MANAGEMENT AGREEMENT
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BY AND AMONG
BANC ONE CAPITAL PARTNERS VIII, LTD.,
BOCP ENERGY PARTNERS, L.P.
AND
ENCAP INVESTMENTS L.C.
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DATED AS OF AUGUST 21, 1997
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TABLE OF CONTENTS
PAGE
---- ARTICLE I DEFINITIONS, REFERENCES AND CONSTRUCTION...............................................................1
Section 1.1. Definitions................................................................................1
Section 1.2. References and Construction................................................................4
ARTICLE II ENGAGEMENT AS MANAGER.................................................................................5
Section 2.1. Engagement.................................................................................5
Section 2.2. Delegation of Rights, Power and Authority..................................................5
Section 2.3. Representatives of BOCP....................................................................9
ARTICLE III DUTIES AND OBLIGATIONS OF MANAGER...................................................................10
Section 3.1. Investments...............................................................................10
Section 3.2. Time Devoted to Partnership Business......................................................10
Section 3.3. Other Activities..........................................................................11
ARTICLE IV LIABILITY AND INDEMNIFICATION........................................................................13
Section 4.1. Liability.................................................................................13
Section 4.2. Indemnification...........................................................................13
ARTICLE V REIMBURSEMENT; MANAGEMENT FEE.........................................................................14
Section 5.1. Payment or Reimbursement of Organization Costs and
Operating Costs.........................................................................14
Section 5.2. Management Fee............................................................................15
Section 5.3. Transaction, Break-up and Other Fees......................................................16
Section 5.4. Corporate Finance Fees....................................................................17
ARTICLE VI CERTAIN BANKING REGULATORY CONSIDERATIONS............................................................18
Section 6.1. Regulatory Limitations................................................................18
Section 6.2. Voting Power..........................................................................19
Section 6.3. Equity Ownership......................................................................19
Section 6.4. Disposition of Investment.............................................................19
Section 6.5. Information...........................................................................20
Section 6.6. Applicable Regulations and Other Definitions..........................................20
ARTICLE VII CERTAIN EVENTS CONCERNING PRINCIPALS................................................................20
ARTICLE VIII REPORTING; BANKING; AND CONFIDENTIALITY............................................................21
Section 8.1. Reports...................................................................................21
Section 8.2. Bank Accounts.............................................................................21
Section 8.3. Confidentiality...........................................................................22
Section 8.4. BOCP Reports..............................................................................23
ARTICLE IX TERM.................................................................................................23
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PAGE
---- ARTICLE X RELATIONSHIP OF THE PARTIES............................................................................24
ARTICLE XI AMENDMENTS; MEETINGS..................................................................................24
Section 11.1 Amendments................................................................................24
Section 11.2 Meetings...................................................................................25
ARTICLE XII ADVISORY BOARD......................................................................................25
ARTICLE XIII MISCELLANEOUS......................................................................................27
Section 13.1. Notices..................................................................................27
Section 13.2. Entire Agreement.........................................................................27
Section 13.3. Severability.............................................................................27
Section 13.4. No Waiver................................................................................28
Section 13.5. Applicable Law...........................................................................28
Section 13.6. Successors and Assigns...................................................................28
Section 13.7. Attorneys' Fees..........................................................................28
Section 13.8. Related Agreements.......................................................................28
Section 13.9. No Third Party Beneficiaries............................................................28
Section 13.10. Counterparts............................................................................28
Section 13.11. Representations and Warranties of the Manager...........................................28
Section 13.12. Representations and Warranties of BOCP and the Partnership..............................30
Section 13.13. Survival of Representations and Warranties..............................................31
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 21st day of August, 1997, by and among Banc One Capital Partners VIII, Ltd., an Ohio limited liability company ("BOCP"), BOCP Energy Partners, L.P., a Texas limited partnership (the "PARTNERSHIP"), and EnCap Investments L.C., a Texas limited liability company ("ENCAP").
RECITALS:
A. BOCP is the sole general partner of the Partnership. As provided in the Partnership Agreement (as defined herein), the Partnership has been formed to make Target Energy-Related Assets (as defined herein).
B. BOCP and the Partnership desire to engage EnCap, and EnCap desires to be engaged by BOCP and the Partnership, as manager of the Partnership on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants and agreements contained herein, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS, REFERENCES AND CONSTRUCTION
SECTION 1.1. DEFINITIONS.
(a) When used in this Agreement, the following terms shall have the respective meanings set forth below:
"ADVISORY BOARD" shall have the meaning assigned to it in Article XII.
"AFFILIATES" shall mean, when used with respect to another person, a person controlling, controlled by or under common control with such other person; provided, however, that the term "Affiliate" when used with respect to the Manager shall include the Principals, the employees of the Manager and the parents, spouses and descendants of the Principals and the employees of the Manager, but such term shall not include (i) any partner of the Partnership, (ii) the Partnership, or (iii) any general partner of a limited partnership in which an Existing Fund is a limited partner only. As used in this definition of "Affiliate", the term "CONTROL" shall mean the possession,
-1- 5 directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract, or otherwise. As used in this Agreement, the term "PERSON" shall include an individual, a corporation, a partnership, a limited liability company, an association or other entity, an estate, a joint stock company and a trust.
"BOCP" shall have the meaning assigned to it in the introductory paragraph to this Agreement.
"BRIDGE LOAN" shall have the meaning assigned to it in Section 2.2(b)(vi).
"CORPORATE FINANCE FEE" shall have the meaning assigned to it in Section 5.4.
"DESIGNATED PRINCIPALS" shall mean David B. Miller, Gary R. Petersen, D. Martin Phillips and Robert L. Zorich.
"ECIC" shall have the meaning assigned to it in Section 3.3(c).
"ENCAP" shall have the meaning assigned to it in the introductory paragraph to this Agreement.
"ENCAP FUND PARTNERSHIP" shall have the meaning assigned to it in Section 3.3(c).
"EXISTING FUND" shall mean EnCap Equity 1994 Limited Partnership, a Texas limited partnership, EnCap Equity 1996 Limited Partnership, a Texas limited partnership, ECIC, or ECIC Corporation, a Texas corporation.
"MANAGEMENT FEE" shall have the meaning assigned to it in Section 5.2(a).
"MANAGER" shall have the meaning assigned to it in Section 2.1.
"OPERATING COSTS" shall mean all direct, out-of-pocket costs and expenses reasonably incurred either by the Partnership or by the Manager or an Affiliate thereof on behalf of the Partnership relating to the management, conduct and operation of Partnership business, including (a) the fees and expenses associated with the preparation of the Partnership's financial statements and the reports and other information to investors under the Partnership Agreement, tax returns and Forms K-1, printing expenses, mailing and courier expenses, fees and expenses of establishing bank or custodial accounts and insurance costs and expenses, (b) the fees, costs and expenses incurred in connection with investigating, negotiating, acquiring, holding, selling or exchanging of Investments (including fees and expenses of lawyers, accountants, petroleum engineers and consultants, brokerage or finder's fees, investment banker's fees, commitment fees, underwriting discounts or sales fees, but excluding travel and entertainment expenses in connection therewith), (c) fees, costs and expenses of the type described in clause (b) above incurred in connection with
-2- 6 potential or proposed but unconsummated transactions, (d) legal, audit and other expenses incurred in connection with the registration of the offer and sale of Securities owned by the Partnership under the Securities Act of 1933, as amended, and any applicable state or foreign securities laws, (e) the costs and other amounts attributable to the Partnership's obligations under Section 4.2, (f) the costs and expenses attributable to the Advisory Board and the conduct of its meetings or attributable to the annual meetings of as provided in Section 11.2, and (g) other extraordinary, nonrecurring expenses, including the costs and expenses of prosecuting or defending a litigation claim; provided, however, that Operating Costs shall not include any of the following costs and expenses incurred by the Partnership or the Manager or any of its Affiliates: (i) the salaries, wages and employee benefits of all officers, directors, and employees of the Manager or an Affiliate thereof, (ii) office rent, utility charges and equipment and furniture costs and expenses, and (iii) any other general, administrative and overhead expense, including insurance premiums relating to the matters described in this clause (iii) and the preceding clauses (i) and (ii).
"PARALLEL INVESTMENT ENTITY" shall have the meaning assigned to it in Section 3.3(c).
"PARTNERSHIP" shall have the meaning assigned to it in the introductory paragraph to this Agreement.
"PARTNERSHIP AGREEMENT" shall mean that certain Agreement of Limited Partnership of even date herewith, by and between BOCP, as general partner, and EnCap, as limited partner, establishing the Partnership.
"PRINCIPALS" shall mean Eugene C. Fiedorek, David B. Miller, Gary R. Petersen, D. Martin Phillips and Robert L. Zorich.
"SUBSEQUENT FUND" shall have the meaning assigned to such term in Section 3.3(b).
"TRIGGER EVENT" shall have the meaning assigned to such term in Article VII.
"UNPAID COMMITMENT" shall mean, (a) with respect to the BOCP at a given point in time, the sum of BOCP's Unpaid Debt Commitment and Unpaid Equity Commitment, and (b) with respect to EnCap at a given point in time, EnCap's Unpaid Equity Commitment.
(b) When used in this Agreement, the following terms shall have the respective meanings assigned to them in the Partnership Agreement:
"ACT"
"ADVANCES"
"AVAILABLE CASH"
"BUSINESS DAY"
"CAPITAL CONTRIBUTION"
"CATCH-UP PAYOUT"
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"COMMITMENT PERIOD"
"EQUITY-LINKED COMPANY"
"EQUITY-LINKED INVESTMENTS"
"FOLLOW-ON INVESTMENTS
"INITIAL FUNDING DATE"
"INVESTMENTS"
"MARKET VALUE"
"MEZZANINE LOAN"
"NON-DEFAULTING PARTNER"
"PORTFOLIO COMPANY"
"PREFERRED RETURN PAYOUT"
"PRIMARY INVESTMENT PERIOD"
"PROJECT EQUITY COMPANY"
"SECURITIES"
"TARGET ENERGY-RELATED ASSETS"
"TOTAL COMMITMENTS"
"UNPAID DEBT COMMITMENT"
"UNPAID EQUITY COMMITMENT"
SECTION 1.2. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender.
(e) Examples shall not be construed to limit, expressly or by implication, the matters they illustrate.
(f) The word "includes" and its derivatives means "includes, but is not limited to" and corresponding derivative expressions.
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(g) All references herein to "$" or "dollars" shall refer to U.S. Dollars.
(h) Exhibit 13.8 to this Agreement is attached hereto. Such Exhibit is incorporated herein by reference for all purposes and references to this Agreement shall also include such Exhibit unless the context in which used shall otherwise require.
ARTICLE II
ENGAGEMENT AS MANAGER
SECTION 2.1. ENGAGEMENT. Subject to the terms and conditions hereof, (a) BOCP and the Partnership hereby engage EnCap as manager of the Partnership and (b) EnCap agrees to be engaged by BOCP and the Partnership as manager of the Partnership. EnCap will sometimes be referred to herein as the "MANAGER".
SECTION 2.2. DELEGATION OF RIGHTS, POWER AND AUTHORITY.
(a) Subject to terms and conditions hereof (including the limitations contained in this subsection (a) and in subsections (b) and (c) below), BOCP hereby delegates to the Manager all of BOCP's management rights as general partner under the Partnership Agreement, and the concomitant power and authority, including the following:
(i) to cause the Partnership to make or purchase privately
negotiated Investments in, or with respect to, Target Energy-Related
Assets;
(ii) to monitor the Partnership's Investments and to vote,
take any action or exercise any right, directly or indirectly, required
of or accorded to the Partnership with respect to the Investments or
any other Partnership assets;
(iii) to sell, exchange, transfer or otherwise dispose of all
or any portion of the Investments or other Partnership assets;
(iv) to negotiate, make and to enter into such agreements and
contracts with such parties and to give such receipts, releases and
discharges with respect to any and all of the foregoing and any matters
incident thereto as the Manager may deem advisable or appropriate;
(v) to employ from time to time third parties to render
services to the Partnership, including but not limited to, attorneys,
independent certified public accountants, petroleum engineers,
consultants, brokers, agents and advisors (including attorneys,
accountants, petroleum engineers, consultants, brokers, agents and
advisors who also may act as attorneys, accountants, petroleum
engineers, consultants, brokers, agents and advisors for the Manager or
any of its Affiliates), to the extent that the service to be
-5- 9
rendered to the Partnership by any such third party is generally
related to the business purpose or the day-to-day investment
activities of the Partnership;
(vi) to procure and maintain in force such insurance as the
Manager shall deem prudent to serve as protection against liability for
loss and damage which may be occasioned by the activities to be engaged
in by the Partnership;
(vii) to control any matters affecting the rights and
obligations of the Partnership, including the conduct of any litigation
or arbitration proceedings and the incurring of legal expenses and the
settlement of claims and litigation, to the extent that any such matter
is generally related to the business purpose or the day-to-day
investment activities of the Partnership;
(viii) to open, maintain and close bank accounts and custodial
accounts and to execute and deliver all checks, drafts, endorsements
and other orders for the payment of Partnership funds;
(ix) to appear and to represent the Partnership before any
governmental authority or regulatory agency and to make all necessary
or appropriate filings before such authority or agency, to the extent
that any such appearance, representation or filing is generally related
to the business purpose or the day-to-day investment activities of the
Partnership;
(x) to request payment of Advances and Capital Contributions
as provided in Article III of the Partnership Agreement;
(xi) to determine Available Cash;
(xii) to cause the Partnership to make payments in respect of
Advances and distributions of cash, Securities and other assets to the
Partners as provided in Article IV and Section 9.3 of the Partnership
Agreement;
(xiii) to determine the Market Value of Partnership assets
under the circumstances provided in the Partnership Agreement; and
(xiv) to take such other action, execute and deliver such
other documents and perform such other acts as may be deemed by the
Manager to be necessary or advisable to carry out the business and
affairs of the Partnership.
Without limiting anything herein, in connection with the exercise of the rights, power and authority delegated to it hereunder by BOCP, the Manager shall be subject to any limitations on such rights, power and authority set forth in the Partnership Agreement.
-6- 10
(b) Notwithstanding any other provisions of this Agreement or the Partnership Agreement to the contrary, the Manager shall not have the right, power or authority to, and shall not, do, perform or authorize any of the following without having received the prior written consent of BOCP:
(i) guarantee in the name or on behalf of the Partnership the
payment of money or the performance of any contract or other obligation
of any person; provided that the Manager shall be permitted to cause
the Partnership to make a guarantee in connection with making an
Investment in or with respect to a Portfolio Company (A) so long as the
aggregate amount of such guarantees outstanding at any time plus the
aggregate Unpaid Debt Commitment and Unpaid Equity Commitments
outstanding at such time do not exceed the Total Commitments and (B)
provided that the amount of any such guarantee shall be considered to
be an outstanding Investment for the purposes of applying the
restrictions set forth below in this Section 2.2(b);
(ii) cause the Partnership to file a voluntary petition in
bankruptcy or take any other similar action;
(iii) merge or consolidate the Partnership with any
partnership or other entity, convert the Partnership into another type
of entity, or cause the Partnership to participate in an exchange of
interests or some other type of business combination with any
partnership or other entity;
(iv) cause the Partnership to engage in any transactions with
the Manager or any of its Affiliates except as expressly provided for
herein;
(v) except as provided in paragraph (vi) below, cause the
Partnership to expend more than 15% of the Total Commitments in any
single Investment hereunder; provided, however, that in connection with
a given Project Equity Company in which the Partnership acquires an
interest hereunder, the foregoing provisions of this paragraph (v)
shall not preclude the Manager from causing the Partnership to purchase
additional Securities in or contribute additional capital to such
Project Equity Company for the purpose of financing an additional
acquisition by such Project Equity Company of Target Energy-Related
Assets which are not significantly related geographically to the Target
Energy-Related Assets owned or held by such Project Equity Company, so
long as the purchase price of such additional Securities or the amount
of such additional capital does not exceed 15% of the Total
Commitments; provided, further, that the foregoing provisions of this
paragraph (v) shall not preclude the Manager from causing the
Partnership to form a new Project Equity Company and to make a new
Project Equity Investment with respect thereto, even though the person
with which the Partnership is making such Project Equity Investment is
an Equity-Linked Company or is a person with which or to which the
Partnership has previously made a Project Equity Investment or a
Mezzanine Loan (as applicable), so long as the amount of such new
Project Equity Investment does not exceed 15% of the Total
-7- 11
Commitments; and, provided, further, that the foregoing provisions of
this paragraph (v) shall not preclude the Manager from causing the
Partnership to make a new Mezzanine Loan even though the person to
which the Mezzanine Loan is to be made is an Equity- Linked Company or
is a person with which the Partnership has previously made a Project
Equity Investment, so long as the amount of such new Mezzanine Loan
does not exceed 15% of the Total Commitments;
(vi) cause the Partnership to make a "bridge" or interim loan
(a "BRIDGE LOAN"), except to the extent the Manager determines in its
sole discretion that such Bridge Loan is required in order to
facilitate the making of a permanent Investment and provided that the
amount of such Bridge Loan, when added to the amount of such permanent
Investment, does not exceed 25% of the Total Commitments;
(vii) cause the Partnership to make Mezzanine Loans hereunder
which in the aggregate would exceed 25% of the Total Commitments or to
make Equity-Linked Investments hereunder which in the aggregate would
exceed 35% of the Total Commit ments;
(viii) cause the Partnership to have invested and unrepaid at
any time Investments made to or with respect to any Portfolio Company
and its Affiliates in an aggregate amount in excess of 20% of the Total
Commitments;
(ix) cause the Partnership to make an investment in any fund
or similar collective investment entity that provides for a carried
interest or management fee to be paid to any person, except that the
Manager shall have the power and authority to cause the Partnership to
invest in any partnership or other entity if such partnership or other
entity (A) is or will be primarily engaged in the energy business and
is not or will not be primarily engaged in the business of owning or
investing in entities man ...
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