This ASSET
PURCHASE AGREEMENT (this “ Agreement
”), dated May 11, 2009, is by and among Seminole Gas
Company , an Oklahoma corporation (the “
Buyer ”), NGAS Gathering, LLC , a
Kentucky limited liability company (“ NGL
”), Daugherty Petroleum, Inc. , a Kentucky corporation
(“ DPI ” and, collectively with NGL, the
“ Sellers ”), and NGAS Gathering II,
LLC , a Kentucky limited liability company wholly owned by DPI
(“ New NGAS Gathering ”). Capitalized
terms used herein and not otherwise defined shall have the meanings
set forth in Article 1 hereof or, as applicable, the
meanings set forth in Schedule H .
The Sellers own
and manage the Gathering System (as hereinafter defined), which
consists of (i) a natural gas gathering system serving
southeastern Kentucky, eastern Tennessee, and western Virginia, and
(ii) Stone Mountain Gathering System purchased by NGL from
Duke Energy Gas Services, LLC (“ Duke ”).
The Parties desire, in accordance with the terms of this Agreement,
that:
(a) the Buyer
acquire the Purchased Assets, free and clear of all Liens (other
than Permitted Encumbrances);
(b) the Sellers
contribute and convey the remaining undivided fifty percent (50%)
interest in the Gathering System, as well as the other Retained
Gathering Assets to New NGAS Gathering, free and clear of all Liens
(other than Permitted Encumbrances); and
(c) the following
actions shall be taken as conditions precedent to the obligations
of the Parties to consummate the transactions contemplated herein,
and as part of the consideration to be paid by Buyer for the
Purchased Assets:
(1)
the Governing Documents of New NGAS Gathering shall include
provisions substantially in the form of
Exhibit K-1 , providing for the appointment and
maintenance of an Independent Director, with the powers and
prerogatives specified therein, the sole business purpose
provisions and other provisions contemplated herein;
(2)
Buyer and New NGAS Gathering shall have entered into the Joint
Ownership Agreement in substantially the form of
Exhibit A , providing for the ownership,
operation, further extension or expansion thereof, and the
abandonment or other disposition of the Gathering
System;
(3)
the Buyer and New NGAS Gathering shall have entered into the SES
Gathering Agreement in substantially the form of
Exhibit H , providing for Buyer and New
NGAS Gathering granting to SES the exclusive right to use, and
market capacity on, the Gathering System, as modified, extended or
expanded;
(4)
the Buyer and New NGAS Gathering shall have entered into the SES
Contract Operating Agreement with SES;
(5)
SES and DPI shall have entered into the DPI Contract Operating
Agreement;
(6)
DPI, on behalf of itself and the other DPI Producers that have
existing or subsequently acquire any interests in developed or
undeveloped oil, gas or mineral acreage or interests in the
geographic region serviced by the Gathering System, as the same may
be extended or enlarged from time to time, shall have entered into
the NAESB Purchase Agreement with SES in substantially the form of
Exhibit I , providing for the gathering and
purchasing by SES of gas dedicated to the Gathering System by the
DPI Producers, in accordance with the terms thereof; and NRI shall
make certain additional representations, warranties and covenants
with regard thereto in the Seller Parent Guaranty;
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(7)
New NGAS Gathering and the Buyer shall have (i) secured their
respective obligations under this Agreement, the Joint Ownership
Agreement and their (and certain of the Affiliates’)
respective obligations pursuant to (A) the security interests
in the Retained Gathering Assets (as expanded or extended),
together with the other interests of New NGAS Gathering, granted by
New NGAS Gathering to Buyer, pursuant to the NGAS Mortgages, in
substantially the form of Exhibit M-1, and
(B) the security interests in the Purchased Assets (as
expanded or extended), together with the other interests of Buyer,
granted by Buyer to New NGAS Gathering, pursuant to the Seminole
Mortgages in substantially the form of
Exhibit M-2 ; and (ii) delivered to the
other, as further support for the obligations under this Agreement
and the Ancillary Agreements the Seller Parent Guaranty
contemplated herein; and
(8)
SES shall be granted a six-month option to purchase the ownership
interests in New NGAS Gathering from DPI and, alternatively, all of
the assets of New NGAS Gathering, and under certain circumstances
and subject to certain conditions, DPI may require SES to exercise
the option on the ownership interests in New NGAS Gathering (the
“ NGAS Options ”), subject to certain
conditions and covenants, all as specified in the NAESB Purchase
Agreement (as hereinafter defined);
(9)
Sellers (and their Affiliates) shall grant to Buyer a right of
first refusal on the Kay Jay ROFR Assets (the “ Kay Jay
ROFR ”), subject to certain conditions and covenants,
all as specified in Schedule H attached
hereto;
(10)
SES and DPI shall enter into the Forward Sales Agreements (as
hereinafter defined) in accordance with the NAESB Purchase
Agreement; and
(11)
SES, Buyer, DPI, for itself and the other DPI Producers, NGL, and
New NGAS Gathering shall enter into the Master Netting Agreement
(as hereinafter defined).
NOW,
THEREFORE, in consideration of the premises, mutual covenants,
representations, warranties, conditions and agreements set forth
herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is hereby
agreed that:
“
Action ” means any complaint, suit, proceeding,
claim, arbitration, demand, assertion or other similar
action.
“
Additional Capital Costs ” is defined in
Section 2.5(a)(ii)(3) .
“
Affiliate ” means, as to any Person, any other
Person or entity that, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common
control with such Person, whether by contract, voting power or
otherwise. As used in this definition, the term
“control,” including the correlative terms
“controlling,” “controlled by” and
“under common control with,” shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of an entity, whether
through ownership of voting securities, by contract or
otherwise.
“
Agreement ” means this Asset Purchase
Agreement, together with the Schedules and Exhibits attached
hereto, as the same may be modified or amended in accordance with
the terms hereof.
“
Ancillary Agreements ” means each of the Bill
of Sale, Joint Ownership Agreement, the Seller Parent Guaranty to
be executed and delivered by NRI and DPI, the SES Gathering
Agreement, the NAESB Purchase Agreement, the NGAS Mortgages, the
Seminole Mortgages, SES Contract Operating Agreement, DPI Contract
Operating Agreement, the Master Netting Agreement, the releases
described in Section 2.7 , the Forward Sales Agreement,
Memorandum of Options and Agreements and each other document,
instrument or agreement delivered in connection herewith or
therewith in accordance with the terms hereof or thereof,
including, without limitation any Ancillary Option
Agreements.
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“
Ancillary Option Agreements ” means each of the
agreements and instruments pertaining to any exercise of an NGAS
Options, in accordance with the NAESB Purchase Agreement, and the
Kay Jay ROFR, in accordance with the terms thereof, as set forth on
Schedule H .
“
Assumed Contracts ” means those Contracts set
forth on Schedule C .
“
Assumed Liabilities ” means that proportionate
share of the obligations and liabilities attributable to, and
allocable to, the Purchased Assets, to the extent, and only to the
extent, same arise from, and relate to, operations conducted, or
occurrences happening, on or after the Effective Date.
“
Bankruptcy ” means, with respect to any Person,
if such Person (a) makes an assignment for the benefit of
creditors, (b) files a voluntary petition in bankruptcy,
(c) is adjudged a bankrupt or insolvent, or has entered
against it an order for relief, in any bankruptcy or insolvency
proceedings, (d) files a petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment,
liquidation or similar relief under any statute, law or regulation,
(e) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in
any proceeding of this nature, (f) seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator
of the Person or of all or any substantial part of its properties,
or (g) if one hundred twenty (120) days after the
commencement of any proceeding against the Person seeking
reorganization, arrangement, composition, readjustment, liquidation
or similar relief under any statute, law or regulation, if the
proceeding has not been dismissed, or if within ninety
(90) days after the appointment without such Person’s
consent or acquiescence of a trustee, receiver or liquidator of
such Person or of all or any substantial part of its properties,
the appointment is not vacated or stayed, or within ninety
(90) days after the expiration of any such stay, the
appointment is not vacated. For purposes of Section 2.8
and the NNG LLC Agreement, the foregoing definition of
“Bankruptcy” is intended to replace and shall supersede
and replace the definition of “Bankruptcy” set forth in
Sections 18.101(1) and 18.304 of the Delaware Limited
Liability Company Act (6 Del. C . 18.101 et
seq .), as amended from time to time.
“ Bill
of Sale ” means the Assignment, Conveyance and Bill
of Sale for the Purchased Assets, dated as of the Closing Date,
executed by each Seller in favor of the Buyer, providing for a
special warranty of title, in substantially the form of
Exhibit B , as modified to accommodate recording
practices and statutory references in Kentucky, Tennessee and
Virginia.
“
Books and Records ” means, in respect of any of
the Purchased Assets, (a) the Operational Data, whether hard
copy or digital, (b) copies of all Assumed Contracts and
correspondence amending, modifying or waiving any provision or
condition in any Assumed Contract, or otherwise relating to
Sellers’ or a counterparty’s actual or alleged
nonperformance thereunder, but specifically excluding routine
matters resolved in the settlement process, (c) copies of all
software licenses and related documentation (including
specifications, technical manuals, user manuals, programming
manuals, flow diagrams and file descriptions), whether owned or
licensed, and (d) all other records with respect to the
foregoing in Sellers’ or any of their Affiliate’s
possession (including such records located in off-site storage or
held by any Person performing services for Sellers or any of their
Affiliates) to the extent Sellers or any of their Affiliates has
rights thereto, whether in the form of paper, electronic (including
electronic mail) or voice recording media, including accounts
receivable records, invoice and billing records, records of payment
history, credit support and posting records, databases,
correspondence and miscellaneous records. Buyer shall permit
Sellers to have access to the Records as may be necessary for
Sellers to prepare tax filings and for other reasonable business
purposes.
“
Business ” means the Sellers’ and its
Affiliates’ business of engaging in gathering of natural gas
using, operating, maintaining, repairing, replacing or marketing
the available capacity on the Gathering System as of date of this
Agreement, in accordance with the past practices of the Sellers, in
accordance with all Requirements of Law, and in accordance with all
applicable Contracts.
“
Business Day ” means a day other than Saturday,
Sunday or a day on which banks are authorized to be closed for
business in the Commonwealth of Kentucky.
“
Buyer Claim ” has the meaning set forth in
Section 8.2(a) .
“
Buyer Claim Notice ” has the meaning set forth
in Section 8.2(b) .
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“
Buyer Indemnified Parties ” has the meaning set
forth in Section 8.2(a) .
“
Buyer Secured Obligations ” means all
obligations and liabilities of Buyer under (a) this Agreement
and the Ancillary Agreements to which it is or become a party and
(b) the Ancillary Option Agreements if an NGAS Option is
exercised, all of which shall be secured by the Seminole
Mortgages.
“
Code ” means the Internal Revenue Code of 1986,
as amended.
“
Closing ” means the closing of the transactions
contemplated hereby on the Closing Date.
“
Closing Date ” means subject to the
satisfaction of the conditions to Closing set forth in
Article 6 , 10:00 a.m., Eastern Time,
June 25, 2009 or such other date as may be mutually agreed by
Buyer and Sellers in writing.
“
Consent Costs ” has the meaning set forth in
Section 8.4 .
“
Contracts ” means any contracts, agreements,
instruments, license agreements, commitments, credit support
documents, and invoices, schedules and annexes related thereto,
entered into by either or both of the Sellers (or to which the
Sellers or the Purchased Assets (or the Retained Gathering Assets)
are otherwise bound), or by Sellers or any of their Affiliates that
otherwise relate to the Business, and valid as of the Closing
Date.
“
Counterparty ” or “
Counterparties ” means any of those parties to
the Assumed Contracts other than a Seller or a subsidiary or
Affiliate of a Seller.
“
Deductible ” has the meaning set forth in
Section 8.4 .
“
Delaware Act ” means the Delaware Limited
Liability Company Act (6 Del. C . 18 101 et
seq .), as amended from time to time.
“ DPI
Contract Operating Agreement ” is defined in the
Joint Ownership Agreement.
“ DPI
Producers ” means (i) DPI, and its respective
successors and assigns, (ii) any Affiliates or subsidiaries of
DPI, whether presently existing or subsequently formed or acquired,
and their respective successors and assigns, if such subsidiaries
or other Affiliates have any ownership interests in any oil and gas
production or reserves in areas serviced by the Gathering System as
same may be extended or expanded, and (iii) any drilling or
development partnerships, joint ventures or other arrangements in
which any of the entities described in subparagraphs (i) or
(ii) own or hold an equity interest, own or hold any voting
interests, or otherwise have the right to direct the management or
policies of the same and such entities have any ownership interests
in any oil and gas production or reserves in areas serviced by the
Gathering System is expanded or extended; provided, however, that
DPI Producers shall not include non-Affiliates for who DPI or its
Affiliates have no control or ability to commit gas production
under the NAESB Purchase Agreement.
“
Effective Date ” means the Closing
Date.
“
Environmental Laws ” means any and all local,
state or federal laws, rules, regulations, orders, or judgments
relating to the prevention of pollution, the preservation and
restoration of environmental quality, or the protection of human
health, wildlife or environmentally sensitive areas, the
remediation of contamination or the handling, transportation,
disposal or release into the environment of Hazardous Materials,
including, without limitation, those arising under or by virtue of
any lease, contract, agreement, document, permit, applicable
statute or rule or regulation or order of any governmental
authority, specifically including, without limitation, any
governmental request or requirement to take any clean-up or other
action with respect to any of the Purchased Assets or Retained
Gathering Assets or premises, including hazardous waste cleanup
costs under the Solid Waste Disposal Act, 42 U.S.C. 6901, et seq.,
the Resource Conservation and Recovery Act of 1976 (RCRA), 42
U.S.C. 6901, et seq., the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), 42 U.S.C. 9601, et seq.,
the Clean Air Act, the Federal Water Pollution Control Act, the
Toxic Substances Act, the Oil Pollution Act of 1990.
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“
Equity Releases ” as defined in
Exhibit G to the NAESB Purchase
Agreement.
“
Excluded Assets ” means those interests and
rights of the Sellers comprised of the following items
(x) with regard to the Purchased Assets, as of the Effective
Date, and only insofar as attributable and allocable to
pre-Effective Date periods, and (y) to the extent an NGAS
Option is exercised (whether by SES or in accordance with the put
provisions thereof), then with regard to New NGAS Gathering, the
NGAS Option Assets or the NGAS Option Equity Interests, as of the
date of exercise of the NGAS Option, and only insofar as
attributable and allocable to pre-exercise date periods:
(a) all cash or cash equivalents; (b) all accounts
payable or accounts receivable or other working capital items;
(c) all insurance policies and rights thereunder, including
rights to any cancellation value as of the Effective Date (or
applicable exercise date), provided, however, that this sub-clause
(c) shall not apply to New NGAS Gathering and any separate
insurance of New NGAS Gathering to the extent the NGAS Equity
Option is exercised; (d) all corporate, financial, tax and
legal (other than title) records and other Books and Records that
constitute proprietary or confidential business or technical
information of DPI pertaining to its oil and gas producing
operations, whether or not also used in or relating to operations
of the Business; (e) all trademarks or service marks, trade
names, slogans or other like property relating to or including the
names “NGAS” or “Daugherty” and any other
Intellectual Property of DPI pertaining to its oil and gas
producing operations, whether or not also used in or relating to
operations of the Business; (f) the Existing Contracts (as
defined in the NAESB Purchase Agreement); and (g) any
Contracts not listed as Assumed Contracts on
Schedule C or are not 100% Assigned
Contracts.
“
FERC ” means the Federal Energy Regulatory
Commission.
“
Forward Sales Agreements ” is defined in
Section 2.15 .
“
Gathering System ” means the aggregate of the
following interests and rights of the Sellers, exclusive of
Excluded Assets:
(a) the natural
gas gathering systems and pipeline facilities, trap sites,
compressors, equipment, machinery, fixtures, flowlines, materials,
improvements, personal property, delivery meters and regulator
stations associated with those lines of the Sellers or their
Affiliates serving southeastern Kentucky, eastern Tennessee and
western Virginia, including, without limitation, the
following:
(1) a 10-inch
gathering line commencing at the point of interconnection thereof
with the facilities of Spectra Energy Partners, LP and East
Tennessee Natural Gas Pipeline, in the vicinity of Rose Hill,
Virginia (the “ Spectra Interconnect ”),
and continuing northward for the remainder of the line;
(2) the entire 6-inch and 8-inch Claiborne County Utility
District Line that extends to and gathers unprocessed gas from
wells in the Fonde production area; (3) the entire 6-inch
Amvest line that extends to and gathers unprocessed gas from wells
in the Amvest production area; (4) the entire 6-inch Hickory
Flats Prison Line; (5) all of the gathering lines that extend
to and gather unprocessed gas from wells in the production areas
known as Martin’s Fork, Leatherwood, Fonde, Amvest and
Straight Creek, including all production and gathering lines
upstream of the Spectra Interconnect that connect with and gather
unprocessed gas from wellheads in the afore described production
areas where the DPI Producers have interests and located in
(A) the Kentucky Counties of Letcher, Perry, Leslie, Harlan,
Bell, but excluding the Gausdale/Kay Jay production area,
(B) the Virginia Counties of Lee and Scott and (C) the
Tennessee Counties of Claiborne and Campbell, all as set out on the
map attached hereto as Schedule A ; (6) the
Sellers’ (and any Affiliate’s) compressor stations in
Rose Hill, Martin’s Fork, Bill’s Branch, Young’s
Branch, Fonde, Amvest, Straight Creek and Martin’s Fork
Booster Station, all as set out on the map attached hereto as
Schedule A ; and (7) all associated
pipeline facilities, valves, trap sites, pigging stations, risers
and manifolds, delivery meters, remote measurement and monitoring
equipment and related programs and hardware, and regulator
stations, and all other equipment and appurtenances connected with
or used and associated with the aforesaid gathering lines and
compressor stations;
(b) all Rights of
Way attributable to, used in connection with, or relating to the
above, including without limitation, all such rights and interests
in or covering lands on which any such pipelines
5
or gathering
systems are located and including, without limitation, those set
forth on Exhibit G ;
(c) all permits
and authorizations of any kind held by Sellers or any of their
Affiliates necessary for the use and operation of the above as
shown in Schedule B , and
(d) all land or
other real property interests underlying the compressors, as well
as any other real property or warehouse leases, real property fee
interests or other interests in real property described
constituting part or otherwise used by Sellers or their Affiliates
in connection with the Business or other interests described in
this definition, including, without limitation, those described on
Schedule F ;
(e) all
inventories of pipe, materials and supplies, if any, owned or held
by Sellers or their Affiliates in connection herewith;
(f) all software,
computer programs, computer servers, and other Intellectual
Property, whether owned or licensed, used by Sellers or their
Affiliates in connection with the above-described interests or the
Business insofar as described on Schedule G ,
attached hereto; and
(g) any other
real, personal or mixed property interests, whether similar in
nature or not to those described above, owned or held by Sellers or
any of their Affiliates necessary to own or operate the Business or
the Gathering System described above, other than Excluded Assets,
Receipt Meters and the 100% Assigned Contracts.
It is the
intent of the Parties that the term “Gathering System”
include all of Sellers’ interests in the above-described
assets, interests and properties, whether completely or accurately
described in the exhibits and schedules attached hereto or not,
subject to the limitations and exclusions set forth in the
foregoing description.
“
Governing Documents ” means, with respect to an
entity, (a) in the case of a corporation, the applicable
articles of incorporation, by-laws, or charter documents, of such
corporation, (b) in the case of a limited liability company,
the applicable certificate of formation, limited liability company
agreement, operating agreement, or similar agreement for such
company, (c) in the case of a partnership, the applicable
certificate of limited partnership, partnership agreement or
limited partnership agreement, as the case may be, or (d) any
other instrument, document or agreement relating to the formation,
ownership, management, voting rights, or operation of such
entity.
“
Governmental Action ” means all consents,
approvals, permits, waivers, exceptions, variances, orders,
proceedings, exemptions, publications, filings, notices to or
declarations of or with any Governmental Body.
“
Governmental Body ” means any court, government
(federal, state, local or foreign), department, political
subdivision, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority, including but
not limited to the FERC, the Federal Trade Commission, the
Securities and Exchange Commission, any state public service or
public utility or similar commission, any other governmental,
quasi-governmental or nongovernmental body administering,
regulating or having general oversight over natural gas, or other
markets or transmission systems (but excluding, for the avoidance
of doubt, any counterparty to an Assumed Contract in its capacity
as such).
“
Governmental Permits ” means all tariffs,
licenses, franchises, permits, privileges, variances, immunities,
consents, rulings, exemptions, orders, judgments, decrees,
approvals or other authorizations of any kind issued by any
Governmental Body.
“
Guarantors ” means NRI and DPI with respect to
the Seller Parent Guaranty.
“
Hazardous Materials ” means any substance or
material that is designated, classified, characterized or regulated
as a “hazardous substance”, “hazardous
waste”, “hazardous material”, “toxic
substance”, “pollutant” or
“contaminant” under Environmental Laws
“
Independent Director ” means with regard to New
NGAS Gathering, a Manager of New NGAS Gathering who is not an
employee, officer, director, manager or other Affiliate of NRI, DPI
or any of their respective
6
subsidiaries or
other Affiliates and who would otherwise satisfy the standards
applicable to an “independent director” under the rules
and regulations of the New York Stock Exchange if NRI’s
voting capital stock were listed for trading on the
NYSE.
“
Intellectual Property ” means any or all of the
following, and all rights arising out of or associated therewith:
(a) all United States, international and foreign patents and
applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part
thereof; (b) all confidential and trade secret information,
including all confidential inventions (whether patentable or not),
proprietary software, invention disclosures, improvements, trade
secrets, proprietary information, know-how, technology, technical
data and customer lists, and all documentation relating to any of
the foregoing throughout the world; and (c) all copyrights,
copyright registrations and applications therefor, and all other
rights corresponding thereto throughout the world.
“
IRR ” shall have the meaning set forth in the
Joint Ownership Agreement.
“ IRR
Specified Discount Rate ” shall have the meaning set
for the Joint Ownership Agreement.
“
Joint Ownership Agreement ” means the Joint
Ownership Agreement dated as of the same date as this Agreement,
between Buyer and New NGAS Gathering, in substantially the form
attached hereto as Exhibit A .
“ Kay
Jay ROFR Assets ” is defined in
Schedule H .
“ Kay
Jay ROFR ” is defined in
Schedule H .
“
Knowledge of the Buyer ” means the actual
knowledge of Brent McDaniel and Louis Dorey.
“
Knowledge of the Sellers ” means the knowledge
of William S. Daugherty, William G. Barr III, D. Michael Wallen,
Michael P. Windisch, Brint Camp and John R. Bender, after
reasonable inquiry and investigation.
“
Law ” means any law, statute, rule, regulation,
ordinance order or other pronouncements, actions or requirements of
any Governmental Body, including, without limitation, Environmental
Laws or those relating to safety or welfare of humans or the
environment.
“
Lease ROW ” is defined in
Section 3.15(b) .
“
Lien ” means any lien, mortgage, security
interest, tax lien, attachment, levy, charge, claim, restriction,
imposition, pledge, encumbrance, right of first refusal,
preferential purchase right, drag-along right, tag-along right,
right of first offer or other similar rights, conditional sale or
title retention arrangement, or any other interest in property or
assets (or the income or profits therefrom), whether consensual or
nonconsensual and whether arising by agreement or under any
Requirement of Law, or otherwise, other than the Permitted
Encumbrances.
“
Losses ” has the meaning set forth in
Section 8.2(a) .
“
Master Netting Agreement ” means that certain
Master Netting and Setoff Agreement by and among SES, Buyer, DPI,
for itself and the other DPI Producers, NGL, and New NGAS Gathering
in substantially the form attached hereto as
Exhibit T .
“
Maximum Indemnity Amount ” has the meaning set
forth in Section 8.4 .
“
Memorandum of Options and Agreements ” means
the Memorandum of Options and Agreements, in substantially the form
attached hereto as Exhibit N .
“
NAESB Purchase Agreement ” means the NAESB form
gas purchase agreement, together with the special provisions and
any confirmations provided thereunder and including the NGAS
Options and Forward Sales Agreement, by and between DPI, on behalf
of itself and the other DPI Producers, and SES, in substantially
the form of Exhibit I . The
NAESB Purchase Agreement will be effective as of the Effective
Date, but to the extent Closing occurs on a date that is other than
the first of a calendar month, then the Gathering Fees thereunder
shall be prorated
7
for the month
in which Closing occurs, any volumes delivered by DPI during the
remainder of the calendar month in which Closing occurs shall be
deemed gathered (not purchased) by SES thereunder, and the purchase
of volumes of gas thereunder shall commence on the first day of the
calendar month immediately following the month in which closing
occurs.
“
Natural Gas Act ” means 15 U.S.C.
Sections 717 through 717(w), regulating the transportation and
sale of natural gas in interstate commerce, and any amended,
together with any successor statutes thereto, and together with any
regulations promulgated thereunder.
“
Natural Gas Policy Act ” means the Natural Gas
Policy Act of 1978, Pub. L. No. 95-621 (Nov. 9, 1978) , and
any amended, together with any successor statutes thereto, and
together with any regulations promulgated thereunder.
“ New
NGAS Gathering ” means NGAS Gathering II, LLC, a
Kentucky limited liability company formed prior to the Closing and
wholly owned by DPI.
“ NGAS
Credit Agreement ” means that certain Amended and
Restated Credit Agreement dated as of May 30, 2008, by and
among NRI, DPI, KeyBank National Association, as Administrative
Agent, and the lenders who are parties thereto, as amended by a
First Amendment to Amended and Restated Credit Agreement dated as
of June 30, 2008 and a Second Amendment to Amended and
Restated Credit Agreement dated as of December 31, 2008,
together with any promissory notes or other instruments, documents
or agreements issued or delivered pursuant thereto. For the
purposes of Schedule 2.14(c) , Line of Credit
mean the NGAS Credit Agreement and any proposed amendments
thereto.
“ NGAS
Mortgages ” means the instruments pursuant to which
Sellers grant Buyer a first Lien on all of the Retained Gathering
Assets to secure the performance of the Seller Secured Obligations,
in substantially the form of Exhibit M-1 , as
modified to accommodate recording practices and statutory
references in Kentucky, Tennessee and Virginia.
“ NGAS
Option Promissory Note ” has the meaning set forth in
Exhibit G to the NAESB Purchase
Agreement.
“ NGAS
Options ,” “ NGAS Option Promissory
Note ” and “ NGAS Options Price
” are defined in Exhibit G to the NAESB
Purchase Agreement.
“ NGAS
Securities Purchase Agreement ” means that certain
Securities Purchase Agreement dated as of December 13, 2005 by
and among NRI and the investors identified as Buyers
therein.
“ NNG
LLC Agreement ” shall mean the limited liability
company agreement, operating agreement, or applicable governing
document and agreement for New NGAS Gathering, in substantially the
form attached hereto as Exhibit E .
“
NRI ” means NGAS Resources, Inc., a British
Columbian corporation, and the ultimate parent company of Sellers
and New NGAS Gathering.
“ 100%
Assigned Contracts ” means the contracts and
agreements described on Schedule I attached
hereto.
“
Operational Data ” means all computer, digital,
electronic, analog, telecommunications (including voice recording),
metering, and billing data or copies thereof relating to the
Purchased Assets, the Retained Gathering Assets and the operations
associated therewith and held by the Sellers or any of their
Affiliates (to the extent a Seller or any of its Affiliates has
rights thereto).
“
Party ” means each of the Buyer, the Sellers
and New NGAS Gathering.
“
Permitted Encumbrances ” means (a) liens
for taxes or similar governmental charges imposed on the Purchased
Assets or the Retained Gathering Assets which are not delinquent as
of the Closing Date, (b) all rights
8
reserved to or
vested in any Governmental Body controlling or regulating or having
jurisdiction over any of the Purchased Assets or the Retained
Gathering Assets in any manner, and in accordance with all
applicable Laws, (c) liens created pursuant to the NGAS
Mortgages and Seminole Mortgages, (d) liens constituting any
interest or title of a lessor or farmor under any lease or farmout
entered into by DPI listed in Schedule F
attached hereto, insofar as they cover only the property so leased
or assigned or rights to take third-party production in kind
insofar as the same are waived or released by the holders of the
same prior to Closing with regard to the transaction under this
Agreement and the Ancillary Agreements, and (e) restrictions,
encumbrances or other matters that are due to zoning or subdivision
laws or regulations individually and in the aggregate that do not
materially and adversely affect the Purchased Assets or Retained
Gathering Assets; provided, however, that the Permitted
Encumbrances pertaining to the Purchased Assets or the Retained
Gathering Assets from and after the Closing Date shall not (x)
include liens thereon previously created under the NGAS Credit
Agreement, nor (y) interfere with the operations of the
Gathering System or materially detract from the value or use
thereof.
“
Person ” means any individual, corporation,
partnership, joint venture, limited liability company, association
(whether incorporated or unincorporated), joint-stock company,
trust, Governmental Body, unincorporated organization or other
entity.
“
Preferential Rights ” is defined in
Section 3.15 .
“
Purchased Assets ” means the following
interests and rights of the Sellers, exclusive of Excluded Assets,
as of the Effective Date: an (i) undivided fifty percent (50%)
(out of 8/8ths) interest in the Gathering System, Assumed Contracts
and Books and Records, but not including any interest in the
Excluded Assets; (ii) an undivided twenty-five percent (25%)
of all of Sellers’ rights, titles and interests in and to the
Receipt Meters; and (iii) an undivided one percent (100%) of
all Sellers’ rights, title and interest in, to and under the
100% Assigned Contracts.
“
Purchase Price ” has the meaning set forth in
Section 2.2 .
“ Put
Notice ” is defined in Exhibit G
to the NAESB Purchase Agreement.
“
Receipt Meters ” means and includes any and all
wellhead or other meters used to measure volumes of gas delivered
into the Gathering System.
“
Retained Gathering Assets ” is defined in the
Recitals.
“
Required Consents ” means all of the consents,
authorizations and approvals required from any Person in order to
close and consummate the sale to Buyer of the Purchased Assets, the
contribution of Retained Gathering Assets to New NGAS Gathering,
the granting, closing and consummation of the NGAS Options, the
granting of the Kay Jay ROFR, the execution, delivery and
performance of the Ancillary Agreements, the Ancillary Option
Agreements, and the other transactions as contemplated in this
Agreement, in such form and substance contemplated by
Section 5.1 , including, without limitation, the
consent and authorization and approval with regard to any Lease
ROWs.
“
Requirements of Law ” means any requirements of
any Law, including but not limited to the requirements of any
applicable Governmental Permits or Governmental Actions.
“
Recitals ” means the recitals to this
Agreement.
“
Restricted Information ” has the meaning set
forth in Section 11.16(b) .
“
Retained Gathering Assets ” means all of each
Seller’s and their Affiliates remaining interest in the
Gathering System, Assumed Contracts, and Books and Records, after
conveyance of the Purchased Assets to Buyer at Closing, together
with 25% of Sellers’ right, title, and interest in and to the
Receipt Meters, after conveyance of the Purchased Assets to the
Buyer at Closing.
“
Retained Liabilities ” means any and all
liabilities, obligations or Losses arising from or relating to
(a) the Retained Gathering Assets, (b) the Excluded
Assets, or (c) the Purchased Assets, insofar as the same arise
from or are attributable to the ownership, operation or use of the
Purchased Assets (or events or matters occurring) prior to the
Closing Date.
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“
Rights of Way ” mean easements, rights-of-way,
servitudes, fee lands, surface and subsurface lease agreements,
surface use agreements and other rights and agreements related to
the use of the surface and subsurface.
“
Securities Act ” means the Securities Act of
1933, as amended, supplemented or restated from time to time, and
any successor statute.
“
Sellers ” has the meaning set forth in the
Recitals.
“
Seller Claim ” has the meaning set forth in
Section 8.3(a) .
“
Seller Claim Notice ” has the meaning set forth
in Section 8.3(b) .
“
Seller Indemnified Parties ” has the meaning
set forth in Section 8.3(a) .
“
Seller Parent Guaranty ” means the Parent
Guaranty of each of NRI and DPI, in substantially the form attached
hereto as Exhibit C .
“
Seller Secured Obligations ” means all
obligations and liabilities of (a) the Sellers and New NGAS
Gathering under this Agreement, including, without limitation, with
regard to the Ancillary Option Agreements, (b) New NGAS
Gathering, DPI and the Affiliates of either of them or the
Affiliates of NRI under the Ancillary Agreements to which it is or
becomes a party, to be secured by the NGAS Mortgages and the Seller
Parent Guaranty, and (c) DPI, and the other DPI Producers,
under the NAESB Purchase Agreement.
“
SES ” mean Seminole Energy Services LLC, an
Oklahoma limited liability company, and the ultimate parent company
of Buyer.
“ SES
Contract Operating Agreement ” is defined in the
Joint Ownership Agreement.
“ SES
Gathering Agreement ” means the Gathering Agreement,
dated as of the same date as this Agreement, by and among Buyer,
New NGAS Gathering and SES, pursuant to which Buyer and New NGAS
Gathering shall agree and commit to SES an undivided 100% of the
capacity of the Gathering System (as the Gathering System and its
capacity may hereafter be modified, expanded, extended or
increased), in substantially the form of
Exhibit H .
“
Seminole Mortgages ” means the instruments
pursuant to which Buyer grants New NGAS Gathering a subordinated,
second Lien on all of the Purchased Assets to secure the
performance of the Buyer Secured Obligations, in substantially the
form of Exhibit M-2 , as modified to accommodate
recording practices and statutory references in Kentucky, Tennessee
and Virginia.
“
Subsequent Transaction ” shall mean the closing
and consummation, within six (6) months after the date of
termination of this Agreement by the Buyer in accordance with
Section 10.1(c) , one of the following transactions (or
the signing of a binding agreement, within six (6) months
after the date of termination of this Agreement, providing for one
of the following transactions, to the extent such transaction is
actually thereafter closed and consummated under the binding
agreement): (a) a merger, consolidation or similar transaction
for all or substantially all the ownership interests or current
assets of either DPI or NRI by a Person who is not an Affiliate of
Sellers or Buyer, (b) any direct or indirect purchase (except
by Buyer or any Affiliate of Buyer or SES) of (1) 50% or more
of the Gathering System for aggregate consideration (whether cash
or non-cash, including without limitation, assumption of debt)
involving $25 million or more, or (2) 100% of the Gathering
System for aggregate consideration (whether cash or non-cash,
including, without limitation, assumption of debt) involving
$50 million or more, or (c) if more than one transaction
occurs within the six (6) months following termination of this
Agreement that would qualify as a Subsequent Transaction pursuant
to the foregoing clause (b) of this definition but for the
fact that such transaction fails the 50% test but such
transactions, if aggregated, would satisfy such 50% test, then all
such transactions nevertheless will constitute a Subsequent
Transaction as of the point that such transactions, when
aggregated, so qualify, then any such aggregated transactions
during such six (6) month period shall also count as a
Subsequent Transaction. To the extent Sellers or an Affiliate of
Sellers or New NGAS Gathering transfers any of
10
the Purchased
Assets to an Affiliate of Sellers within six (6) months
following the termination of this Agreement, and such Affiliate
subsequently sells such Purchased Assets (or the equity interests
of such Affiliate are sold) within this same six (6) month
period to a Person who is not an Affiliate of Sellers or the Buyer,
then such subsequent sale by the Affiliate shall nevertheless
constitute a Subsequent Transaction if it meets the other terms of
this definition.
“
Tax ” or “ Taxes ”
means any present or future federal, state, county, local or
foreign taxes, charges, levies, imposts, duties, other assessments
or similar charges or withholding of any kind whatsoever, including
interest, penalties and additions imposed thereon or with respect
thereto, imposed by a Governmental Body.
“ Tax
Returns ” means any reports, returns, information
returns or other information required to be supplied to a taxing
authority in connection with Taxes, including any return of an
affiliated or combined unitary group.
“
Treasury Regulations ” means the regulations
promulgated by the United States Treasury Department under the
Code.
ARTICLE 2
PURCHASE AND SALE; CONTRIBUTION; OTHER AGREEMENTS
2.1
Purchase and Sale . As of the Closing, and subject to
all of the terms and conditions of this Agreement, the Sellers
shall sell, transfer, convey, assign and deliver, and the Buyer
shall purchase, the Purchased Assets, free and clear of all Liens
(other than Permitted Encumbrances), and the Buyer shall assume all
of the Assumed Liabilities (which Assumed Liabilities the Buyer
shall thereafter pay, discharge and perform, each on a timely basis
with regard to its share thereof).
2.2
Consideration/Purchase Price . At the Closing, and
subject to all of the terms and conditions of this Agreement, in
consideration of the (a) Sellers’ sale, transfer,
assignment, conveyance and delivery to Buyer of the Purchase
Assets, free and clear of all Liens (other than Permitted
Encumbrances), (b) Sellers’ granting of the NGAS
Options, (c) DPI’s granting of the Kay Jay ROFR and
(d) the Ancillary Agreements and the other agreements and
actions of Sellers (and certain Affiliates of Sellers) contemplated
by this Article 2 , the Buyer shall pay to the Sellers
$28,000,000 (the “ Purchase Price ”),
subject to any adjustments contemplated in Sections 2.5 ,
5.1(b) and 9.1 , by wire transfer on the date hereof
to a designated account of DPI at KeyBank National Association (as
agent for all lenders under the NGAS Credit Agreement), for the
benefit of all Sellers, to be applied as a partial repayment of
outstanding borrowings under the NGAS Credit Agreement.
2.3 No
Assumption of Retained Liabilities . The Buyer does not and
will not assume any of the Retained Liabilities, which shall remain
the sole responsibility of and shall be retained, paid, performed
and discharged solely by the Sellers, or as applicable, the
Sellers’ Affiliates, each on a timely basis.
2.4
Excluded Assets . Notwithstanding anything to the
contrary contained in Section 2.1 or elsewhere in this
Agreement, any right, interest or claim of the Sellers relating to
the Excluded Assets will remain the property of the Sellers, and
neither the Buyer nor any of its Affiliates shall have any right,
title or interest therein after the Closing, whether or not the
Buyer exercises an NGAS Options.
2.5
Adjustments at Closing .
(a) Closing
Adjustments :
(i) Preliminary
Settlement Statement . At Closing, the Purchase Price will be
adjusted as set forth in subparagraphs 2.5(a)(ii) and
2.5(a)(iii) below (the adjusted Purchase Price delivered at Closing
is referred to herein as the “ Closing Price
”). No later than five (5) Business Days prior to
Closing, Seller, will provide to Buyer a preliminary settlement
statement identifying all adjustments to the Purchase Price to be
made at Closing (the “ Preliminary Settlement
Statement ”). Sellers and Buyer acknowledge that some
items in the Preliminary Settlement Statement may be estimated, in
the good faith opinion of Sellers, when actual amounts are not
available and may be subject to change in the Final Settlement
Statement (as defined in Section 2.5(b) ).
11
(ii) Upward
Adjustments . The Purchase Price will be increased at Closing
by the following expenses and revenues:
(1) all normal and
customary operating expenses, Taxes and capital expenditures paid
or incurred by Sellers allocable to the Purchased Assets
(including, without limitation, rentals and prepaid charges,
including, without limitation, prepaid Taxes, prepaid insurance and
prepaid bonds), to the extent they are attributable and allocable
to the ownership or operation of the Purchased Assets on and after
the Effective Date; and
(2) any other
increases in the Purchase Price specified in this
Agreement.
(iii) Downward
Adjustments . The Purchase Price will be decreased by the
following expenses and revenues (to the extent of the allocable
share attributable to the Purchased Assets):
(1) all actual
operating expenses and capital expenditures paid or incurred by
Buyer in connection with the Purchased Assets (including, without
limitation, rentals and prepaid charges, including, without
limitation, prepaid Taxes and prepaid insurance), to the extent
they are attributable to the ownership or operation of the
Purchased Assets before the Effective Date; and
(2) any other
decreases in the Preliminary Sale Price specified in this
Agreement.
(b) Adjustments
After Closing .
(i) Final
Settlement Statement . Within thirty (30) days after
Closing, Sellers will prepare a final settlement statement for the
Purchased Assets containing a final reconciliation of the
adjustments to the Purchase Price specified in
Section 2.5(a) (the “ Final Settlement
Statement ”). However, the failure of Sellers to
complete the Final Settlement Statement within thirty
(30) days after Closing will not constitute a waiver of any
right to an adjustment otherwise due. Buyer will have thirty
(30) days after receiving the Final Settlement Statement to
provide Sellers with written exceptions to any items in the Final
Settlement Statement that Buyer believes, in good faith, to be
questionable. All items in the Final Settlement Statement to which
Buyer does not except within the thirty (30) day review period
will be deemed to be correct.
(ii) Payment of
Post-Closing Adjustments . Any post-Closing adjustments to the
Closing Price (including disputed items which have ultimately been
resolved) will be offset against each other so that only one
payment is required. The Party owing payment will pay the other
Party the net post-Closing adjustment to the Closing Price within
ten (10) days after the expiration of Buyer’s thirty
(30) day review period for the Final Settlement
Statement.
(c) Additional
Closing Payments .
(i) any
reimbursable Consent Costs under Section 8.4 ;
and
(ii) subject to
any approval requirements under Section 5.2 , the
capital costs attributable to expansions or extensions of the
Gathering System paid by Sellers between the date of this Agreement
and the Closing (collectively, the (“ Additional
Capital Costs ”).
2.6
Operation of Gathering System; Joint Ownership Agreement
. From and after the Closing, the ownership and operation of the
Gathering System, as well as any modifications, additions,
improvements, expansions or extensions thereof, shall be conducted
and governed in accordance with the terms of the Joint Ownership
Agreement and certain agreements entered into pursuant to the Joint
Ownership Agreement, as any of the same may be amended from time to
time in accordance therewith. Simultaneously with the Closing and
the consummation of the other transactions contemplated herein,
Buyer and New NGAS Gathering shall execute and deliver (and DPI
shall cause New NGAS Gathering to execute and deliver) the Joint
Ownership Agreement. In
12
accordance with
the terms thereof, at the Closing Buyer and New NGAS Gathering
shall also properly execute, notarize and deliver (and DPI shall
cause New NGAS Gathering to properly execute, notarize and deliver)
to Buyer, for Buyer to record in each county in which any of
portion of the Gathering System is located, a memorandum of the
Joint Ownership Agreement, acknowledging that the obligations
therein are intended to constitute covenants running with the land,
in form and substance reasonably acceptable to Buyer and Sellers.
In addition, pursuant to the Joint Ownership Agreement, it is
contemplated that New NGAS Gathering and Buyer shall enter into the
SES Contract Operator Agreement, and SES and DPI shall enter into
the DPI Contract Operator Agreement.
2.7
Seller’s Lien Releases . At or prior to Closing,
Sellers shall deliver to Buyer release documentation, in form and
substance satisfactory to Buyer and sufficient to establish clear,
marketable and unencumbered title to the Purchased Assets (free of
all Liens other than Permitted Encumbrances) delivered to Buyer at
Closing, and clear, marketable and unencumbered title to the
Retained Gathering Assets (free of all Liens other than Permitted
Encumbrances) delivered to New NGAS Gathering at Closing. Without
limiting the generality of the immediately preceding sentence, the
Sellers shall deliver the releases described on
Exhibit J attached hereto.
2.8
Contribution of Retained Gathering Assets; Security Interests;
New NGAS Gathering .
(a)
Contribution of Retained Gathering Assets. At Closing, and
immediately following the conveyance of the Purchased Assets to
Buyer at Closing, the Sellers shall contribute and convey to New
NGAS Gathering the Retained Gathering Assets, free and clear of all
Liens other than Permitted Encumbrances. New NGAS Gathering shall
own or hold no other assets or properties of any kind whatsoever
following the Closing other than the Retained Gathering Assets and
its interests in any additions to or extensions of the Gathering
System in accordance with the Joint Ownership Agreement.
(b) Security
Interests in Retained Gathering Assets. At Closing, and to
support the full and prompt performance and satisfaction of all the
Seller Secured Obligations, (1) New NGAS Gathering shall grant
to Buyer a first lien in and to all of the Retained Gathering
Assets, as the same may be modified, improved, repaired, replaced,
extended or expanded, from time-to-time, in accordance with the
terms of the NGAS Mortgages; and (2) New NGAS Gathering shall
properly execute, have notarized and deliver to Buyer the NGAS
Mortgages. If an NGAS Option is exercised, whether by SES or in
accordance with the put option provisions thereof, the Liens
granted under the NGAS Mortgages shall automatically terminate,
expire and be released upon the closing and consummation of such
NGAS Option, and the Parties shall promptly execute, deliver and
record such further releases or instruments as may be necessary or
appropriate to reflect the termination and release
thereof.
(c) Independent
Director; Governing Documents of New NGAS Gathering. As of the
Closing the provisions set forth in Exhibit K-1
shall have become a part of the Governing Documents of New NGAS
Gathering such that throughout the period when any of the Joint
Ownership Agreement or SES Gathering Agreement remain in effect (or
at any time when neither the Joint Ownership Agreement nor the SES
Gathering Agreement, remain in effect but the Gathering System is
still owned partially by New NGAS Gathering or any Affiliates of
Sellers, on the one hand, and Buyer or any Affiliate of Buyer, on
the other hand, New NGAS Gathering shall be required to continue to
(1) appoint and maintain an Independent Director, and
(2) such Independent Director’s approval shall be
required prior to New NGAS Gathering to filing any insolvency, or
reorganization case or proceeding, to institute proceedings to have
New NGAS Gathering be adjudicated bankrupt or insolvent, to
institute proceedings under any applicable insolvency law, to seek
any relief under any law relating to relief from debts or the
protection of debtors, to consent to the filing or institution of
Bankruptcy or insolvency proceedings against the New NGAS
Gathering, to file a petition seeking, or consent to,
reorganization or relief with respect to the Company under any
applicable federal or state law relating to Bankruptcy or
insolvency, to seek or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, custodian, or any
similar official of or for New NGAS Gathering or a substantial part
of its property, to make any assignment for the benefit of
creditors of New NGAS Gathering, to admit in writing New NGAS
Gathering’s inability to pay its debts generally as they
become due, or to take action in furtherance of any of the
foregoing, dissolve, liquidate, sell or transfer all or
substantially all of the assets of New NGAS Gathering (whether in
one or more transactions), merge or consolidate with another entity
or company, or take any other actions set forth in
Exhibit K-1 , the NNG LLC Agreement, or take any
other actions or enter into any other transactions other than those
expressly permitted under the Joint Ownership Agreement or any
other Ancillary Agreements. In addition, during
13
the same period
that New NGAS Gathering must maintain an Independent Director, the
NNG LLC Agreement shall provide that: (x) New NGAS Gathering
may not vote on, or authorize the taking of, any of the
above-described actions, unless there is at least one Independent
Director then serving in such capacity (and any such vote without
an Independent Director shall be deemed void), and (y) neither
the NNG LLC Agreement nor any of New NGAS Gathering’s other
Governing Documents shall be permitted to be amended or modified
without the prior written consent of Buyer, which consent
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