Exhibit 10.1
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
between
QUEST CHEROKEE, LLC,
("Company")
QUEST OIL & GAS CORPORATION,
QUEST ENERGY SERVICE, INC.,
STP CHEROKEE, INC.,
PONDEROSA GAS PIPELINE COMPANY, INC.,
PRODUCERS SERVICE, INCORPORATED, and
▇-▇ GAS GATHERING, L.L.C.,
(collectively, the "Quest Subsidiaries")
and
CHEROKEE ENERGY PARTNERS LLC,
("Investor")
December 22, 2003
MEMBERSHIP INTEREST PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.......................................................2
Section 1.01 Definitions................................................2
ARTICLE II. CONTRIBUTION; ISSUANCE OF UNITS...................................6
Section 2.01 Amendment of LLC Agreement; Admission of Investor..........6
Section 2.02 Contribution by Investor; Note Purchase Agreement..........6
Section 2.03 Issuance of Class A Units..................................7
ARTICLE III. CLOSING...........................................................7
Section 3.01 Time and Place of Closing..................................7
Section 3.02 Deliveries at Closing......................................7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES....................................9
Section 4.01 Representations and Warranties with Respect
to the Company.............................................9
Section 4.02 Representations, and Warranties of Investor...............11
Section 4.03 General Representations and Warranties of the
Quest Subsidiaries........................................12
Section 4.04 Representations and Warranties as to the Quest Assets.....13
Section 4.05 Representations and Warranties with Respect to
Devon Transaction..... ...................................19
Section 4.06 Full Disclosure...........................................19
ARTICLE V. INDEMNIFICATION...................................................20
Section 5.01 The Quest Subsidiaries' Indemnification of Investor.......20
Section 5.02 Time Period for Assertion of Claims.......................20
Section 5.03 Threshold; Cap............................................21
Section 5.04 Negligence; Strict Liability..............................21
Section 5.05 Indemnification Procedures................................22
ARTICLE VI. MISCELLANEOUS....................................................23
Section 6.01 Quest Assignments.........................................23
Section 6.02 Further Assurances........................................23
Section 6.03 Amendments; Waiver........................................23
Section 6.04 Successors and Assigns; No Third Party Beneficiaries..... 24
Section 6.05 Notices...................................................24
Section 6.06 Descriptive Headings......................................25
Section 6.07 Waiver of Consequential Damages...........................25
Section 6.08 Governing Law.............................................25
Section 6.09 Entire Agreement..........................................25
Section 6.10 Severability..............................................25
Section 6.11 Specific Performance......................................25
Section 6.12 Survival..................................................26
Section 6.13 Counterparts..............................................27
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EXHIBITS
Exhibit A Amended and Restated LLC Agreement
Exhibit B Note Purchase Agreement
Exhibit C Operating and Management Agreement
Exhibit D Guaranty
Exhibit E Pledge Agreement
Exhibit F Non-Competition Agreement
Exhibit G-1 Company Officer's Certificate
Exhibit G-2 Quest Subsidiaries' Officer's Certificate
Exhibit G-3 QRC Officer's Certificate
Exhibit H QRC's Nevada Counsel's Opinion
SCHEDULES
Schedule 1.01(l) Contracts
Schedule 1.01(t) Excluded Assets
Schedule 1.01(u) Fee Lands
Schedule 1.01(bb) Leases
Schedule 1.01(bbb) ▇▇▇▇▇
Schedule 4.01(b) Capitalization
Schedule 4.04(c) Environmental Audits and Reports
Schedule 4.04(f) Contract Breaches
Schedule 4.04(h) Plugging Operations
Schedule 4.04(j) Existing Proceedings
Schedule 4.04(m) Marketing
Schedule 4.04(o) AFE's and Other Commitments
Schedule 4.04(p) Payout Reports
Schedule 4.04(q) Wellhead Imbalances
Schedule 4.04(r) Plant, Pipeline and Marketing Imbalances
Schedule 4.04(t) Suspense Accounts
Schedule 4.04(v) Preferential Rights and Consents
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
This MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of December 22, 2003
(this "Agreement"), is entered into by and among Quest Cherokee, LLC, a Delaware
limited liability company (the "Company"), Cherokee Energy Partners LLC, a
Delaware limited liability company ("Investor"), and Quest Oil & Gas
Corporation, a Kansas corporation ("QOG"), Quest Energy Service, Inc., a Kansas
corporation ("QES"), STP Cherokee, Inc., an Oklahoma corporation ("STPC"),
Ponderosa Gas Pipeline Company, Inc., a Kansas corporation ("PGPC"), Producers
Service, Incorporated, a Kansas corporation ("PSI"), and ▇-▇ Gas Gathering,
L.L.C., a Kansas limited liability company ("JW") (each of QOG, QES, STPC, PGPC,
PSI, and JW being individually referred to herein as a "Quest Subsidiary" and
collectively referred to herein as the "Quest Subsidiaries").
WHEREAS, QOG, QES, STPC, PGPC, PSI and JW are each direct or indirect
subsidiaries of Quest Resource Corporation, a Nevada corporation ("QRC") (QRC
and the Quest Subsidiaries being sometimes collectively referred to herein as
"Quest"); and
WHEREAS, in connection with the Company's issuance to the Quest
Subsidiaries of membership interests of the Company, (i) QRC has heretofore
assigned to the Company all of QRC's right, title and interest in, to and under
that certain Purchase and Sale Agreement, dated December 10, 2003, between Devon
Energy Production Company, L.P. and Tall Grass Gas Services, L.L.C., as Sellers
(collectively, "Devon") and Quest Resource Corporation, as Buyer (the "Devon
Purchase and Sale Agreement"), and (ii) each of the Quest Subsidiaries
contributed to the Company all of their coal bed methane properties and
associated gas gathering infrastructure within the Cherokee Basin of
southeastern Kansas and northeastern Oklahoma, together with surface facilities,
equipment and related assets and certain other properties, all of such
properties being more fully described herein as the Quest Assets; and
WHEREAS, subject to the amendment and restatement of the Limited Liability
Company Agreement of the Company (the "LLC Agreement") at Closing and the other
terms and conditions herein, Investor desires to contribute cash to the Company
in exchange for the Company's issuance to Investor of all of the authorized
Class A Units of the Company; and
WHEREAS, subject to the terms and conditions of this Agreement, the Company
desires to accept Investor's contribution; and
WHEREAS, each of the Quest Subsidiaries joins in this Agreement to evidence
its agreement to amend and restate the LLC Agreement at Closing and to make
certain representations and warranties and covenants with respect to assets
contributed to the Company by Quest.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01 Definitions.
For the purpose of this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by the
Financial Accounting Standards Board and generally accepted accounting
principles.
(a) "Abandonment Liabilities" shall mean the costs and liabilities
associated with plugging and abandoning the ▇▇▇▇▇ and abandoning or
decommissioning pipelines, gathering systems and other facilities
comprising, attributable to, located on, or appurtenant to the Quest
Assets.
(b) "Adverse Environmental Condition" shall mean (i) a condition of any
Quest Asset that is not in compliance with applicable Environmental
Laws; or (ii) a physical or environmental condition with respect to
any Quest Asset which could give rise to on-site or off-site remedial
or other clean-up obligations imposed under Environmental Laws, the
Contracts or the Leases.
(c) "Agreement" has the meaning set forth in the preamble.
(d) "Amended and Restated LLC Agreement" shall mean the Amended and
Restated Limited Liability Company Agreement of the Company in the
form attached as Exhibit A hereto.
(e) "Bluestem" means Bluestem Pipeline, LLC, a Delaware limited liability
company wholly owned by the Company.
(f) "Business Day" shall mean any day which is not a Saturday, Sunday or
day on which banks are authorized by law to close in the State of
Texas or the State of New York.
(g) "Cash Contribution" shall have the meaning set forth in Section
2.02(a) hereof.
(h) "Class A Units" shall have the meaning provided in the Amended and
Restated LLC Agreement.
(i) "Class B Units" shall have the meaning provided in the Amended and
Restated LLC Agreement.
(j) "Closing" has the meaning provided in Section 3.01.
(k) "Company" has the meaning provided in the preamble.
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(l) "Contracts" shall mean the contracts and agreements relating to the
Quest Assets described on Schedule 1.01(l) attached hereto.
(m) "Contributed Assets" means the Devon Purchase and Sale Agreement and
the Quest Assets.
(n) "Customary Filings" shall mean rights to consent which require notices
to, filings with, or other actions by Governmental Entities in
connection with the sale or conveyance of oil and gas leases or
interests therein if they are customarily obtained subsequent to the
sale or conveyance.
(o) "Devon" has the meaning provided in the recitals above.
(p) "Devon Assets" shall mean the "Properties," as defined in the Devon
Purchase and Sale Agreement.
(q) "Devon Purchase and Sale Agreement" has the meaning provided in the
recitals above.
(r) "Environmental Laws" shall mean any Law, or other rule, regulation,
statute, ordinance, ruling, decree, order, writ, decision or
injunction relating to the protection of the environment, natural
resources or public health and safety in effect as of the date of
Closing or thereafter enacted.
(s) "Excluded Assets" shall mean the properties described in Schedule
1.01(t) attached hereto.
(t) "Existing Proceedings" means the Proceedings identified on Schedule
4.04(j) attached hereto.
(u) "Fee Lands" means the fee lands contributed by any of the Quest
Subsidiaries to the Company as described in Schedule 1.01(u) attached
hereto.
(v) "Governmental Authority" shall mean any local, tribal, state, or
federal governmental court, tribunal, regulatory body, agency,
department, commission, board, bureau or other authority or
instrumentality.
(w) "Hazardous Materials" shall mean all substances defined as Hazardous
Substances, Oil, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5,
or defined as such by, or regulated as such under, any Environmental
Law, including without limitation, Hydrocarbons, PCBs, mercury and
NORM, or which otherwise may be the basis for any Person to require
cleanup, removal, treatment or remediation.
(x) "Hydrocarbons" shall mean oil, gas, coal bed methane gas, casinghead
gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons
and all products
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refined or extracted therefrom, together with all minerals produced in
association with these substances.
(y) "Investor" has the meaning provided in the preamble.
(z) "JW" has the meaning provided in the preamble.
(aa) "Law" shall mean any applicable constitutional provision, statute,
act, code, law, regulation, rule, ordinance, order, decree, ruling,
judgment or decision of a Governmental Authority having valid
jurisdiction.
(bb) "Leases" (and, individually, a "Lease") means the oil and gas
leasehold interests, royalty interests, overriding royalty interests,
mineral interests, production payments, and net profits interests
described in Schedule 1.01(bb).
(cc) "Liabilities" has the meaning provided in Section 5.01.
(dd) "Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing), any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing
of or agreement to give any financing statement or like instrument
under the laws of any jurisdiction.
(ee) "LLC Agreement" has the meaning provided in the recitals above.
(ff) "LLC Certificate" means the Certificate of Formation for the Company
filed with the Office of the Secretary of State of the State of
Delaware.
(gg) "Note Purchase Agreement" shall mean the Note Purchase Agreement
between Investor and the Company in the form of Exhibit B attached
hereto.
(hh) "Operating and Management Agreement" shall mean the Operating and
Management Agreement between the Company and QES, in the form of
Exhibit C attached hereto.
(ii) "Other Quest Properties" shall mean rolling stock and field office
equipment.
(jj) "Permits" shall mean licenses, permits, variances, exemptions, orders,
franchises, approvals and other authorizations of or from Governmental
Authorities.
(kk) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company, joint venture, association, trust,
unincorporated organization, Governmental Authority or any other
entity.
(ll) "PGPC" has the meaning provided in the preamble.
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(mm) "Proceedings" shall mean all proceedings, actions, claims, suits, and
notices of investigations by or before any arbitrator or Governmental
Authority.
(nn) "PSI" has the meaning provided in the preamble.
(oo) "QOG" has the meaning provided in the preamble.
(pp) "QES" has the meaning provided in the preamble.
(qq) "QRC" has the meaning provided in the recitals.
(rr) "Quest" has the meaning provided in the recitals.
(ss) "Quest Assets" shall mean the Quest Gathering System and the Quest Oil
and Gas Properties.
(tt) "Quest Assignments" shall mean the deeds, conveyances, assignments and
bills of sale and other transfer instruments executed, acknowledged
and delivered by QRC and the Quest Subsidiaries in order to transfer,
assign and convey (i) the Devon Purchase and Sale Agreement to the
Company, (ii) the Quest Gathering System to Bluestem; (iii) the Quest
Oil and Gas Properties to the Company; and (iv) the Other Quest
Properties to the Company.
(uu) "Quest Contribution Agreement" shall mean the Contribution,
Conveyance, Assignment and Assumption Agreement, dated of even date
herewith, between the Company and each Quest Subsidiary pursuant to
which the Quest Subsidiaries contributed the Contributed Assets to the
Company.
(vv) "Quest Gathering System" shall mean the gathering systems and
pipelines and appurtenant properties conveyed by the Quest
Subsidiaries to Bluestem pursuant to the Quest Assignments.
(ww) "Quest Oil and Gas Properties" shall mean the oil and gas properties
and related assets contributed by the Quest Subsidiaries to the
Company pursuant to the Quest Assignments, including, without
limitation, the Leases, Fee Lands, ▇▇▇▇▇, Contracts, and appurtenant
personal property, fixtures, and improvements.
(xx) "Quest Subsidiary" and "Quest Subsidiaries" have the meanings provided
in the preamble.
(yy) "Related Agreements" shall mean the Amended and Restated LLC
Agreement, the Quest Contribution Agreement, the Operating and
Management Agreement, the Note Purchase Agreement, the Non-Competition
Agreement and any other agreement contemplated by the foregoing
agreements to which the Company and any of the Quest Subsidiaries or
Investor or any Affiliate of the Quest Subsidiaries or Investor are
parties.
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(zz) "Release" shall mean any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in air, soil, surface
water, groundwater or property.
(aaa) "STPC" has the meaning provided in the preamble.
(bbb)"▇▇▇▇▇" means the oil and/or gas ▇▇▇▇▇ located on the Leases or lands
pooled therewith, including, without limitation, the ▇▇▇▇▇ listed on
Schedule 1.01(bbb) attached hereto.
ARTICLE II. CONTRIBUTION; ISSUANCE OF UNITS
Section 2.01 Amendment of LLC Agreement; Admission of Investor.
At the Closing, the Quest Subsidiaries shall:
(a) amend and restate the LLC Agreement (and execute and deliver the
Amended and Restated LLC Agreement) to, among other things:
(i) convert all of the issued and outstanding membership interests
held by the Quest Subsidiaries into an aggregate 10,000 Class B
Units of the Company;
(ii) authorize the Company to issue 10,000 Class A Units; and
(iii) provide for the other matters set forth therein; and
(b) subject to the contribution by Investor described in Section 2.02
below, cause the Company to (i) admit Investor as a member of the
Company and (ii) issue to Investor 10,000 Class A Units of the
Company.
Section 2.02 Contribution by Investor; Note Purchase Agreement.
(a) Subject to the terms and conditions of this Agreement, at the Closing,
Investor shall contribute as a capital contribution to the Company,
and the Company shall accept from Investor, a cash contribution in the
amount of ONE HUNDRED AND NO/100 DOLLARS ($100.00) (the "Cash
Contribution").
(b) It is also acknowledged that, in connection with the admission of
Investor as a member of the Company, at Closing Investor intends to
purchase from the Company FIFTY ONE MILLION AND NO/100 DOLLARS
($51,000,000.00) of the Company's 15% Subordinated Notes, pursuant to
the terms of the Note Purchase Agreement.
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Section 2.03 Issuance of Class A Units.
In consideration of the Investor's contribution pursuant to Section 2.02,
at the Closing, subject to the terms and conditions of this Agreement, the
Company will issue to Investor 100% of the authorized Class A Units of the
Company, being 10,000 Class A Units of the Company. All Class A Units issued to
the Investor pursuant to, and in accordance with the requirements of, this
Section 2.03 shall be fully paid and non-assessable Class A Units, except as
such non-assessability may be affected by Section 18-607 of the Delaware Limited
Liability Company Act.
ARTICLE III. CLOSING
Section 3.01 Time and Place of Closing.
The issuance and delivery of the Class A Units to Investor shall take place
at a closing (the "Closing") to be held at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
in Dallas, Texas on the date hereof.
Section 3.02 Deliveries at Closing.
At the Closing, the following shall occur:
(a) Cash Contribution. Investor shall pay the Cash Contribution to the
Company.
(b) Certificate of Membership Interest. The Company will issue to Investor
10,000 fully paid and non-assessable Class A Units of the Company and
shall cause to be executed and delivered to Investor a membership
interest certificate reflecting Investor as the owner of such Class A
Units.
(c) Amended and Restated LLC Agreement. The Quest Subsidiaries and
Investor shall execute and deliver the Amended and Restated LLC
Agreement.
(d) Company Officer's Certificate. The Company shall deliver to Investor
an Officer's Certificate, executed by an authorized officer of the
Company and dated as of Closing, in the form of Exhibit G-1 attached
hereto, attaching the following:
(i) a true and complete copy of the Company's LLC Certificate,
together with all amendments thereto, as filed with the Secretary
of State of the State of Delaware;
(ii) a true and complete copy of the LLC Agreement;
(iii)certificates of good standing from the appropriate officials of
the States of Delaware, Kansas and Oklahoma; and
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(iv) true,correct and complete copies of the resolutions of the
Managers of the Company authorizing the execution and delivery of
this Agreement and the issuance of the Class A Units.
(e) Quest Subsidiaries' Officers' Certificates. Each Quest Subsidiary
shall deliver to Investor an Officer's Certificate, executed by an
authorized officer of such Quest Subsidiary and dated as of Closing,
in the form of Exhibit G-2 attached hereto, (i) certifying that the
representations and warranties made by the Quest Subsidiaries herein
are true and correct in all material respects, and (ii) attaching
true, correct and complete copies of the resolutions of the Managers
or Board of Directors, as the case may be, of such Quest Subsidiary
authorizing the contribution of the Quest Assets to the Company, the
execution and delivery of this Agreement and the performance of such
Quest Subsidiary's obligations hereunder, and the other transactions
and deliveries contemplated herein and in the Related Agreements.
(f) QRC Officer's Certificate. The Quest Subsidiaries shall deliver to
Investor an Officer's Certificate, executed by an authorized officer
of QRC and dated as of Closing, in the form of Exhibit G-3 attached
hereto, attaching true, correct and complete copies of the resolutions
of the Board of Directors of QRC authorizing the contribution of the
Quest Assets to the Company, the execution and delivery of the
Guaranty attached as Exhibit D hereto, and the other transactions and
deliveries contemplated herein and in the Related Agreements.
(g) Operating and Management Agreement. The Company and QES shall execute
and deliver an Operating and Management Agreement in the form of
Exhibit C attached hereto.
(h) Guaranty. QRC will execute and deliver to Investor a Guaranty in the
form of Exhibit D attached hereto.
(i) Pledge Agreement. Each Quest Subsidiary will execute the Pledge
Agreement, in the form of Exhibit E attached hereto, pledging its
interest in the Class B Units to secure the performance of its
obligations hereunder.
(j) Non-Competition Agreement. Investor, QRC and each of the Quest
Subsidiaries shall execute and deliver a Non-Competition Agreement in
the form of Exhibit F attached hereto.
(k) Quest Releases. The Company will deliver properly executed and
acknowledged releases in recordable form, in sufficient counterparts
to facilitate recording, releasing all Liens encumbering the Quest
Assets, including, without limitation, Liens in favor of ▇▇▇▇▇ Fargo
Bank, N.A., other than Liens securing indebtedness described on
Schedule 9.1 to the Credit Agreement, dated December 22, 2003 (the
"Senior Revolving Credit Agreement") among Investor, the financial
institutions party thereto and Bank One, NA, as administrative agent,
and other
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Liens that would be Permitted Encumbrances under the Senior Revolving
Credit Agreement.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties with Respect to the Company.
Each of the Quest Subsidiaries, jointly and severally, represents and
warrants to Investor that:
(a) Organization; Qualification and Authority. Each of the Company and
Bluestem is a limited liability company duly formed, validly existing,
and in good standing under the laws of the State of Delaware. Each of
the Company and Bluestem is duly qualified to transact business as a
foreign limited liability company and is in good standing in Oklahoma
and Kansas, and in each other jurisdiction in which the character of
its properties or the nature of its business makes such qualification
necessary, other than those jurisdictions wherein the failure to so
qualify would not have a material adverse effect. Subject to Customary
Filings, each of the Company and Bluestem has all power and authority
to own, lease and operate the properties owned by it (including, in
the case of the Company, the Devon Assets, the Quest Oil and Gas
Properties, and the Other Quest Properties and, in the case of
Bluestem, the Quest Gathering System), and to carry on its business,
as it is now being conducted and as it will be conducted after
Closing. The Company has all requisite power and authority to enter
into this Agreement and to issue the Class A Units and has the
requisite power and authority to carry out the transactions
contemplated hereby to be performed by it, and the execution, delivery
and performance hereof have been duly authorized by all necessary
action. This Agreement and each other agreement or instrument executed
and delivered by the Company pursuant hereto or in connection herewith
constitutes the legal, valid and binding obligations of the Company
and, except as may be affected by bankruptcy, insolvency, moratorium,
reorganization and other laws and judicial decisions affecting the
rights of creditors generally and general principles of equity, are
enforceable against the Company in accordance with their respective
terms. The Quest Subsidiaries have delivered to Investor true and
correct copies of the LLC Certificate, LLC Agreement, Quest
Contribution Agreement, and Quest Assignments.
(b) Capitalization of the Company. The outstanding membership interests of
the Company immediately prior to Closing consist of the membership
interests described on Schedule 4.01(b), each such membership interest
being owned by the Person indicated on Schedule 4.01(b). Other than
the membership interests described on Schedule 4.01(b) and the rights
of the members of the Company expressed in the LLC Agreement, there
are no interests of any kind outstanding that give any Person the
right to receive any benefit or right similar to the rights enjoyed or
accruing to a holder of a membership interest in the Company or any
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rights to participate in the management (other than pursuant to the
Operating and Management Agreement), ownership or earnings of the
Company. Upon amendment and restatement of the LLC Agreement at
Closing, the membership interests of the Company will consist of
10,000 Class B Units issued to the Persons indicated on Schedule
4.01(b), and 10,000 Class A Units authorized and to be issued to
Investor at Closing. All Class A Units issued to the Investor pursuant
to, and in accordance with the requirements of, this Agreement shall
be fully paid and non-assessable Class A Units, except as such
non-assessability may be affected by section 18-607 of the Delaware
Limited Liability Company Act.
(c) Capitalization of Bluestem. As of Closing, all of the membership
interests of Bluestem are owned by the Company. Other than the
membership interests owned by the Company, there are no interests of
any kind outstanding that give any Person the right to receive any
benefit or right similar to the rights enjoyed or accruing to a holder
of a membership interest in Bluestem or any rights to participate in
the management (other than pursuant to the Operating and Management
Agreement), ownership or earnings of Bluestem.
(d) Defaults. Neither the Company nor any subsidiary thereof is in
material default under any indenture, mortgage, lease, or any other
contract, agreement or instrument (provided, however, that no
representation is made in this Section 4.01(d) as to the Contracts or
Leases or the Devon Purchase and Sale Agreement, which are the subject
of the Quest Subsidiaries' representations and warranties in Section
4.04 and Section 4.05, respectively, or the Devon Assets (as to which
no representations or warranties are made herein)) or any order, writ,
injunction or decree of any Governmental Authority to which the
Company or any subsidiary thereof is a party or by which it or any of
the Quest Assets are bound or affected, and there exists no condition,
event or act which constitutes, or which after notice, lapse of time,
or both, would constitute, such a default under any of the foregoing.
(e) No Violation. The execution and delivery of this Agreement by the
Company does not, and the consummation by the Company of the
agreements and transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation of or default or loss of
any benefit under, any provision of the LLC Certificate or the LLC
Agreement, as amended and restated by the Amended and Restated LLC
Agreement; (ii) violate any Permit, concession, grant, law, rule or
regulation, or any judgment, decree or order to which the Company or
any subsidiary thereof is a party or to which the Company or any
subsidiary thereof or any of the Quest Assets are subject; or (iii)
conflict with, or result in a breach or violation of, or accelerate
the performance required by, the terms of any agreement, contract,
indenture or other instrument (excluding any of the Devon Assets) to
which the Company or any subsidiary thereof is a party or to which any
of the Quest Assets are subject, or constitute a default or loss of
any right thereunder or an event which, with the lapse of time or
notice or both, is likely to result in a default or loss of any right
thereunder or the creation of any Lien upon
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any of the Quest Assets, excepting in the case of clause (iii) above,
such conflicts, breaches, violations, accelerations, defaults, losses
or Liens as would not individually or in the aggregate have a material
adverse effect.
(f) No Other Activities. Except with respect to the Contributed Assets or
as contemplated by this Agreement and the Related Agreements, (i) the
Company has not engaged in any business activity; and (ii) the Company
has not incurred any material liabilities or obligations (absolute or
contingent). The Company has no assets other than cash and its
equivalents, 100% of the membership interests of Bluestem, and the
Contributed Assets.
(g) Broker's Fees. The Company has incurred no liability for brokers' or
finders' fees related to the transactions contemplated by this
Agreement for which Investor shall be liable. However, the Company is
obligated to pay a fee to Energy Capital Solutions in connection with
this Agreement and the Related Agreements.
Section 4.02 Representations, and Warranties of Investor.
Investor represents and warrants to the Company and the Quest Subsidiaries
that:
(a) Organization; Qualification and Authority. Investor is a limited
liability company duly formed, validly existing, and in good standing
under the laws of the State of Delaware. Investor is duly qualified to
transact business and is in good standing in each jurisdiction in
which the character of its properties or the nature of its business
makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect. Investor has the power
to own its properties and to carry on its business as it is now being
conducted. Investor has all requisite power and authority to enter
into this Agreement and has the requisite power and authority to carry
out the transactions contemplated hereby to be performed by it, and
the execution, delivery and performance hereof have been duly
authorized by all necessary action. No approval of any members of
Investor is required for consummation of the transactions contemplated
by this Agreement or the Related Agreements. This Agreement and each
other agreement or instrument executed and delivered by Investor
pursuant hereto or in connection herewith constitutes the legal, valid
and binding obligations of Investor, and, except as may be affected by
bankruptcy, insolvency, moratorium, reorganization and other laws and
judicial decisions affecting the rights of creditors generally and
general principles of equity, are enforceable against Investor in
accordance with their respective terms.
(b) No Conflicts. The execution, delivery and performance by Investor of
this Agreement and the consummation by Investor of the transactions
contemplated herein or in the Related Agreements will not (i) violate
any provision of law, statute, rule, or regulation to which Investor
is subject, (ii) violate any order,
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judgment, or decree applicable to Investor, or (iii) conflict with, or
result in a breach or default under, any term or condition of its
certificate of limited liability company or other organizational or
governing document or any agreement or other instrument to which
Investor is a party or by which Investor is bound.
(c) Investment Matters. Investor is an "accredited investor" as defined in
Rule 501(a) under the Securities Act of 1933, as amended, and it is
acquiring the Class A Units solely for its beneficial account, for
investment purposes, and not with a view to, or for resale in
connection with, any distribution in violation of applicable
securities laws.
(d) Broker's Fees. Investor has incurred no liability for brokers' or
finders' fees related to the transactions contemplated by this
Agreement for which the Company or the Quest Subsidiaries shall be
liable.
Section 4.03 General Representations and Warranties of the Quest Subsidiaries.
Each Quest Subsidiary, jointly and severally, represents and warrants to
Investor that:
(a) Organization; Qualification and Authority. Each Quest Subsidiary is a
corporation or limited liability company, as the case may be, duly
formed, validly existing, and in good standing under the laws of the
respective state of formation or incorporation indicated in the
preamble above. Each Quest Subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which the character of its properties or the nature of
its business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect. Each Quest
Subsidiary has the power to own its properties and to carry on its
business as it is now being conducted. Each Quest Subsidiary has all
requisite power and authority to enter into this Agreement and has the
requisite power and authority to carry out the transactions
contemplated hereby to be performed by it, and the execution, delivery
and performance hereof have been duly authorized by all necessary
action. If the approval of any stockholder or membership interest
owner of any Quest Subsidiary or QRC is required in connection with
the contribution of the Contributed Assets to the Company or the
consummation of the transactions contemplated by this Agreement or the
Related Agreements, such approval has been obtained. This Agreement
and each other agreement or instrument executed and delivered by a
Quest Subsidiary pursuant hereto or in connection herewith constitutes
the legal, valid and binding obligations of the respective Quest
Subsidiary, and, except as may be affected by bankruptcy, insolvency,
moratorium, reorganization and other laws and judicial decisions
affecting the rights of creditors generally and general principles of
equity, are enforceable against the respective Quest Subsidiary in
accordance with their terms.
12
(b) No Conflicts. The execution, delivery and performance by the Quest
Subsidiaries of this Agreement and the consummation by the Quest
Subsidiaries of the transactions contemplated herein or in the Related
Agreements will not, without the giving of notice or the lapse of
time, or both, (i) violate any provision of law, statute, rule, or
regulation to which any Quest Subsidiary is subject, (ii) violate any
order, judgment, or decree applicable to any Quest Subsidiary, or
(iii) conflict with, or result in a breach or default under, any term
or condition of any of the Quest Subsidiaries' bylaws, certificates of
incorporation, or other organizational or governing documents, as
applicable, or any material agreement or other instrument to which any
Quest Subsidiary is a party or by which it is bound, other than the
failure to obtain any consent to assign required under any of the
Contracts or Leases.
(c) Broker's Fees. None of the Quest Subsidiaries has incurred any
liability for brokers' or finders' fees related to the transactions
contemplated by this Agreement for which the Company or Investor shall
be liable, except for the fees owed by the Company to Energy Capital
Solutions.
Section 4.04 Representations and Warranties as to the Quest Assets.
Each of the Quest Subsidiaries, jointly and severally, represents and
warrants to Investor the following with respect to the Quest Assets:
(a) Assignments by Quest Subsidiaries. The Quest Subsidiaries have
assigned, transferred and conveyed (i) to Bluestem the Quest Gathering
System, which, save and except for the Excluded Assets, includes all
of Quest's right, title and interest as of the date of the Quest
Assignments in and to gathering systems and pipelines located in
▇▇▇▇▇, Chatauqua, ▇▇▇▇▇▇, Elk, Greenwood, Labette, Montgomery, Neosho,
▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ Counties, Kansas, and ▇▇▇▇▇, Nowata, ▇▇▇▇▇▇, and
Washington Counties, Oklahoma, together with all contracts,
rights-of-way, easements, fixtures, equipment, improvements, Permits,
records, and other real or personal property appertaining thereto; and
(ii) to the Company the Quest Oil and Gas Properties, which, save and
except for the Excluded Assets and the assets assigned to Bluestem,
include all of Quest's right, title and interest as of the date of the
Quest Assignments in and to oil and gas interests located in ▇▇▇▇▇,
Chatauqua, ▇▇▇▇▇▇, Elk, Greenwood, Labette, Montgomery, Neosho,
▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ Counties, Kansas, and ▇▇▇▇▇, Nowata, ▇▇▇▇▇▇, and
Washington Counties, Oklahoma, together with all ▇▇▇▇▇, contracts,
rights-of-way, easements, fixtures, equipment, improvements, Permits,
records, and other real or personal property appertaining thereto.
Subject to the Customary Filings and the rights of holders of
preferential rights and consents identified in Schedule 4.04(v), the
Quest Assignments do not conflict with, or result in a breach or
violation of, or accelerate the performance required by, the terms of
any material agreement to which the Quest Assets are subject or
constitute a material default thereunder or an event which, with the
lapse of time
13
or both, is likely to result in a material default thereunder or the
creation of any Lien upon any of the assets or properties of the
Company.
(b) Compliance with Laws. (i) The Quest Assets are in compliance in all
material respects with all applicable Laws relating to or bearing upon
the ownership or operation of the Quest Assets; (ii) neither Quest nor
the Company has received any written notice, which has not been
dismissed or otherwise disposed of, that it has not so complied; and
(iii) with respect to the Quest Assets, neither Quest nor the Company
has been charged or threatened with Proceedings with respect to any
violation of any applicable Law, and to the Quest Subsidiaries'
knowledge, none of Quest or the Company is under investigation with
respect to any such violation.
(c) Environmental Matters. Neither the present condition of the Quest
Assets, nor present or past activities on the Quest Assets, nor the
manner of operation of the Quest Assets have created any present
material violation of, or noncompliance with, an Environmental Law, or
give rise to or create any material remediation or clean-up obligation
or liability in any Person, contingent or otherwise, under an
Environmental Law. Without limiting the foregoing, in connection with
the use, ownership or operation of the Quest Assets, Quest has not
directly or indirectly caused a Release of any Hazardous Materials,
except for Releases that are not material or that have been remedied
in compliance with the Leases or applicable Environmental Laws (or are
not required to be remediated) and which have no continuing
consequence to Company or the Quest Assets. All internal and external
environmental audits, studies and reports in the possession or under
the control of Quest which are relevant to the Company or the Quest
Assets are identified on Schedule 4.04(c). Quest has provided to
Investor copies of each of such audits, studies and reports.
(d) Sufficiency of Contributed Assets. Except for the Excluded Assets that
will be used by QES to operate the Contributed Properties under the
Operating and Management Agreement and subject to obtaining all the
consents listed on Schedule 4.04(v), Quest has contributed to the
Company all of the equipment, contracts, Permits, vehicles, plants,
easements, rights-of-way, pipelines, surface leases, licenses, and
other real or personal property necessary to own, operate and maintain
the Quest Assets in accordance with Quest's past practices.
(e) Leases. (i) The Leases are in full force and effect as to the lands
described in Schedule 1.01(bb) hereto; (ii) neither Company or its
Quest predecessor, nor any other party (to the Quest Subsidiaries'
knowledge), is in breach (or with notice or the passage of time or
both may be in breach) of any obligation under any of the Leases in
any material respect other than due to the failure to obtain any
consent listed on Schedule 4.04(v); and (iii) all royalties, rentals,
and other payments and obligations due under the Leases have been
timely paid or otherwise discharged in full on or before the due dates
thereof.
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(f) Contracts. The Contracts constitute all of the material contracts
(other than Leases and easements) pertaining to the Quest Assets.
True, correct and complete copies of the Contracts, together with any
amendments thereto, have been provided to Investor. Except for the
failure to obtain any consents listed on Schedule 4.04(v) or as
disclosed on Schedule 4.04(f), (i) the Contracts are in full force and
effect and are the valid and legally binding obligations of Quest and,
to Quest's knowledge, the other parties thereto and are enforceable in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally, and by general
equitable principles; (ii) none of Company, its Quest predecessor, or
Bluestem is in breach or default in any material respect of any
obligations under any Contract and, to the knowledge of the Quest
Subsidiaries, no situation exists which with the passing of time or
giving of notice or both would create a breach or default); (iii) to
the knowledge of the Quest Subsidiaries, no breach or default by any
third party (or situation which with the passage of time or giving of
notice or both would create a breach or default) exists; and (iv) none
of Company, its Quest predecessor, or Bluestem, nor any other party to
any Contact, has given or threatened to give notice of any action to
terminate, cancel, rescind, or procure a judicial reformation of any
Contract or any provision thereof.
(g) ▇▇▇▇▇. The ▇▇▇▇▇ have been drilled, completed, and operated within the
boundaries of the Leases or within the limits otherwise permitted by
contract, pooling, or unit agreement or applicable Law.
(h) Plugging Operations. Except as disclosed on Schedule 4.04(h), to the
knowledge of the Quest Subsidiaries, there are no ▇▇▇▇▇, pipelines or
gathering systems included in the Quest Assets that the Company or
Bluestem is currently obligated under applicable regulations or by
order of any Governmental Authority to remove or plug and abandon
within twelve (12) months after Closing. The Company has obtained and
maintains all bonds required under applicable Law to secure plugging
and abandonment obligations with respect to the Quest Assets.
(i) Permits. With respect to the Quest Assets that QES will operate on
behalf of the Company and Bluestem after Closing pursuant to the
Operating and Management Agreement, QES has all Permits necessary to
operate such assets in the manner in which they are presently being
operated, such Permits are in full force and effect, and there have
not been any material violations of any such Permits. Any and all
Permits necessary for the Company and Bluestem to own, and contract
with QES for operation of, the Quest Assets after Closing have been
assigned to, or obtained by, the Company or Bluestem, as applicable,
such Permits are in full force and effect, and there have not been any
material violations of any such Permits. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby and the Related Agreements will not result in any revocation
cancellation, suspension or modification of any material Permit.
15
(j) Proceedings. Except as set forth on Schedule 4.04(j), no Proceeding is
pending with respect to the Quest Assets or the ownership, operation
or use of any thereof; nor to the Quest Subsidiaries' knowledge is any
Proceeding threatened (i) that might result in a material impairment
or loss or diminution of the Company's title to a Quest Asset; or (ii)
that may otherwise adversely affect the value or use of a Quest Asset
in any material respect.
(k) Taxes. (i) All ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of
property or the production or removal of Hydrocarbons or the receipt
of proceeds therefrom and relating to the Quest Assets, to the extent
such taxes and assessments have become due and payable, have been
timely and properly paid; (ii) all tax returns required to be filed
with respect to such taxes have been filed; and (iii) neither Quest
nor the Company has received any notice of any claims, and the Quest
Subsidiaries have no knowledge of any claims, by any applicable taxing
authority pending against Quest, the Company, or Bluestem applicable
to the Quest Assets.
(l) Insurance. The Company and Bluestem maintain insurance on their
respective Quest Assets covering such risks and with such deductible
amounts as are consistent with sound business practice.
(m) Marketing. Except as disclosed in Schedule 4.04(m), the Company has no
contracts or commitments, and the Contracts do not include or provide
any commitment, for the sale of Hydrocarbons other than those
terminable at the sole discretion of the Company upon not more than 30
days' notice.
(n) Take or Pay Obligations. The Quest Assets are not subject to
obligations under a take-or-pay or other arrangement, and the Company
is not obligated by virtue of an election to non-consent or not
participate in a past or current operation on the Quest Assets
pursuant to applicable agreements, to produce Hydrocarbons, or allow
Hydrocarbons to be produced, without receiving full payment at the
time of delivery in an amount that corresponds to the net revenue
interest described in Schedule 1.01 (bb).
(o) AFE's and Other Commitments. Except as disclosed on Schedule 4.04(o),
there are no outstanding authorities for expenditures or any oral or
written commitments or proposals to conduct operations on or make
capital expenditures with respect to any of the Quest Assets.
(p) Pay-out Reports. Schedule 4.04(p) contains a true and accurate list of
the status of the "payout balance" as of the date hereof for each Well
and Lease that is subject to a reversion or other adjustment at some
level of cost recovery or payout.
16
(q) Wellhead Imbalances. Schedule 4.04(q) is a complete and accurate
description of all wellhead Hydrocarbon imbalances with respect to the
Quest Oil and Gas Properties as of December 22, 2003.
(r) Plant, Pipeline and Marketing Imbalances. With respect to the Quest
Oil and Gas Properties, Schedule 4.04(r) is a complete and accurate
description of all plant, pipeline, and marketing imbalances as of
December 22, 2003 between the quantity of Hydrocarbons required to be
delivered by Company under any contract for the production, marketing,
transportation or processing of Hydrocarbons and the quantity of
Hydrocarbons actually delivered by Company pursuant to such contract.
(s) Production. Prior to assignment of the Quest Oil and Gas Properties to
Company, Quest was timely receiving its share of proceeds from the
sale of Hydrocarbons produced from or attributable to the Quest Oil
and Gas Properties without suspense, counterclaim or set-off. There
has been no production of Hydrocarbons from the Quest Oil and Gas
Properties in excess of the allowable production established pursuant
to applicable Law that would result in a restriction on production
from the Quest Oil and Gas Properties subsequent to the Closing.
(t) Suspense Accounts. Schedule 4.04(t) contains an accurate and complete
list of amounts held in suspense by the Company or Quest with respect
to the Quest Oil and Gas Properties as of the date hereof.
(u) Disposition of Assets. The Company has not agreed to sell, convey,
dispose of or abandon any of the Quest Assets, other than sales of
Hydrocarbons in the ordinary course of business.
(v) Preferential Rights and Consents. Schedule 4.04(v) contains an
accurate and complete list of all (i) preferential purchase rights
affecting the Quest Assets and (ii) consents, approvals and
authorizations (other than Customary Filings) required in connection
with the Quest Subsidiaries' assignment and conveyance of the Quest
Assets to the Company or Bluestem, as the case may be, pursuant to the
Quest Assignments.
(w) Records and Information. All lease, division order, well or similar
files furnished or made available to Investor by Quest are the
complete files of Quest and, to the Quest Subsidiaries' knowledge, are
accurate and were maintained by Quest in the course of its ownership
and operation of the Quest Assets.
(x) PUHCA/NGA. Neither the Company nor Bluestem (i) is a "holding company"
or a "subsidiary company" of a "holding company," or a "public-utility
company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended, and (b) is subject in any respect to the
provisions of said act. No consent is required under the Natural Gas
Policy Act of 1978, as amended, in
17
connection with the contribution of the Quest Assets to the Company,
the Company's contribution of the Quest Gathering System to Bluestem,
or the transactions contemplated herein. None of the Quest
Subsidiaries, the Company or Bluestem is an interstate pipeline
company within the meaning of the Natural Gas Act of 1938.
(y) State Utility Status. None of the Quest Assets include pipelines or
other assets that are, or by which the owner or operator thereof is,
subject to regulation as a "public utility" within the meaning of
Okla. Stat. tit. 17,▇▇.▇▇. 151-155 or the regulations thereunder, or
as a "domestic public utility" within the meaning of Okla. Stat. tit.
17,▇▇.▇▇. 191.1-191.12, or as a "common carrier" within the meaning of
Okla. Stat. tit. 52,ss. 24, or as a "public service corporation"
within the meaning of Oklahoma Constitution Article 9, ss. 34; there
are not now on file and there are not now required to be filed with
the Oklahoma Corporation Commission any tariffs or rate schedules with
respect to any services or activities provided by the pipelines and
related facilities comprising the Quest Assets, and there are not now
pending nor have there been filed with the Oklahoma Corporation
Commission any complaints or proceedings, and there have been entered
no orders to provide open access or other service, under the natural
gas gathering statutes, Okla. Stat. tit. 52,▇▇.▇▇. 24.4 - 24.5 or any
predecessor natural gas gathering statute pertaining to the pipelines
or related facilities comprising the Quest Assets; and the ownership
and operation of said pipelines and facilities is in full compliance
with all rules and regulations of the Oklahoma Corporation Commission.
(z) None of the Quest Assets include transmission pipelines or local
distribution facilities that are subject to regulation as a "natural
gas public utility" under Kansas law, there are not now on file and
there are not now required to be filed with the State Corporation
Commission of the State of Kansas ("KCC") any tariffs or rate
schedules with respect to any services or activities provided by the
pipelines and related facilities comprising the Quest Assets, and
there are not now pending nor have there been filed with the KCC any
complaints or proceedings, and there have been entered no orders to
provide open access or other service, under any natural gas gathering
statute pertaining to the pipelines or related facilities comprising
the Quest Assets; and the ownership and operation of said pipelines
and facilities is in full compliance with all rules and regulations of
the KCC.
(aa) Easements, Rights-of-Way. Bluestem owns all rights-of-way, easements,
surface rights, surface leases, or fee lands necessary for the
ownership and operation of the Quest Gathering System in the manner in
which it is owned and operated as of the Closing; all such
rights-of-way, easements, surface rights, and surface leases are valid
and subsisting and in full force and effect and no conditions exist or
events have occurred (with the giving of notice or the passage of time
or otherwise) which may result in their termination or revocation; all
of the pipelines, gathering systems, plants, buildings, and other
fixtures and
18
improvements comprising the Quest Gathering System are located
entirely within lands covered by such rights-of-way, easements,
surface rights, surface leases, or fee lands owned by Bluestem.
Section 4.05 Representations and Warranties with Respect to Devon Transaction.
Each Quest Subsidiary, jointly and severally, represents and warrants to
Investor the following with respect to the Devon Purchase and Sale Agreement:
(a) The executed copy of the Devon Purchase and Sale Agreement heretofore
furnished by Quest to Investor is a true, correct and complete copy
thereof.
(b) The Devon Purchase and Sale Agreement is in full force and effect and
has not been amended, modified, terminated or rescinded in any
respect.
(c) The Company is the holder as of the Closing of all of the right, title
and interest of the purchaser under the Devon Purchase and Sale
Agreement.
(d) Neither the Company nor Quest has waived any material right under the
Devon Purchase and Sale Agreement, except to the extent provided for
in the Holdback Agreement, of even date herewith, between Devon and
the Company ("Holdback Agreement").
(e) Neither the Company nor Quest is in material breach of the
representations, warranties or covenants of purchaser contained in the
Devon Purchase and Sale Agreement, nor, to the Quest Subsidiaries'
knowledge, is Devon in material breach of its representations,
warranties or covenants in such agreement, except to the extent
provided for in the Holdback Agreement.
Section 4.06 Full Disclosure.
All information heretofore furnished by Quest to Investor for purposes of
or in connection with this Agreement, the Devon Purchase and Sale Agreement and
the Related Agreements or any transaction contemplated hereby or thereby was, as
of the date it was furnished, true, complete and accurate in every material
respect. Quest has disclosed or has caused to be disclosed to Investor in
writing any and all facts (other than facts of general public knowledge) which
might reasonably be expected to have a material adverse effect on the Quest
Assets. No representation is made as to any financial projections other than
that such projections are based on information that Quest believed to be
accurate and were calculated in a manner Quest believed to be accurate.
19
ARTICLE V. INDEMNIFICATION
Section 5.01 The Quest Subsidiaries' Indemnification of Investor.
Subject to the limitations set forth in this Article V, each Quest
Subsidiary, jointly and severally, hereby agrees to indemnify and hold Investor
harmless from and against any liabilities, claims, losses, damages, costs and
expenses of any kind (including, without limitation, the reasonable fees and
disbursements of Investor's counsel in connection with any investigative,
administrative or judicial proceeding, whether or not the Investor is designated
as a party thereto) (collectively, "Liabilities") that may be incurred by
Investor, relating to or arising out of (i) any breach of any of the
representations and warranties made by the Quest Subsidiaries in this Agreement,
(ii) ownership or operation of the Quest Assets prior to the date hereof,
including, without limitation, Adverse Environmental Conditions existing prior
to the date hereof; provided that Investor shall not be entitled to
indemnification from Abandonment Liabilities, whether arising before or after
the date hereof (unless such Abandonment Liabilities constitute a breach of the
representations and warranties of the Quest Subsidiaries in Section 4.04); and
(iii) the failure of any Quest Subsidiary to perform any covenant contained
herein required to be performed by such Quest Subsidiary.
Section 5.02 Time Period for Assertion of Claims.
Any claims by Investor for indemnification from the Quest Subsidiaries
pursuant to this Agreement must be asserted within twelve (12) months after
Closing or such claims shall be deemed waived, except as follows:
(a) Investor shall be indemnified with respect to the Existing Proceedings
and Liabilities arising from or related thereto, to the extent
relating to periods prior to Closing, without limitation as to
duration;
(b) Claims for indemnification from Liabilities arising from or related to
breaches of the Quest Subsidiaries' representations and warranties in
Sections 4.01(a) - (e), 4.03(a) - (b), 4.04(a), 4.04(p), and 4.04(t)
shall survive without limitation as to duration;
(c) Claims for indemnification from Liabilities with respect to the
payment of royalties, overriding royalties, production payments, net
profits interests or other burdens on or measured by the production of
Hydrocarbons from the Quest Assets prior to Closing shall survive
without limitation as to duration;
(d) Claims for indemnification from Liabilities for payment of operating
expenses, capital expenditures and amounts owing under the Contracts,
in each case to the extent attributable to the ownership or operation
of the Quest Assets prior to Closing, shall survive without limitation
as to duration except for such amounts incurred in the past 90 days
related to expenses incurred in connection with the
20
drilling or completion of any well or the construction of any pipeline
in an amount not to exceed $2 million in the aggregate;
(e) Claims for indemnification from Liabilities in connection with Adverse
Environmental Conditions, whether on-site or off-site, to the extent
arising prior to Closing, including, without limitation, existing
matters identified in the Limited Due Diligence Review, dated
September 2002, prepared for STP, Inc., et al by O&G Environmental
Consulting, LLC, shall survive for a period of two (2) years after
Closing, but only to the extent that remediation or other corrective
action is required under Environmental Laws, the Leases or the
Contracts, or fines and/or penalties are assessed against the Company;
(f) Claims for indemnification from Liabilities arising from or related to
the breach of the Quest Subsidiaries' representations and warranties
in Section 4.04(k) (Taxes) shall survive for a period of time equal to
the respective statutes of limitations applicable to claims for
payment of such taxes, plus sixty (60) days; and
(g) Claims for indemnification from Liabilities asserted by third parties
with respect to personal injury or wrongful death relating to or
arising from the ownership or operation of the Quest Assets prior to
Closing shall survive for a period of time equal to the respective
statutes of limitations applicable to such third party claims, plus
sixty (60) days.
Section 5.03 Threshold; Cap.
(a) Except as provided in Section 5.03(b) below, (i) the Quest
Subsidiaries shall have no obligation to indemnify Investor with
respect to breaches of the Quest Subsidiaries' representations and
warranties hereunder unless the Liabilities relating to or arising out
of such breaches, in the aggregate, exceed $250,000, it being
understood that such amount is a threshold, and not a deductible; and
(ii) the Quest Subsidiaries' indemnity obligation to Investor shall in
no event exceed $30,000,000.
(b) The threshold and cap on the Quest Subsidiaries' indemnity obligation
provided in Section 5.03(a) shall not apply to claims by Investor for
indemnification from Liabilities relating to or arising out of
breaches of the Quest Subsidiaries' representations and warranties in
Section 4.04(d) or to claims of the types specified in Sections
5.02(a)-(d) and 5.02(f) above.
Section 5.04 Negligence; Strict Liability.
THE PARTIES HERETO INTEND THAT THE INDEMNITIES SET FORTH IN THIS ARTICLE 5
BE CONSTRUED AND APPLIED AS WRITTEN ABOVE NOTWITHSTANDING ANY RULE OF
CONSTRUCTION TO THE CONTRARY.
21
WITHOUT LIMITING THE FOREGOING, THE INDEMNITIES SHALL APPLY NOTWITHSTANDING ANY
STATE'S "EXPRESS NEGLIGENCE RULE" OR SIMILAR RULE THAT WOULD DENY COVERAGE BASED
ON AN INDEMNITEE'S SOLE, CONCURRENT OR CONTRIBUTORY ACTIVE OR PASSIVE NEGLIGENCE
OR GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL FAULT OR RESPONSIBILITY. IT
IS THE INTENT OF THE PARTIES THAT THE INDEMNITIES SET FORTH HEREIN SHALL APPLY
NOTWITHSTANDING AN INDEMNITEE'S SOLE, CONCURRENT OR CONTRIBUTORY ACTIVE OR
PASSIVE NEGLIGENCE, GROSS NEGLIGENCE OR STRICT LIABILITY. THE PARTIES AGREE THAT
THIS PROVISION IS "CONSPICUOUS" FOR PURPOSES OF ALL STATE LAWS.
Section 5.05 Indemnification Procedures.
(a) Notice of Claims. Investor shall give the Quest Subsidiaries prompt
written notice of any claim for which Investor seeks indemnification
hereunder, setting forth the particulars associated with the claim
(including a copy of the written claim, if any) as then known by
Investor. The failure of Investor to give prompt notice of a claim as
required by this section shall not relieve the Quest Subsidiaries of
its obligations under this Agreement except to the extent such failure
materially prejudices the Quest Subsidiaries' ability to defend
against the claim.
(b) Defense of Claims. Within thirty (30) days after the Quest
Subsidiaries receive a claim notice from Investor, the Quest
Subsidiaries shall notify Investor whether or not the Quest
Subsidiaries will assume responsibility for defense and payment of the
claim. Investor is authorized, prior to and during such thirty (30)
day period, to file any motion, pleading or other answer that it deems
necessary or appropriate to protect its interests that is not
prejudicial to the Quest Subsidiaries. If the Quest Subsidiaries elect
not to assume responsibility for defense and payment of the claim,
Investor may defend against, or enter into any settlement with respect
to, the claim as it deems appropriate without relieving the Quest
Subsidiaries of any indemnification obligations the Quest Subsidiaries
may have with respect to such claim. The Quest Subsidiaries' failure
to respond in writing to a claim notice within the thirty (30) day
period shall be deemed an election by the Quest Subsidiaries not to
assume responsibility for defense and payment of the claim. If the
Quest Subsidiaries elect to assume responsibility for defense and
payment of the Claim: (a) the Quest Subsidiaries shall defend Investor
against the claim with counsel of the Quest Subsidiaries' choice
(reasonably acceptable to Investor), (b) Investor shall cooperate with
the Quest Subsidiaries in all reasonable respects in such defense, (c)
subject to the limitations in Section 5.03(a), the Quest Subsidiaries
shall pay any judgment entered or settlement with respect to such
claim, and (d) the Quest Subsidiaries shall not consent to entry of
any judgment or enter into any settlement with respect to the claim
that (i) does not include a provision whereby the plaintiff or
claimant in the matter releases Investor from all
22
liability with respect to the claim or (ii) contains terms that may
materially and adversely affect Investor (other than as a result of
money damages covered by the indemnity). In all instances Investor may
employ separate counsel and participate in defense of a claim, but
Investor shall bear all fees and expenses of counsel employed by the
Investor.
ARTICLE VI. MISCELLANEOUS
Section 6.01 Quest Assignments and Consents.
(a) Within two (2) Business Days after Closing, the Company shall deliver
to the appropriate county clerks or other officers of the counties in
which the Quest Assets are located counterparts of the Quest
Assignments (together with applicable filing or recording fees) to be
recorded in the appropriate records of such counties. The Company
shall furnish to Investor copies of the recorded counterparts of the
Quest Assignments. In the event of errors or omissions in the Quest
Assignments, the Company and the Quest Subsidiaries will execute,
acknowledge and deliver such additional assignments or correction
instruments and take such further action as may be reasonably
necessary or desirable to correct such errors or omissions.
(b) After Closing, the Company and the Quest Subsidiaries shall diligently
continue commercially reasonable efforts to obtain all of the consents
and waivers of preferential rights applicable to the Quest Assets
which were not obtained prior to Closing. The failure to obtain any
such consent or waiver of preferential rights shall be deemed a
Defect, as defined in the Amended and Restated LLC Agreement, and
Investor shall be entitled to the remedies provided therein as to such
Defect.
Section 6.02 Further Assurances.
In case at any time after the date hereof any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement, the parties
shall take all such necessary action.
Section 6.03 Amendments; Waiver.
This Agreement may be amended, modified, superseded, or cancelled, and any
of the terms, covenants, representations, warranties or conditions hereof may be
waived, only by a written instrument signed by all of the parties hereto, or, in
the case of a waiver or consent, by or on behalf of the party or parties waiving
compliance or giving such consent. The failure of any party at any time or times
to require performance of any provision of this Agreement shall not affect its
right at a later time to enforce such provision. No waiver by any party of any
condition, or of any breach of any covenant, agreement, representation or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or
23
continuing waiver of such condition or breach or waiver of any other condition
or of any breach of any other covenant, agreement, representation or warranty.
Section 6.04 Successors and Assigns; No Third Party Beneficiaries.
All covenants and agreements in this Agreement contained by or on behalf of
the parties hereto shall bind and inure to the benefit of the parties and their
respective successors and assigns. Subject to the foregoing, nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
Section 6.05 Notices.
All communications provided for hereunder shall be personally delivered,
sent via overnight delivery service, sent by facsimile or sent by registered or
certified mail to the respective party at the address or facsimile number
specified below or such other address or facsimile number as such party may
designate in writing from time to time:
If to the Company:
Quest Cherokee, LLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Fax: ▇▇▇.▇▇▇.▇▇▇▇
If to Investor:
Cherokee Energy Partners LLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: General Counsel
Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Fax: ▇▇▇.▇▇▇.▇▇▇▇
If to the Quest Subsidiaries:
Quest Oil & Gas Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Telephone: ▇▇▇.▇▇▇.▇▇▇▇
Fax: ▇▇▇.▇▇▇.▇▇▇▇
24
Communications personally delivered or sent via overnight delivery service
or facsimile shall be deemed received when delivered, and communication sent by
registered or certified mail shall be deemed to have been received on the fifth
Business Day after the date of such mailing.
Section 6.06 Descriptive Headings.
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
Section 6.07 Waiver of Consequential Damages.
IT IS EXPRESSLY AGREED THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES RESULTING FROM OR
ARISING, DIRECTLY OR INDIRECTLY, OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREIN.
Section 6.08 Governing Law.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York,
without giving effect to the choice of law or conflicts principles thereof
(except to the extent the law of another jurisdiction mandatorily applies).
Section 6.09 Entire Agreement.
This Agreement and the other writings referred to herein or delivered
pursuant hereto contain the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto.
Section 6.10 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 6.11 Specific Performance.
Without limiting any other remedies that may available at law or equity, in
the event of a breach of this Agreement, the performing party shall be entitled
to specific performance from the non-performing party.
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Section 6.12 Survival.
The representations and warranties contained herein shall survive for a
period of twelve (12) months after Closing, except for the representations and
warranties contained in Sections 4.01(a) - (e), 4.03(a) - (b), 4.04(a), 4.04(k),
4.04(p), and 4.04(t), which shall survive for the duration of the respective
indemnities with respect to breaches of such representations and warranties set
forth in Article V.
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Section 6.12 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute but a
single agreement.
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IN WITNESS WHEREOF, the parties hereto have each executed this Agreement as
of the date first set forth above.
"COMPANY"
QUEST CHEROKEE, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Manager
"INVESTOR"
CHEROKEE ENERGY PARTNERS LLC
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
"QUEST SUBSIDIARIES"
QUEST OIL & GAS CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Co-Chief Executive Office and Secretary
QUEST ENERGY SERVICE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Co-Chief Executive Office and Secretary
28
STP CHEROKEE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Co-Chief Executive Office and Secretary
PONDEROSA GAS PIPELINE COMPANY, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Co-Chief Executive Office and Secretary
PRODUCERS SERVICE, INCORPORATED
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Co-Chief Executive Office and Secretary
▇-▇ GAS GATHERING, L.L.C.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Manager
29