Exhibit 10.2
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Execution Copy
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
QUEST CHEROKEE, LLC
a Delaware limited liability company
December 22, 2003
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The Member Interests represented by this Agreement have been acquired for
investment and were issued without registration under the Securities Act of
1933, as amended (the "Securities Act"), or under the securities laws of any
state. These Interests may not be sold, pledged, hypothecated, or otherwise
transferred at any time except (i) in accordance with the Transfer
Restrictions (as defined in this agreement),contained in this Agreement and
(ii) pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws unless an exemption from
registration under the Securities Act and under any applicable state
securities laws is available in connection with the transfer.
TABLE OF CONTENTS
Article 1
Definitions
1.1 Definitions...............................................................2
1.2 Construction.............................................................21
Article 2
Organization
2.1 Formation; Continuation; Amendment and Restatement.......................21
2.2 Name.....................................................................21
2.3 Registered Office; Registered Agent; Principal Office; Other Offices.....21
2.4 Purposes.................................................................22
2.5 Foreign Qualification....................................................22
2.6 Term.....................................................................22
2.7 Powers...................................................................22
2.8 Bluestem Contributions...................................................23
Article 3
Authorized Units; Rights of Members
3.1 Authorized Number of Units...............................................23
3.2 Personal Property........................................................23
3.3 Certificates.............................................................23
3.4 Mutilated, Destroyed, Lost or Stolen Certificates........................24
3.5 Record Holders...........................................................25
3.6 Liability of Members to Third Parties; Relationship between Members......25
3.7 Access to Information....................................................25
Article 4
Capital Contributions
4.1 Capital Contributions....................................................26
4.2 No Interest or Withdrawal................................................26
4.3 Title to Company Assets..................................................26
4.4 Creditors of the Company.................................................27
Article 5
Capital Accounts, Allocations and Distributions
5.1 Capital Accounts.........................................................27
5.2 Allocations for Capital Account Purposes.................................29
5.3 Allocations for Tax Purposes.............................................32
5.4 Distributions of Net Cash Flow...........................................35
5.5 No Distributions in Kind.................................................37
5.6 Limitations on Distributions.............................................37
5.7 (intentionally omitted)..................................................37
5.8 Fees; Expenses...........................................................37
5.9 Defect Properties........................................................37
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Article 6
Management
6.1 Member Approval Required for Certain Actions............................39
6.2 Management by Board.....................................................40
6.3 Control of Interested Member Matters....................................42
6.4 Officers................................................................43
6.5 Officer Actions.........................................................44
6.6 Indemnification.........................................................45
6.7 Reliance by Third Parties...............................................47
Article 7
Taxes, Books, Records, Accounting and Reporting
7.1 Books and Records; Right to Audit; Fiscal Year..........................48
7.2 Tax Returns.............................................................48
7.3 Tax Matters Member......................................................48
7.4 Withholding.............................................................50
7.5 Company Bank Accounts...................................................50
7.6 Other Reports...........................................................50
Article 8
Restrictions on Transfers of Interests
8.1 Transfers of Member Interests...........................................51
8.2 Buy-Sell................................................................51
Article 9
Dissolution, Winding-up and Termination
9.1 Dissolution.............................................................52
9.2 Winding-Up and Termination..............................................52
9.3 Certificate of Cancellation.............................................53
9.4 Certain Matters Concerning a Member.....................................54
9.5 Waiver of Partition.....................................................54
Article 10
Other Provisions
10.1 Entire Agreement.......................................................54
10.2 Governing Law..........................................................54
10.3 Non-Waiver.............................................................55
10.4 Severability...........................................................55
10.5 Headings; Exhibits.....................................................55
10.6 Winding Up Arrangements................................................55
10.7 No Third Party Beneficiaries...........................................55
10.8 Counterparts...........................................................55
10.9 Amendment or Restatement...............................................55
10.10 Dispute Resolution.....................................................56
10.11 Notices................................................................56
10.12 Further Assurances.....................................................56
10.13 Waiver of Certain Rights...............................................56
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10.14 Creditors..............................................................56
10.15 Consent of Members.....................................................57
10.16 Confidentiality........................................................57
Exhibits:
Exhibit A -- Unit Ownership
Exhibit B -- Form of Certificate
Exhibit C -- Dispute Resolution Procedures
Exhibit D -- List of Appraisers
Exhibit E -- Transfer Restrictions
Exhibit F -- Non-Competition Agreement
Exhibit G -- Cherokee Basin
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Execution Copy
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
QUEST Cherokee, LLC
A Delaware Limited Liability Company
This Amended and Restated Limited Liability Company Agreement of Quest
Cherokee, LLC (this "Agreement"), dated as of December 22, 2003 (the "Effective
Date"), is entered into by and between CHEROKEE ENERGY PARTNERS, LLC, a Delaware
limited liability company ("CPL"), and QUEST ENERGY SERVICE, INC., a Kansas
corporation ("QES"); STP CHEROKEE, INC., an Oklahoma corporation ("STPC");
PONDEROSA GAS PIPELINE COMPANY, INC., a Kansas corporation ("PGPL"); QUEST OIL &
GAS CORPORATION, a Kansas corporation ("QOG"); PRODUCERS SERVICE, INCORPORATED,
a Kansas corporation ("PSI"); and X-X GAS GATHERING, L.L.C., a Kansas limited
liability company ("JW" and, together with QES, STPC, PGPL, QOG, and PSI
collectively the "Quest Members" and individually a "Quest Member"). The Quest
Members together with CPL are collectively referred to as the "Members", and
individually referred to as a "Member." Capitalized terms used herein and not
otherwise defined have the meaning given to such terms in Section 1.1.
RECITALS
WHEREAS, the Quest Members formed Quest Cherokee, LLC (the "Company")
as a Delaware limited liability company by the filing of a Certificate of
Formation (the "Delaware Certificate") with the Delaware Secretary of State
on December 11, 2003, which certificate states that the effective date for
forming the Company shall be December 12, 2003 (the "Formation Date"), and
the execution of that certain Limited Liability Company Agreement of the
Company, dated as of December 12, 2003 (the "Original Agreement"); and
WHEREAS, the Quest Members have contributed certain assets to the
Company pursuant to the Contribution Agreement; and
WHEREAS, pursuant to the Class A Unit Purchase Agreement, CPL has made
a capital contribution to the Company in exchange for the issuance of Class
A Units; and
WHEREAS, the Members desire to amend the Original Agreement to reflect
such admission and certain other matters as agreed by the parties, and as
so amended to restate it in its entirety in this Agreement;
NOW, THEREFORE, the Members hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in the Sections referred to
below (and grammatical variations of such terms have correlative meanings):
"Act" means the Delaware Limited Liability Company Act, as the same
may be amended from time to time.
"Acquisition" means any acquisition by the Company of (i) all or
substantially all of the interest in any company or business (whether by a
purchase of assets, purchase of stock, merger or otherwise); or (ii) any
acquisition or series of acquisitions during any Fiscal Year by the
Company of the interests in any companies or businesses (whether by a
purchase of assets, purchase of stock, merger or otherwise), even though
involving less than substantially all of such interests, which involves
the payment of consideration in excess of $3,000,000 or would result (or
would reasonably be expected to result) in a reduction of 15% or more of
the aggregate distributions to be made or that would have been made to the
Class A Member under Section 5.4 during any Fiscal Year.
"Adjusted Capital Account" means the Capital Account maintained for
each Member as of the end of each Tax Period of the Company, (a) increased
by any amounts that such Member is obligated to restore under the
standards set forth by Treas. Reg. ss.1.704-1(b)(2)(ii)(c) (or is deemed
obligated to restore under Treas. Reg. ss.ss.1.704-2(g) and
1.704-2(i)(5)), and (b) decreased by (i) the amount of all losses and
deductions that, as of the end of such Tax Period, are reasonably expected
to be allocated to such Member in subsequent Tax Periods under sections
704(e)(2) and 706(d) of the Code and Treas. Reg. ss.1.751-1(b)(2)(ii), and
(ii) the amount of all distributions that, as of the end of such Tax
Period, are reasonably expected to be made to such Member in subsequent
Tax Periods in accordance with the terms of this Agreement, or otherwise
to the extent they exceed offsetting increases to such Member's Capital
Account that are reasonably expected to occur during (or prior to) the Tax
Period in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant to
Section 5.2(d)(i) or Section 5.2(d)(ii)). This definition of Adjusted
Capital Account is intended to comply with the provisions of Treas. Reg.
ss.1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which
has been adjusted pursuant to Section 5.1(d) or Section 5.1(e).
"Adverse Environmental Condition" means an adverse environmental
condition that is (i) one in which the affected Quest Assets is not in
compliance with any Environmental Laws, or (ii) a physical or environmental
condition with
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respect to a Quest Asset which could give rise to an on-site or
off-site remedial or other clean-up obligations imposed under
Environmental Laws.
"Affiliate" means, with respect to any Person, (a) each entity that
such Person Controls; (b) each Person that Controls such Person; and (c)
each entity that is under common Control with such Person.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, deduction or loss pursuant to
Section 5.2.
"Agreed Value" means (a) with respect to any Contributed Property,
the value of such Contributed Property as agreed by the parties, which in
the case of the assets contributed to the Company in accordance with the
provisions of the Contribution Agreement, the value of such properties as
stated in the Class A Unit Purchase Agreement, and (b) with respect to any
other Contributed Property, the fair market value of such property or
other consideration at the time of contribution as determined by the Board
using such reasonable method of valuation as it may adopt. The Board
shall, in its discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate Agreed Value of Contributed
Properties contributed to the Company in a single or integrated
transaction among each separate property.
"Agreement" is defined in the introductory paragraph.
"Annual Budget" means the annual operating, capital expenditure,
maintenance and acquisition budgets, if any, adopted or amended by the
Board from time to time or otherwise in effect as provided in Section
6.2(a)(ii).
"Applicable Law" means any Law to which a specified Person or
property is subject.
"Authorized Person" is defined in Section 6.7(a).
"Bankruptcy" or "Bankrupt" means, with respect to any Person, (a) such
Person (i) makes a general assignment for the benefit of creditors; (ii)
files a voluntary bankruptcy petition; (iii) becomes the subject of an
order for relief or is declared insolvent in any federal or state
bankruptcy or insolvency proceedings; (iv) files a petition or answer
seeking for such Person a reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any Law;
(v) files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against such Person in a
proceeding of the type described in subclauses (i) through (iv) of this
clause (a); or (vi) seeks, consents to, or acquiesces in the appointment of
a trustee, receiver, or liquidator of such Person or of all or any
substantial part of such Person's properties; or (b) a proceeding against
such Person seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any Law has been
commenced and 120 days have expired without dismissal thereof or with
respect to which, without such Person's consent or acquiescence, a
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trustee, receiver, or liquidator of such Person or of all or any
substantial part of such Person's properties has been appointed and 90 days
have expired without the appointment having been vacated or stayed, or 90
days have expired after the date of expiration of a stay, if the
appointment has not previously been vacated.
"Bluestem" means Bluestem Pipeline, LLC, a Delaware limited liability
company formed and wholly-owned by the Company.
"Board" is defined in Section 6.2(a).
"Book-Tax Disparity" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Member's share of the Company's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property shall
be reflected by the difference between such Member's Capital Account
balance as maintained pursuant to Section 5.1 and the hypothetical balance
of such Member's Capital Account computed as if it had been maintained in
accordance with federal income tax accounting principles.
"Buy-Sell Point" means the point in time at which Net Cash Flow will
be distributed under the provisions of Section 5.4(b)(iv) below.
"Capital Account" means the capital account maintained for a Member
pursuant to Section 5.1.
"Capital Contribution" means, with respect to any Member, the amount
of money and the Net Agreed Value of any assets (other than money)
contributed to the Company by the Member. Any reference in this Agreement
to the Capital Contribution of a Member shall include a Capital
Contribution of its predecessors in interest.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all
depreciation, Simulated Depletion (computed as a separate item of
deduction), amortization, and cost recovery deductions charged to the
Members' Capital Accounts in respect of such property as of the time of
determination, (b) with respect to an Adjusted Property, the Adjusted Value
of such property reduced (but not below zero) by all depreciation,
Simulated Depletion (computed as a separate item of deduction),
amortization and cost recovery deductions charged to the Members' Capital
Accounts with respect to such property as of the time of determination and
(b) with respect to any other Company Assets, the adjusted basis of such
property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Section 5.1(d) and Section 5.1(e) and to
reflect changes, additions, or other adjustments to the Carrying Value for
dispositions and acquisitions of Company properties, as approved by the
Board.
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"Certificate" means a certificate, substantially in the form of
Exhibit B to this Agreement or in such other form as may be adopted by the
Board in its discretion, issued by the Company evidencing ownership of one
of more Units.
"Change of Control" means:
(a) when applied to an entity ("Public Entity") that has equity
securities registered under the Securities Act of 1933, as amended (the
"Securities Act"), such time as any of the following occur: (i) with
respect to QRC, on or after the date that Xxxxxxx X. Xxxx, Xxxxx X. Xxxx
or any Immediate Family Member of either of them sells or transfer 20% or
more of the number of shares of QRC common stock owned or held by any of
them as of the Effective Date, (ii) a tender offer or exchange offer is
made and consummated for the ownership of 33.33% or more of the
outstanding voting securities of the Public Entity, (iii) the Public
Entity is merged or consolidated with another corporation ("Other Entity")
and as a result of such merger or consolidation less than 40% of the
outstanding voting securities of the surviving or resulting corporation
are owned directly or indirectly in the aggregate by the former
stockholders of the Public Entity other than the Other Entity or its
Affiliates, as the same shall have existed immediately prior to such
merger or consolidation, (iv) the Public Entity sells or otherwise
transfers substantially all of its assets to another entity which is not
wholly-owned directly or indirectly by the Public Entity or one of its
Subsidiaries, (v) a person, within the meaning of section 3(a)(9) or of
section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), acquires 33.33% or more of the outstanding voting
securities of the Public Entity (whether directly, indirectly,
beneficially or of record), or (vi) individuals who, as of the date of
this Agreement, constitute the board of directors of the Public Entity (as
of the date of this Agreement, the "Incumbent Board") cease for any reason
to constitute a majority of the board of directors of the Public Entity,
provided, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Public Entity's
shareholders, was approved by a vote of at least a majority of directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Public Entity; and
(b) when applied to an entity ("Private Entity") that is not a Public
Entity, such time as any of the following occur after the date of this
Agreement: (i) a tender offer or exchange offer is made and consummated for
the ownership of 50 percent or more of the outstanding voting securities of
the Private Entity, (ii) the Private Entity is merged or consolidated with
another entity ("Constituent Party") and as a result of such merger or
consolidation 50 percent or less of the outstanding voting securities of
the surviving or resulting entity is owned directly or indirectly in the
aggregate by the former stockholder(s) of the Private Entity or their
Affiliates, other than Affiliates of the Constituent Party, as the same
existed immediately prior to such merger or consolidation, (iii) the
Private Entity sells or
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otherwise transfers substantially all of its assets to another entity which
is not wholly-owned, directly or indirectly, by the Private Entity, one of
its Subsidiaries or its Parent, (iv) a person (which is not wholly-owned,
directly or indirectly, by such person or one of its Subsidiaries or its
Parent), within the meaning of section 3(a)(9) or of section 13(d)(3) of
the Exchange Act, acquires 50 percent or more of the outstanding voting
securities of the Private Entity (whether directly, indirectly,
beneficially or of record) or (v) a distribution or sale of voting
securities of the Private Entity (other than an Owner Sub) is consummated
and as a result of such distribution 80 percent or less of the outstanding
voting securities of the Private Entity is owned directly or indirectly in
the aggregate by the former stockholder(s) of the Private Entity or their
Affiliates; and
(c) In addition to the provisions in subparagraphs (a) and (b) above,
with respect to QRC and the Class B Members, a Change of Control under
this Agreement shall be deemed to have occurred if a "change of control,"
as this term is defined under the Senior Debt Documents or under the
Subordinated Note Agreement (or under the Subordinated Note and any other
documents or instruments entered into or delivered in connection with the
Subordinated Note Agreement) has occurred.
A Change of Control of an entity will be deemed to have occurred if
any Person that Controls such entity experiences a Change of Control;
provided, however, that this provision shall only apply with respect to
CPL to the extent that any of the events described in subparagraph (b)
above occurs with respect to CPL's sole member, ArcLight Energy Partners
Fund I, L.P.
"Cherokee Basin" means the area commonly known as the Cherokee Basin
located in the southeastern portion of the State of Kansas and the
northeastern portion of the State of Oklahoma as more particularly
described on Exhibit G hereto.
"Claim" means any and all judgments, claims, causes of action,
demands, lawsuits, suits, proceedings, Governmental investigations or
audits, losses, assessments, fines, penalties, administrative orders,
obligations, costs, expenses, liabilities and damages, including interest,
penalties, reasonable attorney's fees, disbursements and costs of
investigations, deficiencies, levies and duties.
"Class A Member" means CPL and any assignees or successors in
interest of CPL to any Class A Units in accordance with the terms of this
Agreement (but shall not include any Person who has ceased to be a Class A
Member in accordance with the terms of this Agreement).
"Class A Member IRR" means, as of any date of distribution, the per
annum discount rate at which the sum of the following cash flows is equal
to zero (assuming discounting on the basis of a year of 365 days and actual
days elapsed): (i) the aggregate amount of capital contributed, and loans
made, by the Class A Member and its Affiliates (including amounts made
available to pay fees and
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expenses to the Class A Member or its Affiliates) directly to the Company
(each of which amounts will be deemed to be negative for purposes of this
calculation) and (ii) (A) the aggregate amount of equity distributions, and
payments made in respect of loans, by the Company directly to the Class A
Member or its Affiliates minus (B) any distributions made pursuant to
Section 5.4(c). The equity distributions and payments in (ii)(A) above
exclude the aggregate fees and reimbursed expenses paid by the Company,
directly or indirectly, to the Class A Member or its Affiliates. The "Class
A Member IRR" will be calculated using the "XIRR" function in Microsoft
Excel 2000 or an equivalent function in another software package.
"Class A Unit" is defined in Section 3.1(a)(i).
"Class A Unit Purchase Agreement" means the Membership Interest
Purchase Agreement between and among the Company, the Quest Members and
CPL dated as of December 22, 2003, as amended from time to time.
"Class A Unit Sharing Ratio" means as of any date of determination,
with respect to each Class A Member, the ratio that the number of Class A
Units held by such Member bears to the total Class A Units held by all
Members.
"Class B Members" means the Quest Members and any assignees or
successors in interest of such Quest Members to any Class B Units in
accordance with the terms of this Agreement (but shall not include any
Person who has ceased to be Class B Member in accordance with the terms of
this Agreement).
"Class B Unit" is defined in Section 3.1(a)(ii).
"Class B Unit Sharing Ratio" means as of any date of determination,
with respect to each Class B Member, the ratio that the number of Class B
Units held by such Member bears to the total Class B Units held by all
Members.
"Closing Date" means the date of the Closing, as defined in the Class
A Unit Purchase Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to a
corresponding provision of any successor law.
"Company" is defined in the Recitals.
"Company Assets" means the assets and properties of the Company of
every kind, character and description, whether tangible, intangible, real,
personal or mixed, and wherever located.
"Confidential Information" means all confidential and non-public
information and data relating to the Company or its Affiliates (other than
a
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Member), including proposed strategic business plans, financial
information, business opportunities, pro forma information and employee
matters.
"Conflict Circumstance" means any transaction or dealing between the
Company (or any Wholly-Owned Subsidiary) and a Member (the "Conflicted
Member") or any of its Affiliates pursuant to any agreement (including
this Agreement, the Contribution Agreement, the Management Contract or any
other Related Agreements) or otherwise; provided, however, that, in the
case such a Conflict Circumstance arises in connection with an agreement
between the Company and an Affiliate of Member, such Conflict Circumstance
shall cease to exist if and when the third party with which the
transaction or dealing exists shall cease to be an Affiliate of a Member.
"Conflicted Member" is defined in the definition of "Conflict
Circumstance."
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that
is legally binding.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Act, but excluding cash or cash
equivalents, contributed or deemed contributed to the Company as a Capital
Contribution. Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 5.1(d) or Section 5.1(e), such property shall
no longer constitute a Contributed Property, but shall be deemed an
Adjusted Property.
"Contribution Agreement" means the Contribution, Conveyance,
Assignment and Assumption Agreement dated as of December 22, 2003, among
the Company and the Quest Members, pursuant to which the Quest Members
agreed to contribute the Quest Assets to the Company.
"Control" means the possession, directly or indirectly, through one
or more intermediaries, of any of the following:
(a) (i) in the case of a corporation, more than 50 percent of the
outstanding voting securities thereof; (ii) in the case of a limited
liability company, partnership, limited partnership or joint venture,
equity securities of such entity that entitle the owner/holder thereof to
the right to receive more than 50 percent of the distributions from such
entity; (iii) in the case of a trust or estate, including a business
trust, more than 50 percent of the beneficial interests therein; and (iv)
in the case of any other entity, equity securities or ownership interests
in such entity that entitle the owner/holder thereof to more than 50
percent of the economic or beneficial interests therein; or
(b) in the case of any entity, the possession of the power, acting
alone, to direct or cause the direction of the management and policies of
the entity by virtue of ownership of voting securities or otherwise.
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"Curative Allocation" means any allocation of an item of income,
gain, deduction, loss or credit pursuant to the provisions of Section
5.2(d)(ix).
"Defect" means any deficiency in one (or more) of the following
respects regarding any of the Quest Assets existing as of the Closing
Date, to-wit:
(a) any Quest Member's title as to one or more of the Quest Assets is
subject to an outstanding mortgage, deed of trust, lien or security
interest or other material burden or encumbrance, other than the Permitted
Encumbrances (as this term is defined in Senior Debt Documents existing as
of the Effective Date);
(b) any Quest Member owns, with respect to a Lease, less than the net
revenue interest shown on Schedule 1.01(bb) to the Class A Unit Purchase
Agreement or is obligated to bear a share of the costs of operation
greater than the working interest therefor shown on Schedule 1.01(bb) to
the Class A Unit Purchase Agreement without a corresponding increase in
net revenue interest; or the lessor's mineral interest in the lands
subject to the Lease is less than that specified in Schedule 1.01(bb) for
such Lease;
(c) any Quest Member's rights and interests in any of the Quest
Assets have been or are subject to being reduced by virtue of the exercise
by a third party of a reversionary or back-in interest, farm-out, or other
similar right not reflected on Schedule 1.01(bb) to the Class A Unit
Purchase Agreement or at a point different from that reflected in Schedule
1.01(bb) to the Class A Unit Purchase Agreement;
(d) any Quest Member is in default under some material provision of
an oil, gas or mineral lease, farmout agreement, or other contract or
agreement constituting or otherwise affecting any of the Quest Assets; and
(e) an Adverse Environmental Condition exists with respect to any of
the Quest Assets; and
(f) any of the Quest Assets contributed to the Company by a Quest
Member (or any of the Quest Assets which a Quest Member had otherwise
agreed to contribute the same to the Company under the Contribution
Agreement or the Class A Unit Purchase Agreement) is subject to any
Preferential Rights, which, (i) in the case of a consent to assign, has
not been obtained with respect to the contribution and assignment of the
Quest Assets as of the Closing Date, and (ii) in the case of other
Preferential Rights, either (x) has been exercised prior to the Closing
Date, or (y) has not been waived prior to the Closing Date, or (z) the
requisite period has not elapsed without said right having been exercised
on or prior to the Closing Date; and
(g) any of the Defects described in subparagraphs (a)-(f) above apply
with respect to any of the Quest Assets which are (or are to be)
contributed or otherwise assigned by (or for the benefit of) the Company
to its subsidiary, Bluestem.
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"Defect Notice Date" is defined in Section 5.9(a).
"Defect Property" means any of the Quest Assets (or portion thereof)
contributed (or to have been contributed) to the Company by the Quest
Members which either (i) is subject to a Defect, or (ii) under the terms
of Section 5.9, the Company or the Class A Member has the right to reject
or otherwise cause the re-assignment to such Quest Member of such
Contributed Property from the Company, or (iii) under the provisions this
Agreement, the Defect Value therefor is added to the Defect Property Loss
Amount.
"Defect Property Loss Amount" means the sum of the amounts of all
Defect Values of any Defects (insofar as they were not cured in accordance
with the provisions of Section 5.9 below).
"Defect Property Loss Distribution" is defined in Section 5.4(c).
"Defect Value" means, with respect to a Defect Property, the amount
attributable to the Defect relating thereto which is determined in
accordance with the Defect Value Guidelines (or other methods of valuation
deemed appropriate by the Board).
"Defect Value Guidelines" means with respect to each Defect, that the
Defect Value thereof shall be determined in accordance with the following
guidelines:
(a) if the Defect is one identified in the Class A Member's notice
that the Quest Member owns a lesser net revenue interest or a greater
working interest than that shown on Schedule 1.01(bb) to the Class A Unit
Purchase Agreement, or the net mineral acres subject to a Lease is less
than that shown on Schedule 1.01(bb) to the Class A Unit Purchase
Agreement, then the Defect Value shall be the amount by which the Agreed
Value for the contributed Quest Assets affected would be reduced if it
were reduced to reflect the proportionate reduction of the net revenue
interest or the net mineral acres, or the increase in working interest;
(b) in the event a third party exercises an applicable Preferential
Right to purchase, the subject Quest Assets shall be removed from
contribution (or will be re-conveyed by the Company), the Defect Value
shall be the Agreed Value of the affected Quest Asset;
(c) if the Defect is that a third party fails to give a necessary
consent or approval to assign any of the Quest Assets, in a form reasonably
acceptable to the Class A Member, and the subject Quest Assets cannot be
contributed (or must be re-conveyed, or, subject to the consent of the
holders of the Senior Debt, the Class A member has the right to require the
Company to re-convey the Quest Assets), then the Defect Value would be the
Agreed Value of the affected Quest Assets;
(d) if a Defect is a lien, encumbrance or other charge or claim upon
a Quest Assets which is liquidated in amount, then the Defect Value would
be sum
- 10 -
necessary to be paid to the obligee to remove the Defect from the
affected Quest Assets;
(e) if the Defect is an Adverse Environmental Condition, the Defect
Value would be all costs, expenses and Claims relating to the remediating
or otherwise pertaining to the clean-up of the affected Quest Assets and
the amount of any penalties, fines, or other monetary assessments
associated with or arising from such Adverse Environmental Condition;
provided, however, that to the extent that in accordance with the
provisions of Section 5.9 below the applicable Defect Property is
re-conveyed by the Company, then the Defect Value shall equal the Agreed
Value of the affected Defect Property.
"Delaware Certificate" is defined in the Recitals.
"Depletable Property" means the economic interests held by the
Company in oil and gas producing properties that are subject to the
allowance for depletion in accordance with section 611 of the Code.
"Dispute Resolution Procedures" is defined in Section 10.10.
-------------
"Dissolution Event" is defined in Section 9.1(a).
"Distribution Date" is defined in Section 5.4.
"Early Liquidation Event" means a Dissolution Event that occurs on or
before three years after the Closing Date.
"Economic Risk of Loss" is defined in Treas. Reg.ss.1.752-2(a).
"Effective Date" is defined in the introductory paragraph.
"Encumber," "Encumbering" or "Encumbrance" means the creation of a
security interest, lien, pledge, mortgage or other encumbrance, whether
such encumbrance be voluntary, involuntary or by operation of Law.
"Environmental Laws" means any Law, writ, decision or injunction
relating to the protection of the environment, natural resources or public
health and safety in effect on the Closing Date or thereafter enacted.
"Fair Market Value" means the fair market value of the Company or, as
the context may require, the Company Assets, determined as follows: either
(i) the fair market value determined by the Board, but if the Board is
unable to reach a unanimous agreement on the fair market value of the
Company within 45 days following the event giving rise to the need to
determine such Fair Market Value in accordance with the provisions of
Exhibit E, then (ii) the fair market value determined by an appraisal
conducted in the following manner: the Class A Members (collectively)
shall, in a written notice, designate one independent appraiser from the
list set forth herein as Exhibit D hereto, which Exhibit D may
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be amended from time to time by the unanimous vote of the Board. The
appraiser so appointed under subpart (ii) above shall, as soon as possible
but in no event longer than ninety (90) days of such designation, determine
the fair market value of the Company as of the date of the event giving
rise to the purchase hereunder and deliver its report to all of the
Members. If the fair market value is to be determined by such appraisal
method, then the Class B Members (collectively) shall have ten (10) days
following receipt of such report to elect to have a second appraisal
conducted by one of the remaining independent appraisers designated on
Exhibit D. If the Class B Members (collectively) exercise such right, the
second appraiser shall, within thirty (30) days of such designation,
determine the fair market value of the Company as of the date of the event
which gave rise to the purchase hereunder and deliver its report to the
Members. Any appraiser designated as provided herein shall, in making its
determination: consider whatever factors relating to the Company as its
deems necessary or advisable but shall not take into account any discount
for lack of marketability, minority interest or any other similar factors
affecting the Units of the Members. The fair market value of the Company
shall be the value determined by the appraiser, if only one shall be
designated, or shall be the average of both appraisals if a second
appraiser is designated. Each party designating an appraiser shall bear the
fees and expenses incurred by such appraiser in reaching its determination.
"Fiscal Year" is defined in Section 7.1(c).
"Formation Date" is defined in the Recitals.
"Gathering Agreement" means the Gathering Agreement between the
Company and Bluestem, to be entered into on or before the Closing Date.
"Governmental Authority" (or "Governmental") means a federal, state,
local or foreign governmental authority; a state, province, commonwealth,
territory or district thereof; a county or parish; a city, town, township,
village or other municipality; a district, xxxx or other subdivision of
any of the foregoing; any executive, legislative or other governing body
of any of the foregoing; any agency, authority, board, department, system,
service, office, commission, committee, council or other administrative
body of any of the foregoing; any court or other judicial body; and any
officer, official or other representative of any of the foregoing.
"Immediate Family Member" means with respect to an individual, such
individual's spouse, parent, sibling or child, or any trust created for the
benefit of such individual's spouse, parent, sibling or child.
"Indemnitee" is defined in Section 6.6(a).
"Inflation Index" means the Consumer Price Index for all Urban
Consumers published by the Bureau of Labor Statistics of the United States
- 12 -
Department of Labor, all items (1982-1984 = 100) or any successor index
established by the Bureau of Labor Statistics for that index.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Involuntary Transfer" is defined in Exhibit E.
"IRS" means the United States Internal Revenue Service.
"Law" means any applicable constitutional provision, statute, act,
code (including the Code), law, regulation, rule, ordinance, order,
decree, ruling, proclamation, resolution, judgment, decision, declaration,
or interpretative or advisory opinion or letter of a Governmental
Authority having valid jurisdiction.
"Lease" shall have the meaning attributed to such term in the Class A
Unit Purchase Agreement.
"Liquidation Date" means the date on which a Dissolution Event arises
pursuant to Section 9.1.
"Liquidator" means the Person or Persons designated to liquidate the
Company as provided in Section 9.2(a).
"Make Whole Payment" means a payment to the holder of the
Subordinated Note equal to the amount that, when added to all prior
payments under the Subordinated Note (including, without limitation,
payments made under the Subordinated Note immediately prior to making the
Make Whole Payment, itself) equals 150% of the original outstanding
principal balance of the Subordinated Note.
"Manager" is defined in Section 6.2(a).
"Management Agreement" means that certain Operating and Management
Agreement between the Company and Quest Energy Services, Inc. relating to
operations and management services to be provided by QES to the Company.
"Management Compensation" means the monthly fee and other amounts to
be paid by the Company to QES for services rendered and reimbursement of
certain costs and expenses under the Management Agreement.
"Member" means any Person executing this Agreement as of the date of
this Agreement and any Person hereafter admitted to the Company as a Member
as provided in this Agreement, but such term does not include any Person
who has ceased to be a Member of the Company.
"Member Interest" means the ownership interest of a Member in the
Company, and includes any and all benefits to which such Member is entitled
as
- 13 -
provided in this Agreement, together with all obligations of such Member to
comply with the terms and provisions of this Agreement.
"Member Nonrecourse Debt" is defined in Treas. Reg. ss.1.704-2(b)(4)
(after substituting the term "member" for "partner").
"Member Nonrecourse Debt Minimum Gain" is defined in Treas.
Reg.ss.1.704-2(i)(2) (after substituting the term "member" for "partner").
"Member Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treas. Reg.ss.1.704-2(i), are attributable to Member
Nonrecourse Debt.
"Member Vote" means the approval by those Class A Members who, in the
aggregate, have a Class A Unit Sharing Ratio in excess of 50%, together
with the approval of those Class B Members who, in the aggregate, have a
Class B Unit Sharing Ratio in excess of 50%.
"Merger" means the merger of the Company with or into any other
Person that results in a Change of Control of the Company.
"Minimum Gain" means that amount determined in accordance with the
principles of Treas. Reg.ss.1.704-2(d).
"Net Agreed Value" means (a) in the case of the Quest Assets, unless
otherwise agreed to by a unanimous vote of the Board, the net agreed value
of the Quest Assets contributed to the Company under the Contribution
Agreement, (b) in the case of any other Contributed Property, the Agreed
Value of such property reduced by any liabilities either assumed by the
Company upon such contribution or to which such property is subject when
contributed as set forth on Exhibit A, and (c) in the case of any property
distributed to a Member by the Company, the Company's Carrying Value of
such property (as adjusted pursuant to Section 5.1(e)) at the time such
property is distributed, reduced by any indebtedness either assumed by
such Member upon such distribution or to which such property is subject at
the time of distribution, in either case, as determined under section 752
of the Code.
"Net Cash Flow" means, as of any Distribution Date, all revenues
(including revenues from the sale of hydrocarbons and fees collected from
third parties for use of the Company's infrastructure) and other cash
proceeds received by the Company from any source LESS:
(a) royalty and other third party lease burdens;
(b) production taxes and levies;
- 14 -
(c) lease operating expenses;
(d) capital expenditures;
(e) debt service obligations to lenders other than the holder of the
Subordinated Note;
(f) any reserve funding requirements of the lenders to the Company or
as otherwise determined by the Board;
(g) reasonable working capital reserves as determined by the Board;
and
(h) any accrued Management Compensation under the Management
Agreement.
Notwithstanding the foregoing, "Net Cash Flow" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"Net Income" means, for any Tax Period, the excess, if any, of the
Company's items of income and gain for such Tax Period over the Company's
items of loss and deduction for such Tax Period. The items included in the
calculation of Net Income shall be determined in accordance with Section
5.1(b) and shall not include any items allocated under Section 5.2(a) or
Section 5.2(b).
"Net Loss" means, for any Tax Period, the excess, if any, of the
Company's items of loss and deduction for such Tax Period over the
Company's items of income and gain for such Tax Period. The items included
in the calculation of Net Loss shall be determined in accordance with
Section 5.1(b) and shall not include any items allocated under Section
5.2(a) or Section 5.2(b).
"Non-Competition Agreement" means the Non-Competition Agreement
(substantially in the form attached hereto as Exhibit F) to be entered
into by each of the Members and certain of their Affiliates pursuant to
which the parties will agree not to compete with the Company in the
Cherokee Basin and to pursue and conduct all opportunities in the Cherokee
Basin only through the Company.
"Nonconflicted Member" means (i) any Class A Member, to the extent
that either (1) any of the Class B Members or QRC are or are deemed to be
in a Conflict Circumstance, (2) any of the Class B Members are (or are
deemed to be) a Conflicted Member, or (3) to the extent there is a Change
of Control of or Involuntary Transfer by QRC or any Class B Member, and
(ii) the Class B Members, to the extent that either (1) any Class A Member
is (or is deemed to be) a Conflicted Member with respect to a Conflict
Circumstance, or (2) there is a Change of Control or Involuntary Transfer
by the Class A Member insofar as any such Change of Control of or
Involuntary Transfer by the Class A Member occurs prior to the third
anniversary of the Effective Date.
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"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Members pursuant to Section 5.3(e)(i)(B),
Section 5.3(e)(ii)(B) and Section 5.3(e)(iii) if such properties were
disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction
or expenditures (described in section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treas. Reg. ss.1.704-2(b), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" is defined in Treas. Reg. ss.1.752-1(a)(2).
"Officers" is defined in Section 6.4(a).
"Original Agreement" is defined in Recitals.
"Other Members" means, with respect to the Class A Member, the Class B
Members and with respect to the Class B Members, the Class A Member.
"Parent" means, with respect to a Person, that Affiliate of such
Person that Controls such Person and is not Controlled by any other
Person.
"Person" means the meaning assigned to that term in section
18-101(12) of the Act and also includes a Governmental Authority and any
other entity.
"Preferential Rights" shall mean any preferential purchase rights,
rights of first refusal, consents to assign, lessor's approvals, or
similar rights.
"Quarter" means, unless the context requires otherwise, a fiscal
quarter.
"Quest Assets" shall have the meaning attributed to such term in the
Class A Unit Purchase Agreement.
"Quest Excess Tax Distribution" shall be determined as of the date of
each distribution under Section 5.4(a) or Section 5.4(b), as the case may
be, occurring closest to the date that QRC makes a quarterly payment of
estimated federal and state income tax (the "Quest Quarterly Tax Payment")
and will be equal to the difference (but not less than zero) between (i)
the sum of the amount of the current Quest Quarterly Tax Payment and the
amount of all Quest Quarterly Tax Payments previously made during the
current Fiscal Year and (ii) the sum of the aggregate amount that the Class
B Members would be distributed pursuant to Section 5.4(a)(iii) or Section
5.4(b)(iii), as the case may be, on such date of distribution if the amount
of the distribution pursuant to Section 5.4(a)(i) or Section 5.4(b)(i), as
the case may be, on such date was zero and the amount of all such
distributions previously made during the current Fiscal Year to the Class B
Members; provided, that in no event will the sum of (I) the Quest Excess
Tax
- 16 -
Distribution as of any date and (II) the aggregate amount that the Class B
Members would be distributed pursuant to Section 5.4(a)(iii) or Section
5.4(b)(iii), as the case may be, exceed 50 percent of the total Net Cash
Flow distributable on such date; and provided further that at such time as
the Subordinated Note has been paid in full and the Class A Member IRR is
30 percent, the Quest Excess Tax Distribution will thereafter be zero.
"Quest Members" or "Quest Member" is defined in the introductory
paragraph.
"QRC" means Quest Resource Corporation, a Nevada corporation.
"Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by section 734 or 743 of the
Code) upon the disposition of any property or asset of the Company, which
gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or
asset.
"Record Holder" means the Person in whose name a Unit is registered
on the books of the Company as of the date of determination.
"Related Agreements" means the Contribution Agreement, the Class A
Unit Purchase Agreement, the Management Agreement, the Subordinated Note
Agreement, Non-Competition Agreement, Gathering Agreement and any other
agreement contemplated by the foregoing agreements to which the Company
and a Member or any Affiliate of a Member are parties, as all of such
agreements may be amended from time to time after the Closing Date.
"Required Allocation" means any allocation (or limitation imposed on
an allocation) of an item of income, gain, deduction or loss pursuant to
Sections 5.2(a), 5.2(d)(i), 5.2(d)(ii), 5.2(d)(iii), 5.2(d)(vi) and
5.2(d)(viii).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Company recognized for federal income tax purposes
resulting from a sale, exchange, or other disposition of a Contributed
Property or Adjusted Property, to the extent such item of gain or loss is
not allocated pursuant to Section 5.3(e)(i)(B) or Section 5.3(e)(ii)(B) to
eliminate Book-Tax Disparities.
"Senior Debt" shall mean all principal, interest (including, without
limitation, interest accruing after the filing or commencement of any
insolvency or bankruptcy proceeding, whether or not an allowed claim in
such proceeding), fees, expenses, indemnities and other charges, now
existing or hereafter arising under or with respect to the Senior Debt
Documents.
"Senior Debt Documents" shall mean any credit agreement, note,
indenture, lease or other agreements, mortgages or instruments by which the
Company has received financing that, either by its terms or pursuant to an
agreement with the holder of the Subordinated Note, is senior in right of
payment
- 17 -
to the Subordinated Debt, as any of the foregoing may be amended, restated
or supplemented from time to time.
"Sharing Ratios" means (i) 30 percent to the Class A Members in
proportion to their respective Class A Unit Sharing Ratios and (ii) 70
percent to the Class B Members in proportion to their respective Class B
Unit Sharing Ratios.
"Simulated Basis" means the Carrying Value of any Depletable
Property.
"Simulated Depletion" means a depletion allowance computed (in
accordance with federal income tax principles) for each taxable year with
respect to each Depletable Property using the cost (not percentage) method
of depletion under Treas. Reg. ss.1.704-1(b)(2)(iv)(k)(2). For purposes of
computing Simulated Depletion with respect to any property, the Carrying
Value of such property shall be deemed to be the Simulated Basis in such
property and in no event shall such allowance, in the aggregate, exceed
such Simulated Basis. Solely for purposes of this calculation, remaining
reserves shall be as determined consistently by the TMM as approved by the
Board.
"Simulated Gain" attributable to a Depletable Property means, upon
the sale or other taxable disposition of a Depletable Property by the
Company, the excess, if any, of the amount realized from the disposition
over the Simulated Basis of such property, as theretofore adjusted. For
these purposes, Simulated Gains shall be computed in accordance with
Treas. Reg. ss.1.704-1(b)(2)(iv)(k)(2) applying cost (not percentage)
depletion.
"Simulated Loss" attributable to a Depletable Property means, upon
the sale or other taxable disposition of a Depletable Property by the
Company, the excess, if any, of the Simulated Basis of such property, as
theretofore adjusted, over the amount realized from the sale or
disposition. For these purposes, Simulated Losses shall be computed in
accordance with Treas. Reg. ss.1.704-1(b)(2)(iv)(k)(2) applying cost (not
percentage) depletion.
"Specified Price" means, for purposes of Exhibit E and with respect
to a particular Member, the amount equal to the hypothetical aggregate
distributions such Member would receive if all Company Assets were sold
for cash equal to their Fair Market Value, all Company liabilities were
satisfied to the extent required by their terms (limited with respect to
any Nonrecourse Liability or Member Nonrecourse Debt, to the Fair Market
Value of the assets securing each such liability), and all remaining cash
and other assets were distributed in full to the Members pursuant to the
provisions of Section 5.4.
"Specified Price Per Class A Unit" means the aggregate Specified Price
for all Class A Members divided by the total number of Class A Units that
are issued and outstanding (on a fully diluted basis) as of the date of
determination.
- 18 -
"Specified Price Per Class B Unit" means the aggregate Specified
Price for all Class B Members divided by the total number of Class B Units
that are issued and outstanding (on a fully diluted basis) as of the date
of determination.
"Specified Price Per Unit" means, with respect to any Class A Units
or the Class B Units to be sold under Sections 1.4 or 1.5 of Exhibit E,
the Specified Price Per Class A Units (with respect to Class A Units) or
the Specified Price Per Class B Unit (with respect to Class B Units), as
the case may be.
"Subordinated Debt" shall mean all principal, interest (including,
without limitation, interest accruing after the filing or commencement of
any insolvency or bankruptcy proceeding, whether or not an allowed claim
in such proceeding), fees, expenses, indemnities and other charges, now
existing or hereafter arising under or with respect to the Subordinated
Note.
"Subordinated Note" (whether one or more) means the 15 percent notes
issued by the Company pursuant to the terms of the Subordinated Note
Agreement.
"Subordinated Note Agreement" means the Note Purchase Agreement dated
as of December 22, 2003, as amended, restated or supplemented from time to
time.
"Subsidiary" means, as to any Person, (a) any corporation more than
50 percent of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
Person and/or one or more Subsidiaries of such Person and (b) any limited
liability company, partnership, limited partnership, joint venture,
unincorporated association or other entity in which such Person and/or one
or more Subsidiaries of such Person has more than a 50 percent equity
interest at the time or has the power or authority, through ownership of
voting securities, by contract or otherwise, to exercise Control over the
business affairs of the entity.
"Target Capital Account" means, with respect to any Member, an amount
equal to the hypothetical distributions such Member would receive if all
Company Assets not sold as provided in Section 9.2(a) were sold for cash
equal to their Fair Market Value, all Company liabilities were satisfied to
the extent required by their terms (limited, with respect to any
Nonrecourse Liability or Member Nonrecourse Debt, to the Fair Market Value
of the assets securing each such liability) and the remaining assets were
distributed in full to the Members pursuant to Section 5.4 without regard
to Section 5.4(a)(i) or Section 5.4(b)(i).
"Tax Distribution Balance" means, as of any date of determination, the
difference between (i) the total aggregate distributions made to the Class
B
- 19 -
Members pursuant to Section 5.4(a)(i) and Section 5.4(b)(i) and (ii) the
total aggregate payments or distributions made pursuant to Section
5.4(a)(ii) and Section 5.4(b)(ii).
"Tax Matters Member" or "TMM" is defined in Section 7.3.
"Tax Period" means the taxable year (or any other relevant taxable
period) of the Company for federal income tax purposes.
"Term" is defined in Section 2.6.
-----------
"Third Party" means any Person other than a Member or any of its
Wholly-Owned Subsidiaries.
"Transfer" means a sale, assignment, conveyance, gift, exchange,
disposition, pledge, hypothecation or other transfer, whether voluntary or
involuntary, by operation of law or otherwise.
"Transfer Restrictions" means the restrictions and other provisions
relating to the Transfer of Units set forth on Exhibit E attached hereto
and set forth in any other provisions in this Agreement.
"Treasury Regulations" or "Treas. Reg." means the Income Tax
Regulations promulgated under the Code.
"Unit" means a Member Interest of a Member in the Company
representing a fractional part of the Member Interests of all Members and
shall consist of Class A Units and Class B Units.
"Unrealized Gain" attributable to any Company Asset means, as of any
date of determination, the excess, if any, of (a) the fair market value of
such property as of such date (as determined under Section 5.1(d) or
Section 5.1(e)), over (b) the Carrying Value of such property as of such
date (prior to any adjustment to be made pursuant to Section 5.1(d) or
Section 5.1(e) as of such date).
"Unrealized Loss" attributable to any Company Asset means, as of any
date of determination, the excess, if any, of (a) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant
to Section 5.1(d) or Section 5.1(e) as of such date) over (b) the fair
market value of such property as of such date (as determined under Section
5.1(d) or Section 5.1(e)).
"U.S. GAAP" means generally accepted accounting principles as in
effect in the United States of America on the applicable date.
"Wholly-Owned Subsidiary" means an entity in which the Person in
question owns or controls 80% or more of the voting securities of such
entity.
- 20 -
Other terms defined herein have the meanings so given them.
1.2 Construction. Unless the context requires otherwise: (a) the gender (or
lack of gender) of all words used in this Agreement includes the masculine,
feminine, and neuter; (b) the term "include" or "includes" means "includes,
without limitation," and "including" means "including, without limitation"; (c)
references to Articles and Sections refer to Articles and Sections of this
Agreement; (d) references to Exhibits refer to the Exhibits attached to this
Agreement, which are made a part hereof for all purposes; (e) references to Laws
refer to such Laws as they may be amended from time to time, and references to
particular provisions of a Law include any corresponding provisions of any
succeeding Law; and (f) references to money refer to legal currency of the
United States of America.
ARTICLE 2
ORGANIZATION
2.1 Formation; Continuation; Amendment and Restatement. The Members ratify
the organization and formation of the Company and continue the Company, pursuant
to the terms and conditions of this Agreement. This Agreement amends and
restates in its entirety and supersedes the Original Agreement, which shall have
no further force or effect from and after the Effective Date. The rights and
liabilities of the Members shall be as provided in the Act, except as may be
expressly provided otherwise in this Agreement.
2.2 Name. The name of the Company shall continue to be "Quest Cherokee,
LLC," and all Company business must be conducted in that name or such other
names that comply with Law as the Board selects.
2.3 Registered Office; Registered Agent; Principal Office; Other Offices.
The registered office of the Company required by the Act to be maintained in the
State of Delaware shall be the office of the initial registered agent named in
the Delaware Certificate or such other office (which need not be a place of
business of the Company) as the Board may designate in the manner provided by
Law. The registered agent of the Company in the State of Delaware shall be the
initial registered agent named in the Delaware Certificate or such other Person
or Persons as the Board may designate in the manner provided by Law. The
principal office of the Company in the United States shall be at 0000 X.
Xxxxxxx, Xxxxx 000, Xxxxxxxx Xxxx, Xxxxxxxx, or at such place as the Board may
designate, which may but need not be in the State of Delaware, and the Company
shall maintain records there or at such other place as the Board shall designate
and shall keep the street address of such principal office at the registered
office of the Company in the State of Delaware. The Company may have such other
offices as the Board designates.
2.4 Purposes. The purposes of the Company are (a) to own, hold, sell and
otherwise deal with all Company Assets and all liabilities related or
attributable thereto, all pursuant to and in accordance with the provisions of
this Agreement, (b) to engage directly in, or entering into or forming any
corporation, partnership, joint venture, limited liability company or other
arrangement to engage directly in, any business activity that the Company is
permitted to engage in by this Agreement and, in connection therewith,
exercising all of the rights and powers
- 21 -
conferred upon the Company pursuant to the agreements relating to such business
activity, (c) engaging directly in, or entering into or forming any corporation,
partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by the Board
pursuant to the provisions of Article 6 and which lawfully may be conducted by a
limited liability company pursuant to the Act and, in connection therewith,
exercising all of the rights and powers conferred upon the Company pursuant to
the agreements relating to such business activity, and (d) engaging in
activities incidental or reasonably related to, resulting from, or otherwise
necessary or convenient to facilitate, the activities referred to in the
foregoing clauses (a) through (c); provided, that all of such activities shall
be undertaken only in the Cherokee Basin unless the Board shall determine
otherwise.
2.5 Foreign Qualification. Prior to the Company's conducting business in
any jurisdiction other than the State of Delaware, the Board shall cause the
Company to comply, to the extent procedures are available and those matters are
reasonably within the control of the Board, with all requirements necessary to
qualify the Company as a foreign limited liability company in that jurisdiction.
At the request of the Board, each Member shall execute, acknowledge, swear to
and deliver all certificates and other instruments conforming with this
Agreement that are necessary or appropriate to qualify, continue and terminate
the Company as a foreign limited liability company in all such jurisdictions in
which the Company may conduct business.
2.6 Term. The period of existence of the Company (the "Term") commenced
on the Formation Date and shall end at such time as a certificate of
cancellation is filed with the Secretary of State of the State of Delaware in
accordance with Section 9.3. Notwithstanding the foregoing, the term of the
Company shall not end prior to December 31, 2010, unless unanimously agreed to
by the Members.
2.7 Powers. The Company is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Company.
2.8 Bluestem Contributions. The Company has formed, and owns all of the
membership interests of, Bluestem. Initially, Bluestem will acquire, hold,
operate and dispose of certain gathering systems, gathering pipelines, related
rights of way and easements, and related contracts and interests (collectively,
"Gathering Assets), subject to the other provisions of this Agreement. The
Members agree that any Gathering Assets which are either (i) part of the Quest
Assets, or (ii) part of the assets acquired (or to be acquired) by Company
pursuant to that Purchase and Sale Agreement dated as of December 10, 2003
between Devon Energy Production Company, L.P. and Tall Grass Gas Services,
L.L.C., as sellers, and QRC, as buyer ("Devon PSA") (QRC has assigned its
interest in the Devon PSA to the Company), shall be contributed and assigned by
the Company to Bluestem. On or before the Closing Date, Company shall cause
Bluestem to enter into the Gathering Agreement, where Bluestem will agree to
provide gathering services with respect to oil and gas properties constituting
the Company Assets.
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ARTICLE 3
AUTHORIZED UNITS; RIGHTS OF MEMBERS
3.1 Authorized Number of Units.
(a) The aggregate number of Units that the Company is authorized to issue
is the total number of Units consisting of the following classes:
(i) the Company shall be authorized to issue 10,000 Class A Units of
Member Interest ("Class A Units"), and
(ii) the Company shall be authorized to issue 10,000 Class B Units of
Member Interest ("Class B Units").
(b) The rights of the holders of the Class A Units and the Class B Units
shall be as expressly provided in this Agreement.
3.2 Personal Property. A Member's Units shall be personal property for all
purposes.
3.3 Certificates. Upon the Company's issuance of Units to any Person as of
or after the date of this Agreement, the Company shall issue one or more
Certificates in the name of such Person evidencing the number of such Units
being so issued. Certificates shall be executed on behalf of the Company by the
President and Chief Executive Officer or any Vice President and the Secretary or
any Assistant Secretary of the Company.
The Company hereby irrevocably elects that all interests in the Company
shall be securities governed by Article 8 of the Uniform Commercial Code and
shall be evidenced by certificates. Each certificate shall bear the following
legend: "This certificate evidences a membership interest in the Company and
shall be a security for purposes of Article 8 of the Uniform Commercial Code as
in effect in the State of Delaware." The certificated interests shall be in
registered form within the meaning of Article 8 of the Uniform Commercial Code.
The purpose and intent of this Section 3.3, and the certificates of units
evidencing Membership Interests, shall be to evidence Membership Interests that
are governed by Article 8 of the Uniform Commercial Code but shall not be to
affect, impair, expand, alter, or diminish the distributions or allocations set
forth in this Agreement or any other provision contained in this Agreement that
relates to income, profits, losses, voting or the rights and obligations of the
Members or the Company under this Agreement. Each certificate shall also bear
such other legends as required in this Agreement or in Exhibit E attached
hereto.
3.4 Mutilated, Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the Company, the
appropriate officers of the Company shall execute and deliver, in exchange
therefor, a new Certificate evidencing the same number and type of Units as the
Certificate so surrendered.
(b) The appropriate officers of the Company shall execute and deliver a new
Certificate in place of any Certificate previously issued if the Record Holder
of the Certificate:
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(i) makes proof by affidavit, in form and substance satisfactory to
the Company, that a previously issued Certificate has been lost, destroyed
or stolen;
(ii) requests the issuance of a new Certificate before the Company has
notice that the Certificate has been acquired by a purchaser for value in
good faith and without notice of an adverse claim;
(iii) if requested by the Company, delivers to the Company a bond, in
form and substance satisfactory to the Company, with surety or sureties and
with fixed or open penalty as the Company may reasonably direct, in its
sole discretion, to indemnify the Company against any claim that may be
made on account of the alleged loss, destruction or theft of the
Certificate; and
(iv) satisfies any other reasonable requirements imposed by the Board.
If a Member fails to notify the Company within a reasonable time after it
has notice of the loss, destruction or theft of a Certificate, and a transfer of
the Member Interests represented by the Certificate is registered before the
Company receives such notification, the Member shall be precluded from making
any claim against the Company for such transfer or for a new Certificate.
(c) As a condition to the issuance of any new Certificate under this
Section 3.4, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses reasonably connected therewith.
3.5 Record Holders. The Company shall be entitled to recognize the Record
Holder as the Member with respect to any Member Interest and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
Member Interest on the part of any other Person, regardless of whether the
Company shall have actual or other notice thereof, except as otherwise provided
by Applicable Law.
3.6 Liability of Members to Third Parties; Relationship between Members.
No Member shall be liable for the debts, obligations or liabilities of the
Company solely by virtue of its status as a Member of the Company. Except as may
be expressly provided in another separate, written guaranty or other agreement
executed by a Member, no Member shall be liable for the debts, obligations or
liabilities of the Company, including under a judgment, decree or order of a
court. Except as otherwise provided in this Agreement, no Member has the
authority or power to act for or on behalf of or bind the Company or to incur
any expenditures on behalf of the Company. This Agreement shall not be deemed
for any purpose to create a general partnership, limited partnership, joint
venture or any other similar relationship among the Members, and the Members
intend that no Member be a partner of any other Member for any purposes other
than federal and state tax purposes. Each Member, to the fullest extent
permitted by Applicable Law, expressly waives any fiduciary duty that any other
Member may owe to such Member under Applicable Law or otherwise.
3.7 Access to Information. The Company shall be required to provide any
information that a Member may reasonably request concerning the Company;
provided,
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however, that this Section 3.7 shall not obligate (a) the Company or any Member
to create any information that does not already exist at the time of such
request (other than to convert existing information from one medium to another,
such as providing a printout of information that is stored in a computer
database) or (b) any Member to disclose (i) its tax or accounting practices
relating to its ownership or transfer of its Units or (ii) its business
activities other than activities undertaken pursuant to this Agreement, the
Contribution Agreement, the Class A Unit Purchase Agreement, or other than as
may be necessary to disclose in order to confirm or enforce the provisions of
the Non-Competition Agreement. Each Member shall also have the right, upon
reasonable notice, and at all reasonable times during usual business hours to
inspect the assets of the Company and to audit, examine and make copies of the
books of account and other records of the Company. Such right may be exercised
through any agent or employee of such Member designated in writing by it or by
an independent public accountant, attorney or other consultant so designated.
The Member making the request shall bear all costs and expenses incurred in any
inspection, examination or audit made on such Member's behalf.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions.
(a) On the Closing Date, CPL has contributed to the Company, as a Capital
Contribution, subject to and in accordance with the terms and provisions of the
Class A Unit Purchase Agreement, cash in the amount set forth in the Class A
Unit Purchase Agreement in exchange for all the number of Class A Units set
forth opposite its name on Exhibit A attached hereto, such Class A Units to be
subject to all of the terms, provisions and conditions of this Agreement.
(b) The Quest Members have, on or prior to the Closing Date, contributed
to the Company, as a Capital Contribution, subject to and in accordance with the
terms and provisions of the Contribution Agreement and the Class A Unit Purchase
Agreement, all of the assets described in the Contribution Agreement and the
Class A Unit Purchase Agreement in exchange for membership interests in the
Company. Effective as of the Closing Date, all such membership interests have
been converted into the number of Class B Units set forth opposite each Quest
Member's name on Exhibit A attached hereto, such Class B Units to be subject to
all of the terms, provisions and conditions of this Agreement.
(c) Except as otherwise required by this Agreement or in the Act, the
Capital Contributions referred to in Section 4.1(a) and Section 4.1(b) shall
constitute the full obligation of the respective Members to furnish funds or
property to the Company, and no additional funds or other property shall be
required of any Member. No Member shall have the right to make any additional
Capital Contributions.
(d) All Member Interests issued to the Members pursuant to, and in
accordance with the requirements of, this Article 4 shall be fully paid and
non-assessable Member Interests, except as such non-assessability may be
affected by section 18-607 of the Act.
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4.2 No Interest or Withdrawal. No interest shall be paid by the Company
on Capital Contributions or on balances in Capital Accounts. No Member shall be
entitled to withdraw any part of its Capital Contribution or its Capital Account
or to receive any distributions from the Company, except as expressly provided
in this Agreement. A Member shall not be required to contribute any cash or
property to the Company to enable the Company to return any Member's Capital
Contribution.
4.3 Title to Company Assets. Title to Company Assets, whether real,
personal or mixed and whether tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Manager or Member, individually or
collectively, shall have any ownership interest in such Company Assets or any
portion thereof.
4.4 Creditors of the Company. Except for the holder of the Subordinated
Note, no creditor of the Company will have or shall acquire at any time any
direct or indirect interest in the profits, capital or property of the Company
other than the security interest of a secured creditor as a result of making a
loan to the Company or the security interests granted to the Class A Member in
accordance with the terms of the Class A Unit Purchase Agreement (or any
security agreement or pledge agreement executed in connection therewith), and
the Company and/or Member(s) executing and delivering security documents to
evidence such security interest.
ARTICLE 5
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS
5.1 Capital Accounts.
(a) The Company shall establish and maintain for each Member a separate
Capital Account in accordance with the rules of Treas. Reg. ss.1.704-1(b)
(2)(iv). Such Capital Account shall be increased by (i) the cash amount or Net
Agreed Value of all Capital Contributions made or deemed made to the Company by
that Member pursuant to this Agreement, and (ii) all items of Company income and
gain (including income and gain exempt from tax) computed in accordance with
Section 5.1(b) and allocated to that Member pursuant to Section 5.2, and
decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed
distributions of cash or property made to that Member pursuant to this Agreement
and (y) all items of Company deduction and loss computed in accordance with
Section 5.1(b) and allocated to that Member pursuant to Section 5.2. The Net
Agreed Value of the Capital Contributions made by each Member on the respective
dates of such Capital Contributions pursuant to Section 4.1 shall be set forth
on Exhibit A; provided, however, that in the event that any property contributed
by a Quest Member becomes a Defect Property, as provided in Section 5.9 below,
and the Company is not indemnified in whole or in part for such Defect Value,
then the Net Agreed Value of such Defect Property shall be reduced by the amount
of the Defect Value for which the Company was not indemnified.
(b) For purposes of computing the amount of any item of income, gain, loss,
or deduction to be reflected in the Members' Capital Accounts, the
determination, recognition, and
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classification of any such item shall be the same as its determination,
recognition, and classification for federal income tax purposes (including any
method or methods of depreciation, cost recovery, or amortization used for that
purpose), provided that:
(i) Except as otherwise provided in Treas. Reg.ss.1.704-1(b)
(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under section 754 of
the Code which may be made by the Company and, as to those items described
in section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the
fact that such items are not includable in gross income or are neither
currently deductible nor capitalized for federal income tax purposes. To
the extent an adjustment to the adjusted tax basis of any Company Asset
pursuant to section 734(b) or 743(b) of the Code is required, pursuant to
Treas. Reg. ss.1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment in the Capital
Accounts shall be treated as an item of gain or loss.
(ii) Any income, gain, or loss attributable to the taxable disposition
of any Company Assets other than a Depletable Property shall be determined
as if the adjusted basis of such property as of such date of disposition
was equal in amount to the Company's Carrying Value with respect to such
property as of such date.
(iii) In accordance with the requirements of section 704(b) of the
Code, any deductions for depreciation, cost recovery, or amortization
attributable to any Contributed Property shall be determined as if the
adjusted basis of such property on the date it was acquired by the Company
was equal to the Agreed Value of such property. Upon an adjustment pursuant
to Section 5.1(d) or Section 5.1(e) to the Carrying Value of any Company
Asset subject to depreciation, cost recovery, or amortization, any further
deductions for such depreciation, cost recovery, or amortization
attributable to such property shall be determined (x) as if the adjusted
basis of such property was initially equal to the Carrying Value of such
property immediately following such adjustment, and (y) using a rate of
depreciation, cost recovery, or amortization derived from the same method
and useful life (or, if applicable, the remaining useful life) as is
applied for federal income tax purposes; provided that, if the asset has a
zero adjusted basis for federal income tax purposes, depreciation, cost
recovery, or amortization deductions shall be determined using any
reasonable method that the Board may adopt.
(iv) Simulated Depletion with respect to each Depletable Property
shall be allocated among the Members, and shall reduce each Member's
Capital Account, in the same proportion that such Members (or their
predecessors in interest) were allocated the adjusted tax basis of such
property as provided in Section 5.3(b).
(v) Any Simulated Gain shall be allocated to the Members and shall
increase their Capital Accounts in the same manner as the amount realized
in excess of Simulated Basis from such disposition is allocated to the
Members under Section 5.3(d). Any Simulated Loss shall be allocated to the
Members and shall reduce their Capital Accounts in the same proportion that
such Members (or their predecessors-in-interest) were allocated the
adjusted tax basis of such property as provided in Section 5.3(b).
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(c) An assignee of a Member Interest, upon admission as a Member, shall
succeed to a pro rata portion of the Capital Account of the transferring Member
relating to the Member Interest so transferred.
(d) Consistent with the provisions of Treas. Reg. ss.1.704-1(b)(2)(iv)(f),
on an issuance of additional Member Interests for cash or Contributed Property
other than pursuant to Section 4.1, the Capital Accounts of the Members and the
Carrying Value of all Company Assets immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company Assets, as if such Unrealized Gain or Unrealized
Loss had been recognized on a sale of such properties immediately prior to such
contribution for an amount equal to its fair market value. Any Unrealized Gain
or Unrealized Loss attributable to such property shall be allocated in the
manner set forth in Section 5.2. In determining such Unrealized Gain or
Unrealized Loss, the aggregate cash amount and fair market value of all Company
Assets (including cash or cash equivalents) immediately prior to the issuance of
additional Member Interests shall be determined by the Board using such
reasonable method of valuation as it may adopt.
(e) In accordance with Treas. Reg. ss.1.704-1(b)(2)(iv)(f), immediately
prior to any actual or deemed distribution to a Member of any Company Asset
(other than a distribution of cash that is not in redemption or retirement of a
Member Interest), the Capital Accounts of all Members and the Carrying Value of
all Company Assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Company Assets, as if
such Unrealized Gain or Unrealized Loss had been recognized on a sale of such
properties immediately prior to such distribution for an amount equal to its
fair market value. Any Unrealized Gain or Unrealized Loss attributable to such
property shall be allocated in the same manner as set forth in Section 5.2. In
determining such Unrealized Gain or Unrealized Loss the aggregate cash amount
and fair market value of all Company Assets (including cash or cash equivalents)
immediately prior to a distribution shall be determined and allocated among the
assets by the Board using such reasonable method of valuation as it may adopt.
5.2 Allocations for Capital Account Purposes. For purposes of maintaining
the Capital Accounts and in determining the rights of the Members among
themselves, Net Income or Net Loss, and all other items of Company income, gain,
loss, and deduction ("book" items), for any Tax Period shall be allocated among
the Members as follows:
(a) General. Except as provided in Section 5.2(b), Section 5.2(c) or
Section 5.2(d), (i) Net Income or Net Loss with respect to a Tax Period shall be
allocated 30 percent to the Class A Member and 70 percent to the Class B
Members, in proportion to their respective Class B Sharing Ratios; provided,
however, that Net Loss shall not be allocated to a Member if such allocation
would cause a Member to have or increase a deficit balance in its Adjusted
Capital Account at a time when any other Member has a positive balance in its
Adjusted Capital Account. Such Net Losses shall instead be allocated to each
Member with a positive balance in its Adjusted Capital Account in proportion to
such balances.
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(b) Allocations of Income with Respect to a Defect Property Loss.
(i) Notwithstanding the foregoing, in the event that the Class A
Member receives during any Fiscal Year one or more Defect Property Loss
Distributions pursuant to Section 5.4(c), the Class A Member will be
allocated an amount of income for such Fiscal Year equal to the total
Defect Property Loss Distributions received by the Class A Member pursuant
to Section 5.4(c) for such Fiscal Year.
(ii) In the event that the Company is required to pay the Class A
Member or any of its Affiliates for an indemnified loss under any of the
Related Agreements, such loss will be deemed made as a payment made to the
Class A Member other than in its capacity as a Member and the deduction for
such payment will be specially allocated to and borne by the Quest Member
to which such loss relates.
(c) Allocations Following a Dissolution Event. Following a Dissolution
Event, all items of income, gain, loss and deduction shall be allocated among
the Members so as to cause the Capital Account of each Member to be equal to its
Target Capital Account.
(d) Special Allocations. Notwithstanding any other provision of this
Section 5.2, the following special allocations shall be made for such Tax
Period:
(i) Minimum Gain Chargeback. Notwithstanding any other provision of
this Section 5.2, if there is a net decrease in Minimum Gain during any Tax
Period, each Member shall be allocated items of Company income and gain for
such Tax Period (and, if necessary, subsequent Tax Periods) in the manner
and amounts provided in Treas. Reg. ss.ss.1.704-2(f)(6), 1.704-2(g)(2) and
1.704-2(j)(2)(i), or any successor provision. For purposes of this Section
5.2(d)(i), each Member's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 5.2(d)(i) with respect to such Tax Period (other than an
allocation pursuant to Section 5.2(d)(v) and Section 5.2(d)(vi)). This
Section 5.2(d)(i) is intended to comply with the Minimum Gain Chargeback
requirement in Treas. Reg.ss.1.704-2(f) and shall be interpreted
consistently therewith.
(ii) Chargeback of Member Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 5.2 (other than
Section 5.2(d)(i)), except as provided in Treas. Reg. ss.1.704-2(i)(4), if
there is a net decrease in Member Nonrecourse Debt Minimum Gain during any
Tax Period, any Member with a share of Member Nonrecourse Debt Minimum Gain
at the beginning of such Tax Period shall be allocated items of Company
income and gain for such period (and, if necessary, subsequent periods) in
the manner and amounts provided in Treas. Reg. ss.ss.1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 5.2(d)(ii), each Member's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 5.2(d)(ii), other than Section 5.2(d)(i) and other than an
allocation pursuant to Section 5.2(d)(v) and Section 5.2(d)(vi), with
respect to such Tax Period. This Section 5.2(d)(ii) is intended to comply
with the chargeback of
- 29 -
items of income and gain requirement in Treas. Reg. ss.1.704-2(i)(4) and
shall be interpreted consistently therewith.
(iii) Qualified Income Offset. If any Member unexpectedly receives any
adjustments, allocations, or distributions described in Treas. Reg.
ss.ss.1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)
(ii)(d)(6), items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations promulgated under section
704(b) of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible, unless such deficit balance is otherwise eliminated
pursuant to Section 5.2(d)(i) or Section 5.2(d)(ii).
(iv) Gross Income Allocations. In the event any Member has a deficit
balance in its Capital Account at the end of any Tax Period in excess of
the sum of (A) the amount such Member is required to restore pursuant to
the provisions of this Agreement and (B) the amount such Member is deemed
obligated to restore pursuant to Treas. Reg. ss.ss.1.704-2(g) and
1.704-2(i)(5), such Member shall be specially allocated items of Company
gross income and gain in the amount of such excess as quickly as possible;
provided that an allocation pursuant to this Section 5.2(d)(iv) shall be
made only if and to the extent that such Member would have a deficit
balance in its Capital Account as adjusted after all other allocations
provided for in this Section 5.2 have been tentatively made as if this
Section 5.2(d)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any Tax Period
shall be allocated among the Members in accordance with the ratio in which
taxable income is allocated to the Members with respect to such Tax Period.
If the Board determines that the Company's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Treasury Regulations promulgated under section 704(b) of the Code, the
Board is authorized to revise the prescribed ratio to the numerically
closest ratio that does satisfy such requirements.
(vi) Member Nonrecourse Deductions. Member Nonrecourse Deductions for
any Tax Period shall be allocated 100 percent to the Member that bears the
Economic Risk of Loss with respect to the Member Nonrecourse Debt to which
such Member Nonrecourse Deductions are attributable in accordance with
Treas. Reg. ss.1.704-2(i). If more than one Member bears the Economic Risk
of Loss with respect to a Member Nonrecourse Debt, such Member Nonrecourse
Deductions attributable thereto shall be allocated between or among such
Members in accordance with the ratios in which they share such Economic
Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treas. Reg.
ss.1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of the
Company in excess of the sum of (A) the amount of Minimum Gain and (B) the
total amount of Nonrecourse Built-in Gain shall be allocated among the
Members in accordance with their Sharing Ratios.
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(viii) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company Asset pursuant to section 734(b) or
section 743(b) of the Code is required, pursuant to Treas. Reg.
ss.1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such section of the Treasury Regulations.
(ix) Curative Allocations. Notwithstanding any other provision of this
Section 5.2, other than the Required Allocations, the Required Allocations
shall be taken into account in making the Agreed Allocations so that, to
the extent possible, the net amount of items of income, gain, loss and
deduction allocated to each Member pursuant to the Required Allocations and
the Agreed Allocations, together, shall be equal to the net amount of such
items that would have been allocated to each such Member under the Agreed
Allocations had the Required Allocations and any related Curative
Allocation not otherwise been provided in this Section 5.2. Notwithstanding
the preceding sentence, Required Allocations relating to (A) Nonrecourse
Deductions shall not be taken into account except to the extent that there
has been a decrease in Company Minimum Gain and (B) Member Nonrecourse
Deductions shall not be taken into account except to the extent that there
has been a decrease in Member Nonrecourse Debt Minimum Gain. Allocations
pursuant to this Section 5.2(d)(ix) shall only be made with respect to
Required Allocations to the extent the Board reasonably determines that
such Required Allocations will otherwise be inconsistent with the economic
agreement among the Members. Further, allocations pursuant to this Section
5.2(d)(ix) shall be deferred with respect to allocations pursuant to
clauses (A) and (B) hereof to the extent the Board reasonably determines
that such allocations are likely to be offset by subsequent Required
Allocations.
5.3 Allocations for Tax Purposes.
(a) Except as otherwise provided in this Section 5.3, for tax purposes,
each item of income, gain, loss and deduction shall be allocated among the
Members in the same manner as its correlative item of book income, gain, loss,
or deduction is allocated pursuant to Section 5.2.
(b) The deduction for depletion under section 611 of the Code with respect
to each separate Depletable Property shall be computed for federal income tax
purposes separately by each Member rather than by the Company in accordance with
section 613A(c)(7)(D) of the Code. For purposes of such computation, the
proportionate share of the adjusted basis (before taking into account any
adjustment resulting from an election made by the Company on behalf of such
Member under section 754 of the Code) of each Depletable Property allocated to
each Member shall be determined in accordance with the following principles:
(i) In the case of a Contributed Property, the adjusted basis of each
such property shall be allocated in a manner consistent with the principles
of section 704(c) of
- 31 -
the Code to take into account any variation between the Agreed Value of
such property and its adjusted basis for federal income tax purposes at the
time of contribution.
(ii) In the case of an Adjusted Property, the adjusted basis shall be
allocated or reallocated (A) first to take into account all Unrealized Gain
or Unrealized Loss and prior allocations thereof pursuant to Section 5.1(d)
or Section 5.1(e) consistent with the principles of section 704(c) of the
Code and (B) second, in the event such property was originally a
Contributed Property, among the Members in a manner consistent with section
704(c) of the Code.
(iii) In the case of all other oil and gas properties, the adjusted
basis of such properties shall be allocated among the Members in accordance
with their Sharing Ratios.
(c) Each Member shall separately keep records of its share of the adjusted
tax basis in each Depletable Property, adjust such share of the adjusted tax
basis for any cost or percentage depletion allowable on such property and use
such adjusted tax basis in the computation of its cost or percentage depletion
or in the computation of its gain or loss on the disposition of such property by
the Company. Upon the request of the TMM, each Member shall advise the TMM of
its adjusted tax basis in each Depletable Property of the Company and any
depletion computed with respect thereto as computed in accordance with Section
5.3(b).
(d) For the purpose of the separate computation of gain or loss by each
Member on the sale or disposition of each separate Depletable Property, the
Company's "amount realized" (as such term is defined in section 1001(b) of the
Code) from such sale shall be allocated for federal income tax purposes to the
Members as follows:
(i) In the case of any Contributed Property, such "amount realized"
shall be allocated (A) first, to the Members in an amount equal to the
Simulated Basis in such property in the same proportion as such Members
were allocated adjusted basis in such property (as determined in accordance
with Section 5.3(b) above), and (B) second, in the manner consistent with
the principles of section 704(c) of the Code to take into account any
variation between the Agreed Value of such property and its adjusted basis
for federal income tax purposes at the time of contribution and (C) third,
any Residual Gain or Residual Loss attributable to a Contributed Property
shall be allocated among the Members in the same manner as its correlative
item of "book" gain or loss is allocated pursuant to Section 5.2.
(ii) In the case of any Adjusted Property, such "amount realized"
shall be allocated (A) first, to the Members in an amount equal to the
Simulated Basis in such property in the same proportion as such Members
were allocated adjusted basis in such property (as determined in accordance
with Section 5.3(b) above), (B) second, in a manner consistent with the
principles of section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized loss attributable to such property and the
allocations thereof pursuant to Section 5.1(d) or Section 5.1(e), (C)
third, in the event such property was originally a Contributed Property, be
allocated among the Members in a manner consistent with Section 5.1(d), and
(D), fourth, any item of Residual Gain or Residual Loss attributable to an
Adjusted Property shall be allocated among the Members in the
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same manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 5.2.
(iii) In the case of all other oil and gas properties, the "amount
realized" shall be allocated (1) first, to the Members in an amount equal
to the Simulated Basis in each such property in the same proportion as such
Members were allocated adjusted basis in (or attributable to such property
(as determined in accordance with Section 5.3(b) above)) and (2) second,
the balance to the Members in the same manner as the correlative item of
"book" gain or loss is allocated pursuant to Section 5.2.
(e) In an attempt to eliminate Book-Tax Disparities attributable to all
other Contributed Property or Adjusted Property items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
tax purposes among the Members as follows:
(i) In the case of a Contributed Property,
(A) such items attributable thereto shall be allocated among the
Members in the manner provided under section 704(c) of the Code that
takes into account the variation between the Agreed Value of such
Contributed Property and its adjusted basis at the time of
contribution; and
(B) any item of Residual Gain or Residual Loss attributable to a
Contributed Property shall be allocated among the Members in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 5.2.
(ii) In the case of an Adjusted Property,
(A) such items attributable thereto shall (1) first, be allocated
among the Members in a manner consistent with the principles of
section 704(c) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations
thereof pursuant to Section 5.1(d) or Section 5.1(e), and (2) second,
in the event such property was originally a Contributed Property, be
allocated among the Members in a manner consistent with Section
5.3(e)(i)(A); and
(B) any item of Residual Gain or Residual Loss attributable to an
Adjusted Property shall be allocated among the Members in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 5.2.
(iii) Book-Tax Disparities will be eliminated, to the least extent
possible, using the "traditional" method provided in Treas. Reg.
ss.1.704-3(b).
(f) Any gain allocated to the Members upon the sale or other taxable
disposition of any Company Asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.3, be
characterized as Recapture Income in the same proportions and to the same extent
as such Members (or their predecessors in interest) have
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been allocated any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(g) All items of income, gain, loss, deduction and credit recognized by the
Company for tax purposes and allocated to the Members in accordance with the
provisions hereof shall be determined without regard to any election under
section 754 of the Code which may be made by the Company; provided that such
allocations, once made, shall be adjusted as necessary or appropriate to take
into account those adjustments permitted or required by sections 734 and 743 of
the Code.
(h) As between a transferor and transferee of any Member Interest, each
item of income, gain, loss, deduction or credit attributable to the transferred
Member Interest shall, for tax purposes, be allocated among the transferor and
transferee as if the books of the Company were closed on the date of the
transfer and (i) all items of income, gain, loss, deduction, or credit
attributable to the period ending on or before the date of the transfer shall be
allocated to the transferor and (ii) all items of income, gain, loss, deduction,
or credit attributable to the period beginning on the day after the date of the
transfer shall be allocated to the transferee.
5.4 Distributions of Net Cash Flow. On each date on which the Company makes
a distribution to the Members (or at such other time as may be set forth in the
Senior Debt Documents or the Subordinated Note Agreement), but in any event no
less often than once per Quarter (the "Distribution Date"), provided that
neither the Company nor the Subordinated Note holder has received a default
notice with respect to the Senior Debt, which default notice prohibits the
Company from paying or distributing any Net Cash Flow (and provided that such
distributions are not otherwise restricted under the terms of the Senior Debt
Documents), the Board shall cause Net Cash Flow (including, without limitation,
any permitted tax distributions under the Senior Debt Documents) to be paid or
distributed as follows, subject, however, to the other provisions of this
Section 5.4 and the provisions of Section 5.9 below:
(a) If Amounts Owing on the Subordinated Note. If any amount is due and
owing with respect to the Subordinated Note, then Net Cash Flow shall be applied
as follows:
(i) First, to the Class B Members in proportion to their respective
Class B Sharing Ratios in an amount equal to the Quest Excess Tax
Distribution, if any;
(ii) Then, 100% to the holder of the Subordinated Note, to be applied
in accordance with the terms of the Subordinated Note, until the Tax
Distribution Balance has been reduced to zero; provided, however, that to
the extent payments to the holder of the Subordinated Note would be
prohibited under the Senior Debt Documents, then the payments that would
otherwise have been made under this section shall, instead, be distributed
100% to the Class A Members in proportion to their respective Class A Unit
Sharing Ratios;
(iii) Then, an amount up to 15 percent of the Net Cash Flow shall be
distributed (A) 0% to the Class A Members in proportion to their respective
Class A Unit Sharing Ratios, and (B) 100 percent to the Class B Members in
proportion to their respective Class B Unit Sharing Ratios;
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(iv) Finally, all remaining Net Cash Flow shall be paid to the holder
of the Subordinated Note and be applied in accordance with the terms of the
Subordinated Note; provided, however, that to the extent payments to the
holder of the Subordinated Note would be prohibited under the Senior Debt
Documents, then the payments that would otherwise have been made under this
section shall, instead, be distributed 100% to the Class A Members in
proportion to their respective Class A Unit Sharing Ratios.
(v) Notwithstanding the foregoing, upon and following an Early
Liquidation Event, Net Cash Flow will be paid 100 percent to the holder of
the Subordinated Note until the Subordinated Note has been paid in full and
the holder of the Subordinated Note has received the Make Whole Payment,
and to the extent of any excess Net Cash Flow remaining thereafter, the
balance shall be distributed in accordance with Section 5.4(b) below.
(b) If No Amounts Owing on the Subordinated Note. If all amounts due and
owing with respect to the Subordinated Note have previously been paid, then Net
Cash Flow shall be applied as follows:
(i) First, to the Class B Members in proportion to their respective
Class B Sharing Ratios in an amount equal to the Quest Excess Tax
Distribution, if any;
(ii) Then, 100% to the Class A Members in proportion to their
respective Class A Unit Sharing Ratios until the Tax Distribution Balance
has been reduced to zero;
(iii) Then, (A) an amount up to 40 percent of Net Cash Flow will be
distributed to the Class B Members in proportion to their respective Class
B Unit Sharing Ratios and (B) all remaining Net Cash Flow up to 60 percent
of Net Cash Flow will be distributed to the Class A Member in proportion to
their respective Class A Unit Sharing Ratios until such time as the Class A
Member IRR is 30 percent; and
(iv) thereafter, Net Cash Flow will be distributed (A) 30 percent to
the Class A Members in proportion to their Class A Unit Sharing Ratios, and
(B) 70 percent to the Class B Members in proportion to their respective
Class B Unit Sharing Ratios.
(c) Notwithstanding the foregoing, in the event that the aggregate Defect
Property Loss Amount exceeds $2,500,000 (such excess amount is herein referred
to as the "Excess Defect Property Loss Amount"), then any amounts distributable
to the Class B Members pursuant to Section 5.4(a) or Section 5.4(b) shall
instead be distributed to the Class A Member until there has been distributed to
the Class A Member pursuant to this Section 5.4(c) an amount equal to the Excess
Defect Property Loss Amount (a "Defect Property Loss Distribution"); provided,
however, that to the extent a Defect Value for a Defect has been added to the
Defect Property Loss Amount and such Defect is something for which the Class A
Member has received indemnification for, been held harmless and made whole under
the terms of the Class A Unit Purchase Agreement, but only insofar as the
amounts actually received under such indemnification and hold harmless
provisions equal not less than the Defect Value thereof) under the terms of the
Class A Unit Purchase Agreement, then the Defect Value thereof (or portion
thereof for which the Class A Member has been indemnified, held harmless and
been made
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whole) shall be deducted from the Excess Defect Property Loss Amount for
purposes of the calculation set forth in this Section 5.4(c).
(d) Notwithstanding any provision of this Agreement to the contrary, the
Company shall withhold from all distributions and other payments to any Member
or any Person any and all amounts required to be withheld under federal, state
or local law. All amounts withheld with respect to a Member pursuant to this
Section 5.4(d) shall be treated as a payment or distribution made to such Member
for all purposes under this Agreement.
5.5 No Distributions in Kind. The Company may not distribute to the Members
any Company Assets in kind except as approved by a Member Vote.
5.6 Limitations on Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall not make a distribution
to a Member to the extent that such distribution is not permitted under the Act.
A Member who receives a distribution that is not permitted under the terms of
section 18-607 of the Act shall have no liability under the Act or this
Agreement to return the distribution unless the Member knew that the
distribution violated the terms of such section.
5.7 (Intentionally Omitted)
5.8 Fees; Expenses.
(a) Management Compensation. For the services under the Management
Agreement and as reimbursement for overhead and internal expenses, and as
reimbursement for other costs and expenses, QES shall receive from the Company
the Management Compensation in accordance with the terms of the Management
Agreement. The Management Compensation shall be paid in accordance with the
terms of the Management Agreement.
(b) Expenses. The Company shall reimburse CPL and the Quest Members for all
of its or their reasonable costs and expenses incurred connection with the
preparation, negotiation, execution and delivery of this Agreement (including
the fees and expenses of legal counsel to CPL and the Quest Members).
5.9 Defect Properties.
(a) Defect Property Notice. Upon the discovery of a Defect regarding a
Defect Property by the Class A Member, the Class A Member shall promptly notify
the Company and the Quest Members in writing. Any such notice by the Class A
Member shall include appropriate evidence and documentation to substantiate its
position and shall be delivered to the Quest Members on or before May 1, 2004
(other than Defects relating to the existence of an Adverse Environmental
Condition), and on or before July 1, 2004 with regard to any Defects relating to
the existence of an Adverse Environmental Condition (such applicable date being
the "Defect Notice Date"). After the Defect Notice Date, any Defect regarding a
defect Property which is not so disclosed to the Quest Members on or before the
Defect Notice Date shall conclusively be deemed waived by the Class A Member for
all purposes except for purposes of the enforcement of, and any claim for
indemnification or other remedy for, (i) any breach of any representation,
covenant, or warranty of the Quest Members (subject to and only to the extent it
- 36 -
survives as provided therein) under the Class A Unit Purchase Agreement and (ii)
the warranties provided by the Quest Members in any deed, assignment and/or xxxx
of sale delivered to the Company at or prior to the Closing.
(b) Environmental Inspection. After the execution of this Agreement, the
Class A Member and its authorized representatives shall have physical access to
the Contributed Property contributed by the Quest Members at the Class A Members
sole cost, risk and expense for the purpose of inspecting the same, conducting
such tests, examination, investigations and assessments as may be reasonable and
necessary or appropriate to evaluate the environmental and physical condition of
the Contributed Property contributed by the Quest Members, including the
identification of wetlands. For those Contributed Properties which are not
operated by the Quest Members, the Quest Members shall obtain permission from
the operator to conduct such inspections.
(c) Re-Conveyance; Other Remedies regarding Defect Property. The Class A
Member, by delivery of written notice, may notify the Quest Members (a "Defect
Notice") of any Defect pursuant to the terms of this Section 5.9, regarding a
Defect Property. The Quest Members shall have an opportunity to cure such
Defect, insofar as (i) such Quest Members notify the Class A Member in writing
of such election to cure within fifteen (15) days following the date of the
Defect Notice ("Defect Notice Response Date"), (ii) such Quest Members cure the
Defect to the Class A Member's satisfaction within one hundred twenty (120) days
following the date of the Defect Notice and (iii) the Quest Members do not
utilize any funds or resources of the Company to cure the same. The Company and
the affected Quest Member acting in their individual capacity, shall diligently
and in good faith use reasonable efforts to agree on the existence of any
asserted Defects, and the Defect Value of the asserted Defects in accordance
with the Defect Guidelines. Any disputes by the Quest Members regarding the
Defects or the Defect Value alleged in the Defect Notice must be asserted in
writing by the Defect Notice Response Date and any such dispute regarding such
Defects or the Defect Value thereof which is not resolved by the Members within
thirty (30) days following the Defect Notice Response Date shall be resolved
pursuant to the dispute resolution provisions under Section 10.10 below. In the
event that the Defect is incapable of being cured or if the cure period lapses
without the Defect being cured, then, with respect to each Defect identified in
a Defect Notice submitted by the Class A Member, the Defect Values for such
Defect Properties shall be added to the Defect Property Loss Amount and the
Class A Member shall, by written notice delivered to the Class B Members no
later than thirty (30) days following the expiration of such 120-day cure
period, either (y) subject to any approvals required under the Senior Loan
Documents, have the Company re-convey the affected Defect Property, or (z)
permit the Company to retain the affected Contributed Property in its current
condition, subject to the other provisions hereof (including, without
limitation, the provisions of Section 5.4(c) above). The Class A Member's
failure to timely make such an election shall be deemed an election to proceed
under clause (z) above. To the extent an election is made to have a Contributed
Property re-conveyed, the REASSIGNMENT OR RE-CONVEYANCE INSTRUMENT SHALL PROVIDE
THAT THE QUEST MEMBER(S) SHALL DEFEND AND INDEMNIFY THE COMPANY AND THE CLASS A
MEMBER AND THEIR SUCCESSORS AND ASSIGNS FROM ANY AND ALL LIABILITY, CLAIMS,
COSTS (INCLUDING, WITHOUT LIMITATION ATTORNEYS' FEES, COURT COSTS, AND OTHER
COSTS OF SUIT, INVESTIGATION OR ACTION), EXPENSES, DAMAGES, COSTS OF SETTLEMENT,
- 37 -
FINES, PENALTIES, SUITS, CAUSES OF ACTION, INJURY TO PERSONS OR DAMAGE TO
CONTRIBUTED PROPERTY (INCLUDING WITHOUT LIMITATION TO THAT OF THE QUEST MEMBERS'
AND THE CLASS A MEMBER'S EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS OR
INVITEES) WHICH MAY ARISE DIRECTLY OR INDIRECTLY FROM OUT OF OR IN CONNECTION
WITH SUCH RE-CONVEYED CONTRIBUTED PROPERTY, THE CONDITION THEREOF, OR THE
COMPANY'S OWNERSHIP OR OPERATION THEREOF, AND WITHOUT REGARD TO WHETHER SAME
ARISE FROM OR OUT OF THE COMPANY'S OR THE QUEST MEMBERS' ACTIVITIES ON THE
REASSIGNED OR RE-CONVEYED CONTRIBUTED PROPERTIES, AND REGARDLESS OF THE
NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR LIABILITY OF THE COMPANY, OR ANY
OTHER PERSON OR PARTY.
ARTICLE 6
MANAGEMENT
6.1 Member Approval Required for Certain Actions.
(a) A Member Vote shall not be required with respect to any matter unless
otherwise specifically provided for in this Agreement or by the Act.
(b) Meetings; Written Consent. In the event any Member Vote is required,
such Member Vote will be taken at a duly called meeting of the Members. Notice
of the time, date and place of meeting shall be given to each Member by the
Company by personal delivery, telephone or fax sent to the address of each
Member set forth on Exhibit A at least five (5) business days in advance of the
meeting; provided, however, no notice need be given to a Member who waives
notice before or after the meeting or who attends the meeting without protesting
at or before its commencement the inadequacy of notice to such Member. A Member
may attend a meeting in person, and it may also participate in meetings by means
of a conference call or similar communications equipment that permits all
Members to hear each other. Any action required or permitted to be taken at any
meeting of the Members may be taken without a meeting if one or more written
consents to such action shall be signed by not less than the number of Members
required to approve or authorize the action if approved at a duly called meeting
of the Members . Such written consents shall be delivered to the Company at its
principal office and, unless otherwise specified, shall be effective on the date
when delivered.
6.2 Management by Board.
(a) Board. Except for situations in which the approval of the Members is
required pursuant to the terms of this Agreement or by the Act, (i) the powers
of the Company shall be exercised by or under the authority of, and the business
and affairs of the Company shall be managed under the direction of, a board of
managers (the "Board") consisting of representatives of the Members designated
as provided in Section 6.2(b) (the "Managers"), and (ii) except as delegated by
the Board to the Officers in accordance with Section 6.4, the Board shall
determine and approve the overall objectives, policies, procedures and methods,
and shall make all decisions and take all actions for the Company permitted by
the Act, in order to carry on the Company's business consistent with the
purposes of the Company as stated in and not
- 38 -
inconsistent with Applicable Law or the other provisions of this Agreement. A
Manager that is designated by a Member may vote at a meeting of the Board by a
written proxy executed by that Manager and delivered to another Manager
designated by the same Member. A proxy shall be revocable unless it is stated to
be irrevocable. It is acknowledged that initially, certain of the day-to-day
operations and functions will be delegated to the Officers of the Company and to
QES under the Management Agreement; but without in any way limiting the breadth
of the authority of the Board, the following shall require the approval of the
Board (and solely to the extent required under this Agreement or Applicable Law,
the Members):
(i) Any matters which are expressly restricted or reserved from the
authority of QES under the terms of the Management Agreement;
(ii) The adoption or amendment of the annual operating, capital
expenditure, maintenance and acquisition budget (the "Annual Budget") for
the Company and any increase or decrease in the Annual Budget by more than
10 percent, in each case, other than changes reasonably necessary in the
case of emergencies, provided that, if the parties are unable to approve an
Annual Budget for any Fiscal Year, the Annual Budget for the prior Fiscal
Year (annualized if necessary) shall remain in effect, insofar as the same
relates to operating expenses of the Company (but shall not remain in
effect with regard to any capital expenditure budget provided therein), as
adjusted by changes in the Inflation Index, until the Board otherwise
approves an Annual Budget;
(iii) Hiring or terminating any Officer and determining the powers and
authority and compensation of the Officers; provided, however, that any
matter requiring approval of the Board or a Member Vote will require such
approval or vote to delegate authority regarding such matter to the
Officers;
(iv) The incurrence by the Company of indebtedness for borrowed money
(and any related guarantee, pledge, lien or security arrangement);
provided, however, that borrowings by the Company under a credit facility
that has previously been approved by the Board are not subject to further
approval by the Board;
(v) Entering into any agreement for the hedging of the price of any
oil, gas or other mineral, or entering into any agreement for the purchase,
sale, or exchange of any oil, gas or other mineral for a fixed price or for
a term in excess of six (6) months;
(vi) Making any Acquisitions; and
(vii) Any actions or approvals by the Company in its capacity as a
member of Bluestem.
(b) Designation of Managers.
(i) The Board shall consist of four (4) Managers designated by the
Members. The Class A Member shall have the right to designate two Managers
(and if there is more than one Class A Member, then those Class A Members
who, in the aggregate, have a Class A Unit Sharing Ratio in excess of 50%
shall make such designation), and the Class B Members, collectively (based
on the approval of those Class B Members who, in the
- 39 -
aggregate, have a Class B Unit Sharing Ratio in excess of 50 percent),
shall have the right to designate two Managers.
(ii) The Class A Member or the Class B Members, as the case may be,
may remove and replace any Manager designated by such Class A Member or the
Class B Members, as the case may be, at any time, upon notice to the other
class of Members.
(c) Votes of Managers. In all Board votes, each Manager will have one vote.
(d) Unanimous Manager Approval. Except as provided in Section 6.3, all
matters requiring the approval of the Board shall require approval by all of the
Managers. Such matters include:
(i) Any issuance of Units or other Member Interests by the Company;
(ii) Any action or election that would cause the Company to be taxable
as a corporation for federal tax purposes;
(iii) Any material tax election by the Company, including elections
made pursuant to Section 7.2; provided that the election provided in
section 754 of the Code will be made at the request of any Member;
(iv) Determinations by the Board of the amount of Net Cash Flow for
distribution pursuant to Section 5.4;
(v) The provision of guarantees, indemnities, loans or other forms of
financial or credit support in favor of any holder of any Units or any of
its Affiliates, other than as contemplated by this Agreement and the
Related Agreements;
(vi) The engagement of the Company's independent auditors and
engineers;
(vii) Determinations by the Board to provide indemnification to any
agent or trustee of the Company pursuant to Section 6.6; -----------
(viii) Establishing bank and investment accounts and arrangements for
the Company pursuant to Section 7.5.
(e) Meetings; Written Consent. If action is to be taken at a duly called
meeting of the Managers, notice of the time, date and place of meeting shall be
given to each Manager by the Manager calling the meeting by personal delivery,
telephone or fax sent to the address of each Manager set forth in the records of
the Company at least five (5) business days in advance of the meeting; provided,
however, no notice need be given to a Manager who waives notice before or after
the meeting or who attends the meeting without protesting at or before its
commencement the inadequacy of notice to such Manager. The Manager may attend a
meeting in person, and they may also participate in meetings by means of a
conference call or similar communications equipment that permits all Managers to
hear each other. Any action required or permitted to be taken at any meeting of
the Managers may be taken without a meeting if one or more written consents to
such action shall be signed by not less than the number of Managers required to
- 40 -
approve or authorize the action if approved at a duly called meeting of the
Managers. Such written consents shall be delivered to the Board at the principal
office of the Company and, unless otherwise specified, shall be effective on the
date when the first consent is delivered.
6.3 Control of Interested Member Matters.
(a) Notwithstanding anything to the contrary contained in this Agreement,
with respect to any Conflict Circumstance, the Nonconflicted Member (through the
Board representatives of such Nonconflicted Member) shall, subject to Section
6.3(b), have the sole and exclusive power and right for and on behalf, and at
the sole expense, of the Company (i) to control all decisions, elections,
notifications, actions, exercises or nonexercises and waivers of all rights,
privileges and remedies provided to, or possessed by, the Company with respect
to a Conflict Circumstance, and (ii) in the event of any potential, threatened
or asserted claim, dispute or action with respect to a Conflict Circumstance, to
retain and direct legal counsel and to control, assert, enforce, defend,
litigate, mediate, arbitrate, settle, compromise or waive any and all such
claims, disputes and actions. Accordingly, Company action with respect to a
Conflict Circumstance shall require the approval of the Board representatives of
the Nonconflicted Member. Each Member shall, and shall cause its Affiliates to,
take all such actions, execute all such documents and enter into all such
agreements as may be necessary or appropriate to facilitate or further assure
the accomplishment of this Section.
(b) The Nonconflicted Member, in exercising its control, power and rights
pursuant to this Section 6.3, shall act in good faith and in a manner it
believes to be in the best interests of the Company; provided that it shall
never be deemed to be in the best interests of the Company not to pay, perform
and observe all of the obligations to be paid, performed or observed by or on
the part of the Company under the terms of any Related Agreements. The
Nonconflicted Member shall act through the Board representatives of such
Nonconflicted Member, and the approval of such Board representatives will be the
sole requirement for the Nonconflicted Member (and therefore the Board on behalf
of the Company) to take any action in respect of the relevant Conflict
Circumstance. The Conflicted Member (or its Affiliates) shall have the right to
deal with the Company and with the Nonconflicted Member on an arm's-length basis
and in a manner it believes to be in its own best interests, but in any event
must deal with them in good faith.
6.4 Officers.
(a) The Board may appoint agents of the Company, which agents shall be
referred to as "Officers" of the Company, having the titles, power, authority
and duties described in this Section 6.4 or as otherwise granted by the Board.
Subject to the foregoing, the Officers shall have the full authority to and
shall manage, control and oversee the day-to-day business and affairs of the
Company and shall perform all other acts as are customary or incident to the
management of such business and affairs, which will include the general and
administrative affairs of the Company and the operation and maintenance of the
Company Assets in accordance with the provisions of Section 6.5.
(b) The Officers may include a Chairman, a President and Chief Executive
Officer, one or more Vice Presidents, a Secretary, a Treasurer, and one or more
Assistant Secretaries and
- 41 -
Assistant Treasurers, and any other officer position or title as the Board may
approve. Any person may hold two or more offices.
(c) The Officers may be appointed by the Board at such times and for such
terms as the Board shall determine. Any Officer may be removed, with or without
cause, only by the Board. Vacancies in any office may be filled only by the
Board.
(d) In accordance with and subject to the limitations imposed by this
Agreement or any direction of the Board, the President and Chief Executive
Officer, as such, shall (i) supervise generally the other Officers, (ii) be
responsible for the management and day-to-day business and affairs of the
Company, its other Officers, employees and agents and shall supervise generally
the affairs of the Company, (iii) have full authority to execute all documents
and take all actions that the Company may legally take and (iv) have the power
and authority to delegate the President and Chief Executive Officer's powers and
authority to any proper Officer.
(e) In the absence of the President and Chief Executive Officer, each Vice
President appointed by the Board shall have all of the powers and duties
conferred upon the President and Chief Executive Officer, including the same
power as the President and Chief Executive Officer to execute documents on
behalf of the Company. Each such Vice President shall perform such other duties
and may exercise such other powers as may from time to time be assigned to him
by the Board or the President and Chief Executive Officer. Vice Presidents may
be designated Executive Vice Presidents, Senior Vice Presidents, or any other
title determined by the Board.
(f) The Secretary shall record or cause to be recorded in books provided
for that purpose the minutes of meetings or actions of the Board, shall see that
all notices are given in accordance with the provisions of this Agreement and as
required by Applicable Law, shall be custodian of all records (other than
financial), shall see that the books, reports, statements, certificates and all
other documents and records required by Applicable Law are properly kept and
filed, and, in general, shall perform all duties incident to the office of
Secretary and such other duties as may, from time to time, be assigned by this
Agreement, the Board or the President and Chief Executive Officer. The Assistant
Secretaries shall exercise the powers of the Secretary during that Officer's
absence or inability or refusal to act.
(g) The Treasurer shall keep or cause to be kept the books of account of
the Company and shall render statements of the financial affairs of the Company
in such form and as often as required by this Agreement, the Board or the
President and Chief Executive Officer. The Treasurer, subject to the order of
the Board, shall have the custody of all funds and securities of the Company.
The Treasurer shall perform all other duties commonly incident to his office and
shall perform such other duties and have such other powers as this Agreement,
the Board or the President and Chief Executive Officer shall designate from time
to time. The Assistant Treasurers shall exercise the power of the Treasurer
during that Officer's absence or inability or refusal to act. Each of the
Assistant Treasurers shall possess the same power as the Treasurer to sign all
certificates, contracts, obligations and other instruments of the Company. If no
Treasurer or Assistant Treasurer is appointed and serving in the absence of the
appointed Treasurer and Assistant Treasurer, such other Officer as the Board
shall select shall have the powers and duties conferred upon the Treasurer.
- 42 -
(h) The Company may xxxxx xxxxxx of attorney or other authority as
appropriate to establish and evidence the authority of the Officers and other
persons.
(i) Unless otherwise provided by resolution of the Board or in Section
6.4(d), no Officer shall have the power or authority to delegate to any person
such Officer's powers as an Officer to manage the business and affairs of the
Company.
6.5 Officer Actions. Subject to the other provisions hereof (including any
provisions hereof regarding actions that would otherwise require the approval of
the Members or the Managers), the President and Chief Executive Officer shall
have the authority to take the following actions for the Company, subject to the
direction and control of the Board or the revocation (in whole or in part) by
the Board of such authority:
(a) Managing the day-to-day operations of the Company, insofar as the same
are consistent with the Annual Budget;
(b) Obtaining all permits, certificates, licenses and regulatory approvals
necessary to carry out the business of the Company, and preparing and timely
providing such filings, reports, statements and information to any Governmental
Authority as may be required in connection therewith from time to time;
(c) Protecting and preserving the title and interests of the Company with
respect to the Company Assets, insofar as the same is consistent with the Annual
Budget;
(d) Negotiating contracts of the Company in the ordinary course of
business, insofar as the same is consistent with the Annual Budget;
(e) Executing and delivering approved documents requiring execution on
behalf of the Company, insofar as the same is consistent with the Annual Budget;
(f) Taking such actions as may be delegated or assigned to the President
and Chief Executive Officer or the other Officers from time to time by the
Board;
(g) Taking any other actions similar in character to those identified in
clauses (a) to (f) above and other actions involving dollar limits lower than
the limits specified in Section 6.2(a), other than those requiring approval by
the Board or by a Member Vote under this Agreement; provided, however, that the
President and Chief Executive Officer (or other Officers) shall have no
authority to take any action on behalf of the Company that was not authorized by
the Annual Budget or pursuant to a separate written delegation of authorization
by the Board; provided further, however, that without the unanimous consent of
the Board to take any action on behalf of the Company (including, without
limitation, causing the Company to make any acquisition or disposition of
Company Assets) which has the result (or would reasonably be expected to result)
in a reduction of the aggregate distributions to be made or that would have been
made to the Class A Member under Section 5.4 by 15% or more for any Fiscal Year;
and
(h) Performing such ancillary and ministerial acts, and making, executing,
acknowledging and delivering all contracts, assignments and other agreements,
instruments or
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documents as are reasonably necessary or appropriate to carry out the duties of
the President and Chief Executive Officer and other Officers hereunder.
6.6 Indemnification.
(a) To the fullest extent permitted by Law but subject to the limitations
expressly provided in this Agreement, each Person who serves in any capacity
described below shall be indemnified and held harmless by the Company from and
against any and all losses, claims, damages, liabilities (joint or several),
expenses (including reasonable legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from any and all
Claims, whether civil, criminal, administrative or investigative, in which any
such Person may be involved, or is threatened to be involved, as a party or
otherwise, by reason of such Person's status as (i) a present or former Manager,
(ii) a present or former Officer of the Company, (iii) a present or former
employee, agent or trustee of the Company (such Persons who are not present or
former employees, Officers or Managers of the Company are to be indemnified and
held harmless, and to be Indemnitees for purposes of this Agreement only upon
approval by the Board), or (iv) a Person serving at the request of the Company
in another entity in a similar capacity as that referred to in the immediately
preceding clauses (i) or (ii), provided, that in each case the Person described
in the immediately preceding clauses (i), (ii), (iii) or (iv) (the "Indemnitee")
acted in good faith and in a manner which such Indemnitee believed to be in, or
not opposed to, the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe such Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee acted in a
manner contrary to that specified above. Any indemnification pursuant to this
Section 6.6 shall be made only out of the Company Assets.
(b) To the fullest extent permitted by Law, expenses (including reasonable
legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant
to Section 6.6(a) in defending any Claim shall, from time to time, be advanced
by the Company prior to the final disposition of such Claim upon receipt by the
Company of an undertaking by or on behalf of the Indemnitee to repay such amount
if it shall be determined that the Indemnitee is not entitled to be indemnified
as authorized in this Section 6.6.
(c) The indemnification provided by this Section 6.6 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
as a matter of Law or otherwise, both as to actions in the Indemnitee's capacity
as (i) a present or former Manager, (ii) a present or former Officer, employee,
agent or trustee of the Company, or (iii) a Person serving at the request of the
Company in another entity in a similar capacity, and as to actions in any other
capacity, and shall continue as to an Indemnitee who has ceased to serve in such
capacity and shall inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee.
(d) The Company may purchase and maintain insurance, on behalf of the
Managers, the Officers and such other Persons as the Board shall determine,
against any liability that may be asserted against or expense that may be
incurred by such Person in connection with the
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Company's activities, regardless of whether the Company would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.
(e) For purposes of this Section 6.6, the Company shall be deemed to have
requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by the Indemnitee of such Indemnitee's duties to the
Company also imposes duties on, or otherwise involves services by, the
Indemnitee to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to Applicable Law shall constitute "fines" within the meaning of
Section 6.6(a); and action taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of such Indemnitee's duties for a
purpose reasonably believed by such Indemnitee to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Company.
(f) In no event may an Indemnitee subject the Members to personal liability
by reason of the indemnification provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.6 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction is
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.6 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.6 or any
provision hereof shall in any manner terminate, reduce or impair either the
right of any past, present or future Indemnitee to be indemnified by the Company
or the obligation of the Company to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.6 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may be
asserted.
(j) No Manager or Member shall be liable to the Company or to any Member
for any loss suffered by the Company unless such loss is caused by such
Manager's or Member's gross negligence, willful misconduct, intentional
violation of law or material breach of this Agreement. No Manager or Member
shall be liable for errors in judgment or for any acts or omissions that do not
constitute gross negligence, willful misconduct, intentional violation of law or
material breach of this Agreement. Any Manager or Member may consult with
counsel and accountants in respect of Company affairs and, provided such Manager
or Member acts in good faith reliance upon the advice or opinion of such counsel
or accountants, such Manager or Member shall not be liable for any loss suffered
by the Company in reliance thereon. Notwithstanding anything stated in this
Agreement to the contrary, none of the Quest Members, nor any Manager appointed
by the Class B Members, nor any existing or former employee of QRC or any Quest
Members (to the extent they are present or former employees of the Company)
shall be entitled to any indemnification by the Company with respect to any
Claims arising from or relating to the formation or capitalization of the
Company, including, without limitation, the transactions
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contemplated in the Contribution Agreement, the Class A Unit Purchase Agreement
and the other Related Agreements or the Senior Debt Documents.
(k) The provisions of the indemnification provided in this Section 6.6 are
intended by the Members to apply even if such provisions have the effect of
exculpating the Indemnitee from legal responsibility for the consequences of
such Person's negligence, fault or other conduct, subject to limits under
Applicable Law.
6.7 Reliance by Third Parties.
(a) Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Company shall be entitled to assume that the President and
Chief Executive Officer or any Person authorized by the Board to act on behalf
of and in the name of the Company (each an "Authorized Person") has full power
and authority to encumber, sell or otherwise use in any manner any and all
assets of the Company and to enter into any authorized contracts on behalf of
the Company, and such Person shall be entitled to deal with any Authorized
Person as if it were the Company's sole party in interest, both legally and
beneficially. In no event shall any Person dealing with any Authorized Person be
obligated to ascertain that the terms of this Agreement have been complied with
or to inquire into the necessity of any act or action of any Authorized Person.
(b) Each and every certificate, document or other instrument executed on
behalf of the Company by any Authorized Person shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Company and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Company.
ARTICLE 7
TAXES, BOOKS, RECORDS, ACCOUNTING AND REPORTING
7.1 Books and Records; Right to Audit; Fiscal Year.
(a) The Company shall keep, at the principal office or other offices
determined by the Board, and make available to each Member, or its designated
agent, at any time during normal business hours in that office, within ten days
after written request by such Member, books of account and other Company
records. The copying by any Member, or its designated agent, of any part or all
of such records, at the personal expense of such Member is specifically
authorized. Each Member, or its designated agent, shall have the right to audit
the books and records of the Company if the audit is commenced on or before the
end of the second full Fiscal Year following the Fiscal Year to which such books
and records relate. Any expense incurred by such Member, or its designated agent
in connection with the inspection of the Company's books or records or in
connection with auditing such books and records shall be paid by such Member or
such agent and not by the Company.
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(b) The books and records of the Company shall be maintained in accordance
with U.S. GAAP.
(c) The fiscal year of the Company for U.S. GAAP purposes shall commence as
of June 1 and expire on May 31, unless otherwise permitted under the Code and
approved by the Board (the "Fiscal Year").
7.2 Tax Returns. The Board will timely prepare and file (or cause to be
timely prepared and filed) appropriate federal, state and local tax returns for
the Company. The Board shall determine whether the Company shall make any
elections under the Code.
7.3 Tax Matters Member. The Members shall designate by a Member Vote one
Member as the "Tax Matters Member" or "TMM" to act on behalf of the Company as
"tax matters partner" pursuant to section 6231 of the Code. The TMM shall
initially be CPL. The TMM and other Members shall use all reasonable efforts to
comply with responsibilities outlined in this Section 7.3 and sections 6222
through 6233 and 6050K of the Code (and the Treasury Regulations thereunder) and
in doing so shall incur no liability to any other Member. Notwithstanding the
TMM's obligation to use all reasonable efforts in the fulfillment of its
responsibilities, the TMM shall not be required to incur any expenses for the
preparation for, or pursuance of, administrative or judicial proceedings, unless
the Members agree on a method for sharing such expenses.
(a) Information Request by the TMM. The Members shall furnish the TMM,
within ten days from the receipt of the request, the information (including
information specified in section 6230(e) of the Code on member identification
and section 6050K of the Code for transfers of member interests) the TMM may
reasonably request to comply with the requirements on furnishing information to
the IRS.
(b) TMM Agreements with the IRS.
(i) The TMM shall not agree to any extension of the statute of
limitations for making assessments on behalf of the Company without a prior
Member Vote. The TMM shall not bind any other Member to a settlement
agreement in a tax audit without obtaining the written concurrence of any
such Member.
(ii) Any other Member who enters into a settlement agreement with the
Secretary of the Treasury with respect to any Company items, as defined in
section 6231(a)(3) of the Code, shall notify the other Members of the terms
within 90 days from the date of such settlement.
(c) Inconsistent Treatment of Company Items. If any Member intends to file
a notice of inconsistent treatment under section 6222(b) of the Code, such
Member shall, prior to the filing of such notice, notify the TMM of the actual
or potential inconsistency of the Member's intended treatment of a Company item
with the treatment of that item by the Company. Within one week of receipt, the
TMM shall remit copies of such notification to the other Members.
(d) Request for Administrative Adjustment. No Member shall file pursuant to
section 6227 of the Code a request for an administrative adjustment of Company
items without
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first notifying all other Members. If such request is approved by a Member Vote,
the TMM shall file the request on behalf of the Company. If unanimous consent is
not obtained within 30 days from such notice, or within the period required to
timely file the request, if shorter, any Member, including the TMM, may file a
request for administrative adjustment on its own behalf.
(e) Judicial Proceedings. Any Member intending to file a petition under
section 6226 or 6228 of the Code or any other Code section with respect to any
Company item, or other tax matter involving the Company, shall notify the other
Members prior to such filing of the nature of the contemplated proceeding. In
the case where the TMM is the Member intending to file such petition, such
notice shall be given within a reasonable time to allow the other Members to
participate in the choice of the forum for such petition. If the Members do not
agree with the forum chosen by the TMM, then the forum shall be chosen by the
TMM. If a Member intends to seek review of any court decision rendered as a
result of such proceeding, the Member shall notify the other Member prior to
seeking such review.
7.4 Withholding. Notwithstanding any other provision of this Agreement, the
Board is authorized to take any action that it determines in its discretion to
be necessary or appropriate to cause the Company to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Company is required or elects to withhold and
pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Member (including, without limitation, by reason
of section 1446 of the Code), the amount withheld will be treated by the Company
as a distribution of cash pursuant to Section 5.4 in the amount of such
withholding from such Member.
7.5 Company Bank Accounts. The Company may establish, subject to approval
by the Board, one or more separate bank and investment accounts and arrangements
for the Company, which shall be maintained in the Company's name with financial
institutions and firms that the Board determines. The Company shall not
commingle the Company's funds with the funds of any Manager or Member.
7.6 Other Reports.
(a) As soon as practicable, but in no event later than 90 days after the
close of each Fiscal Year of the Company, the Board shall cause to be mailed or
furnished to each Member an annual report containing financial statements of the
Company for such Fiscal Year of the Company, presented in accordance with U.S.
GAAP, including a balance sheet and statements of operations, Company equity and
cash flows, such statements to be audited by a firm of independent public
accountants selected by the Board.
(b) As soon as practicable, but in no event later than 45 days after the
close of each Quarter except the last Quarter of each Fiscal Year, the Board
shall cause to be mailed or furnished to each Member a report containing
unaudited financial statements of the Company and such other information as may
be required by Applicable Law, regulation or rule, or as the Board determines to
be necessary or appropriate.
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(c) As soon as practicable, but in no event later than 45 days after the
close of each month, the Board shall cause to be mailed or furnished to each
Member a report containing unaudited financial statements of the Company and
such other information as the Board determines to be necessary or appropriate.
(d) As soon as practicable, but in no event later than 45 days after the
close of each Quarter, a report describing in reasonable detail the progress of
all drilling operations conducted during such Quarter, including a statement of
the cost of xxxxx completed or abandoned and an explanation of the abandonment
of any well abandoned during such Quarter which had produced, and a forecast of
drilling activities during the next Quarter.
(e) As soon as practicable, but in no event later than each February 15 and
August 31 of each year commencing on August 31, 2004, an engineering and reserve
report covering all of the Company oil and gas properties (consistent with SPE
Reserve Definition Guidelines and industry practices) prepared and provided by a
mutually agreed independent engineering firm (such reports to be certified to
the Company and each of the Members).
ARTICLE 8
RESTRICTIONS ON TRANSFERS OF INTERESTS
8.1 Transfers of Member Interests.
(a) General Restriction. Any Transfer of Class A Units or Class B Units
must be in accordance with the Transfer Restrictions, including, without
limitation, the terms and conditions of the provisions of Exhibit E and the
other provisions of this Agreement; and any attempted Transfer of Class A Units
or Class B Units that is not made in accordance with the Transfer Restrictions
and this Agreement shall be null and void and shall have no effect.
(b) Change of Control. A Change of Control of a Member will have the
effects specified in the Transfer Restrictions.
(c) Bankruptcy. A Bankruptcy of a Member or any Person that Controls such
Member will have the effects specified in the Transfer Restrictions.
(d) Admission of Member. Any Person who has been assigned Class A Units or
Class B Units in accordance with the terms and conditions of the Transfer
Restrictions, shall be admitted to the Company as a Member as provided in this
Agreement and the Transfer Restrictions, upon receipt by the Board of
counterpart signature pages and other documents, in form and substance
satisfactory to the Board, as may be required to effect such admission and to
evidence such assignee's (i) acceptance of the terms and conditions of, (ii)
authority to enter into and (iii) agreement to the consents and waivers
contained in this Agreement, the Non-Competition Agreement and the Transfer
Restrictions.
8.2 Buy-Sell. At any time following a Buy-Sell Point, the Class A Members
(collectively), on the one hand, or the Class B Members (collectively), on the
other hand (either, the "Buy-Sell Offeror") may deliver to the other class of
Members (the recipients(s) being the "Buy-Sell Offeree") written notice
("Buy-Sell Notice") of an intent to sell all of the Buy-Sell
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Offeror's Units to the Buy-Sell Offeree, or to buy all of the Buy-Sell Offeree's
Units issued and held by the Buy-Sell Offeree, at a specified price ("Buy-Sell
Price") calculated in accordance herewith and any other terms of such transfer
(the "Specified Buy-Sell Terms"). The Buy-Sell Price shall be calculated as
follows: (i) the Buy-Sell Offeror shall state in the Buy-Sell Notice an assumed
value of the Company ("Assumed Value"), and (ii) the Buy-Sell Price with respect
to all of the issued and outstanding Class B Units shall be an amount equal to
seventy percent (70%) of the Assumed Value, and the Buy-Sell Price with respect
to all of the issued and outstanding Class A Units shall be an amount equal to
thirty percent (30%) of the Assumed Value. Such Buy-Sell Notice shall set a
closing date not less than sixty (60) nor more than one hundred twenty (120)
days from the Buy-Sell Notice date. The Buy-Sell Offeree shall then have
twenty-five (25) days following the date of the Buy-Sell Notice to notify the
Buy-Sell Offeror whether such Buy-Sell Offeree elects to buy, in the aggregate,
all of the Units of the Buy-Sell Offeror, or sell all of their (its) Units, at
the Buy-Sell Price for the applicable class of Units and Specified Buy-Sell
Terms. Upon such election, the Members shall close the transaction in accordance
with the terms stated in the Buy-Sell Notice. If the Buy-Sell Offeree does not,
in the aggregate, elect to buy all of the Units of the Buy-Sell Offeror, then
the Buy-Sell Offeror shall (i) have no obligation to sell any of its Units, and
(ii) have the right to acquire all of the issued and outstanding Units from the
Buy-Sell Offeree. If the Buy-Sell Offeree, on one hand, or the Buy-Sell Offeror,
on the other hand, will be the selling Member(s) of their Units under the
provisions set forth above (either a "Selling Member"), and if the Selling
Member is the holder of a loan to the Company or the other Member (including,
without limitation, the Subordinated Note and Subordinated Debt), then in
addition to the payment of the Buy-Sell Price as a condition to closing, the
non-transferring (purchasing) Member(s) shall pay the Selling Member any
outstanding principal and accrued but unpaid interest on all such loans and upon
receipt of such payments, the Selling Member shall assign all of the outstanding
principal (and accrued interest thereon) under any such loans to the
non-transferring (purchasing) Member(s).
ARTICLE 9
DISSOLUTION, WINDING-UP AND TERMINATION
9.1 Dissolution.
(a) The Company shall dissolve, and (subject to Section 10.6) its affairs
shall be wound up, on the first to occur of the following events (each a
"Dissolution Event"):
(i) a Member Vote to dissolve the Company; and
(ii) entry of a decree of judicial dissolution of the Company under
section 18-802 of the Act; provided that the Board shall not submit an
application for a decree of judicial dissolution unless and until all
amounts payable under the obligations of the Company have been indefeasibly
paid in full.
(b) The Company shall not dissolve other than pursuant to Section 9.1(a).
(c) Each Member covenants and agrees that it will not cause a dissolution
of the Company, directly or indirectly, by breaching any provision of this
Agreement.
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9.2 Winding-Up and Termination.
(a) The winding up of the Company shall commence on the day of the
applicable Dissolution Event, but this Agreement shall not terminate until the
Company Assets have been distributed in accordance with the terms of this
Section 9.2. The Board shall act as Liquidator or it may appoint one or more
Members as Liquidator; provided, however, that (x) no Member with respect to
which a Bankruptcy event has occurred shall serve as (or act with any other
Person as) the Liquidator. The Liquidator shall immediately proceed to wind up
and terminate the affairs of the Company and liquidate the assets of the Company
and shall apply and distribute the proceeds of such liquidation, unless
otherwise required by mandatory provisions of applicable law, by the end of the
taxable year during which the liquidation occurs (or, if later, within 90 days
after the date of such liquidation) as provided herein and in the Act. The costs
of liquidation shall be borne as a Company expense. Until final distribution,
the Liquidator shall continue to operate the business and assets of the Company
with all of the power and authority of the Board. Maintenance of property,
borrowing and expenditures of Company funds for legitimate Company purposes to
effectuate or facilitate the winding up or the liquidation of the Company
affairs shall be authorized if the Liquidator, in the exercise of its business
judgment, believes that the interests of the Company would be best served
thereby, and such actions shall not be construed to involve a continuation of
the Company. The steps to be accomplished by the Liquidator are as follows:
(i) as promptly as possible after dissolution and again after final
winding up, the Liquidator shall cause a proper accounting to be made by a
recognized firm of certified public accountants of the Company Assets,
liabilities and operations through the last calendar day of the month in
which the dissolution occurs or the final winding up is completed, as
applicable;
(ii) sell or otherwise dispose of all Company assets, and any
resulting gain or loss from such sales or other dispositions will be
computed and allocated to the Members in accordance with Section 5.2(c).
(iii) the Liquidator shall discharge from the Company's funds all of
the debts, liabilities and obligations of the Company (including all
expenses incurred in winding up) or otherwise make adequate provision for
payment and discharge thereof (including the establishment of a cash escrow
fund for contingent liabilities in such amount and for such term as the
Liquidator may reasonably determine); and
(iv) all remaining Company Assets (including cash) shall be
distributed among the Members so that the cumulative total distributions
and liquidating distributions received by each Member equals the cumulative
amount it is entitled to receive under Section 5.4 without regard to
Section 5.4(a)(i) or Section 5.4(b)(i).
(b) The distribution of cash or other assets to a Member in accordance with
the provisions of this Section 9.2 constitutes a complete return to the Member
of its Capital Contributions and a complete distribution to the Member of its
Member Interest and all the Company Assets and constitutes a compromise to which
all Members have consented pursuant to section 18-502(b) of the Act.
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9.3 Certificate of Cancellation. Upon completion of the distribution of
Company Assets as provided herein, the Liquidator (or such other Person or
Persons as the Act may require or permit) shall file a certificate of
cancellation with the Secretary of State of the State of Delaware, cancel any
other filings made pursuant to Section 2.5, and take such other actions as may
be necessary to terminate the existence of the Company. Upon the filing of such
certificate of cancellation, the existence of the Company shall terminate (and
the Term shall end).
9.4 Certain Matters Concerning a Member.
(a) Notwithstanding any other provisions of this Agreement, the Bankruptcy
of a Member shall not cause such Member to cease to be a Member of the Company,
and upon the occurrence of such an event, the business of the Company shall
continue without dissolution.
(b) The dissolution, liquidation or termination of a Member shall not cause
the termination or dissolution of the Company, and the business of the Company
shall continue without dissolution.
9.5 Waiver of Partition. To the maximum extent permitted by Applicable Law,
each Member hereby waives any right to partition of the Company Assets.
ARTICLE 10
OTHER PROVISIONS
10.1 Entire Agreement. This Agreement and the Exhibits hereto (along with
the Class A Unit Purchase Agreement, the Contribution Agreement, the other
Related Agreements and the various agreements to be entered into on or before
the Closing Date under the Class A Unit Purchase Agreement) constitute the
entire agreement between the Members with respect to the subject matter hereof
and supersedes and replaces any prior agreements or understandings relating to
the subject matter hereof (including, without limitation, this Agreement amends,
restates, supersedes and replaces in its entirety, the Original Agreement).
10.2 Governing Law. This Agreement is governed by and shall be construed in
accordance with the laws of the State of Delaware. In the event of a direct
conflict between the provisions of this Agreement and any mandatory,
non-waivable provision of the Act, such provision of the Act shall control. If
any provision of the Act provides that it may be varied or superseded in a
limited liability company agreement (or otherwise by agreement of the members or
managers of a limited liability company), such provision shall be deemed
superseded and waived in its entirety if this Agreement contains a provision
addressing the same issue or subject matter.
10.3 Non-Waiver. No waiver by any Member hereto of any one or more defaults
by the other Member in the performance of any of the provisions of this
Agreement shall be construed as a waiver of any other default whether of a like
kind or different nature.
10.4 Severability. If any provision of this Agreement or the application
thereof to any Member or circumstance is held invalid or unenforceable to any
extent, (a) the remainder of this Agreement and the application of that
provision to other Members or circumstances is not
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affected thereby, and (b) the Members shall negotiate in good faith to replace
that provision with a new provision that is valid and enforceable and that puts
the Members in substantially the same economic, business and legal position as
they would have had if the original provision had been valid and enforceable.
10.5 Headings; Exhibits. The headings used for the sections and articles
herein are for convenience and reference purposes only and shall in no way
affect the meaning or interpretation of the provisions of this Agreement. Any
and all Exhibits referred to in this Agreement are, by such reference,
incorporated herein and made a part hereof for all purposes.
10.6 Winding Up Arrangements. All indemnity and audit rights shall survive
the termination of this Agreement for the time period provided herein. All
obligations provided in this Agreement shall remain in effect following the
expiration or termination of this Agreement to the extent necessary to give full
force and effect to the rights and obligations undertaken by the Members.
10.7 No Third Party Beneficiaries. Nothing in this Agreement (except as
provided in Section 6.7) shall provide any benefit to any third party or entitle
any third party to any claim, cause of action, remedy or right of any kind, it
being the intent of the Members that this Agreement shall not be construed as a
third party beneficiary contract.
10.8 Counterparts. This Agreement may be executed in several counterparts,
each of which is an original and all of which constitute one and the same
instrument.
10.9 Amendment or Restatement. This Agreement or the Delaware Certificate
may be amended only by a written instrument approved by a Member Vote.
10.10 Dispute Resolution. The Members shall use the dispute resolution
procedures set forth in Exhibit C (the "Dispute Resolution Procedures") to
resolve in good faith any dispute, controversy or claim related to this
Agreement, including, without limitation, any dispute over the payment of
indemnification pursuant to the provisions of Section 6.6, except to the extent
otherwise set forth herein, and except with respect to matters that are to be
resolved solely in the discretion of a particular class of Member(s) or their
designated representatives to the Board. Nothing herein is intended to limit the
Members from resolving informally between them any dispute, controversy or claim
that may arise, and thereby avoiding the necessity of using the Dispute
Resolution Procedures.
10.11 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be delivered to the
recipient at the address set forth in Exhibit A in person, by courier or mail or
(with written confirmation of delivery) by facsimile, telegram, telex, cablegram
or similar transmission; and a notice, request or consent given under this
Agreement is effective on receipt by the Person to receive it. Whenever any
notice is required to be given by Law, the Delaware Certificate or this
Agreement, a written waiver thereof, signed by the Person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. By giving each other Member notice thereof, a Member
may change its address for notices or add additional addresses for copies of
notices.
- 53 -
10.12 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
10.13 Waiver of Certain Rights. To the extent permitted by the Act and
applicable Law, each Member irrevocably waives any right it may have to maintain
any action for dissolution of the Company. In addition, no Member nor its
Affiliates shall, in any event, be liable to any other Member or any of its
respective Affiliates for any indirect, special or consequential damages of such
other member, including, but not limited to, loss of revenue, cost of capital,
loss of business reputation or opportunity whether such liability arises out of
contract, tort (including negligence), strict liability or otherwise.
10.14 Creditors. None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Company.
10.15 Consent of Members. To the extent certain matters or actions require
the approval of the Class B Members, collectively or as a group (such as
appointment of certain Managers on behalf of the Class B Members or exercising
the rights under Section 8.2), such matter shall be deemed approved by the Class
B Members upon the approval of those Class B Members who, in the aggregate, have
a Class B Unit Sharing Ratio in excess of 50 percent. To the extent that there
is more than one holder of the Class A Units, then those matters that require
the approval of the Class A Members, as a group (such as appointment of certain
Managers on behalf of the Class A Members or exercising the rights under Section
8.2), such matter shall be deemed approved by the Class A Members upon the
approval of those Class A Members who, in the aggregate, have a Class A Unit
Sharing Ratio in excess of 50%.
10.16 Confidentiality.
(a) Each Member agrees that it will not disclose to any Person or otherwise
use to its benefit or to the benefit of any third party, including any Affiliate
of such Member, in any way whatsoever any Confidential Information, without the
consent of the Board or the President and Chief Executive Officer, except as may
be necessary to comply with any Applicable Law, directive or procedure of any
Governmental Authority (including, without limitation, any disclosures that are
required or necessitated under any applicable securities laws or tax laws or
regulations relating to the structure of any transaction contemplated herein or
otherwise). Each Member will notify the Company before disclosing such
information pursuant to any such Applicable Law, directive or procedure to give
the Company the opportunity to seek a protective order. The restrictions set
forth in this Section 10.16 shall not apply to information that (i) is, or after
the date of this Agreement, becomes generally available to the public, other
than through the wrongful act of any Person, (ii) after the date of this
Agreement, is communicated to the Member disclosing such information in a non
confidential manner by a third party without any breach of this Section 10.16 or
breach of any confidentiality obligations of such third party to any of the
Members or (iii) was or is already in the possession of the Person receiving
such information at the time of its disclosure by the Member disclosing such
information, provided,
- 54 -
that such Person came into possession of such information through means other
than that which would constitute a breach of this Section 10.16 or a breach of
the confidentiality obligations of any third party to the Member disclosing such
information. In addition, a Member may disclose such Confidential Information to
its respective Affiliates, and its and their respective officers, directors,
partners, agents, members, managers, employees, advisors, representatives,
co-investors, lenders and potential sources of financing as it deems necessary
(collectively, the "Member Representatives"), insofar as such Member
Representatives have been informed of the confidential nature of the information
and have agreed to maintain the confidentiality thereof and restrict the use
thereof as contemplated herein; and the Member who discloses such information to
its Member Representatives shall be liable for any breach of these obligations
by any of its Member Representatives. This Section 10.16 shall survive with
respect to a former Member for a period of five (5) years after the date that
such Member ceases to be a Member.
(b) A Member that subsequently ceases to be a Member shall promptly destroy
(and provide a certificate of destruction to the Company with respect to), or
return to the Company, all Confidential Information in its possession.
(c) The Members agree that no adequate remedy at law exists for a breach or
threatened breach of any of the provisions of this Section 10.16, the
continuation of which unremedied will cause the Company to suffer irreparable
harm. Accordingly, the Members agree that the Company shall be entitled, in
addition to other remedies that may be available to them, to immediate
injunctive relief from any breach of any of the provisions of this Section 10.16
and to specific performance of their rights hereunder, as well as to any other
remedies available at law or in equity.
[Signature Page Follows]
- 55 -
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
Effective Date.
Class A Member:
Cherokee Energy Partners LLC
a Delaware limited liability company
By: /s/ Xxxxxxxxxxx X. Xxxxxxx
-------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: Vice President and Treasurer
Class B Members:
Quest Energy Service, Inc.
a Kansas corporation
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer
STP Cherokee, Inc.
an Oklahoma corporation
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer
Ponderosa Gas Pipeline Company, Inc.
a Kansas corporation
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer
Quest Oil & Gas Corporation
a Kansas corporation
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer
Producers Service, Incorporated
a Kansas corporation
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer
X-X Gas Gathering, L.L.C.
a Kansas limited liability company
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Manager
EXHIBIT A
UNIT OWNERSHIP
Net Agreed Value
Name and Address of Members Class A Unit Class B Unit of Capital
Ownership Ownership Contributions
--------- --------- -------------
Cherokee Energy Partners LLC 10,000 Class A Units 0 Class B Units $100.00
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Telephone: 000.000.0000
Facsimile: 617.867.4698
Quest Energy Service, Inc. 0 Class A Units 196 Class B Units $1,000,000
0000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telephone: 000.000.0000
Facsimile: 405.840.9897
STP Cherokee, Inc. 0 Class A Units 3,726 Class B Units $19,000,000
0000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telephone: 000.000.0000
Facsimile: 405.840.9897
Ponderosa Gas Pipeline Company, Inc. 0 Class A Units 335 Class B Units $1,710,000 (3.35%)
0000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telephone: 000.000.0000
Facsimile: 405.840.9897
Quest Oil & Gas Corporation 0 Class A Units 4,790 Class B Units $24,430,000)
0000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telephone: 000.000.0000
Facsimile: 405.840.9897
Producers Service, Incorporated 0 Class A Units 71 Class B Units $360,000
0000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telephone: 000.000.0000
Facsimile: 405.840.9897
Exhibit A - Page 1
Net Agreed Value
Name and Address of Members Class A Unit Class B Unit of Capital
Ownership Ownership Contributions
--------- --------- -------------
X-X Gas Gathering, L.L.C. 0 Class A Units 882 Class B Units $4,500,000
0000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telephone: 000.000.0000
Facsimile: 405.840.9897
TOTALS 10,000 Class A Units 10,000 Class B Units $51,000,100
Exhibit A - Page 2
EXHIBIT B
The Units represented by this Certificate have been acquired for investment and
were issued without registration under the Securities Act of 1933, as amended
(the "Securities Act"), or under the securities laws of any state. These
interests may not be sold, pledged, hypothecated, or otherwise transferred at
any time except (i) in accordance with the restrictions contained in Amended and
Restated Limited Liability Company Agreement of Quest Cherokee, LLC (the "LLC
Agreement"), as amended from time to time, among the members of Quest Cherokee,
LLC and the other parties thereto (including, without limitation, the Transfer
Restrictions, as defined therein), and (ii) pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws unless an exemption from registration under the Securities Act
and under any applicable state securities laws is available in connection with
the transfer. This Certificate evidences a membership interest in the Company
and shall be a security for purposes of Article 8 of the Uniform Commercial Code
as in effect in the State of Delaware.
Certificate Evidencing Class ___ Units
Representing Member Interests in
QUEST Cherokee, LLC
No. Class ___ Units
In accordance with Section 3.3 of the Amended and Restated Limited
Liability Company Agreement of Quest Cherokee, LLC, dated as of December 22,
2003, as amended, supplemented or restated from time to time (the "LLC
Agreement"), Quest Cherokee, LLC, a Delaware limited liability company (the
"Company"), hereby certifies that ________________ (the "Holder") is the
registered owner of Class Units representing membership interests in the Company
(the "Units") transferable on the books of the Company, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed and
accompanied by a properly executed application for transfer of the Units
represented by this Certificate. The rights, preferences and limitations of the
Units are set forth in, and this Certificate and the Units represented hereby
are issued and shall in all respects be subject to the terms and provisions of,
the LLC Agreement. Copies of the LLC Agreement are on file at, and will be
furnished without charge on delivery of written request to the Company at, the
principal office of the Company located at 0000 Xxxxx Xxxxxxx, Xxxxx 000,
Xxxxxxxx Xxxx, Xxxxxxxx 00000.
The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Member and to have agreed to comply with
and be bound by and to have executed the LLC Agreement, (ii) represented and
warranted that the Holder has all right, power and authority and, if an
individual, the capacity necessary to enter into the LLC Agreement and (iii)
made the waivers and given the consents and approvals contained in the LLC
Agreement.
Exhibit B-Page 1
This Certificate shall not be valid for any purpose unless it has been
signed and registered by the Company.
Dated:__________________________________
Quest Cherokee, LLC
By: ___________________________________
Name:___________________________________
Title:__________________________________
Exhibit B-Page 2
EXHIBIT C
DISPUTE RESOLUTION PROCEDURES
1. General Procedure. The Members shall use the procedure set forth in
this Exhibit C to resolve in good faith any dispute, controversy or claim
related to the Agreement, including any dispute over the performance, breach,
termination or interpretation of the Agreement; provided, however, that a Member
may seek equitable relief prior to using the procedure set forth in this Exhibit
C if, in the reasonable judgment of such Member, such Member will suffer
irreparable harm if such equitable relief is not granted. Nothing herein is
intended to limit the Members from resolving informally between them any
dispute, controversy or claim that may arise.
2. Submission To Board. Any Member may request that any dispute,
controversy or claim arising under the Agreement be submitted to the Board, in
accordance with such procedures as the Board may establish and with such
explanation or documentation as the Members deem appropriate to aid the Board in
its consideration of the issues presented. The date the matter is first
considered by the Board as an agenda item at a regular or special meeting of the
Board shall be referred to as the "Submission Date." The Board shall attempt in
good faith, through the process of discussion and negotiation, to resolve within
20 days after the Submission Date any dispute, controversy or claim presented to
it.
3. Mediation. If the Board cannot resolve any dispute, controversy or
claim submitted to it within 20 days after the Submission Date, or if the
dispute, controversy or claim arose prior to the Closing Date, the Members shall
attempt in good faith to settle the matter by submitting the dispute,
controversy or claim to mediation within 30 days after the Submission Date (if
the dispute, controversy or claim arose after the Closing Date), using any
mediator upon which they mutually agree. If the Members are unable to agree
mutually upon a mediator within 15 days after submitting to mediation, the case
shall be referred to the Tulsa, Oklahoma office of the American Arbitration
Association ("AAA") for mediation. The cost of the mediator will be paid by the
Company unless the Members otherwise agree.
4. Arbitration.
4.1 All Disputes Arbitration. Subject to Section 10.10 of the Agreement,
all disputes between the Members arising under the Agreement and not resolved
through negotiation or mediation shall be submitted to arbitration in accordance
with Section 4 of this Exhibit C, and the Members hereby expressly waive all
rights to have any such disputes heard before a court of law, except the right
to enforce an arbitration award as described in Section 4.5 of this Exhibit C
below. Arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
ss.1, et seq., and not by the arbitration acts, statutes or rules of any other
jurisdiction.
4.2 Procedure. In the event the Members are unable to resolve a dispute
arising under the Agreement after exercising good faith efforts to do so
pursuant to the procedures of Sections 2 and 3 of this Exhibit C, any Member may
require that the matter be resolved through binding arbitration by submitting a
written notice to the Other Members. The notice shall name the noticing Member's
arbitrator and shall contain a statement of the issue(s) presented for
arbitration. Within 15 days after receipt of a notice of arbitration, the Other
Members shall
Exhibit C-Page 1
jointly select one arbitrator by written notice and may designate any additional
issue(s) for arbitration. The two named arbitrators shall select the third
arbitrator within fifteen days after the date on which the second arbitrator was
named. Should the two arbitrators fail to agree on the selection of the third
arbitrator, any Member shall be entitled to request the Senior Judge of the
United States District Court of the Southern District of Texas to select the
third arbitrator. If the Senior Judge refuses or is unable to select the third
arbitrator, the Members shall ask the AAA to appoint the third arbitrator, it
being understood, however, that the AAA shall not act as administrator of the
arbitration. All arbitrators shall be qualified by education or experience
within the oil and gas or energy industry (to the extent relevant) to decide the
issues presented for arbitration. No arbitrator shall be a current or former
director, officer or employee of any Member, or any of its Affiliates; an
attorney (or member of a law firm) who has rendered legal services to any
Member, or its Affiliates, within the preceding three years; or an accountant
(or member of an accounting firm) who has rendered accounting or consulting
services to any Member or its Affiliates, within the preceding three years; or
an owner of any debt or equity securities (including but not limited to common
or preferred stock or any derivatives thereof) of any Member or its Affiliates.
4.3 Arbitration Hearings. The three arbitrators shall commence the
arbitration hearing within 25 days following the appointment of the third
arbitrator, or at such later date as the Members may agree. The proceeding shall
be held at a mutually acceptable site in Houston, Texas. If the Members are
unable to agree on a site, the arbitrators shall select a site. The arbitrators
shall have the authority to establish rules and procedures governing the
arbitration hearing. Each Member shall have the opportunity to present its
evidence at the hearing. The arbitrators may call for the submission of
pre-hearing statements of position and legal authority. The arbitration panel
shall not have the authority to award punitive or exemplary damages, nor shall
the arbitration panel have any authority to terminate the Agreement unless that
issue is made subject to arbitration under the express terms of the Agreement.
The arbitrators' decision must be rendered within 30 days following the
conclusion of the hearing or submission of evidence, but no later than 90 days
after appointment of the third arbitrator.
4.4 Arbitration Decision. The decision of the arbitrators, or a majority
of them, shall be in writing and shall be final and binding upon the Members as
to the issue submitted. Each Member shall bear the expense and cost of own
attorneys and witnesses. The expense and cost of the arbitrators shall be borne
by the Company or as the arbitrators may otherwise determine is just and
equitable.
4.5 Enforcement of Award. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. The prevailing
Member or Members shall be entitled to reasonable attorneys' fees in any court
proceeding necessary to enforce or collect any award or judgment rendered by the
arbitrators.
Exhibit C-Page 2
EXHIBIT D
LIST OF APPRAISERS
1. Xxxxx Xxxxx
2. Xxxxxx, Galespie & Associates, Inc.
3. Xxxxxx and Xxxxx, Ltd.
Exhibit D-Page 1
EXHIBIT E
TRANSFER RESTRICTIONS
1.1 General. No Member may directly or indirectly Transfer all or any
portion of its Units except in accordance with this Exhibit E and the other
provisions of the Agreement. A Person acquiring any interest in Unit in
accordance with the terms hereof shall execute and deliver to the Company a
counterpart or copy of this Agreement or any other instrument containing a
ratification of and consent to be bound by the terms and provisions of this
Agreement, provided that the failure to execute and deliver any such instrument
shall not be deemed to relieve such Person of the restrictions imposed by this
Agreement. Any attempted Transfer of Units not in accordance with the terms of
the Agreement and this Exhibit shall be null and void and shall have no effect.
1.2 Member Consent.
(a) No Class B Member may Transfer any Class B Units to any Person (other
than to an Affiliate of such Class B Member, or other than to the Class A Member
or the Class A Member's designee) without such Class B Member first obtaining
the prior written consent of the Class A Member, which consent may be withheld
in the Class A Member's discretion; provided, however, that, upon a transfer of
any Units to an Affiliate by such Class B Member, the transferring Class B
Member shall remain liable for all of its obligations hereunder and shall,
together with its Affiliate transferee, be jointly and severally liable for all
such obligations; provided further, however, that no consent of the Class A
Member will be required to Transfer the Class B Units of a Class B Member from
and after the Buy-Sell Point, however the Class B Members and the Transfer of
the Class B Units shall continue to be subject to the provisions of Sections 1.4
and 1.8 of this Exhibit E; provided further, however, that the Class A Member
acknowledges that it has consented to a pledge by the Class B Members of their
Class B Units under the terms of the Senior Debt Documents existing as of the
Effective Date and a pledge under that certain Pledge Agreement dated as of the
Effective Date, executed by the Class B Members, granting a subordinated lien to
CPL.
(b) The Class A Member may not Transfer any Class A Units to any Person
during the period through and including the third anniversary of the Effective
Date without the Class A Member first obtaining the prior written consent of the
Board representatives appointed by the Class B Members ("Class B Board
Representatives"), which consent may be withheld in the Class B Board
Representatives' discretion prior to the second anniversary of the Effective
Date, but which consent shall not be unreasonably withheld, conditioned or
delayed after the second anniversary of the Effective Date and prior to the
third anniversary of the Effective Date, except that notwithstanding the above
the consent of the Board representatives appointed by the Class B Members shall
not be required (and the Class A Member may freely Transfer its Class A Units)
in the event (i) such Transfer is to an Affiliate of the Class A Member; (ii)
such Transfer is to Class B Members under Section 8.2 of the Agreement; (iii)
any Class B Member is in default of any material provision of the this Agreement
or any of the Related Agreements; or (iv) such Transfer would occur after the
third anniversary of the Effective Date.
Exhibit E-Page 1
1.3 Transfer Requirements. Notwithstanding anything to the contrary
contained herein, (including with respect to Transfers to Affiliate), the
Company shall not recognize for any purpose any purported Transfer unless:
(a) the Company shall have been furnished with the documents effecting
such Transfer executed and acknowledged by both transferor and transferee,
together the written agreement of the transferee to become a party to and be
bound by this Agreements and any other applicable rules and regulations, as
amended or supplemented from time to time;
(b) such Transfer shall have been made in accordance with all applicable
laws and regulations and all necessary governmental consents shall have been
obtained and requirements satisfied, including without limitation, compliance
with the Securities Act of 1933, as amended, and applicable state blue sky and
securities laws, and the rules and regulations of the Federal Energy Regulatory
Commission thereunder, as amended or supplemented from time to time;
(c) such Transfer will not cause the Company to have more than 100
partners (within the meaning of Regulations Section 1.7704-1(h)) or does not
otherwise cause the Company to be treated as a "publicly traded partnership"
within the meaning of Section 7704 of the Code;
(d) such Transfer will not result in a termination of the Company for
purposes of Section 708 of the Code;
(e) all necessary instruments reflecting such admission shall have been
filed in each jurisdiction in which such filing is necessary in order to qualify
the Company to conduct business or to preserve the limited liability of the
Members;
(f) such Transfer would not, if made within the United States, be
registered under the Securities Act of 1933 and will not cause the Company to be
required to register as an "investment company" under the Investment Company Act
of 1940; and
(g) such Transfer does not violate the other provisions of the Agreement
and this Exhibit.
The non-Transferring Member may request an opinion of counsel (the cost of which
shall be borne by the Transferring Member) with respect to any of the foregoing
or any other matters that the Board of Managers reasonably deems appropriate in
respect of any such Transfer. In addition, the Members, upon unanimous consent,
may waive any of the foregoing provisions.
1.4 Tag-Along Rights. Subject to the other provisions of this Exhibit E
(including, without limitation, the consent requirements in Section 1.2(a) of
this Exhibit E above and the provisions of Section 1.5 of this Exhibit E, in the
event that any Class B Member desires to Transfer all or any portion of its
Class B Units other than to the Class A Member or to an Affiliate of Such Class
B Member, as permitted under Section 1.2(a) of this Exhibit E (a "Third Party
Purchaser"), such Class B Member shall give written notice thereof (the
"Triggering Notice") to the Class A Member not later than sixty (60) days prior
to the consummation of the proposed Transfer. The Triggering Notice shall state
the identity of the Third Party Purchaser, the consideration therefor to be paid
by the Third Party Purchaser and the other material terms and conditions of the
proposed Transfer. If the Class A Member approves the proposed Transfer
Exhibit E-Page 2
pursuant to Section 1.2(a) of this Exhibit E and does not otherwise elect to
exercise its rights under Section 1.5 of this Exhibit E, the Class A Member
shall also have a period of twenty (20) days from receipt of the Triggering
Notice to determine whether the Class A Member may require a number of its Class
A Units equal to the number of Class B Units being offered to be included in the
proposed Transfer upon the same terms and conditions (other than price) as
applicable to and as stated in the Triggering Notice (the "Tag-Along Rights");
provided, however, that the price to be paid per Class A Unit by the Third Party
Purchaser shall not be less than the Specified Price Per Class A Unit. In the
event the Class A Member shall elect to exercise its Tag-Along Rights, the Class
A Member shall give written notice thereof (the "Tag-Along Notice") to such
Class B Member(s) not later than the 20th day from receipt of the Triggering
Notice. If the Class A Member shall fail to deliver the Tag-Along Notice to such
Class B Member on or before expiration of such twenty (20) day period, the Class
A Member shall be deemed to have elected not to exercise such Tag-Along Rights.
In the event the Third Party Purchaser fails or refuses to purchase any of the
Class A Units to be sold in connection with the exercise by the Class A Member
of its Tag-Along Rights, then any prior approval by the Class A Member of the
proposed Transfer by the Class B Member of its Class B Units to such Third Party
Purchaser shall be deemed retracted and void. In addition, if the Class A Member
is the holder of a loan to the Company or the other Member (including, without
limitation, the Subordinated Note and Subordinated Debt), then in addition to
the payment of the Specified Price per Class A Unit, as a condition to closing,
the Third Party Purchaser shall pay the Class A Member any outstanding principal
and accrued but unpaid interest (or proportionate amount thereof in the case of
a Transfer of the Class A Units which is less than all of the Class A Member's
Units) on all such loans and upon receipt of such payments, the Class A Member
shall assign all (or a proportionate amount, as applicable) of the outstanding
principal (and accrued interest thereon) under any such loans to the Third Party
Purchaser.
1.5 Right of First Offer. Subject to the consent provisions of this
Exhibit E (including, without limitation, the consent requirements under Section
1.2 of this Exhibit E above) and the other Transfer Restrictions, to the extent
applicable, if the Class A Member at any time desires to Transfer any of its
Units (the "Specified Interest"), the Class A Member shall first give notice
thereof (the "Offer Request") to the Class B Members of the desire to sell such
Units and request the Class B Members (collectively) to make an offer to
purchase the Specified Interest. In the event the Class B Members are interested
in purchasing such Specified Interest, the Class B Members (collectively) must:
(i) within sixty (60) days following the date of the Offer Request, deliver to
the Class A Member a written, binding offer to purchase the Specified Interest
(an "Offer Notice") for a specified, fully funded, cash price therefor ("Offered
Price"), and the Class B Members must provide evidence of any commitment of
funds from all lenders, in a form satisfactory to the Class A Member, to the
extent the Class B Members intend to use third party funds to purchase any
portion of the Specified Interest, (ii) agree that such offer will remain
binding and irrevocable for a period expiring not sooner than ten (10) days
following the end of such sixty (60) day period (the "Offer Period"), and (iii)
must commit, in their offer, to be ready, willing and able to close and
consummate the purchase of the Specified Interest for the Offered Price no later
than thirty (30) days following the expiration of the above-referenced 60-day
period (the "ROFO Closing Date"), if the Class A Member accepts such offer. The
Class A Member shall have the right to accept the offer set forth in the Offer
Notice at any time prior to the expiration of the Offer Period. If the Class A
Member accepts such offer, then the closing shall occur on or before the ROFO
Closing Date, at which time the Class B Members will
Exhibit E-Page 3
purchase the Specified Interest for the Offered Price. In addition, if the Class
A Member is the holder of a loan to the Company or the other Member (including,
without limitation, the Subordinated Note and Subordinated Debt), then in
addition to the payment of the Offered Price as a condition to closing, the
Class B Members shall pay the Class A Member any outstanding principal and
accrued but unpaid interest (or proportionate amount thereof in the case of a
Transfer of a Specified Interest which is less than all of the Class A Member's
Units) on all such loans and upon receipt of such payments, the Class A Member
shall assign all (or a proportionate amount, as applicable) of the outstanding
principal (and accrued interest thereon) under any such loans to the Class B
Members. Upon such receipt of the Offered Price by the Class A Members and the
satisfaction of any other specified terms, the Class A Member shall Transfer all
of its right, title and interest in and to the Specified Interest free and clear
of all liens and encumbrances to the Class B Members. If the Class B Members do
not deliver to the Class A Member the Offer Notice within the period specified
above or they provide such Offer Notice but fail to close the purchase on or
prior to the ROFO Closing Date, then subject to the consent provisions of
Section 1.2 of this Exhibit E, if applicable, the Class A Member may Transfer
the Specified Interest to a third party, subject to the other terms of this
Agreement. If the Class B Members provide such Offer Notice within the time
period specified above but the Class A Member rejects the offer, then the Class
A Member, subject to any consent provisions in Section 1.2(b) (if applicable)
may Transfer the Specified Interest to a third party, insofar as the price
received by the Class A Member therefor exceeds the Offered Price.
1.6 Effective Date of Transfer. Any permitted Transfer of Units shall
become effective as of the first day of the calendar moth during which the
Company receives a copy of the instrument of assignment and such other documents
which the Company may request. The Company shall thereafter pay all further
distributions or profits or other compensation by way of income, or return of
capital, on account of the Units so transferred, to the transferee from such
effective date.
1.7 Involuntary Transfer. An Involuntary Transfer (as hereinafter
defined), shall be deemed a Transfer in violation of this Agreement and this
Exhibit E, and in addition to any other rights and remedies available to the
Nonconflicted Member under this Agreement, at law, or in equity, such
Involuntary Transfer will also trigger certain rights and remedies available to
the Nonconflicted Member under subparagraph 1.8(b) below. An involuntary
Transfer ("Involuntary Transfer") of (i) a Class B Unit shall include any
Transfer (or proposed Transfer) of a Class B Unit (1) pursuant to a pledge,
mortgage or other encumbrance of a Class B Unit granted by a Class B Member to
secure a debt or other obligation (other than to the extent such pledge,
mortgage or other encumbrance is granted to and being enforced or foreclosed by
the Class A Member), (2) pursuant to a bankruptcy or insolvency proceeding of a
Class B Member or QRC, (3) pursuant to a judicial order, legal process,
execution or attachment, (4) pursuant to the dissolution, winding-up,
termination of, or liquidating distribution by, a Class B Member or QRC (except
to the extent that they Transfer such Units in connection therewith to QRC or to
an existing Quest Member), or (5) any other involuntary Transfer not otherwise
provided for herein; provided, however, that to the extent that the Class A
Member (or its designee) acquires any Class B Units pursuant to a pledge,
mortgage, or other encumbrance, such Class A Member shall have all the rights
and benefits of a Class B Member hereunder with respect to such Class B Units
acquired. An involuntary Transfer of a Class A Unit shall include any Transfer
(or proposed Transfer) of a Class A Unit (i) pursuant to a pledge, mortgage or
other encumbrance of
Exhibit E-Page 4
a Class A Unit granted by the Class A Member to secure a debt or other
obligation, (ii) pursuant to a bankruptcy or insolvency proceeding of the Class
A Member, (iii) pursuant to a judicial order, legal process, execution or
attachment, (iv) pursuant to the dissolution, winding-up, termination of, or
liquidating distribution by, the Class A Member, or (v) any other involuntary
Transfer not otherwise provided for herein.
1.8 Change of Control; Exit Transaction.
(a) A Change of Control of any Class B Member, or a Change of Control of
QRC, shall be deemed a Transfer in violation of this Agreement and this Exhibit
E and the other Transfer Restrictions, and in addition to any other rights and
remedies available to the Class A Member under this Agreement, at law, or in
equity, such Change of Control will also trigger certain rights and remedies
available to the Class A Member under Section 1.8(b) of this Exhibit E below. A
Change of Control of the Class A Member prior to the third anniversary of the
Effective Date shall be deemed in violation of this Agreement and the Transfer
Restrictions and such Change of Control will also trigger certain rights and
remedies available to the Class B Members (collectively) under Section 1.8(b) of
this Exhibit E.
(b) Following either:
(i) a Change of Control of QRC or a Change of Control of any
Class B Member without the prior written consent of the Class A
Member, or following an Involuntary Transfer (as described in Section
1.7 of this Exhibit E above), the Class A Member (in addition to any
other rights or remedies available to it under this Agreement, this
Exhibit E, at law or in equity) shall have the right at any time
thereafter within forty-five (45) days following the date it becomes
aware of such Change of Control, Involuntary Transfer or attempted
Transfer in violation hereof to provide a notice (the "Exit Notice")
to the Class B Members, or
(ii) a Change of Control of the Class A Member prior to the
third anniversary of the Effective Date or an Involuntary Transfer by
the Class A Member prior to the third anniversary of the Effective
Date, the Class B Members (collectively) shall have the right at any
time thereafter within forty-five (45) days following the date it
becomes aware of such Change of Control, Involuntary Transfer or
attempted Transfer in violation hereof to provide an Exit Notice to
the Class A Member,
as the case may be, that it (or they) desires to pursue an Exit Transaction.
Upon the giving of an Exit Notice, a Conflict Circumstance will be deemed to
have occurred and, for purposes hereof, the Members providing the Exit Notice
will be deemed to be the Nonconflicted Member and therefore all actions on the
part of the Company in pursuing an Exit Transaction may be taken by the Board
representatives of the Member(s) providing the Exit Notice. For purposes hereof,
an "Exit Transaction" shall mean a sale of all or substantially all of the
assets of the Company, a merger, consolidation, interest exchange or similar
transaction with a Person that is not an Affiliate of the Member(s) providing
the Exit Notice the effect of which would be that the Members would receive cash
or other consideration in return for their respective Interests. An
Exhibit E-Page 5
Exit Transaction pursuant to an Exit Notice must be closed within eighteen (18)
months after the date of the Exit Notice, or else the right to pursue an Exit
Transaction pursuant to the specified event which gave rise to the Exit Notice
shall terminate, but the provisions of this Section 1.8 will continue to apply
with respect to any subsequent Change of Control, Involuntary Transfers or other
attempted Transfers in violation of the Transfer Restrictions to the extent
otherwise provided in Section 1.8(a), 1.8(b)(i) and 1.8(b)(ii) above.
Notwithstanding anything stated herein to the contrary, to the extent that such
Exit Transaction would otherwise require the consent or approval of the other
Members (the Conflicted Members) or the Board representatives of the other
Members (the Conflicted Members), whether under Applicable Law, under this
Agreement or otherwise, such other Members (the Conflicted Members) shall (and
shall direct their Board representatives) to approve the Exit Transaction and
the consummation of the Exit Transaction, in accordance with the terms
negotiated by the Board representatives of the Member(s) providing the Exit
Notice, and to approve the delegation of all further required authority to the
Board representatives of the Member(s) providing the Exit Notice to negotiate
and cause the consummation of the Exit Transaction.
1.9 Failure to Exercise Options. Notwithstanding the failure of any Member
to exercise the options granted herein within the respective times and in the
manner specified, all Units, or any right or interest therein, shall remain
subject at all times to the terms and provisions of this Agreement and such
Unit, or any right or interest therein, may not thereafter be Transferred except
in accordance with all applicable terms and provisions hereof.
1.10 Remedies. Each Member acknowledges that this Agreement and this
Exhibit E represents a reasonable and necessary protection of the legitimate
interests of the Members and that any Member's failure to observe and comply
with the covenants and agreements contained herein may cause irreparable harm to
the Company and its Members. It is expressly understood and agreed by each
Member that it is and will continue to be difficult to ascertain the nature,
scope and extent of the harm resulting from breach of these covenants and that a
remedy at law for such breach by such Member will be inadequate. Accordingly, it
is the intention of each Member that, in addition to any other rights and
remedies at law that the other Members may have in the event of any breach or
threatened or attempted breach of this Agreement by a Member, the other Members
shall be entitled to demand and obtain specific performance, including all
appropriate injunctive and other equitable relief against such Member, in order
to enforce against such Member, or to prevent any breach or any threatened or
attempted breach by such Member of, the covenants and agreements contained in
this Agreement. In furtherance of the foregoing, each Member agrees to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief. In enforcing any
rights hereunder, the Company may hold and refuse to transfer any Unit, or any
certificate therefor, tendered to it for Transfer, in addition to, and without
prejudice to, any and all other rights or remedies which may be available to it
or to the Members.
1.11 Legends on Unit Certificates. The face of each Unit Certificate shall
bear the following endorsement (which shall be made conspicuous by using capital
letters, or bold-face or contrasting type, underlining or similar means):
The Units represented by this Certificate have been acquired for
investment and were issued without registration under the Securities Act
of 1933, as
Exhibit E-Page 6
amended (the "Securities Act"), or under the securities laws of any state.
These interests may not be sold, pledged, hypothecated, or otherwise
transferred at any time except (i) in accordance with the restrictions
contained in Amended and Restated Limited Liability Company Agreement of
Quest Cherokee, LLC (the "LLC Agreement"), as amended from time to time,
among the members of Quest Cherokee, LLC and the other parties thereto
(including, without limitation, the Transfer Restrictions, as defined
therein), and (ii) pursuant to an effective registration statement under
the Securities Act and any applicable state securities laws unless an
exemption from registration under the Securities Act and under any
applicable state securities laws is available in connection with the
transfer. This Certificate evidences a membership interest in the Company
and shall be a security for purposes of Article 8 of the Uniform
Commercial Code as in effect in the State of Delaware.
In addition to the foregoing legends, a copy of this Agreement shall be
placed on file at the principal place of business and at the registered office
of the Company. Each Member agrees from time to time promptly to submit or cause
to be submitted to the Secretary of the Company all Unit certificates owned by
such Member of record for the purpose of having the above referred to legend
stamped or endorsed thereon or having new Unit certificates, of the same
denomination or denominations and legend as aforesaid, issued in exchange
therefor.
Exhibit E-Page 7
EXHIBIT F
NON-COMPETITION AGREEMENT
Exhibit F-Page 1
EXHIBIT G
CHEROKEE BASIN
"Cherokee Basin" shall consist of the area contained within the Counties listed
below:
STATE OF KANSAS
---------------
Xxxxx County
Chautauqua County
Xxxxxx County
Elk County
Greenwood County
Labette County
Xxxxxxxxxx County
Neosho County
Xxxxxx County
Xxxxxxx County
STATE OF OKLAHOMA
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Xxxxx County
Nowata County
Exhibit G-Page 1
