Execution Version
INVESTORS' RIGHTS AGREEMENT
This
Investors'
Rights Agreement, dated as of December 22, 2006 (the
"Agreement"), is made
and entered into by and among Quest Midstream Partners,
L.P., a Delaware limited partnership ("Company"), Quest Midstream GP, LLC, a
Delaware limited
liability company ("GP"), Quest Resource Corporation, a
Nevada corporation
("QRC"), Alerian
Opportunity Partners IV, L.P., a Delaware
limited partnership
("Alerian"),
Swank MLP Convergence Fund, LP, a Texas
limited partnership
("Swank MLP Fund"), Swank Investment Partners, LP, a
Texas limited
partnership ("SIP"),
The Cushing MLP
Opportunity Fund I, LP, a
Delaware limited
partnership ("Cushing
MLP Fund"), The
Cushing GP Strategies
Fund, LP, a Delaware
limited partnership ("Cushing GP Fund", together with
Swank MLP Fund, SIP and Cushing MLP Fund, "Swank"), Tortoise Capital
Resources
Corporation, a
Maryland corporation ("Tortoise"), Huizenga
Opportunity Partners,
LP, a Delaware limited partnership ("HOP") and HCM
Energy Holdings, LLC,
an Illinois limited
liability company (together with
HOP, "Huizenga").
Alerian,
Swank,
Tortoise and Huizenga are sometimes
referred to
herein individually as "Investor" and collectively as the
"Investors."
WHEREAS,
the Company, GP, QRC and the Investors are parties to a
Purchase Agreement of
even date herewith (the "Purchase Agreement") pursuant
to which the Investors
acquired certain of the Company's
Common Units,
and
Alerian and Swank acquired certain of the GP's Member
Interests.
NOW,
THEREFORE,
in
consideration
of the mutual covenants,
representations,
warranties and
agreements
contained herein, and of other
good and valuable
consideration,
the receipt and sufficiency of which are
hereby acknowledged,
and intending to be
legally bound
hereby, the parties
hereto hereby agree as follows:
1.
Definitions
and Interpretations. Unless otherwise provided to the
contrary in this
Agreement,
capitalized
terms in this Agreement have the
meanings set forth in Section 1.1 of Exhibit A. Unless expressly
provided to the
contrary in this
Agreement, this
Agreement shall be
interpreted in accordance
with the provisions set forth in Section 1.2 of Exhibit A.
2. Board
Representation.
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(a) Designation of Board Member. For the period hereafter
indicated,
Alerian
and Swank will each have a separate and independent right to
designate
one (1) natural person to serve as a member of the Board of
Directors
of GP. QRC will have the right to designate the remaining
members of
the Board of Directors
of GP. In order to
effect this right,
QRC (or
its Affiliates that
own Member Interests)
shall vote the
Member
Interests
in GP owned by it in a
manner so as to cause and maintain the
election
of the persons so designated. Swank's right to designate a
member
of the
Board of Directors
shall terminate upon the completion by the
Company of
an IPO. In addition,
such right to
designate a member of
the
Board of
Directors shall terminate as to Alerian or Swank (or both)
at
such time
(either before or after completion by the Company of an
IPO) as
such
designating
person ceases to own at least five
percent (5%) of the
Common
<PAGE>
Units
(measured on a fully-diluted basis that assumes that all
outstanding
warrants,
options, rights and
securities that are at any time exercisable
for or
convertible into
Common Units have been so exercised or converted)
held by
Persons other that QRC or its Affiliates.
(b) Expansion of Board. The parties currently contemplate that
until
the
completion by the Company of an IPO, the Board of Directors of GP
will
consist of
six (6) persons.
During the period prior to completion of an
IPO that
Alerian or Swank has
the right to designate a person to serve on
the Board
of Directors of GP, such designating person shall have the
right
to
maintain its
proportionate
Board representation in the event of an
expansion
of the number of
members of the Board of Directors; provided,
however,
that
such right to maintain the proportionate Board
representation will terminate upon completion by the Company of an
IPO.
(c) Replacement. In the event of the resignation, death, removal or
disqualification of a
person designated by QRC, Alerian or Swank to serve
on the
Board of Directors, as set forth above, the appropriate
designating
party or
parties shall
promptly designate a new member of the Board of
Directors,
and after written
notice of the
designation has been given by
such
designating
party or parties to
the other parties,
each of QRC and
the
Investors shall vote its Member Interests to elect such nominee to
the
Board of
Directors.
(d) Removal.
The appropriate designating party or parties may
specify
that any person designated by it to serve on the Board of
Directors
shall be removed at any time and from time to time, with or
without
cause.
(e) Indemnification
and Insurance. So long as either Alerian or
Swank has
a right to designate a Director pursuant to this Section 2,
the
GP shall
maintain director and officer insurance reasonably satisfactory
to Alerian
and Swank, as the case may be.
3.
Obligation to Participate in Certain Sales.
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(a) Approved Sale.
Subject to the provisions of subsection 3(c), if
an IPO has
not been completed by the Company by the second anniversary of
the
Closing Date, then until such time as an IPO is
completed by the
Company,
a Majority of
Investors may elect by written notice (a "Required
Sale
Notice") to require the GP to effect a Sale of the
Company that
satisfies
the conditions indicated in Section 3(b) below
(an "Approved
Sale").
Upon receipt of a Required Sale Notice and if a Majority of
Investors
do not accept the GP
Offer Price,
the GP shall
undertake to
effect a
Sale of the Company as promptly as commercially reasonable with
a
view to
maximizing
the aggregate
consideration
to be received for
such
sale;
provided, however, that all parties shall work in good faith to
complete
an Approved Sale
within 180 days after
receipt of the
Required
Sale
Notice by the GP.
Upon receipt of a Required Sale Notice and if a
Majority
of Investors
do not accept the GP
Offer Price,
the Conflicts
Committee
of the Board shall engage an investment banking firm of
national
reputation
to seek Qualifying
Offers (as defined
below) for an
Approved
Sale.
The Conflicts Committee of the Board shall have the primary
responsibility for negotiating the terms of any potential
Qualifying Offer
and shall
present to the
Investors all offers
received for a Sale of the
Company
that satisfy the
conditions for an
Approved Sale (a
"Qualifying
Offer").
Subject to Section
3(c), if a
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<PAGE>
Majority
of Investors agrees to accept a Qualifying Offer, then all of
the
parties
hereto shall (i) consent to, vote for and raise no objections
against
the Qualifying Offer or the process pursuant to which the
Qualifying
Offer was arranged,
(ii) waive any dissenters', appraisal and
similar
rights with respect thereto, and (iii) if the Qualifying Offer
is
a sale of
the Partnership Interests agree to sell all of their
Partnership
Interests
and Member Interests on the terms and conditions of the
Qualifying
Offer. The parties hereto shall take all necessary and
desirable
actions in
connection
with the consummation of any Approved
Sale,
including, without
limitation, the execution of such agreements and
instruments and other
actions reasonably necessary to (A) provide the
representations,
warranties,
indemnities,
covenants, conditions, escrow
agreements
and provisions and
agreements relating to
such Approved Sale,
and (B)
effectuate
the allocation and distribution of the aggregate
consideration upon the Approved Sale as set forth below.
(b) Conditions. Unless
otherwise agreed to by
all of the Investors
and the
GP, an Approved Sale must satisfy all of the following
conditions:
(i) the Approved Sale must be solely for cash consideration;
(ii) no purchaser may
be an Affiliate or Related Party of any
Investor unless
consent thereto is given by GP, which consent shall
not be unreasonably withheld;
(iii) upon
the consummation of the Approved Sale, the
aggregate net proceeds
from the Approved
Sale (x) if the
Approved
Sale is a sale of
substantially all of
the assets of the
Company,
shall be distributed
to and among the
Partners and the
Members in
accordance with the
provisions of Section 6.4(c) of the Partnership
Agreement and
Section 15.02 of the Limited Liability Company
Agreement and
(y) if the
Approved Sale is a sale of all of the
Partnership Interests
and Member Interests,
shall be apportioned
among the Partners and
the Members,
in the same amounts as
if the
full amount of such net proceeds are to be distributed to and among
the Partners and the Members, in accordance with the provisions of
Section 6.4(c) of the Partnership Agreement and Section 15.02 of
the
Limited
Liability
Company
Agreement (and assuming the prior
satisfaction of the debts and obligations of the Company and
GP);
(iv) No party
shall receive direct remuneration from the
purchaser in an
Approved Sale other than the net
proceeds to be
apportioned among the parties in accordance with Section
3(b)(iii),
including but
not limited to remuneration for non-competition
provisions or other similar arrangements.
(v) All expenses of the Approved Sale (other than the fees and
expenses of any counsel or other advisors retained by the
Investors,
which fees
and expenses shall be paid by the Investors, but
including any
investment
banking firm fees and the fees of any
counsel retained
by the Conflicts Committee in finding and
negotiating Qualifying
Offers) shall be paid by the Company and
shall reduce the net
proceeds distributable pursuant to Section
3(b)(iii); and
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<PAGE>
(vi) In the event that the parties are required to make any
covenants,
representations or
indemnities in
connection with
the
Approved Sale,
then, (A) each party shall severally (and not
jointly) make the Fundamental Warranties solely with respect to
such
party, and
(B) other than with respect to the Fundamental
Warranties, the
obligations
and liabilities of the Partners and
Members participating
in the Approved
Sale shall first be
limited
solely to any escrow fund that may be established in connection
with
such transaction
(with the escrow
funded solely from the
purchase
price proceeds
and which escrow fund shall not be in an amount
greater than
10% of the aggregate purchase price paid by the
purchaser(s) in such
transaction), and
second, if and only if
the
escrow fund
is for 10% of the aggregate purchase price, any
obligations and
liabilities
of the Partners and Members
participating in the Approved Sale (other than any claims for
fraud,
willful misconduct or bad faith by a Partner or Member,
which shall
be the responsibility
of such Partner or Member) shall be borne
solely by QRC. The
escrowed funds shall be released no later
than
one (1) year following the closing of the Approved Sale, provided,
however, that to the
extent there are pending claims or demands
relating to any breach, misrepresentation or indemnity against the
escrow fund, an amount of the escrowed funds equal to such
aggregate
claims or demands will be retained until such claims and demands
are
finally resolved.
Upon distribution of the escrowed funds
(or any
part thereof), each Partner and Member shall receive their "pro
rata
share" of the distributed funds.
As used in
this Section
3, a party's
"pro rata share" shall mean the
ratio of (A) the total
consideration to be
received by such party
in or as a
result of an Approved
Sale, to (B) the total
consideration to be
received by
all Partners and
Members as a result of such Approved Sale (including upon
dissolution of the Company and GP following an Approved Sale).
(c) GP Right of First Offer/Refusal.
-------------------------------
(i) Upon receipt by the GP of a Required Sale Notice, the GP
shall have the
right of first
offer (before the Approved Sale
process proceeds) to indicate the price, if any, that the GP (or
its
designee) would pay in
connection with a Sale of the Company to the
GP (or its designee)
(the "GP Offer
Price"). If a Majority
of the
Investors agrees to accept the GP Offer price, then such offer
shall
constitute an approved
Qualifying Offer
pursuant to Section
3(a),
and the transaction
shall proceed as an Approved Sale to the GP (or
its designee)
in accordance with the terms of Sections
3(a) and
3(b), it being
understood that in such event QRC and its Affiliates
will not be
sellers of their Partnership Interests or Member
Interests (and the
purchase price paid will be net of the amount
attributable to the Partnership Interests and Member Interests
held
by such Persons, based
on the total GP Offer Price). The GP (or its
designee) shall have
thirty (30) days after
receipt of a
Required
Sale Notice to indicate the applicable GP Offer Price, if any, or
such right shall be deemed to have been waived; and the Investors
shall, within
fifteen days after
receipt of notice of the GP Offer
Price, notify the GP
("Election to Sell Notice") of the acceptance
or rejection (by a Majority of the Investors) of the GP Offer
Price.
4
<PAGE>
(ii) If a Majority of
Investors accepts a
Qualifying
Offer
(other than an offer
arising from the GP's
right of first offer in
clause (i) above), the
GP (or its designee) will have the right and
option (but not an obligation) (the "GP Right of First Refusal")
to
purchase all of the Common Units and Member Interests then owned by
the Investors,
exercisable by notice to the Investors ("Election to
Purchase Notice")
given no later than
ten (10) business days after
the GP is notified
that a Majority
of Investors has accepted a
Qualifying Offer;
provide however, that the GP Right of First
Refusal shall not apply with respect to such Qualifying Offer if
(A)
the GP (or its
designee) did not
indicate a GP Offer
Price in the
allowed time period,
(B) such Qualifying Offer is for a purchase
price for a Sale of the Company that is 115% or more of the GP
Offer
Price, or (C) if the
GP Offer Price was less than $100 million (as
an enterprise value
for a Sale of the Company, including the value
of the Partnership
Interests and Member
Interests held by QRC
and
its Affiliates) and
such Qualifying
Offer is for a
purchase price
for a Sale of the
Company that
is 105% or more of the GP Offer
Price.
(iii) If GP (or its
designee) purchases
the Common Units and
Member Interests owned
by the Investors
(either pursuant to clause
(i) or (ii) above),
the purchase price to
be paid to the Investors
will be an amount
equal to the amount
each Investor would have
received in accordance
with the provisions of Section 3(b)
above,
had the parties
completed the Qualifying Offer approved by the
Majority of Investors on the terms and at the price indicated in
the
Qualifying Offer.
Any Common Units and Member Interests sold
hereunder by
the Investors to GP (or its designee) shall be
transferred free and clear of all liens and encumbrances (other
than
encumbrances set
forth in the Partnership Agreement or under
applicable securities
laws). Closing of the
purchase of the Common
Units and Member Interests by GP (or its designee) from the
Investors shall occur within one hundred twenty (120) days
following
delivery of the
Election to Sell Notice or Election to Purchase
Notice, as the case may be. Until such closing, the Investors shall
continue to receive all distributions on the Common Units and
Member
Interests as provided pursuant to the Partnership Agreement and the
Limited Liability
Company Agreement. At the closing of such
purchase, GP (or its
designee) shall
deliver the purchase price by
wire transfer of
immediately
available funds to an account to be
designated by each
Investor, and each
Investor shall execute and
deliver such
assignments, bills of
sale, and other
documents, as
reasonably requested by an in form and substance satisfactory to,
GP
(or its designee).
4.
Limitations on Subsequent Sales of Common Units.
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(a) Minimum Issue Price. Without the written consent of a Majority
of
Investors, the Company
will not issue or sell any Common Units (or any
securities
exercisable
for or convertible
into Common Units) at
a price
less than
115% of the Issue
Price except for (i) Class A Subordinated
Units
issued to QRC or its
Affiliates in exchange
for additional
asset
contributions;
provided that such Class A Subordinated Units may not be
issued at
a price less than the Issue Price and provided that the
purchase
price for
such additional
asset contributions shall be approved by the
Investor
5
<PAGE>
Representatives and the Conflicts Committee, (ii) Common Units (or
options
therefor)
issued pursuant to the Long-Term
Incentive Plan or
employment
agreements
to which the Company (or its controlled Affiliates) is a party,
or (iii)
Common Units issued pursuant to an IPO.
(b) Adjustment
to Issue Price.
If the Company at any
time or from
time
to time after the date hereof effects a subdivision of the
outstanding Common
Units, the Issue Price then in effect immediately
before
the subdivision shall be proportionately decreased, and,
conversely, if the Company at any time or from time to time after
the date
hereof
combines the
outstanding
Common Units into a smaller number of
Common
Units, the Issue Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under
this
Section
4(b) shall become
effective at the close
of business on the date
the
subdivision or combination becomes effective.
5.
Acceleration of an
Approved Sale Upon a Change of Control of QRC. If a
Change of Control of QRC occurs, a Majority of Investors shall have
the right to
provide the GP with a
Required Sale Notice and cause the GP to effect an
Approved Sale in accordance with the provisions of Section 3
hereto (subject to
all of the terms
and conditions thereof, including the GP Right of First
Refusal) if an IPO has
not been completed
by the Company no later than that
number of days after the Change of Control Date that is equal to
one-half of the
number of days from the Change of Control Date until the second
anniversary
of
the Closing Date.
6.
Tag-Along Rights.
----------------
(a) If QRC and its
Affiliates (the
"QRC Transferors") desire to
dispose,
in one or more transactions, of all or substantially all of
their
collective
Partnership Interests
and their collective Member Interests to
a
non-Affili
