Exhibit 10.2
JOINT OWNERSHIP AGREEMENT
     THIS JOINT OWNERSHIP AGREEMENT (this “Agreement”), entered into this 15th
day of July, 2009, by and between Seminole Gas Company, L.L.C. (“Seminole”) and
NGAS Gathering II, LLC, a Kentucky limited liability company (“NNG”), also
hereinafter referred to individually or collectively as “Owner” or “Owners” or
“Party” or “Parties”, respectively.
RECITALS:
     WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of
May 11, 2009, by and among Daugherty Petroleum, Inc. (“DPI”), NGAS Gathering,
L.L.C. (“Old NGAS”), NNG, and Seminole (as the same was or may be amended, the
“APA” or “Asset Purchase Agreement”): (i) Seminole acquired from DPI and Old
NGAS as undivided 50% interest in the Gathering System (as defined in the APA)
and certain other interests described in the APA as the “Purchased Assets”;
(ii) DPI and Old NGAS contributed and conveyed the remaining undivided 50%
interest in and to such interests to NNG (referred to in the APA as the
“Retained Gathering Assets”);
     WHEREAS, the Parties desire to set forth the terms and provisions of their
agreement to jointly own, operate, maintain, extend or expand the Gathering
System (as hereinafter defined), and the other Purchased Assets and Retained
Gathering Assets, and address the same with regard to certain other interests
and properties, acquired or developed in accordance with the terms hereof;
     NOW THEREFORE, in consideration of the mutual terms, conditions, and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
     1.1 Defined Terms. As used in this Agreement, the following words and terms
shall have the meanings here ascribed to them:
     “AFE” (or “Authority for Expenditure”) shall mean an Authority for
Expenditure prepared by the Manager or any Owner for the purpose of estimating
the costs to be incurred in accordance with this Agreement.
     “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.
     “Applicable Law” means any applicable law, statute, rule, regulation,
ordinance order or other pronouncements, actions or requirements of any
Governmental Authorities, including, without limitation, Environmental Laws or
those relating to safety or welfare of humans or the environment.
     “Approval Budget” means with regard to the Gathering System, any Budget
approved (or deemed approved) by the Committee in accordance with
Section 2.3(d).
     “Asset Purchase Agreement” or “APA” shall have the meaning set forth in the
Recitals.
     “Bankruptcy” means, with respect to any Person, if such Person (i) makes an
assignment for the benefit of creditors, (ii) files a voluntary petition in
bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered against it
an order for relief, in any bankruptcy or insolvency proceedings, (iv) files a
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any statute, law
or regulation, (v) 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, (vi) 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 (vii) if one hundred twenty (120) days
after the commencement of any proceeding against the Person seeking
reorganization, arrangement,

1

--------------------------------------------------------------------------------

 

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.
     “Budgets” (or singular, a “Budget”) shall mean any Capital Budget or
Operating Budget contemplated under this Agreement, including, without
limitation, the Initial Approved Budget and any subsequent Approved Budget.
     “Calendar Year” means a year beginning on the first day of January and
ending on the last day of December.
     “Capital Budget” means an annual budget covering all Capital Projects which
Manager deems it advisable and proposes to the Committee, with regard to the
Gathering System.
     “Capital Project” means a capital project or Extension Proposal or more for
the purpose of expanding the Gathering System (in a manner that would increase
the capacity of the Gathering System and allow the Gathering System to gather
greater volumes of gas than the current Gathering System would gather) or
extending the Gathering System (whether through acquisition of additional
properties or constructing and developing additional natural gas pipeline
systems to be connected to the Gathering System, wherein the expanded or
extended portions, if approved by the Committee and funded by the Owner’s in
accordance with their Ownership Interests, would be owned by both Owners in
accordance with their Ownership Interests; provided, however, that “Capital
Projects” shall not include any costs relating to Emergencies, nor to operating
costs, to projects relating to the repair or replacement of all or a portion of
the Gathering System (insofar as replacement involves comparable quality and
capacity).
     “Change of Control” means when applied to an entity (“Private Entity”),
such time as any of the following occur after the date of this Agreement: (i) a
tender offer or exchange offer is made and consummated for the ownership of
50 percent (50%) or more of the outstanding voting securities of the Private
Entity, (ii) the Private Entity is merged or consolidated with another entity
(“Constituent Party”) and as a result of such merger or consolidation 50 percent
(50%) or less of the outstanding voting securities of the surviving or resulting
entity is owned directly or indirectly in the aggregate by the Persons formerly
owning such voting securities of the Private Entity or their Affiliates, other
than Affiliates of the Constituent Party, as the same existed immediately prior
to such merger or consolidation, (iii) the Private Entity sells or otherwise
transfers substantially all of its assets to another entity which is not
wholly-owned, directly or indirectly, by the Private Entity, one of its
Subsidiaries or its Parent, (iv) a Person (which is not wholly-owned, directly
or indirectly, by such Person or one of its Subsidiaries or its Parent), within
the meaning of section 3(a)(9) or of section 13(d)(3) of the Exchange Act,
acquires 50 percent (50%) or more of the outstanding voting securities of the
Private Entity (whether directly, indirectly, beneficially or of record) or
(v) a distribution or sale of voting securities of the Private Entity is
consummated and as a result of such distribution 50 percent (50%) or less of the
outstanding voting securities of the Private Entity is owned directly or
indirectly in the aggregate by the former stockholder(s) of the Private Entity
or their Affiliates.
     “Committee” is defined in Section 2.3(a) hereto.
     “Contract Operating Agreement” is defined in Section 3.1(a).
     “Contract Operator” shall mean the Initial Contract Operator, and any
successor to the Initial Contract Operator.
     “Defaulting Owner” is defined in Section 6.4.
     “Direct Parent” means, with respect to an Owner, the Person that directly
owns or holds the limited liability company interests, membership interests or
other equity interests of such Owner, but shall not include any Affiliates, who
may own or control such Person or who may indirectly own such Owner indirectly
by virtues of its direct or indirect ownership of such Person.
     “DPI” means Daugherty Petroleum, Inc., a Kentucky corporation.
     “DPI Contract Operating Agreement” is defined in Section 3.1.
     “Emergency” means a sudden or unexpected event which causes, or creates an
imminent risk of causing, material damage to the Gathering System, or imminent
injury, illness or death to individuals and is of such a nature that responding
to the event cannot, in the good faith opinion of the Manager, await the
decision of the Committee.

2

--------------------------------------------------------------------------------

 

     “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
Gathering System or any Solely Owned Segments 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.
     “Extension Proposal” is defined in Section 2.2(a).
     “Event of Force Majeure” is defined in Section 10.1(a).
     “FERC” means the Federal Energy Regulatory Commission.
     “Gathering System” shall mean the (i) Gathering System, as defined in the
APA, including, without limitation, those interests and properties described in
Schedule A, Schedule B, Schedule F, Schedule G, Exhibit G and Exhibit O attached
to the APA, together with any modifications, alterations, replacements,
extensions or expansions of such Gathering System approved by the Parties in
accordance with this Agreement; provided, however, that the term “Gathering
System” shall not include any Solely Owned Segments or NNG SOS Segments or any
modifications, alterations, replacements, extensions or expansions of such
Solely Owned Segments or NNG SOS Segments.
     “Governmental Authorities” 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.
     “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.
     “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.
     “Initial Contract Operator” is defined in Section 3.1(a).
     “IRR” means shall be the cumulative internal rate of return determined for
an Owner or an SOS Owner, as the case may be, as of the applicable IRR
Calculation Date to determine whether the following annually compounded rate of
return which results in the following amount having a net present value equal to
zero: (i) first, determine the date and amount of all IRR Funded Capital made by
such Owner or SOS Owner hereunder on or prior to the applicable IRR Calculation
Date; (ii) second, determine the date and amount of all payments to such Owner
or SOS Owner of all IRR Paid Proceeds received on or prior to such IRR
Calculation Date; then (iii) apply the IRR Specified Discount Rate to determine
whether an IRR has been met; with such IRR, using the IRR Specified Discount
Rate, being deemed met, as of an applicable IRR Calculation Date, if and when
the present value (calculated on a pre-tax, cash-on-cash, un-levered basis) of
the aggregate IRR Funded Capital, minus the aggregate IRR Paid Proceeds equals
zero (0). An example of an IRR calculation is set forth on Exhibit D attached
hereto.
     “IRR Calculation Date” means as of 11:59 p.m., Eastern Time, on December 31
of each Calendar Year during the term of this Agreement.
     “IRR Default Funding Date” means (i) with respect to any IRR Funded Capital
in respect of the Gathering System the first date that a Non-Defaulting Owner
paid or funded IRR Funded Capital relative to the Gathering System and for which
an IRR calculation will be made, and (ii) with respect to any IRR Funded Capital
in respect of

3

--------------------------------------------------------------------------------

 

a Solely Owned Segment, the first date that a Non-Defaulting Owner (in such
case, a non-defaulting SOS Owner) paid or funded IRR Funded Capital relative to
the Solely Owned Segment and for which an IRR calculation will be made.
     “IRR Funded Capital” means (i) with regard to the Gathering System, the
term “IRR Funded Capital” means the aggregate amount that a Non-Defaulting Owner
paid on behalf of a Defaulting Owner under the terms of this Agreement relating
to the Gathering System or otherwise to the ownership, use, expansion,
extension, operation, maintenance, repair, replacement, marketing, abandonment
or other disposition of the Gathering System, whether required under Applicable
Law, under contract, under this Agreement or otherwise, including, without
limitation, amounts that a Non-Defaulting Owner may pay but for which the
Defaulting Owner fails to reimburse the Non-Defaulting Owner as contemplated
herein (whether paid under the SES Contract Operating Agreement, to Governmental
Authorities or to Third Parties), and any internal and personnel costs or
expenses incurred by the Manager or its Affiliates (assuming the Manager is not
the Non-Defaulting Owner) (and (ii) with regard to a Solely Owned Segment, all
costs, expenses, taxes, assessments, liabilities of any kind whatsoever, paid by
an SOS Owner relating to such Solely Owned Segment, including, without
limitation, any costs, expenses taxes, assessments, or liabilities relating to
acquisition, construction, installation, ownership, use, expansion, extension,
operation, maintenance, repair, replacement, marketing, abandonment or other
disposition of the Solely Owned Segment, whether required under Applicable Law,
under contract, under this Agreement or otherwise, including, without
limitation, any internal and personnel costs or expenses incurred by the Manager
or its Affiliates (assuming the Manager is the Non-Defaulting Owner).
     “IRR Paid Proceeds” means (i) with regard to the Gathering System: any
payments/fees received by Manager under the SES Gathering Agreement that are
allocable to Ownership Interest of the Non-Defaulting Owner attributable to
periods from and after the applicable IRR Default Funding Date, and (ii) with
regard to a Solely Owned Segment: any payments received by the SOS Owner thereof
under the SOS SES Gathering Agreement (to the extent a Solely Owned Segment
relates to an expansion of the capacity of the then existing Gathering System
(as opposed to the IRR Funded Capital for repair, replacement, maintenance,
operation, or other costs relative to the Gathering System) and if a separate
SOS SES Gathering Agreement is not warranted or practicable, then the IRR Paid
Proceeds shall be deemed, as much as is practicable, to include the
payments/fees received under the SES Gathering Agreement attributable to the
incremental expansion).
     “IRR Specified Discount Rate” means the per annum discount rate compounded
quarterly, expressed as a percentage and applied on a pre-tax, cash-on-cash, and
un-levered basis.
     “Manager” is defined in Section 3.1(a).
     “Major Decisions” is defined in Section 2.3(d).
     “Master Netting Agreement” shall have the meaning assigned to such term in
the Asset Purchase Agreement.
     “NAESB Purchase Agreement” shall have the meaning attributed to it in the
Asset Purchase Agreement.
     “Net Profits” means, with respect to a Solely Owned Segment, the excess, if
any (as calculated in good faith by the SOS Owners, each as of 11:59 p.m.
Eastern Time, on December 31 with respect to such Calendar Year), following the
Net Profits Trigger Date of the applicable Net Profits Proceeds over the
applicable Net Profits Costs attributable to such Solely Owned Segment.
     “Net Profits Costs” means, with respect to a Solely Owned Segment, all
costs, expenses, taxes, assessments, and liabilities of any kind whatsoever,
paid by an SOS Owner in respect of such Solely Owned Segment, including, without
limitation, any costs, expenses taxes, assessments, or liabilities relating to
acquisition, construction, installation, ownership, use, expansion, extension,
operation, maintenance, repair, replacement, marketing, abandonment or other
disposition of the Solely Owned Segment, whether required under Applicable Law,
under contract, under this Agreement or otherwise, including, without
limitation, internal and personnel costs or expenses incurred by the SOS Owners
related to any of the same. To the extent that the SOS Owners, in good faith,
believe that the Net Profits Costs for the current or the next Calendar Year are
expected to exceed the Net Profits Proceeds due to the need for repairs,
maintenance, abandonment or compliance with Applicable Law, then such SOS Owners
may include in the calculation of Net Profits Costs for the current Calendar
Year certain reserves calculated as an estimate of the amount by which such Net
Profits Costs are expected to exceed such Net Profits Proceeds.
     “Net Profits Interest” means, with respect to a Solely Owned Segment or NNG
SOS Segments, a contractual net profits interest equal to an amount, expressed
as a percentage of the Net Profits, if any, of such

4

--------------------------------------------------------------------------------

 

Solely Owned Segment or NNG SOS Segments, calculated with regard to any such Net
Profits attributable to periods on or after the Net Profits Trigger Date;
provided, however, that notwithstanding anything stated herein to the contrary,
a “Net Profits Interest” shall neither create nor be deemed to establish any
direct right, title or ownership or other interest in and to any Solely Owned
Segment or NNG SOS Segments.
     “Net Profits Proceeds” means, with regard to a Solely Owned Segment, any
payments received by the SOS Owner in respect of such Solely Owned Segment or
NNG SOS Segments under the SOS SES Gathering Agreements (to the extent a Solely
Owned Segment in question relates to an expansion of the capacity of the then
existing Gathering System (as opposed to the Net Profits Costs for repair,
replacement, maintenance, operation, or other costs relative to the Gathering
System) and if a separate SOS SES Gathering Agreement is not warranted or
practicable, then the Net Profits Proceeds shall be deemed, as much as is
practicable, to include the payments/fees received under the SES Gathering
Agreement attributable to the incremental expansion).
     “Net Profits Trigger Date” shall mean as of 12:01 a.m., Eastern Time, on
January 1 of this next Calendar Year immediately following the applicable IRR
Calculation Date, after the commencement of commercial operations of a Solely
Owned Segment or NNG SOS Segments, on which the SOS Owner(s) of such Solely
Owned Segment or NNG SOS Segments have achieved at least a 25% IRR (being an IRR
using an IRR Specified Discount Rate of 25%) with respect thereto.
     “NGAS Capital Project” means any Capital Project (whether conducted by both
Owners in accordance with their respective Ownership Interests in the Gathering
System, or whether conducted on a Solely Owned Segment) which is intended to
service, directly or indirectly, any DPI Producers (as defined under the APA) in
connection with the NAESB Purchase Agreement.
     “NGAS Mortgages” shall have the meaning set forth in the Asset Purchase
Agreement, provided, however, that the NGAS Mortgages shall also include any
amendments or supplements to include any modifications, amendments, expansions
or extensions of the Gathering System, as well as any rights (whether as an SOS
Owner or with regard to any Net Profits as a Non-Participating Owner) that NNG
may have in any Solely Owned Segments.
     “NNG Group” means NNG, NGAS Resources, Inc., Daugherty Petroleum, Inc., and
any subsidiary or Affiliate of NNG, NGAS Resources, Inc. or Daugherty Petroleum,
Inc., respectively.
     “NNG Option Interests” means and includes an undivided 100% of all of the
limited liability company interests, membership interests or any other equity
interests of NNG.
     “NNG SOS Segments” is defined in Section 2.2(b).
     “Non-Defaulting Owner” is defined in Section 6.4.
     “Non-Participating Owner(s)” shall have the meaning assigned to such term
in Section 2.2(c).
     “Operating Budget” means a budget covering all expenditures chargeable to
operating expense which Manager deems advisable to make during a Calendar Year,
together with any other costs, expenses, liabilities relating to the ownership,
use, operation, maintenance, repair, replacement, abandonment or other
disposition of the Gathering System, other than for Capital Projects.
     “Owner Representative” shall have the meaning assigned to such term in
Section 2.3(a).
     “Ownership Interest” shall mean the undivided ownership interest, usually
expressed as a percentage, in and to the assets comprising the Gathering System
or any Solely Owned Segment (but such term shall not apply to the membership
interests or other equity interests held in and to NNG or Seminole,
respectively). As of the date of this Agreement, the Ownership Interests of NNG
and Seminole in and to the Gathering System is 50% each. With regard to any
Solely Owned Segment, the Ownership Interests of the SOS Owner(s) thereof shall
correspond to the proportionate share that such SOS Owner(s) thereof actually
funded with respect to the acquisition, construction or installation and the
commencement of commercial operations of such Solely Owned Segment, and the
Ownership Interests therein of the Non-Participating Owners is limited to the
back-in rights described in Section 2.2(c) below.
     “Ownership Ratio” shall refer to the relative ratio that the Owners’
Ownership Interest bear to each other. For example, as of the date of this
Agreement, with regard to the Gathering System, the initial Ownership Ratio
shall be 50:50 (corresponding to NNG’s fifty percent (50%) undivided ownership
interest in the Gathering System and Seminole’s fifty percent (50%) undivided
ownership interest in the Gathering System). Except as otherwise set forth in
this Agreement, all revenues, income, costs, expenses and liabilities shall be
allocated, paid and borne in accordance with the Ownership Ratio.

5

--------------------------------------------------------------------------------

 

     “Permitted Transfer” means, with respect to the “ROFR Interests,” the
following: (i) exercise of either of the NNG Options described in the Asset
Purchase Agreement (whether by Seminole or in accordance with the put options
described therein), (ii) any Transfer by Seminole to any Affiliate of either
(which may be a master limited partnership controlled by Seminole or an
Affiliate), (iii) any Transfer by Seminole in connection with any loan, credit
agreement or other financing transaction involving Seminole or an Affiliate or
(iv) any Transfer by NNG or any of its Affiliates of the Seminole Mortgages and
any other collateral pledged as security for the obligations of Seminole or any
of its Affiliates to any member of the NNG Group in connection with NNG’s
obligations as a guarantor under the NGAS Credit Agreement (as such term is
defined in the APA); provided that such obligations of NNG do not exceed in the
aggregate $7,500,000, and provided further that upon the exercise of the NGAS
Option (as defined in the APA) and payment by Seminole pursuant to the terms
thereunder, such collateral assignment shall be released.
     “Person” means any individual, corporation, partnership, joint venture,
limited liability company, association (whether incorporated or unincorporated),
joint-stock company, trust, Governmental Authorities, unincorporated
organization or other entity.
     “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.
     “ROFR Interests” means and includes any direct or indirect interests,
claims or rights in, to or under (i) either of the Gathering System or any
Solely Owned Segment or any NNG SOS Segments, as well as any real, personal or
mixed property interests related thereto or used in connection with the
Gathering System or the Solely Owned Segment, respectively, including, without
limitation, spare parts, inventories, and equipment used solely for the
Gathering System or the Solely Owned Segment or any NNG SOS Segments, as the
case may be as well as any corresponding rights, interests and obligations under
this Agreement, the SES Gathering Agreement or the SOS SES Gathering Agreement,
as the case may be, or and (ii) any issued or outstanding or newly issued
membership interests, stock, partnership interests or other equity interests of
any kind of an Owner (or any successor to an Owner).
     “SES” means Seminole Energy Services, LLC.
     “SES Contract Operating Agreement” is defined in Section 3.1.
     “SES Gathering Agreement” means the Gathering Agreement, dated as of the
same date as this Agreement, by and among each of the Owners and SES, pursuant
to which the Owners 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, extended or increased), in substantially the form
attached as an exhibit to the Asset Purchase Agreement.
     “Solely Owned Segments” is defined in Section 2.2(b), and this term shall
include, when applicable, any NNG SOS Segments.
     “SOS Owner” is defined in Section 2.2(b); and with regard to any NNG SOS
Segments, SOS Owner shall include the permitted NNG Affiliate contemplated under
Section 2.3(b).
     “SOS SES Gathering Agreement” means with regard to any Solely Owned
Segment, the Gathering Agreement to be entered into by and among each SOS Owner
thereof and SES, pursuant to which such SOS Owner(s) shall agree and commit to
SES an undivided 100% of the capacity of such Solely Owned Segment (as such
Solely Owned Segment and its capacity may hereafter be modified, extended or
increased), in substantially the form attached hereto as Exhibit F.
     “Third Parties” means any Person who is not either a Party, an Affiliate of
any Party, nor an employee, agent or representative of any Party or any Party’s
Affiliate.
     “Voting Interests” shall have the meaning assigned to such term in
Section 2.3(a).
     If any provision of any Exhibit is inconsistent with any provision
contained in the body of this Agreement, then the provisions in the body of this
Agreement shall prevail.
     1.2 Construction.
     Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural, and
vice-versa, (b) the gender (or lack of gender) of all words used in this
Agreement includes the masculine, feminine and neuter; (c) references to
Articles and Sections refer to Articles and Sections of this

6

--------------------------------------------------------------------------------

 

Agreement; (d) references to Exhibits or Schedules refer to the Exhibits or
Schedules attached to this Agreement, each of which is made a part hereof for
all purposes; (e) references to Applicable Laws refer to such Applicable Laws as
they may be amended from time to time, and references to particular provisions
of a Applicable Law include any corresponding provisions of any succeeding
Applicable Law; (f) the term “include”, “includes”, “including” or words of like
report shall be deemed to be followed by the words “without limitation”; (g) the
terms “hereof”, “herein” or “hereunder” refer to this Agreement as a whole and
not to any particular provision of this Agreement; (h) references to money refer
to legal currency of the United States of America; and (i) when calculating the
period of time before which, within which or following which any act is to be
done or step taken pursuant to this Agreement, the date that is the reference
date in calculating such period shall be excluded. The table of contents and
headings contained in this Agreement are for reference purposes only, and shall
not affect in any way the meaning or interpretation of this Agreement.
ARTICLE II
INTERESTS OF PARTIES; SOLELY OWNED SEGMENTS; OWNERS’ COMMITTEE;
RIGHTS OF FIRST REFUSAL; BUSINESS
     2.1 Ownership Ratio. Unless changed by written agreement of the Owners, all
revenues, income, costs, expenses and liabilities incurred in and related to the
operation or ownership of the Gathering System under this Agreement shall be
allocated among the Owners severally, not jointly, in accordance with their
respective Ownership Interests and the Ownership Ratio. All equipment, materials
and supplies acquired related to the operation and ownership of the Gathering
System shall be paid for and owned in accordance with the Ownership Ratio.
     2.2 Solely Owned Segments.
     (a) Proposal of Expansion/Extension. Any Owner, via its designated
representative or the Committee, may propose a capital expansion or extension of
the Gathering System not already covered by an Approved Budget or an approved
AFE (an “Extension Proposal”). If all Owners approve the Extension Proposal (via
a unanimous approval of the Committee), then each Owner shall fund, and such
Owners shall own, the expanded or extended Gathering System in accordance with
its then current, respective Ownership Ratio, and the Parties shall make any
conveyance or cross-conveyances necessary to cause record title to the expanded
or extended portion of the Gathering System to be so owned by each Owner as
provided herein. If less than all Owners, via its designated Owner
Representatives on the Committee, vote to approve an Extension Proposal, the
provisions of Section 2.2(b) below shall apply.
     (b) Solely Owned Segments. If less than all Owners approve any Extension
Proposal on or before the close of business on the ten (10) day after such
Extension Proposal is submitted to the Committee for approval, then all of the
Owners hereby agree that the Owner(s) whose Owner Representatives voted for the
Extension Proposal shall thereafter be free to pursue the acquisition,
construction, installation, operation and marketing of capacity for the
extended/expanded portion of the Gathering System comprising such Extension
Proposal (in each case, the portion of such extended/expanded facilities,
together with any modifications, alterations, replacements, extensions or
expansions thereof, and all Rights of Way attributable to, used solely in
connection with, or relating to the above, and all permits and authorizations of
any kind held by such pursuing Owners in respect thereof that are necessary for
or incident to the use and operation of such extended or expanded portion, and
all land or other real property interests underlying the compressors
attributable solely to such extended or expanded portion, and all inventories of
pipe, materials and supplies used solely for such extended or expanded segment,
is collectively herein referred to as a “Solely Owned Segment”). Any Owner(s),
whose Owner Representative did not vote in favor of such Extension Proposal
shall not (nor shall their Affiliates), directly or indirectly, pursue such
project for its own account. Notwithstanding anything stated in this Agreement
to the contrary, to the extent NNG’s Owner Representatives vote in favor of an
Extension Proposal but Seminole’s Owner Representations do not, then to the
extent NNG desires to pursue such Extension Proposal project as a Solely Owned
Segment, such project may not be pursued or owned (legally or beneficially) by
NNG (or any direct or indirect subsidiary of NNG, but must be pursued only by
another Affiliate of NNG which is not a direct or indirect subsidiary of NNG (in
such case, an “NNG SOS Segment”). Each Solely Owned Segment shall be owned (and
title shall solely be held) by the Owner(s) (or in the case of NNG SOS Segment,
by the permitted Affiliate of NNG) who fund the acquisition, construction and
installation of such Solely Owned Segment (collectively with regard to such
applicable Solely Owned Segment, the “SOS Owners”, and individually, an “SOS
Owner”); such ownership interests of each such SOS Owner in such Solely Owned
Segment to be based on the ratio that the costs of

7

--------------------------------------------------------------------------------

 

acquiring, constructing, installing and commencing commercial operations of such
Solely Owned Segment funded by such SOS Owner bears to the total amount of such
costs funded by all the SOS Owners thereof; and the SOS Owner(s) of such Solely
Owned Segment shall enter into a separate SOS SES Gathering Agreement with SES
pursuant to which SES shall be granted an undivided 100% of the capacity of the
Solely Owned Segment. Subject to the provisions hereof regarding Net Profits and
of Section 3.5 below, the SOS Owners shall be entitled to retain all benefits
attributable to their Solely Owner Segment, including all payments received
under the SOS SES Gathering Agreement attributable thereto; and the SOS Owners
shall be responsible for all costs, expenses, liabilities and operations
attributable to the Solely Owned Segments.
     (c) Back-In-Rights. With regard to each Solely Owned Segment, from and
after the applicable Net Profits Trigger Date for such Solely Owned Segment, the
SOS Owners shall be deemed to have granted to those remaining Owners who did not
participate in the funding of such Solely Owned Segment (collectively, the
“Non-Participating Owners” and, individually, a “Non-Participating Owner”) a
contractual Net Profits Interest in the Solely Owned Segment, such that the SOS
Owners and each Non-Participating Owners shall thereafter receive future cash
payments from the SOS Owners of such Solely Owned Segment equal to the product
of the future Net Profits, if any, attributable to such Solely Owned Segment
times such Non-Participating Owner’s then current Ownership Interest in the
Gathering System (expressed as a percentage); provided, however, that such Net
Profits Interest shall (i) constitute only a contractual right to the
Non-Participating Owner(s) to receive payment of the Net Profits from such
Solely Owned Segment, and (ii) neither constitute, nor shall any such
Non-Participating Owner be entitled to seek or claim, any record or beneficial
right, title or other ownership interest in or to such Solely Owned Segment; and
(iii) to the extent an IRR calculation must be done hereunder, the SOS Owners
shall make such IRR calculation on or before each May 1 following an IRR
Calculation Date (even though the calculation, itself, will be to determine
whether such applicable IRR has been achieved by the prior December 31st IRR
Calculation Date), and to the extent the IRR calculation results in a
determination that the 25% IRR target has been achieved and, therefore, the Net
Profits Trigger Date (being the January 1 of the same Calendar Year) had
occurred, then such SOS Owner shall pay, within ten (10) business days
thereafter, to the Non-Defaulting Owners. Thereafter, the SOS Owner shall make a
calculation of Net Profits with regard to such Solely Owned Segments annually
(“Net Profits Calculation Date”) and pay any Net Profits due to the
Non-Participating Owners within ten (10) business days after such Net Profits
Calculation Date. Notwithstanding the above, if after the Net Profits Trigger
Date for a Solely Owned Segment the SOS Owners thereof pay additional capital
relative to the Solely Owned Segment, no further Net Profits will be due or
accrue until the SOS Owners achieve a 25% IRR with regarding thereto. To the
extent that the SOS Owners pay to the Non-Participating Owners more in Net
Profits than they are entitled, then any over-payments shall be applied and
deducted from any subsequent Net Profits payments such Non-Participating Owners
would otherwise be entitled to from such SOS Owners under this Agreement.
     (d) Termination of Section 2.2 Provisions. Notwithstanding the above, to
the extent that an NGAS Options (as defined in the APA) is exercised (whether by
Seminole or in accordance with the put options described therein), the
obligation set forth in this Section 2.2 shall automatically terminate upon the
closing and consummation of such NGAS Option, and the Parties shall execute such
further amendments to this Agreement or other instruments as may be necessary or
appropriate to reflect the termination thereof.
     2.3 Owners’ Committee.
     (a) Establishment of the Committee; Representatives; Voting Rights. Each of
the Owners shall appoint two (2) representatives (each an “Owner
Representative”) to a committee of the Owners (collectively, the “Committee”).
The Owner Representatives appointed by the Owners shall vote the interests of,
and at the direction of, the Owners. An Owner Representative shall not owe any
duty, fiduciary or otherwise, to any Owner who did not appoint such person as
its Owner Representative. The Owners may replace or substitute any alternative
representative as its appointee(s) to the Committee (with or without cause, in
its sole discretion), upon written notice to the other Owners and may fill any
vacancy in the event that one of the Owner Representatives it appointed either
resigns, dies or becomes incapacitated. Any one or more Owner Representatives
appointed by an Owner shall vote as a block with an aggregate voting power equal
to the then current Ownership Interest of the Owner who appointed them
(collectively, the “Voting Interests”) and to the extent that less than all of
the Owner Representatives appointed by an Owner are present at a duly called
meeting of the Committee, at which a quorum is present, then those one or more
Owner Representatives appointed by such Owner who are present at such meeting,
nonetheless, shall continue to vote as a block and shall continue to have the
same aggregate voting

8

--------------------------------------------------------------------------------

 

power (being the then existing Ownership Interest of the Owner who appointed
them) as if all such Owner Representatives were present. Any vote or approval of
an Owners’ Committee representative with regard to a Budget, an AFE, an
expenditure, or other matter shall bind (and be deemed a commitment of) the
Owner who appointed such representative.
     (b) Committee Meetings. The Committee shall meet (whether in person or by
telephone) at such times as the members of the Committee deem necessary or
appropriate, but no less than every once each calendar quarter (on December 1st,
March 1st, July 1st and September 1st) and shall exchange, review, consider and
approve such written materials and reports that are considered to be relevant or
useful to the conduct of the Committee’s work. Not less than one Owner
Representative appointed by each Owner shall be required in order for there to
be a quorum. A quorum must be present at any regular or special meeting in order
for the Committee to conduct business, and the concurrence of those Owner
Representatives who are present at a meeting at which a quorum is present and
who, in the aggregate have a sufficient Voting Interest to approve a particular
matter shall be required for any act of the Committee.
     (c) General Duties of the Committee. Unless otherwise agreed to by the
Owners, the Committee shall serve as a liaison between the Owners and the
Manager, and shall do the following:
     (i) review on an ongoing basis the operational results of the Gathering
System and make recommendations concerning the configuration and future
operational status of the Gathering System, including recommendations concerning
day to day operations, modifications, alterations, or expansions of the
Gathering System requiring either capital contributions by the Owners or the
purchase of gas compression or treating facilities;
     (ii) prepare and evaluate initial and revised drafts of budgets required by
Section 3(a)(8) of this Agreement, including amendments thereto requested by any
Owners or the Manager;
     (iii) develop and approve operational guidelines, policies and directives
concerning the Gathering System and work with the Manager to insure compliance
therewith;
     (iv) undertake such other matters or special projects that the Owners
request in writing be addressed by the Committee; and
     (v) Vote on any Major Decisions, Budgets, Capital Projects (including,
without limitation, any Extension Proposals) AFE’s or other matters presented to
the Committee.
     (d) Major Decisions of Committee. Except to extent the same is already
covered in an Approved Budget, an approved AFE, or is otherwise an expense or
liability authorized or permitted under Section 3.1(i) or under Article IV,
Article VI or Article IX, neither the Manager, nor any Owners shall have any
right or authorization to take or to cause to be taken any of the following
actions (each a “Major Decision”, and collectively, the “Major Decisions”)
without the unanimous vote of the Committee (i.e., approval of such Owner
Representatives who, in the aggregate hold 100% of the Voting Interests),
excluding any approval required relative to any costs, expenses or liabilities
relating to a Solely Owned Segment (which shall be subject to the agreement or
approval of the SOS Owners thereof):
     (i) Any amendment to this Agreement;
     (ii) Approval of the annual budget contemplated under Section 3.1(c) below,
subject to the other provisions of Article III and Article VI below;
     (iii) Filing, consenting to, or acquiescing in any act or event that would
constitute an event of bankruptcy with respect to a Party;
     (iv) Acquiring by lease, purchase, or otherwise any real or personal
property or fixture in an amount greater than $50,000;
     (v) Amending the Budget in an amount, individually or in any series of
related transactions, greater than $50,000, except in response to an emergency;
     (vi) Entering into any contract or arrangement that requires any payments
in an amount, individually or in any series of related transactions, greater
than $25,000 to an Affiliate of a Party, except with regard to the SES Gathering
Agreement, any SOS SES Gathering Agreement, the initial Contract Operator
Agreement, or the NAESB Purchase Agreement or as otherwise expressly authorized
by this Agreement;

9

--------------------------------------------------------------------------------

 

     (vii) Capital expenditures in an amount, individually or in a series of
related transactions, greater than $50,000;
     (viii) The lease, sale, exchange, transfer, or other disposition of any
material assets of the Gathering System in an amount, individually or in any
series of related transactions, greater than $50,000;
     (ix) The incurrence of any liens, burdens, or encumbrances against any
assets of the Gathering System;
     (x) Any contracting out of an integral portion of the business or
operations of Manager, except as otherwise set forth in an Approved Budget;
     (xi) Any material change in the amounts of and risks to be covered by
insurance as set forth on Exhibit H attached hereto;
     (xii) any amendments to, pursuit of any remedies for allegation of breach
under, the SES Gathering Agreement; or
     (xiii) Any other action that is not in the ordinary course of business as
Manager of the Gathering System.
     (e) Failure to Approve Certain Budgets. If the Committee fails to approve
by December 15th of any calendar year the Operating Budget that will be
applicable for the immediately succeeding calendar year, then the current year’s
Operating Budget, plus ten percent (10%), shall be deemed to apply to the next,
succeeding calendar year until an alternative or Amended Operating Budget is
approved with regard thereto.
     (f) Conference Telephone Meetings. Meetings of the Committee or the Owners
may be held by means of conference telephone, video or similar communications
equipment so long as all Persons participating in the meeting can hear each
other. Participation in a meeting by means of conference telephone or video
shall constitute presence in person at such meeting, except where a Person
participates in the meeting for the express purpose of objecting to the
transaction of any business thereat on the ground that the meeting is not
lawfully called or convened.
     (g) Termination of Section 2.3 Provisions. Notwithstanding the above, to
the extent that an NGAS Options (as defined in the APA) is exercised (whether by
Seminole or in accordance with the put options described therein), the
obligation set forth in this Section 2.3 shall automatically terminate upon the
closing and consummation of such NGAS Option, and the Parties shall execute such
further amendments to this Agreement or other instruments as may be necessary or
appropriate to reflect the termination thereof.
     2.4 Transfer Restrictions; Right of First Refusal.
     (a) Transfers of Ownership Interests. An Owner shall not (and any Direct
Parent of an Owner shall not, nor permit its directly owned Owner to), directly
or indirectly, voluntarily or involuntarily, by operation of Applicable Law or
otherwise sell, assign, distribute (whether in liquidation or otherwise),
pledge, mortgage, exchange, encumber, hypothecate, donate, gift, exchange or
otherwise transfer or dispose (“Transfer”) of any interest in the ROFR
Interests, except for (i) a Transfer effected in accordance with the terms of
this Section 2.4 or (ii) a Permitted Transfer. Any other Transfer or attempted
Transfer (whether by operation of Applicable Law or otherwise) shall be null and
void. Any Transfer made in accordance with the terms of this Section 2.4, as
well as any Permitted Transfer shall be made expressly subject to the terms and
provisions of this Agreement (and any Transfer of an undivided interest in the
Gathering System shall be deemed to Transfer a corresponding undivided interest
(and Ownership Interest) under this Agreement, the SES Gathering Agreement and,
with regard to any continuing obligations, covenants or options thereunder, the
APA (and, likewise, any Transfer of an undivided interest in the Solely Owned
Segments shall be deemed to Transfer a corresponding undivided interest (and
Ownership Interest) under this Agreement, the applicable SOS SES Gathering
Agreement, or with regard to any back-in rights pursuant to Section 2.2(c) with
respect thereto, and with regard to any continuing obligations, covenants or
options thereunder, the APA). If an Owner desires to Transfer all or part of
such Owner’s Ownership Interest or any interest portion thereof, such Owner will
be responsible for compliance with all conditions of Transfer imposed by this
Agreement and under Applicable Law and for any expenses incurred by the other
Owners or the Undivided Interest Property for legal and/or accounting services
in connection with reviewing any proposed Transfer or issuing opinions in
connection therewith. Notwithstanding the above, any transfer of an interest in
the Gathering System or any Solely Owned Segments shall not relieve the
transferor from any

10

--------------------------------------------------------------------------------

 

liability or obligation hereunder, or under the SES Gathering Agreement or any
SOS SES Gathering Agreement or under the APA, as the case may be; nor shall the
non-Transferring Owners be required to recognize such Transfer until: (x) the
transferee has executed an agreement, in form and substance satisfactory to the
Manager, assuming and agreeing to be bound by the terms and provisions of this
Agreement relative to the interest acquired, and (y) copies of such agreement,
as well as copies of the applicable conveyance instruments (executed and
delivered in accordance with the provisions and limitations of this agreement)
have been provided to Manager, the transferor Owner shall continue for all
purposes of this Agreement to constitute the Owner of the ROFR Interest to be
Transferred and to be entitled to exercise any rights or powers of a Owner with
respect to the Ownership Interest transferred review on an ongoing basis the
operational results of the Gathering System and make recommendations concerning
the configuration and future operational status of the Gathering System,
including recommendations concerning day to day operations, modifications,
alterations, or expansions of the Gathering System requiring either capital
contributions by the Owners or the purchase of gas compression or treating
facilities; and (z) such transferor has otherwise complied with the other
provisions of this Section 2.4. Regardless of whether a Transfer is a Permitted
Transfer, or a Transfer which otherwise complies with the requirements of this
Section 2.4, any Transfer of an Ownership Interest in the Gathering System or
any Solely Owned Segment which does not expressly require (by contract or by
operation of Applicable Law) the transferee to assume and be bound by the terms
and provisions of this Agreement relative to the interest acquired shall be
void. It is further acknowledged herein that under the Asset Purchase Agreement,
the ability of NNG or its Direct Parent to make any Transfer within the term of
the NGAS Options, as defined in the APA (other than a Transfer to Buyer in
connection therewith) is expressly prohibited, and any attempted Transfer by NNG
or its Direct Parent during the NGAS Option Period, as defined in the APA (other
than a Transfer to Buyer in connection therewith) shall be null and void.
     (b) ROFR. Each Owner and its respective Direct Parent (each, an “Owner
Offeror”) hereby grants to the other then current Owners (each, an “Owner
Offeree”) the exclusive, irrevocable, and continuing right of first refusal
(herein sometimes called “ROFR”) during the term of this Agreement to purchase
or otherwise acquire any ROFR Interests, as applicable, to be made the subject
of any Transfer or other distribution by the Owner Offeror to any other person
or entity (collectively, a “Sale”) in the event of a bona fide written offer
(whether binding or non-binding) in respect of a Sale received by the Owner
Offeror from any Person (a “Third Party Offer”), which Third Party Offer the
Owner Offeror desires to accept, except with regard to a Permitted Transfer.
     (c) Notice of Offer. If at any time or times an Owner Offeror receives a
Third Party Offer, which Third Party Offer the Owner Offeror desire to accept,
such Owner Offeror promptly shall give written notice to all Owner Offerees
setting out in reasonable detail the terms of the Third Party Offer (the “Notice
of Offer”). The delivery of such Notice of Offer to the Owner Offerees shall
constitute an offer (herein called “Owner’s Offer”) by Owner Offeror to Owner
Offerees to effect a Transfer in favor of Owner Offerees of the same type and on
the same terms as contemplated in the Third Party Offer described in such Notice
of Offer. Any Notice of Offer shall include (i) the bona fide cash price or
other consideration (and the cash value thereof) for the Sale; (ii) the name of
the prospective purchaser; (iii) the interest to be sold; and (iv) the other
material terms upon which such Sale is to be made, including the date of the
anticipated closing, any proposed post-closing adjustments to such
consideration, the time and method of payment or delivery of such consideration,
any material conditions, restrictions, or limitations on the receipt of such
consideration, and any additional material obligations or liabilities associated
with the exchange of consideration, or otherwise made part of the proposed Sale.
Each Notice of Offer shall be accompanied by true and complete copies of any
term sheets, letters of intent, proposed agreement of assignment or purchase
agreement, in each case then existing and relating to such Third Party Offer. If
the consideration for any such Sale is other than cash, or if there is an
exchange of like kind property, and Owner Offerees disagree with the value of
the interest sold or exchanged, Owner Offeror and Owners Offeree, at each
party’s own expense, shall each select one independent appraiser and each party
shall provide its respective appraiser with a proposal setting forth its
determination of the value of the interest sold or exchanged together with such
information or evidence as such party shall deem relevant. The two selected
appraisers shall have fifteen (15) days to determine whether the Owner Offeror’s
or the Owners Offeree’s proposed valuation should be utilized. In the event that
the two appraiser are unable to agree on either the Owner Offeror’s or the
Owners Offeree’s proposal within such fifteen (15) day period, then such
appraisers shall select a third appraiser within five (5) days after the
expiration of such fifteen (15) day period. The cost of such third appraiser
shall be shared equally by Owner Offeror and Owners Offeree. If the three
appraiser, within fifteen (15) days thereafter, cannot unanimously agree upon
either the Owner

11

--------------------------------------------------------------------------------

 

Offeror’s or the Owners Offeree’s proposed valuation, then each of the three
appraisers shall select one of the two proposals and the selection of either the
Owner Offeror’s proposal or the Owners Offeree’s proposal by any two of the
three appraisers shall be final and conclusive for all purposes in determining
the value of the interest sold or exchanged. The parties understand, stipulate
and agree that the valuation selected by the foregoing arbitration procedure
shall be final, binding, conclusive and effective on Owner Offeror and Owners
Offeree for purposes under this Agreement, and same shall not be subject to
judicial review, mediation or any other legal proceeding. The determination of
the appraiser shall be final, non-appealable, and binding upon the Parties
hereto. Except with respect to the substitution of cash for the other
consideration to be tendered, the other terms and conditions of such a Sale for
other than cash or an exchange shall remain the same if any Owner Offerees
decides to accept the appraisal and elect to exercise the ROFR.
     (d) Exercise of ROFR Option. Each Owner Offeree shall have the right, at
its option, exercisable as hereinafter provided, to accept Owner’s Offer. The
Owner Offerees shall then have the right for a period of thirty (30) days
following receipt of the Notice of Offer (or after a determination of the value
of the non-cash consideration has been made under (b) above, if later) to elect
to purchase for cash all, but not less than all, of the interest to be sold on
terms and conditions no less favorable than the terms and conditions set forth
in the Notice of Offer (whether such purchase price is in the form of cash or
non-cash consideration). If more than one Owner Offeree properly elects to
exercise the Owner Option, then the Ownership Interest offered shall be acquired
by the exercising Owner Offerees in proportion to the relative, then current
Ownership Interests of the exercising Owner Offerees (which Ownership Interests
may be different depending on whether Ownership Interests in Gathering System or
Solely Owned Segments are involved). The ROFR shall be exercised by an Owner
Offeree, if at all, by such Owner Offeree delivering to the Owner Offeror
written notice of the exercise thereof within thirty (30) calendar days after
Owner Offeree’s receipt of the Notice of Offer. Failure of an Owner Offeree to
affirmatively exercise the ROFR within such thirty (30) day period shall be
deemed conclusively to be an election not to exercise the ROFR with regard to
such Owner’s Offer. Notwithstanding Owner Offeree’s election or deemed election,
as applicable, not to exercise the ROFR with respect to any Sale from Owner
Offeror to a Third Party, the rights of Owner Offerees set forth herein shall be
a continuing right, as the ROFR shall remain in full force and effect throughout
the term of this Agreement with respect to any future Sale of any of the
Ownership Interests (in the Gathering System or Solely Owned Segments) or
interests in the hands of any Third Party buyer or any subsequent transferee.
     (e) Failure to Exercise; Obligations of Successors and Assigns. If all
Owner Offerees fail to timely exercise the ROFR with respect to a Notice of
Offer, Owner Offeror may effect the transaction covered by the original Third
Party Offer substantially in accordance with such Third Party Offer; provided,
however, that if the economic, financial, or environmental terms of the original
Third Party Offer presented in such Notice of Offer are charged, amended or
modified in a manner that is more favorable to the Third Party, then such
changed, modified or amended terms shall constitute a new Third Party Offer
hereunder, the new Third Party Offer shall be the subject of a new Notice of
Offer in the manner hereinabove provided, and Owner Offerees’ ROFR hereunder
shall apply thereto (except the time period for exercise of the ROFR shall be
thirty (30) days commencing on Owner Offerees’s receipt of such new Notice of
Offer). Any assignment or Transfer of (and any successor, assignee or transferee
of) a ROFR Interest must accept such ROFR Interest expressly subject to (and
agree to assume and be bound by all of) the terms and provisions of this
Agreement (and any Transfer of an undivided interest in the Gathering System
shall be deemed to Transfer a corresponding undivided interest (and Ownership
Interest) under this Agreement, the SES Gathering Agreement, and, likewise, any
Transfer of an undivided interest in the Solely Owned Segments shall be deemed
to Transfer a corresponding undivided interest (and Ownership Interest) under
this Agreement, the applicable SOS SES Gathering Agreement, or with regard to
any back-in rights pursuant to Section 2.2(c) with respect thereto, and with
regard to any continuing obligations, covenants or options thereunder, the APA,
including, without limitation, the following: (i) any successor, assignee or
transferee of NNG must acquire and maintain such ROFR Interests in an entity
which complies with the sole business purpose obligations set forth in
Section 2.5 below with regard to the ROFR Interests acquired, (ii) any
successor, assignee or transferee of NNG must agree to appoint an maintain an
Independent Director (as defined and as contemplated in the APA) for the periods
required in the APA, (iii) any successor, assignee or transferee of NNG must
provide a parent guaranty or a replacement parent guaranty, acceptable in form
and substance to the Manager, relative to the obligations and liabilities
assumed under this Agreement, the APA, the SES Gathering Agreement and any SOS
SES Gathering Agreement, and (iv) any successor, assignee or transferee must
accept the interests subject to (and must re-

12

--------------------------------------------------------------------------------

 

affirm the grant) of the liens, security interests, pledges, covenants and
agreements under the NGAS Mortgages or the Buyer Mortgages, as the case may be,
relative to the interests acquired. Any Transfer, or attempted Transfer, that
does not comply with the above requirements shall be null and void.
     (f) Post-Closing Notice. Within thirty (30) days after the date of
consummation of any Sale with respect to which the Owner Offerees fail or refuse
to timely elect to exercise the ROFR, Owner Offeror shall provide Owner Offerees
with copies of the purchase agreement and conveyance documents for such Sale. If
Owner Offeror does not consummate a proposed Sale within three (3) months after
the date on which the last Owner Offeree notifies (or is deemed to have
notified) Owner Offeror of Owner Offeree’s election not to exercise the ROFR,
then all of the restrictions hereof shall thenceforth apply again to such Third
Party Offer as though no written Notice of Offer had been given by Owner Offeror
to Owner Offerees, and the Owner Offeror shall not thereafter consummate any
sale pursuant to such Third Party Offer until the Owner Offer thereafter
complies with the requirements of Sections 2.4(c), (d) and (e). Notwithstanding
anything in this Agreement to the contrary, if Owner Offeror (i) consummates a
proposed Sale within the three (3) months after the date on which the last Owner
Offeree notifies (or is deemed to have notified) Owner Offeror of Owner
Offerees’s election not to exercise the ROFR and (ii) provides the Owner
Offerees with copies of the purchase agreement and conveyance documents of such
Sale, then Owner Offerees shall cease to have any further right to exercise the
ROFR with respect to the particular Sale, although the ROFR shall continue for
the term of this Agreement to be applicable in the event of any future Sale or
Sales by the Third Party grantee.
     (g) Application of a Change of Control. As used herein, the capitalized
term Sale shall also include any sale, conveyance, assignment or other transfer,
whether as a result of a single or multiple transactions that result in a Change
of Control of any Direct Parent of an Owner.
     (h) Further Restrictions on Transfers by NNG. Notwithstanding anything
stated in this Agreement to the contrary, and notwithstanding compliance the
ROFR provisions of this Section 2.4, NNG shall not make any Transfer of any of
its assets, properties or interests, whether real, personal or mixed, including,
without limitation, the ROFR Interests (other than distributions of cash),
without the prior, expressed, written consent of Seminole, in its sole
discretion; provided, however, that subject to an earlier termination hereof
under Section 2.4(k) below, then Section 2.4 (h) shall automatically terminate
and be of no further force and effect on 5:00 pm, Eastern Time, on December 31,
2011.
     (i) Bulk Sales. If any acceptable Third Party Offer that is subject to the
ROFR rights hereunder shall include other property in addition to the ROFR
Interests, this Agreement shall be applicable only to the sale of the ROFR
Interests, as applicable, at a consideration or purchase price that shall
constitute the portion of the aggregate purchase price applicable to such
property as determined by a disinterested appraiser in accordance with
Section 2.4(c) above.
     (j) Survival. Subject to the last sentence of Section 2.4(f) above, the
ROFR hereby granted to Owner Offerees shall survive the types of Transfers
specified as Permitted Transfers (or any series of such Transfers by Owner
Offeror or subsequent transferees) until termination of this Agreement as
provided herein.
     (k) Termination of Section 2.4 Provisions. Notwithstanding the above, to
the extent that an NGAS Options (as defined in the APA) is exercised (whether by
Seminole or in accordance with the put options described therein), the
obligation set forth in this Section 2.4 shall automatically terminate upon the
closing and consummation of such NGAS Option, and the Parties shall execute such
further amendments to this Agreement or other instruments as may be necessary or
appropriate to reflect the termination thereof.
     2.5 Sole Business Purpose of NNG. NNG shall not engage in any other
business or activity, except solely with regard to the ownership of its
interests in the Gathering System, and its entering into and performing this
Agreement and the SES Gathering Agreement. No other business or activity by NNG
shall be permitted without the prior written consent of Seminole.
Notwithstanding the above, to the extent that the NGAS Options (as defined in
the APA) are exercised (whether by Seminole or in accordance with the put
options described therein), the obligation of NNG to limit its purpose solely as
described above shall automatically terminate upon the closing and consummation
of such NGAS Option, and the Parties shall execute such further amendments to
the NNG LLC Agreement (as defined in the APA) or other instruments as may be
necessary or appropriate to reflect the termination thereof.
     2.6 Initial Budgets. Attached hereto as Exhibit A is the initial Capital
Budget for the remainder of 2009 (“Initial Capital Budget”); and attached hereto
as Exhibit B is the initial Operating Budget for the remainder

13

--------------------------------------------------------------------------------

 

of 2009 (“Initial Operating Budget”). The Initial Capital Budget and the Initial
Operating Budget are hereby deemed approved by the Parties and no further
approval is required by the Committee or the Owners.
     2.7 Notice of Default. To the extent that NNG receives any notice or
becomes aware of any of the following exists, it shall provide immediate written
notice to Seminole that, NNG is: (i) in breach or default under any contract,
agreement, commitment, or arrangement to which it or its assets are bound or
otherwise subject, (ii) in violation of Applicable Law, (iii) subject to the
imposition of any accreditation or other remedy available to an third party,
(iv) obligated under any guaranty, indemnity or similar obligation, or (v) any
condition exists that, with the lapse of time, could give rise to any of (i) —
(iv) above. In such event, Seminole shall have the right, but not the
obligation, to cure, satisfy or remedy such condition (whether in whole or in
part) and to the extent Seminole does and pays or incurs any expense or
liability with regard thereto, it shall be treated the same as if NNG was a
Defaulting Owner with regard thereto and Seminole is the Non-Defaulting Owner
who paid such amounts on the Defaulting Owner’s behalf, as contemplated in
Section 6.4.
ARTICLE III
MANAGER
     3.1 Designation and Responsibilities of Manager; Contract Operator.
     (a) Appointment; General Responsibilities; Contract Operator. The Parties
hereby appoint Seminole (and Seminole hereby accepts the appointment) as
“Manager”. The Manager shall conduct and direct and have full and exclusive
control (relative to any other Owners) of all operations, use, maintenance,
repair, replacement, abandonment or other disposition of the Gathering System as
permitted and required by, and within the limits of this Agreement, and
marketing (as described in Section 3.5 below. Notwithstanding the above, it is
expressly agreed and acknowledged that Seminole and NNG will enter into a
contract operating agreement with SES in substantially the form attached hereto
as Exhibit J-1 (the “SES Contract Operating Agreement”), and SES will enter into
a corresponding contract operating agreement with another Person to perform the
functions of manager of the Gathering System and of SES under the SES Contract
Operating Agreement (each such contract operating agreement entered into by SES,
a “Contract Operating Agreement”). The initial contract operator will be SES
(the “Initial Contract Operator”), The initial Contract Operating Agreement
entered into by SES shall be with Daugherty Petroleum, Inc. substantially the
form set forth on Exhibit J-2 (the “DPI Contract Operating Agreement”) attached
hereto. The selection, termination, replacement or substitution of the Initial
Contract Operator, as well as any successor contract operator of the Gathering
System, shall be determined as follows:
     (i) from and after the exercise of an NGAS Option (as defined in the APA),
the determination shall be made in the sole discretion of Seminole;
     (ii) prior to the exercise of NGAS Option (as defined in the APA), the
determination shall be: (A) if the desire to remove, replace or substitute such
Initial Contract Operator or subsequent contract operator is based on reasons or
causes for removing a Manager described in Section 3.2(a)(ii) below, then with
regard to such Initial Contract Operator or subsequent contract operator, the
determination to remove, replace or substitute the same shall be made in the
sole discretion of Seminole; and (B) if the desire to remove, replace or
substitute such Initial Contract Operator or subsequent contract operator is
based on reasons or causes other than those described in Section 3.2(a)(ii)(A)
above, then the determination to remove, replace or substitute the same shall be
made by the Committee, as if it were a Major Decision.
Subject to the obligations described under Section 2.2(b) and Section 3.5, the
ownership, operation, use, maintenance, repair, replacement, abandonment or
other disposition of: any Solely Owned Segments shall be directed and controlled
pursuant to the agreement of the SOS Owners thereof.
     (b) Reimbursements; Advances; Reasonable Reserves. Notwithstanding anything
stated herein to the contrary in this Agreement, each Owner (other than
Seminole) commits to pay and reimburse the Manager for such Owner’s Ownership
Interest share of any costs, expenses, fees, taxes, assessments or liabilities
of any kind whatsoever incurred by Manager, whether directly or paid under the
SES Contract Operating Agreement, within ten (10) business days of any written
request therefor. Without limiting the generality of the immediately prior
sentence, Manager shall be entitled to immediate reimbursement or offset
relating to any costs, expenses, or liabilities of any kind incurred by Manager
pursuant to an Approved Budget, any approved AFE, any authorized Major Decision,
as well as any costs, expenses or

14

--------------------------------------------------------------------------------

 

liabilities paid or incurred which are permitted, authorized or deemed
authorized under Section 3.1(i), 3.3, Article IV, Article VI, Article VIII,
Article IX, or under the SES Contract Operating Agreement. In addition, upon
written notice by Manager to the Owners, Manager may demand that the Owners pay
to Manager (or directly to a Third Party or the Contract Operator, if so
directed by Manager) in advance, and within ten (10) business days after receipt
of such notice, such Owner’s share of any authorized or permitted costs,
expenses or liabilities (which would be costs, expenses or liabilities
reimbursable hereunder to Manager if paid by Manager). Further, Manager may
demand that the Owners pay to Manager in advance, and within ten (10) business
days after receipt of such notice, any amount necessary to fund certain
reasonable reserves by Manager to pay such Owner’s share of foreseeable
authorized or permitted costs, expenses or liabilities (which would be costs,
expenses or liabilities reimbursable hereunder to Manager if paid by Manager).
Failure of an Owner to pay any amounts to the Manager when due under this
Section 3.1(b) shall constitute a default by such Owner for which the Manager
shall have all rights and remedies provided under this Agreement, the Master
Netting Agreement, Applicable Law or otherwise.
     (c) Budgets. Manager shall prepare (or cause the Contract Operator to
prepare) and submit to the Committee for review and approval, an annual
Operating Budget and Capital Budget relating to the Gathering System. Manager
shall submit the draft annual budget to the Committee on or before each
December 15th of the year immediately prior to the next calendar year to which
such annual budget applies. Manager shall have no obligation to any other Owners
to incur any expense of liability relative to the Gathering System which has not
either been approved under an Approved Budget, an approved AFE or for which
Manager is not otherwise entitled to be reimbursed for by all Owners relative to
their respective Ownership Interest share thereof.
     (d) Liens. In accordance with the terms of the NGAS Mortgages, NNG shall
grant a first lien and security interest to Seminole on NNG’s Ownership Interest
in the Gathering System, as well as any Solely Owned Segments, Net Profits
Interests, or other assets or properties that NNG owns or holds to support,
among other obligations or liabilities described therein, all of NNG’s, DPI’s,
and Old NGA’s obligations and liabilities under this Agreement, the SES
Gathering Agreement, any SOS SES Gathering Agreement, the NAESB Purchase
Agreement the SES Contract Operating Agreement, the Master Netting Agreement (as
defined in the APA), the APA and the Seller Parent Guaranty (as defined in the
APA). In accordance with the terms of the Buyer Mortgages (as defined in the
APA), Buyer shall grant a subordinated, second lien on its Ownership Interest in
the Gathering System, as well as any Solely Owned Segments , Net Profits
Interests, or other assets to support the Buyer Secured Obligations, as defined
in the APA. Notwithstanding the above, to the extent that an NGAS Options (as
defined in the APA) is exercised (whether by Seminole or in accordance with the
put options described therein), the liens, security interests, and obligation
under NGAS Mortgages and the Buyer Mortgages shall automatically terminate and
be released upon the closing and consummation of such NGAS Option, and the
Parties shall execute such further releases or other instruments as may be
necessary or appropriate to reflect the termination and release thereof.
     (e) Set Off. In addition to any other rights or remedies that Manager may
have under Applicable Law, any amounts that NNG or any other Owner may owe
Seminole, whether as Manager or otherwise, may be from time to time and at any
time throughout the term hereof, at the sole discretion of Seminole, be setoff
against any accrued, liquidated amount or monetary obligation owed to NNG by
Seminole or an Affiliate of Seminole, including, without limitation, any amounts
to be paid to NNG under the SES Gathering Agreement.
     (f) Independent Contractor; Not a Fiduciary. In its performance of services
and duties hereunder for the Owners, Manager shall be an independent contractor,
subject to the limitations or Manager’s authority under Section 2.3 and except
as to the type of operations to be undertaken pursuant to the SES Gathering
Agreement. Manager is not intended to be, nor shall it be deemed to be, a
fiduciary or trustee, nor shall it have any fiduciary or similar duty or
obligation to the Owners or Manager with regard to its role as Manager (AND
NOTWITHSTANDING ANYTHING STATED HEREIN TO THE CONTRARY, ANY FIDUCIARY OR SIMILAR
DUTIES OR OBLIGATIONS, AS WELL AS ANY OTHER DUTIES OR OBLIGATIONS OF MANAGER NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT, ARE HEREBY EXPRESSLY WAIVED, DISCLAIMED
AND NEGATED).
     (g) Standards of Performance. Manager shall conduct its activities under
this Agreement as a reasonable prudent Manager, in a good and workmanlike
manner, and in compliance with Applicable Law and regulation and in accordance
with customary industry practices.

15

--------------------------------------------------------------------------------

 

     (h) Limitation of Liability. In its capacity as Manager, the Manager shall
have no liability as Manager to the other Parties for losses sustained or
liabilities incurred (including, without limitation, any damages, loss or
destruction of the Gathering System, any Solely Owned Segments or NNG SOS
Segments), except such as may result from gross negligence or willful misconduct
of Seminole, REGARDLESS OF THE SOLE, JOINT, CONCURRENT NEGLIGENCE, STRICT
LIABILITY, OR OTHER FAULT OR RESPONSIBILITY OF MANAGER, ANY OWNER, OR ANY OTHER
PERSON.
     (i) Payment of Expenses. Subject to the provisions of Section 2.3, this
Article III, Article VI and Article IX, Manager shall promptly pay and discharge
all expenses, costs and liabilities incurred in operating, maintaining, using,
repairing, replacing or other approved disposition of the Gathering System and
in providing replacements and additions thereto, making charges therefore in
accordance with the terms of this Agreement, including the following:
     (i) Approved Budgets and AFEs. Any expenses, costs or liabilities covered
by an Approved Operating Budget, an Approved Capital Budget, an approved AFE or
an approved Major Decision, shall be deemed authorized and approved by the
Owners.
     (ii) Authority for Expenditure. During such next succeeding Calendar Year
or calendar quarter, as the case may be, Manager shall have the right and
authority with respect to the Approved Operating Budget and Approved Capital
Budget (as they may be amended by any Approved Budget Amendments), or an
approved Major Decision, or other authorized expenditures expressly set forth
under this Agreement, to make expenditures therefore up to 100% of the
respective amount provided for such Approved Budget, approved Major Decision,
other approved expenditure, cost or liability expressly set forth in this
Agreement. To the extent not otherwise covered by an Approved Budget (as
amended), an approved Major Decision, and is not otherwise expressly authorized
or permitted under another provision of this Agreement, then the Manager may
incur (and be reimbursed by the other Owners relative to their share, or demand
advance payment of the Owners relative to their share of) any cost, expense or
liability which it is not estimated in excess of Fifty Thousand Dollars
($50,000), except in case of Emergencies as hereinafter provided, without the
need to be approved by the Committee; and to the extent such cost, expense or
liability would be estimated to exceed such amount, then the same shall be
incurred by Manager only with the prior written consent of the Committee in the
form of an AFE.
     (iii) Emergencies. Notwithstanding any provision of this Section, in cases
of emergency, Manager may proceed with maintenance or repair work when necessary
to keep the line operating or to restore the facilities to operating condition
or to minimize damage, without necessity for prior consent of the Committee even
though the cost and expense shall exceed five hundred thousand dollars
($500,000). Manager shall notify the Committee, as quickly as practicable of
such emergency. Such notification shall be by method deemed most appropriate by
Manager.
     (iv) Applicable Law. Any costs, expenses or liabilities paid or incurred by
Manager relating to the ownership, use, expansion, extension, operation,
maintenance, repair, replacement, marketing, abandonment or other disposition of
the Gathering System, paid to any Governmental Authorities, or directed by any
Governmental Authorities to be paid to any other Person, or under Applicable
Law. All of such costs, expenses or liabilities paid or incurred by Manager
shall be deemed authorized by the Owners.
     3.2 Resignation or Removal of Manager and Selection of Successor.
     (a) Resignation or Removal of Manager.
     (i) Manager may resign at any time by giving not less than ninety
(90) days’ prior written notice thereof to Owners. If Manager terminates its
legal existence or is no longer capable of serving as Manager, Manager shall be
deemed to have resigned without any action by Owners, except the selection of a
successor.
     (ii) Manager may be removed by the affirmative vote of Owners owning a
majority of the remaining interest in the Gathering System after excluding the
Ownership Interest held by the Manager, only for
     (a) material breach, material failure or inability to perform its
obligations

16

--------------------------------------------------------------------------------

 

under this Agreement,
     (b) gross negligence or willful misconduct of Manager,
     (c) Manager becomes bankrupt or insolvent or otherwise makes an assignment
for the benefit of creditors,
     (d) In the event any execution or attachment is issued against Manager
pursuant to which all or a substantial part of the assets of Manager are seized
or otherwise taken by a creditor or by any custodian, receiver, trustee or other
legal authority,
     (e) dissolution, liquidation or cessation of Manager.
Such vote shall not be deemed effective until a written notice has been
delivered to the Manager by one or more Owners holding the required interests
described above detailing the alleged default and Manager has failed to cure the
default within sixty (60) days from its receipt of the notice. Such resignation
or removal shall not become effective until 7:00 o’clock A.M. on the first day
of the calendar month following the expiration of ninety (90) days after the
giving of notice of resignation by Manager or action by the Owners to remove
Manager, unless a successor Manager has been selected and assumes the duties of
Manager at an earlier date. Manager, after effective date of resignation or
removal, shall be bound by the terms hereof as an Owner. A change of corporate
name or structure of Manager or transfer of Manager’s interest to any single
subsidiary, parent or successor corporation shall not be the basis for removal
of Manager. Any successor Manager must accept an assignment of, and assume and
agree to be bound by, the SES Contract Operating Agreement then in effect. Any
removal, substitution, or replacement of the Manager shall in no way affect the
continued validity of the SES Contract Operating Agreement then in effect, nor
shall it affect the continued validity of the SES Gathering Agreement or any SOS
SES Gathering Agreement.
     (b) Selection of Successor Manager. Upon the resignation or removal of
Manager under any provision of this Agreement, a successor Manager shall be
selected by the Owners. The former Manager shall promptly deliver to the
successor Manager all records and data relating to the operations conducted by
the former Manager to the extent such records and data are not already in the
possession of the successor Manager. Any cost of obtaining or copying the former
Manager’s records and data shall be charged to the joint account of the Owners
in accordance with the Ownership Ratio.
     (c) Effect of Bankruptcy. If Manager becomes insolvent, bankrupt or is
placed in receivership, it shall be deemed to have resigned without any action
by Owners, except the selection of a successor. If a petition for relief under
the federal bankruptcy laws is filed by or against Manager, and the removal of
Manager is prevented by the federal bankruptcy court, all Owners and Manager
shall comprise an interim operating committee to serve until Manager has elected
to reject or assume this Agreement and the SES Gathering Agreement pursuant to
the Bankruptcy Code. An election to reject this Agreement by Manager as a debtor
in possession, or by a trustee in bankruptcy shall be deemed a resignation as
Manager without any action by Owners, except the selection of a successor.
During the period of time the operating committee controls operations; all
actions shall require the approval of two (2) or more Parties owning a majority
interest based on ownership. In the event there are only two (2) Parties to this
Agreement, during the period of time the operating committee controls
operations, a third party acceptable to Manager, Owners and the federal
bankruptcy court shall be selected as a member of the operating committee, and
all actions shall require the approval of two (2) members of the operating
committee without regard for their Ownership Interest.
     3.3 Custody of Funds; Offset by Manager; Statement of Account. The Owners
shall direct that any fees, amounts or other payments received from provision of
gathering services utilizing, or commitments of capacity on, the Gathering
System (including, without limitation, any fees, amounts or other payments from
SES under the SES Gathering Agreement) shall be paid to the Manager for the
benefit of the Owners. Manager shall hold for the account of the Owners any
funds of the Owners including any fees advanced or paid to the Manager, either
for the conduct of operations hereunder or as a result of fees paid under the
SES Gathering Agreement, and such funds shall remain the funds of the Owners on
whose account they are advanced or paid until used for their intended purpose or
otherwise delivered to the Owners or applied toward the payment of, and Manager
shall have the right to offset or deduct from any portion of the funds otherwise
payable to an Owner any amounts attributable to such Owner’s share of: (i) any
amounts reimbursable or advanced to Manager for any costs or expenses incurred
or paid by Manager under this Agreement, under the SES Contract Operating
Agreement, or paid to any Governmental Authorities or otherwise paid to any
Person by Manager relating to the ownership, use, expansion, extension,
operation, maintenance, repair, replacement, abandonment or other disposition of
the Gathering System;

17

--------------------------------------------------------------------------------

 

(ii) any amounts of the type described in subpart (i) above to be paid directly
to the Contract Operator, Governmental Authorities, or other Persons, at the
direction of the Manager; and (iii) reasonable reserves to be retained by
Manager for amounts of the type described in subparts (i) or (ii) above. Nothing
in this paragraph shall require the maintenance by Manager of separate accounts
for the funds of Owners unless the Parties otherwise specifically agree. Manager
shall provide a statement of account to the Owners within sixty (60) days
following the end of each fiscal quarter, setting forth the amounts and proceeds
paid under the SES Gathering Agreement to Manager during the prior fiscal
quarter, and the amounts deducted or offset therefrom for such same time period;
and to the extent such SES Gathering Agreement proceeds exceed the offsets and
deductions, Manager shall pay to each Owner such Owner’s allocable share thereof
when it delivers such statement.
     3.4 Additional Offset Rights Relative To NAESB Purchase Agreement Payments
and SES Gathering Agreement Payments. In addition to the rights of offset or
similar rights set forth in Section 3.3 of this Agreement, or elsewhere in this
Agreement, to the extent any members of the NNG Group (a) fail to make any
payment or take any action required to maintain in effect any oil and gas lease,
farm-out agreement, development agreement or other agreement with respect to the
geographic region for which natural gas production is dedicated to gathering by
the Gathering System pursuant to the SES Gathering Agreement and SES or Seminole
makes a payment or incurs a liability in respect of such obligation on behalf of
any member of the NNG Group, or (b) fail to pay SES, when due, any amounts or
payments under the NAESB Purchase Agreement (the amounts referred to in clause
(a) and (b) are referred to collectively as the “NNG Group GAM Default
Amounts”), then, without waiving or being deemed to have elected any remedies
that SES or Seminole may have available to it under the NAESB Purchase
Agreement, Applicable Law or otherwise, the Manager shall also thereafter deduct
and offset from any fees or payments actually received from SES under the SES
Gathering Agreement which would otherwise be allocable to NNG’s Ownership
Interest (or the net allocable share thereof, after deducting and offsetting any
other costs, expenses or liabilities owed or payable by NNG hereunder),
regardless of whether the source of such payments received from SES were paid to
SES by members of the NNG Group or other Third Parties, such amounts as are or
would be necessary to deliver to Seminole an amount equal to 50% (or Seminole’s
then existing Ownership Interest, if not 50%) of the NNG Group GAM Default
Amounts, plus any SOS returns (ie, the 25% IRR thereon) and 50% of returns on
Capital Projects made by both Parties; and Manager shall pay, and continue to
pay, such offset and deducted amounts hereunder to Seminole until Seminole has,
in fact, received an amount equal to 50% (or Seminole’s then existing Ownership
Interest, if not 50% during the period applicable to the NNG Group’s default),
all as described in further detail on Exhibit C. Notwithstanding anything stated
herein to the contrary, to the extent Manager offsets and deducts the amounts
described above prior the application and deduction of any costs, expenses or
liabilities that NNG may owe or are payable by NNG under this Agreement, then
such offset or deduction by Manager shall in no way release, relieve or reduce
NNG’s obligation and liability relating to any of such costs, expenses or
liabilities.
     3.5 Marketing Rights/Duties.
     (a) Exclusive Right to Approve Marketing. Subject to the commitments,
duties and obligations under the SES Gathering Agreement, the Manager shall also
solely and exclusively conduct and direct and have full control, on behalf of
the Owners of all marketing or any gathering or transportation capacity of the
Gathering System and no Owner, other than the Manager, shall have the right to
take or commit to any Person (other than SES) any capacity on, or gathering
services utilizing, the Gathering System or Solely Owned Segments.
     (b) Satisfaction of Marketing Duties. The commitments, duties and
obligations of Manager under this Section 3.5 shall be deemed satisfied as long
as the SES Gathering Agreement remains in force and effect.
     (c) SES Gathering Agreement. Notwithstanding the general authority and
duties of Manager with regard to marketing the available capacity of the
Gathering System, it is contemplated that 100% of the available capacity of the
Gathering System will be committed by each Owner to SES under the terms of the
SES Gathering Agreement; and simultaneous with the execution and delivery of
this Agreement, each Owner shall execute and deliver the SES Gathering
Agreement.
     (d) SOS SES Gathering Agreement. It is contemplated that 100% of the
available capacity of the Solely Owned Segments will be committed to SES under
the terms of the applicable SOS SES Gathering Agreement; and each SOS Owner
shall execute and deliver a SOS SES Gathering Agreement with respect thereto
prior to the commencement of operations of the applicable Solely Owned Segment,
unless SES expressly waives this requirement in writing.
     (e) Disclaimers, Limitations and Rights. All of the provisions of Sections
3.1-3.4 above

18

--------------------------------------------------------------------------------

 

shall apply with regard to Manager’s performance under this Section 3.5.
     (f) Termination of Section 3.5 Provisions. Notwithstanding the above, to
the extent that an NGAS Options (as defined in the APA) is exercised (whether by
Seminole or in accordance with the put options described therein), the
obligation set forth in this Section 3.5 shall automatically terminate upon the
closing and consummation of such NGAS Option, and the Parties shall execute such
further amendments to this Agreement or other instruments as may be necessary or
appropriate to reflect the termination thereof.
     3.6 Certain Capital Projects Resulting in Change of Certain Rates. In the
event that an NGAS Capital Project is conducted, the SES Gathering Agreement and
any SOS SES Gathering Agreement contemplated that the Gathering Fees to be
charged thereunder shall be increased in a manner to provide the Owners (or SOS
Owners under a SOS SES Gathering Agreement) and additional 20% IRR (meaning an
IRR with an IRR Specified Discount Rate of 20%), over the then remaining term of
such SES Gathering Agreement (or SOS SES Gathering Agreement), on all capital
spent on such NGAS Capital Project in accordance with a monthly Capital Fee
thereunder. The NAESB Purchase Agreement shall provide for a corresponding
increase in the monthly Gathering Fee and monthly Operating Fee (and or a
monthly Capital Fee) thereunder.
ARTICLE IV
INSURANCE
     4.1 Insurance.
     At all times while operations are conducted hereunder, Manager and Owners
shall comply with the insurance requirements set forth on Exhibit H attached
hereto and made a part hereof. Manager may also carry or provide insurance for
the benefit of the joint account of the Parties to the extent set forth on
Exhibit H. Manager shall require all contractors engaged in work on or for the
Gathering System to comply with the workers compensation law of the state where
the operations are being conducted and to maintain such other insurance as or
Owners may require.
ARTICLE V
(Intentionally Omitted)
ARTICLE VI
EXPENDITURES AND LIABILITY OF PARTIES
     6.1 Liability of Parties.
     (a) Several; No Partnership. The liability of the Parties shall be several,
not joint or collective. Except as expressly set forth herein to the contrary,
each Party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs related to the Gathering System in
accordance with the Ownership Ratio, unless otherwise specified herein to the
contrary. It is not the intention of the Parties to create, nor shall this
Agreement be construed as creating, a partnership, joint venture, agency
relationship or association, or to render the Parties liable as partners,
co-venturers, or principals. In the event that an Owner (in such case, a
“Responsible Owner”) is ultimately held liable or responsible to a third party
or Governmental Authority for costs, claims or liabilities of any kind
attributable to the other Owner’s Ownership Interests, under a theory of joint
and several liability or otherwise, then the Responsible Owner shall be entitled
to an immediate reimbursement of any amounts actually paid out of pocket
attributable to the other Owner’s Ownership Interest. In their relations with
each other under this Agreement, the Parties shall not be considered fiduciaries
but rather shall be free to act on an arm’s-length basis in accordance with
their own respective self-interest, subject, however, to the obligation of the
Parties to act in good faith in their dealings with each other with respect to
activities hereunder.
     (b) Actual Costs and Expenses. It is contemplated and agreed herein that
the Manager shall not earn or be paid a separate fee for performing the
functions of the Manager. To the extent that Manager incurs and pays any out of
pocket costs, expenses or liabilities to Third Parties, to the Contract
Operator, or with regard to internal personnel and labor costs of Manager (or
its Affiliates) pursuant to authorities granted to them in this Agreement, under
an Approved Budget (or a deemed Approved Budget) or an Approved AFE’s, approved
Major Decisions, or other costs, expenses or liabilities authorized or permitted
to be incurred by Manager under this Agreement or are otherwise attributable to
the Ownership Interests of the other Owners, then such Manager shall be entitled
to reimbursement from the other Owners of such

19

--------------------------------------------------------------------------------

 

other Owner’s proportionate Ownership Ratio share of such costs, expenses and
liabilities actually incurred and paid. To the extent reasonably available, all
reimbursable costs, expenses and liabilities shall be supported by invoices,
receipts or other appropriate documentation.
     6.2 Liens and Security Interests.
     In accordance with the terms of the NGAS Mortgages, NNG shall grant a first
lien and security interest to Seminole on NNG’s Ownership Interest in the
Gathering System, as well as any Solely Owned Segments, Net Profits Interests,
or other assets or properties that NNG owns or holds to support, among other
obligations or liabilities described therein, all of NNG’s obligations and
liabilities under this Agreement. In accordance with the terms of the Seminole
Mortgages, Seminole shall grant a subordinated, second lien and security
interest to NNG on Seminole’s Ownership Interest in the Gathering System, as
well as any Solely Owned Segments, Net Profits Interests, or other assets or
properties that Seminole owns or holds to support, among other obligations or
liabilities described therein, all of Seminole’s obligations and liabilities
under this Agreement. Neither NNG nor Seminole shall assign the Seminole
Mortgages nor the NGAS Mortgages, respectively, without the consent of the other
Party; provided however, that NNG may assign the Seminole Mortgages to the
Administrative Agent (as such term is defined in the NGAS Credit Agreement, as
defined in the APA) for the benefit of the lenders under the NGAS Credit
Agreement, as collateral for the Obligations (as such term is defined therein)
so long as the obligations of NNG thereunder do not exceed in the aggregate
$7,500,000 and upon exercise of the NGAS Option (as defined in the APA) and the
payment by Seminole pursuant to the terms thereunder, such collateral assignment
shall be released.
     6.3 Advances.
     Manager, at its election, shall have the right from time to time to demand
and receive from one or more of the other Parties, payment in advance of their
respective shares of the estimated amount of capital improvement costs or the
expense to be incurred in operating the Gathering System, including working
capital hereunder during the next succeeding month, which right may be exercised
only by submission to each such Party of an itemized statement of such estimated
expense, together with an invoice for its share thereof. Each such statement and
invoice for the payment in advance of estimated expense shall be submitted on or
before the twentieth (20th) day of the next preceding month.
     Each Party shall pay to Manager its proportionate share in accordance with
the Ownership Ratio of such estimate within fifteen (15) days after such
estimate and invoice is delivered to such Party. If any Party fails to pay its
share of said estimate within said time, the amount due shall bear interest at
the maximum legal rate until paid. Proper adjustment shall be made monthly
between advances and actual expense to the end that each Party shall bear and
pay its proportionate share in accordance with the Ownership Ratio of actual
expenses incurred, and no more.
     6.4 Defaults and Remedies.
     If any Party fails to discharge any financial obligation under this
Agreement, including, without limitation, the failure to pay any amount when
due, or make any advance, or any other provision of this Agreement, within the
period required for such payment or performance hereunder (in such case, a
“Defaulting Owner”), then in addition to the remedies provided herein or
elsewhere in this Agreement, or the remedies available under Applicable Law, the
remedies specified below shall be applicable, and the other Owners (the
“Non-Defaulting Owners”, and individually, a “Non-Defaulting Owner) shall be
entitled to pursue such remedies. For purposes of this Article VI, all notices
and elections shall be delivered only by Manager, except that when Manager is
the Defaulting Owner, the applicable notices and elections can be delivered by
any Owner. Election of any one or more of the following remedies shall not
preclude the subsequent use of any other remedy specified below or otherwise
available to a Non-Defaulting Owner:
     (a) Suspension of Rights. Any Party may deliver to the Defaulting Owner a
Notice of Default, which shall specify the default, specify the action that
needs to be taken to cure the default, and specify that failure to take such
action will result in the exercise of one or more of the remedies provided in
this Article. If the default is not cured within thirty (30) days of the
delivery of such Notice of Default, all of the rights of the Defaulting Owner
granted by this Agreement may upon notice from any Non-Defaulting Owner be
suspended until the default is cured, without prejudice to the right of the
Non-Defaulting Owner or Parties to continue to enforce the obligations of the
Defaulting Owner previously accrued or thereafter accruing under this Agreement.
The rights of a Defaulting Owner that may be suspended hereunder at the election
of the non-defaulting Parties shall include, without limitation, the right to
receive information as to any operation conducted hereunder during the period of
such default, the right to participate in an operation being conducted under
this Agreement and the right to receive proceeds from operations.

20

--------------------------------------------------------------------------------

 

     (b) Advance Payment. If a default is not cured within twenty (20) days
after the delivery of a Notice of Default, Manager, or any Non-Defaulting Owners
if Manager is the Defaulting Owner, may thereafter require advance payment from
the Defaulting Owner Party of such Defaulting Owner’s anticipated share of any
item of expense for which Manager, or Non-Defaulting Owners, as the case may be,
would be entitled to reimbursement under any provision of this Agreement,
whether or not such expense was the subject of the previous default. If the
Defaulting Owner fails to pay the required advance payment, the Non-Defaulting
Owners may pursue any of the remedies provided in this Agreement. Any excess of
funds advanced remaining when the operation is completed and all costs have been
paid shall be promptly returned to the advancing Party.
     (c) Default Interest. If either Party fails or refuses to make any payment
to the other in a timely manner in accordance with the provisions contained in
this Agreement, the unpaid balance shall bear interest which shall be paid to
the non-defaulting Party. The rate of interest shall be calculated as commencing
on the date due of the defaulted payment and continue until the default amount,
plus the interest, shall have been paid in full to the non-defaulting Party. The
rate of interest applied (the “Default Interest Rate”) shall be calculated as
the sum of (i) a variable rate equal to the prime rate of interest as published
from time to time in The Wall Street Journal, each change in the prime rate to
be effective without notice on the effective date of each change in the prime
rate as so published, plus (ii) eight percent (8%); provided, however, that the
Default Interest Rate chargeable hereunder shall never exceed the maximum
non-usurious rate of interest allowed by Applicable Law.
     (d) Recovery of 25% IRR. To the extent a Non-Defaulting Owner pays, or
elects (in its sole discretion) to pay any IRR Funded Capital, then any and all
payments that would otherwise be made under the SES Gathering Agreement to the
Defaulting Owner shall instead be paid to such Non-Defaulting Owner until such
Non-Defaulting Owner recovers from such Defaulting Owner’s share of such
payments, the lesser of (i) a 25% IRR (meaning an IRR using an IRR Specified
Discount Rate of 25%) relative to all of the IRR Funded Capital it paid, and
(ii) an amount equal to the aggregate IRR Funded Capital it paid, plus a rate of
interest thereon equal to the maximum, non-usurious rate of interest permitted
under Applicable Law.
     6.5 Taxes.
     Beginning with the first calendar year after the effective date hereof,
Manager shall render for ad valorem taxation all property subject to this
Agreement which by law should be rendered for such taxes, and it shall pay all
such taxes assessed thereon before they become delinquent. Manager shall bill
the other Parties for their proportionate shares of all tax payments.
     6.6 Assignment; Maintenance of Uniform Interest; Successor Bound.
     For the purpose of maintaining uniformity of ownership in the Gathering
System (and including/excluding any Solely Owned Segments) covered by this
Agreement, and subject to the other restrictions in Section 2.4, no Owner shall
Transfer its interest in the Gathering System except as otherwise expressly
permitted in this Agreement (whether as a Permitted Transfer or otherwise
permitted under this Agreement) and no such Transfer shall be effected unless it
covers the entire interest of the Party in the Gathering System(and
including/excluding any Solely Owned Segments). Subject to the other
restrictions in Section 2.4, every Transfer made by any Party shall be made
expressly subject this Agreement. Subject to the other restrictions in
Section 2.4, no assignment or other disposition of interest by a Owner shall
relieve such Owner of obligations or liabilities hereunder with regard to the
interest transferred, and the lien and security interest granted shall continue
to burden the interest transferred to secure payment of any such obligations.
Any recipient or assignee of an interest in the Gathering System or the Solely
Owned Segments or any Net Profits Interests (other than the pledge to the
Administrative Agent under the NGAS Credit Agreement of 100% of the equity
interest in NNG) must execute an amendment to this Agreement (the form of which
shall be as agreed to by the non-Transferring Owner(s)), agreeing to become a
Party to this Agreement with regard to the interest received or assigned and
agreeing to be bound hereby. Any conveyance, transfer or assignment of any
interest (whether by operation of Applicable Law or otherwise) in the Gathering
System or the Solely Owned Segments or any Net Profits Interests which does not
require that the recipient or assignee to so agree will be void.
ARTICLE VII
INTERNAL REVENUE CODE ELECTION
     If, for federal income tax purposes, this Agreement and the operations
hereunder are regarded as a

21

--------------------------------------------------------------------------------

 

partnership, and if the Parties have not otherwise agreed to form a tax
partnership or other agreement between them, each Party thereby affected elects
to be excluded from the application of all of the provisions of Subchapter “K,”
Chapter 1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended
(“Code”), as permitted and authorized by Section 761 of the Code and the
regulations promulgated hereunder. Manager is authorized and directed to execute
on behalf of each Party hereby affected such evidence of this election as may be
required by the Secretary of the Treasury of the United States or the Federal
Internal Revenue Service, including specifically, but not by way of limitation,
all of the returns, statements, and the data required by Treasury Regulation
§1.761. Should there be any requirement that each Party hereby affected give
further evidence of this election each such Party shall execute such documents
and furnish such other evidence as may be required by the Federal Internal
Revenue Service or as may be necessary to evidence this election. No such Party
shall give any notices or take any other action inconsistent with the election
made hereby. If any present or future income tax laws of the state or states in
which the Facility is located or any future income tax laws of the United States
contain provisions similar to those in Subchapter “K,” Chapter 1, Subtitle “A,”
of the Code, under which an election similar to that provided by Section 761 of
the Code is permitted, each Party hereby affected shall make such election as
may be permitted or required by such laws. In making the foregoing election,
each such Party states that the income derived by such Party from operations
hereunder can be adequately determined without the computation of partnership
taxable income.
ARTICLE VIII
INDEMNITY
     Each Owner, in proportion to its Ownership Interest:
     (i) shall RELEASE, INDEMNIFY, DEFEND and HOLD HARMLESS from and against any
claims, losses, damages, lawsuits, costs (including, without limitation,
attorney fees, court costs and other costs of investigation or defense), fines,
charges, assessments or liabilities of any kind whatsoever (collectively
“Indemnity Claims”) against any Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Owner), by reason of the fact that he, she
or it is or was an Owner Representative,
     (ii) with regard to their Ownership Interest, shall RELEASE, INDEMNIFY,
DEFEND and HOLD HARMLESS the Manager, its Affiliates, and any of their
respective employees, officers, directors, managers, agents, and representatives
from and against any Indemnity Claims relating to bodily injury, personal
injury, illness, death, or any loss of, destruction of or damage to property of
any kind (including, without limitation, economic loss) arising from or related
to their function as Manager hereunder or the acquisition, construction,
installation, ownership, use, expansion, extension, operation, maintenance,
repair, replacement, marketing, abandonment or other disposition of the
Gathering System or any Solely Owned Segments,
REGARDLESS OF WHETHER ANY SUCH INDEMNITY CLAIMS ARE ATTRIBUTABLE TO, IN WHOLE OR
IN PART, TO THE SOLE, JOINT, CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER
FAULT OR RESPONSIBILITY OF MANAGER, ANY OWNER, OR ANY OTHER PERSON.
ARTICLE IX
CLAIMS AND LAWSUITS
     The Owners hereby stipulate and agree that Manager may settle any single
uninsured third party damage claim or suit arising from operations hereunder if
the expenditure does not exceed Fifty Thousand Dollars ($50,000.00) and if the
payment is in complete settlement of such claim or suit. If the amount required
for settlement exceeds the above amount, the Parties hereto shall assume and
take over the further handling of the claim or suit, unless such authority is
delegated to Manager. All costs and expenses of handling settling or otherwise
discharging such claim or suit shall be a joint expense of the Owners
participating in the operation from which the claim or suit arises. If a claim
is made against any Owner or if any Owner is sued on account of any matter
arising from operations hereunder over which such individual has no control
because of the rights given Manager by this Agreement, such Owner shall
immediately notify all other Owners, and the claim or suit shall be treated as
any other claim or suit involving operations hereunder.
ARTICLE X

22

--------------------------------------------------------------------------------

 

FORCE MAJEURE
     10.1 Force Majeure.
     (a) In General. In the event of any Party being rendered unable, wholly or
in part, by an Event of Force Majeure to carry out its obligations under this
Agreement, except payment of money or provision of indemnity and defense
obligations, it is agreed that on such Party giving notice in the manner herein
contained and reasonably full particulars of such Event of Force Majeure to the
other Party within a reasonable time after the occurrence of the cause relied
on, the then obligations of the Party giving such notice, so far as it is
affected by such Event of Force Majeure, shall be suspended during the
continuance of any inability so caused, but for no longer period, and such cause
shall so far as possible be remedied with all reasonable dispatch.
     (b) Definition. The term “Event of Force Majeure,” as employed herein,
shall mean acts of God, strikes, lockouts, or other industrial disturbances,
acts of the public enemy, wars, blockades, insurrections, riots, epidemics,
landslides, lightning, earthquakes, fires, storms, floods, high water, washouts,
arrests and restraints of governments and people, civil disturbances,
explosions, breakage or accident to machinery or lines of pipe, freezing of
wells or lines of pipe, partial or entire failure of wells, and any other
causes, whether of the kind herein enumerated or otherwise, not at the time
involved, reasonably within the control of the Party claiming suspension; and
such term shall likewise include (i) in those instances where any Party hereto
is required to obtain servitudes, rights of way, grants, permits, or licenses to
enable such Party to fulfill its obligations hereunder, the inability of such
Party to acquire, or the delays on the part of such Party in acquiring, at
reasonable costs and after the exercise of reasonable diligence, such
servitudes, rights of way, grants, permits, or licenses, and (ii) in those
instances where any Party hereto is required to furnish materials and supplies
for the purpose of constructing or maintaining facilities or is required to
secure permits or permissions from any Governmental Authorities to enable such
Party to fulfill its obligations hereunder, the inability of such Party to
acquire, or the delays on the part of such Party in acquiring, at reasonable
costs and after the exercise of reasonable diligence, such materials and
supplies, permits and permissions.
     (c) Labor Disputes. It is understood and agreed that the settlement of
strikes or lockouts shall be entirely within the discretion of the Party having
difficulty, and the above requirement that any Event of Force Majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of the Party having the
difficulty.
ARTICLE XI
TERM
     This Agreement shall commence as of the effective date set forth in the
introductory paragraph of this Agreement and shall continue in force and effect
until the none of the Gathering System nor any Solely Owned Segments are being
used to gather or transport natural gas, and all have been permanently removed
and abandoned in accordance with all Applicable Law, and there remain no further
payment obligations by any Owner to any other Owner under this Agreement.
Notwithstanding the above, to the extent that the NGAS Asset Option (as defined
in the APA) is exercised (whether by Seminole or in accordance with the put
options described therein), the term of this Agreement shall automatically
terminate upon the closing and consummation of such NGAS Option, and the Parties
shall execute such further amendments to this Agreement or other instruments as
may be necessary or appropriate to reflect the termination thereof; provided,
however, that termination of this Agreement shall in no way relieve or release
any Party for obligations or liabilities accrued prior to the termination
hereof.
ARTICLE XII
NOTICES
     All notices authorized or required between the Parties by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, telex, telecopier or any other form of facsimile, postage or charges
prepaid, and addressed to such Parties at the addresses as follows:
Seminole Gas Company, L.L.C.
1323 E. 7lst Street, Suite 300
Tulsa, Oklahoma 74136

23

--------------------------------------------------------------------------------

 

(918) 477-3451 (fax)
Attention: Alex Goldberg
NGAS Gathering II, LLC
120 Prosperous Place, Suite 201
Lexington, Kentucky 40509
(859) 263-4228 (fax)
Attention: William G. Barr III, Chief Executive Officer
All telephone or oral notices permitted by this Agreement shall be confirmed
immediately thereafter by written notice. The originating notice given under any
provision hereof shall be deemed delivered only when received by the Party to
whom such notice is directed, and the time for such Party to deliver any notice
in response thereto shall run from the date the originating notice is received.
“Receipt” for purposes of this Agreement with respect to written notice
delivered hereunder shall be actual delivery of the notice to the address of the
Party to be notified specified in accordance with this Agreement, or to the
telecopy, facsimile or telex machine of such Party. The second or any responsive
notice shall be deemed delivered when deposited in the United States mail or at
the office of the courier or telegraph service, or upon transmittal by telex,
telecopy or facsimile, or when personally delivered to the Party to be notified,
provided, that when response is required within 24 or 48 hours, such response
shall be given orally or by telephone, telex, telecopy or other facsimile within
such period. Each Party shall have the right to change its address at any time,
and from time to time, by giving written notice thereof to all other Parties. If
a Party is not available to receive notice orally or by telephone when a Party
attempts to deliver a notice required to be delivered within 24 or 48 hours, the
notice may be delivered in writing by any other method specified herein and
shall be deemed delivered in the same manner provided above for any responsive
notice.
ARTICLE XIII
COMPLIANCE WITH LAWS AND REGULATIONS
     13.1 Laws, Regulations and Orders.
     This Agreement shall be subject to all Applicable Laws, including, without
limitation, those of the state in which the Gathering System are located, and to
the valid rules, regulations, and orders of any duly constituted regulatory body
of said state; and to all other applicable federal, state, and local laws,
ordinances, rules, regulations and orders. Each Owner and SOS Owner agrees to
comply with all Applicable Law relative to their ownership or obligations
regarding the Gathering System or any Solely Owned Segments.
     13.2 Regulatory Agencies.
     Nothing herein contained shall grant, or be construed to grant, Manager the
right or authority to waive or release any rights, privileges, or obligations
which Owners may have under federal or state laws or under rules, regulations or
orders promulgated. With respect to the operations hereunder, Owners agree to
RELEASE, WAIVE AND FULLY DISCHARGE Manager from any and all losses, damages,
injuries, claims and causes of action arising out of, incident to or resulting
directly or indirectly from Manager’s interpretation or application of
Applicable Law, including, without limitation, any rules, rulings, regulations
or orders of the Department of Energy or Federal Energy Regulatory Commission or
predecessor or successor agencies to the extent such interpretation or
application was made in good faith and does not constitute gross negligence,
REGARDLESS OF WHETHER ANY SUCH CLAIMS ARE ATTRIBUTABLE TO, IN WHOLE OR IN PART,
TO THE SOLE, JOINT, CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OR
RESPONSIBILITY OF MANAGER, ANY OWNER, OR ANY OTHER PERSON. Each Owner further
agrees to reimburse Manager for such Owner’s share of any refund, fine, levy or
other governmental sanction that Manager may be required to pay as a result of
such an incorrect interpretation or application, together with interest and
penalties thereon owing by Manager as a result of such incorrect interpretation
or application.
ARTICLE XIV
MISCELLANEOUS
     14.1 Execution.
     This Agreement shall be binding upon each Owner when this Agreement or a
counterpart thereof has been executed by such Owners.
     14.2 Successors and Assigns.

24

--------------------------------------------------------------------------------

 

     This Agreement shall be binding upon and shall inure to the benefit of the
Parties hereto and their respective heirs, devisees, legal representatives,
successors and assigns. Any Transfers of any interests in the Gathering System
or Solely Owned Segments must comply with the terms, provisions or limitations
set forth in Section 2.4, including, without limitation, the obligation for any
successor in interest to the Gathering System or any Solely Owned Segments to
take their interest subject to the terms and provisions of this Agreement, the
SES Gathering Agreement and any applicable SOS SES Gathering Agreement, and must
agree to assume and agree to be bound by the obligations and liabilities under
this Agreement and such other agreements relative to the interests acquired.
     14.3 No Waiver.
     Failure of either Party to require performance of any provision of this
Agreement shall not affect either Party’s right to require full performance
thereof at any time thereafter, and the waiver by either Party of a breach of
any provisions hereof shall not constitute a waiver of a similar breach in the
future or of any other breach of nullify the effectiveness of such provision.
     14.4 Injunctive Relief.
     The Parties acknowledge that a breach of the provisions of this Agreement
may cause irreparable injury to the Owners for which monetary damages are
inadequate, difficult to compute, or both. Accordingly, the Parties to this
Agreement agree that in such event the provisions of this Agreement may be
enforced by injunctive action or specific performance.
     14.5 Entire Agreement.
     This Agreement, together with the exhibits attached hereto, the SES
Contract Operating Agreement, the SES Gathering Agreement, NAESB Purchase
Agreement, any SOS SES Gathering Agreement, the Asset Purchase Agreement (and
any agreements executed in connection therewith), constitute the entire
agreement and understanding between the Parties with regard to the subject
matter hereof and terminate, supersede, and render null and void and of no
further force and effect any prior understandings, negotiations or agreements
between the Parties and their predecessors relating to the subject matter
hereof.
     14.6 Memorandum of this Agreement.
     The Parties shall execute and deliver a Memorandum of Options and
Agreement, in substantially the form attached to the Asset Purchase Agreement as
Exhibit N (the “MOA”), acknowledging that the undersigned Parties have entered
into this Agreement. The MOA shall also acknowledge the intent that the right of
first refusal and other obligations, commitments and dedications set forth
herein be deemed covenants running with the land, binding upon any transferee of
an interest in any the Gathering System or any Solely Owned Segments; and the
MOA shall be filed of record in each County or Parish in which any part of the
Gathering System or Solely Owned Segments sit.
     14.7 Counterparts.
     This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
     14.8 Amendments.
     Except as expressly provided herein, this Agreement may only be amended
upon the written consent of all Owners.
     14.9 No Consequential Damages.
     Notwithstanding anything contained to the contrary in this Agreement, the
Parties agree that the recovery by any Party of any damages suffered or incurred
by it as a result of any breach by another Party of any of its obligations under
this Agreement shall be limited to the actual damages suffered or incurred by
the non-breaching Party as a result of the breach by the breaching Party of its
obligations hereunder and in no event shall the breaching Party be liable to the
non-breaching Party for any indirect, consequential, special, exemplary, or
punitive damages (including any damages on account of lost profits or
opportunities or lost or delayed generation) suffered or incurred by the
non-breaching Party as a result of the breach by the breaching Party of any of
its obligations hereunder; provided, however, that the foregoing shall not be
considered a waiver of cover damages, nor shall it be deemed a waiver of any
Indemnity Claims asserted by third parties for which one Party has expressly
agreed to indemnify the other under the terms of this Agreement.
     14.10 Further Assurances.
     In connection with this Agreement and the transactions contemplated hereby,
each Owner shall execute and

25

--------------------------------------------------------------------------------

 

deliver any additional documents and instruments and perform any additional acts
that may be necessary or appropriate to effectuate and perform the provisions of
this Agreement and such transactions.
     14.11 Severability.
     For the purposes of assuming or rejecting this Agreement as an executory
contract pursuant to federal bankruptcy laws, this Agreement shall not be
severable, but rather must be assumed or rejected in its entirety, and the
failure of any Party to this Agreement to comply with all of its financial
obligations provided herein shall be a material default.
     14.12 Governing Law; Jurisdiction & Venue. This Agreement shall be
construed, enforced and interpreted according to the laws of the State of Texas,
without regard to the conflicts of law rules thereof; provided, however, that
the Parties acknowledged that the right of first refusal provisions under
Section 2.4, shall be construed, enforced and interpreted according to the laws
of the state where the applicable properties sit. Each Party hereby irrevocably
submits to the jurisdiction of the courts of the State of and the federal courts
of the United States of America located in Harris County, Texas over any dispute
or proceeding arising out of or relating to this Agreement or any of the
transactions contemplated hereby or thereby, and each Party irrevocably agrees
that all claims in respect of such dispute or proceeding shall be heard and
determined in such courts. Each Party hereby irrevocably waives, to the fullest
extent permitted by Applicable Law, any objection which it may now or hereafter
have to the venue of any dispute arising out of or relating to this Agreement or
any Ancillary Agreement or any of the transactions contemplated hereby or
thereby brought in such court or any defense of inconvenient forum for the
maintenance of such dispute or action. Each Party agrees that a judgment in any
dispute heard in the venue specified by this section may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
Applicable Law.
     14.13 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY ANCILLARY AGREEMENT.
     14.14 Rule Against Perpetuities. It is not the intent of that Parties that
any provision herein violate any applicable law regarding the rule against
perpetuities, the suspension of the absolute power of alienation, or other rules
regarding the vesting or duration of estates. This Agreement shall be construed
as not violating any such rule to the extent the same can be so construed
consistent with the intent of the Parties. In the event that any provision
hereof is determined to violate any such rule, then such provision shall
nevertheless be effective for the maximum period (but not longer than the
maximum period) permitted by such rule that will result in no violation. To the
extent the maximum period is permitted to be determined by reference to “lives
in being,” the Parties agree that “lives in being” shall refer to the lifetime
of the last to die of the living lineal descendants of the late Joseph P.
Kennedy (father of the late President of the United States of America).
[Remainder of page intentionally left blank.]

26

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, intending to be legally bound, the Parties hereto have
executed this Agreement through their authorized representatives as of the date
first set forth above.

            SEMINOLE GAS COMPANY, L.L.C.
      By:   /s/ Robert B. Rosene, Jr.         Robert B. Rosene, Jr.,       
President        NGAS GATHERING II, LLC
      By:   ./s/ William G. Barr III         William G. Barr III,        Chief
Executive Officer     

27