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Exhibit 10.6
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") dated as of
December 22,
2003 (the "Effective Date") is entered into by and between QUEST
CHEROKEE, LLC,
a Delaware limited liability company (the "Company"), CHEROKEE
ENERGY PARTNERS
LLC, a Delaware limited liability company ("Investor"), QUEST
OIL & GAS
CORPORATION, a Kansas corporation ("QOG"), QUEST ENERGY
SERVICES, INC., a Kansas
corporation ("QES"), STP CHEROKEE, INC., an Oklahoma corporation
("STPC"),
PONDEROSA GAS PIPELINE COMPANY, INC., a Kansas corporation
("PGPL"), PRODUCERS
SERVICE, INCORPORATED, a Kansas corporation ("PSI"), J-W GAS
GATHERING, LLC, a
Kansas limited liability company ("JW"), and QUEST RESOURCE
CORPORATION, a
Nevada corporation (together with its subsidiaries and
Affiliates, whether now
existing or created during the term hereof, "QRC;" and QRC and
together with
Investor, QOG, QES, STPC, PGPL, PSI and JW collectively the
"Promisors" and each
individually a "Promisor").
WHEREAS, pursuant to Section 3.02(k) of the Membership Interest
Purchase
Agreement of even date herewith by and among the parties hereto
(other than QRC)
(the "Purchase Agreement"), it is a condition to the closing of
Investor's
purchase of 10,000 Class A Units of the Company and certain
other loan
transactions that the Investor is entering into with the Company
(collectively,
the "Investor Transaction") that the Promisors enter into this
Agreement with
the Company.
WHEREAS, QRC (i) owns, directly or indirectly, all of the
capital stock or
membership or equity interests of QOC, QES, STPC, PGPL, PSI and
JW and (ii) has
determined that its execution, delivery and performance of this
Agreement
directly benefits, and are in the best interest of, QRC.
WHEREAS, each of the Promisors has determined that its
execution, delivery
and performance of this Agreement directly benefits, and are in
the best
interest of, such Promisor.
NOW, THEREFORE, in consideration of the foregoing and the
mutual
agreements set forth below, and other good and valuable
consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto
hereby agree as follows:
1. Non-Competition.
1.1. Definitions.
(a) "Affiliate" or "Affiliates" means, with respect to a Person,
any Person
that, directly or indirectly or through one or more
intermediaries, controls, is
controlled by or is under common control with such Person;
provided that it
shall not include any Person that would be an "Affiliate" of
Investor other than
ArcLight Energy Partners Fund I, L.P. Any reference to the term
"Affiliate" of
any Promisor herein shall not include the Company and any
reference to
"Affiliates" of the Company herein shall not include any of the
Promisors.
(b) "Area" means the area commonly known as the Cherokee Basin
located in
the southeastern portion of the State of Kansas and the
northeastern portion of
the State of
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Oklahoma as more particularly described on Exhibit A and any
other area, state
or foreign country in which the Company begins to conduct
Business during the
term hereof.
(c) "Business" means the business of acquiring, owning,
operating,
exploring, developing and selling properties (or interests
therein) related to
the discovery, collection and sale of coal bed methane and
gathering and
marketing of such properties or coal bed methane, and any other
regular
commercial activity of the Company and the Affiliates of the
Company, whether
now in existence or engaged in any time during the term
hereof.
(d) "Company Information" shall mean Trade Secrets and other
confidential
and non-public information of, or related to, the Company.
(e) "Competing Activities" means a business, commercial
enterprise or
endeavor competitive with the Business.
(f) "Person" means a person, firm, corporation, company, limited
liability
company, association or entity.
(g) "Restricted Period" means, with respect to each Promisor,
the term
beginning on the date hereof and ending on the date that is two
(2) years
following the date such Promisor's ownership, and the ownership
of all other
Affiliates of such Promisor, in the Company ceases.
(h) "Trade Secrets" means business or technical information of
the
Business, including but not limited to a formula, pattern,
program, device,
compilation of information, method, technique, or process that:
(i) derives
independent actual or potential commercial value (whether
actual, potential or
both) from not being generally known or readily ascertainable
through
independent development or reverse engineering by persons who
can obtain
economic value from its disclosure or use; and (ii) is the
subject of efforts
that are reasonable under the circumstances to maintain its
secrecy. Trade
Secrets shall specifically include, without limitation,
information relating to
the design, manufacture, formulas, patterns, compilations,
programs, devices,
methods, techniques, processes, applications, know-how, research
and development
relating to the Business' present, past or prospective products
and/or computer
programs. Trade Secrets shall not include any data or
information that (A) has
been voluntarily disclosed to the public by the Company, (B) has
been
independently developed and disclosed to the public by others,
(C) otherwise
enters the public domain through lawful means, or (D) is
lawfully and rightfully
disclosed to a Promisor following the date hereof by another
party.
1.2. Acknowledgement by Promisors.
Each Promisor acknowledges that (a) it is familiar with the
Company
Information; (b) the Business is conducted throughout the Area;
(c) the
provisions of this Agreement are reasonable and necessary to
protect and
preserve the Business; (d) the Business would be irreparably
damaged if it were
to breach the covenants set forth in this Agreement; and (e) the
Company would
not have entered into the Purchase Agreement without its
entering into this
Agreement; and (f) each Promisor would not have entered into the
Purchase
Agreement and the other Investor Transaction but for each of the
other
Promisor's entering into this Agreement.
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1.3. Restrictive Covenants.
Each Promisor covenants and agrees that, during the Restricted
Period:
(a) it will not, directly or indirectly, engage or participate,
or permit
any of its Affiliates to engage or participate, in any Competing
Activities
within the Area, including, without limitation, as an employee,
consultant,
indepe
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