Document:

Exhibit 10.2

 

PLEDGE OF SHARES AGREEMENT executed as of June 13, 2003, by and
between:

 

(1)                                  ACCURIDE
CORPORATION (“AccuCorp” or the “Pledgor”), a corporation duly organized and
existing under the laws of the State of Delaware, United States of America; and

 

(2)                                  CITICORP
USA, INC., a corporation organized and existing under the laws of the State of
Delaware, United States of America in its capacity as administrative agent for
the Pledgees (as defined below), and their successors and assignees
(hereinafter the “Agent”).

 

In
accordance with the following Preliminary Statements, Representations and
Clauses:

 

PRELIMINARY
STATEMENTS

 

I.-  Dated
January 21, 1998, AccuCorp and Accuride Canada, Inc. (“AccuCanada” and
together with AccuCorp, the “Borrowers”) executed a Credit Agreement with the
banks, financial institutions and other institutional lenders, as subsequently
substituted or modified in that certain Amended and Restated Credit Agreements
dated as of April 16, 1999 and July 27, 2001.

 

II.-  As of June 13,2003, the Borrowers, the
banks, financial institutions and other institutional lenders identified
therein as “Lender Parties”, CITIBANK, N.A. as the initial issuing bank (the
“Initial Issuing Bank”), CITICORP USA, INC. as the swing line bank (the “Swing
Line Bank”) and as administrative agent for the Lender Parties, CITIGROUP
GLOBAL MARKETS INC. as joint lead arranger and joint book-runner (“CGMI”),
LEHMAN BROTHERS INC,. as joint lead arranger and joint book-runner (“Lehman”,
and, together with CGMI, the “Lead Arrangers”), LEHMAN COMMERCIAL PAPER INC.,
as syndication agent (the “Syndication Agent”) for the Lender Parties, and
DEUTSCHE BANK TRUST COMPANY AMERICAS as documentation agent (“Documentation
Agent”) for the Lender Parties, entered into a Third Amended and Restated
Credit Agreement (the “Third Amended and Restated Credit Agreement”, and the
Credit Agreement referred to in Preliminary Statement I hereof as it has been
substituted or modified in the Amended and Restated Credit Agreements,
including the Third Amended and Restated Credit Agreement above mentioned,
shall be hereinafter referred to as the “Existing Credit Agreement”) whereby
the 

 

 

Lender Parties agreed to refinance a portion of
the debt outstanding under the Existing Credit Agreement by repaying in full
the aggregate principal amounts outstanding under each of the existing “Term A
Facility,” “Term B Facility” and the “Revolving Credit Facility” under the
Existing Credit Agreement with proceeds from (i) a new term facility in an
aggregate principal amount of $180,000,000 Dollars, and (ii) a new revolving
facility in an aggregate principal amount of $66,000,000 Dollars.  A copy of the Third Amended and Restated
Credit Agreements attached hereto as Exhibit “A”. Unless otherwise indicated
herein, all capitalized terms herein used shall have the meaning ascribed to
them in the Third Amended and Restated Credit Agreement.

 

III.-  In order to additionally document the
repayment of the loans arising from the Existing Credit Agreement, the
Borrowers have made and delivered promissory notes in the principal amount of
such loans to the order of the Lender Parties (hereinafter each such note a “Note”
and collectively, the “Notes”).

 

REPRESENTATIONS
AND WARRANTIES

 

AccuCorp
represents and warrants through its legal representative, that:

 

(a)  Accuride de Mexico, S.A. de C.V. (“AccuMex”)
is a  “Sociedad Anonima  de Capital
Variable”, duly organized and existing under the laws of Mexico.

 

(b)  As of the
date hereof, it has good title to, and is the sole legal beneficial and record
owner of, among others, 127,693 common and registered shares, without par
value, representing the fixed portion of the capital stock of AccuMex (the
“AccuCorp Shares of the Fixed Portion”); as well as 69,773,075 common and
registered shares, without par value, representing the variable portion of the
capital stock of AccuMex (the “AccuCorp Shares of the Variable Portion”).  Hereinafter the AccuCorp Shares of the Fixed
Portion and the AccuCorp Shares of the Variable Portion, shall be referred,
jointly as the “Pledged Shares”.

 

(c)  The
Pledged Shares are fully subscribed and paid and are evidenced by the following
share certificates:

 

(i)                                     Share Certificate number 1 representing 127,963
shares of the fixed portion of the capital stock;

 

2

 

(ii)                                  Share certificate number 1 representing
69,773,075 shares of the variable portion of the capital stock;

 

(d)  As of the date hereof, the Pledged Shares
are free of any liens and/or ownership restrictions.

 

(e)  The Pledged Shares represent sixty five
percent (65%) of the capital stock of AccuMex.

 

(f)  Its representative has the authority to
execute this Agreement, authority that as of the date hereof has not been
revoked or limited;

 

(g)  The execution and compliance hereof does not
violate any law or contractual provision binding on or affecting AccuCorp
and/or AccuMex.

 

(h)  It does not require any authorization or
approval for the execution hereof nor for the compliance of its obligations
hereunder.

 

(i)  The obligations contained herein are valid
and binding obligations of AccuCorp in accordance with the terms and conditions
herein contained.

 

(j)  In order to induce the Lender Parties to
execute the Third Amended and Restated Credit Agreement, AccuCorp has agreed to
pledge and create a first priority security interest on the Pledged Shares for
the benefit of the Secured Parties (as such term is defined in the Existing
Credit Agreement) and their successors and/or assignees to secure the payment when
due (whether by stated maturity, acceleration or otherwise) of all amounts,
including principal of, interest, fees related to, and additional amounts, if
any, on the Existing Credit Agreement, the Notes and all obligations of
AccuCorp under this Pledge of Shares Agreement (all of the foregoing
obligations hereinafter, collectively, the “Secured Obligations”).

 

Hereinafter
the Secured Parties and their successors and/or assignees, shall be referred
to, collectively, as the “Pledgees”.

 

Considering
the foregoing Preliminary Statements and Representations, the parties hereto
hereby agree to be bound by the following:

 

3

 

CLAUSES

 

FIRST.  In order to secure the exact payment when
due (whether by stated maturity, acceleration or otherwise) of each and all of
the amounts of principal, interest and other amounts on, and the performance of
the Secured Obligations, as well as full and timely compliance of each and all
of their obligations pursuant to the terms of the Existing Credit Agreement,
and each and all the obligations of AccuCorp under this Agreement, AccuCorp
hereby creates a pledge and first priority security interest on all of the
Pledged Shares for the benefit of the Pledgees.

 

SECOND.  The pledge created hereby is perfected
pursuant to the terms of Article 334 Paragraph II of the General Law of
Negotiable Instruments and Credit Transactions (“LGTOC”) in effect in Mexico,
by means of:

 

(a)  Endorsement in guaranty (“endoso en
garantía”) by AccuCorp in favor of the Pledgees of each of the share
certificates evidencing the Pledged Shares;

 

(b)  Delivery to the Agent by AccuCorp of the
share certificates evidencing the Pledged Shares, who is hereby appointed as
depositary of all such share certificates on behalf of the Pledgees, and the
Agent hereby grants receipt thereof in accordance with the provisions of
Article 337 of the LGTOC; and

 

(c)  By the entry of the pledge created hereby in
the Shares Registry Book of AccuMex, which registration is made simultaneously
herewith and is evidenced by a certificate issued by the Alternate Secretary of
the Board of Directors of AccuMex and delivered hereby to the Agent.

 

THIRD.  The pledge created by AccuCorp hereby shall
be subject to the following terms:

 

(a)  So
long as no Event of Default under Section 7.01 of the Existing Credit Agreement
shall have occurred and be continuing and so long as AccuCorp do not breach its
obligations hereunder, AccuCorp may exercise all voting rights corresponding to
the Pledged Shares.  For such purposes
AccuCorp shall request to the Agent in writing, at least five (5) business days
in advance to the date of any shareholders’ meeting of AccuMex, issuance of the
deposit certificates necessary for AccuCorp to assist and vote the Pledged Shares
owned by it at such shareholders’ meeting, and the Agent shall deliver to
AccuCorp the 

 

4

 

necessary certificates no later than three (3) business
days prior to the date of such shareholders’ meeting; provided, however, that
if such written request is not made or is not made within the term previously
mentioned and, as a result thereof, AccuCorp is unable to exercise its voting
rights at the respective shareholders’ meeting, the Agent and the Pledgees shall
not be liable for any reason whatsoever.

 

(b)  So
long as no Event of Default under Section 7.01 of the Existing Credit Agreement
shall have occurred and be continuing and so long as AccuCorp do not breach its
obligations hereunder, all cash dividends corresponding to the Pledged Shares,
shall be for the benefit of AccuCorp and released from the pledge hereto, and
shall not be subject to the provisions of Clause Seventh hereof, provided,
however, that upon the occurrence of any Event of Default pursuant to the
Existing Credit Agreement and/or if AccuCorp breaches any of its obligations
pursuant to the terms hereof, all cash dividends corresponding to the Pledged
Shares shall be subject to the pledge created hereby and shall be applied, as
the case may be, to the payment of the Secured Obligations, in accordance with
Article 338 of the LGTOC.

 

FOURTH.  Pursuant to the terms of Article 343 of the
LGTOC, if all or a portion of the Pledged Shares are redeemed by means of
payment in cash and/or any other manner of payment made by AccuCorp on the
value of the Pledged Shares, either as a result of a capital stock decrease or
the liquidation of the AccuMex or for any other reason whatsoever, the Agent
shall collect such amounts, and the same shall be subject to the pledge hereby
created.

 

FIFTH.  AccuCorp shall pledge in the benefit of the
Pledgees in the same terms hereof, immediately but in any event within ten (10)
days following the relevant acquisition date of any shares issued by AccuMex in
the future, including, without limitation, any shares issued by AccuMex
acquired by AccuCorp as a result of dividend payments distributed in shares, or
from capitalization of reserves, or profits of AccuMex; provided that, in such
case, such shares shall be considered as part of the Pledged Shares and all
references made hereunder to the Pledged Shares shall be deemed to include such
shares.

 

SIXTH.  AccuCorp and the Agent expressly agree that
the Agent, on behalf and for the benefit of the Pledgees, may only enforce the
pledge created hereby, or request the sale of the Pledged Shares (i) if any of
the events described as Events of Default in Section 7.01 of the Existing
Credit Agreement shall occur and subsist, all of which events are hereby
incorporated by reference as if fully 

 

5

 

set forth herein for all legal purposes, or
(ii) if AccuCorp breaches any of its respective obligations provided hereunder.

 

SEVENTH.  (a) All the amounts that for any reason are
subject to the pledge hereby created shall be maintained on deposit by the
Agent, to be applied to the payment of the Secured Obligations and any
remainder, if any, shall be returned to AccuCorp upon termination of this
Agreement.

 

(b)  AccuCorp hereby expressly agrees that,
pursuant to Article 336 of the LGTOC, title to any cash amounts subject to the
pledge hereby created, shall be transferred in order to be applied, as the case
may be, to payment of all Secured Obligations.

 

(c)  Considering that the Secured Obligations hereby
are denominated in Dollars, any amount denominated in Pesos or in any other
currency different from Dollars, received by the Agent, pursuant to the terms
hereunder, shall be forthwith converted to Dollars by the Agent at the exchange
rate that the Agent may effectively convert such amounts in accordance with
normal banking procedures, and such Dollar amounts shall be subject to the
pledge created hereby pursuant to the terms provided herein.

 

EIGHTH.  The pledge created hereby shall be
indivisible and shall remain in full force and effect so long as all Secured
Obligations hereunder remain outstanding.

 

NINTH. All notices and communications that any party
hereof shall deliver to the other parties, shall be in writing and shall be
delivered by any courier delivery service or telefax and shall be delivered to
each of the other parties hereto at the address or telefax number set forth
under such party’s name in the signature pages hereof, or at such other address
or telefax number (as the case may be) as shall be designated by such party in
written notice given to the other parties hereto.  All such notices and communications shall be effective, if delivered
at the address of the recipient, on the relevant delivery date, and if sent by
telefax, when the relevant receiving party shall issue an acknowledgement of receipt
thereof.

 

TENTH.  For all matters related to the
interpretation and enforcement of this Agreement, the parties expressly submit
to the laws of Mexico and competent courts of Monterrey, Nuevo Leon, Mexico,
waiving any other 

 

6

 

jurisdiction rights that may correspond to them
as a result of their present or future domicile or otherwise.

 

ELEVENTH. AccuCorp hereby agrees to provide a Spanish
translation of this Pledge of Shares Agreement that is acceptable to the Agent
within 20 (twenty) days following execution of the English version and,
therefore, both parties agree to exchange executed counterparts of such
version. In the event of any discrepancy between the Spanish and English
executed versions of this Agreement, the content of the Spanish version shall
prevail.

 

IN WITNESS WHEREOF, the parties hereto here to execute this
Agreement as of the date first above written.

 

“ACCUCORP”:

 

ACCURIDE CORPORATION

 

 

	
   

  	
   

  
	
  By: Mr. David K. Armstrong

  
	
  Title:
  Senior Vice President and General Counsel

  
	
  Address:

  	
  7140
  Office Circle

  
	
   

  	
  Evansville,
  Indiana 47715

  
	
   

  	
  United
  States of America

  
	
  Telefax:

  	
  (812)
  962-5470

  
			

 

 

THE “AGENT”:

 

CITICORP USA,
INC.

 

 

	
   

  	
   

  
	
  By:

  
	
  Title:

  
	
  Address:

  
	
  Telefax:

  

 

7

 

LIST OF EXHIBITS

 

EXHIBITS

 

“A”                         COPY OF
THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT.

 

8Exhibit
10.1

 

FARMOUT AGREEMENT INDEX

 

1.                                       Exhibits

 

2.                                       Definitions

 

3.                                       Farmout
Well(s)

 

3.1                                 Test
Well

 

3.2                                 Substitute
Well(s)

 

3.3                                 Earned
Assignments-Produce to Earn

 

3.4                                 Acreage
Assignment

 

3.5                                 Depths
Earned

 

3.6                                 Term
of Assignment

 

3.7                                 Extension
by Drilling or Reworking

 

3.8                                 Continuous
Development

 

4.                                       Reserved
Working Interest

 

4.1                                 Reservation

 

4.2                                 Proportionate
Reduction

 

5.                                       Abandonment
of Wells

 

6.                                       Failure to
Commence Operations or Cessation of Operations

 

6.1                                 Liquidated
Damages-Test Well only

 

7.                                       Shut-In
Payments

 

8.                                       Liability

 

9.                                       Title
Information and Warranty of Title

 

9.1                                 Farmor
and Farmee

 

1

 

10.                                 Notices and
Well Information

 

10.1                           In
General

 

10.2                           Notices

 

11.                                 Insurance

 

12.                                 Extensions,
Renewals and New Leases

 

13.                                 General

 

13.1                           Audits

 

13.2                           Lease
Obligations

 

13.3                           Laws
and Regulations

 

13.4                           Permission
to Enter

 

13.5                           Access
to Well Location

 

13.6                           Section
Titles

 

14.                                 Agreements
Affecting Farmout Lands

 

14.1                           Farmee
Bound

 

15.                                 Permission
to Assign

 

16.                                 Reassignment

 

17.                                 Execution

 

17.1                           Ratification

17.2                           Effective
Date

 

2

 

FARMOUT AGREEMENT

 

	
  Farmor:

  	
   

  	
  REEF PARTNERS 2001-A INCOME FUND LP

  
	
   

  	
   

  	
  AND

  
	
   

  	
   

  	
  REEF PARTNERS 2001-B INCOME FUND LP.

  
	
   

  	
   

  	
  AND

  
	
   

  	
   

  	
  REEF EXPLORATION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  
	
   

  	
   

  	
   

  
	
  Farmee:

  	
   

  	
  Reef
  Global Energy I LP

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  
	
   

  
	
  Area/Prospect:

  	
   

  	
  Scherer
  B #3

  
	
   

  	
   

  	
  Section
  34-T4N-R15E

  
	
   

  	
   

  	
   

  
	
  State:

  	
   

  	
  Oklahoma

  
	
   

  	
   

  	
   

  
	
  County:

  	
   

  	
  Pittsburg

  
	
   

  	
   

  	
   

  
	
  Effective
  Date:

  	
   

  	
  February
  1, 2003

  
					

 

3

 

Farmor represents, but does not warrant, that it is
the owner of certain interest(s) in the oil and gas lease(s) (the “Leases”)
covering the lands (“Lands”) described in Exhibit “A” to this Agreement.

 

Farmor agrees that Farmee may acquire an interest in the Leases insofar
as they cover Lands in Section
34-T4N-R15E, Pittsburg County, Oklahoma under the terms and conditions
of this Agreement.

 

In consideration of the mutual
covenants and agreements provided in this Agreement, Farmor and Farmee agree as
follows:

 

1.                                      EXHIBITS.

 

The following Exhibits, if checked, are attached and
shall be considered part of this Agreement:

 

ý                                    Exhibit
A - Lease Schedule.

 

2.                                      DEFINITIONS.

 

For the purpose of this Agreement, the following terms
shall have the meaning set opposite each term.

 

(a)                                  “Completed
Well” means a well which has been fully equipped for the taking of production
through and including the tanks for an oil well and through and including the
christmas tree for a gas well, or plugged and abandoned, if a dry hole.

 

(b)                                 “Contract
Depth” shall mean:  10,500 feet or to a
depth to sufficiently test the Middle Atoka sands whichever is lesser.

 

(c)                                  “Drilling
Unit” means the area within the surface boundaries established or prescribed by
field rules or special order of the applicable regulatory authority; e.g., the
spacing unit, unit for production, proration unit, or participating area.  In the absence of any unit established or
prescribed by field rules or special order of the applicable regulatory
authority, and solely for the purposes of this Agreement, “Drilling Unit” shall
also mean a 160 acre hypothetical unit if an earning well is completed as an
oil well, or a 640 acre hypothetical unit if an earning well is completed as a
gas well.  Any hypothetical unit is to
be designated by Farmor.

 

(d)                                 “Outside
Acreage” means farmout lands, which are outside the surface boundaries of a
Drilling Unit as defined in Section 2. (b) Above.

 

4

 

(e)                                  “Earning
Well” means any well drilled under the terms and conditions of this Agreement
by which Farmee is entitled to receive an assignment.

 

(f)                                    “Lease
Burdens” means any royalty, overriding royalty, production payment, and other
similar burdens on production.

 

(g)                                 “Gas
Well” means any well that is so classified by rules or special order of the
applicable regulatory agency, or, in the absence of same, a well with a gas/oil
ratio greater than or equal to 2,000 to 1.

 

(h)                                 “Oil
Well” means any well that is so classified by rules or special order of the
applicable regulatory agency, or, in the absence of same, a well with a gas/oil
ratio of less than 2,000 to 1.

 

(g)                                 “Payout”
means actual reasonable expenditures incurred in drilling, testing, completing,
equipping, and operating the unit well, including a charge for supervision.

 

3.                                      FARMOUT
WELL(S).

 

3.1                                 TEST
WELL.  Farmee shall drill a well,
the “Test Well”, strictly in accordance with the following well specifications:

 

(a)                                  Surface
Location: Approximately 825’ FNL and 1900’ FWL, of Section 34, T4N R15E,
Pittsburg County, Oklahoma

 

                                                Bottom
Hole Location: 825’ FNL & 2850’ FWL of Section 34, T4N R15E, Pittsburg
County, Oklahoma

 

(b)                                 Spud
Deadline:  On or before March 31, 2003,
Farmee must commence the actual drilling of a Test Well at the location
specified in 3.1. (a).  Should an
extension of commencement be necessary, Farmor agrees that it will not be
unreasonably withheld and Farmor will extend the spud deadline to a date upon
which Farmor and Farmee mutually agree. 
Once operations are commenced, such operations shall continue with due
diligence and in a workmanlike manner until actual inhole drilling of the Test
Well is commenced.  Further, Farmor
shall, on a best efforts basis, keep Farmee informed of any anticipated lease
maintenance or possible other problems in connection with the Farmout Lands and
Leases.  In turn, Farmee shall utilize
its best efforts to conduct operations or take other action as may be required
to maintain such Farmout Lands and Leases in full force and effect.

 

(c)                                  Completion
attempt/Plugging Deadline:  Within 60
days after reaching total depth.

 

  2.                                 SUBSTITUTE WELL(S).
(Check applicable provision.)

 

ý                                                                                   LOST
HOLE OR DRY HOLE.  In the event any
well is lost for any 

 

5

 

reason prior to being
drilled to Contract Depth or Farmee has encountered during the drilling of any
well mechanical difficulty or formation or condition which would render further
drilling impracticable or impossible, or any well reaches Contract Depth and is
completed as a dry hole, Farmee may plug and abandon such well and thereafter
may continue its rights by commencing a Substitute Well (or Wells) for any such
well (which has been lost or abandoned or completed as a dry hole) within one
hundred eighty (180) days from the date the prior well was lost or completed as
a dry hole.  Any Substitute Well drilled
shall be drilled subject to the same terms and conditions and to the same depth
as provided for the well so lost or abandoned or completed.  Any refer­ence in this Agreement to the Test
Well shall be deemed to be a reference to any well or wells which may be
drilled as a Substitute Well.

 

3.3                                 EARNED
ASSIGNMENTS-PRODUCE TO EARN.

 

On receipt of Farmee’s written request and as soon as
practicable after Farmor is satisfied that Farmee has complied with all of its
obligations (including, but not limited to, all geological requirements as set
out in Exhibit “C”) under this Agreement with regard to the completion of the
Test Well or Substitute Well(s) hereunder as a producer of oil and/or gas in
paying quantities, Farmor shall deliver to Farmee an acreage assignment of Oil
and Gas Lease(s) for the Earning Well as de­scribed in Section 3.4 below.  However, Farmor and Farmee agree that record title and
the management of this Farmout Agreement may be held and administered by Reef
Exploration, Inc.

 

3.4                                 ACREAGE
ASSIGNMENT.

 

If an acreage assignment of Oil and Gas Lease(s) is earned,
such assignment/lease shall cover the rights and lands described in Exhibit “A”
and covering an undivided 100% of Farmor’s right, title and interest in and to
the leases described on Exhibit “A”, subject to the reserved 15%
Back-In-After-Payout Working Interest on Farmor’s leasehold described in
Section 4 below, and subject to the depth limitations set out in Section 3.5.

 

PRODUCER

 

3.5                               DEPTHS
EARNED.

 

If an assignment/lease is earned, the rights earned will be limited as
follows:

 

ý                                                                                    Limited
to the rights from the surface of the ground down to one hundred feet (100’)
below the stratigraphic equiva­lent of the producing interval in the Earning
Well or 10,500’ whichever is lesser.

 

6

 

3.6                                 TERM
OF ASSIGNMENT.

 

The Assignment shall be for a term of one (1) year from the date of
first production of the Earning Well and for so long thereafter as oil and/or
gas are produced in paying quantities from the Leases or from lands validly
pooled therewith or for so long as the Assignment is otherwise maintained in
effect pursuant to the provisions hereof.

 

3.7                                 EXTENSION
BY DRILLING OR REWORKING

 

If at the expiration of the 1-year term of the Assignment, oil and/or
gas are not being produced from the Leases or lands validly pooled therewith,
but Assignee is then engaged in drilling or reworking operations thereon, the
Assignment shall remain in force so long as drilling or reworking operations
are prosecuted (whether on the same day or different wells) with no cessation
of more than sixty (60) consecutive days, and, if they result in production in
paying quantities, for so long thereafter as oil and/or gas are produced in
paying quantities from the Leases or lands validly pooled therewith.  If oil and/or gas on the Leases or lands
validly pooled therewith should cease producing in paying quantities from any
cause, the Assignment nevertheless shall continue in force and effect as long
as additional drilling operations or reworking operations are conducted on the
Leases or on lands validly pooled therewith, which additional operations shall
be deemed to be had when not more than sixty (60) consecutive days elapse
between the abandonment of operations on one well and the actual commencement
of drilling on another well, and, if production in paying quantities is
obtained, the Assignment shall continue as long thereafter as oil and/or gas is
produced in paying quantities from the Leases or lands validly pooled
therewith, and as long thereafter as additional operations, either drilling or
reworking, are had thereon.

 

3.8                                 CONTINUOUS
DEVELOPMENT

 

(a)                                  If
Assignee, at the expiration of the 1-year term is engaged in actual drilling
operations, the Assignment shall remain in full force and effect as to all
lands covered hereby for so long as such operations continue to completion or
abandonment and for so long thereafter as continuous development is conducted,
being defined as no more than 180 days elapsing between the completion or
abandonment of one well and the commencement of actual drilling operations on
another well; or

(b)                                 If
at the expiration of the 1-year term, Assignee is not conducting actual
drilling operations, but Assignee has completed a well on the properties prior
to the expiration of the 1-year term which is capable of producing oil and/or
gas in paying quantities, the Assignment shall remain in full force and effect
for so long as actual drilling operations on an additional well are commenced
within 180 days following the expiration of the 1-year term, and the Assignment
shall continue in force for so long thereafter as continuous development is
conducted, being defined as no more than 180 days elapsing between the
completion or abandonment of one well and the commencement of actual drilling
operations on the next succeeding well.

(c)                                  At
such time as Assignee (1) fails to commence said continuous development, or (2)
once commenced, fails to continue same, the Assignment shall automatically
terminate as to all land not included within a Drilling Unit assigned to a well
then producing oil or gas in paying quantities.

 

7

 

4.                                      RESERVED
WORKING INTEREST.

 

4.1                                 RESERVATION.

 

In any assignment hereunder, Farmor shall reserve a
Fifteen Percent (15%) Back-in-after-Payout Working Interest of Farmor’s
proportionate leasehold interest in the unit. 
Farmor shall deliver to Farmee a net revenue interest lease including
only existing lease burdens of record as of February 1, 2003.

 

4.2                                                                                PROPORTIONATE
REDUCTION.

 

If Leases described in this Agreement cover less than
the full leasehold estate in any Lands described under such Leases, or if
Farmor’s interest in such Leases covering any Lands described under the Leases
is less than the full leasehold estate, then the overrid­ing royalty reserved
out of production shall be payable in the proportion that Farmor’s interest
bears to the full leasehold estate in the Lands.

 

5.                                      ABANDONMENT
OF WELLS.

 

5.1                                                                                  In
the event any well is completed hereunder as non-productive of oil and/or gas
in paying quantities or ceases production, Farmee shall immediately give Farmor
written notice via U.S. Post Office mail certified return receipt required or
via facsimile transmission, of the proposed plugging and abandonment of that
well. Farmor shall have ten days after receipt of that written notice within
which to elect to take over the well for the purpose of conducting additional
operations as it desires; except that if a drilling rig is on location, notice
to plug and abandon may be given by telephone or by facsimile transmission on
working days and Farmor’s response period shall be limited to forty-eight (48)
hours, inclusive of Saturday, Sunday and legal holidays.  In the event Farmor fails to advise Farmee
of its election within the prescribed period of time, the well shall be plugged
and abandoned by Farmee.  If electing to
do so, Farmor shall have the right to take over such well, using so far as
necessary, at Farmor’s expense, the tools and workmen of Farmee.  If Farmor elects to take over a well, Farmor
shall pay to Farmee the reasonable salvage value for material and equipment in
and on the well, less the cost of salvaging, and acquire the well for Farmor’s
own use and purposes.

 

5.2                                                                                In
the event Farmor exercises the option provided in Section 5.1, all of Farmee’s
right, title and interest in and to said non-earning well and the leases
described and depicted on Exhibit “A” and “A-1” hereof shall terminate and
revert to Farmor.  Any well and all subsequent
production from the well shall be owned solely by Farmor and it shall have the
sole right to operate and maintain the well and use, sell or otherwise dispose
of all production as it may desire, without any limitation.  Farmor shall have the option to purchase
from Farmee any items of equipment, fixtures and machinery in, on or around the
well as Farmor may desire, 

 

8

 

paying the reasonable
salvage value, such value being the reasonable value of the right to remove the
items from the Lands less the cost of removal. 
If Farmor and Farmee cannot agree on a reasonable salvage value, then
the highest of three (3) bona fide written offers, the originals of which are
to be submitted to Farmor, will be controlling as to items Farmor may desire to
purchase.

 

5.3                                                                                Notwithstanding
the automatic reverting and revesting of all right, title and interest into
Farmor, Farmee shall promptly make, execute and deliver to Farmor any
instrument or instruments reassigning and reconveying record title into Farmor,
as and when requested.  Farmee agrees
and all persons are given notice that, should the Lands at any time be
reassigned or reconveyed in accor­dance with the terms of this Agreement, it
shall be free and clear of any overriding royalty, payments out of production,
net profit obligations or carried interests, or any obligation to which it may
have been subjected by Farmee or Farmee’s assigns.  Any such obligations shall cease and terminate and be of no
further force and effect as to any part of the Lands reassigned or reconveyed
to Farmor, notwithstanding Farmor may have expressly or impliedly consented to
the assignment or the instrument in which the obligation was reserved or
created.  In the event Farmor exercises its
option to take over a well, as provided above, and that well is the last or
only producing well on the Lands, the reassignment shall cover all of the Lands
then held by Farmee under the terms of this Agreement.

 

5.4                                                                                In
the event Farmee abandons any well after Farmor fails to exercise its options,
or fails to give Farmor a reasonable opportunity to consider its options, as
provided in Section 5.1, this Agreement, as to the unearned portions of the
Lease, shall automatically terminate, and Farmee shall have no rights as to any
unearned portions of the Lease, but Farmee shall remain responsible for the
cost of abandonment and restoration of the surface around any such well.  In the event Farmee fails to plug any well
or fails to restore the surface around the well, to the satisfaction of the
Surface Owner and Farmor, then Farmor, at its option, may plug the well and
restore the surface around any well to its satisfaction, and Farmee shall
reimburse Farmor for all costs incurred in connection with those
operations.  Farmee shall comply with
all statutory requirements and governmental rules and regulations in effect at
the time of plugging any well not taken over, and Farmee agrees to fully
defend, protect, indemnify, and hold Farmor harmless from and against each and
every claim, demand or cause of action, expense or liability arising from
Farmee’s failure to plug or properly plug any such well.

 

9

 

6.                                      FAILURE
TO COMMENCE OPERATIONS OR CESSATION OF OPERA­TIONS.

 

6.1                                 LIQUIDATED
DAMAGES-TEST WELL ONLY.

 

In the event the Test Well covenanted to be drilled,
is not drilled in accordance with the requirements of this Agreement, the
parties agree that the resulting damages to the Farmor will be indefinite,
uncertain and speculative, and Farmor and Farmee agree that Farmee will pay to
Farmor, as liquidated damages, the sum of ZERO Dollars, ($0.00), proportionate
to the Farmors.  All Substitute Wells
will be covered by the provisions of Section 6.1.

 

7.                                      SHUT-IN
PAYMENTS.

 

7.1                                 SHUT-IN
PAYMENTS.

 

Shut-in payments on Farmee’s well shall be made by
Farmee or Farmee’s Operator.

 

If shut-in payments are made by Farmor, Farmee shall
reimburse Farmor for 100% of the shut-in payment.

 

Until a Lease on the Lands is assigned in whole or in
part to Farmee, Farmor shall be responsible for exercising due diligence and
utilizing reasonable commercial efforts to pay all shut-in payments required to
maintain the Lease(s) in effect and; within 30 days after receipt of invoice
from Farmor, Farmee shall reimburse Farmor for 100% of the shut-in payments
paid.  If Farmee fails to reimburse
Farmor within the time specified, the balance of any unpaid shut-in payment
invoice shall bear interest, monthly, at the rate of 10% per annum or the
maximum contract rate permitted by the applicable usury laws in the state in
which the Lands are located, whichever is the lesser, plus attorney’s fees,
court costs and any other costs in connection with the collection of any unpaid
balance.

 

After the Lease(s) has been assigned in whole or in
part to Farmee, the responsibility for making such payments covering the
assigned depths under said Lease(s)shall belong to Farmee.

 

The party responsible for paying shut-in payments
shall not be liable to the other party for any loss resulting from any failure
to properly do so.

 

8.                                      LIABILITY.

 

8.1                                                                                 All
operations shall be conducted at the sole cost, risk and expense of Farmee in a
proper and workmanlike manner and in accordance with all applicable laws and
regulations of all constituted authorities, and Farmee shall defend, indem­nify
and hold Farmor and its officers, directors, agents, employees and invites
harmless from all liability for damage (including attorney’s fees) to the
person (including death) and/or property of all persons arising from the
performance or non-performance of Farmee’s operations conducted under the terms
of this Agreement.

 

10

 

8.2                                                                                 During
the life of this Agreement the Farmee shall keep the Leases free and clear from
all liens.

 

9.                                      TITLE
INFORMATION AND WARRANTY OF TITLE.

 

9.1                                                                                  FARMOR.

Farmor agrees, on written request, to make available
Farmee copies of the Leases and all title information in its possession within
thirty (30) days of request.  Farmor
shall neither be liable for the accuracy of any title information obtained by
Farmee affect­ing the Leases covering the land.  This Agreement and title to the Lease(s) listed in Exhibit “A”
are made without warranty of title, either express or implied.

 

10.                               NOTICES
AND WELL INFORMATION.

 

10.1                           IN
GENERAL.

 

All well data, information and notices to be given to
Farmor, as provided in this Agreement, shall be given as provided in Exhibit
“C”, with such Well data and information to be held confidential as between
Farmor and Farmee, unless written consent is obtained by the party desiring to
disclose such information to a third party.

 

10.2                                                                           NOTICES.

 

All notices, payments or other correspondence provided
for in this Agreement, other than notices provided under Exhibit “C”, shall be
given as follows:

 

	
  Farmors:

  	
   

  	
  REEF
  PARTNERS 2001-A INCOME FUND LP

  
	
   

  	
   

  	
  REEF
  PARTNERS 2001-B INCOME FUND LP

  
	
   

  	
   

  	
  REEF EXPLORATION, INC.

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  
	
   

  	
   

  	
   

  
	
  Farmee:

  	
   

  	
  Reef Global Energy I LP

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  

 

 

11.                               INSURANCE.

 

11.1                                                                         While
operations are being conducted on the Lands Farmee agrees to acquire or cause
to be acquired and/or maintain the following insurance:

 

(a)                                  Workmen’s
Compensation in accordance with applicable state laws and 

 

11

 

when ap­plicable extended to include coverage for
maritime obligations, United States Longshoremen’s and Harbor Worker’s Com­pensation
Act, Outer Continental Shelf Lands Act, Jones Act and Death on the High Seas
Act.

 

(b)                                 Employer’s
Liability, with limits of at least $1,000,000.00.

 

(c)                                  (i)
Comprehensive General Liability, with limits of at least $6,000,000.00; (ii)
Excess Liability with limits of at least $5,000,000.00 each occurrence.

 

(d)                                 Automobile
Liability covering all owned, non-owned, and hired vehicles, with limits of at
least $1,000,000.00

 

(e)                                  Other
(Specify): O.E.E., with limits of at least $10,000,000.00

 

11.2                                                                           Farmee
further agrees to name Farmor as an additional insured under items (c) and (d)
above and further agrees to secure a waiver of subrogation in favor of Farmor
under each of the insurance policies noted above.

 

12.                               EXTENSIONS,
RENEWALS AND NEW LEASES.

 

Any and all extension of any of the Leases, in whole
or in part, shall maintain and continue in effect the rights and interests
reserved by Farmor in each of the Leases so extended and in the Lands covered
by the Leases.  In the event an
extension, renewal or new lease or leases covering the Lands, or a part of or
interest in the Lands, or a part of or interest in a Lease, be acquired by
Farmee, or by a third party wholly or partly for Farmee or Farmee’s benefit,
within one hundred eighty days from either the date of the expiration of the
primary terms of the Leases having the latest date, for the Leases remaining in
their primary term; or from the date of the assignment, for the Leases which
are beyond their primary term, the rights, interests and depths reserved and
retained by Farmor shall attach and apply to each renewal or new lease, the
land described and the estate created, with the same result and effect as such
reserved and retained rights and interests attach and apply to the Leases, the
Lands or the estates created by the Leases.

 

13.                               GENERAL.

 

13.1                           AUDITS.

 

Upon written notice to Farmee, Farmor may audit
Farmee’s books and records relating to overriding royalty payments and/or
calcula­tion of Payout.  Such audit
rights may be exercised any time while overriding 

 

12

 

royalties are payable and for a period of twenty-four
(24) months after Farmor has received written notice that Payout status has
been achieved, notwithstanding an earlier termination of this Agreement.

 

13.2                           LEASE
OBLIGATIONS.

 

Farmee shall comply with all Lease obliga­tions and
requirements.

 

13.3                           LAWS
AND REGULATIONS.

 

Farmee shall comply with all governmental laws, rules
and regulations.

 

13.4                           PERMISSION
TO ENTER.

 

Farmee shall obtain permission to enter the Lands from
both the surface owner and tenants. 
Further, Farmee agrees to settle surface damages and to clean up and
restore the premises as nearly as possible to its original condition, and as
provided for in 5.4 above.

 

13.5                           ACCESS
TO WELL LOCATION.

 

Farmor’s employees and authorized representatives, at
the sole risk of Farmor, shall have access to the derrick floor of any farmout
well at all times.

 

13.6                           SECTION
TITLES.

 

The section titles used in this agreement are for the
convenience of the parties only and are not intended to be used for the purpose
of construing or interpreting the meaning of any section.

 

14.                               AGREEMENTS
AFFECTING FARMOUT LANDS.

 

14.1                           FARMEE
BOUND.

Except as otherwise provided, Farmee shall be bound by
any agreement which affects the Lands at the time of assignment to Farmee.

 

 

15.                               PERMISSION
TO ASSIGN.

 

This Farmout Agreement may not be assigned by Farmee
without the prior written consent of Farmor. 
Such consent shall not be unreasonably withheld.  Farmor and Farmee agree that record title and the
administration of this Farmout Agreement may be held and maintained by Reef
Exploration, Inc., 1901 North Central Expressway, Suite 300

 

13

 

16.                               REASSIGNMENT.

 

Subject to the provisions of Section 5, it is
understood that at the time any well drilled on any Drilling Unit under the
terms of this Agreement becomes incapable of producing oil or gas in paying
quantities, thus becoming noncommercial, or rework operations are not commenced
within one hundred twenty (120) days (or sixty (60) days in the event the Lease
are not otherwise being maintained), or if rework operations fail and
production in paying quantities is not restored, Farmee will, at such time,
reassign the assigned acreage and leases to Farmor by recordable instrument
free and clear of any liens, and encumbrances and any lease burdens not in
existence as of the date of the original Assignment from Farmor to Farmee.

 

17.                               EXECUTION.

 

Time is of the essence of this Agreement in all of its
parts.  This Agreement may be executed
in any number of counterparts, each of which shall be considered as an original
for all purposes.  The terms, covenants
and conditions of this Agreement shall run in favor of and be binding upon the
parties and their successors, heirs, and assigns, and shall run with the Leases
and the Lands.

 

17.1                           RATIFICATION.

 

The execu­tion and delivery of a good and sufficient
instrument of ratification may execute this Agreement, adopting and entering
into this Agreement.  Such ratification
shall have the same effect as if the party executing it had executed this
Agreement or a counterpart of this Agreement.

 

17.2                           EFFECTIVE
DATE.

 

This Agreement shall be effective as of the Effective
Date stated even though actually signed at a later date.

 

AGREED
TO AND EXECUTED THIS 6th DAY OF FEBRUARY, 2003

 

	
  FARMOR:

  	
   

  	
  REEF
  PARTNERS 2001-A INCOME FUND LP

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  

 

14

 

	
  By:

  	
  /s/ Michael J. Mauceli

  	
   

  	
   

  
	
  Michael J. Mauceli

  	
   

  	
   

  
	
  Managing Partner

  	
   

  	
   

  
	
   

  
	
   

  
	
  FARMOR:

  	
   

  	
  REEF
  PARTNERS 2001-B INCOME FUND LP

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Michael J. Mauceli

  	
   

  	
   

  
	
  Michael J. Mauceli

  	
   

  	
   

  
	
  Managing Partner

  	
   

  	
   

  
	
   

  
	
   

  
	
  FARMOR:

  	
   

  	
  REEF
  EXPLORATION, INC.

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  
	
   

  
	
  By:

  	
  /s/ Michael J. Mauceli

  	
   

  	
   

  
	
  Michael J. Mauceli

  	
   

  	
   

  
	
  President

  	
   

  	
   

  
	
   

  
	
   

  
	
  FARMEE:

  	
   

  	
  Reef Global Energy I LP

  
	
   

  	
   

  	
  1901 North Central Expressway

  
	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
  Richardson, Texas 75080

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Michael J. Mauceli

  	
   

  	
   

  
	
  Michael J. Mauceli

  	
   

  	
   

  
	
  Managing Partner

  	
   

  	
   

  
						

 

15

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