writ, injunction, statute, rule or regulation
applicable to BDSI.
(c) AUTHORIZATION. The execution and delivery of this Agreement have
been and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action
on the part of BDSI.
(d) ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of BDSI, and constitutes a legal, valid and binding
obligation of BDSI enforceable in
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accordance with its terms, except as enforceability may be limited by
Enforceability Limitations.
10.2 REPRESENTATIONS AND WARRANTIES OF ARO. ARO represents and warrants to
BDSI as follows:
(a) ORGANIZATION. ARO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is qualified to do business in and is in good standing under the laws of
each other state in which ARO's assets are located.
(b) AUTHORITY AND CONFLICTS. ARO has full corporate power and
authority to carry on its business as presently conducted, to enter into
this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by ARO does not, and the
consummation of the transactions contemplated by this Agreement shall not,
(i) violate or be in conflict with, or require the consent of any person
or entity under, any provision of ARO's Certificate of Incorporation or
other governing documents, (ii) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice,
or both would constitute a default) under, or require any consent,
authorization or approval under any agreement or instrument to which ARO
is a party that affects ARO's assets, or (iii) violate any provision of or
require any consent, authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule
or regulation applicable to ARO.
(c) AUTHORIZATION. The execution and delivery of this Agreement have
been, and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action
on the part of ARO.
(d) ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of ARO and constitutes the legal, valid and binding
obligation of ARO enforceable in accordance with its terms, except as
enforceability may be limited by Enforceability Limitations.
(e) COMPLIANCE WITH LAW AND PERMITS. To the best of ARO's knowledge
except as disclosed in the Investment Agreement, ARO and its assets are in
compliance with the provisions and requirements of all laws, rules,
regulations, ordinances, orders, decisions and decrees of all governmental
authorities having jurisdiction with respect to its assets or the
ownership or operation of any thereof. To the best of ARO's knowledge,
except as disclosed in the Investment Agreement, all necessary
governmental permits, licenses, approvals, consents, certificates and
other authorizations with regard to the ownership of its assets have been
obtained and maintained in effect and no violations exist or have been
recorded in respect of such permits, licenses, approvals, consents,
certificates or authorizations. To the best of ARO's knowledge, except as
disclosed in the Investment Agreement, none of the documents or materials
filed with or furnished to any governmental authority with respect to its
assets or the ownership thereof contains any untrue statement of a
material fact or omits any statement of a material fact necessary to make
the statements therein not misleading.
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ARTICLE 11
TERM
11.1 TERM. Unless sooner terminated pursuant to this Section 11.1, this
Agreement shall be effective as of the Commencement Date and shall continue in
force for the remainder of 1999 and all of 2000 and shall continue thereafter
for each subsequent calendar year on a year-to-year basis (each calendar year
beginning with 1999 being an "AGREEMENT YEAR") until terminated by either BDSI
or ARO by providing written notice of such termination thirty (30) days prior to
the end of an Agreement Year. This Agreement shall terminate at the close of
business on the last day (the "TERMINATION DATE") of the Agreement Year in which
proper notice of termination was given by either Party hereto. In addition, in
the event either BDSI or ARO fails to comply with any of the terms and
conditions of this Agreement or breaches any representation contained herein and
such failure or breach continues for ten (10) days after the delivery of written
notice, the defaulting party will be liable for any and all costs, expenses,
losses or liabilities sustained or incurred by the non-defaulting party.
Notwithstanding any termination of this Agreement, BDSI and ARO expressly agree
that all provisions of this Agreement that contemplate performance after the
expiration or earlier termination hereof shall survive such expiration or
earlier termination of this Agreement.
11.2 HOLD OVER. Notwithstanding the terms of SECTION 11.1 above, if ARO
desires it and ARO notifies BDSI in writing of such desire at least fifteen (15)
days prior to the scheduled Termination Date, then this Agreement shall be
extended and not terminated for a period of up to six (6) calendar months in
order to allow ARO to identify and contract with a replacement service provider.
During such hold over period, all of the provisions of this Agreement shall
apply in a manner modified to be consistent with such shortened Agreement Year;
PROVIDED, HOWEVER, BDSI shall be entitled to receive an upwards adjustment of
the Management Fee of not less than ten percent (10%) should such period of the
extension of this Agreement exceed three (3) calendar months.
ARTICLE 12
NOTICES
All notices required or permitted under this Agreement shall be in writing
and, (i) if by air courier, shall be deemed to have been given one (1) Business
Day after the date deposited with a recognized carrier of overnight mail, with
all freight or other charges prepaid, (ii) if by telegram, shall be deemed to
have been given one (1) Business Day after delivered to the wire service, (iii)
if by telex, provided an answer back is received, shall be deemed to have been
given when sent, (iv) if mailed, shall be deemed to have been given three (3)
Business Days after the date when sent by registered or certified mail, postage
prepaid, and (v) if sent by telecopier, shall be deemed to have been given when
sent, addressed as follows:
ARO: American Resources Offshore, Inc.
0000 Xxxxxxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
Telecopier: (000) 000-0000
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BDSI: Blue Dolphin Services, Inc.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: G. Xxxxx Xxxxx, Vice President
Telecopier: (000) 000-0000
Either Party to this Agreement may change the address provided for above
by notifying the other Party in writing at least thirty (30) days prior to the
date such address change shall become effective.
ARTICLE 13
GENERAL
13.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY
PRINCIPLES OR CONFLICTS OR LAWS.
13.2 ASSIGNMENT. No assignment of this Agreement or any of the rights or
obligations set forth herein by either Party shall be valid without the specific
written consent of the other Party.
13.3 INTEGRATION. This Agreement, the Exhibits hereto and the other
agreements to be entered into by the Parties under the provisions of this
Agreement, if any, set forth the entire agreement and understanding of the
Parties in respect of the transactions contemplated hereby and supersede all
prior agreements, prior arrangements and prior understandings relating to the
subject matter hereof.
13.4 WAIVER OR MODIFICATION. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of BDSI and ARO, or, in the case of a
waiver or consent, by or on behalf of the Party or Parties waiving compliance or
giving such consent. The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by any Party of any condition, or of
any breach of any covenant, agreement, representation or warranty contained in
this Agreement, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or breach or waiver of
any other condition or of any breach of any other covenant, agreement,
representation or warranty.
13.5 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
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13.6 FORCE MAJEURE. The Parties hereto shall be excused for failure to
perform the respective obligations hereunder (other than a failure relating to
payment obligations imposed hereunder) to the extent that such failure is
directly or indirectly caused by an occurrence commonly known as force majeure,
including, without limitation, delays arising from fire, earthquake, flood or
other acts of God, acts or orders of a government, agency or instrumentality
thereof, acts of a public enemy, riots, embargoes, strikes or other consorted
acts of workers, casualties or accidents, failure or delay in deliveries or
materials or transportation, shortages of labor or materials, communications
failure or any other causes, circumstances or contingencies, that are beyond the
reasonable control of the Party unable to perform. The Party claiming a force
majeure event shall, to the extent reasonably possible, remedy such force
majeure event with all reasonable dispatch.
13.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
13.8 DISPUTE RESOLUTION. All disputes among BDSI and ARO arising out of
any matters which are the subject of this Agreement shall be resolved through
the mediation and binding arbitration procedure set forth in EXHIBIT A.
Compliance with this SECTION 13.8 and the procedures set forth in EXHIBIT A
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Agreement. The Parties agree that the
provisions of EXHIBIT A are a severable, independent arbitration agreement
separately enforceable from the remainder of this Agreement.
EXECUTED as of the date first set forth above.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ XXXXX XXXXXXX
Printed Name: Xxxxx Xxxxxxx
Title: V.P. & General Counsel
BLUE DOLPHIN SERVICES, INC.
By: /s/ XXXX X. XXXXXX
Printed Name: Xxxx X. Xxxxxx
Title: Vice President
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