EXHIBIT 7.3
EXECUTION VERSION
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PARTICIPATION AGREEMENT
BETWEEN
BLUE DOLPHIN EXPLORATION COMPANY
AND
FIDELITY OIL HOLDINGS, INC.
JULY 30, 1999
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PARTICIPATION AGREEMENT
TABLE OF CONTENTS
ARTICLE 1DEFINITIONS
1.1 DEFINED TERMS....................................................1
1.2 OTHER TERMS......................................................4
1.3 CONSTRUCTION.....................................................4
ARTICLE 2 OBLIGATIONS OF THE PARTIES WITH RESPECT TO THE TRANSACTIONS
2.1 CLOSING UNDER AGREEMENTS.........................................5
2.2 DUE DILIGENCE MATERIALS..........................................5
2.3 AMENDMENTS AND WAIVERS...........................................5
2.4 MANAGEMENT SERVICES AGREEMENT....................................5
2.5 CONSULTING AGREEMENT.............................................5
ARTICLE 3 BACK-IN RIGHTS OF BDEX
3.1 BACK-IN RIGHTS FOR PROVED PROPERTIES.............................6
3.2 BACK-IN RIGHTS FOR EXPLORATORY PROPERTIES........................6
3.3 PAYOUT CALCULATION...............................................6
3.4 ASSIGNMENT OF BACK-IN INTERESTS..................................6
ARTICLE 4 BDEX COMPENSATION
4.1 FINDER=S FEE.....................................................7
4.2 TRANSACTION COSTS................................................7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF BDEX...........................7
5.2 REPRESENTATIONS AND WARRANTIES OF FIDELITY.......................8
ARTICLE 6 RELATIONSHIP OF PARTIES
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ARTICLE 7 NOTICES
7.1 NOTICES..........................................................9
7.2 GOVERNING LAW....................................................9
7.3 ASSIGNMENT.......................................................9
7.4 INTEGRATION.....................................................10
7.5 WAIVER OR MODIFICATION..........................................10
7.6 INVALID PROVISIONS..............................................10
7.7 FORCE MAJEURE...................................................10
7.8 MULTIPLE COUNTERPARTS...........................................10
7.9 DISPUTE RESOLUTION..............................................11
7.10 THIRD PARTY BENEFICIARIES.......................................13
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EXHIBITS
EXHIBIT A-1 - EXPLORATORY PROPERTIES
EXHIBIT A-2 - PROVED PROPERTIES
EXHIBIT B - MANAGEMENT SERVICES AGREEMENT
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PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT (this AAGREEMENT@) is made and entered into
this 30th day of July, 1999, by and between BLUE DOLPHIN EXPLORATION COMPANY, a
Delaware corporation (ABDEX@) and FIDELITY OIL HOLDINGS, INC., a Delaware
corporation (AFIDELITY@). BDEX and Fidelity may be referred to herein
collectively as the APARTIES@ or individually as a APARTY@.
RECITALS:
A. BDEX and Fidelity desire to participate in certain transactions which
will result in the acquisition by BDEX of seventy-five percent (75%)
of the common stock of American Resources Offshore, Inc., a Delaware
corporation (AARO@) and the acquisition by Fidelity of eighty percent
(80%) of the oil and gas properties of ARO located in the Gulf of
Mexico.
B. The transactions will require BDEX and Fidelity to make certain
commitments in connection with the acquisition of the ARO common stock
by BDEX and the ARO Gulf of Mexico properties by Fidelity.
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions and agreements hereinafter set forth, the Parties agree as follows:
AGREEMENTS
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. The following capitalized terms shall have the
following meanings in this Agreement:
"AFFILIATE" shall mean, with respect to any Person, any other Person
that directly or indirectly, through one or more intermediaries, controls
or is controlled by or is under common control with the Person. The terms
Acontrols,@ Acontrolled by@ and Aunder common control with@ shall mean the
possession, directly or indirectly or through one or more intermediaries,
of more than fifty percent (50%) of the outstanding voting stock of, or
the
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power to direct or cause the direction of the management policies of any
Person, whether through ownership of Stock, as a general partner or
trustee, by contract or otherwise.
"AGREEMENT" has the meaning set forth in the introductory paragraph
hereof.
"ARO" shall have the meaning set forth in the recitals hereof.
"ASSIGNMENT" shall have the meaning set forth in SECTION 3.4.
"DNB" shall mean DnB Energy Assets, Inc.
"BDEX" has 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.
"EXPLORATORY PROPERTIES" shall mean those Properties identified on
EXHIBIT A-1 as AEXPLORATORY PROPERTIES@.
"EXPLORATORY PROPERTY BACK-IN INTEREST" shall mean an interest equal
to fifteen percent (15%) of all interests acquired by Fidelity in and to
each Exploratory Property pursuant to the Purchase and Sale Agreement.
"EXPLORATORY PROPERTY PAYOUT" shall mean that point in time when
Fidelity, from the Proceeds from the Exploratory Properties, has recovered
(a) the direct costs of drilling, redrilling, testing, completing,
recompleting, stimulating, sidetracking, workovers, equipping (including
platforms, facilities and pipelines) and operating ▇▇▇▇▇ attributable to
the Exploratory Properties, including an allocable portion of the
Management Fee (as defined in the Management Services Agreement) and (b)
all direct out-of-pocket third party charges incurred by Fidelity relating
to the Exploratory Properties as calculated for each Exploratory Property
on a block by block basis.
"FIDELITY" has the meaning set forth in the introductory paragraph
hereof.
"FINDERS FEE" shall have the meaning set forth in SECTION 4.1.
"HYDROCARBONS" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
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"INVESTMENT AGREEMENT" means that certain Investment Agreement
entered into or to be entered into between BDEX and ARO regarding, inter
ALIA, the purchase of seventy-five percent (75%) of the common stock of
ARO, as the same may be amended from time to time.
"MANAGEMENT SERVICES AGREEMENT" shall mean an agreement in
substantially the form as the agreement attached hereto as EXHIBIT B, as
the same may be amended and modified from time to time.
"MMS" shall mean the United States Minerals Management Service.
"NOTE PURCHASE AGREEMENT" shall mean that certain note purchase
agreement or similar type of agreement between Fidelity, BDEX and DnB with
respect to the purchase by BDEX and Fidelity of the promissory note or
notes and liens and security interests securing such note or notes held by
DnB and issued and granted by ARO.
"PARTY" AND "PARTIES" shall have the meaning set forth in the
introductory paragraph hereto.
"PERSON" shall mean any natural person or a corporation, general
partnership, limited partnership, joint venture, limited liability
company, trust, estate or other entity.
"PROCEEDS" shall mean all proceeds from or attributable to
Fidelity=s ownership interest in the Properties after deducting applicable
royalties, overriding royalties and other burdens on production, but
excluding all burdens on production granted by, through or under Fidelity.
"PROPERTIES" shall mean the Hydrocarbon properties described in
EXHIBITS A-1 AND A-2, together with the leases creating such Hydrocarbon
properties (including record title, operating rights, overriding
royalties, net profits interests and all other types of interests) and all
personal property associated therewith.
"PROVED PROPERTIES" shall mean those Properties identified on
EXHIBIT A-2 as APROVED PROPERTIES@.
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"PROVED PROPERTY BACK-IN INTEREST" shall mean an interest equal to
ten percent (10%) of all interests acquired by Fidelity in and to the
Proved Properties pursuant to the Purchase and Sale Agreement.
"PROVED PROPERTY PAYOUT" shall mean that point in time when
Fidelity, from Proceeds from all Proved Properties, collectively, has
recovered, without duplication, (a) its total costs attributable to the
acquisition of all of the Properties, including, without limitation, the
consideration paid for its ownership interest in the Properties pursuant
to the Purchase and Sale Agreement, the Transaction Costs and the SEC
Transaction Costs, (b) the Finder=s Fee, (c) the direct costs of drilling,
redrilling, testing, completing, recompleting, stimulation, sidetracking,
workovers, equipping (including platforms, facilities and pipelines) and
operating ▇▇▇▇▇ attributable to the Proved Properties, including an
allocable portion of the Management Fee (as defined in the Management
Services Agreement) for the Proved Properties, (d) all direct
out-of-pocket third party charges incurred by Fidelity relating to the
Proved Properties and (e) the payments made by Fidelity pursuant to
SECTION 2.5 of this Agreement.
"PURCHASE AND SALE AGREEMENT" shall mean that certain Purchase and
Sale Agreement entered into or to be entered into between Fidelity and ARO
regarding the purchase of eighty percent (80%) of ARO=s interest in and to
the Properties by Fidelity.
"SEC TRANSACTION COSTS" shall mean Transaction Costs related solely
to compliance with the Securities Laws by BDEX or its Affiliates or the
officers and directors of BDEX and its Affiliates resulting from or
relating to the Transactions.
"SECURITIES LAWS" shall mean the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, all state securities laws
and all rules, regulations and orders promulgated thereunder.
"TRANSACTIONS" shall mean, collectively, all transactions
contemplated by the Purchase and Sale Agreement, the Investment Agreement
and the Note Purchase Agreement and all other transactions pertaining or
related to the transactions contemplated by the Purchase and Sale
Agreement, the Investment Agreement and the Note Purchase Agreement.
"TRANSACTION COSTS" shall mean all costs and expenses incurred by
BDEX in connection with the Transactions, including, without limitation,
attorneys= fees and expenses, third party expenses, direct out-of-pocket
expenses for travel and general and administrative
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expenses of BDEX related to the Transactions, but excluding SEC
Transaction Costs. The Transaction Costs shall include costs and expenses
incurred prior to or after the closing of the Transactions to the extent
related to the Transactions.
1.2 OTHER TERMS. Other capitalized terms in this Agreement 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 Aincluding@ shall mean, without limitation, by reason of
enumeration. The use of the words Ahereof,@ Ahereunder,@ Ahereto,@ Aherein,@
Ahereinafter,@ Ahereinabove@ and Ahereinbelow@ shall be references to this
Agreement in its entirety and not only to a particular Exhibit, Section or
Article in which such reference appears.
ARTICLE 2
OBLIGATIONS OF THE PARTIES WITH RESPECT TO THE TRANSACTIONS
2.1 CLOSING UNDER AGREEMENTS. BDEX and Fidelity shall use commercially
reasonable efforts to close the Transactions contemplated by the Purchase and
Sale Agreement, the Investment Agreement and the Note Purchase Agreement,
respectively; PROVIDED, HOWEVER, that neither Party shall have any obligation to
waive any rights they may have under such agreements in order to fulfill their
obligations pursuant to this Agreement.
2.2 DUE DILIGENCE MATERIALS. BDEX shall make available to Fidelity any due
diligence materials obtained by BDEX in connection with the Transactions.
Additionally, BDEX shall instruct its counsel to make available to Fidelity any
and all materials, information, data and opinions provided to or for BDEX in
connection with the Transactions. FIDELITY AGREES THAT ALL MATERIALS,
INFORMATION AND DATA MADE AVAILABLE TO IT IN CONNECTION WITH THE TRANSACTIONS AS
CONTEMPLATED BY THIS SECTION 2.3 ARE MADE AVAILABLE AS AN ACCOMMODATION AND
WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE ACCURACY OR
COMPLETENESS OF SUCH MATERIALS AND FIDELITY AGREES THAT ANY
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CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF FIDELITY=S OWN INDEPENDENT
REVIEW AND JUDGMENT.
2.3 AMENDMENTS AND WAIVERS. BDEX and Fidelity agree that, once executed,
neither Party shall (a) amend or agree to amend, respectively, the Purchase and
Sale Agreement, the Investment Agreement or the Note Purchase Agreement or (b)
waive or agree to waive any condition to closing under, respectively, the
Purchase and Sale Agreement, the Investment Agreement or the Note Purchase
Agreement, without the written consent of the other Party.
2.4 MANAGEMENT SERVICES AGREEMENT. Contemporaneously with the closing of
the Transactions, Fidelity and BDEX shall enter into the Management Services
Agreement.
2.5 CONSULTING AGREEMENT. In the event that the Transactions close,
Fidelity agrees that it will bear eighty percent (80%) of the amounts paid by
ARO under that certain Consulting Agreement (as that term is defined in the
Investment Agreement). Fidelity may fulfill its obligations pursuant to this
Section 2.5 by making adjustments to the purchase price to be paid by Fidelity
to ARO pursuant to the Purchase and Sale Agreement for amounts paid by ARO under
the Consulting Agreement prior to the closing of the Transactions. For all
amounts due by Fidelity to ARO pursuant to this Section 2.5 for payments made by
ARO under the Consulting Agreement after the closing of the Transactions,
Fidelity shall pay such sums to ARO on or before the 20th day of each month
following the closing of the Transactions.
ARTICLE 3
BACK-IN RIGHTS OF BDEX
3.1 BACK-IN RIGHTS FOR PROVED PROPERTIES. Upon the occurrence of Proved
Property Payout, BDEX shall be entitled to receive an Assignment from Fidelity
for the Proved Property Back-In Interest.
3.2 BACK-IN RIGHTS FOR EXPLORATORY PROPERTIES. Upon the occurrence of
Exploratory Property Payout, BDEX shall be entitled to receive an Assignment
from Fidelity for the Exploratory Property Back-In Interest for the Exploratory
Property for which Exploratory Payout has occurred.
3.3 PAYOUT CALCULATION. After the Closing of the Transactions Fidelity
shall be responsible for calculating the Proved Property Payout status and the
Exploratory Property Payout status. Fidelity shall provide BDEX with a statement
each calendar quarter showing the Proved
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Property Payout status and the Exploratory Property Payout status and shall
provide BDEX with any data and information supporting such statements as BDEX
may reasonably request.
3.4 ASSIGNMENT OF BACK-IN INTERESTS. Upon the occurrence of Proved
Property Payout or an Exploratory Property Payout, as the case may be, Fidelity
shall, within thirty (30) days after receipt of a written request from BDEX for
an assignment together with an executable version of such assignment prepared by
BDEX, execute and deliver to BDEX an assignment in a form acceptable to the MMS,
or the State of Texas, as may be applicable (the AASSIGNMENT@), of the Proved
Properties Back-In Interest or the Exploratory Property Back-In Interest,
subject to the following terms, conditions, reservations and limitations:
(a) The Assignment shall be made without warranty of any kind,
express or implied, except that Fidelity shall warrant title to the
Properties by, through and under itself, but not otherwise.
(b) The Assignment shall be made subject to the terms, covenants and
conditions of the following:
1. The terms and provisions of the applicable leases
comprising the Properties.
2. The terms and provisions of this Agreement and all other
contracts and agreements to which the applicable Properties are
subject immediately prior to the assignment of such Properties to
Fidelity pursuant to the Purchase and Sale Agreement, or otherwise
consented to by BDEX in writing.
3. Instruments recorded of public record (including any
applicable county or parish filings in Texas and Louisiana), or in
the records of the MMS, or the State of Texas, of any nature
whatsoever affecting or pertaining to the applicable Properties.
(c) The Assignment shall be effective for all purposes as of 7:00
a.m. Central Daylight Time on the first day following the date on which
Payout occurs, and shall be free and clear of all leasehold burdens and
burdens on production created by, through or under Fidelity.
ARTICLE 4
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BDEX COMPENSATION
4.1 FINDER=S FEE. Upon the closing of the Purchase and Sale Agreement,
Fidelity shall pay to BDEX, as a finder=s fee (the AFINDER=S FEE@) in an amount
equal to one percent (1%) of the purchase price, as adjusted, paid by Fidelity
for the interest purchased by Fidelity in and to the Properties pursuant to the
Purchase and Sale Agreement. The Finder=s Fee shall be payable to BDEX
contemporaneously with the closing under the Purchase and Sale Agreement and
shall be subject to being increased or decreased based upon any post-closing
purchase price adjustments made pursuant to the Purchase and Sale Agreement. If
the purchase price under the Purchase and Sale Agreement is increased or
decreased as the result of post-closing adjustments under the Purchase and Sale
Agreement, Fidelity or BDEX, as the case may be, shall pay to the other Party
any amounts due to the other within five (5) days following the final purchase
price adjustments under the Purchase and Sale Agreement.
4.2 TRANSACTION COSTS. In addition to the Finder=s Fee, Fidelity agrees to
pay to BDEX an amount equal to eighty percent (80%) of the Transaction Costs;
PROVIDED, HOWEVER, Fidelity shall only be obligated to pay BDEX fifty percent
(50%) of the SEC Transaction Costs. The Transaction Costs shall be paid to BDEX
whether or not the Transactions, or any part thereof, close. If the Transactions
do not close, Fidelity shall pay its share of the Transaction Costs and the SEC
Transaction Costs to BDEX within twenty (20) days after receipt of an invoice
from BDEX.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF BDEX. BDEX represents and warrants
to Fidelity that:
(a) BDEX is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is qualified to
conduct business under the laws of any state in which its operations may
be conducted except to the extent that the failure to so qualify will not
have a material adverse effect on the business or operations of BDEX.
(b) There is no litigation, judgment or outstanding order, writ,
injunction, decree, stipulation or award (whether rendered by a court or
administrative agency, or by arbitration) pending or to the knowledge of
BDEX threatened, to which BDEX is or would be a party or to which BDEX is
bound, that would have an adverse effect on the ability of BDEX to
consummate its duties and obligations contemplated under this Agreement.
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5.2 REPRESENTATIONS AND WARRANTIES OF FIDELITY. Fidelity represents and
warrants to BDEX that:
(a) Fidelity is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware, has qualified to
conduct business under the laws of any state in which its operations may
be conducted hereunder, except to the extent that the failure to be
qualified will not have a material adverse effect on the business or
operations of Fidelity.
(b) There is no litigation, judgment or outstanding order, writ,
injunction, decree, stipulation or award (whether rendered by a court or
administrative agency, or by arbitration) pending, or to the knowledge of
Fidelity threatened, to which Fidelity is or would be a party, or to which
Fidelity is bound that would have an adverse effect on the ability of
Fidelity to consummate its duties and obligations contemplated under this
Agreement.
ARTICLE 6
RELATIONSHIP OF PARTIES
The Parties do not intend to create, nor shall this Agreement be construed
to create, a partnership between the Parties nor does this Agreement render the
Parties hereto liable as partners. Nothing herein shall be construed as an
authorization of one Party hereto to act as general agent for the other Party
nor to permit either Party to act for or on behalf of the other Party outside
the terms of this Agreement.
ARTICLE 7
NOTICES
7.1 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 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:
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Fidelity: Fidelity Oil Holdings, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, President and Chief Executive
Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
BDEX: Blue Dolphin Exploration Company
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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.
7.2 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.
7.3 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. Any purported assignment in violation of
this SECTION 7.3 shall be void.
7.4 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, whether written or oral.
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7.5 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 BDEX and Fidelity, 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.
7.6 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.
7.7 FORCE MAJEURE. The Parties 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.
7.8 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.
7.9 DISPUTE RESOLUTION. (a) All disputes among BDEX and Fidelity arising
out of any matters which are the subject of this Agreement shall be resolved
through the mediation and binding
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arbitration procedure set forth below. Compliance with this SECTION 7.9 and the
procedures set forth in SECTION 7.9(B) shall constitute a condition precedent to
either Party seeking judicial enforcement of any provisions of this Agreement.
The Parties agree that the provisions of this SECTION 7.9 are a severable,
independent arbitration agreement separately enforceable from the remainder of
this Agreement.
(b) Upon the occurrence of any dispute between BDEX and Fidelity in
connection with their rights and obligations under this Agreement, BDEX and
Fidelity will first attempt in good faith to resolve all disputes by
negotiations between management level persons who have authority to settle the
controversy. If either Party believes further negotiations are futile, such
Party may initiate mediation by so notifying the other Party in writing. Both
Parties shall then attempt in good faith to resolve the dispute by mediation in
Houston, Texas, employing management level persons with authority to settle the
dispute, in accordance with the Center for Public Resources Model Procedure for
Mediation of Business Disputes, as such procedure may be modified by agreement
of the Parties. If the dispute has not been resolved pursuant to mediation
within sixty (60) days after initiating the mediation process, the dispute shall
be finally resolved through binding arbitration, as follows:
(1) If any dispute or controversy shall arise between the Parties
out of this Agreement, the alleged breach thereof or any tort in
connection therewith, or out of the refusal to perform the whole or any
part thereof, and the Parties shall be unable to agree with respect to the
matter or matters in dispute or controversy, the same shall be submitted
to arbitration before a panel of arbitrators in accordance with the Texas
General Arbitration Act, V.A.C.S. art. 224, ET. SEQ. and the provisions of
this SECTION 7.9(B). The panel of arbitrators shall be chosen as follows:
Upon the written demand of either Party and within ten (10) working days
from the date of such demand, each Party shall name an arbitrator and
these two so named shall promptly thereafter choose a third. If either
Party shall fail to name an arbitrator within ten (10) working days from
such demand, the other Party shall name the second arbitrator as well as
the first, or if the two arbitrators shall fail within ten (10) working
days from their appointment to agree upon and appoint the third
arbitrator, then upon written application by either Party such third
arbitrator may be appointed by the senior Judge in active service of the
United States District Court for the Southern District of Texas; and if
said Judge shall fail to act, then such third arbitrator shall be
appointed by the President of the Center for Public Resources, Inc. The
arbitrators selected to act hereunder shall be qualified by education,
experience, and training to pass upon the particular matter or matters in
dispute.
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(2) The panel of arbitrators so chosen shall proceed promptly to
hear and determine the matter or matters in dispute, after giving the
Parties due notice of hearing and a reasonable opportunity to be heard.
The procedure of the arbitration proceedings shall be in accordance with
the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes, as may be modified by the panel of arbitrators. Unless
otherwise determined by the arbitrators, the hearing and presentations of
the Parties shall not exceed two days cumulative. The location of all
arbitration proceedings hereunder shall be Houston, Texas, unless the
panel of arbitrators determines that another venue is more appropriate.
The award of the panel of arbitrators or a majority thereof shall be made
within forty-five (45) days after the appointment of the third arbitrator,
subject to any reasonable delay due to unforeseen circumstances. In the
event of the panel or a majority thereof failing to make a award within
sixty (60) days after the appointment of the third arbitrator, new
arbitrators may at the election of either Party be chosen in like manner
as if none had been previously selected.
(3) The award of the arbitrators, or a majority thereof, shall be in
writing and shall be final and binding on the Parties as to the question
or questions submitted, and the Parties shall abide by such award and
perform the conditions thereof. The award of the arbitrators shall be
based on the applicable law and facts, the merits of the Parties=
positions in the controversy or dispute, and the arbitrators= assessment
of the fairness and reasonableness of any settlement proposal of any
Party. The award shall not provide or create any rights or benefits in any
person or entity which is not a Party to this Agreement, as this Agreement
and any arbitration thereunder shall not be construed as a third party
beneficiary contract. Unless otherwise determined by the arbitrators, all
expenses in connection with such arbitration shall be divided equally
between the Parties thereto, except that the expenses of counsel,
witnesses, and employees of each Party shall be borne solely by the Party
incurring them, and the compensation of any arbitrator named by a Party
shall be borne solely by such Party; provided that if court proceedings to
stay litigation or compel arbitration are necessary, the Party who
unsuccessfully opposes such proceedings shall pay all reasonable
associated costs, expenses and attorney's fees of such court proceedings.
(4) The arbitrators shall not be required to explain reasons for the
award, but may do so. No transcript or other recording shall be made of
the arbitration proceedings. Except (i) in connection with a suit for
enforcement of the award, (ii) as required by law, court order or
regulation, (iii) when reasonably necessary to explain the terms and
conditions of the award to outside attorneys, auditors, and insurers, or
(iv) as part of good faith compliance with disclosure obligations under
applicable law, the arbitration proceedings,
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the award, and the Parties= actions in connection with the arbitration are
confidential and shall not be disclosed to third parties, and no
disclosure of or reference to the arbitration, the award, or of the
Parties= statements or actions in connection with the arbitration shall be
made to any third party. All offers, promises, conduct, statements, and
evidence, whether oral or written, made in the course of the arbitration
by any of the Parties, their agents, employees, experts, or attorneys are
confidential. Such offers, promises, conduct, statements, and evidence
shall be considered inadmissible under Rule 408 of the Federal Rules of
Evidence and any similar state provisions, and shall be inadmissible for
any purpose, including impeachment. However, evidence that is otherwise
admissible shall not be rendered inadmissible as a result of its use in
the arbitration.
(5) The award of the panel of arbitrators and the obligation to
abide by same and perform the conditions thereof shall be enforceable in
the state district courts in ▇▇▇▇▇▇ County, Texas, or in any federal court
having jurisdiction. Each Party shall bear its own attorneys= fees in
connection with any appeal or enforcement of an arbitration award, or in
any other court litigation arising out of this Agreement.
7.10 THIRD PARTY BENEFICIARIES. Except for ARO pursuant to Section 2.5, no
Person other than BDEX and Fidelity is intended to be a beneficiary of this
Agreement; there are no intended third-party beneficiaries to this Agreement.
[Remainder of this page intentionally left blank.]
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EXECUTED as of the date first set forth above.
FIDELITY OIL HOLDINGS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇, President and
Chief Executive Officer
BLUE DOLPHIN EXPLORATION COMPANY
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT BETWEEN BLUE DOLPHIN EXPLORATION
COMPANY AND FIDELITY OIL HOLDINGS, INC.]
