Document:

magnum_8k-ex1001.htm

Exhibit 10.1

Execution Version

* THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITEIS EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT OT SELECTED PORTIONS OF THIS EXHIBIT.  ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.  OMITTED PORTIONS ARE INDICATED BY “[**REDACTED**]”.

 

OMNIBUS AGREEMENT

 

This Omnibus Agreement (“Agreement”), entered into as of the 10th day of March, 2011, is by and between Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“SES”), Seminole Gas Company, L.L.C., an Oklahoma limited liability company (“SGC”), Magnum Hunter Resources Corporation, a Delaware corporation (“MHR”), NGAS Production Co., a Kentucky corporation (formerly known as Daugherty Petroleum, Inc.) (“NPC”), NGAS Gathering, LLC, a Kentucky limited liability company (“NGL”), NGAS Gathering II, LLC, a Kentucky limited liability company (“NNG”), and NGAS Resources, Inc., a British Columbia corporation (“NGAS”).  Each of the companies executing this Amendment may be referred to herein as a “Party,” and they may be collectively referred to herein as the “Parties”.

RECITALS

 

A.           WHEREAS, SES, NGL, NPC, and NNG entered into that certain Asset Purchase Agreement, dated as of May 11, 2009, as amended (as amended, the “APA”), pursuant to which NGL and NPC (i) sold and conveyed an undivided fifty percent (50%) interest in the gathering systems and related assets described therein (the “Gathering Assets”) to SES’s wholly-owned subsidiary, SGC; and (ii) contributed an undivided fifty percent (50%) interest in the Gathering Assets to NNG (SGC and NNG are sometimes collectively referred to herein as the “Gathering Asset Owners”); and

 

B.           WHEREAS, pursuant to that certain Option Agreement, dated as of July 15, 2009, SES acquired all of the membership interests in NNG (the “NNG Membership Interests”); and

 

C.           WHEREAS, as partial payment for the NNG Membership Interests, SES, as Obligor, executed and delivered to NPC, as Payee, that certain NGAS Option Promissory Note, dated August 17, 2009 (the “Note”); and

 

D.           WHEREAS, in connection with the purchase and sale of the Gathering Assets, the Parties entered into certain agreements, including the following (collectively, the “Applicable Agreements”):

 

1.           Gas Gathering Agreement between NNG, SGC and SES, dated effective July 15, 2009 (as amended, the “Gathering Agreement”);

 

  

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2.           DPI Operating and Maintenance Agreement between SES and NPC, dated July 15, 2009 (as amended, the “NPC Operating Agreement”);

 

3.           SES Operating and Maintenance Agreement between SES, as Contract Operator, and SGC and NNG, dated July 15, 2009 (as amended, the “SES Operating Agreement”);

 

4.           Base Contract for Sale and Purchase of Natural Gas between SES and NPC, dated July 15, 2009 (together with the special provisions thereto, as amended, the “NAESB Purchase Agreement”); and

 

5.           Master Netting and Setoff Agreement among SES, SGC, NPC, NNG, and NGL, dated July 15, 2009 (as amended, the “Netting Agreement”).

 

E.           WHEREAS, MHR and NGAS have entered into that certain Arrangement Agreement, dated December 23, 2010 (“Arrangement Agreement”), pursuant to which MHR has agreed to purchase all of the shares of NGAS (the “NGAS Acquisition”).

 

F.           WHEREAS, in connection with the NGAS Acquisition, effective as of the Effective Date, the Parties have entered into amendments of certain of the Applicable Agreements (collectively, the “Amendments”), as follows:  (i) First Amendment of Master Netting Agreement in the form attached as Exhibit A hereto; (ii) Second Amendment of Gas Gathering Agreement in the form attached as Exhibit B hereto; (iii) First Amendment to DPI Operating and Maintenance Agreement in the form attached as Exhibit C hereto; (iv) First Amendment to SES Operating and Maintenance Agreement in the form attached as Exhibit D hereto; and (v) First Amendment to NAESB Purchase Agreement in the form attached as Exhibit E hereto.

 

G.           WHEREAS, also in connection with the NGAS Acquisition, the Parties desire to enter into the additional agreements set out herein.

 

NOW, THEREFORE, for and in consideration of the mutual covenants herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

	
1.

	
Certain Definitions.  As used herein, the following words and terms shall have the meanings indicated:

 

	
  

	
a.

	
“Affiliates” has the meaning set forth in the NAESB Purchase Agreement.

 

	
  

	
b.

	
“Claims” means all direct or indirect, demands, claims, notices of violation, actions, causes of action, suits, proceedings, judgments, assessments, damages, deficiencies, taxes, penalties, fines, liabilities, payments, charges, costs, and expenses of any kind or character, (whether known or unknown, accrued, absolute, contingent, or otherwise), including, without limitation, penalties and interest on any amount payable as a result of any of the foregoing, any legal or other costs and expenses incurred in connection with investigating or defending any Claim, and all amounts paid in settlement of any Claim.

 

  

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c.

	
“Closing” has the meaning set forth in the Arrangement Agreement.

 

	
  

	
d.

	
“Closing Date” means the date on which Closing occurs.

 

	
  

	
e.

	
“Effective Date” means the first day of the month following the date on which Closing occurs, so long as Closing occurs on or before April 15, 2011.  In the event Closing occurs after April 15, 2011, the Effective Date shall be the Closing Date.

 

	
  

	
f.

	
“Gathering Fees” has the meaning set forth in the Gathering Agreement, as amended.

 

	
  

	
g.

	
“Marcellus Gas Processing Plant” means MHR’s planned Marcellus midstream gas processing plant, as more fully described in Exhibit F-1.

 

	
  

	
h.

	
“MHR Entities” means, collectively, MHR, NGAS, NPC and NGL.

 

	
  

	
i.

	
“NGAS Lender Group” means the “Lenders” as defined in, and pursuant to, that certain Amended and Restated Credit Agreement, dated May 30, 2008, between NGAS, as Borrower, and Key Bank National Association as Administrative Agent for the Lenders and the Lenders Party thereto, as amended.

 

	
  

	
j.

	
“Seminole Agreements” means any of the Applicable Agreements pursuant to which at least one of the MHR Entities is not a party thereto, including, the Gathering Agreement and the SES Operating Agreement.

 

	
  

	
k.

	
“Seminole Parties” means SES, SGC and NNG, collectively.

 

	
2.

	
Amendments.  Simultaneously and concurrently with the execution of this Agreement, the Parties shall enter into and execute the Amendments which shall be effective as of the Effective Date.

 

	
3.

	
Applicable Agreements.  Each of the Seminole Parties hereby agrees that after the date hereof and for so long after the Closing Date as MHR continues to own, directly or indirectly, fifty percent (50%) or more of the voting shares or other equity interests of each of the other MHR Entities unless any of the MHR Entities are liquidated or reorganized into an Affiliate of MHR, no modification or amendment will be made to any of the Seminole Agreements, except as contemplated by the Amendments, without the prior written consent of MHR, which may not be unreasonably withheld.  In the event that the Seminole Parties make any modification or amendment to the Seminole Agreements without MHR’s prior written consent, the MHR Entities shall be entitled to terminate all (but not less than all) of the Applicable Agreements to which any MHR Entity is a party, without penalty, notwithstanding any contrary provision in the Applicable Agreements.  MHR shall also be entitled to specific performance and injunctive relief or any other legal or equitable relief as a remedy for any such breach.

 

  

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4.

	
Cash Consideration.

 

	
  

	
a.

	
As additional consideration for the Seminole Parties’ entry into the Amendments, at and subject to the occurrence of the Closing, MHR shall pay SES the sum of Ten Million Two Hundred Seventy Five Thousand Dollars ($10,275,000.00) (the “Additional Cash Consideration”).  The Additional Cash Consideration shall be payable, at MHR’s sole discretion, in cash or shares of restricted common stock of MHR (the “Common Stock”), or any combination thereof.  MHR shall notify the Seminole Parties at least three (3) business days prior to the Closing Date of the portion of the Additional Cash Consideration, if any, to be paid in cash, and the portion of the Additional Cash Consideration, if any, to be paid in shares of Common Stock.  In the event MHR elects to pay all or any portion of the Additional Cash Consideration in shares of Common Stock, such stock shall be valued as of the volume weighted average price of the ordinary shares of MHR Common Stock as traded on the New York Stock Exchange (“NYSE”) over the period of twenty (20) consecutive trading days ending on the trading day preceding the Closing Date.

 

	
  

	
b.

	
Promptly after the Closing, MHR shall file a resale registration statement (the “Resale Registration Statement”) covering the shares of Common Stock issued to SES as satisfaction of the Additional Cash Consideration.  MHR shall use commercially reasonable efforts to cause the Resale Registration Statement to be declared effective by the Securities and Exchange Commission (the “SEC”) as promptly as practicable thereafter.  MHR shall keep the Resale Registration Statement effective until the earlier to occur of the following events: (i) the Seminole Parties have transferred or sold to third parties all of the shares of Common Stock issued as satisfaction of the Additional Cash Consideration or (ii) the 180th day following the Closing Date.

 

	
  

	
c.

	
SES represents and warrants to MHR that the statements and matters set out in this Section 4(c) are true and correct as of the date hereof and as of the Closing Date:

 

	
  

	
i.

	
Investment Intent:  SES is acquiring the Common Stock for its own account and not with a view to the sale or distribution thereof in violation of the Securities Act of 1933, as amended (the “Securities Act”), the rules and regulations thereunder, any applicable state blue sky laws, or any other securities laws. SES acknowledges that such Common Stock has not been registered under the Securities Act or laws and that the following legend may be placed on such Common Stock:

 

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL (WHICH OPINION AND COUNSEL ARE REASONABLY SATISFACTORY TO THE ISSUER) TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

 

  

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ii.

	
Independent Investigation.  SES is (or its advisor is) experienced and knowledgeable in the oil and gas business and aware of the risks of that business, including the risks relating to an investment in Common Stock of MHR.  SES has conducted its own independent review and analysis of MHR and such Common Stock and acknowledges that SES has satisfactory access to information about MHR.  In entering into this Agreement, SES has relied solely upon its own investigation and analysis and the representations, warranties and covenants of MHR as set forth in this Agreement, and SES:

 

	
  

	
1)

	
acknowledges and agrees that SES has not been induced by and has not relied upon any representations, warranties or statements, whether express or implied, made by MHR or any of its directors, officers, shareholders, employees, affiliates, controlling persons, agents, advisors or representatives that are not expressly set forth in this Agreement or the Applicable Agreements, whether or not any such representations, warranties or statements were made in writing or orally; and

 

	
  

	
2)

	
acknowledges and agrees that neither MHR nor any of its directors, officers, shareholders, employees, affiliates, controlling persons, agents, advisors or representatives make or have made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided to SES or its directors, officers, employees, affiliates, controlling persons, agents or representatives.

 

	
5.

	
Note Receivable.

 

	
  

	
a.

	
Subject to receipt of the consent of the NGAS Lender Group (the “Lender Consent”), which NGAS shall use commercially reasonable efforts to obtain, but at no cost or expense to NGAS, NPC shall defer all payments of principal and interest due under the Note with respect to the period between January 1, 2011 through the earlier of the (i) Closing Date or (ii) Termination Event (as defined in Section 10 herein) (the “Deferral Period”) (such deferred principal and interest being referred to herein as the “Deferred Amount”).  In the event the Lender Consent is not obtained prior to Closing, then within one (1) business day following the Closing Date, NPC shall reimburse SES, by wire transfer of immediately available funds, for all amounts paid by SES under the Note during the Deferral Period.  At and subject to the occurrence of Closing, NPC shall cancel, and forgive any and all outstanding amounts under, the Note.

 

  

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b.

	
If a Termination Event occurs, then the entire Deferred Amount shall be paid by SES to NPC by wire transfer of immediately available funds within two (2) business days after such event.

 

	
6.

	
Drilling Commitment.

 

	
  

	
a.

	
Subject to the occurrence of Closing, MHR and NGAS agree that they shall cause MHR, NPC and their respective Affiliates, to spend, in the aggregate, a minimum of $20 million (net of general, administrative, and supervision costs) during the remainder of calendar year 2011 subsequent to Closing and a minimum of $20 million (net of general, administrative, and supervision costs) during calendar year 2012 on commencing drilling and the actual completing of new horizontal gas wells during each such calendar year, on the Committed Reserve Area, as defined in the NAESB Purchase Agreement (including operations to rework, sidetrack, deepen, recomplete or plug back such new horizontal gas wells) (“New Well Drilling Expenditures”).  In the event drilling commences on a new horizontal gas well in either calendar year 2011 or calendar year 2012 and such well is actually completed in the first sixty (60) days of calendar year 2012 or the first forty-five (45) days of calendar year 2013, the costs of the actual drilling and completing of such well shall be credited to the minimum of the applicable calendar year and captured in the applicable Annual Statement described below.  Further, credit against the 2011 minimum will also be provided for the cost of the actual drilling and completing of new horizontal gas wells by MHR, NPC and their respective Affiliates during calendar year 2011, but prior to Closing, where the drilling activity on a well commenced on or after January 1, 2011 and where prior to Closing SES receives a schedule and supporting documentation (including, but not limited to third party invoices), together with a certification by an authorized officer, of the actual out of pocket costs for drilling and completing of such new horizontal gas as of Closing.  For the avoidance of doubt and notwithstanding the completion date, in no event shall such new horizontal gas wells be considered “Existing Wells” as such term defined in the Gathering Agreement.

 

	
  

	
b.

	
Within ninety (90) days after the end of calendar year 2011 and seventy-five (75) days after the end of calendar year 2012, MHR shall provide SES with a statement of the total New Well Drilling Expenditures by MHR, NPC and its Affiliates during such year (“Annual Statement”).  For each year in which such New Well Drilling Expenditures are less than $20 million, within ninety (90) days after the end of calendar year 2011 and seventy-five (75) days after the end of calendar year 2012, MHR shall pay to SES, by wire transfer of immediately available funds, as the Seminole Parties’ sole and exclusive remedy, an amount equal to the product of (i) the difference between $20 million and actual New Well Drilling Expenditures during such year and (ii) fifteen percent (15.0%).

 

	
  

	
c.

	
MHR shall, for two (2) years after the end of each such calendar year, maintain records and other evidence sufficient to accurately and properly reflect the New Well Drilling Expenditures.  Upon not less than five (5) business days’ prior notice to MHR, SES and its representative shall have access to such records in the applicable offices of MHR or its affiliates during MHR’s normal business hours, including the right to make copies thereof at SES’s expense, for the purpose of auditing and verifying the accuracy of any Annual Statement.  Any such audits performed by or on behalf of SES shall be at SES’s sole cost and expense.

 

  

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7.

	
Purchase Option.

 

	
  

	
a.

	
Plant Ownership.  As of the date of the execution of this Agreement, MHR owns one hundred percent (100%) of the rights to the Marcellus Gas Processing Plant when such Plant is constructed, delivered and placed into service.  As of the date of this Agreement, no site has been selected for the Marcellus Gas Processing Plant or such other equipment and appurtenances used or obtained in connection therewith, no arrangements for natural gas liquids storage and logistics have been finalized, and no interconnection with a downstream pipeline(s) for takeaway of residue natural gas has been finalized.

 

	
  

	
b.

	
Purchase Option.  MHR hereby grants to SES the option to purchase an undivided fifty percent (50%) interest in the Marcellus Gas Processing Plant (the “Option”).  The Option shall expire at 5:00 pm Central Time on April 15, 2011 (the “Option Termination Date”).  No less than five (5) business days prior to the Option Termination Date, MHR shall deliver to SES a draft settlement statement setting out the fee (the “Option Fee”) which shall be an amount equal to 50% of the actual out of pocket costs and expenses incurred by MHR or its Affiliates as of that date, directly relating to the acquisition, construction, design and installation of the Marcellus Gas Processing Plant, including, without limitation, land acquisition costs, associated equipment costs, broker’s fees, consultant fees, design costs, and engineering, procurement, installation and construction costs (collectively, “Plant Costs”); provided, that in no event, shall the foregoing actual out of pocket costs and expenses, including, but not limited to land acquisition costs, include any costs associated with the acquisition of any mineral interests.  Within five (5) business day following execution of this Agreement, MHR shall provide SES a preliminary draft settlement statement setting forth the estimated Option Fee, including the Plant Costs incurred as of the execution of this Agreement.  In the event SES elects, in its sole discretion, not to exercise the Option, then MHR shall pay to SES $300,000.00 by wire transfer in immediately available funds within ten (10) business days following the earlier of (i) receipt by MHR of written notice of such election or (ii) the Option Termination Date; provided, however, MHR shall not be obligated to make such $300,000.00 payment unless and until either (a) the Closing Date or (b) a Termination Event (as defined in Section 10 hereof) shall have occurred due to a material breach of MHR's representations and warranties or covenants under the Arrangement Agreement.

 

  

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c.

	
Option Exercise.  SES may exercise the Option (i) if SES and MHR have agreed in writing on the principal terms of an operating and ownership agreement, which will address the parties’ respective rights, obligations, liabilities and duties with regard to the operation and ownership of the Marcellus Gas Processing Plant and pursuant to the general terms described below (the “Joint Plant Agreement”) and (ii) by giving MHR written notice of exercise of the Option prior to the Option Termination Date.  In the event SES exercises the Option, closing with respect thereto (the “Option Closing”) shall be subject to the occurrence of the Closing and shall occur at the offices of MHR, 777 Post Oak Blvd., Suite 650, Houston, Texas 77056 on the later to occur of (i) the Closing Date; or (ii) a mutually agreed date and time within five (5) business days following SES’s exercise of the Option.  At the Option Closing, (i) MHR shall provide a revised settlement statement setting out the Option Fee which shall be an amount equal to 50% of the Plant Costs incurred through the Option Closing, (ii) SES shall deliver to MHR such Option Fee by wire transfer of immediately available funds, (iii) MHR shall deliver to SES an assignment, bill of sale and conveyance assigning to SES or its designee an undivided fifty percent (50%) interest in the Marcellus Gas Processing Plant, together with all real property, equipment, fixtures, facilities and other property, whether real, personal or mixed, used or held for use in connection therewith, such assignment to be substantially in the form attached hereto as Exhibit G., and (iv) MHR and SGC shall enter into the Joint Plant Agreement.  MHR shall warrant title to the assigned interest to be free of liens, claims and encumbrances arising by, through or under MHR, but not otherwise, but SES shall have full rights of substitution and subrogation into fifty percent (50%) of all warranties previously given to MHR with respect to the Marcellus Gas Processing Plant.  The Joint Plant Agreement shall (i) designate MHR or one of its Affiliates as operator of the Marcellus Gas Processing Plant (ii) provide that MHR shall have sole discretion in making decisions concerning all material matters related to the Marcellus Gas Processing Plant, including but not limited to selecting the site location, plant design, natural gas liquids storage and logistics, and downstream pipeline interconnections, although MHR will consider SES’s input in making decisions on such matters, and (iii) provide that SES shall bear 50% of the Plant Costs incurred after the Option Closing.

 

	
  

	
d.

	
Due Diligence.  During the period between the date hereof and the Option Termination Date (the “Due Diligence Period”), MHR shall afford to SES and its authorized representatives reasonable access during MHR’s normal business hours to MHR’s personnel and all books and records of MHR relating to the Marcellus Gas Processing Plant (the “Plant Records”), including, without limitation, land and title record plats, engineering and feasibility studies, reports and plans, design specifications, piping and instrumentation diagrams, mechanical records, permitting, environmental, construction, and the other books and records described in Exhibit F-2 attached hereto, only to the extent the Plant Records have been prepared by or provided to MHR, including the right to make copies thereof, in order for SES to evaluate whether to exercise the Option.  If SES does not exercise the Option for any reason, it shall return all Plant Records to MHR within three (3) days of the Option Termination Date.  In addition, subject to MHR’s access rights, MHR shall grant SES, to the extent permitted, access to the Marcellus Gas Processing Plant in order that SES may conduct an in-person inspection thereof.  SES may not, without the prior written consent of MHR, conduct any borings or any other invasive tests or examinations with respect to the Marcellus Gas Processing Plant.  SES shall provide MHR at least forty-eight (48) hours’ prior notice of any such inspection, and MHR’s representative(s) shall have the right to witness all such inspections.

 

  

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e.

	
Indemnification.  SES SHALL RELEASE and INDEMNIFY and SHALL DEFEND AND HOLD HARMLESS MHR and its affiliates and their respective employees, agents, representatives, contractors, successors, and assigns from and against any and all Claims arising from SES’s pre-Closing inspection of the Marcellus Gas Processing Plant, including Claims for personal injuries to or death of any person or damage to the property of any person, except to the extent such Claims arise from the gross negligence or willful misconduct of MHR or its employees, agents, representatives, contractors, or consultants.

 

	
8.

	
Non-Economic Conditions; Termination.  For purposes of this Agreement, a “Non-Economic Condition” shall be deemed to exist if over any one year period after the Effective Date the actual and documented operating expenses (excluding overhead, except for overhead to SES by NPC charged under the NPC Operating Agreement) incurred by the Gathering Asset Owners in connection with the operation of the Gathering Assets, insofar and only insofar as such expenses are allocable to NPC and its Affiliates, exceeds the sum of all Gathering Fees, other fees and expense reimbursements received by the Gathering Asset Owners under the Applicable Agreements.  In the event of a Non-Economic Condition and the Seminole Parties’ belief that such Non-Economic Condition shall continue, the Seminole Parties may notify the other Parties of the Non-Economic Condition (such notice being referred to herein as a “Notice of Non-Economic Condition”) and request amendments of the Applicable Agreements in order to eliminate the Non-Economic Condition.  The Seminole Parties may not deliver more than one (1) Notice of Non-Economic Condition per year.  Within thirty (30) days after receipt of a Notice of Non-Economic Condition, MHR Parties may request, and upon receipt of such request, the Seminole Parties shall provide the MHR Parties such information as may be reasonably requested by the MHR Parties so that such MHR Parties may evaluate the Seminole Parties’ claim of Non-Economic Condition (the “Information”).  MHR shall have thirty (30) days after receipt of the Information to provide to SES a written notice of MHR’s objection to the Seminole Parties’ determination of a Non-Economic Condition (the “Notice of Objection”).  If MHR timely submits a Notice of Objection, the Parties shall proceed under Section 8(a) below, and if MHR fails to timely submit a Notice of Objection, the Parties shall proceed under Section 8(b) below.

 

	
  

	
a.

	
During the thirty (30) day period following SES’s receipt of the Notice of Objection, the Parties shall attempt in good faith to resolve any differences with respect to the Seminole Parties’ determination of a Non-Economic Condition, including, to the extent applicable, good faith negotiations to amend any of the Applicable Agreements.  If the Parties are unable to fully resolve such differences within such time period, the Parties shall submit the dispute to Grant Thornton LLP or such other independent accounting firm upon which the Parties mutually agree, for resolution.  Promptly, but not less than twenty (20) days after submission to it of the dispute, the independent accounting firm will determine those matters in dispute and will render a written report as to the disputed matters and the resulting conclusion supporting or rejecting the Seminole Parties’ determination of a Non-Economic Condition (the “Report”), which Report shall be conclusive and binding upon the Parties.  The fees and expenses of the independent accounting firm shall be paid one-half by SES and one-half by MHR.  The Parties shall fully cooperate with the independent accounting firm, including the prompt submission of any information and documents reasonably requested by such firm to render the Report.  If the Report supports the Seminole Parties’ determination of a Non-Economic Condition, for a period of thirty (30) days following receipt thereof, the Parties shall negotiate in good faith to reach agreement regarding amendments of the Applicable Agreements to address the Non-Economic Condition (the “Disputed Renegotiation Period”).

 

  

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b.

	
During the thirty (30) day period following receipt of the Information, the Parties shall negotiate in good faith to reach agreement regarding amendments of the Applicable Agreements to address the Non-Economic Condition (the “Renegotiation Period”).

 

	
  

	
c.

	
If, as applicable, the Parties do not enter into written amendments of one or more of the Applicable Agreements during the Renegotiation Period under Section 8(b) or the Disputed Renegotiation Period under Section 8(a) to address the Non-Economic Condition then, notwithstanding any provision of any of the Applicable Agreements, the Seminole Parties may, upon thirty (30) days’ prior written notice to the other Parties (such notice to be delivered no later than within thirty (30) days after the end of the Renegotiation Period or Disputed Renegotiation Period), terminate all (but not less than all) of the Applicable Agreements (the “Non-Economic Termination”).  To the extent applicable, if the Report rejects the Seminole Parties’ determination of a Non-Economic Condition under Section 8(a), the Applicable Agreements shall continue in full force and effect.  In the event of a Non-Economic Termination any of the MHR Entities’ obligations under Section 6 of this Agreement shall immediately terminate.

 

	
9.

	
Indemnity.  MHR shall indemnify, defend and hold each of the Seminole Parties and their respective shareholders, members, officers, directors, managers, employees, agents, representatives, contractors, successors, and assigns, harmless from and against all Claims asserted by third parties arising from or related to the Arrangement Agreement or any of the MHR Entities’ operations or activities after the Effective Date under, or relating to, any of the Applicable Agreements.  Notwithstanding the foregoing, if any of the Applicable Agreements provide that the Seminole Parties shall indemnify any of the MHR Entities for any reason such provision shall not be deemed to be superseded by any provision of this Agreement.

 

	
10.

	
Termination.  In the event (a) the Arrangement Agreement is terminated prior to Closing, or (b) Closing has not occurred by April 30, 2011 (each, a “Termination Event”), then, except for the provisions of Section 5, Section 7(d) and Section 11 hereof, which shall survive the Termination Event, this Agreement and each of the Amendments shall be void and of no force and effect, and no Party shall have any obligation or liability hereunder.  In the event a Termination Event occurs due to a material breach by MHR of its representations and warranties or covenants under the Arrangement Agreement, then, in consideration of the investment of time, effort and expense by the Seminole Parties in the negotiation of, and due diligence in connection with, this Agreement and the Amendments, MHR shall pay to SES its reasonable, properly documented out of pocket costs and expenses, including legal fees, incurred in connection with the negotiation, preparation and execution of this Agreement and the Amendments (the “Transaction Expenses”).  The Seminole Parties agree that upon receipt of the Transaction Expenses, MHR shall have no further obligation or liability hereunder and the Seminole Parties shall not be entitled to any additional legal or equitable remedy under this Agreement as a result of such Termination Event or otherwise.

 

  

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11.

	
Confidentiality.  To the extent not already in the public domain through no fault or breach of the terms of this Agreement by the Seminole Parties, all information furnished by MHR to SES in connection with this Agreement and in the course of its due diligence examination of the Marcellus Gas Processing Plant, including without limitation the Plant Records and the results of SES’s due diligence with respect to environmental matters (collectively, the “Confidential Information”) shall be confidential property of MHR and shall not be shared, exhibited or divulged to third parties without MHR’s prior written consent, except to the extent disclosure is required by law.  The Confidential Information may be disclosed to SES’s affiliates and SES’s and its affiliates’ respective consultants, attorneys, lenders and other representatives, only to the extent such disclosure is reasonably necessary in order to consummate the transactions contemplated by this Agreement, provided that such persons and entities are bound by this provision.

 

	
12.

	
Press Releases; Announcements.  The initial press release with respect to the execution of this Agreement shall be issued by MHR in a form to be reasonably agreed upon by MHR and the Seminole Parties.  Thereafter, neither Party shall issue or cause the publication of any press release or other public announcement or make any other disclosure with respect to this Agreement, the terms hereof or the transactions contemplated hereby without the prior consent of the other Party (which consent shall not be unreasonably withheld or delayed), except (i) as contemplated by the terms of this Agreement and to perform any actions permitted hereunder, or (ii) as may be required by Law or by any applicable listing agreement with a national securities exchange as determined in the good faith judgment of the Party proposing to make such release (in which case, such Party shall not issue or cause the publication of such press release or other public announcement without prior consultation with the other Party, to the extent practicable).  Notwithstanding anything contained herein to the contrary, any of the MHR Entities may disclose the terms of this Agreement and the transactions contemplated thereby in connection with any required filing under the Securities and Exchange Act of 1934, as amended, and in the proxy statement to be distributed to the NGAS shareholders as contemplated by the Arrangement Agreement.  MHR shall be responsible for any breach of this Section 12 by any of the MHR Entities.

 

  

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13.

	
Miscellaneous Provisions.

 

	
  

	
a.

	
Amendment.  No modification or amendment of this Agreement shall be effective unless such modification or amendment shall be set forth in writing and executed by all of the Parties hereto.

 

	
  

	
b.

	
Waivers.  The failure of any Party to exercise any of its rights under this Agreement shall in no way constitute a waiver of those rights, nor shall such failure excuse the other Parties from any of its obligations under this Agreement.

 

	
  

	
c.

	
Notices.  All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and shall be delivered personally (including by courier), sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid.  Any such notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, when transmitted, or, if mailed, two business days (a business day being any day as which commercial banks are open in Tulsa, Oklahoma, other than Saturday and Sunday), after the date of deposit in the United States mail, and addressed as set forth below or to such other Person or address as each Party may from time to time designate by notice to the other Party:

 

If to the MHR Entities to:

Magnum Hunter Resources Corporation

777 Post Oak Blvd, Suite 650

Houston, Texas 77056

Attention:  Paul M. Johnston, Senior Vice President and General Counsel

Facsimile No.:  (832) 369-6992

If to the Seminole Parties, to:

Seminole Energy Services, LLC

1323 E. 71st Street

Suite 300

Tulsa, Oklahoma

Attention:  Alex Goldberg

Facsimile No.:  (918) 858-4812

A Party may from time to time change its address or designees for notification purposes by giving the other Party prior notice in the manner specified above of the new address or the new designee and the subsequent date upon which the change shall be effective.

 

	
  

	
d.

	
Severability.  If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by applicable law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect to the maximum extent permitted by applicable law.

 

  

12

  

 

	
  

	
e.

	
Entire Agreement.  This Agreement and the Amendments (and all exhibits hereto and thereto) constitute the entire agreement between the Parties hereto and supersedes all prior agreements, promises, correspondence, discussions, representations and understandings with regard to the subject matter hereof, except those expressly set forth herein or therein.  In the event of any conflict or inconsistency between this Agreement and the Applicable Agreements, this Agreement shall govern and control except to the extent provided in Section 9 of this Agreement.  Further, the Parties agree and acknowledge that there are no other agreements between any of the Parties hereto which require any modifications or amendments.

 

	
  

	
f.

	
Third Parties.  This Agreement shall not be construed to confer any benefit on any third party not a party to this Agreement nor shall it provide any rights to such third party to enforce its provisions.

 

	
  

	
g.

	
Binding Effect.  Neither this Agreement nor any of the rights, interests or obligations of the Parties hereunder shall be assigned by any of the Parties hereto (whether by operation of law or otherwise) without the prior written consent of each of the other Parties hereto, and any attempt to make any such assignment without such consent shall be null and void.  Subject to the preceding sentence, this Agreement shall extend to and be binding upon the Parties hereto and their respective successors and permitted assigns.

 

	
  

	
h.

	
Further Assurances.  Each Party shall, at the request of any other Party, at any time and from time to time following the Closing promptly execute and deliver, or cause to be executed and delivered, to such requesting Party all such further instruments and take all such further actions as may be reasonably necessary or appropriate to consummate the transactions contemplated herein.

 

	
  

	
i.

	
Counterparts.  This Agreement may be executed in multiple counterparts (including, without limitation, faxed and electronic counterparts), each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

 

	
  

	
j.

	
Rules of Construction.

 

	
  

	
i.

	
All section, titles or captions contained in this Agreement or in any Schedule or Exhibit annexed hereto or referred to herein, are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement.

 

	
  

	
ii.

	
The Parties hereto represent that in the negotiation and drafting of this Agreement they have been represented by and relied upon the advice of counsel of their choice.  The Parties affirm that their counsel have had a substantial role in the drafting and negotiation of this Agreement and, therefore, the rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any Schedule or Exhibit attached hereto.

 

  

13

  

 

	
  

	
k.

	
Relationship of the Parties.  Nothing in this Agreement shall create or be deemed to create a partnership, joint venture, agency, or similar association or relationship among the parties.

 

	
  

	
l.

	
Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of Texas, without regard to such State’s conflict of laws rules.

 

[Signature Pages Follow]

 

  

14

  

 

IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the Parties as of the date first above written.

 

	 	
SEMINOLE ENERGY SERVICES, L.L.C.

	 	  	 	  
	 	  	 	  
	 	
By: 

	/s/ Robert B. Rosene, Jr.
	 	
Name:

	 	
Robert B. Rosene, Jr.

	 	
Title:

	 	
President

	 	  	 	  
	 	  	 	  
	 	
SEMINOLE GAS COMPANY, L.L.C.

	 	  	 	  
	 	  	 	  
	 	
By: 

	/s/ Robert B. Rosene, Jr.
	 	
Name:

	 	
Robert B. Rosene, Jr.

	 	
Title:

	 	
President

	 	  	 	  
	 	  	 	  
	 	
NGAS GATHERING II, LLC

	 	  	 	  
	 	  	 	  
	 	
By: 

	/s/ Robert B. Rosene, Jr.
	 	
Name:

	 	
Robert B. Rosene, Jr.

	 	
Title:

	 	
President

	 	  	 	  
	 	  	 	  
	 	
MAGNUM HUNTER RESOURCES CORPORATION

	 	  	 	  
	 	  	 	  
	 	
By: 

	/s/ Ronald D. Ormand
	 	
Name:

	 	
Ronald D. Ormand

	 	
Title:

	 	
Executive Vice President and

	 	  	 	
Chief Financial Officer

	 	  	 	  
	 	  	 	  
	 	
NGAS RESOURCES, INC.

	 	  	 	  
	 	  	 	  
	 	
By: 

	/s/ William S. Daugherty
	 	
Name: 

	 	William S. Daugherty
	 	
Title:

	 	
Chief Executive Officer

	 	  	 	  

 

 

  

15

  

 

	 	  	 	  
	 	
NGAS PRODUCTION CO.

	 	  	 	  
	 	  	 	  
	 	
By: 

	/s/ William G. Barr, III
	 	
Name:

	 	
William G. Barr, III

	 	
Title: 

	 	Executive Vice President
	 	  	 	  
	 	  	 	  
	 	
NGAS GATHERING, LLC

	 	  	 	  
	 	  	 	  
	 	
By:

	/s/ William G. Barr, III
	 	
Name:

	 	
William G. Barr, III

	 	
Title: 

	 	Executive Vice President

 

  

16

  

 

EXHIBIT A

 

FIRST AMENDMENT

TO

MASTER NETTING AND SETOFF AGREEMENT

 

This FIRST AMENDMENT TO MASTER NETTING AND SETOFF AGREEMENT (this “Amendment”) is entered into as of the 10th day of March, 2011, by and among Seminole Energy Services L.L.C., an Oklahoma limited liability company (“SES”), Seminole Gas Company, L.L.C., an Oklahoma limited liability company (“SGC”), NGAS Gathering II, LLC, a Kentucky limited liability company (“New NGAS Gathering”), Magnum Hunter Resources Corporation, a Delaware corporation (“MHR”), NGAS Production Co., a Kentucky corporation (formerly known as Daugherty Petroleum, Inc.) (“NPC”), on behalf of itself and the other DPI Producers, and NGAS Gathering, LLC, a Kentucky limited liability company (“NGL”)  Each of the companies executing this Amendment may be referred to as a “Party” or together as the “Parties”.

 

RECITALS

 

A.  Reference is made to that certain Master Netting and Setoff Agreement dated as of July 15, 2009, by and among the Seminole Companies and the NGAS Companies (the “Agreement”) pursuant to which the Parties provided for the netting and or set off against monies owed under any of the Underlying Agreements.

 

B.  MHR and NGAS Resources, Inc., a British Columbia corporation (“NGAS”) have entered into that certain Arrangement Agreement, dated December 23, 2010 (“Arrangement Agreement”), pursuant to which MHR has agreed to purchase all of the shares of NGAS (the “NGAS Acquisition”).

 

C.  In connection with the NGAS Acquisition, the Parties desire to amend the Agreement as set forth herein.

 

D.  All capitalized terms used herein but not otherwise defined herein shall have the meanings attributed to them in the Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

AGREEMENT

 

1.  Certain Definitions.  As used herein, the following words and terms shall have the meanings indicated:

 

(i)  “Closing” has the meaning set forth in the Arrangement Agreement.

 

(ii)  “Closing Date” means the date on which Closing occurs.

 

(iii)  “Effective Date” means the first day of the month following the date on which Closing occurs, so long as Closing occurs on or before April 15, 2011.  In the event Closing occurs after April 15, 2011, the Effective Date shall be the Closing Date.

 

First Amendment to Master Netting and Setoff Agreement

  

1

  

 

2.           Amendments.  As of the Effective Date, the Agreement is hereby amended as follows:

 

(i)  Each and every reference in the Agreement to Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”) or any reference of similar import or substance shall be deemed instead to be a reference to NGAS Production Co., a Kentucky corporation (“NPC”).

 

(ii)  The Preamble is hereby amended by amending and restating the antepenultimate and penultimate sentences to read as follows:

 

SES, SGC and New NGAS Gathering will hereinafter be referred to as the “Seminole Companies”.  MHR, NPC, NGAS and NGL will hereinafter be referred to as the “NGAS Companies”.

 

(iii)  The Recitals are hereby amended by relettering Recitals J, K and L as Recitals L, M and N, by adding new Recitals J and K and by amending and restating Recital L, each to read as follows:

 

J.  SGC AND NPC entered into that certain Joint Ownership Agreement dated September 14, 2007 and NPC, as producer, SGC and NPC, as owners and SGC, as manager entered into that certain Gas Processing Agreement dated September 14, 2007 (collectively, the “Rogersville Agreements”).

 

K.  MHR, NPC, NGL, New Gas Gathering, SES and SGC have entered into that certain Omnibus Agreement dated March 10, 2011 (the “Omnibus Agreement”).

 

L.  The Purchase Agreement, the NGAS Option Promissory Note, the SES Gathering Agreement, the NAESB Purchase Agreement, the Joint Ownership Agreement, the SES Operating Agreement, the DPI Operating Agreement, the Kay Jay ROFR, the Seller Parent Guaranty, the Forward Sales Agreement (as defined in the NAESB Purchase Agreement), the Rogersville Agreements, the Omnibus Agreement and all of the other Ancillary Agreements (as defined in the Purchase Agreement) are hereafter referred to herein as the “Underlying Agreements”.

 

(iv)  Article 1 is hereby amended by amending and restating the definition of the term “Excluded Netting Agreements” as set forth below:

 

“Excluded Netting Agreements” means and includes the following agreements and commitments:

 

First Amendment to Master Netting and Setoff Agreement

  

2

  

 

(i) Olive Grove Gathering and Treatment Agreement dated effective July 1, 2008 by and among: NGAS Production Co. (“NPC”), as producer; Seminole Gas Company, L.L.C. and NPC, as owners; and Seminole Energy Services, LLC, as manger; and

 

(ii) any agreement relating to the operation and ownership of the Marcellus Gas Processing Plant or the Substitute Marcellus Gas Processing Plant (as such terms are defined in the Omnibus Agreement).

 

2.  Termination.  In the event (a) the Arrangement Agreement is terminated prior to Closing or (b) Closing has not occurred by April 30, 2011, then, notwithstanding any other provision hereof, this Amendment shall be void and of no force and effect, and no Party shall have any obligation or liability hereunder.

 

3.  Ratification:  Except as amended by this Amendment, all of the terms and provisions of the Agreement are hereby ratified and affirmed in all respects and are incorporated herein by reference.

 

4.  Entire Agreement.  The Agreement (and the Exhibits and Schedules thereto), as amended by this Amendment, constitutes the entire agreement of the parties with regard to the subject matter hereof and supersedes any prior oral or written agreements or understandings.

 

5.  Counterparts.  This Amendment may be executed in one or more counterparts (including faxed or electronic counterparts), all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts hereof have been signed by each of the Parties and delivered to the other Party.

 

6.  Joinder.  By executing and delivering this Amendment, MHR hereby agrees to become a party to the Agreement, and shall accept, be subject to and bound by, and comply with the terms, conditions and provisions of, the Agreement, and shall be entitled to the rights and benefits thereunder in the same manner as if it was an original signatory to the Agreement.

 

7.  Governing Law.  This Amendment shall be governed by and construed in accordance with the law of the State of New York, without regard to such state’s conflict of laws rules.

 

[Remainder of page intentionally left blank.]

 

First Amendment to Master Netting and Setoff Agreement

  

3

  

 

IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the Parties as of the date first above written.

 

 

  

	  	NGAS PRODUCTION CO., a Kentucky corporation, formerly known as Daugherty Petroleum, Inc., for itself and on behalf of the DPI Producers
	  	 	  
	  	 	  
	  	
By:

	
 

	  	
Name:

	
 

	  	Title:	
 

	  	 	  
	  	 	  
	  	 	  
	  	NGAS GATHERING, LLC. a Kentucky limited liability company
	  	 	  
	  	 	  
	  	
By:

	
 

	  	
Name:

	
 

	  	Title:	
 

	  	 	  
	  	 	  
	  	 	  
	  	
MAGNUM HUNTER RESOURCES CORPORATION, a Delaware corporation

	  	 	  
	  	 	  
	  	
By:

	
 

	  	
Name:

	
 

	  	Title:	
 

	 	 	 
	 	 	 

 

First Amendment to Master Netting and Setoff Agreement

  

4

  

 

 

	 	 	 
	  	NGAS GATHERING II, LLC, a Kentucky limited liability company
	  	 	  
	  	 	  
	  	
By:

	
 

	  	
Name:

	
 

	  	Title:	
 

	  	 	  
	  	 	  
	  	 	  
	  	SEMINOLE GAS COMPANY, L.L.C., an Oklahoma limited liability company
	  	 	  
	  	 	  
	  	
By:

	
 

	  	
Name:

	
 

	  	Title:	
 

	  	 	  
	  	 	  
	  	 	  
	  	SEMINOLE ENERGY SERVICES L.L.C., an Oklahoma limited liability company
	  	 	  
	  	 	  
	  	
By:

	
 

	  	
Name:

	
 

	  	Title:	
 

	  	 	  

First Amendment to Master Netting and Setoff Agreement

  

5

  

 

EXHIBIT B

 

SECOND AMENDMENT

TO

GAS GATHERING AGREEMENT

 

This SECOND AMENDMENT TO GAS GATHERING AGREEMENT (this “Amendment”) is entered into as of the 10th day of March, 2011, by and among (i) NGAS Gathering II, LLC, a Kentucky limited liability company (“NNG”) and Seminole Gas Company, L.L.C., an Oklahoma limited liability company (“Seminole”), (NNG and Seminole are referred to herein collectively as the “Gathering System Owners”) and (ii) Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“Shipper”).  Gathering System Owners and Shipper are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

 

RECITALS

 

A.  Reference is made to that certain Gas Gathering Agreement dated as of July 15, 2009, by and between Gathering System Owners and Shipper, as amended by that certain First Amendment to Gas Gathering Agreement dated as of January 9, 2010 (as amended, the “Agreement”) pursuant to which the Gathering System Owners provide gathering services for Shipper for volumes delivered to the Gathering System (as defined in the Agreement).

 

B.  Magnum Hunter Resources Corporation, a Delaware corporation (“MHR”) and NGAS Resources, Inc., a British Columbia corporation (“NGAS”) have entered into that certain Arrangement Agreement, dated December 23, 2010 (“Arrangement Agreement”), pursuant to which MHR has agreed to purchase all of the shares of NGAS (the “NGAS Acquisition”).

 

C.  In connection with the NGAS Acquisition, Gathering System Owners and Shipper desire to further amend the Agreement, as set forth herein, to among other things, provide for a variable rate gathering fee.

 

D.  All capitalized terms used herein but not otherwise defined herein shall have the meanings attributed to them in the Agreement.

 

NOW, THEREFORE, for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties hereby amend the Agreement and agree as follows:

 

1.           Certain Definitions.  As used herein, the following words and terms shall have the meanings indicated:

 

(i)  “Closing” has the meaning set forth in the Arrangement Agreement.

 

(ii)  “Closing Date” means the date on which Closing occurs.

 

(iii)  “Effective Date” means the first day of the month following the date on which Closing occurs, so long as Closing occurs on or before April 15, 2011.  In the event Closing occurs after April 15, 2011, the Effective Date shall be the Closing Date.

 

Second Amendment to Gas Gathering Agreement

  

1

  

 

(iv)  “Month or Monthly” means any whole or partial month, depending on the Effective Date.  Partial months shall be prorated in proportion to the actual number of days in the month so prorated.

 

2.  Amendments.  As of the Effective Date, the Agreement is hereby amended as follows:

 

(i)  Each and every reference in the Agreement to Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”) or any reference of similar import or substance shall be deemed instead to be a reference to NGAS Production Co., a Kentucky corporation (“NPC”).

 

(ii)  Article 1 is hereby amended by adding the following defined terms, each to read as follows:

 

“Affiliate” has the meaning provided in the NAESB Purchase Agreement.

 

“Applicable Agreements” has the meaning provided in the Omnibus Agreement.

 

“Base Year Operating Costs” means all costs of operating the Gathering System for all current volumes as February 1, 2011, incurred by the Gathering System Owners to operate, maintain, replace and repair the Gathering System; provided, that, such costs shall not include capitalized expenses and overhead of the Gathering System Owners.  Base Year Operating Costs shall be $1,495,200 for calendar Year 2011 as more particularly described in Exhibit C attached hereto.  The Base Year Operating Costs shall increase every calendar Year beginning in 2012 by the difference of the lesser of (x) the positive amount, if any, that the actual out-of-pocket costs (without capitalized expenses and overhead of the Gathering System Owners) incurred by Gathering System Owners to operate and maintain the Gathering System in the prior calendar Year which are not attributable to New Third Party Volumes are greater than the Base Year Operating Costs for the prior calendar Year or (y) the adjustment contemplated in Section 4.3(iii); provided that, after the expiration of the Primary Term of the NAESB Purchase Agreement, Base Year Operating Costs shall be the Base Year Operating Costs for the last Year of the Primary Term of the NAESB Purchase Agreement as long as the NAESB Purchase Agreement is in effect.  For the avoidance of doubt, the calculation of actual out-of-pocket costs in the foregoing clause (x) above expressly excludes (i) all fees payable to NPC under Section 14(a) of the NPC Operating Agreement and (ii) all fees payable to SES under Section 14(a) of the SES Operating Agreement.  In the event New Third Party Volumes are gathered on the Gathering System, then the producers of such New Third Party Volumes shall bear their share of the increased operating expenses and such expenses shall not be deemed to be part of the Base Year Operating Costs.

 

Second Amendment to Gas Gathering Agreement

  

2

  

 

“Committed Reserves” has the meaning provided in the NAESB Purchase Agreement.

 

“CPI-U Index” means the Consumer Price Index for All Urban Consumers, or its most comparable successor, as published by the U.S. Department of Labor, Bureau of Labor Statistics.

 

“Drilling Partnerships” means those partnerships of which NPC or any of its Affiliates is the general partner, which as of the date hereof are more particularly described in Exhibit E attached hereto.

 

“Existing Wells” means wells completed for production of Committed Reserves prior to the Second Amendment Effective Date, including any recompletion, plugging back, deepening or sidetracking thereof, more particularly described on Exhibit D attached hereto  The respective working interests of NPC and its Affiliates in the Existing Wells reflected in Exhibit D are subject to the acknowledgements, certifications and qualifications set forth in the Annex attached hereto and the Certification attached as Exhibit D-1 hereto, as delivered to the Parties by NPC upon the execution of this Amendment.

 

“Legacy JV Volumes” means those volumes produced from time to time from Existing Wells which are not attributable to Legacy NPC Corporate Volumes or Legacy LP Volumes.  For each month, the Legacy JV Volumes for each Existing Well shall be the product of (i) the monthly volume produced from such Existing Well multiplied by (ii) the corresponding Legacy JV Volumes working interest percentage for such Existing Well as shown on Exhibit D.

 

“Legacy LP Volumes” means those volumes produced from the Existing Wells which are attributable to (i) the interests of NPC in the Drilling Partnerships and (ii) the interests of all limited partners in the Drilling Partnerships.  For each month, the Legacy LP Volumes for each Existing Well shall be the product of (i) the monthly volume produced from such Existing Well multiplied by (ii) the corresponding Legacy LP Volumes working interest percentage for such Existing Well as shown on Exhibit D.

 

“Legacy NPC Corporate Volumes” means those volumes produced from time to time from the Existing Wells which are attributable to NPC; excluding volumes attributable to the Drilling Partnerships.  For each month, the Legacy NPC Corporate Volumes for each Existing Well shall be the product of (i) the monthly volume produced from such Existing Well multiplied by (ii) the corresponding Legacy NPC Corporate Volumes working interest percentage for such Existing Well as shown on Exhibit D.

 

Second Amendment to Gas Gathering Agreement

  

3

  

 

“MHR” means Magnum Hunter Resources Corporation, a Delaware corporation.

 

“Monthly Compression Fee” means, for each Month, the actual costs incurred by the Gathering System Owners in connection with the rental, maintenance and operation of compressors used in connection with the Gathering System, provided that such costs shall be reasonable.  To the extent the fees are similar to the fees described on Exhibit F attached hereto, such fees shall be deemed reasonable.

 

“New LP Volumes” means those volumes produced from time to time from the New Wells which are attributable to (i) the interests of NPC in the Drilling Partnerships and (ii) the interests of all limited partners in the Drilling Partnerships.

 

“New NPC Corporate Volumes” means those volumes produced from time to time from the New Wells which are not attributable to the Drilling Partnerships.

 

“New Third Party Volumes” means those volumes produced from time to time which are not attributable to MHR, NPC, its Affiliates or producers and their successors or assigns whose volumes are gathered on the Gathering System as of the Second Amendment Effective Date.

 

“New Wells” means (i) those wells completed for production of Committed Reserves on or after the Second Amendment Effective Date and (ii) any other well producing volumes attributable to the Committed Reserves which is not an Existing Well.

 

“NPC Operating Agreement” has the meaning provided in the Omnibus Agreement.

 

“Omnibus Agreement” means the Omnibus Agreement, dated March 10, 2011 by and between Shipper, Seminole, MHR, NPC,. NGAS, NGAS Gathering, LLC, a Kentucky limited liability company and NNG.

 

“Second Amendment Effective Date” means March 31, 2011.

 

“SES Operating Agreement” has the meaning provided in the Omnibus Agreement.

 

(iii)  Article 1 is hereby amended by modifying the following defined terms below, each to read as follows:

 

Second Amendment to Gas Gathering Agreement

  

4

  

 

“Monthly Gathering Fee” means, for each Month, a fee equal to the sum of (i) a fee equal to [**REDACTED**] for each Mcf of Shipper’s Gas attributable to Legacy LP Volumes and Legacy JV Volumes and (ii) a fee equal to [**REDACTED**] for each Mcf of Shipper’s Gas attributable to Legacy NPC Corporate Volumes, New LP Volumes and New NPC Corporate Volumes, in each case, received at the Receipt Points and gathered hereunder in each such Month.

 

[**CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934**]

 

“Monthly Operating Fee” is defined in Section 4.3.

 

(iv)  The term “Monthly Capital Fee” is hereby deleted from the Agreement, and the Agreement is amended mutatis mutandis to effect the revision that in each instance that the term “Monthly Capital Fee” appears, it is replaced by the term “Annual Capital Fee”.

 

(v)  Section 4.2 is hereby amended and restated in its entirety to read as follows:

 

4.2  Annual Capital Fee.  No later than thirty (30) days after the end of each calendar Year, Gathering System Owners shall determine the total capital costs paid by Gathering System Owners in the prior calendar Year that were made upon a direct request by the Seller or its Affiliates under the NAESB Purchase Agreement or necessary for the Gathering System Owners to meet their obligations under the Applicable Agreements (“Annual Capital Costs”).  The “Annual Capital Fee” means for each calendar Year, a fee equal to the product of (i) 15% and (ii) the cumulative Annual Capital Costs in excess of $600,000 for each prior calendar year as of the date such fee is calculated.  The Annual Capital Fee shall be due upon the determination of such fee and payable in full in accordance with the procedures set forth Article 11.  In no event shall Gathering System Owners be required to approve, make or continue any capital expenditures to the extent it reasonably determines in its sole discretion that such expenditures are uneconomical based on the remaining term of the Agreement; provided, that the Gathering System Owners shall provide such information reasonably requested by MHR or  an Affiliate of MHR that explains the Gathering System Owners’ determination that such expenditures are uneconomical.  For calendar Year 2011, any Monthly Capital Fees paid under the Agreement for such Year prior to the Effective Date shall be deducted from the Annual Capital Fee for such Year.  At Closing, Gathering System Owners shall provide MHR a statement describing all such Monthly Capital Fees paid under the Agreement in calendar Year 2011.

 

Second Amendment to Gas Gathering Agreement

  

5

  

 

(vi)  Subsections (i), (ii) and (iii) of Section 4.3 are hereby amended and restated in their entirety, each to read as follows:

 

(i)  Purpose.  The Monthly Operating Fee is intended to reflect, and reimburse the Gathering System Owners to the extent the actual out-of-pocket costs (without overhead) of the Gathering System Owners of operating, maintenance, replacement and repair of the Gathering System which are not attributable to New Third Party Volumes exceed the Base Year Operating Costs.

 

(ii)  Statement.  On or before the last Day of April each Year, the Gathering System Owners shall provide a written statement to Shipper and MHR (or a designated Affiliate of MHR) showing in reasonable detail the actual out-of-pocket costs (without capitalized expenses and overhead of the Gathering System Owners) incurred by Gathering System Owners to operate and maintain the Gathering System in the prior calendar Year which are not attributable to New Third Party Volumes (the “Annual Operating Costs”).  Notwithstanding the immediately preceding sentence, the Annual Operating Costs expressly exclude (i) all fees payable to NPC under Section 14(a) of the NPC Operating Agreement and (ii) all fees payable to SES under Section 14(a) of the SES Operating Agreement.

 

(iii)  Adjustment. If the Annual Operating Costs for the prior calendar Year exceed the Base Year Operating Costs for such Year by more than the lesser of (x) 3% or (y) the percentage change in the CPI-U Index for such calendar Year, then Shipper shall be obligated to pay to Gathering System Owners a Monthly Operating Fee in the amount of such deficit (in equal Monthly increments) for the balance of the succeeding Year; provided that after the expiration of the Primary Term of NAESB Purchase Agreements, if the Annual Operating Costs for the prior calendar Year exceed the Base Year Operating Cost for such Year, the Shipper shall be obligated to pay to Gathering System Owner a Monthly Operating Fee in the amount of such deficit (in equal Monthly increments) for the balance of the succeeding Year; provided further that notwithstanding the foregoing, the Shipper shall only be obligated to pay such fee for the Secondary Term of the NAESB Purchase Agreement if after good faith negotiations prior to the end of the Primary Term of the NAESB Purchase Agreementor within thirty (30) days thereafter the Parties fail to arrive at a mutually agreeable adjustment to account for changes in Annual Operating Costs (as long as the amount paid regarding such adjustment will not result in the Gathering System Owners collecting more pursuant to this proviso than actual operating costs incurred). (“Monthly Operating Fee”).  If such a deficit exists for the terminal year of this Agreement, then Shipper shall be obligated to pay the Gathering System Owners a fee in the amount of such deficit (the “Terminal Operating Fee”), payable in full ten (10) days following the termination of this Agreement.

 

Second Amendment to Gas Gathering Agreement

  

6

  

 

(vii)  Section 4.5 shall be intentionally omitted and is hereby amended and restated in its entirety to read as follows:

 

4.5  [Intentionally Omitted.]

 

(viii)  Section 4.6 is hereby amended and restated in its entirety to read as follows:

 

4.6.  Gathering Fees.  The Monthly Gathering Fee, the Monthly Compression Fee, the Annual Capital Fee, the Monthly Operating Fee and the Terminal Operating Fee are referred to herein collectively as the “Gathering Fees.”

 

(ix)  The Agreement is hereby amended by adding Section 4.8 to read as follows:

 

4.8  Make Whole Payment.  In the event Closing occurs on or before April 15, 2011, upon the first payment of Gathering Fees following the effective date of the Second Amendment to this Agreement, the Gathering System Owners shall calculate and reimburse to Shipper, in accordance with the procedures set forth Article 11, the difference necessary to make whole the Shipper as if the Gathering Fees (as modified by the Second Amendment to this Agreement) had been effective as of April 1, 2011.  Any reference to the “Gathering Fees” in the NAESB Purchase Agreement shall be deemed to refer to the Gathering Fees (as modified by the Second Amendment to this Agreement) as if such fees had been effective as of April 1, 2011 (it being understood that NPC shall receive the corresponding benefit under the NAESB Purchase Agreement from such Gathering Fees being effective as of April 1, 2011).

 

(x)  The Agreement is hereby amended by adding Exhibits C, D, E, F to the Agreement incorporated therein for all purpose in the form of Exhibits C, D, E, F attached hereto.

 

3.  Termination.  In the event (a) the Arrangement Agreement is terminated prior to Closing or (b) Closing has not occurred by April 30, 2011, then, notwithstanding any other provision hereof, this Amendment shall be void and of no force and effect, and no Party shall have any obligation or liability hereunder.

 

4.  Ratification:  Except as amended by this Amendment, all of the terms and provisions of the Agreement are hereby ratified and affirmed in all respects and are incorporated herein by reference.

 

5.  Entire Agreement.  The Agreement (and the Exhibits and Schedules hereto and thereto), as amended by this Amendment, constitutes the entire agreement of the parties with regard to the subject matter hereof and supersedes any prior oral or written agreements or understandings.

 

Second Amendment to Gas Gathering Agreement

  

7

  

 

6.  Counterparts.  This Amendment may be executed in one or more counterparts (including faxed or electronic counterparts), all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts hereof have been signed by each of the Parties and delivered to the other Party.

 

7.           Governing Law.  This Amendment shall be governed by and construed in accordance with the law of the State of Texas, without regard to such state’s conflict of laws rules.

 

[Remainder of page intentionally left blank.]

 

Second Amendment to Gas Gathering Agreement

  

8

  

 

IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the Parties as of the date first above written.

 

	 	
Shipper:

	  	  
	 	  	  	  
	 	
SEMINOLE ENERGY SERVICES, L.L.C.

	 	  	  	  
	 	  	  	  
	 	
By:

	  	  
	 	
Name:

	  	  
	 	
Title:

	  	  
	 	  	  	  
	 	  	  	  
	 	
Gathering System Owners:

	 	  	  	  
	 	
NGAS GATHERING II, LLC

	 	  	  	  
	 	  	  	  
	 	
By:

	  	  
	 	
Name:

	  	  
	 	
Title:

	  	  
	 	  	  	  
	 	  	  	  
	 	
SEMINOLE GAS COMPANY, L.L.C.

	 	  	  	  
	 	  	  	  
	 	
By:

	  	  
	 	
Name:

	  	  
	 	
Title:

	  	  

 

  

Second Amendment to Gas Gathering Agreement

  

9

  

ANNEX

 

TO SECOND AMENDMENT TO GAS GATHERING AGREEMENT

 

Reference is made to that certain Gas Gathering Agreement dated as of July 15, 2009, by and among (i) NGAS Gathering II, LLC, a Kentucky limited liability company (“NNG”) and Seminole Gas Company, L.L.C., an Oklahoma limited liability company (“Seminole”), (NNG and Seminole are referred to herein collectively as the “Gathering System Owners”) and (ii) Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“Shipper”), as amended by that certain First Amendment to Gas Gathering Agreement dated as of January 9, 2010 and as further amended by that certain Second Amendment (the “Amendment”) to Gas Gathering Agreement dated March _, 2011 (as amended, the “Agreement”):  Capitalized terms used herein and not otherwise defined have the respective meanings ascribed to them in the Agreement:

 

NPC consents to the adoption of the Amendment, effective as of the Effective Date and subject to the Closing, and hereby agrees and acknowledges as follows in connection therewith:

 

1.      Upon execution of the Amendment by the parties thereto, NPC shall deliver an Existing Wells Certification in the form attached as Exhibit D-1 to the Amendment

 

2.      NPC is a party to the NAESB Purchase Agreement, which incorporates by reference the definitions of “Gathering Fees” which the Amendment defines collectively as the Monthly Gathering Fee, Monthly Compression Fee, Annual Capital Fee, Monthly Operating Fee and Terminal Operating Fee.

 

3.      The terms and provisions of the NAESB Purchase Agreement shall be deemed amended for all purposes to give effect to the terms and provisions of the Amendment.

 

IN WITNESS WHEREOF, the undersigned has caused this Annex to be duly executed and delivered this __ day of March, 2011

 

	 	
NGAS PRODUCTION CO., formerly known as Daugherty Petroleum, Inc.

	 	  	  	  
	 	  	  	  
	 	
By:

	  	  
	 	
Name:

	  	  
	 	
Title:

	  	  

                                            

 

Second Amendment to Gas Gathering Agreement

  

10

  

EXHIBIT C

 

FIRST AMENDMENT

TO

DPI OPERATING AND MAINTENANCE AGREEMENT

(NGAS/SEMINOLE GATHERING SYSTEM)

 

This FIRST AMENDMENT TO DPI OPERATING AND MAINTENANCE AGREEMENT (this “Amendment”) is entered into as of the 10th day of March, 2011, by and between Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“SES”) and NGAS Production Co., a Kentucky corporation (formerly known as Daugherty Petroleum, Inc.) (“NPC”).  Each of the parties executing this Amendment may be referred to as a “Party” or together as the “Parties.”

 

RECITALS

 

A.  Reference is made to that certain DPI Operating and Maintenance Agreement dated as of July 15, 2009, by and between SES and NPC (the “Agreement”) pursuant to which NPC agreed to contract operate and maintain the Gathering System, and perform such other services described therein, in accordance with the terms thereof.

 

B.  Magnum Hunter Resources Corporation, a Delaware corporation (“MHR”) and NGAS Resources, Inc., a British Columbia corporation (“NGAS”) have entered into that certain Arrangement Agreement, dated December 23, 2010 (“Arrangement Agreement”), pursuant to which MHR has agreed to purchase all of the shares of NGAS (the “NGAS Acquisition”).

 

C.  In connection with the NGAS Acquisition, SES and NPC desire to amend the Agreement as set forth herein.

 

D.  All capitalized terms used herein but not otherwise defined herein shall have the meanings attributed to them in the Agreement.

 

NOW, THEREFORE, for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties hereby amend the Agreement and agree as follows:

 

1.           Certain Definitions.  As used herein, the following words and terms shall have the meanings indicated:

 

(i)  “Closing” has the meaning set forth in the Arrangement Agreement.

 

(ii)  “Closing Date” means the date on which Closing occurs.

 

(iii)  “Effective Date” means the first day of the month following the date on which Closing occurs, so long as Closing occurs on or before April 15, 2011.  In the event Closing occurs after April 15, 2011, the Effective Date shall be the Closing Date.

 

First Amendment to DPI Operating and Maintenance Agreement

  

1

  

 

2.  Amendments.  As of the Effective Date, the Agreement is hereby amended as follows:

 

(i)  Each and every reference in the Agreement to Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”) or any reference of similar import or substance shall be deemed instead to be a reference to NGAS Production Co., a Kentucky corporation (“NPC”).

 

(ii)  Paragraph 3(d) is hereby amended by adding the following sentence to read as follows:

 

NPC shall also provide SES with all gas quality samplings and measurement data to allow performance of Third Party Contracts by SES and SGC for gathering, processing and downstream liquids transportation and sales.

 

(iii)  Paragraph 8 is hereby amended and restated in its entirety to read as follows:

 

Notwithstanding anything stated in this Agreement to the contrary, NPC shall not have any authority to spend or incur any expense, cost or liability under this Agreement or relating to the Gathering System to the extent (i) not approved as part of an Approved Budget, an approved AFE, or as an authorized Emergency expense, or (ii) not expressly approved by Seminole in writing under this Agreement (collectively, the “Approved Expenses”); and to the extent NPC incurs any costs, expenses or liabilities in excess of the Approved Expenses, the same shall be at NPC’s sole risk and expense, and Seminole (or any Affiliate of Seminole) shall have no obligation or liability to NPC to pay or reimburse the same.  The Approved Budget shall include a miscellaneous category which allows NPC to make expenditures up to $100,000; provided, that, any and all costs for the benefit of NPC production attributable to (i) resetting compression along the Gathering System or (ii) [expansion of the Gathering System for the sole purpose of connecting additional gas wells shall, in each case, be excluded from such miscellaneous category and such costs attributable thereto shall be borne solely by NPC.  In no event shall SES be required to approve, make or continue as an Approved Expense any capital expenditures to the extent it reasonably determines in its sole discretion that such expenditures are uneconomical based on the remaining term of the Agreement; provided, that SES shall provide such information reasonably requested by NPC that explains SES’s determination that such expenditures are uneconomical.

 

(iv)  The first sentence of Section 10 is hereby amended and restated in its entirety as follows:

 

First Amendment to DPI Operating and Maintenance Agreement

  

2

  

 

The term of this Agreement shall commence as of the date set forth in the introductory paragraph hereof and shall continue for a term to run concurrently with the NAESB Agreement more particularly set forth in Section 12 therein, unless sooner terminated by SES under the immediately following sentence; provided that, notwithstanding anything to the contrary in this Section 10, after the expiration of the Primary Term of the NAESB Agreement, SES may terminate this Agreement upon thirty (30) days written notice so long as upon the date of such termination, SES pays an amount equal to $2,600,000 by wire transfer of immediately available funds.

 

(v)  Section (a) of Paragraph 14 is hereby amended and restated in its entirety to read as follows:

 

(a)  In addition to the reimbursed costs and expenses described in Section 14(b) below; SES shall pay NPC (i) the sum of $102,000 per month during the Primary Term of the NAESB Agreement and (ii) the sum of $45,000 per month during the Secondary Term of the NAESB Agreement in consideration of serving as contract operator and performing this Agreement; provided that if Closing occurs on or before April 15, 2011, upon the first payment of such fee following the effective date of the First Amendment to this Agreement, SES shall calculate and reimburse to NPC, the difference necessary to make whole NPC as if such fee had been effective as of April 1, 2011.

 

(vi)  Paragraph 26 is hereby amended and restated in its entirety to read as follows:

 

26.  Further Assurances.  At any time and from time to time at or after the Closing, at any Party’s request and without further consideration, the Parties agree to cooperate with each other, to execute and deliver such other documents, instruments of transfer or assignment, files, books and records and do all such further acts and things as may be reasonably required to carry out the transactions contemplated hereby.  Furthermore, in the event SES or an Affiliate of SES has received a request for information, or is required to deliver any information, reports, certificates or documents pursuant to the terms of any agreement related to the Gathering System, NPC shall promptly deliver to SES any such information in it possession, custody or control and shall cooperate with SES preparing any reports, certificates or information as may be required.

 

3.  Termination.  In the event (a) the Arrangement Agreement is terminated prior to Closing or (b) Closing has not occurred by April 30, 2011, then, notwithstanding any other provision hereof, this Amendment shall be void and of no force and effect, and no Party shall have any obligation or liability hereunder.

 

First Amendment to DPI Operating and Maintenance Agreement

  

3

  

 

4.  Ratification:  Except as amended by this Amendment, all of the terms and provisions of the Agreement are hereby ratified and affirmed in all respects and are incorporated herein by reference.

 

5.  Entire Agreement.  The Agreement (and the Exhibits and Schedules thereto), as amended by this Amendment, constitutes the entire agreement of the parties with regard to the subject matter hereof and supersedes any prior oral or written agreements or understandings.

 

6.  Counterparts.  This Amendment may be executed in one or more counterparts (including faxed or electronic counterparts), all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts hereof have been signed by each of the Parties and delivered to the other Party.

 

7.  Governing Law.  This Amendment shall be governed by and construed in accordance with the law of the State of Texas, without regard to such state’s conflict of laws rules.

 

[Remainder of page intentionally left blank.]

 

First Amendment to DPI Operating and Maintenance Agreement

  

4

  

IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the Parties as of the date first above written.

 

	 	
SEMINOLE ENERGY SERVICES, L.L.C.

	 	  	  	  
	 	  	  	  
	 	
By:

	  	  
	 	
Name:

	  	  
	 	
Title:

	  	  
	 	  	  	  
	 	  	  	  
	 	
NGAS PRODUCTION CO., formerly known as Daugherty Petroleum, Inc.

	 	  	  	  
	 	  	  	  
	 	
By:

	  	  
	 	
Name:

	  	  
	 	
Title:

	  	  

 

 

First Amendment to DPI Operating and Maintenance Agreement

  

5

  

 

EXHIBIT D

 

FIRST AMENDMENT

TO

SES OPERATING AND MAINTENANCE AGREEMENT

(NGAS/SEMINOLE GATHERING SYSTEM)

 

This FIRST AMENDMENT TO SES OPERATING AND MAINTENANCE AGREEMENT (this “Amendment”) is entered into as of the 10th day of March 2011, by and among Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“SES”), NGAS Gathering II, LLC, a Kentucky limited liability company (“NNG”) and Seminole Gas Company, L.L.C., an Oklahoma limited liability company (“SGC”).  Each of the parties executing this Amendment may be referred to as a “Party” or together as the “Parties.”

 

RECITALS

 

A.  Reference is made to that certain SES Operating and Maintenance Agreement dated as of July 15, 2009, by and among SES, NNG and SGC (the “Agreement”) pursuant to which SES agreed to contract operate and maintain the Gathering System, and perform such other services described therein, in accordance with the terms thereof.

 

B.  Magnum Hunter Resources Corporation, a Delaware corporation (“MHR”) and NGAS Resources, Inc., a British Columbia corporation (“NGAS”) have entered into that certain Arrangement Agreement, dated December 23, 2010 (“Arrangement Agreement”), pursuant to which MHR has agreed to purchase all of the shares of NGAS (the “NGAS Acquisition”).

 

C.  In connection with the NGAS Acquisition, SES NNG and SGC desire to amend the Agreement as set forth herein.

 

D.  All capitalized terms used herein but not otherwise defined herein shall have the meanings attributed to them in the Agreement.

 

NOW, THEREFORE, for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties hereby amend the Agreement and agree as follows:

 

1.  Certain Definitions.  As used herein, the following words and terms shall have the meanings indicated:

 

(i)  “Closing” has the meaning set forth in the Arrangement Agreement.

 

(ii)  “Closing Date” means the date on which Closing occurs.

 

(iii)  “Effective Date” means the first day of the month following the date on which Closing occurs, so long as Closing occurs on or before April 15, 2011.  In the event Closing occurs after April 15, 2011, the Effective Date shall be the Closing Date.

 

First Amendment to SES Operating and Maintenance Agreement

  

1

  

 

2.  Amendments.  As of the Effective Date, the Agreement is hereby amended as follows:

 

(i)  Each and every reference in the Agreement to Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”) or any reference of similar import or substance shall be deemed instead to be a reference to NGAS Production Co., a Kentucky corporation (“NPC”).

 

(ii)  Paragraph 3(d) is hereby amended by adding the following sentence to read as follows:

 

SES shall also provide SGC will all gas quality samplings and measurement data to allow performance of Third Party Contracts for gathering, processing and downstream liquids transportation and sales.

 

(iii)  Paragraph 8 is hereby amended and restated in its entirety to read as follows:

 

Notwithstanding anything stated in this Agreement to the contrary, SES shall not have any authority to spend or incur any expense, cost or liability under this Agreement or relating to the Gathering System to the extent (i) not approved as part of an Approved Budget, an approved AFE, or as an authorized Emergency expense, or (ii) not expressly approved by Seminole in writing under this Agreement (collectively, the “Approved Expenses”); and to the extent SES incurs any costs, expenses or liabilities in excess of the Approved Expenses, the same shall be at SES’s sole risk and expense, and Seminole (or any Affiliate of Seminole) shall have no obligation or liability to SES to pay or reimburse the same.  The Approved Budget shall include a miscellaneous category which allows SES to make expenditures up to $100,000; provided, that, any and all costs for the benefit of NPC production attributable to (i) resetting compression along the Gathering System or (ii) expansion of the Gathering System for the purpose of connecting additional gas wells shall, in each case, be excluded from such miscellaneous category and such costs attributable thereto shall be borne solely by SES.  In no event shall SGC be required to approve, make or continue as an Approved Expense any capital expenditures to the extent it determines in its sole discretion that such expenditures are uneconomical based on the remaining term of the Agreement.

 

(iv)  The first sentence of Section 10 is hereby amended and restated in its entirety as follows:

 

The term of this Agreement shall commence as of the date set forth in the introductory paragraph hereof and shall continue for a term to run concurrently with the NAESB Agreement more particularly set forth in Section 12 therein, unless sooner terminated by SGC under the immediately following sentence, ; provided that, notwithstanding anything to the contrary in this Section 10, after the expiration of the Primary Term of the NAESB Agreement, SGC may terminate this Agreement upon thirty (30) days written notice so long as upon the date of such termination, SES pays an amount equal to $2,600,000 by wire transfer of immediately available funds.

 

First Amendment to SES Operating and Maintenance Agreement

  

2

  

 

(v)  Section (a) of Paragraph 14 is hereby amended and restated in its entirety to read as follows:

 

(a)  In addition to the reimbursed costs and expenses described in Section 14(b) below; SGC and NNG shall pay SES (i) the sum of $102,000 per month during the Primary Term of the NAESB Agreement and (ii) the sum of $45,000 per month during the Secondary Term of the NAESB Agreement in consideration of serving as contract operator and performing this Agreement; provided that if Closing occurs on or before April 15, 2011, upon the first payment of such fee following the effective date of the First Amendment to this Agreement, SGC and NNG shall calculate and reimburse to SES, the difference necessary to make whole SES as if such fee had been effective as of April 1, 2011.  In the event the DPI Operating and Maintenance Agreement dated as of July 15, 2009, by and between SES and NPC, as amended by that certain First Amendment to DPI Operating and Maintenance Agreement of even date herewith is terminated for any reason, the amount payable to SES in consideration of serving as contract operator and performing this Agreement shall be decreased from $102,000 or $45,000 per month, as the case may be, to $10,000 per month.

 

3.  Termination.  In the event (a) the Arrangement Agreement is terminated prior to Closing, or (b) Closing has not occurred by April 30, 2011, then, notwithstanding any other provision hereof, this Amendment shall be void and of no force and effect, and no Party shall have any obligation or liability hereunder.

 

4.  Ratification:  Except as amended by this Amendment, all of the terms and provisions of the Agreement are hereby ratified and affirmed in all respects and are incorporated herein by reference.

 

5.  Entire Agreement.  The Agreement (and the Exhibits and Schedules thereto), as amended by this Amendment, constitutes the entire agreement of the parties with regard to the subject matter hereof and supersedes any prior oral or written agreements or understandings.

 

6.  Counterparts.  This Amendment may be executed in one or more counterparts (including faxed or electronic counterparts), all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts hereof have been signed by each of the Parties and delivered to the other Party.

 

First Amendment to SES Operating and Maintenance Agreement

  

3

  

 

7.  Governing Law.  This Amendment shall be governed by and construed in accordance with the law of the State of Texas, without regard to such state’s conflict of laws rules.

 

[Remainder of page intentionally left blank.]

 

First Amendment to SES Operating and Maintenance Agreement

  

4

  

 

IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the Parties as of the date first above written.

 

	 	
SEMINOLE ENERGY SERVICES, L.L.C.

	 
	 	  	  	 
	 	  	  	 
	 	
By:

	  	 
	 	
Name:

	  	 
	 	
Title:

	  	 
	 	  	  	 
	 	  	  	 
	 	
NGAS GATHERING II, LLC

	 
	 	  	  	 
	 	  	  	 
	 	
By:

	  	 
	 	
Name:

	  	 
	 	
Title:

	  	 
	 	  	  	 
	 	  	  	 
	 	
SEMINOLE GAS COMPANY, L.L.C.

	 
	 	  	  	 
	 	  	  	 
	 	
By:

	  	 
	 	
Name:

	  	 
	 	
Title:

	  	 

 

First Amendment to SES Operating and Maintenance Agreement

  

5

  

 

EXHIBIT E

 

FIRST AMENDMENT

TO

BASE CONTRACT FOR SALE AND PURCHASE OF NATURAL GAS

 

This FIRST AMENDMENT TO BASE CONTRACT FOR SALE AND PURCHASE OF NATURAL GAS (this “Amendment”) is entered into as of the 10th day of March, 2011, by and between Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“SES”) and NGAS Production Co., a Kentucky corporation (formerly known as Daugherty Petroleum, Inc.) (“NPC”).  Each of the parties executing this Amendment may be referred to as a “Party” or together as the “Parties.”

 

RECITALS

 

A.  Reference is made to that certain Base Contract for Sale and Purchase of Natural Gas dated as of July 15, 2009, by and between SES and NPC, as amended and modified by the Special Provisions for NAESB Base Contract for Sale and Purchase of Natural Gas (as modified, the “Agreement”) pursuant to which the Parties agreed to the terms and provisions for the purchase of natural gas.

 

B.  Reference is further made to that certain Arrangement Agreement dated December 23, 2010, by and between Magnum Hunter Resources Corporation, a Delaware corporation and NGAS Resources, Inc., a British Columbia corporation (“Arrangement Agreement”).

 

C.  SES and NPC desire to amend the Agreement as set forth herein.

 

D.  All capitalized terms used herein but not otherwise defined herein shall have the meanings attributed to them in the Agreement.

 

NOW, THEREFORE, for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties hereby amend the Agreement and agree as follows:

 

1.  Certain Definitions.  As used herein, the following words and terms shall have the meanings indicated:

 

(i)  “Closing” has the meaning set forth in the Arrangement Agreement.

 

(ii)  “Closing Date” means the date on which Closing occurs.

 

(iii)  “Effective Date” means the first day of the month following the date on which Closing occurs, so long as Closing occurs on or before April 15, 2011.  In the event Closing occurs after April 15, 2011, the Effective Date shall be the Closing Date.

 

2.  Amendments.  As of the Effective Date, the Agreement is hereby amended as follows:

 

First Amendment to Base Contract for Sale and Purchase of Natural Gas

  

1

  

 

(i)  Each and every reference in the Agreement to Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”) or any reference of similar import or substance shall be deemed instead to be a reference to NGAS Production Co., a Kentucky corporation (“NPC”).

 

(ii)  Section 2 of the Base Contract is hereby amended and by amending and restating the following definition in its entirety to read as follows:

 

“Existing Contracts” means the Gas Gathering Agreement, dated March 14, 2006, between NGAS Gathering, LLC and Chesapeake Appalachia, L.L.C. and the Gas Gathering Agreement, dated October 5, 2004, between Duke Energy Gas Services Corporation and Forexco, Inc.; provided that, Existing Contracts shall not include any amendments, renewals or new or substitute agreements entered into with respect to the foregoing agreements.

 

(iii)  Section 2.2 of the Base Contract is hereby amended and restated in its entirety to read as follows:

 

“Affiliate” shall mean, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person.  For this purpose, “control” of any entity or person means ownership of at least 50 percent of the voting power of the person or entity.  For the avoidance of doubt, the term Affiliate shall include any partnership, of which NPC or any of its Affiliates is the general partner.

 

(iv)  Section 3.5(a) of the Agreement is hereby amended and restated in its entirety to read as follows:

 

(a)  Commitment.  Each Day Seller shall make available to Buyer at the Delivery Points all of Seller’s Daily Deliverability of Gas.  Subject only to Seller’s reservations below and Buyer’s inability to accept, gather and purchase the full quantities of Gas produced from the Committed Reserves, Seller exclusively commits to the performance of this Agreement the Committed Reserves and represents that the Committed Reserves are not otherwise subject to any purchase and sale agreement, except as shown on Schedule 3.5.  Seller agrees to cause any existing or future Affiliates of Seller to be bound by, and to execute and join as a party, this Agreement.  Seller agrees that this dedication is a covenant running with the land.  Notwithstanding anything herein to the contrary, during periods in which Buyer cannot accept, gather and purchase the full quantities of Gas produced from the Committed Reserves by Seller and Seller’s Affiliates, Buyer grants Seller and Seller’s Affiliates a temporary release from dedication all volumes of Gas that Buyer cannot accept, gather and purchase.  Buyer may cancel the temporary release and resume accepting, gathering and purchasing the full quantities of Gas produced from the Committed Reserves by Seller and Seller’s Affiliates by giving at least thirty (30) Days written notice of its election to do so.

 

First Amendment to Base Contract for Sale and Purchase of Natural Gas

  

2

  

 

2.  Ratification:  Except as amended by this Amendment, all of the terms and provisions of the Agreement are hereby ratified and affirmed in all respects and are incorporated herein by reference.

 

3.  Termination.  In the event (a) the Arrangement Agreement is terminated prior to Closing or (b) Closing has not occurred by April 30, 2011, then, notwithstanding any other provision hereof, this Amendment shall be void and of no force and effect, and no Party shall have any obligation or liability hereunder.

 

4.  Entire Agreement.  The Agreement (and the Exhibits and Schedules thereto), as amended by this Amendment, constitutes the entire agreement of the parties with regard to the subject matter hereof and supersedes any prior oral or written agreements or understandings.

 

5.  Counterparts.  This Amendment may be executed in one or more counterparts (including faxed or electronic counterparts), all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts hereof have been signed by each of the Parties and delivered to the other Party.

 

6.  Governing Law.  This Amendment shall be governed by and construed in accordance with the law of the State of Texas, without regard to such state’s conflict of laws rules.

 

[Remainder of page intentionally left blank.]

 

First Amendment to Base Contract for Sale and Purchase of Natural Gas

  

3

  

 

IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the Parties as of the date first above written.

 

	 	
SEMINOLE ENERGY SERVICES, L.L.C.

	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	Name: 	 	 
	 	Title: 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	
NGAS PRODUCTION CO., formerly known as Daugherty Petroleum, Inc.

	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	Name: 	 	 
	 	Title: 	 	 

 

 

First Amendment to Base Contract for Sale and Purchase of Natural Gas

  

4

  

 

EXHIBIT F-1

 

Attached to and made a part of the Omnibus Agreement between Seminole Energy Services L.L.C., Seminole

Gas Company, L.L.C., Magnum Hunter Resources Corporation, NGAS Production Company, NGAS

Gathering II, LLC and NGAS Resources, Inc.

 

Marcellus Gas Processing Plant

 

The Marcellus Gas Processing Plant is a cryogenic natural gas processing plant with a capacity of 200 million cubic feet per day (MMCFD). Additional features and equipment associated with such plant is described below as provided by the contractor constructing the plant, Thomas Russell Co.

 

Provided by Thomas Russell Co.

 

Mechanical Description

 

The equipment which we propose to furnish is described in the attached P & ID's and Equipment Lists. All heat exchangers, air coolers, and centrifugal pumps are designed with at least 10 percent safety factor. The equipment will be skid-mounted to the maximum extent possible for truck transportation.

 

All skids will be completely piped, instrumented and painted to the maximum extent possible for shop fabrication. Equipment will be manufactured in accordance with the following codes and standards:

 

	 	
Pressure Vessels

	
ASME VIII, Division I

	 	
Heat Exchangers

	
ASME VIII, Division I & TEMA C

	 	
Electrical

	
API RP 500 A, NEC

	 	
Piping

	
ASME B31.3 with 15% Random X-ray

	 	
Insulation

	
Thomas Russell Co. Standards

	 	
Structural Steel

	
AISC, ASCE 7-95

	 	
Foundations

	
ACI 318

	 	
Painting

	
Thomas Russell Co. Standards

	 	
Galvanizing

	
ASTM A-123

 

Instrumentation & Electrical

 

The instrumentation will include all instruments as shown on the P&IDs and all will be rated for Class 1, Division II, Grp. C&D. All skid mounted instrumentation will be installed to the fullest extent possible, with a minimal amount of field work. It should be noted some instrumentation will be required to be removed for shipment and then reinstalled in the field.

 

Our bid includes the following manufactures:

	 	
Control Valves

	
Fisher

	 	
Relief Valves

	
Farris, Consolidated (Dresser),

	 	  	
Crosby/Anderson Greenwood

	 	  	
Level Transmitters (Displacer)

	 	  	
Fisher DLC3010

	 	
Level Transmitters (Differential)

	
Foxboro, Rosemount (Hart)

	 	
Level Gauges

	
Penberthy (glass)

	 	
Level Indicators

	
Magtech (magnetic)

	 	
Level Switches

	
S.O.R. / LINC./ Fisher

	 	
Pressure Indicator

	
Ashcroft

	 	
Temperature Indicators

	
Ashcroft

 

 

 

Marcellus Gas Processing Plant 

1

  

 

	 	

Pressure Switches

	
United Electric, Neodyne

	 	
Temperature Switches

	
United Electric, Neodyne

	 	
Pressure Transmitters

	
Foxboro, Rosemount (Hart)

	 	
Flow Transmitters

	
Foxboro, Rosemount (Hart)

	 	
Thermocouples

	
TMSI

	 	
Shutdown Valves (ball)

	
WKM

	 	
Instrument Manifolds

	
Anderson Greenwood

	 	
Instrument Tubing Fittings/Valves

	
Parker A-LOK

	 	
Rotameters

	
Brooks (Emerson)

	 	
Solenoids

	
ASCO

 

Provided by Thomas Russell Co. 

 

In addition to the items described above, our Process Plant price includes the following:

 

	
  

	
1.

	
On-skid piping, block valves, and control valves and off-skid tagged instruments and valves as indicated on the P & ID's. This includes interconnect piping directly between TRCo skids and our adjacent off-skid equipment.

 

	
  

	
2.

	
Tower internals, filter elements with one spare set and one spare gasket/O-ring set for each filter.

 

	
  

	
3.

	
Instrumentation as indicated on the P & ID' s, completely wired and piped within the skid. This includes a 3-valve manifold on transmitter and isolation valves on instruments and air supply. Allen Bradley Control Logix with Wonderware and two user work stations.

 

	
  

	
4.

	
Structural steel skids with ladder and platform access to instrumentation which requires routine maintenance.

 

	
  

	
5.

	
Finish painting in accordance with the specifications. Air coolers are to be galvanized. Ladders and platforms will be galvanized. [Vendor's off-the-shelf supplied equipment will be top coated with their standard paint]

 

	
  

	
6.

	
Insulation of on-skid piping and equipment as indicated on the P&IDs. The towers and mol sieve vessels will not be insulated and will be equipped with lifting lugs to facilitate field erection. Hot lines will be insulated except for flanges and valves when heat conservation is required. Other hot lines will be insulated (excluding flanges and valves) to a height of 7 feet above skid floor for personnel protection.

 

	
  

	
7.

	
Trial fit of stacked skids and interconnect piping to the extent possible for shop fabrication and trial fit of ladders platforms.

 

Marcellus Gas Processing Plant 

2

  

 

	
  

	
8.

	
Power wire and conduit will be field installed. The on-skid motors will be complete with "Hand-Off-Auto" control stations. Control wiring will be run to junction boxes at skid edge.

 

	
  

	
9.

	
Two (2) Plant Data Books, containing material certifications, test reports and vendor operating/maintenance instructions and five (5) Start-up and Operating Manuals.

 

	
  

	
10.

	
Two (2) sets of P & ID's.

 

	
  

	
11.

	
Fourteen (14) man-days start-up and operating training assistance. We can provide additional operator training and start-up assistance for $1,500 per man-day plus travel and living expenses.

  Marcellus Gas Processing Plant

3

  

 

EXHIBIT F-2

Marcellus Gas Processing Plant Books and Records

 

	
  

	
I.  Processing Plant –MHR’s detailed processing model as well as the data assumptions used to create it.

 

	
  

	
a.  Gas Analysis(s) 

	
  

	
i.  Range of variations in inlet gas stream components

	
  

	
ii.  How inlet stream might change w/production changes

	
  

	
b.  Plant Capabilities

	
  

	
i.  Recoveries, PVR, and operating parameters 

	
  

	
ii.  Capacity including turn up/turn down capability

	
  

	
iii.  Compression

	
  

	
1.  Inlet/outlet requirements; initially and for maximum throughput

	
  

	
2.  Gas or electric drive

	
  

	
3.  Own/lease units; have terms been finalized

	
  

	
4.  Fuel usage.

	
  

	
c.  Proposed processing contract structure/terms  

	
  

	
i.  Fee/POP/Keep whole

	
  

	
ii.  Assumptions with respect to third party volumes

	
  

	
iii.  Contract recoveries vs. Plant capabilities; does plant owner have the option to keep whole for this difference?  

	
  

	
iv.  Compression cost recoupment (gas/electric)

	
  

	
v.  How terms may differ between MHR & third parties.  How these compare to market

	
  

	
d.  OPEX - Detail

	
  

	
i.  Operating Personnel

	
  

	
ii.  Compression Rental if not purchased

	
  

	
e.  Projected maintenance CAPEX

	
  

	
f.  Detailed CAPEX Schedule and CAPEX components (Pipe, Installation, ROW, etc) and cash flows timing. 

	
  

	
g.  NGL’s

	
  

	
i.  Pricing basis of NGLs, Gross to Net 

	
  

	
ii.  Take-away path and capacity of the route

	
  

	
iii.  Adjacent Dominion Plant

	
  

	
1.  Any discussions in re joint operation/optimization

	
  

	
2.  Available data on Dominion Plant capabilities, capacity, contract structure, etc.

	
  

	
h.  Economic model of processing plant investment

	
  

	
II.  Existing Production & Work Overs

	
  

	
a.  Current MHR production forecasted out

	
  

	
b.  Reserve report for current production

	
  

	
i.  Type curves

 

Marcellus Gas Processing Plant  

4

  

 

	
  

	
ii.  Detailed Assumptions for LOE (field operating, gathering, compression, processing)

	
  

	
iii.  Assumptions for market pricing – residual natural gas and NGL’s

	
  

	
c.  Well work over schedule --Detail on improved production from those work overs

 

	
  

	
III.  Future Production & Development

	
  

	
a.  Detailed reserve projections

	
  

	
i.  Type curves

	
  

	
ii.  Detailed assumptions for LOE (field operating, gathering, compression, processing)

	
  

	
iii.  Assumptions for Market price

	
  

	
b.  Forward drilling schedule

	
  

	
c.  Rigs Scheduling - how many rigs will be utilized and timing of utilizations to meet projections (x days to drill + y days to complete = total rig days).  

	
  

	
d.  Production forecast driven by drilling schedule

 

	
  

	
IV.  Detail of Individual well economics

	
  

	
a.  Cash Flow/IRR model

	
  

	
b.  Cost to Drill 

	
  

	
c.  Gas analysis/quality assumptions

	
  

	
d.  Detailed assumptions for LOE - Should correlate to reserve evaluations/reports

	
  

	
V.  Joint ownership agreements and joint operating agreements.  

	
  

	
VI.  Geology – Marcellus development overview and MHR’s assumptions of regional development and play expansion; Sharing of information with Seminole’s geologic consultant

 

	
  

	
VII.  Land & leasing position in the MHR (Triad Hunter / Eureka Pipeline) area of interest and development; MHR & third parties

Marcellus Gas Processing Plant  

5

  

EXHIBIT G

 

Attached to and made a part of the Omnibus Agreement between Seminole Energy Services

L.L.C., Seminole Gas Company, L.L.C., Magnum Hunter Resources Corporation, NGAS 

Production Company, NGAS Gathering II, LLC and NGAS Resources, Inc.

 

CONVEYANCE AND PARTIAL PLANT ASSIGNMENT AND BILL OF SALE

 

This CONVEYANCE AND PARTIAL PLANT ASSIGNMENT AND BILL OF SALE (“Assignment”) is made as of _________, 2011, and is intended to be effective as of the ___ day of __________, 2011 (the “Effective Date”), from MAGNUM HUNTER RESOURCES CORPORATION, a Delaware corporation whose address is 777 Post Oak Blvd., Suite 650, Houston, TX 77056 (“Seller”), to SEMINOLE ENERGY SERVICES L.L.C., an Oklahoma limited liability company whose address is 1323 E. 71st Street, Suite 300, Tulsa, OK 74136 (“Buyer”).  Seller and Buyer each may be referred to in this Assignment individually as a “Party” and collectively as the “Parties.”

 

BACKGROUND

 

Pursuant to that certain Omnibus Agreement, dated effective as of __________, 2011, entered into by and among Seller, Buyer, Seminole Gas Company, L.L.C., NGAS Production Company, NGAS Gathering II, LLC and NGAS Resources, Inc. (the “Omnibus Agreement”), Buyer has timely exercised the option to purchase and acquire an undivided fifty percent (50%) interest in and to the Assets (as defined below).  Accordingly, Seller has agreed to sell, assign, convey, transfer and deliver an undivided fifty percent (50%) interest in and to the Assets to Buyer, and Buyer has agreed to purchase and acquire same from Seller.

 

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

ASSIGNMENT

1.1.           Assignment.  For good and valuable consideration as set forth in the Omnibus Agreement, the receipt and sufficiency of which each Party hereby acknowledges, Seller has granted, transferred, bargained, sold, conveyed, assigned and delivered, and does hereby grant, transfer, bargain, convey, and assign to Buyer an undivided fifty percent (50%) interest in and to the following (the “Assets”):

 

(a)           that certain gas processing plant more particularly described in Exhibit “A” attached hereto (the “Plant”), and in and to Seller’s equipment, machinery, fixtures, and other tangible personal property and improvements used or held for use primarily in connection with the operation of the Plant; and

 

Conveyance And Partial Plant Assignment And Bill Of Sale

  

1

  

 

(b)           the surface estate only in and to the real property used or held for use primarily in connection with the Plant, as more particularly described in Exhibit “B” attached hereto.

 

ARTICLE II

MISCELLANEOUS

 

2.1.           Governing Agreement.  Although this Assignment reflects the complete and final transfer of an undivided fifty percent (50%) interest in and to the Assets, this Assignment is expressly made subject to the terms and provisions of the Omnibus Agreement.  In the event of a conflict between the terms and provisions of this Assignment and the terms and provisions of the Omnibus Agreement, the terms and provisions of the Omnibus Agreement shall govern and control.

 

2.2.           Warranty / Subrogation.  Seller warrants that the interests conveyed to Buyer in the Assets herein are free and clear of all liens, claims and encumbrances arising by, through or under Seller, but not otherwise.  Buyer shall have full rights of substitution and subrogation into fifty percent (50%) of all warranties previously given or assigned to Seller with respect to the Assets.  Except as expressly set forth herein, Seller otherwise conveys an undivided fifty percent (50%) interest in and to the Assets, and Buyer accepts same, without any warranties, whether express, implied or statutory.

 

2.3.           Assumption.  Buyer hereby assumes and agrees to be bound by an undivided fifty percent (50%) of all of Seller’s obligations and liabilities under the contracts and agreements described in Exhibit “C” attached hereto from and after the date hereof.

 

2.4.           Habendum.  TO HAVE AND TO HOLD the assigned interests in the Assets, together with all and singular the rights and appurtenances thereto in any wise belonging, onto Buyer and its successors and assigns forever.

 

2.5.           Further Assurances.  The Parties agree to take all such further actions and to execute, acknowledge, and deliver all such further documents as are necessary to more effectively convey, transfer to or vest in Buyer an undivided fifty percent (50%) interest in and to the Assets or to carry into effect the intent and purposes of the Omnibus Agreement and this Assignment.

 

2.6.           Successors and Assigns.  The provisions of this Assignment shall bind and inure to the benefit of Seller and Buyer and their respective successors and assigns.

 

2.7.           GOVERNING LAW; JURISDICTION AND VENUE.  THIS ASSIGNMENT AND THE LEGAL RELATIONS BETWEEN SELLER AND BUYER HEREUNDER SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF.

 

2.8.           Captions.  The captions and article and section numbers in this Assignment are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Assignment.

 

Conveyance And Partial Plant Assignment And Bill Of Sale

  

2

  

 

2.9.           Counterparts.  This Assignment may be executed in one or more originals, but all of which together shall constitute one and the same instrument.

 

In Witness Whereof, Seller and Buyer have duly executed this Assignment to be effective as of the Effective Date first above written.

 

	
SELLER:

 

MAGNUM HUNTER RESOURCES CORPORATION

	 	
BUYER:

 

SEMINOLE ENERGY SERVICES L.L.C.

	 	 	 
	 	 	 
	By:  	 	 	By:  	 
	Name:	 	 	Name: 	 
	Title: 	 	 	Title: 	 

 

 

Conveyance And Partial Plant Assignment And Bill Of Sale

  

3

  

 

STATE OF TEXAS

COUNTY OF HARRIS

BE IT KNOWN, that on this ____ day of ___________, 2011, before me, the undersigned authority, personally came and appeared ______________ appearing herein in his capacity as _______________ of Magnum Hunter Resources Corporation, to me personally known to be the identical person  whose name is subscribed to the foregoing instrument as the said officer of said corporation, and declared and acknowledged to me, Notary, that he executed the same on behalf of said corporation, with full authority of its Board of Directors, and that the said instrument is the free act and deed of the corporation and was executed for the uses, purposes and benefits therein expressed.

_____________________________________

Printed Name: _________________________

Notary Public, _________________________

My commission expires:  _______________

STATE OF ______________

COUNTY OF ____________

BE IT KNOWN, that on this ____ day of ___________, 2011, before me, the undersigned authority, personally came and appeared ______________ appearing herein in his capacity as _______________ of Seminole Energy Services L.L.C., to me personally known to be the identical person  whose name is subscribed to the foregoing instrument as the said officer of said limited liability company, and declared and acknowledged to me, Notary, that he executed the same on behalf of said company, with full authority of its management, and that the said instrument is the free act and deed of the company and was executed for the uses, purposes and benefits therein expressed.

_____________________________________

Printed Name: _________________________

Notary Public, _________________________

My commission expires:  _______________

Conveyance And Partial Plant Assignment And Bill Of Sale

  

4

  

EXHIBIT “A”

DESCRIPTION OF PLANT

 

 

 

 

 

 

 

 

 

 

Conveyance And Partial Plant Assignment And Bill Of Sale

  

5

  

 

EXHIBIT “B”

DESCRIPTION OF REAL PROPERTY

 

 

 

 

 

 

 

 

 

 

Conveyance And Partial Plant Assignment And Bill Of Sale

  

6

  

 

EXHIBIT “C”

CONTRACTS AND AGREEMENTS

 

 

 

 

 

 

 

 

 

 

 

Conveyance And Partial Plant Assignment And Bill Of Sale

 

7magnum_8a12b-ex0404.htm

EXHIBIT 4.4

        

MAGNUM HUNTER RESOURCES CORPORATION

 

CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES

 

8.0% SERIES D CUMULATIVE PREFERRED STOCK

 

(Pursuant to Section 151 of the General Corporation Law of the State of Delaware)

 

Magnum Hunter Resources Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware, as amended (the "DGCL"), in accordance with Section 151 of the DGCL, does hereby certify that:

 

1.    The name of the corporation is Magnum Hunter Resources Corporation (the "Corporation").

 

2.    The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 4, 1997.

 

3.    Pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), and pursuant to the provisions of Sections 103 and 151(g) of the DGCL, said Board of Directors, at a duly called meeting held on March 7, 2011, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation's 8.0% Series D Cumulative Preferred Stock, which resolution is as follows:

 

RESOLVED, that, pursuant to authority given by Article IV of the Certificate of Incorporation (which authorized 10,000,000 shares of preferred stock, par value $0.01 per share), a new series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors as follows:

 

Section 1.  Number of Shares and Designation.  This series of Preferred Stock shall be designated as 8.0% Series D Cumulative Preferred Stock, par value $0.01 per share (the "Series D Preferred Shares"), and the number of shares that shall constitute such series shall be 5,750,000.

 

Section 2.  Definitions.  For purposes of the Series D Preferred Shares and as used in this Certificate, the following terms shall have the meanings indicated:

 

"Board of Directors" shall mean the Board of Directors of the Corporation or any committee of members of the Board of Directors authorized by such Board of Directors to perform any of its responsibilities with respect to the Series D Preferred Shares.

 

"Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open.

   

  

1

  

    

"Call Date" shall mean the date fixed for redemption of the Series D Preferred Shares and specified in the notice to holders required under paragraph (e) of Section 5 as the Call Date.

 

"Certificate" shall mean this Certificate of Designations of Rights and Preferences of the Series D Preferred Shares.

 

A "Change of Ownership or Control" shall be deemed to have occurred on the date (i) that a "person," "group" or "entity" (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of Voting Stock that such person or group has the right to acquire regardless of when such right is first exercisable), directly or indirectly, of Voting Stock representing more than 50% of the total voting power of the total Voting Stock of the Corporation; (ii) that the Corporation sells, transfers or otherwise disposes of all or substantially all of its assets; or (iii) of the consummation of a merger or share exchange of the Corporation with another entity where the Corporation's stockholders immediately prior to the merger or share exchange would not beneficially own, immediately after the merger or share exchange, securities representing 50% or more of the outstanding Voting Stock of the entity issuing cash or securities in the merger or share exchange (without consideration of the rights of any class of stock to elect directors by a separate group vote), or where members of the Board of Directors immediately prior to the merger or share exchange would not, immediately after the merger or share exchange, constitute a majority of the board of directors of the entity issuing cash or securities in the merger or share exchange.

 

"Common Shares" shall mean the shares of Common Stock, par value $0.01 per share, of the Corporation.

 

"Dividend Default " shall have the meaning set forth in paragraph (b) of Section 3.

 

"Dividend Payment Date" shall have the meaning set forth in paragraph (a) of Section 3.

 

"Dividend Periods" shall mean monthly dividend periods commencing on the first day of each calendar month and ending on and including the day preceding the first day of the next succeeding Dividend Period; provided, however, that any Dividend Period during which any Series D Preferred Shares shall be redeemed pursuant to Section 5 shall end on and include the Call Date only with respect to the Series D Preferred Shares being redeemed.

 

"Dividend Rate" shall mean the dividend rate accruing on the Series D Preferred Shares, as applicable from time to time pursuant to the terms hereof.

 

"Dividend Record Date" shall have the meaning set forth in paragraph (a) of Section 3.

 

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

 

"Junior Shares" shall have the meaning set forth in paragraph (c) of Section 7.

 

"Listing Default" shall have the meaning set forth in paragraph (c) of Section 3.

   

  

2

  

   

"Market Value" of a given security shall mean the average of the daily Trading Price per share of such security for the ten consecutive Trading Days immediately prior to the date in question.

 

"National Market Listing" shall mean the listing or quotation, as applicable, of securities on or in the New York Stock Exchange, the NYSE Amex, The NASDAQ Global Market, The NASDAQ Global Select Market or The NASDAQ Capital Market or any comparable national securities exchange or national securities market.

 

“Quarterly Dividend Period” shall mean quarterly dividend periods commencing on January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the next succeeding Quarterly Dividend Period.

 

A “Quarterly Dividend Default” shall occur if the Corporation fails to pay cash dividends on the Series D Preferred Shares in full during any Dividend Period within a Quarterly Dividend Period, provided that only one Quarterly Dividend Default may occur during each Quarterly Dividend Period and only four Quarterly Dividend Defaults may occur during any calendar year.

 

"Parity Shares" shall have the meaning set forth in paragraph (b) of Section 7.

 

"Penalty Rate" shall mean 10.0% per annum.

 

"Person" shall mean any individual, firm, partnership, limited liability company, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity.

 

"SEC" shall have the meaning set forth in Section 9.

 

"Senior Shares" shall have the meaning set forth in paragraph (a) of Section 7.

 

"Series D Preferred Shares" shall have the meaning set forth in Section 1.

 

"set apart for payment" shall be deemed to include, without any further action, the following:  the recording by the Corporation in its accounting ledgers of any accounting or bookkeeping entry that indicates, pursuant to an authorization by the Board of Directors and a declaration of dividends or other distribution by the Corporation, the initial and continued allocation of funds to be so paid on any series or class of shares of stock of the Corporation; provided, however, that if any funds for any class or series of Junior Shares or any class or series of Parity Shares are placed in a separate account of the Corporation or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series D Preferred Shares shall mean irrevocably placing such funds in a separate account or irrevocably delivering such funds to a disbursing, paying or other similar agent.

 

"Stated Rate" shall mean 8.0% per annum.

 

"Trading Day" shall mean, if a security is listed or admitted to trading on The NASDAQ Global Market, The NASDAQ Capital Market or The NASDAQ Global Select Market (each, a "NASDAQ Stock Market"), the New York Stock Exchange, the NYSE Amex or another national securities exchange or national securities market, a full day on which the NASDAQ Stock Market or such other national securities exchange or national securities market on which the security is traded is open for business and on which trades may be made thereon.

   

  

3

  

   

"Trading Price" of a security on any Trading Day (excluding any after-hours trading as of such date) shall mean:

 

(a)    the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and ask prices, regular way, in either case as reported by the principal consolidated transaction reporting system with respect to securities listed or admitted to trading or quoted on the NYSE Amex, or if such security is not listed or admitted to trading or quoted on the NYSE Amex, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange or national securities market on or in which such security is listed or admitted to trading;

 

(b)    if such security is not listed on, admitted to trading or quoted on the NYSE Amex or a national securities exchange or national securities market on that date, the last price quoted by Interactive Data Corporation for that security on the date, or if Interactive Data Corporation is not quoting such price, a similar quotation service selected by the Corporation;

 

(c)    if such security is not so quoted, the average mid-point of the last bid and ask prices for such security on that date from at least two dealers recognized as market-makers for such security selected by the Corporation for this purpose; or

 

(d)    if such security is not so quoted, the average of the last bid and ask prices for such security on that date from a dealer engaged in the trading of such securities selected by the Corporation for such purpose.

 

"Transfer Agent" means American Stock Transfer & Trust Company, LLC, or such other agent or agents of the Corporation as may be designated by the Board of Directors or its duly authorized designee as the transfer agent, registrar and dividend disbursing agent for the Series D Preferred Shares.

 

"Voting Preferred Shares" shall have the meaning set forth in Section 8.

 

"Voting Stock" shall mean stock of any class or kind having the power to vote generally for the election of directors.

 

Section 3.  Dividends.

   

  

4

  

   

(a)    Holders of issued and outstanding Series D Preferred Shares shall be entitled to receive, when and as declared by the Board of Directors out of funds of the Corporation legally available for the payment of distributions, cumulative preferential cash dividends at a rate per annum equal to the Dividend Rate of the $50.00 per share stated liquidation preference of the Series D Preferred Shares.  Except as otherwise provided in paragraphs (b) and (c) of this Section 3, the Dividend Rate shall be equal to the Stated Rate.  Such dividends shall accrue and accumulate on each issued and outstanding share of the Series D Preferred Shares on a daily basis from (but excluding) the original date of issuance of such share and shall be payable monthly in equal amounts in arrears on the last calendar day of each Dividend Period except for Series D Preferred Shares issued during March 2011, for which an initial partial dividend payment for dividends accrued in March 2011 shall be payable at the end of the first full Dividend Period (each such day being hereinafter called a "Dividend Payment Date"); provided that (i) Series D Preferred Shares issued during any Dividend Period after the Dividend Record Date for such Dividend Period shall only begin to accrue dividends on the first day of the next Dividend Period; and provided further that (ii) if any Dividend Payment Date is not a Business Day, then the dividend that would otherwise have been payable on such Dividend Payment Date may be paid on the next succeeding Business Day with the same force and effect as if paid on such Dividend Payment Date, and no interest or additional dividends or other sums shall accrue on the amount so payable from such Dividend Payment Date to such next succeeding Business Day.  Any dividend payable on the Series D Preferred Shares for any partial Dividend Period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months.  Dividends shall be payable to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be (i) with respect to the partial Dividend Period for dividends accrued during March 2011 described above, March 31, 2011, and (ii) with respect to all other Dividend Periods, the tenth day preceding the applicable Dividend Payment Date, or such other date designated by the Board of Directors or an officer of the Corporation duly authorized by the Board of Directors for the payment of dividends that is not more than 30 nor less than ten days prior to such Dividend Payment Date (each such date, a "Dividend Record Date").

 

(b)    If at any time four Quarterly Dividend Defaults occur, whether consecutive or non-consecutive (a "Dividend Default"), then:

 

(i)    the Dividend Rate shall increase to the Penalty Rate, commencing on the first day after the Dividend Payment Date on which a Dividend Default occurs and for each subsequent Dividend Payment Date thereafter until such time as the Corporation has paid all accumulated accrued and unpaid dividends on the Series D Preferred Shares in full and has paid accrued dividends for all Dividend Periods during the two most recently completed Quarterly Dividend Periods in full in cash, at which time the Dividend Rate shall revert to the Stated Rate;

 

(ii)    on the next Dividend Payment Date following the Dividend Payment Date on which a Dividend Default occurs, and continuing until such time as the Corporation has paid all accumulated accrued and unpaid dividends on the Series D Preferred Shares in full and has paid accrued dividends for all Dividend Periods during the two most recently completed Quarterly Dividend Periods in full in cash, the Corporation shall pay all dividends on the Series D Preferred Shares, including all accumulated accrued and unpaid dividends, on each Dividend Payment Date either in cash or, if not paid in cash, by issuing to the holders thereof (A) if the Common Shares are then subject to a National Market Listing, registered Common Shares with a value equal to the amount of dividends being paid, calculated based on the then current Market Value of the Common Shares, plus cash in lieu of any fractional Common Share; or (B) if the Common Shares are not then subject to a National Market Listing, additional Series D Preferred Shares with a value equal to the amount of dividends being paid, calculated based on the stated $50.00 liquidation preference of the Series D Preferred Shares, plus cash in lieu of any fractional Series D Preferred Shares (and dividends on any such Series D Preferred Shares upon issuance shall accrue at the Penalty Rate and accumulate until such time as the Dividend Rate shall revert to the Stated Rate in accordance with subparagraph (i) of this paragraph (b));

    

  

5

  

    

(iii)    until such time as the Dividend Rate reverts to the Stated Rate pursuant to subparagraph (i) of this paragraph (b), the holders of Series D Preferred Shares will have the voting rights described below in Section 8; and

 

(iv)    to the extent that the Corporation determines a shelf registration statement to cover resales of Common Shares or Series D Preferred Shares is required in connection with the issuance of, or for resales of, such Common Shares or Series D Preferred Shares issued as payment of a dividend, the Corporation will use its commercially reasonable efforts to file and maintain the effectiveness of such a shelf registration statement until such time as all shares of such stock have been resold thereunder or such shares are eligible for resale pursuant to Rule 144(b)(1) under the Securities Act of 1933, as amended.

 

Following any Dividend Default that has been cured by the Corporation as provided above in subparagraph (i) of this paragraph (b), if the Corporation subsequently fails to pay cash dividends on the Series D Preferred Shares in full for any Dividend Period, such subsequent failure shall constitute a separate Dividend Default, and the foregoing provisions of subparagraphs (i), (ii), (iii) and (iv) of this paragraph (b) shall immediately apply until such subsequent Dividend Default is cured as so provided.

 

(c)    Once the Series D Preferred Shares become initially eligible for National Market Listing, if the Corporation fails to maintain a National Market Listing for the Series D Preferred Shares for 180 consecutive days or longer (a "Listing Default"), then:

 

(i)    the Dividend Rate shall increase to the Penalty Rate, commencing on the day after the Listing Default and continuing until such time as the Corporation has cured the Listing Default by again subjecting the Series D Preferred Shares to a National Market Listing, at which time the Dividend Rate shall revert to the Stated Rate; and

 

(ii)    until such time as the Dividend Rate reverts to the Stated Rate pursuant to subparagraph (i) of this paragraph (c), the holders of Series D Preferred Shares will have the voting rights described below in Section 8.

 

Following any Listing Default that has been cured by the Corporation as provided above in subparagraph (i) of this paragraph (c), if the Series D Preferred Shares subsequently cease to be subject to a National Market Listing, such event shall constitute a separate Listing Default, and the foregoing provisions of subparagraphs (i) and (ii) of this paragraph (c) shall immediately apply until such time as the Series D Preferred Shares are again subject to a National Market Listing.

 

(d)    The Corporation shall at all times keep reserved a sufficient number of Common Shares or Series D Preferred Shares for the payment of dividends on the Series D Preferred Shares as described above in paragraph (b) of this Section 3, and if a dividend is paid in shares of stock an amount equal to the aggregate par value of the shares issued shall be designated as capital in respect of such shares in accordance with Section 154 of the DGCL.

   

  

6

  

   

(e)    No dividend on the Series D Preferred Shares will be declared by the Corporation or paid or set apart for payment by the Corporation at such time as the terms and provisions of Senior Shares or any agreement of the Corporation, including any agreement relating to its indebtedness, prohibit such declaration, payment or setting apart for payment or provide that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting aside of funds is restricted or prohibited under the DGCL or other applicable law; provided, however, notwithstanding anything to the contrary contained herein, dividends on the Series D Preferred Shares shall continue to accrue and accumulate regardless of whether: (i) any or all of the foregoing restrictions exist; (ii) the Corporation has earnings or profits; (iii) there are funds legally available for the payment of such dividends; or (iv) such dividends are authorized by the Board of Directors.  Accrued and unpaid dividends on the Series D Preferred Shares will accumulate as of the Dividend Payment Date on which they first become payable or on the date of redemption of the Series D Preferred Shares, as the case may be.

 

(f)    Except as provided in the next sentence, if any Series D Preferred Shares are outstanding, no dividends will be declared or paid or set apart for payment on any Parity Shares or Junior Shares, unless all accumulated accrued and unpaid dividends are contemporaneously declared and paid in cash or declared and a sum of cash sufficient for the payment thereof set apart for such payment on the Series D Preferred Shares for all past Dividend Periods with respect to which full dividends were not paid on the Series D Preferred Shares either in cash or in Common Shares or Series D Preferred Shares.  When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart for payment) upon the Series D Preferred Shares and upon all Parity Shares, all dividends declared, paid or set apart for payment upon the Series D Preferred Shares and all such Parity Shares shall be declared and paid pro rata or declared and set apart for payment pro rata so that the amount of dividends declared per share of Series D Preferred Shares and per share of such Parity Shares shall in all cases bear to each other the same ratio that accumulated dividends per share of Series D Preferred Shares and such other Parity Shares (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if such other Parity Shares do not bear cumulative dividends) bear to each other.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series D Preferred Shares which may be in arrears, whether at the Stated Rate or at the Penalty Rate.

 

(g)    Except as provided in paragraph (f) of this Section 3, unless all accumulated accrued and unpaid dividends on the Series D Preferred Shares are contemporaneously declared and paid in cash or declared and a sum of cash sufficient for the payment thereof is set apart for payment for all past Dividend Periods with respect to which full dividends were not paid on the Series D Preferred Shares either in cash or in Common Shares or Series D Preferred Shares, no dividends (other than in Common Shares or Junior Shares ranking junior to the Series D Preferred Shares as to dividends and upon liquidation) may be declared or paid or set apart for payment upon the Common Shares or any Junior Shares or Parity Shares, nor shall any Common Shares or any Junior Shares or Parity Shares be redeemed, purchased or otherwise acquired directly or indirectly for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such stock) by the Corporation (except by conversion into or exchange for Junior Shares or by redemption, purchase or acquisition of stock under any employee benefit plan of the Corporation).

   

  

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(h)    Holders of Series D Preferred Shares shall not be entitled to any dividend, whether payable in cash, property or shares, in excess of all accumulated accrued and unpaid dividends on the Series D Preferred Shares as described in this Section 3.  Any dividend payment made on the Series D Preferred Shares shall first be credited against the earliest accumulated accrued and unpaid dividend due with respect to such shares which remains payable at the time of such payment.

 

Section 4.  Liquidation Preference.

 

(a)    Subject to the rights of the holders of Senior Shares and Parity Shares, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation, each holder of the Series D Preferred Shares shall be entitled to receive an amount of cash equal to $50.00 per Series D Preferred Share plus an amount in cash equal to all accumulated accrued and unpaid dividends thereon (whether or not earned or declared) to the date of final distribution to such holders.  If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the Series D Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation, then such assets, or the proceeds thereof, shall be distributed among the holders of Series D Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series D Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full.  For the purposes of this Section 4, none of (i) a consolidation or merger of the Corporation with one or more corporations or other entities, (ii) a sale, lease or transfer of all or substantially all of the Corporation's assets or (iii) a statutory share exchange shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation.

 

(b)    Subject to the rights of the holders of Senior Shares and Parity Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of the Series D Preferred Shares, as provided in this Section 4, any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series D Preferred Shares shall not be entitled to share therein.

    

  

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Section 5.  Redemption.

 

(a)    The Series D Preferred Shares shall not be redeemable by the Corporation prior to March 21, 2014, except following a Change of Ownership or Control as provided below in paragraph (b) of this Section 5.  On and after March 21, 2014, the Corporation may redeem the Series D Preferred Shares, in whole at any time or from time to time in part, at the option of the Corporation, for cash, at a redemption price of $50.00 per Series D Preferred Share, plus the amounts indicated in paragraph (c) of this Section 5.

 

(b)    Following a Change of Ownership or Control, within 90 days following the date on which the Change of Ownership or Control has occurred, the Corporation or the acquiring entity in such Change of Ownership or Control will have the right, but not the obligation, to redeem the Series D Preferred Shares, in whole but not in part, for cash at the following price per Series D Preferred Share, plus the amounts indicated in paragraph (c) of this Section 5:

 

	
  

	
(i)

	
if the Call Date is on or before March 20, 2012

	$51.50

 

	
  

	
(ii)

	
if the Call Date is after March 20, 2012 and on or before March 20, 2013

	$51.00

 

	
  

	
(iii)

	
if the Call Date is after March 20, 2013 and on or before March 20, 2014

	$50.50

 

	
  

	
(iv)

	
if the Call Date is after March 20, 2014

	$50.00

 

(c)    Upon any redemption of Series D Preferred Shares pursuant to this Section 5, the Corporation (or, if applicable, the acquiring entity) shall, subject to the next sentence, pay any accumulated accrued and unpaid dividends in arrears for any Dividend Period ending on or prior to the Call Date.  If the Call Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, then each holder of Series D Preferred Shares at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.  Except as provided above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series D Preferred Shares called for redemption.

 

(d)    If all accumulated accrued and unpaid dividends on the Series D Preferred Shares and any other class or series of Parity Shares of the Corporation have not been paid in cash, Common Shares or Series D Preferred Shares (or, with respect to any Parity Shares, in Parity Shares), or declared and set apart for payment in cash, Common Shares or Series D Preferred Shares (or, with respect to any Parity Shares, in Parity Shares) the Series D Preferred Shares shall not be redeemed under this Section 5 in part and the Corporation shall not purchase or acquire Series D Preferred Shares, otherwise than (i) pursuant to a purchase or exchange offer made on the same terms to all holders of Series D Preferred Shares and Parity Shares or (ii) in exchange for Junior Shares.

   

  

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(e)    Notice of the redemption of any Series D Preferred Shares under this Section 5 shall be mailed by first class mail to each holder of record of Series D Preferred Shares to be redeemed at the address of each such holder as shown on the Corporation's records, not less than 30 nor more than 60 days prior to the Call Date. Neither the failure to mail any notice required by this paragraph (e), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (1) the Call Date; (2) the number of Series D Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price per Series D Preferred Share (determined as set forth in paragraph (a) or (b) of this Section 5, as applicable) plus accumulated accrued and unpaid dividends through the Call Date (determined as set forth in paragraph (c) of this Section 5); (4) if any shares are represented by certificates, the place or places at which certificates for such shares are to be surrendered; (5) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein; and (6) any other information required by law or by the applicable rules of any exchange or national securities market upon which the Series D Preferred Shares may be listed or admitted for trading. Notice having been mailed as aforesaid, from and after the Call Date (unless the Corporation (or, if applicable, the acquiring entity) shall fail to make available an amount of cash necessary to effect such redemption), (i) except as otherwise provided herein, dividends on the Series D Preferred Shares so called for redemption shall cease to accrue, (ii) said shares shall no longer be deemed to be outstanding, and (iii) all rights of the holders thereof as holders of Series D Preferred Shares shall cease (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon).

 

(f)    The Corporation's (or, if applicable, the acquiring entity's) obligation to provide cash in accordance with the preceding subsection shall be deemed fulfilled if, on or before the Call Date, the Corporation (or, if applicable, the acquiring entity) shall irrevocably deposit funds necessary for such redemption, in trust, with a bank or trust company that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, with irrevocable instructions that such cash be applied to the redemption of the Series D Preferred Shares so called for redemption, in which case the notice to holders of the Series D Preferred Shares will (i) state the date of such deposit, (ii) specify the office of such bank or trust company as the place of payment of the redemption price and (iii) require such holders to surrender the certificates, if any, representing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the Call Date) against payment of the redemption price (including all accumulated accrued and unpaid dividends to the Call Date, determined as set forth in paragraph (c) of this Section 5). No interest shall accrue for the benefit of the holders of Series D Preferred Shares to be redeemed on any cash so set aside by the Corporation (or, if applicable, the acquiring entity). Subject to applicable escheat laws, any such cash unclaimed at the end of six months from the Call Date shall revert to the general funds of the Corporation (or, if applicable, the acquiring entity)  after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Corporation (or, if applicable, the acquiring entity) for the payment of such cash.

   

  

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(g)    As promptly as practicable after the surrender in accordance with said notice of the certificates, if any, for any such shares so redeemed (properly endorsed or assigned for transfer, if the Corporation (or, if applicable, the acquiring entity) shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed.  If fewer than all the outstanding Series D Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Corporation from outstanding Series D Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Corporation in its sole discretion to be equitable. If fewer than all the Series D Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof.

 

Section 6. Status of Acquired Shares. All Series D Preferred Shares issued and redeemed by the Corporation in accordance with Section 5 above, or otherwise acquired by the Corporation, shall be restored to the status of authorized but unissued shares of undesignated Preferred Stock of the Corporation.

 

Section 7. Ranking. Any class or series of shares of stock of the Corporation shall be deemed to rank:

 

(a)    prior to the Series D Preferred Shares, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series D Preferred Shares ("Senior Shares"), including the Corporation's 10.25% Series C Cumulative Perpetual Preferred Stock (the "Series C Preferred Shares"), which has been fully issued as of the date of this Certificate;

 

(b)    on a parity with the Series D Preferred Shares, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof be different from those of the Series D Preferred Shares, if the holders of such class or series and the Series D Preferred Shares shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Parity Shares"); and

 

(c)    junior to the Series D Preferred Shares, as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, if such class or series shall be the Common Shares or any other class or series of shares of stock of the Corporation now or hereafter issued and outstanding over which the Series D Preferred Shares have preference or priority in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation ("Junior Shares").

 

Section 8. Voting Rights. The Series D Preferred Shares shall have no voting rights, except as set forth in this Section 8.

   

  

11

  

 

In the circumstances identified in subparagraphs (b) and (c) of Section 3 hereof, the number of directors then constituting the Board of Directors shall increase by two, and the holders of Series D Preferred Shares, together with the holders of shares of every other series of Parity Shares upon which like voting rights have been conferred and are exercisable (any such other series, the "Voting Preferred Shares"), voting as a single class regardless of series, shall be entitled to elect two additional directors at any annual meeting of stockholders or special meeting held in place thereof, or at a special meeting of the holders of the Series D Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Such voting rights shall continue until terminated as provided in subparagraph (b) or (c) of Section 3 hereof, as applicable, whereupon the terms of all persons elected as directors by the holders of the Series D Preferred Shares and the Voting Preferred Shares shall terminate and the number of directors constituting the Board of Directors shall decrease accordingly. At any time after such voting power shall have been so vested in the holders of Series D Preferred Shares and the Voting Preferred Shares, the Secretary of the Corporation may, and upon the written request of any holder of Series D Preferred Shares (addressed to the Secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Series D Preferred Shares and of the Voting Preferred Shares for the election of the two directors to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Corporation for a special meeting of the stockholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 75 days after receipt of any such request, then any holder of Series D Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the share records of the Corporation for the Series D Preferred Shares and Voting Preferred Shares. The directors elected at any such special meeting shall serve until the next annual meeting of the stockholders or special meeting held in lieu thereof and until their successors are duly elected and qualified, if such term shall not have previously terminated as above provided. If any vacancy shall occur among the directors elected by the holders of the Series D Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board of Directors, upon the nomination of the then-remaining director elected by the holders of the Series D Preferred Shares and the Voting Preferred Shares or the successor of such remaining director, if any, to serve until the next annual meeting of the stockholders or special meeting held in place thereof and until their successors are duly elected and qualified, if such term shall not have previously terminated as provided above.

 

So long as any Series D Preferred Shares are outstanding, the affirmative vote of the holders of at least two-thirds of the Series D Preferred Shares and the Voting Preferred Shares at the time outstanding, acting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

 

(a)    Any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or these terms of the Series D Preferred Shares that materially and adversely affects the rights, preferences or voting power of the Series D Preferred Shares or the Voting Preferred Shares; provided, however, that the amendment of the provisions of the Certificate of Incorporation so as to authorize or create, or to increase the authorized amount of, the Series D Preferred Shares, any Junior Shares that are not senior in any respect to the Series D Preferred Shares or the Voting Preferred Shares, or any shares of any class ranking, as to receipt of dividends or distribution of assets upon liquidation, dissolution or winding up of the Corporation, on a parity with the Series D Preferred Shares or the Voting Preferred Shares shall not be deemed to materially or adversely affect the rights, preferences or voting power of the Series D Preferred Shares or the Voting Preferred Shares; and provided, further, that if any such amendment, alteration or repeal would materially and adversely affect any voting powers, rights or preferences of the Series D Preferred Shares or another series of Voting Preferred Shares that are not enjoyed by some or all of the other series otherwise entitled to vote in accordance herewith, the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of all series similarly affected, similarly given, shall be required in lieu of the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of the Series D Preferred Shares and the Voting Preferred Shares otherwise entitled to vote in accordance herewith;

    

  

12

  

    

(b)    A statutory share exchange that affects the Series D Preferred Shares, a consolidation with or merger of the Corporation into another entity, or a consolidation with or merger of another entity into the Corporation, unless in each such case each Series D Preferred Share (i) shall remain outstanding without a material and adverse change to its terms, voting powers, preferences and rights or (ii) shall be converted into or exchanged for preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications and terms or conditions of redemption thereof identical to that of a Series D Preferred Share (except for changes that do not materially and adversely affect the Series D Preferred Shares); provided, however, that if any such share exchange, consolidation or merger would materially and adversely affect any voting powers, rights or preferences of the Series D Preferred Shares or another series of Voting Preferred Shares that are not enjoyed by some or all of the other series otherwise entitled to vote in accordance herewith, the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of all series similarly affected, similarly given, shall be required in lieu of the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of the Series D Preferred Shares and the Voting Preferred Shares otherwise entitled to vote in accordance herewith; or

 

(c)    The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into or exchangeable for shares of any class ranking prior to the Series D Preferred Shares or the Voting Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Corporation or in the payment of dividends;

 

provided, however, that no such vote of the holders of Series D Preferred Shares shall be required on or after March 21, 2014, or in connection with a Change of Ownership or Control if, at or prior to the time when such amendment, alteration, repeal, share exchange, consolidation or merger is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, a deposit is made for the redemption in cash of all Series D Preferred Shares at the time outstanding as provided in paragraph (e) of Section 5 hereof for a redemption price determined under the appropriate paragraph of Section 5.

 

So long as any Series D Preferred Shares are outstanding, the affirmative vote of the holders of at least a majority of the Series D Preferred Shares and the Voting Preferred Shares at the time outstanding, acting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating the amendment of the provisions of the Certificate of Incorporation so as to authorize or create, or to increase the authorized amount of, the Series D Preferred Shares, or any shares of any class ranking, as to receipt of dividends or distribution of assets upon liquidation, dissolution or winding up of the Corporation, on parity with the Series D Preferred Shares or the Voting Preferred Shares.

   

  

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For purposes of the foregoing provisions of this Section 8, each Series D Preferred Share shall have one vote per share, except that when any other series of Voting Preferred Shares shall have the right to vote with the Series D Preferred Shares as a single class on any matter, then the Series D Preferred Shares and such other series shall have with respect to such matters one vote per $50.00 of stated liquidation preference. Except as set forth herein, the Series D Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any corporate action,

 

No amendment to these terms of the Series D Preferred Shares shall require the vote of the holders of Common Shares (except as required by law) or any series of Preferred Stock other than the Voting Preferred Shares and the Series C Preferred Shares.

 

Section 9. Information Rights. During any period in which the Corporation is not subject to Section 13 or 15(d) of the Exchange Act and any Series D Preferred Shares are outstanding, the Corporation shall (a) transmit by mail to all holders of Series D Preferred Shares, as their names and addresses appear in the Corporation's record books and without cost to such holders, copies of the annual reports and quarterly reports that the Corporation would have been required to file with the Securities and Exchange Commission (the "SEC") pursuant to Section 13 or 15(d) of the Exchange Act if the Corporation was subject to such Sections (other than any exhibits that would have been required); and (b) promptly upon written request, supply copies of such reports to any prospective holder of Series D Preferred Shares. The Corporation shall mail the reports to the holders of Series D Preferred Shares within 15 days after the respective dates by which the Corporation would have been required to file the reports with the SEC if the Corporation were then subject to Section 13 or 15(d) of the Exchange Act, assuming the Corporation is a "non-accelerated filer" in accordance with the Exchange Act.

 

Section 10. Record Holders. The Corporation and the Transfer Agent shall deem and treat the record holder of any Series D Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Corporation nor the Transfer Agent shall be affected by any notice to the contrary,

 

Section 11. Sinking Fund. The Series D Preferred Shares shall not be entitled to the benefits of any retirement or sinking fund.

 

Section 12. Conversion. The Series D Preferred Shares shall not be convertible into or exchangeable for any stock or other securities or property of the Corporation.

    

  

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Section 13. Book Entry. The Series D Preferred Shares shall be issued initially in the form of one or more fully registered global certificates ("Global Preferred Shares"), which shall be deposited on behalf of the purchasers represented thereby with the Transfer Agent, as custodian for a securities depositary (the "Depositary") that is a clearing agency under Section 17A of the Exchange Act (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or its nominee, duly executed by the Corporation and authenticated by the Transfer Agent. The number of Series D Preferred Shares represented by Global Preferred Shares may from time to time be increased or decreased by adjustments made on the records of the Transfer Agent and the Depositary as hereinafter provided. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under these terms of the Series D Preferred Shares with respect to any Global Preferred Shares held on their behalf by the Depositary or by the Transfer Agent as the custodian of the Depositary or under such Global Preferred Shares, and the Depositary may be treated by the Corporation, the Transfer Agent and any agent of the Corporation or the Transfer Agent as the absolute owner of such Global Preferred Shares for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Corporation, the Transfer Agent or any agent of the Corporation or the Transfer Agent from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Shares.

 

 

 [SIGNATURE PAGE FOLLOWS]

 

   

  

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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be duly executed and acknowledged by Gary C. Evans its Chief Executive Officer as of this 16th day of March, 2011.

 

 

	 	MAGNUM HUNTER RESOURCES CORPORATION	 
	 	 	 	 
	
 

	
By: 

	/s/ Gary C. Evans	 
	 	 	Name: Gary C. Evans	 
	 	 	Title: Chairman and Chief Executive Officer	 
	 	 	 	 

     

 

 

 

 

 

16

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