Execution Version
OMNIBUS AGREEMENT
THIS OMNIBUS AGREEMENT is made as of December 22, 2006 among QUEST RESOURCE
CORPORATION, a Nevada corporation ("QRC"), QUEST MIDSTREAM GP, LLC, a Delaware
limited liability company ("Quest GP"), BLUESTEM PIPELINE, LLC, a Delaware
limited liability company ("Bluestem") and QUEST MIDSTREAM PARTNERS, L.P., a
Delaware limited partnership (the "MLP"). The above-named entities are sometimes
referred to in this Agreement each as a "Party" and collectively as the
"Parties."
RECITALS:
A. The Parties desire by their execution of this Agreement to evidence
their agreement, as more fully set forth in Article II, with respect to the
non-competition obligations of the QRC Entities (as defined herein).
B. The Parties desire by their execution of this Agreement to evidence
their agreement, as more fully set forth in Article III, with respect to certain
indemnification obligations of the Parties to each other.
C. The Parties desire by their execution of this Agreement to evidence
their agreement, as more fully set forth in Article IV, with respect to the
MLP's reimbursement obligations to QRC for operating expenses, general and
administrative services and insurance coverage expenses.
D. The Parties desire by their execution of this Agreement to evidence
their agreement, as more fully set forth in Article V, with respect to the MLP's
right to purchase from the QRC Entities their midstream assets.
E. The Parties desire by their execution of this Agreement to evidence
their agreement, as more fully set forth in Article VI, with respect to the
MLP's right to bid for new well connections and midstream services beyond the
Cherokee Basin (as defined herein).
In consideration of the premises and the covenants, conditions, and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with the Person in question. As used
herein, the term "control" means the possession of the power to direct the
management of a Person, whether through contract or otherwise.
"Agreement" means this Omnibus Agreement, as it may be amended, modified or
supplemented from time to time.
"Assets" means all assets conveyed, contributed or otherwise transferred by
QRC to the MLP prior to or on the Closing Date, including any such assets held
by a Person whose ownership interests are transferred by the QRC Entities to the
Partnership Group prior to or on the Closing Date, by means of operation of law
or otherwise.
"Change of Control" means with respect to any Person (the "Applicable
Person"), any of the following events: (a) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the Applicable Person's assets to any other Person, unless
immediately following such sale, lease, exchange or other transfer such assets
are owned, directly or indirectly, by the Applicable Person; (b) the
amalgamation, combination, consolidation or merger of the Applicable Person with
or into another Person pursuant to a transaction, or series of related
transactions, other than any such transaction(s) where (i) the holders of the
Voting Securities of the Applicable Person immediately prior to such transaction
own, directly or indirectly, not less than a majority of the outstanding Voting
Securities of the surviving Person or its parent immediately after such
transaction and (ii) the board of directors of the surviving Person is comprised
of a majority of persons who were directors of the Applicable Person immediately
prior to such transaction; or (c) a "person" or "group" (within the meaning of
Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), other than QRC or its Affiliates with respect to Quest
GP, being or becoming the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act) of more than 50% of all of the then outstanding
Voting Securities of the Applicable Person, except in a merger or consolidation
which would not constitute a Change of Control under clause (b) above.
"Cherokee Basin" means the 15-county area comprised of the following
counties: Greenwood, Woodson, Allen, Elk, Xxxxxx, Neosho, Chautauqua, Xxxxxxxxxx
and Labette counties in southeastern Kansas and Nowata, Xxxxx, Tulsa, Xxxxxx,
Osage and Washington counties in northeastern Oklahoma.
"Cherokee System" means the natural gas pipelines and related facilities
now owned or hereafter acquired by the MLP and Bluestem located in the Cherokee
Basin.
"Closing Date" means the date of this Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Units" means common units of limited partnership interest of the
MLP.
"Conflicts Committee" is defined in the Partnership Agreement.
"Contribution Agreement" means the Contribution Agreement among QRC, the
MLP and Bluestem, together with the additional conveyance documents and
instruments contemplated or referenced thereunder of even date herewith.
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"Covered Environmental Losses" means all environmental losses, damages,
liabilities, claims, demands, causes of action, judgments, settlements, fines,
penalties, costs and expenses (including, without limitation, costs and expenses
of any Environmental Activity, court costs and reasonable attorney's and
experts' fees) of any and every kind or character, by reason of or arising out
of:
(i) any violation or correction of violation, including without limitation
performance of any Environmental Activity, of Environmental Laws or
(ii) any event, omission or condition associated with ownership or
operation of the Assets (including, without limitation, the exposure to or
presence of Hazardous Substances on, under, about or migrating to or from the
Assets or the exposure to or release of Hazardous Substances arising out of the
operation of the Assets at non-Asset locations) including, without limitation,
(A) the cost and expense of any Environmental Activities, (B) the cost or
expense of the preparation and implementation of any closure, remedial,
corrective action, or other plans required or necessary under Environmental
Laws, and (C) the cost and expense for any environmental or toxic tort
pre-trial, or appellate legal or litigation support work;
but only to the extent that such violation described in clause (i), or such
events, omissions or conditions described in clause (ii), occurred before the
Closing Date.
"Environmental Activities" means any investigation, study, assessment,
evaluation, sampling, testing, monitoring, containment, removal, disposal,
closure, corrective action, remediation (regardless of whether active or
passive), natural attenuation, restoration, bioremediation, response, repair,
corrective measure, cleanup or abatement that is required or necessary under any
applicable Environmental Law, including, but not limited to, institutional or
engineering controls or participation in a governmental voluntary cleanup
program to conduct voluntary investigatory and remedial actions for the
clean-up, removal or remediation of Hazardous Substances that exceed actionable
levels established pursuant to Environmental Laws, or participation in a
supplemental environmental project in partial or whole mitigation of a fine or
penalty.
"Environmental Laws" means all federal, state, and local laws, statutes,
rules, regulations, orders, and ordinances, now or hereafter in effect, relating
to protection of human health and the environment including, without limitation,
the federal Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"), the Superfund Amendments Reauthorization Act, the Resource
Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Toxic Substances Control Act, the Oil Pollution Act, the Safe
Drinking Water Act, the Hazardous Materials Transportation Act, and other
environmental conservation and protection laws, each as amended from time to
time.
"General Partner" shall have the meaning assigned to such term in the
Partnership Agreement.
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"Hazardous Substance" means (a) any substance that is designated, defined,
or classified as a hazardous waste, hazardous material, pollutant, contaminant,
or toxic or hazardous substance, or that is otherwise regulated under any
Environmental Law, including, without limitation, any hazardous substance as
defined under CERCLA, and (b) petroleum, oil, gasoline, natural gas, fuel oil,
motor oil, waste oil, diesel fuel, jet fuel, and other refined petroleum
hydrocarbons.
"Initial Public Offering" shall have the meaning assigned to such term in
the Partnership Agreement.
"Investor Representatives" shall have the meaning assigned to such term in
the Partnership Agreement.
"Midstream Services and Gas Dedication Agreement" means the Midstream
Services and Gas Dedication Agreement between QRC and Bluestem of even date
herewith.
"MLP" means Quest Midstream Partners, L.P., a Delaware limited partnership.
"MLP Group" means the MLP and any of its subsidiaries.
"Partnership Agreement" means the First Amended and Restated Agreement of
Limited Partnership of Quest Midstream Partners, L.P. of even date herewith.
"Partnership Group" means the MLP, Quest GP and any subsidiary of any such
Person.
"Person" means an individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association or
other entity.
"Private Offering" shall mean the private placement of 4,864,866 Common
Units pursuant to the Purchase Agreement dated of even date herewith.
"QRC Entities" means QRC and its Affiliates, excluding the Partnership
Group.
"Restricted Assets" is defined in Section 2.02(f) of this Agreement.
"Restricted Business" is defined in Section 2.01 of this Agreement.
"Retained Assets" means any assets and investments owned by any of the QRC
Entities that were not conveyed, contributed or otherwise transferred, or
required to be conveyed, contributed or otherwise transferred, to the MLP
pursuant to the Contribution Agreement and other documents relating to the
transactions referred to in the Contribution Agreement.
"Subject Assets" means all midstream assets owned by a QRC Entity after the
date of this Agreement related to a Restricted Business, whether acquired before
or after the date of this Agreement.
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"Third Party Gathering System" means a natural gas gathering system owned
by a Person other than the MLP or a subsidiary of the MLP.
"Transfer" means a sale of all or substantially all of the assets of a
Person, the disposition of more than 50% of the capital stock (or partnership or
membership interests) of a Person or a merger or consolidation that results in
QRC's owning, directly or indirectly, less than 50% of a Person's capital stock
(or partnership or membership interests), but shall exclude transfers or pledges
of assets or capital stock (or partnership or membership interests) of a Person
to a financial institution or other lender in connection with a secured funding
arrangement.
"Voting Securities" means securities of any class of a Person entitling the
holders thereof to vote in the election of members of the board of directors or
other similar governing body of the Person.
ARTICLE II.
BUSINESS OPPORTUNITIES
Section 2.01. Restricted Business. Subject to Section 2.06, and except as
otherwise provided in this Agreement, QRC will be prohibited from engaging in,
and QRC will cause each QRC Entity not to engage in, whether by acquisition,
construction, investment in debt or equity interests of any Person or otherwise,
any of the following businesses (each a "Restricted Business"): (i) the
gathering, treating, processing and transporting of natural gas in North
America, (ii) the transporting and fractionating of natural gas liquids in North
America, (iii) any other midstream activities, including but not limited to
crude oil storage, transportation, gathering and terminaling, (iv) constructing,
buying or selling any assets related to the foregoing businesses, and (v) any
line of business other than those described in (i) through (iv) above that
generates "qualifying income," within the meaning of Section 7704(d) of the
Code, provided, however, that if a Restricted Business described in this clause
(v) is offered to the MLP pursuant to Section 2.02(f)(ii) and the MLP declines
the opportunity to purchase that Restricted Business, such line of business
shall no longer be considered a Restricted Business.
Section 2.02. Permitted Exceptions. Notwithstanding Section 2.01 to the
contrary, a QRC Entity may pursue an opportunity to purchase or invest in, and
may ultimately purchase, own and/or operate a Restricted Business under any of
the following circumstances:
(a) any business that is primarily engaged in the exploration for and
production of oil or natural gas and the sale and marketing of oil and natural
gas derived from such exploration and production activities;
(b) the purchase and ownership of not more than five percent of any class
of securities of any entity engaged in a Restricted Business (but without
otherwise participating in the activities of such entity);
(c) any Restricted Business conducted by a QRC Entity that is (i) consented
to by the Investor Representatives prior to an Initial Public Offering and (ii)
subsequent to an Initial Public Offering, approved by the Conflicts Committee;
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(d) the ownership or operation of any of the Retained Assets (including
replacements of and modifications or additions to the Retained Assets);
(e) the operation on behalf of a member of the Partnership Group of any
asset or group of assets owned by the Partnership Group;
(f) the ownership or operation of any Restricted Business or asset or group
of related assets used in a Restricted Business that are acquired or constructed
by a QRC Entity after the date of this Agreement (the "Restricted Assets") if:
(i) the fair market value or construction costs, as applicable, of the
Restricted Assets (as determined in good faith by the board of directors of
QRC) is less than $4 million at the time of such acquisition by the QRC
Entity or completion of construction, as the case may be;
(ii) in the case of an acquisition or construction of any Restricted
Assets with a fair market value or construction costs, as applicable, (as
determined in good faith by the board of directors of QRC) equal to or
greater than $4 million at the time of such acquisition or construction by
a QRC Entity, as the case may be, the MLP has been offered the opportunity
to purchase the Restricted Assets in accordance with Section 2.03(a) and
the MLP (with the concurrence of (i) the Investor Representatives prior to
an Initial Public Offering and (ii) the Conflicts Committee following
consummation of an Initial Public Offering) has elected not to purchase the
Restricted Assets; or
(iii) in case of the acquisition or construction of any Restricted
Assets with a fair market value or construction costs, as applicable, (as
determined in good faith by the board of directors of QRC) that is (x)
greater than $4 million but (y) less than 50% of the aggregate fair market
value (as determined in good faith by the board of directors of QRC) of the
business or other assets acquired or constructed, as the case may be, the
MLP is offered the opportunity to purchase the Restricted Assets within 90
days of such acquisition or completion of construction in accordance with
Section 2.03(b) and the MLP is provided with all due diligence materials
requested by the MLP and the MLP (with the concurrence of (i) the Investor
Representatives prior to an Initial Public Offering and (ii) the Conflicts
Committee following consummation of an Initial Public Offering) has elected
not to purchase the Restricted Assets.
Section 2.03. Procedures.
(a) If a QRC Entity becomes aware of an opportunity to purchase or
construct Restricted Assets described in Section 2.02(f)(ii), then as soon as
practicable, such QRC Entity shall notify Quest GP of such opportunity and
deliver to Quest GP all information prepared by or on behalf of such QRC Entity
relating to such potential purchase opportunity. As soon as practicable but in
any event within 30 days after receipt of such notification and information,
Quest GP, on behalf of the MLP, shall notify the QRC Entity that either (i)
Quest GP, on behalf of the MLP, has elected (with the approval of (A) the
Investor Representatives prior to an Initial Public Offering and (B) the
Conflicts Committee following consummation of an Initial Public Offering) not to
cause a member of the MLP Group to pursue the opportunity to acquire such
Restricted Assets, or (ii) Quest GP, on behalf of the MLP, has elected (with the
approval of (A) the Investor Representatives prior to an Initial Public Offering
and (B) the Conflicts Committee following consummation of an Initial Public
Offering) to cause a member of the MLP Group to pursue the opportunity to
acquire such
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Restricted Assets. If, at any time, Quest GP or its Affiliates abandons such
opportunity with the approval of the Investor Representatives or the Conflicts
Committee, as the case may be, (as evidenced in writing by Quest GP or such
Affiliates following the request of the QRC Entity), the QRC Entity may pursue
such opportunity. Any Restricted Assets that are permitted to be purchased by a
QRC Entity pursuant to this Section 2.03(a) must be so purchased (i) within 12
months of the time the QRC Entity becomes able to pursue such opportunity in
accordance with the provisions of this Section 2.03(a) and (ii) on terms not
more favorable in any material respect to the QRC Entity than were offered to
the MLP. If either of these conditions are not satisfied, the opportunity must
be reoffered to the MLP in accordance with this Section 2.03(a).
(b) If a QRC Entity acquires or constructs Restricted Assets described in
Section 2.02(f)(iii), then not later than 90 days after the consummation of the
acquisition or the completion of construction by such QRC Entity of the
Restricted Assets, as the case may be, the QRC Entity shall notify Quest GP in
writing of such acquisition or construction and offer the MLP Group the
opportunity to purchase such Restricted Assets for their fair market value in
accordance with this Section 2.03 (the "Offer"). The Offer must set forth the
QRC Entity's proposed terms relating to the purchase of the Restricted Assets by
the MLP Group. The QRC Entity will provide all information concerning the
business, operations and finances of such Restricted Business as may be
reasonably requested by Quest GP. As soon as practicable, but in any event
within 60 days after receipt of such written notification, Quest GP shall notify
the QRC Entity in writing that either (i) Quest GP has elected (with the
approval of (A) the Investor Representatives prior to an Initial Public Offering
and (B) the Conflicts Committee following consummation of an Initial Public
Offering) not to cause a member of the MLP Group to purchase the Restricted
Assets, in which event the QRC Entity is forever free to continue to own or
operate such Restricted Assets, provided, however, that any future acquisitions
or opportunities related to such particular Restricted Assets (except for
expansions of existing facilities and except as provided in Section 2.02(f)(i))
will be subject to the procedures set forth in this Section 2.03, or (ii) Quest
GP has elected (with the approval of (A) the Investor Representatives prior to
an Initial Public Offering and (B) the Conflicts Committee following
consummation of an Initial Public Offering) to cause a member of the MLP Group
to purchase the Restricted Assets, in which event the following procedures will
apply.
(1) After the receipt of such Offer by Quest GP, the QRC Entity
and Quest GP shall negotiate in good faith the terms on which the Restricted
Assets will be sold to a member of the MLP Group. If the QRC Entity and Quest GP
(with the concurrence of the Conflicts Committee) are able to agree on the fair
market value of the Restricted Assets or the other terms of the Offer within 60
days after receipt by Quest GP of the Offer, a member of the MLP Group shall
purchase the Restricted Assets for the agreed upon fair market value as soon as
commercially practicable after such agreement has been reached.
(2) If the QRC Entity and Quest GP (with the approval of the
Conflicts Committee) are unable to agree on the fair market value of the
Restricted Assets or the other terms of the Offer within 60 days after receipt
by Quest GP of the Offer, the QRC Entity and
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Quest GP will engage a mutually agreed upon, nationally recognized investment
banking firm to determine the fair market value of the Restricted Assets. Such
investment banking firm will determine the fair market value of the Restricted
Assets within 30 days of its engagement and furnish the QRC Entity and Quest GP
its determination. The fees and expenses of the investment banking firm will be
split equally between the QRC Entity and the MLP Group. Once the investment
banking firm has submitted its determination of the fair market value of the
Restricted Assets, Quest GP shall notify the QRC Entity in writing that either
(i) Quest GP has elected (with the approval of (A) the Investor Representatives
prior to an Initial Public Offering and (B) the Conflicts Committee following
consummation of an Initial Public Offering) not to cause a member of the MLP
Group to purchase the Restricted Assets or (ii) Quest GP has elected (with the
approval of (A) the Investor Representatives prior to an Initial Public Offering
and (B) the Conflicts Committee following consummation of an Initial Public
Offering) to cause a member of the MLP Group to purchase the Restricted Assets,
pursuant to the Offer as modified by the determination of the investment banking
firm. If Quest GP elects to cause a member of the MLP Group to purchase the
Restricted Assets, then such member of the MLP Group will purchase the
Restricted Assets pursuant to the Offer as modified by the determination of the
investment banking firm as soon as commercially practicable after such
determination. If Quest GP elects not to cause a member of the MLP Group to
purchase the Restricted Assets, such QRC Entity is forever free to continue to
own or operate such Restricted Assets; provided, however, that any future
acquisitions or opportunities related to such Restricted Assets (except for
expansions of existing facilities and except as provided in Section 2.02(f)(i))
will be subject to the procedures set forth in this Section 2.03.
Section 2.04. Scope of Prohibition. Except as provided in this Article II and
the Partnership Agreement, each QRC Entity is free to engage in any business
activity whatsoever, including those that may be in direct competition with any
member of the Partnership Group.
Section 2.05. Enforcement. QRC agrees and acknowledges that the Partnership
Group does not have an adequate remedy at law for the breach by the QRC Entities
of the covenants and agreements set forth in this Article II, and that any
breach by the QRC Entities of the covenants and agreements set forth in this
Article II would result in irreparable injury to the Partnership Group. QRC
further agrees and acknowledges that any member of the Partnership Group may, in
addition to the other remedies that may be available to the Partnership Group,
file a suit in equity to enjoin the QRC Entities from such breach, and consent
to the issuance of injunctive relief under this Agreement.
Section 2.06. Termination. This Article II will terminate on the first day on
which a QRC Entity no longer controls the MLP.
ARTICLE III.
INDEMNIFICATION
Section 3.01. Environmental Indemnification. QRC shall indemnify, defend and
hold harmless the Partnership Group from and against any Covered Environmental
Losses attributable to events or conditions that occurred or existed prior to
the Closing Date for which notice is provided in accordance with Section 3.03
within three years after the Closing Date to the extent
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such Covered Environmental Losses exceed all amounts actually recovered by the
MLP under contractual indemnities from third Persons or under any applicable
insurance policies.
Section 3.02. Additional Indemnification. QRC shall indemnify, defend and hold
harmless the Partnership Group from and against any losses suffered or incurred
by reason of or arising from:
(a) all federal, state and local income tax liabilities attributable to the
operation of the Assets prior to the Closing Date, including any such income tax
liabilities of the QRC Entities that may result from the consummation of the
formation transactions for the Partnership Group;
(b) the failure of any member of the Partnership Group to be the owner of
valid and indefeasible easement rights, leasehold and/or fee ownership interests
in and to the lands on which are located any Assets, and such failure renders
any member of the Partnership Group liable to a third party or unable to use or
operate the Assets in substantially the same manner that the Assets were used
and operated by QRC and its Affiliates immediately prior to the Closing Date;
and
(c) the failure of any member of the Partnership Group to have on the
Closing Date any consent or governmental permit necessary to allow (i) the
transfer of any of the Assets to the Partnership Group on the Closing Date or
(ii) the Partnership Group to use or operate the Assets in substantially the
same manner that the Assets were owned and operated by QRC and its Affiliates
immediately prior to the Closing Date;
provided, however, that in the case of clause (a) above, such indemnification
obligations will survive until 60 days after the expiration of any applicable
statute of limitations; and that in the case of clauses (b) and (c) above, such
indemnification obligations will survive for three years from the Closing Date.
Section 3.03. Limitations Regarding Indemnification.
(a) The aggregate liability of QRC under Section 3.01 will not exceed $25
million.
(b) Subject to the limitation of Section 3.03(a), no claims may be made
against QRC for indemnification pursuant to Section 3.01 unless the aggregate
dollar amount of the Covered Environmental Losses suffered or incurred by the
Partnership Group exceed $250,000, in which event QRC shall be liable for all
such amounts.
(c) Notwithstanding anything herein to the contrary, in no event will QRC
have any indemnification obligations under this Agreement for claims made as a
result of additions to or modifications of Environmental Laws promulgated after
the Closing Date.
Section 3.04. Indemnification Procedures.
(a) The MLP and Quest GP agree that after they become aware of facts giving
rise to a claim for indemnification pursuant to this Article III, they will
promptly provide notice thereof in writing to QRC specifying the nature of and
specific basis for such claim. Prior to an Initial Public Offering, if the
Investor Representatives become aware of facts giving rise to a claim for
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indemnification pursuant to this Article III, and the MLP and Quest GP have not
provided notice to QRC within a reasonable time, the Investor Representative may
provide notice thereof in writing to QRC specifying the nature of and specific
basis for such claim and enforce the rights of the MLP and GP pursuant to this
Article III.
(b) QRC shall have the right to control at its sole cost and expense all
aspects of the defense of (and any counterclaims with respect to) any claims
brought against the Partnership Group that are covered by the indemnification
set forth in this Article III, including, without limitation, the selection of
counsel, determination of whether to appeal any decision of any court and the
settling of any such matter or any issues relating thereto; provided, however,
that no such settlement shall be entered into without the consent of the
Partnership Group (with the approval of the Conflicts Committee) unless it
includes a full release of the Partnership Group from such matter or issues, as
the case may be.
(c) The MLP and Quest GP agree to cooperate fully with QRC with respect to
all aspects of the defense of any claims covered by the indemnification set
forth in this Article III, including, without limitation, the prompt furnishing
to QRC of any correspondence or other notice relating thereto that the
Partnership Group may receive, permitting the names of each Person in the
Partnership Group to be utilized in connection with such defense, the making
available to QRC of any files, records or other information of the Partnership
Group that QRC considers relevant to such defense and the making available to
QRC of any employees of the Partnership Group; provided, however, that in
connection therewith QRC agrees to use reasonable efforts to minimize the impact
thereof on the operations of the Partnership Group. In no event shall the
obligations of the Partnership Group to cooperate with QRC as set forth in the
immediately preceding sentence be construed as imposing upon the Partnership
Group an obligation to hire and pay for counsel in connection with the defense
of any claims covered by the indemnification set forth in this Article III;
provided, however, that Persons in the Partnership Group may, at their own
option, cost and expense, hire and pay for counsel in connection with any such
defense. QRC agrees to keep any such counsel hired by the Partnership Group
reasonably informed as to the status of any such defense, but QRC shall have the
right to retain sole control over such defense.
(d) In determining the amount of any loss, cost, damage or expense for
which any Person in the Partnership Group is entitled to indemnification under
this Agreement, the gross amount of the indemnification will be reduced by (i)
any insurance proceeds actually realized by the Partnership Group, and such
correlative insurance benefit shall be net of any incremental insurance premium
that becomes due and payable by the Partnership Group as a result of such claim
and the cost of collection of such insurance proceeds and (ii) all amounts
actually recovered by the Partnership Group under contractual indemnities from
third Persons as described in Section 3.01. The Partnership Group hereby agrees
to use commercially reasonable efforts to realize any applicable insurance
proceeds and amounts recoverable under such contractual indemnities.
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ARTICLE IV.
REIMBURSEMENT OBLIGATIONS
Section 4.01. Reimbursement for Operating and General and Administrative
Expenses.
(a) QRC hereby agrees to continue to provide, or cause to be provided, the
Partnership Group with general and administrative services, such as legal,
accounting, treasury, insurance administration and claims processing, risk
management, health, safety and environmental, information technology, human
resources, credit, payroll, internal audit, taxes and engineering, that are
substantially identical in nature and quality to the services of such type
previously provided by QRC in connection with its management and operation of
the Assets during the one-year period prior to the Closing Date. For the
avoidance of doubt, incremental public company expenses of the MLP, such as in
connection with preparation and filing of Commission reports, registration
statements and other filings, external audit, internal audit, transfer agent and
registrar, legal, printing, unitholder reports, and other related costs and
expenses shall not be deemed to be expenses and expenditures for general and
administrative services.
(b) Subject to the provisions of Section 4.03, the Partnership Group hereby
agrees to reimburse QRC for all expenses and expenditures QRC incurs or payments
it makes on behalf of the Partnership Group for general and administrative
services.
(c) The Partnership Group hereby agrees to reimburse QRC for all expenses
and expenditures QRC incurs or payments it makes on behalf of the Partnership
Group in connection with the business and operations of the Partnership Group,
including, but not limited to, (i) salaries of operational personnel performing
services on the Partnership Group's behalf and the cost of employee benefits for
such personnel, (ii) capital expenditures (provided, however, that with respect
to any expansion capital expenditures in the Cherokee Basin, such expenditures
are made in accordance with the provisions of the Midstream Services and Gas
Dedication Agreement, to the extent applicable), (iii) maintenance and repair
costs and (iv) taxes.
(d) Quest GP will be entitled to allocate any such expenses and
expenditures between the Partnership Group, on the one hand, and QRC, on the
other hand, in accordance with the foregoing provision on any reasonable basis.
Section 4.02. Reimbursement for Insurance. The Partnership Group hereby agrees
to reimburse QRC for all expenses QRC incurs or payments it makes on behalf of
the Partnership Group for insurance coverage with respect to (i) the Assets,
(ii) claims related to fiduciary obligations of officers, directors and control
persons of the Partnership Group and (iii) claims under federal and state
securities laws.
Section 4.03. Limitations on Reimbursement.
(a) The amount for which QRC will be entitled to reimbursement from the
Partnership Group pursuant to Section 4.01(b) for general and administrative
expenses will not exceed $1.5 million in the aggregate for the first 12 months
following the date of this Agreement (the "Expenses Limit"). After the first
anniversary date of this Agreement, the Board of
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Directors of Quest GP (prior to an Initial Public Offering) and the Conflicts
Committee (after an Initial Public Offering) will determine any Expenses Limit
increase and the amount of general and administrative expenses that will be
properly allocated to the MLP in accordance with the terms of the Partnership
Agreement. In the event that the Partnership Group makes any acquisitions of
assets or businesses or the business of the Partnership Group otherwise expands
following the date of this Agreement, then the Expenses Limit will be
appropriately increased in order to account for adjustments in the nature and
extent of the general and administrative services by QRC to the Partnership
Group, with any such increase in the Expenses Limit subject to the approval of
the Board of Directors of Quest GP (prior to an Initial Public Offering) and the
Conflicts Committee (after an Initial Public Offering).
(b) The obligation of the Partnership Group to reimburse QRC pursuant to
Section 4.01(c) or Section 4.02 will not be subject to any monetary limitation.
ARTICLE V.
RIGHT OF FIRST OFFER
Section 5.01. Right of First Offer Procedures. For as long as a QRC Entity
maintains a direct or indirect controlling interest in the MLP, if any QRC
Entity (the "Disposing Party") desires to sell or otherwise Transfer any Subject
Assets, the Disposing Party shall provide the Partnership Group a right of first
offer to acquire such Subject Assets pursuant to the following procedures:
(a) The Disposing Party shall deliver a written offer (the "Option Offer")
to Quest GP, on behalf of the Partnership Group. The Option Offer will describe
the Subject Assets, the purchase price (payable in cash or in Common Units of
the MLP at the option of the Disposing Party) at which the Disposing Party
wishes to sell the Subject Assets and the proposed terms of the sale. The Option
Offer will constitute a binding offer to sell the Subject Assets to the
Partnership Group on the terms set forth therein.
(b) Quest GP, on behalf of the Partnership Group and with the approval of
the Conflicts Committee, will have a period of 45 days (the "Negotiation
Period") from the date of the Option Offer to accept the Disposing Party's offer
or negotiate alternative terms of sale acceptable to Quest GP, on behalf of the
Partnership Group and with the approval of the Conflicts Committee, and the
Disposing Party.
(c) If the Disposing Party and Quest GP, on behalf of the Partnership Group
and with the approval of the Conflicts Committee, agree upon the terms of sale
for the Subject Assets prior to the expiration of the Negotiation Period, such
parties will enter into definitive documentation to effect such Transfer, which
will be closed within 30 days after the end of the Negotiation Period or such
longer period as may be reasonably necessary to complete a unitholder or
stockholder vote by the MLP or the Disposing Party, as applicable, (if required)
or a financing (if required) or to obtain any required consents.
(d) If, at the end of the Negotiation Period, the Disposing Party and Quest
GP, on behalf of the Partnership Group and with the approval of the Conflicts
Committee, each acting in good faith, have not agreed upon the terms of sale for
the Subject Assets, or if the Transfer is not completed within the period
specified in Section 5.01(c), the Disposing Party may thereafter (i)
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Transfer the Subject Assets (subject to any changes in form or condition,
financial or otherwise, which in the reasonable opinion of the Disposing Party
are not material taken as a whole) to a bona fide third party dealing at arm's
length with the Disposing Party (a "Third Party Transferee") at a price and on
terms and conditions that, taken as a whole, in the reasonable opinion of the
Disposing Party are not more favorable to the Third Party Transferee than those
contained in the Option Offer or (ii) conduct a bona fide auction for the
Subject Assets, seeking offers (each, a "Bid Offer") to be submitted to the
Disposing Party by a specified date ("Offer Date") from two or more Third Party
Transferees and from Quest GP, on behalf of the MLP with the approval of the
Conflicts Committee, for consideration by the Disposing Party.
(e) If the Disposing Party conducts an auction pursuant to Section 5.01(d),
the Disposing Party may accept the Bid Offer that the Disposing Party, acting in
good faith, determines is the best Bid Offer. If the Partnership Group does not
submit a Bid Offer or if the Partnership Group submits a Bid Offer that is not
determined by the Disposing Party, acting in good faith, to be the best Bid
Offer, the Partnership Group waives all rights to the purchase of the Subject
Assets, provided that the Disposing Party and the Third Party Transferee
consummate the Transfer of the Subject Assets within 120 days from the
expiration of the Negotiation Period in the case of a Transfer pursuant to
Section 5.01(d)(i), or the Offer Date in the case of an auction pursuant to
Section 5.01(d)(ii).
(f) In the event that the Disposing Party and the Third Party Transferee
fail to consummate the Transfer of the Subject Assets within the 120-day period
as applicable in Section 5.01(e), the Partnership Group's rights under this
Article V with respect to the Subject Assets will again become effective, and
the Disposing Party may not thereafter Transfer any of the Subject Assets
without first offering such assets to the Partnership Group in the manner
provided in this Section 5.01.
(g) Upon any Transfer to a Third Party Transferee, the Disposing Party
shall deliver to Quest GP, on behalf of the Partnership Group, a copy of the
document evidencing such Transfer. If the Transfer is pursuant to Section
5.01(d)(i), the Disposing Party shall deliver to Quest GP, on behalf of the
Partnership Group, a certificate of an officer of the Disposing Party stating
that the Transfer of the Subject Assets from the Disposing Party to the Third
Party Transferee was made at a price and upon the terms and conditions that,
taken as a whole, in the reasonable opinion of the Disposing Party, were not
more favorable to the Third Party Transferee than those set forth in the Option
Offer.
Section 5.02. Change of Control of QRC. Upon a Change of Control of QRC, the
right of first offer granted to the Partnership Group in Section 5.01 will only
apply to Subject Assets owned by the QRC Entities as of the date of such Change
of Control.
Section 5.03. Exceptions to the Right of First Offer. The foregoing provisions
of Article V will not be applicable to:
(a) a Transfer that includes Subject Assets and upstream or downstream
assets and in which the fair market value of such Subject Assets that the
Disposing Party desires to sell or otherwise Transfer (as determined in good
faith by the Disposing Party) constitutes less than the fair market value of the
upstream or downstream assets that the Disposing Party desires to sell or
13
otherwise Transfer with such Subject Assets (as determined in good faith by the
Disposing Party); and
(b) a Transfer of all or substantially all of QRC's assets.
ARTICLE VI.
RIGHTS BEYOND THE CHEROKEE BASIN
Section 6.01. New Well Connections and Midstream Services Beyond the Cherokee
Basin. For as long as a QRC Entity maintains a direct or indirect controlling
interest in the MLP, if any QRC Entity (the "Acquiring Party") acquires acreage
located outside the Cherokee Basin, the Acquiring Party shall provide the MLP
Group an option to provide Midstream Services (as defined in the Midstream
Services and Gas Dedication Agreement) to the Acquiring Party in connection with
xxxxx to be developed by the Acquiring Party pursuant to the following
procedures:
(a) The Acquiring Party shall deliver a written notice (the "Written
Notice") to Quest GP, on behalf of the MLP Group. The Written Notice will
include a proposed development plan, a description of the anticipated well
locations, anticipated production profile of the xxxxx based on an average well
profile, well drilling and completion schedule and gathering pipeline pressures
desired.
(b) Promptly following receipt of the Written Notice, Quest GP shall notify
the QRC Entity in writing that either (i) Quest GP has elected (with the
approval of (y) the Investor Representatives prior to an Initial Public Offering
or (z) subsequent to an Initial Public Offering, the Conflicts Committee) not to
cause a member of the MLP Group to offer Midstream Services to the Acquiring
Party or (ii) Quest GP has elected (with the approval of (y) the Investor
Representatives prior to an Initial Public Offering or (z) subsequent to an
Initial Public Offering, the Conflicts Committee) to cause a member of the MLP
Group to offer Midstream Services to the Acquiring Party. If Quest GP has
elected the latter, Quest GP shall deliver a written offer (the "Written Offer")
to the Acquiring Party describing the terms and conditions of the estimated
capital cost and timing to construct the associated gathering infrastructure.
The Acquiring Party shall promptly deliver an acceptance or rejection (the
"Written Response") of the Written Offer. If the Acquiring Party accepts the
Written Offer, Quest GP, on behalf of the MLP Group and with the approval of the
Conflicts Committee, and the Acquiring Party will have a period of 30 days from
the date of the Written Response to enter into a midstream services agreement
for the provision of Midstream Services and connection of xxxxx to a third party
gathering system.
(c) If the Acquiring Party does not accept the Written Offer as provided in
Section 6.01(b) or if the Acquiring Party has accepted the Written Offer but
Quest GP and the Acquiring Party have not entered into a midstream services
agreement at the end of the 30-day period, the Acquiring Party may thereafter
offer to a bona fide third party dealing at arm's length with the Acquiring
Party the opportunity to provide Midstream Services on terms and conditions
that, taken as a whole are not more favorable than those contained in the
Written Offer.
(d) Notwithstanding the foregoing, the MLP Group shall not have an option
to provide Midstream Services to the Acquiring Party in connection with xxxxx to
be developed by
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the Acquiring Party with respect to any acquired acreage that is subject to an
existing agreement with an unaffiliated third-party to provide Midstream
Services with respect to such acreage; provided that such agreement was not
entered into in contemplation of the acquisition of such acreage by the
Acquiring Party.
ARTICLE VII.
MISCELLANEOUS
Section 7.01. Choice of Law; Submission to Jurisdiction. This Agreement is
subject to and governed by the laws of the State of Delaware, excluding any
conflicts-of-law rule or principle that might refer the construction or
interpretation of this Agreement to the laws of another state.
Section 7.02. Notice. All notices or requests or consents provided for or
permitted to be given pursuant to this Agreement must be in writing and must be
given by depositing same in the United States mail, addressed to the Party to be
notified, postpaid, and registered or certified with return receipt requested or
by delivering such notice in person or by telecopier to such Party. Notice given
by personal delivery or mail shall be effective upon actual receipt. Notice
given by telecopier shall be effective upon actual receipt if received during
the recipient's normal business hours, or at the beginning of the recipient's
next business day after receipt if not received during the recipient's normal
business hours. All notices to be sent to a Party pursuant to this Agreement
shall be sent to or made at the address set forth below such Party's signature
or at such other address as such Party may stipulate to the other Parties in the
manner provided in this Section 7.02.
If to QRC:
Quest Resource Corporation
0000 Xxxxx Xxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attn: Chief Executive Officer
If to Bluestem:
Bluestem Pipeline, LLC
0000 Xxxxx Xxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attn: President
If to the MLP or Quest GP:
Quest Midstream GP, LLC
0000 Xxxxx Xxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attn: President
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Section 7.03. Entire Agreement. This Agreement constitutes the entire agreement
of the Parties relating to the matters contained herein, superseding all other
contracts or agreements, whether oral or written, that are in conflict with the
provisions hereof.
Section 7.04. Termination. Notwithstanding any other provision of this
Agreement, if Quest GP is removed as general partner of the MLP under
circumstances where Cause (as defined in the First Amended and Restated
Agreement of Limited Partnership for Quest Midstream Partners, L.P.) does not
exist and Common Units held by Quest GP and its Affiliates are not voted in
favor of such removal, this Agreement, other than the provisions set forth in
Article III hereof, may immediately thereupon be terminated by QRC. Except for
the provisions of Article III (which shall survive any Change of Control), this
Agreement will also terminate upon a Change of Control of Quest GP or the MLP.
Section 7.05. Effect of Waiver or Consent. No waiver or consent, express or
implied, by any Party to or of any breach or default by any party in the
performance by such Party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a Party to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such Party of its rights hereunder
until the applicable statute of limitations period has run.
Section 7.06. Amendment or Modification. This Agreement may be amended or
modified from time to time only by the written agreement of all the Parties
hereto; provided, however, that the MLP or Bluestem may not, without the prior
approval (i) of the Investor Representatives prior to an Initial Public Offering
and (ii) of the Conflicts Committee following consummation of an Initial Public
Offering, agree to any amendment or modification of this Agreement that Quest GP
determines (with the approval of the Investor Representatives prior to an
Initial Public Offering) will adversely affect the Common Unit holders.
Section 7.07. Assignment. No Party will have the right to assign its rights or
obligations under this Agreement without the consent of the other Parties
hereto. This Agreement will bind and inure to the benefit of the Parties and to
their respective successors and assigns.
Section 7.08. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory Parties had signed the
same document. All counterparts will be construed together and shall constitute
one and the same instrument.
Section 7.09. Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable to any extent, the
remaining provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon such determination, the Parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the Parties.
16
Section 7.10. Further Assurances. In connection with this Agreement and all
transactions contemplated by this Agreement, each signatory Party hereto agrees
to execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions and conditions of this Agreement and
all such transactions.
Section 7.11. Third Party Beneficiaries. Each of the Parties hereto specifically
intends that QRC and each member comprising the Partnership Group, as
applicable, whether or not a Party to this Agreement, will be entitled to assert
rights and remedies hereunder as third party beneficiaries hereto with respect
to those provisions of this Agreement affording a right, benefit or privilege to
any such entity. Prior to an Initial Public Offering, one or more of the
Investor Representatives shall have the right to assert the rights and remedies
of any member of the Partnership Group, whether or not such Investor
Representative is a party to this Agreement. Except as provided in the preceding
two sentences, the provisions of this Agreement are enforceable solely by the
Parties to it, and no Common Unit holder or its assignee or any other Person
will have the right, separate and apart from the MLP, to enforce any provision
of this Agreement or to compel any Party to this Agreement to comply with its
terms.
Section 7.12. Gender, Articles and Sections. Whenever the context requires, the
gender of all words used in this Agreement includes the masculine, feminine and
neuter, and the number of all words includes the singular and plural. All
references to Article numbers and Section numbers refer to Articles and Sections
of this Agreement.
Section 7.13. Withholding or Granting of Consent. Each Party may, with respect
to any consent or approval that it is entitled to grant pursuant to this
Agreement, grant or withhold such consent or approval in its sole and
uncontrolled discretion, with or without cause, and subject to such conditions
as it deems appropriate.
Section 7.14. Laws and Regulations. Notwithstanding any provision of this
Agreement to the contrary, no Party will be required to take any act, or fail to
take any act, under this Agreement if the effect thereof would be to cause such
Party to be in violation of any applicable law, statute, rule or regulation.
Section 7.15. No Recourse Against Officers of Directors. For the avoidance of
doubt, the provisions of this Agreement will not give rise to any right of
recourse against any officer or director of QRC or of any member of the
Partnership Group.
Section 7.16. Headings. The headings throughout this Agreement are inserted for
reference purposes only, and are not to be construed or taken into account in
interpreting the terms and provisions of any Article, nor to be deemed in any
way to qualify, modify or explain the effects of any such term or provision.
[ Signatures on following page ]
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IN WITNESS WHEREOF, the Parties have executed this Agreement on, and
effective as of, the date first written above.
QUEST RESOURCE CORPORATION
By: /s/ Xxxxx X. Xxxx
------------------------------------------
Name: Xxxxx X. Xxxx
Title: President and CEO
BLUESTEM PIPELINE, LLC
By: Quest Midstream Partners,
L.P., its Sole Member
By: Quest Midstream GP, LLC
By: /s/ Xxxxx X. Xxxx
------------------------------------------
Name: Xxxxx X. Xxxx
Title: Chief Executive Officer
QUEST MIDSTREAM PARTNERS, L.P.
By: Quest Midstream GP, LLC, its
General Partner
By: /s/ Xxxxx X. Xxxx
------------------------------------------
Name: Xxxxx X. Xxxx
Title: Chief Executive Officer
QUEST MIDSTREAM GP, LLC
By: /s/ Xxxxx X. Xxxx
------------------------------------------
Name: Xxxxx X. Xxxx
Title: Chief Executive Officer
