Exhibit 10.6
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") dated as of December 22,
2003 (the "Effective Date") is entered into by and between QUEST CHEROKEE, LLC,
a Delaware limited liability company (the "Company"), CHEROKEE ENERGY PARTNERS
LLC, a Delaware limited liability company ("Investor"), QUEST OIL & GAS
CORPORATION, a Kansas corporation ("QOG"), QUEST ENERGY SERVICES, INC., a Kansas
corporation ("QES"), STP CHEROKEE, INC., an Oklahoma corporation ("STPC"),
PONDEROSA GAS PIPELINE COMPANY, INC., a Kansas corporation ("PGPL"), PRODUCERS
SERVICE, INCORPORATED, a Kansas corporation ("PSI"), X-X GAS GATHERING, LLC, a
Kansas limited liability company ("JW"), and QUEST RESOURCE CORPORATION, a
Nevada corporation (together with its subsidiaries and Affiliates, whether now
existing or created during the term hereof, "QRC;" and QRC and together with
Investor, QOG, QES, STPC, PGPL, PSI and JW collectively the "Promisors" and each
individually a "Promisor").
WHEREAS, pursuant to Section 3.02(k) of the Membership Interest Purchase
Agreement of even date herewith by and among the parties hereto (other than QRC)
(the "Purchase Agreement"), it is a condition to the closing of Investor's
purchase of 10,000 Class A Units of the Company and certain other loan
transactions that the Investor is entering into with the Company (collectively,
the "Investor Transaction") that the Promisors enter into this Agreement with
the Company.
WHEREAS, QRC (i) owns, directly or indirectly, all of the capital stock or
membership or equity interests of QOC, QES, STPC, PGPL, PSI and JW and (ii) has
determined that its execution, delivery and performance of this Agreement
directly benefits, and are in the best interest of, QRC.
WHEREAS, each of the Promisors has determined that its execution, delivery
and performance of this Agreement directly benefits, and are in the best
interest of, such Promisor.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth below, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Non-Competition.
1.1. Definitions.
(a) "Affiliate" or "Affiliates" means, with respect to a Person, any Person
that, directly or indirectly or through one or more intermediaries, controls, is
controlled by or is under common control with such Person; provided that it
shall not include any Person that would be an "Affiliate" of Investor other than
ArcLight Energy Partners Fund I, L.P. Any reference to the term "Affiliate" of
any Promisor herein shall not include the Company and any reference to
"Affiliates" of the Company herein shall not include any of the Promisors.
(b) "Area" 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 A and any other area, state
or foreign country in which the Company begins to conduct Business during the
term hereof.
(c) "Business" means the business of acquiring, owning, operating,
exploring, developing and selling properties (or interests therein) related to
the discovery, collection and sale of coal bed methane and gathering and
marketing of such properties or coal bed methane, and any other regular
commercial activity of the Company and the Affiliates of the Company, whether
now in existence or engaged in any time during the term hereof.
(d) "Company Information" shall mean Trade Secrets and other confidential
and non-public information of, or related to, the Company.
(e) "Competing Activities" means a business, commercial enterprise or
endeavor competitive with the Business.
(f) "Person" means a person, firm, corporation, company, limited liability
company, association or entity.
(g) "Restricted Period" means, with respect to each Promisor, the term
beginning on the date hereof and ending on the date that is two (2) years
following the date such Promisor's ownership, and the ownership of all other
Affiliates of such Promisor, in the Company ceases.
(h) "Trade Secrets" means business or technical information of the
Business, including but not limited to a formula, pattern, program, device,
compilation of information, method, technique, or process that: (i) derives
independent actual or potential commercial value (whether actual, potential or
both) from not being generally known or readily ascertainable through
independent development or reverse engineering by persons who can obtain
economic value from its disclosure or use; and (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Trade
Secrets shall specifically include, without limitation, information relating to
the design, manufacture, formulas, patterns, compilations, programs, devices,
methods, techniques, processes, applications, know-how, research and development
relating to the Business' present, past or prospective products and/or computer
programs. Trade Secrets shall not include any data or information that (A) has
been voluntarily disclosed to the public by the Company, (B) has been
independently developed and disclosed to the public by others, (C) otherwise
enters the public domain through lawful means, or (D) is lawfully and rightfully
disclosed to a Promisor following the date hereof by another party.
1.2. Acknowledgement by Promisors.
Each Promisor acknowledges that (a) it is familiar with the Company
Information; (b) the Business is conducted throughout the Area; (c) the
provisions of this Agreement are reasonable and necessary to protect and
preserve the Business; (d) the Business would be irreparably damaged if it were
to breach the covenants set forth in this Agreement; and (e) the Company would
not have entered into the Purchase Agreement without its entering into this
Agreement; and (f) each Promisor would not have entered into the Purchase
Agreement and the other Investor Transaction but for each of the other
Promisor's entering into this Agreement.
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1.3. Restrictive Covenants.
Each Promisor covenants and agrees that, during the Restricted Period:
(a) it will not, directly or indirectly, engage or participate, or permit
any of its Affiliates to engage or participate, in any Competing Activities
within the Area, including, without limitation, as an employee, consultant,
independent contractor or other capacity, or invest in, purchase or acquire
assets of, lend money or other property to, own, manage, operate, control, or
otherwise participate in the ownership, management, operation, or control of,
lend its name or any similar name to, any person, entity or business then
engaged in Competing Activities within the Area. In the event any Person in
which ArcLight Energy Partners Fund I, L.P. has an investment as of the date
hereof seeks or requests such fund's approval or consent to engage in Competing
Activities in the Area, then ArcLight Energy Partners Fund I, L.P. shall not
support or consent to such activities. Each Promisor agrees that this covenant
is reasonable with respect to its duration, geographical area, and scope.
(b) it will not, directly or indirectly, (i) enter into or engage in any
discussions or negotiations or assist in such actions to induce or encourage or
attempt to induce or encourage any employee of the Business to leave the employ
of the Company or any Affiliate of the Company or in any way interfere with the
relationship between the Company or any Affiliate of the Company and any such
employee, or (ii) with respect to or in connection with Competing Activities, to
induce or attempt to induce any customer, supplier, licensee, or business
relation of the Business, within the Area, to cease doing business or to
interfere with relationships with the Company or any Affiliate of the Company.
2. Term; Termination. The term of this Agreement shall commence on the date
hereof and end at the expiration of the Restricted Period.
3. Remedies. Each Promisor acknowledges and recognizes that a breach of any
of the covenants set forth in this Agreement would result in serious harm to the
Company for which monetary damages would not be an adequate remedy and that the
amount of such damages may be difficult to determine; therefore, if any Promisor
breaches the covenants set forth in this Agreement, the Company will be
entitled, in addition to any other rights it may have, to obtain injunctive or
other equitable relief in addition to any other available legal or equitable
remedies without the necessity of posting a bond to restrain any breach or
threatened breach or otherwise to specifically enforce the provisions of this
Agreement, it being agreed that monetary damages alone would be inadequate to
compensate the Company and would be an inadequate remedy for such breach. The
rights and remedies of the parties to this Agreement are cumulative and not
alternative. The existence of any claim or cause of action of any Promisor
against the Company or any other Promisor whether predicated on this Agreement,
the Purchase Agreement, the Investor Transaction or otherwise, shall not
constitute a defense to the enforcement by the Company or any such Promisor of
these covenants and agreements. Each Promisor and the Company hereby acknowledge
and agree that (i) the foregoing covenants are for the benefit of the Company
and each Promisor, (ii) each Promisor has the right to enforce the provisions
hereof for itself or on behalf of the Company, (iii) in the event any such
Promisor elects to enforce this
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Agreement, it shall have all of the rights and remedies available to the Company
hereunder and (iv) in the event any Promisor is unable to cause any of their
Affiliates that are subject to the restrictions set forth herein to comply with
the terms and conditions set forth in this Agreement, then such Promisor will be
liable for any damages, losses or other liabilities resulting from such
non-compliance.
4. Severability. It is the express intention of the parties hereto to
comply with all laws that may be applicable to Section 1 and other Sections of
this Agreement. Whenever possible each provision and term of this Agreement will
be interpreted in a manner to be effective and valid but if any provision or
term of this Agreement is held to be prohibited or invalid, then such provision
or term will be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of this
Agreement. If any of the covenants set forth in Section 1 or other Sections of
this Agreement are held to be unreasonable, arbitrary or against public policy,
such covenants will be considered divisible and modifiable with respect to
scope, time, and geographic area, so as to be enforceable and in such different
scope, time and geographic area will be effective, binding and enforceable
against the Promisors.
5. Governing Law, Arbitration. This Agreement shall be construed,
interpreted, and the rights of the parties determined in accordance with, the
laws of the State of Kansas except with respect to matters of law concerning the
internal affairs of any corporate or Company entity which is a party to or the
subject of this Agreement, and as to those matters the law of the state of
incorporation or organization of the respective entity shall govern. Any dispute
under this Agreement between the parties hereto shall be settled by arbitration
in accordance with Section 10.10 of that certain Amended and Restated Limited
Liability Company Agreement among the Promisors.
6. Additional Instruments. From time to time hereafter and without further
consideration, each Promisor agrees to execute and deliver such additional or
further instruments and take such actions as the Company or Investor may
reasonably request in order to more effectively effectuate the covenants and
agreements herein set forth or as shall be reasonably necessary or appropriate
in connection with the carrying out of the parties' obligations hereunder or the
purposes of this Agreement.
7. Entire Agreement and Amendments. This Agreement, the Purchase Agreement
and the other agreements relating to the other Investor Transactions contain the
entire agreement of the Promisors and the Company relating to the matters
contained herein and supersedes all prior agreements and understandings, oral or
written, between any Promisor and the Company with respect to the subject matter
hereof. This Agreement may not be amended or modified except by an agreement in
writing signed by the party against whom enforcement of any waiver or
modification is sought.
8. Assignments. The Company may assign this Agreement to any person or
entity succeeding to all or substantially all the business interests of the
Company by merger or otherwise. The rights and obligations of each Promisor
under this Agreement are personal to it, and none of those rights, benefits or
obligations will be subject to voluntary or involuntary alienation, assignment
or transfer, except as otherwise contemplated hereby; provided however,
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that Investor may sell, transfer or assign its rights under this Agreement to
any Person to which it sells, transfers or assigns all or any portion of its
Class A Membership Interest in the Company and each of the other Promisors may
sell, transfer or assign its rights under this Agreement to any Person to which
it sells, transfers or assigns all or any portion of its Class B Membership
Interest in the Company.
9. Effect of Agreement. Subject to the provisions of Section 10 with
respect to assignments, this Agreement will be binding on each Promisor and its
respective successors and assigns and on the Company and its successors and
assigns, except as otherwise contemplated hereby.
10. Execution. This Agreement may be executed in multiple counterparts,
each of which will be deemed an original and all of which will constitute one
and the same agreement.
11. Waiver of Breach. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by another party will not operate or be
construed as a waiver by the waiving party(ies) of any subsequent breach by such
other party.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement effective as of the date first above written.
QUEST CHEROKEE, LLC
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Manager
CHEROKEE ENERGY PARTNERS LLC
By: /s/ Xxxxxxxxxxx X. Xxxxxxx
-------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: Vice President and Treasurer
QUEST OIL & GAS CORPORATION
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer and Secretary
QUEST ENERGY SERVICES, INC.
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer and Secretary
STP CHEROKEE, INC.
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer and Secretary
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PONDEROSA GAS PIPELINE COMPANY, INC.
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer and Secretary
PRODUCERS SERVICE, INCORPORATED
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer and Secretary
X-X GAS GATHERING, LLC
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Manager
QUEST RESOURCE CORPORATION
By: /s/ Xxxxx Xxxx
-------------------------------
Name: Xxxxx X. Xxxx
Title: Co-Chief Executive Officer and Secretary
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EXHIBIT A
to
Non-Competition Agreement
"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
Xxxxx County
Nowata County
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