1
EXHIBIT 4.6
DATED 4th February 1994
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC
- and -
(2) ENCAP INVESTMENTS L.C.
-------------------------------
INVESTMENT ADVISORY AGREEMENT
-------------------------------
Xxxxxx Xxxxxx
0 Xxxxxxx Xxxxxx
Xxxxxx XX0X 0XX
ARG/LJI/2487
2
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:
- 1 -
3
"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
- 2 -
4
regulations thereunder) as initially stated in the Particulars
and repeated in Part B of Schedule One;
"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;
- 3 -
0
"Xxx Xxxxxx Xxxxx Xxxxxxxx" 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.
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.
- 4 -
6
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 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.
- 5 -
7
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 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
- 6 -
8
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 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:
- 7 -
9
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;
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
- 8 -
10
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
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
- 9 -
11
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 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
- 10 -
12
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
(c) (i) less the amount (if 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.
- 11 -
13
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 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;
- 12 -
14
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:-
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.
- 13 -
15
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 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.
- 14 -
16
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,
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
- 15 -
17
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.
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;
- 16 -
18
(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.
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.
- 17 -
19
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, telecopier, 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.
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.
- 18 -
20
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.
- 19 -
21
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:
- 20 -
22
o All investments will be supported by proved oil and gas reserves.
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.
- 21 -
23
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.
- 22 -
24
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:- )
- 23 -
