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EXHIBIT 4.1
DATED 4th February 1994
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC
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(2) ENCAP INVESTMENTS L.C.
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INVESTMENT ADVISORY AGREEMENT
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Xxxxxx Xxxxxx
0 Xxxxxxx Xxxxxx
Xxxxxx XX0X 0XX
ARG/LJI/2487
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INVESTMENT ADVISORY AGREEMENT
AN AGREEMENT made the 4th day of February, One thousand nine hundred and ninety
four.
B E T W E E N
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC (registered in England No. 2867571)
whose registered office is at 00 Xxxxxxxxxxxx Xxxxxx, Xxxxxx XX0X 0XX
("the Company"),
(2) ENCAP INVESTMENTS L.C., a Texas limited liability company whose principal
place of business is at 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx
00000 XXX ("EnCap").
WHEREAS:
(A) The Company is desirous of appointing EnCap (subject as hereinafter
provided) to advise the Company in relation to the management and
investment and re-investment of the Company's Investments.
(B) EnCap is engaged in business offering investment management and advisory
services in the USA in relation to the oil and gas industry and has
considerable skill, knowledge and experience in that field.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement the following words and expressions shall where
not inconsistent with the context have the following meanings
respectively:
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"Affiliate" with regard to another person shall mean any person
directly or indirectly controlling, controlled by or under common
control with, such other person; "Control" means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person whether through
the ownership of voting securities, by contract or otherwise;
"Appointee(s)" means any person or persons to whom EnCap may have
delegated any of its functions hereunder;
"Articles" means the Articles of Association of the Company as
amended from time to time and any reference herein to an Article
shall be taken to refer to the Articles unless otherwise specified;
"Directors" means the Board of Directors of the Company from time to
time including any duly appointed committee thereof;
"Independent Directors" means the Directors other than those
connected within the meaning of Section 346 of the Companies Xxx
0000 with EnCap;
"the Investments" means the assets and rights from time to time of
the Company acquired pursuant to this Agreement and held in
accordance with the Memorandum of Association and Articles of the
Company;
"Investment Policy" means the investment policy of the Company (as
reviewed and amended by the Directors from time to time) as
initially stated in the Particulars and repeated in Part A of
Schedule One;
"Investment Restrictions" means the investment restrictions (as
reviewed and amended by the Directors from time to time or as
amended by statute or rules or regulations thereunder) as initially
stated in the Particulars and repeated in Part B of Schedule One;
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"the Particulars" means the Listing Particulars of the Company
proposed to be dated 4th February 1994;
"the Partnership" means the US Limited Partnership to be constituted
between EnCap, Lincoln National Life Insurance Company,
Internationale Nederlanden (U.S.) Capital Corporation and others to
co-invest with the Company as is referred to in the Particulars;
"the Placing" means the placing of Ordinary Shares and Warrants
described in the Particulars;
"the Placing Agreement" means the Agreement of even date herewith
made between the Company (1), Xxxxx Xxxxxxxxx & Co. Limited (2)
Xxxxxxxxx Xxxxxxxxxxx Institutional Brokers Limited (3), and
Xxxxxxxx Xxxxxx & Xxxxx Limited (4) described in the Particulars in
paragraph 7(b) of Part IV thereof under the heading "General
Information";
"Schedules" mean the Schedules annexed hereto which form part of
this Agreement;
"the Secretary" means Aberdeen Trust PLC or the Secretary of the
Company for the time being;
"subsidiary" has the meaning ascribed thereto in Section 144 of the
Companies Xxx 0000;
"The London Stock Exchange" means the International Stock Exchange
of the United Kingdom and Republic of Ireland Limited;
Any reference to EnCap includes a reference to its duly authorised
agents or delegates.
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1.2 Words and expressions contained in this Agreement (but not defined
herein) shall bear the same meanings as in the Articles PROVIDED
THAT any alteration or amendment of the Articles shall not be
effective for the purpose of this Agreement unless any affected
party (to the extent that its rights or duties hereunder are
affected by such alteration or amendment) shall by endorsement
hereon or otherwise in writing have assented thereto.
1.3 The headings to the Clauses of this Agreement are for convenience
only and shall not affect the construction or interpretation
thereof.
2. CONDITIONAL AGREEMENT
This Agreement shall be conditional in all respects upon the Placing
Agreement becoming unconditional in all respects.
3. APPOINTMENT AND FUNCTIONS OF ENCAP
3.1 The Company HEREBY APPOINTS EnCap, subject to and in accordance with
the directions of the Directors, and in accordance with the
Investment Policy and Investment Restrictions, as advisors and
managers in respect of the investment and re-investment of the
Investments on the terms contained herein and EnCap hereby accepts
such appointment and agrees to assume the obligations set forth
herein.
3.2 Without prejudice to the generality of Clause 3.1 above, the duties
to be performed by EnCap on behalf of the Company in accordance with
the Investment Policy and the Investment Restrictions shall include
the following:
3.2.1 EnCap shall, as and when requested by the Board, use all
reasonable endeavours to identify Investments, conforming with
the Investment Policy, for recommendation to the Board. EnCap
shall furnish to the
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Directors in relation to any proposed Investment all such
information as the Directors shall reasonably require or which
is in EnCap's possession, to enable the Directors to consider
the proposed Investment.
3.2.2 Following the identification by EnCap of a Proposed
Investment, EnCap shall conduct such further investigations as
the Directors shall reasonably request and when reasonably
requested by the Directors, EnCap shall report and advise in
relation thereto.
3.2.3 As and when so requested by the Directors, EnCap shall
commission an independent engineering firm approved by the
Directors to furnish to the Directors and EnCap a report in
relation to the proposed Investment. The terms of reference
for such report shall be as agreed between the Directors and
EnCap.
3.2.4 EnCap shall undertake all negotiations with third parties in
relation to a proposed Investment on behalf of the Company and
shall be responsible for procuring, in accordance with all
applicable legal requirements and best practice, the
preparation and execution of all deeds, documents of title and
agreements in relation to Investments and the perfecting of
the Company's title thereto.
3.2.5 EnCap shall be responsible for advising and instructing the
Company's Corporate Managers for the time being and Secretary
on administrative requirements in order to implement the
making of Investments.
3.3 Subject to the terms of this Agreement, to such directions as may
from time to time be given by the Directors and to the overall
policy and supervision of the Directors, EnCap is authorised to act
for the Company or any subsidiary and on behalf of the Company and
or any subsidiary either itself or wholly or in part through its
authorised agents or delegates in the same manner and with the same
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force and effect as the Company or any subsidiary might or could do
and to exercise the functions, duties, powers and discretions
exercisable by the Directors under the Articles (including, without
prejudice to the generality of the foregoing, the functions duties
powers and discretions specifically mentioned in Clause 3.2 above)
and to manage the investment and re-investment of the Investments.
3.4 EnCap shall keep or cause to be kept on behalf of the Company such
books, records and statements to give a complete record of all
transactions carried out by EnCap on behalf of the Company (or any
subsidiary) in relation to the investment and re-investment of the
Investments and such other books, records and statements as may be
required to give a complete record of all other transactions carried
out by EnCap on behalf of the Company (or any subsidiary) and shall
permit the Company and its employees and agents and the auditors for
the time being of the Company to inspect such books, records and
statements at all reasonable times.
3.5 EnCap hereby warrants that it holds all licences, permissions,
authorisations and consents necessary to enable it to carry out its
duties as advisors and managers in the ordinary course of business.
EnCap undertakes to use its best endeavours to continue to hold all
such licences, permissions, authorisations and consents necessary
for its duties hereunder and to notify the Company immediately
should any such licence, permission, authorisation or consent cease
to be in full force and effect.
3.6 EnCap shall observe and comply with the Memorandum of Association
and Articles of the Company and with any alterations thereto
notified to EnCap by the Company and with the applicable provisions
of the Particulars and the Investment Restrictions and all
obligations deriving from listing particulars of the Company from
time to time issued and all resolutions of the Directors of which it
has notice and other lawful orders and directions given to it from
time to time by the Directors and all activities engaged in by EnCap
hereunder shall at all times be
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subject to the control of and review by the Directors and EnCap
shall and shall procure that any person, firm or company to whom it
delegates any of its functions hereunder shall give effect to all
such decisions.
3.7 EnCap shall procure that all Investments shall be registered in the
name of the Company or any subsidiary or the nominees of the
Company.
3.8 EnCap undertakes with the Company that it will procure that, during
the continuance of this Agreement, the Company shall be afforded the
opportunity (as is provided in the Particulars) to invest in all
investments made by, and investment arrangements entered into, by
the Partnership in all respects upon the same terms and conditions
as are afforded to the Partnership.
4. INFORMATION OBLIGATIONS OF ENCAP
4.1 EnCap shall keep the Company informed of all material matters
relating to the Investments of the Company, to such extent and in
such form and at such times as the Company shall reasonably require.
4.2 Without limiting the generality of Clause 4.1 EnCap shall:
4.2.1 When reasonably requested by the Board deliver to the Company
in respect of each calendar month a summary report, in such
form as the Company shall reasonably require, relating to the
Company's Investments and any proposed Investment then under
consideration;
4.2.2 Within 30 days of the end of each calendar quarter, deliver to
the Company a report, in such form as the Company shall
reasonably require, comprising detailed financial information
in relation to each Investment of the Company and including
detailed cost and revenue allocations;
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4.2.3 Within 90 days of the end of each financial year of the
Company, deliver to the Company a report, in such form as the
Company shall reasonably require, comprising financial and
taxation statements in relation to the Company's Investments
as at the end of the financial year then ended prepared by a
firm of accountants previously approved by the Company and
reserve reports prepared in relation to the Company's
Investments as at the end of the financial year then ended,
prepared by such independent petroleum engineer previously
approved by the Company.
5. REMUNERATION
5.1 The Company shall during the continuance of this Agreement pay to
EnCap by way of remuneration for the provision of services and
advice pursuant to this Agreement an annual fee, payable by equal
quarterly instalments in arrears on 31st March, 30th June, 30th
September and 31st December in each year, calculated at the rate of
1% of the Company's NAV as at 31st December preceding the year in
which the payments are due to be made. For the purposes of this
clause "NAV" means the amount in US dollars of the aggregate of:
5.1.1 All cash at bank and in hand of the Company; and
5.1.2 All amounts owing to the Company, whether or not due for
payment or repayment at the relevant time, excluding (i) any
amount falling within sub-clause 5.1.4 and (ii) any amount
loaned by the Company and secured on any asset or interest in
respect of oil and gas to the extent that the present worth of
future revenue, discounted at a rate of 10 per cent per annum,
of the proved reserves (as shown in the relevant independent
petroleum engineer's reserve report prepared as at the
relevant date or the closest practicable date thereto)
securing any such loan does not provide a coverage ratio in
respect of the amounts advanced by the Company and all accrued
interest of at least 1:1; and
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5.1.3 The present worth of the future net revenue, discounted at 15
per cent per annum, of the proved reserves attributable to any
direct equity interests owned by the Company in oil and gas
properties (as shown in the relevant engineer's reserve report
prepared as at the relevant date or the closest practicable
date thereto); and
5.1.4 In the case of any Investment comprising debt or equity
securities (including without limitation shares, options,
warrants and bonds) that are traded on a recognised investment
exchange, the aggregate of the market value to the Company of
such securities as at the relevant date (it being agreed that
in the event that an Investment falls within this sub-clause
5.1.4 and any of sub-clause 5.1.2, 5.1.3 and 5.1.5, the
provisions of this sub-clause 5.1.4 shall apply to the
exclusion of the other sub-clauses for the purposes of
calculating NAV); and
5.1.5 In the case of any Investment comprising any equity securities
in any entity (whether corporate or not) not falling within
sub-clause 5.1.4, the value of such equity securities to the
Company calculated on the basis of that proportion of such
entity's NAV attributable to the Company (the NAV of such
entity being calculated on the same basis, mutatis mutandis,
as is set out in this Clause);
less an amount equal to all indebtedness of the Company at the
relevant time, whether or not then due for payment or repayment;
PROVIDING that for the purposes of this clause the NAV of the
Company as at 31st December 1993 shall be deemed to be equal to the
net proceeds of the Placing having deducted all expenses thereof.
PROVIDING further that the NAV shall be determined by the
Independent Directors using the foregoing principles and reserve
reports prepared by an
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independent petroleum engineering firm, which shall use the same
assumptions for future oil and gas prices as those generally
utilised by major oil and gas lending institutions in the USA at the
time the valuation is made;
5.2 The fees payable hereunder are inclusive of all applicable value
added tax and any other sales or services taxes whatsoever payable
from time to time and whether principally by the Company or EnCap.
5.3 The fees payable pursuant to Clause 5.1 shall be deemed to accrue on
a daily basis.
5.4 By way of further remuneration for the provision of services and
advice pursuant to this Agreement, and provided that this Agreement
shall not previously have been terminated by EnCap pursuant to
Clause 13.1 or by the Company pursuant to Clause 13.2, the Company
shall pay to EnCap as soon as such amount shall have been determined
following 31st December 2001 or the date a special resolution is
passed pursuant to Section 84 Insolvency Act 1986 for the voluntary
winding up of the Company, whichever is the earlier, an amount equal
to 25%. of the Company's Adjusted NAV as at 31st December 2001 or
the date of the passing of the special resolution for the winding-up
of the Company, as appropriate.
5.5 Adjusted NAV means, at the relevant date:
(a) NAV;
(b) less an amount equal to the aggregate of the Company's share
capital and the amount standing to the credit of the Company's
share premium account as converted (where appropriate) into US
dollars at the actual exchange rates at which such
subscriptions were converted into US dollars; and
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(x) (x) xxxx xxx xxxxxx (xx any) by which an 8% annual rate
of return on the aggregate of the Company's share
capital and the amount standing to the credit of the
Company's share premium account, calculated from the
relevant dates of payment to the Company of such share
capital and share premium, exceeds the aggregate of the
dividends paid by the Company since its incorporation,
inclusive of any tax credit in respect of such
dividends; or
(ii) aggregating therewith the amount (if any) by which the
aggregate of the dividends paid by the Company since its
incorporation, inclusive of any tax credit in respect of
such dividends, exceeds an 8% annual rate of return on
the aggregate of the amount standing to the credit of
the Company's share capital and share premium account
calculated from the relevant dates of payment of such
share capital and share premium.
5.6 In the event of any dispute with regard to the determination of any
fee payable pursuant to this Clause, such dispute shall be referred
for determination to the Company's auditors, or such other firm of
Chartered Accountants as the Company and EnCap shall agree. In
making a determination such accountants shall act as experts and not
as arbitrators and they shall be entitled to call for and inspect
such documents as they shall deem appropriate. The determination of
such accountants shall be final and binding on the Company and
EnCap.
6. ADDITIONAL SERVICES
If EnCap, being willing and having been called upon so to do, shall render
or perform extra or special services of any kind to the Company, EnCap
shall be entitled to receive such additional reasonable fees therefor as
the Directors in consultation with EnCap may from time to time agree. If
EnCap offers additional services to the Company, EnCap may determine the
level of fees or charges as it deems fit and proper for the payment of
such
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services and offer to provide such services to the Company and the Company
may accept or reject an offer of such services as it so determines.
7. EXPENSES
7.1 Unless otherwise agreed between the Company and EnCap, the Company
shall pay or procure payment of the following expenses:-
7.1.1 All accountancy fees, petroleum consultants' fees and legal
expenses incurred by the Company or EnCap or the secretary in
connection with the identifying, negotiating and making of
Investments and all other professional and other charges in
respect of services rendered to the Company or EnCap in
connection with the matters aforesaid;
7.1.2 Any stamp and other duties, taxes, Governmental charges,
brokerage, transfer fees, registration fees and other charges
payable in respect of the acquisition or realisation of any
Investment, including charges for the transfer of funds or
instructions for delivery of securities by telex, cable,
telephone or otherwise;
7.1.3 All taxes and corporate fees payable by the Company to the
Government or other authority or to any agency of the
Government or authority in the United States of America or
elsewhere;
7.1.4 All charges specifically incurred by EnCap on behalf of the
Company.
EnCap will advise the Company prior to incurring any third party
fees or any third party expenses for the account of the Company if
EnCap believes that such fees or expenses will exceed US$7,500.
7.2 EnCap shall provide at its own expense:-
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7.2.1 Such staff as may be necessary for the due performance of its
duties hereunder;
7.2.2 Such office and other accommodation and office equipment as
may be necessary for the due performance of its duties
hereunder.
7.3 It is hereby expressly declared that the persons employed by EnCap
to perform its obligations under this Agreement shall be the
employees, agents or sub- contractors of EnCap and not of the
Company and accordingly shall not be regarded or treated as
employees of the Company.
7.4 Any arrangement or other fee (on the appropriate proportion thereof)
paid to EnCap in respect of any Investment shall be paid or
reimbursed by EnCap to the Company.
8. POWER OF DELEGATION
EnCap may with the consent of the Company delegate the whole or any part
of its powers, duties, discretions and functions hereunder to any person,
firm or company.
9. NON-EXCLUSIVITY
9.1 The services of EnCap hereunder are not to be deemed exclusive to
the Company and EnCap or any Affiliate thereof shall be free to
render similar services to others on such terms as EnCap or such
Affiliate may arrange so long as its services under this Agreement
are not thereby impaired, and to retain for its own use and benefit
fees or other moneys payable thereby, and EnCap shall not be deemed
to be affected with notice of or to be under any duty to disclose to
the Company any fact or thing which may come to the notice of it or
any servant or agent of it in the course of EnCap rendering similar
services to others or in the
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course of its business in any other capacity or in any manner
whatsoever otherwise than in the course of carrying out its duties
under this Agreement.
9.2 EnCap shall procure that the Company shall have first priority
(together with the Partnership) to make Investments identified by
EnCap complying with the Investment Policy and Investment
Restrictions provided that in the absence of bad faith EnCap shall
not be liable to the Company in respect of it having arranged any
Investment made by any person (including EnCap's affiliates) which
investment the Directors may determine as having complied with the
Investment Policy and Investment Restrictions.
10. EXERCISE OF RIGHTS ATTACHED TO INVESTMENTS
Subject as otherwise provided in this Agreement, any rights conferred by
Investments of the Company shall be exercised in such manner as the
Directors may determine and EnCap shall (in so far as it is able) procure
the exercise of such rights in accordance therewith.
11. CUSTODY
EnCap shall be responsible to the Company for procuring the safe custody
of all documents of title, deeds, certificates and agreements in respect
of the Investments of the Company unless otherwise notified by the Company
in writing.
12. LIABILITY AND INDEMNITY
12.1 EnCap shall not be liable to the Company or any subsidiary for any
action taken or not taken by them or for any action taken or not
taken by any other person with respect to the Company or any
subsidiary or in respect of the Investments provided that EnCap
shall remain liable for any loss arising from the fraud,
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negligence, wilful default, bad faith or misconduct of EnCap, its
employees and/or any of their agents.
12.2 The Company hereby indemnifies EnCap and each officer, employee or
agent of EnCap against any losses, claims, damages or liabilities
(including legal or other expenses reasonably incurred) to which
such person may become subject by reason of its being an officer,
employee or agent of EnCap (but only to the extent and with respect
to services performed by EnCap or officers, employees or agents of
EnCap for or on behalf of the Company) or representing the Company
or any subsidiary on the Board of Directors of any company in which
the Company or any subsidiary has invested or otherwise in providing
services under this Agreement provided that this indemnity shall not
apply in cases of fraud, negligence, wilful default, bad faith or
misconduct.
13. TERMINATION
13.1 EnCap shall be entitled to resign its appointment hereunder:
(i) by giving at any time not less than one year's notice in
writing to the Company expiring not earlier than the date of
the second anniversary hereof;
(ii) at any time by notice in writing to the Company if the Company
shall go into liquidation or if a receiver or administrative
receiver or administrator is appointed over any of the assets
of the Company;
(iii) at any time if the Company shall commit any breach of its
obligations under this Agreement and (if such breach shall be
capable of remedy) shall fail within 30 days of receipt of
notice served by EnCap requiring it so to do to make good such
breach.
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13.2 The Company may terminate the appointment of EnCap hereunder:
(i) if EnCap shall go into liquidation (except a voluntary
liquidation for the purposes of reconstruction or amalgamation
upon terms previously approved in writing by the Company) or
if a receiver or administrative receiver or administrator is
appointed of any of the assets of EnCap or if a meeting of
EnCap's creditors is convened, or if any analogous insolvency
proceeding shall be taken in respect of EnCap in any
jurisdiction, or if EnCap ceases or threatens to cease to
carry on its business;
(ii) if EnCap shall commit any significant breach of its
obligations under this Agreement and (if such breach be
capable of remedy) shall fail within 30 days of receipt of
notice served by the Company requiring them to make good such
breach.
13.3 The appointment of EnCap under this Agreement shall terminate
automatically upon the passing of a special resolution of the
Company pursuant to Section 84 of the Insolvency Xxx 0000 requiring
the Company to be wound up.
13.4 On termination of the appointment of EnCap under the provisions of
this Clause, EnCap shall be entitled to receive all fees and other
moneys accrued due up to the date of such termination but shall not
be entitled to compensation in respect of such termination and EnCap
shall deliver to the Company or as it shall direct, all books of
account, records, registers, correspondence, documents and assets
relating to the affairs of or belonging to the Company or any
subsidiary in the possession of or under the control of EnCap and
take all necessary steps to vest in the Company any assets
previously held in the name of or to the order of EnCap on behalf of
the Company or any subsidiary.
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14. CONFIDENTIALITY
14.1 Neither of the parties hereto shall during the continuance of this
Agreement or after its termination disclose to any person, firm or
fund whatsoever (except with the authority of the relevant party or
unless ordered to do so by a court of competent jurisdiction) any
information relating to the business, investments, finances or other
matters of a confidential nature of the other party of which it may
in the course of its duties hereunder or otherwise become possessed
and each party shall use all reasonable endeavours to prevent any
such disclosure as aforesaid.
14.2 EnCap and the Company shall be permitted to refer to the appointment
hereunder in their corporate literature provided that the text of
any such reference is approved by the other, such approval not to be
unreasonably withheld or delayed.
15. RELIANCE ON DOCUMENTS
Wherever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of, the
Company (or its Directors) to EnCap, EnCap may accept as sufficient
evidence thereof:
(i) a document signed or purporting to be signed on behalf of the
issuing party or by such person or persons whose signature EnCap is
for the time being authorised by such issuing party to accept; or
(ii) a message by tested telex, telecopler, facsimile machine, or cable
transmitted by, or on behalf of, the Company (or its Directors) by
such person or person whose messages EnCap is for the time being
authorised by the Company or its Directors to accept, and EnCap
shall not be obliged to accept any document or message signed or
transmitted or purporting to be signed or transmitted by any other
person.
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16. NOTICES
Any notice given hereunder shall be in writing and shall be served by hand
or by being sent by prepaid post or telex or telecopier or facsimile
machine in the case of the Company to its registered office for the time
being marked for the attention of the Secretary and in the case of EnCap
to Messrs Xxxxxx Xxxxxx, 0 Xxxxxxx Xxxxxx, Xxxxxx XX0X 0XX (marked for the
attention of Xx X.X. Xxxxxx) or such other address in the United Kingdom
from time to time notified to the Company for the service of notices.
17. ASSIGNMENT
Neither party hereto shall be entitled to assign or otherwise part with
any interest in this Agreement unless the prior written consent of the
other has been obtained.
18. INVALIDITY
The invalidity or unenforceability of any part of this Agreement shall not
prejudice or affect the validity or enforceability of the remainder.
19. PROPER LAW
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of England and the
parties hereby submit to the non-exclusive jurisdiction of the Courts of
England and Wales.
IN WITNESS whereof the parties hereto have caused this Agreement to be executed
the day and year first before written.
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SCHEDULE ONE
PART A
INVESTMENT POLICY
Any investment will, at the time it is undertaken, be limited to 15 per cent of
the Company's assets. The Company will not take legal or management control of
underlying investments, nor will it be actively involved in the management of
the projects or entities which it invests.
Investments are expected to take the form of mezzanine-style debt instruments
together with long term equity in the form of royalty interests, net profit
interests, production payments, working interests and other interests in oil and
gas. The right is reserved also to hold other forms of debt or equity securities
including options or warrants and investments may take the form of partnership
arrangements, participations, joint ventures, limited liability company
interests, corporation shares and other forms of equity investment. Care will be
taken both on initial investment and on re-investment to ensure that sufficient
income will accrue to the Company as a return on capital invested to cover
administrative expenses and to permit a progressive dividend policy.
No investments will be made which require mandatory funding beyond a fixed
amount. Funding of any investment may be made in instalments.
Whilst the Company has the power to borrow up to its capital and reserves, there
is currently no intention to utilise this.
The Company will invest in project equity opportunities in the upstream sector
of the oil and gas industry where risks can be quantified by engineering
analysis. EnCap will only recommend Investments to the Directors which meet the
following criteria:
o All investments will be supported by proved oil and gas reserves.
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o The proved oil and gas reserves must have been confirmed by a qualified,
independent petroleum engineering firm chosen from a pre-approved list.
Reserves will be risk valued according to category and specific
opportunity with no value given to non-proven categories unless geological
evidence is sufficient to justify inclusion of some probable value.
o Proposed investments must offer a pre-tax return to the Company of at
least 20% p.a. net of all fees and performance-related compensation.
Evaluations will be made on the basis of reports provided by independent
engineering firms utilising hydrocarbon price projections generally used
by major commercial banks active in energy financing.
o Neither EnCap nor the Company will act as operator for any oil and gas
properties or projects. It will propose investments only where it believes
that a proposed operator/ project sponsor has experienced management and
personnel with high integrity and a proven track record and experience in
the area where the investment is to be made. The operator must demonstrate
sufficient financial strength both in terms of net worth and cash flow, to
administer and operate the project throughout the expected term of the
investment.
o No investment will be proposed where a likelihood exists of adverse
selection by the operator/project sponsor (i.e. minimal potential for
conflicts of interest).
o Each operator/project sponsor must contribute an acceptable portion of the
cost of the project on a basis that is subordinate or similar to the
investment to be made by the Company.
o No Investment will be made unless the Partnership, EnCap or other funds
managed by EnCap, or investors procured by EnCap also invest on a
substantial basis.
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SCHEDULE ONE
PART B
INVESTMENT RESTRICTIONS
(i) A reasonable spread of investments will normally be maintained, any new
investment being limited to not more than 15 per cent of the group's
assets (before deducting borrowed money) at the time it is made, for which
purpose any existing interest in the project must be aggregated with the
proposed new investment;
(ii) The policy statement set out in Schedule 1 Part A will be adhered to for
at least 3 years from the date hereof;
(iii) Dividends will only be paid to the extent that they are covered by income
received from underlying investments, shares of profits of associated
companies being unavailable for this purpose unless and until distributed
to the Company; and
(iv) Realisation of any investment carried at directors' valuation amounting to
50 per cent or more of the portfolio will be conditional on shareholders'
approval.
None of the restrictions set out above will require the realisation of any
relevant asset of the Company where any of such restrictions is breached by
reason of any event outside the control of the Company and occurring after the
investment in the relevant asset is made or by reason of the receipt or exercise
of any rights, bonuses or benefits in the nature of capital, or any scheme of
arrangement for amalgamation, reconstruction, conversion or exchange, or of any
repayment or redemption.
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23
SIGNED by )
for and on behalf of )
ENERGY CAPITAL INVESTMENT )
COMPANY PLC )
in the presence of:- )
SIGNED by. )
for and on behalf of )
EnCAP INVESTMENTS L.C. )
in the presence of:- )
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