Document:

eflow_ex40.htm

 

 FORM OF CONVERTIBLE NOTE -- EXHIBIT 4.0

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”) OR APPLICABLE STATE SECURITIES LAWS.  THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT AND IN COMPLIANCE WITH ALL APPLICABLE LOCAL LAWS AND REULATIONS, (C) IN ACCORDANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (I) RULE 144 THEREUNDER, IF AVAILABLE, OR (II) RULE 144A THEREUNDER, IF AVAILABLE, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER”, AS DEFINED IN RULE 144A UNDER THE U.S. SECURITIES ACT (“QUALIFIED INSTITUTIONAL BUYER”), THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE OFFER, SALE OR TRANSFER IS BEING MADE IN RELIANCE OF RULE 144A UNDER THE U.S. SECURITIES ACT, AND, IN BOTH CASES, IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE 1933 ACT OR ANY APPLICABLE STATE LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, UNDER (B), (C) OR (D) ABOVE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL OF RECOGNIZED STANDING OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY.  DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.

 

THE SECURITIES REPRESENTED HEREBY MAY  BE OFFERED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”).

 

THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY IN OR FROM A JURISDICTION OF CANADA UNLESS THE CONDITIONS IN SECTION 13 OF MULTILATERAL INSTRUMENT 51-105 ISSUERS QUOTED IN THE U.S. OVER-THE-COUNTER MARKETS ARE MET

 

	No. EFLO CNXXXXX  	   USD$XXXXX
	Date of Issuance: October 30, 2013	 

 

                                                                                                                                                                                                                                                                                                

EFLO ENERGY, INC.

(Incorporated under the laws of the State of Nevada, USA)

 

10% UNSECURED CONVERTIBLE NOTE

DUE EIGHTEEN MONTHS FROM DATE OF ISSUANCE

 

(SUBJECT TO THE TERMS AND CONDITIONS (THE “TERMS”) SET FORTH HEREIN)

 

FOR VALUE RECEIVED, EFLO ENERGY, INC. (herein referred to as the “Corporation”) promises

 

to pay to SAMPLE, Account #XXXXX, Address or any subsequent registered holder hereof (the “Holder”), the principal sum of SAMPLE (USD$XXXXX) on or prior to  eighteen months from date of issuance (the “Maturity Date”), in previously unissued common shares of the Corporation, as presently constituted (“Common Shares”) at $1.00 (the “Conversion Price”), and to pay interest on the principal sum outstanding, at a rate of 10% per annum (the “Interest Rate”), calculated in accordance with the Terms, and payable on the Maturity Date. Such interest shall be paid, at the option of the Corporation, in cash or Common Shares in accordance with the Terms of this Convertible Note, to the person and at the address in whose name this Convertible Note is registered on the records of the Corporation regarding registration and transfers of the Convertible Notes (the “Note Register”) on the business day immediately preceding the payment date.  The principal of this Convertible Note is payable in Common Shares to the person and at the address in whose name this Convertible Note is registered on the Note Register on the business day immediately preceding the payment date.  The forwarding of such payment shall constitute a payment hereunder and shall satisfy and discharge the liability for principal on this Convertible Note to the extent of the Common Shares so paid.

 

THIS CONVERTIBLE NOTE is one of a duly authorized issue of Convertible Notes of the Corporation, designated as its 10% Convertible Notes due eighteen months from date of issuance (the “Convertible Notes”).

 

  

 

  

 

    IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed by an officer thereunto duly authorized.

 

	 	

EFLO ENERGY, INC.

	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	 	 
	 	 	

Robert Wesolek, Chief Financial Officer

	 
	 	 	 	 

 

 

  

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NOTICE OF CONVERSION

 

 

TO:    EFLO ENERGY, INC.

 

 

The undersigned hereby irrevocably converts Convertible Note No. ____ in the principal amount of $__________ (the “Convertible Note”) into Common Shares of EFLO ENERGY, INC. (the “Corporation”) according to the Terms of the Convertible Note, as of the date written below.

 

	
DATE OF CONVERSION

 

 

	  	
AUTHORIZED SIGNATURE

 

 

	
AMOUNT OF CONVERSION

	  	
NAME

 

 

	  	  	
ADDRESS

 

 

	  	  	  
	  	  	
CITY, COUNTRY, POSTAL CODE

 

 

	
*

	
No Common Shares will be issued until the original Note(s) to be converted and the Notice of Conversion are received by the Corporation.

 

  

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TERMS AND CONDITIONS OF

10% UNSECURED CONVERTIBLE NOTES

 

Due the 30th Day of April, 2015

Being Eighteen Months from Date of Issuance

 

Section 1.      Note Denominations.  The Convertible Notes are issuable in denominations of one thousand dollars (USD$1,000) and integral multiples thereof only.  Upon conversion of a portion, but less than all, of a Convertible Note in accordance with the terms hereof, a new note or notes may be issued to the Holder in a denomination equal to the exact amount of the unconverted portion of the Convertible Note.

 

Section 2.     Interest.  Whenever any interest or fee under this Convertible Note is calculated using a rate based on a year of 365 days, the rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to (x) the applicable rate based on a year of 365 days, (y) multiplied by the actual number of days in the calendar year in which the period for which such interest or fee is payable (or compounded) ends, and (z) divided by 365. The principle of deemed reinvestment of interest does not apply to any interest or fee calculation under this Convertible Note, and the rates of interest stipulated in this Convertible Note are intended to be nominal rates and not effective rates or yields.

 

Under no circumstances shall the Holder be entitled to receive nor shall it in fact receive a payment or partial payment of interest, fees or other amounts under or in relation to this Note at a rate that is prohibited by applicable law. Accordingly, notwithstanding anything herein or elsewhere contained, if and to the extent that under any circumstances, the effective annual rate of interest received or to be received by a Holder (determined in accordance with such section) pursuant to this Convertible Note or any agreement or arrangement collateral hereto entered into in consequence or implementation hereof would, but for this Section 2, be a rate that is prohibited by applicable law, then the effective annual rate of interest, as so determined, received or to be received by the Holder shall be, and be deemed to be, adjusted to a rate that is one whole percentage point less than the highest effective annual rate of interest that is so prohibited (the “adjusted rate”); and, if the Holder has received a payment or partial payment which would, but for this Section 2, be so prohibited, then any amount or amounts received in excess of the annual rate that is so prohibited shall and shall be deemed to have comprised a credit to be applied to subsequent payments on account of interest, fees or other amounts due to the Holder at the adjusted rate.

 

The Corporation may, at its option, elect to pay interest by the issuance of fully-paid and non-assessable common shares of the Corporation (the “Common Shares”), the number of Shares to be determined by dividing the amount of the interest payment by $1.25 per share.  The amount of interest payable in respect of any Convertible Note for any payment period shall be reduced proportionately in the event the Convertible Note shall not be outstanding for the entire payment period.

 

Section 4.     Conversion.   The Holder of a Convertible Note shall have conversion rights as follows (the “Conversion Rights”):

 

(a)           Right to Convert; Conversion Price.  The record Holder of a Convertible Note shall be entitled, at any time, at the office of the Corporation, to convert all or any portion of the Convertible Note held by such Holder into that number of Common Shares as shall be equal to the Principal Amount at $1.00 per share (the “Conversion Price”) until Midnight, Central time on the Maturity Date (the “Time of Expiry”).

 

(b)           Mechanics of Conversion.  In order to convert the Convertible Notes into Shares, the Holder shall deliver a copy of the fully executed notice of conversion in the form on the rear of the certificate evidencing the Convertible Note (“Notice of Conversion”) to the Corporation at the office of the Corporation which notice shall specify the amount of the Convertible Note to be converted (together with a copy of the first page of each Convertible Note to be converted) prior to Midnight, Central time (the “Conversion Notice”) on the date of Conversion specified on the Notice of Conversion and (ii) surrender the original Convertible Note(s); provided, however, that the Corporation shall not be obligated to issue certificates evidencing the Shares issuable upon such conversion unless either the original Convertible Notes are delivered to the Corporation as provided above, or the Holder notifies the Corporation that such Convertible Note(s) have been lost, stolen or destroyed.  In the case of a dispute as the calculation of the Conversion Price, the Corporation’s calculation shall be deemed conclusive absent manifest error.

 

(i)           Lost or Stolen Notes.  Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of a Convertible Note, and (in the case of loss, theft or destruction) indemnity or security reasonably satisfactory to the Corporation, and upon surrender and cancellation of the Convertible Note, if mutilated, the Corporation shall execute and deliver new Convertible Note(s) of like tenor and date.

 

(ii)           Delivery of Shares upon Conversion.  The Corporation shall issue and use its best efforts to deliver within a reasonable time after delivery to the Corporation of a Convertible Note and Notice of Conversion, or after provision for security or indemnification required by (i) above, to such Holder of the Convertible Note at the address of the Holder on the books of the Corporation, a certificate for the number of Shares to which the Holder shall be entitled as aforesaid.

 

  

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                                (iii)           No Fractional Shares.  No fractional Shares shall be issued upon conversion of a Convertible Note.  If any conversion of the Convertible Note would create a fractional Share or a right to acquire a fractional Share, a cash adjustment will be made for the fractional interest.

 

(iv)           Date of Conversion.  The date of which conversion occurs (the “Date of Conversion”) shall be deemed to be the date set forth in such Notice of Conversion, provided that the copy of the Notice of Conversion is delivered or faxed to the Corporation before midnight, Central time, on the Date of Conversion, and (ii) that the original Convertible Notes to be converted are surrendered, and received by the Corporation within five business days from the Date of Conversion.  The person or persons entitled to receive the Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Shares on such date.  If the original Convertible Notes to be converted are not received by the Corporation within five business days after the Date of Conversion, the Notice of Conversion, at the Corporation’s option, may be declared null and void.

 

(c)           Reservation of Shares Issuable Upon Conversion.  The Corporation shall at all times reserve and keep available out of its authorized but unissued Shares, solely for the purpose of effecting the conversion of the Convertible Notes, such number of its Shares as shall from time to time be sufficient to effect the conversion of all then outstanding Convertible Notes; and if at any time the number of authorized but unissued Shares shall not be sufficient to effect the conversion of all then outstanding Convertible Notes, the Corporation will immediately take such corporate action as may be necessary to increase its authorized but unissued Shares to such number of shares as shall be sufficient for such purpose.

 

(d)           Adjustment to Conversion Price.

 

(i) Adjustment Due to Stock Split, Stock Dividend, Etc.  If at any time when the Convertible Notes are issued and outstanding, the number of outstanding Shares is increased by a stock split, stock dividend, or other similar event, the Conversion Price shall be proportionately reduced, or if the number of outstanding Shares is decreased by a combination or reclassification of shares, or other similar event, the Conversion Price share be proportionately increased.

 

(ii) Adjustment Due to Merger, Consolidation, Etc.  If at any time when the Convertible Notes are issued and outstanding, there shall be any merger, amalgamation, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which Shares of the Corporation shall be changed into the same or a different number of shares of another class or securities of the Corporation or another entity, then the Holders of the Convertible Notes shall thereafter have the right to receive upon conversion of the Convertible Notes, upon the basis and upon the terms and conditions specified herein and in lieu of the Shares immediately theretofore issuable upon conversion, such Shares and/or securities which the Holder would have been entitled to receive in such transaction had the Convertible Notes been converted immediately prior to such transaction, and in any such case appropriate provisions shall be made with respect to the rights and interest of the Holders of the Convertible Notes to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price Notes shall thereafter be applicable, as nearly as may be practicable in relation to any securities thereafter deliverable upon the exercise hereof.

 

Section 5.   Special Undertaking and Penalty Interest.   The Corporation shall use its best efforts, make such applications, and pursue such actions as may be required to augment, or replace its current trading status on the Over the Counter Marketplace (OTCQB) with eligible trading status on the Canadian TSX-V or other more senior stock exchange.

 

	
a.  

	
Any other term hereof notwithstanding,  the Interest Rate under a Convertible Note will increase to 12.5% per annum, for the entire period during which that Convertible Note is outstanding, if the Corporation does not complete its migration to a senior exchange within nine (9) months from date of issuance thereof, or

 

	
b.  

	
Any other term hereof notwithstanding, the Interest Rate under a Convertible Notes will increase to a maximum of 15.0% per annum, for the entire period during which that Convertible Note is outstanding, if the Corporation does not complete it migration to a senior exchange within 12 months from date of issuance thereof.

 

 

  

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               Section 6.   Events of Default and Notices Thereof.   The term “Event of Default” includes any one of the following; (i) failure of the Corporation to pay interest or principal when due within 45 days after notice; (ii) failure of the Corporation to perform any other covenant herein for 45 days after notice; (iii) default by the Corporation with respect to its obligations to pay principal of or interest on certain other indebtedness aggregating more than $5,000,000 or the acceleration of such indebtedness under the terms of the instruments evidencing such indebtedness; and (iv) events of bankruptcy or insolvency of the Corporation.

 

In case an event of Default (other than an Event of Default resulting from bankruptcy or insolvency) shall occur and be continuing for a period of 45 days from the date that an Event of Default is deemed to have occurred, the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding may by notice in the writing to the Corporation declare all unpaid principal and accrued interest on the Convertible Notes then outstanding to be due and payable immediately

 

Section 7.      Modification and Waiver.    Modification and amendment of the Convertible Notes  may be made by the Corporation with the consent of the holders of not less than a majority in principal amount of the outstanding Convertible Notes, provided that no such modification or amendment may, without the consent of the holder of each Convertible Note affected thereby (i) change the stated maturity of the principal of or any installment of interest on any Convertible Note, (ii) reduce the principal of, or the rate of interest on, any Convertible Note, (iii) change the currency of payment of principal of or interest on any Convertible Note, (iv) reduce the above-stated percentage of holders of Convertible Notes necessary to modify or amend the Convertible Notes or (v) modify any of the foregoing provisions or reduce the percentage of outstanding Convertible Notes necessary to waive any covenant or past default.  Holders of not less than a majority in principal amount of the outstanding Convertible Notes may waive any covenant or past defaults.  (See Section 6)  An amendment to the Convertible Notes may not adversely affect the rights under the subordination provisions of the holders of any issue of senior indebtedness without the consent of such holders.

 

Section 8.    No Voting Rights.   The Convertible Notes shall not entitle the Holders thereof to any of the rights of a shareholder of the Corporation, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend meetings of shareholders or any other proceedings of the Corporation.

 

Section 9.   Governing Law.   The Convertible Notes shall be governed by and construed in accordance with the laws of the State of Nevada and the federal laws of United States applicable therein.

 

Section 10.    Notices.   Any notice or other communication required or permitted to be given hereunder shall be given as provided herein or delivered against receipt if to (i) the Corporation at 333 North Sam Houston Parkway East. Suite 600, Houston, Texas 77060, attention: Robert Wesolek, and (ii) the Holder of a Convertible Note, to such holder at its last address as shown on the Note Register (or to such other address as the party shall have furnished in writing as its new address to be entered on the Note Register (which address must include a facsimile number) in accordance with the provisions of this Section 10).  Any notice or other communication needs to be made by facsimile and delivery shall be deemed give, except as otherwise required herein, at the time of transmission of said facsimile.  Any notice given on a day that is not a business day shall be effective upon the next business day.

 

Section 11   Waiver of any Breach to be in Writing.   Any waiver by the Corporation or the Holder of a Convertible Note of a breach of any provision of the Convertible Note shall not operate as, or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of the Convertible Note.  The failure of the Corporation or the Holder hereof to insist upon strict adherence to any term of the Convertible Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of the Convertible Note.  Any waiver must be in writing.

 

Section 12   Unenforceable Provisions.   If any provision of a Convertible Note is invalid, illegal or unenforceable, the balance of the Convertible Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

 

 

6Unassociated Document

 

 

Magnum Hunter Resources Corporation 8-K

Exhibit 10.1

 

Execution Version

OMNIBUS SETTLEMENT AGREEMENT AND RELEASE

 

This Omnibus Settlement Agreement and Release (“Agreement”) is entered into as of the 9th day of January, 2014 (the “Execution Date”), by and among Magnum Hunter Resources Corporation, a Delaware corporation (“MHR”), Magnum Hunter Production, Inc., a Kentucky corporation, formerly known as NGAS Production Co., which in turn was formerly known as Daugherty Petroleum, Inc. (“MHP”), Eureka Hunter Pipeline, LLC, a Delaware limited liability company (“EHP”), Seminole Energy Services, L.L.C., an Oklahoma limited liability company (“SES”), Seminole Gas Company, L.L.C., an Oklahoma limited liability company (“SGC”), Seminole Murphy Liquids Terminal, L.L.C., a Tennessee limited liability company (“SMLT”), NGAS Gathering II, LLC, a Kentucky limited liability company (“NG-II”), and NGAS Gathering, LLC, a Kentucky limited liability company (“NG-I”).  Collectively, MHR, MHP and EHP may be referred to herein as the “Magnum Hunter Entities”.  Collectively, SES, SGC, SMLT, NG-I and NG-II may be referred to herein as the “Seminole Entities”. Each of the entities executing this Agreement may be referred to herein as a “Party”, and collectively they may be referred to herein as the “Parties”.

 

RECITALS

 

A.           WHEREAS, certain Parties are currently involved in four legal proceedings (the “Legal Proceedings”) pending in four different fora as more fully described below (the Parties to the Legal Proceedings being the “Litigant Parties”):

 

1.           Magnum Hunter Production, Inc. and Eureka Hunter Pipeline, LLC v. Seminole Energy Services, L.L.C., and Seminole Gas Company, L.L.C.; brought under the Federal Arbitration Act (the “Tulsa Arbitration”);

 

  

  

  

 

2.           Magnum Hunter Production, Inc., f/k/a NGAS Production Co. v. Seminole Murphy Liquids Terminal, L.L.C., Civil Action No. 12-CI-2838; in the Fayette Circuit Court, Division 9, Commonwealth of Kentucky (the “Kentucky Lawsuit”);

 

3.           Magnum Hunter Production, Inc. v. Seminole Energy Services, L.L.C., Cause No. 2012-44241; in the 190th Judicial District of Harris County, Texas (the “Houston Lawsuit”);

 

4.           Seminole Energy Services, L.L.C. and Seminole Gas Company, L.L.C. v. Magnum Hunter Resources Corporation and NGAS Resources, Inc., Case No. CJ-2013-01420; in the District Court of Tulsa County, State of Oklahoma (the “Tulsa Lawsuit”); and

 

B.           WHEREAS, the Litigant Parties have asserted positions and claims in the Legal Proceedings which are contested and subject to proof thereof; and

 

C.           WHEREAS, each of the Parties has agreed it is in its best interest of the Parties for the Litigant Parties to settle and compromise all claims alleged in the Legal Proceedings or arising from or relating to the matters, facts, allegations, or assertions at issue in the Legal Proceedings and have accordingly entered into this Agreement; and

 

D.           WHEREAS, in connection with this Agreement, the Parties desire to terminate certain existing agreements as set forth herein; and

 

E.           WHEREAS, in connection with this Agreement, the Parties desire to enter into additional agreements and amendments to existing agreements as set forth herein and attached hereto.

 

  

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NOW, THEREFORE, subject to the terms and conditions of this Agreement, and in consideration of the mutual promises and covenants stated herein and the recitals set forth above, and in light of other good and valuable consideration to the Parties, the sufficiency and receipt of which is hereby acknowledged, the Parties agree as follows:

 

TERMS OF THE AGREEMENT

 

1.              Consideration.

 

1.1           Termination – Effective as of 11:59 p.m. (Central Standard Time) on December 31, 2013, the following agreements shall immediately terminate and be of no further force or effect:

 

(a)           the Gas Gathering Agreement currently between NG-II, SGC and SES dated effective July 15, 2009, as amended by the First Amendment thereto dated as of January 9, 2010, as amended by the Second Amendment thereto dated as of March 10, 2011, shall immediately terminate and be of no further force and effect; provided, however, that all payment obligations under such agreement that accrued before 11:59 p.m. (Central Standard Time) on December 31, 2013 shall continue to survive until fully performed;

 

(b)           the Joint Ownership Agreement (Olive Grove Natural Gas Gathering Trunk Line & Treatment Facility) currently between MHP and SGC dated as of August 12, 2008;

 

(c)           the Olive Grove Gas Gathering and Treatment Agreement currently between MHP, as “Producer,” SGC and MHP, as “Owners,” and SES, as “Manager,” dated July 1, 2008, as amended by that certain First Amendment to Olive Grove Gas Gathering and Treatment Agreement dated as of July 27, 2012, 

 

  

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by and among MHP, as “Producer,” SGC and MHP, as “Owners,” and SES, as “Manager;”

 

(d)          the SES Operating and Maintenance Agreement (NGAS/Seminole Gathering System) currently between SGC, NG-II and SES dated July 15, 2009, as amended by the First Amendment thereto dated as of March 10, 2011; and

 

(e)          the DPI Operating and Maintenance Agreement (NGAS/Seminole Gathering System) currently between SES and MHP dated as of July 15, 2009, as amended by the First Amendment thereto dated as of March 10, 2011.

 

1.2           Definitive Agreements – Concurrently with the execution of this Agreement and in furtherance of the agreements contemplated hereunder, the following agreements have been executed and delivered (collectively, the “Definitive Agreements”):

 

(a)          SGC and MHP executed the Asset Purchase Agreement (Olive Grove) attached hereto as Exhibit A, which sets forth the terms and conditions upon which SGC will sell to MHP, and MHP will purchase from SGC, SGC’s interest in the Olive Grove natural gas treatment facility and gathering trunk line;

 

(b)           MHP, SGC and NG-II executed the Gas Gathering Agreement attached hereto as Exhibit B (the “Gas Gathering Agreement”), which sets forth the terms and conditions upon which SGC and NG-II will provide MHP gas gathering services on a natural gas gathering system in southeastern Kentucky, eastern Tennessee and western Virginia (the “Stone Mountain Gathering System”);

 

(c)           SGC, NG-II and MHP executed the MHP Operating and Maintenance Agreement (NNG/SGC Gathering System) attached hereto as 

 

  

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Exhibit C (the “MHP Operating and Maintenance Agreement”), which sets forth the terms and conditions upon which MHP will operate and maintain the Stone Mountain Gathering System on behalf of SGC and NG-II;

 

(d)           EHP, SES and SGC executed the First Amendment to Joint Ownership Agreement attached hereto as Exhibit D, regarding the ownership and operation of the cryogenic natural gas processing plant in the vicinity of Rogersville, Tennessee (the “Rogersville Plant”);

 

(e)           EHP, SGC, SES, and MHP executed the First Amendment to Gas Processing Agreement attached hereto as Exhibit E, regarding the provision of natural gas processing services at the Rogersville Plant;

 

(f)           MHP and SMLT executed the Second Amendment to Base Contract for Sale and Purchase of Natural Gas Liquids &/or Condensate and Transaction Confirmation attached hereto as Exhibit F, regarding the sale of natural gas liquids by MHP to SMLT;

 

(g)           SES and MHP executed the Second Amendment to Base Contract for Sale and Purchase of Natural Gas attached hereto as Exhibit G, which sets forth the terms and conditions on which SES will purchase natural gas from MHP;

 

(h)           MHP and SGC executed the Asset Purchase Agreement (SMLT Credit Distribution) attached hereto as  Exhibit H, which sets forth the terms and conditions upon which SGC will purchase from MHP, and MHP will sell to SGC, certain rights under the Base Contract for Sale and Purchase of Natural Gas 

 

  

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Liquids &/or Condensate dated January 2, 2008, currently between SMLT and MHP (as amended, the “SMLT Base Contract”);

 

(i)             SES, SGC, NG-II, EHP, SMLT and MHP executed the Second Amendment to  Master Netting and Setoff Agreement attached hereto as Exhibit I, which nets amounts owed by one or more of such Parties to one or more of the other Parties under certain agreements; and

 

(j)           the Litigant Parties executed the documents attached hereto as Exhibits J1-4 (the “Legal Proceedings Dismissal Documentation”).

 

           1.3           Legal Proceedings Dismissal Documentation – Not more than five (5) business days after the Execution Date, each of the Litigant Parties shall cause to be filed with the arbitrator in the Tulsa Arbitration, and with the courts in the Kentucky Lawsuit, the Houston Lawsuit and the Tulsa Lawsuit, the Legal Proceedings Dismissal Documentation.

 

1.4           Drilling Commitment –

 

(a)           Upon execution of the Definitive Agreements, the Magnum Hunter Entities’ sole remaining drilling commitment under the Omnibus Agreement dated March 10, 2011, by and between SES, SGC, NG-II, MHR, MHP (as successor in interest to NGAS Production Co.), NG-I and NGAS Resources, Inc. (the “2011 Omnibus Agreement”) will require that MHP drill and complete four (4) Devonian (either Huron or Cleveland formation) horizontal gas wells capable of producing hydrocarbons (each, a “Devonian Well”) by the end of June 30, 2014 (such commitment being the “New Drilling Commitment” and such date being the “Commitment Date”).  The Parties to the 2011 Omnibus Agreement agree that the New Drilling Commitment effectively modifies the 2012 drilling 

 

  

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commitment under the 2011 Omnibus Agreement from a $20 million commitment for 2012 to a $10.5 million commitment for 2012, 2013 and that portion of 2014 occurring before the day after the Commitment Date.  The Seminole Entities agree that, to date, three wells at a cost of $1.5 million per well have already been drilled and completed pursuant to the New Drilling Commitment.  Costs attributable to the four Devonian Wells to be drilled and completed and capable of producing hydrocarbons by the end of the Commitment Date will be applied to the New Drilling Commitment at a credit of $1.5 million per well, thus accounting for the remainder of the $10.5 million required under the New Drilling Commitment.

 

(b)           MHP shall pay SES, by wire transfer of immediately available funds, an amount equal to Two Hundred Twenty-Five Thousand Dollars ($225,000) (being equal to the product of fifteen percent (15%) multiplied by $1.5 million) for each Devonian Well that has not been drilled and completed by MHP and is not capable of producing hydrocarbons by the end of the Commitment Date.

 

(c)           Except as set forth in Paragraphs 1.4(a) and (b), none of the Magnum Hunter Entities owe any further obligations under Section 6 of the 2011 Omnibus Agreement.

 

1.5           Other Consideration – Concurrently with the execution of this Agreement, (a) MHP shall have returned to SES the expired check tendered by SES to MHP on October 9, 2012 for $102,438.37 (Check No. 0935466), (b) SES shall have paid to MHP, by wire transfer in immediately available funds to the account specified in Exhibit K, the amount of  

 

  

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$102,438.37, and (c) SGC shall have paid to MHP, by wire transfer in immediately available funds to the account specified in Exhibit K, the amount of $13,689, representing MHP’s share of the total CPI adjustment that SES, as “Manager” of the Rogersville Plant, was entitled to charge Chesapeake (as defined in Paragraph 3.2(f)) under the Chesapeake GPA (as defined in Paragraph 3.2(f)) and Forexco (as defined in Paragraph 3.2(f)) under the Forexco GPA (as defined in Paragraph 3.2(f)) for processing fees for the period from January 2012 through March 2013.

 

2.            Mutual Release.

 

2.1           The Parties hereby mutually release and forever discharge each other Party, and their respective predecessors, successors, assigns, owners, parents, affiliates, divisions, agents, officers, directors, employees, insurers, and attorneys from any and all claims or causes of action (a) alleged in the Legal Proceedings, (b) arising from or relating to the facts at issue in the Legal Proceedings, or (c) that could have been alleged or asserted in the Legal Proceedings arising from or relating to the facts at issue in the Legal Proceedings (collectively, “Claims”).  THIS IS A FULL AND COMPLETE RELEASE OF ALL THE FOREGOING DEFINED CLAIMS PROVIDED THAT, FOR THE AVOIDANCE OF DOUBT, NOTHING HEREIN SHALL BE DEEMED TO RELEASE A PARTY FOR CLAIMS (AS THAT TERM IS GIVEN ITS ORDINARY MEANING, AND NOT AS DEFINED ABOVE) TO ENFORCE THE TERMS OF THIS AGREEMENT.

 

2.2           The Parties acknowledge the receipt and sufficiency of the consideration set forth in Article 1 by signing this Agreement and entering into the Definitive Agreements.  The Parties expressly waive and assume the risk of all Claims which exist as of the Execution Date, but of which they do not know or suspect to exist, whether through ignorance, oversight, error, negligence, or otherwise, and which, if known, would materially affect their decision to 

 

  

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enter into this Agreement or the Definitive Agreements, and waive any rights they have under any statute or common law principle that may affect such a release.  The Parties further acknowledge that they have accepted the consideration set forth in Article 1 or as otherwise contemplated in the Definitive Agreements as a complete compromise of all Claims, which Claims involve disputed issues of law and fact, and assume the risk that the facts or law may be other than they believe.

 

2.3           Notwithstanding the provisions of Paragraphs 2.1 and 2.2 above, the Parties agree they are not waiving any rights or claims that any of them may have to enforce the terms of this Agreement.

 

3.            Representations and Warranties.

 

3.1           By the Magnum Hunter Entities.          Each of the Magnum Hunter Entities represents and warrants, as to itself, to the Seminole Entities that (a) it has full power, authority and legal right to execute and deliver this Agreement and any other instruments or documents contemplated hereby to be executed by it and to consummate the transactions contemplated hereby; (b) this Agreement has been duly executed and delivered by such entity and constitutes the legal, valid and binding obligation of such entity, enforceable against such entity in accordance with the terms hereof except as may be limited by law; (c) except for the approval of the arbitrator in the Tulsa Arbitration and the courts in each of the Kentucky Lawsuit, the Houston Lawsuit and the Tulsa Lawsuit, to dismiss each of the Legal Proceedings with prejudice as contemplated by Paragraph 1.3 above, no further consent, approval or other action of any court or third party is required to be obtained by such entity in connection with the transactions contemplated in this Agreement; (d) it has not sold, assigned or transferred any claims it may have against any or all of the Seminole Entities or any of their successors, assigns, owners, 

 

  

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parents, affiliates, divisions, agents, officers, directors, employees, insurers or attorneys with respect to the matters released by this Agreement; and (e) except to the extent necessary to enforce the terms of this Agreement, it will not at any time hereafter file any complaints, demands, claims, or lawsuits against the Seminole Entities or any of their successors, assigns, owners, parents, affiliates, divisions, agents, officers, directors, employees, insurers, or attorneys with any government agency or any court or under any arbitration act or provision or with any arbitration association with respect to the matters released by this Agreement.

 

3.2           By the Seminole Entities.          Each of the Seminole Entities represents and warrants, as to itself, to the Magnum Hunter Entities as follows:

 

(a)           it has full power, authority and legal right to execute and deliver this Agreement and any other instruments or documents contemplated hereby to be executed by it and to consummate the transactions contemplated hereby;

 

(b)           this Agreement has been duly executed and delivered by such entity and constitutes the legal, valid and binding obligation of such entity, enforceable against such entity in accordance with the terms hereof except as may be limited by law;

 

(c)           except for the approval of the arbitrator in the Tulsa Arbitration and the courts in each of the Kentucky Lawsuit, the Houston Lawsuit and the Tulsa Lawsuit, to dismiss each of the Legal Proceedings with prejudice as contemplated by Paragraph 1.3 above, no further consent, approval or other action of any court or third party is required to be obtained by such entity in connection with the transactions contemplated in this Agreement;

 

(d)           it has not sold, assigned or transferred any claims it may have against any or all of the Magnum Hunter Entities or any of their successors, assigns,

 

  

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owners, parents, affiliates, divisions, agents, officers, directors, employees, insurers or attorneys with respect to the matters released by this Agreement;

 

(e)           except to the extent necessary to enforce the terms of this Agreement, it will not at any time hereafter file any complaints, demands, claims, or lawsuits against the Magnum Hunter Entities or any of their successors, assigns, owners, parents, affiliates, divisions, agents, officers, directors, employees, insurers, or attorneys with any government agency or any court or under any arbitration act or provision or with any arbitration association with respect to the matters released by this Agreement;

 

(f)           except with respect to (i) the Natural Gas Processing Agreement (Rogersville Cryogenic Processing Plant) entered into by and between SGC, SES and Chesapeake Appalachia, LLC (“Chesapeake”) dated April 1, 2011, as amended by that certain First Amendment to Natural Gas Processing Agreement dated June 12, 2013, by and between Chesapeake and SES (such Natural Gas Processing Agreement as so amended by such First Amendment to Natural Gas Processing Agreement being the “Chesapeake GPA”), (ii) the Natural Gas Processing Agreement (Rogersville Cryogenic Processing Plant) entered into by and between Forexco, Inc. (“Forexco”), SGC and SES dated April 1, 2011, as amended by that certain Letter Agreement dated May 14, 2013, by and between Forexco and SGC (such Natural Gas Processing Agreement as so amended by such Letter Agreement being the “Forexco GPA”),  (iii) the Natural Gas Processing Agreement (Rogersville Cryogenic Processing Plant) by and between Seminole Energy Services, LLC (Mid Atlantic), SES and SGC dated June 1, 2011, as amended by that certain Letter Agreement dated May 14, 2013, by and between SES and SGC, and (iv) the Gas Processing Agreement currently between MHP, as “Producer,” 

 

  

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SGC and EHP, as “Owners,” and SES, as “Manager,” dated September 14, 2007, as amended by that certain First Amendment to Gas Processing Agreement dated of even date herewith by and between SGC, EHP, MHP and SES, there are no processing agreements relating to or affecting the Rogersville Plant; and

 

(g)           it has delivered to the Magnum Hunter Entities a true and correct copy of each agreement referenced in Paragraph 3.2(f) above, together with all amendments and modifications thereto.

 

4.            Miscellaneous Provisions.

 

4.1           Integration.          This Agreement contains and constitutes the full and entire agreement between and among the Parties and supersedes all prior agreements, negotiations and understandings between and among the Parties relating to the subject matter hereof, whether written or oral.  Except as otherwise specifically provided in this Agreement, no change, amendment, modification, waiver or addition to this Agreement shall be valid unless made in writing and signed by or on behalf of each of the Parties.

 

4.2           Severability of Provisions.          If any term of this Agreement is to any extent held invalid or unenforceable by a final and non-appealable order of a court of competent jurisdiction, the remainder of this Agreement shall not be affected thereby, and each of the terms and provisions of this Agreement shall be valid and enforced to the fullest extent permitted by law.

 

4.3           Headings and Neutral Terms.          The headings and subheadings contained in this Agreement are used solely for convenience and do not constitute a part of this Agreement between the Parties and shall not be used to construe or interpret the provisions of this Agreement.  In all references herein to any Parties, persons, entities or corporations, the 

 

  

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use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text of this Agreement may require.

 

4.4           Counterpart Execution.          This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.  A facsimile or electronic signature on this Agreement shall have the same force and effect as an original signature thereto.  This Agreement shall be binding and enforceable upon signature and delivery by all Parties of signed counterparts, regardless of whether delivery is effected by delivery of original, facsimile or electronic signatures.

 

4.5           Contractual Intent.          This Agreement and the transactions contemplated hereby are contractual and not merely recitals, and this Agreement is not executed in reliance upon any other statement or representation, or for any other consideration except those which are expressly made herein.  The Magnum Hunter Entities and the Seminole Entities are fully informed of and acquainted with the contents of this Agreement and have full knowledge and appreciation of its meaning and effect and agree and acknowledge that it is executed for legally sufficient and adequate consideration.  The Parties acknowledge that each of them received the advice of counsel prior to signing this Agreement, and their decision to sign this Agreement was their free and voluntary act.

 

4.6           Negotiation of the Agreements.          All of the Parties and their counsel have had the opportunity to participate in the drafting and revision of this Agreement.  Therefore, the recitals and agreements contained herein and transactions contemplated hereby shall not be construed in favor of or against any Party, but shall be construed as if all Parties prepared this Agreement.

 

  

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4.7           Assignment; Binding Effect.          No Party shall assign or otherwise transfer all or any part of this Agreement or delegate all or any part of its rights or obligations hereunder without the prior written consent of each other Party and any assignment, transfer or delegation made without such consent shall be void and of no force and effect; provided, however, each Party shall have the right, without consent of the other Parties, to assign, transfer  or delegate all or any part of its rights or obligations under Paragraph 1.4 to a purchaser or purchasers of all or substantially all of the assets or business of such Party.  Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns.

 

4.8           Remedies Upon Breach.          If one Party to this Agreement has performed all of its obligations hereunder (the “Non-Breaching Party”), and another Party has failed to perform all of its obligations hereunder, then the Non-Breaching Party may, at its election, seek remedies as set forth in Paragraph 4.11 below.

 

4.9           No Admission of Liability; No Adverse Effect Upon the Action.          It is expressly understood and agreed by the Magnum Hunter Entities and the Seminole Entities that nothing herein is, shall be construed to be, or may be used to prove, an admission of any factual recital or of any liability asserted either herein or in any of the Legal Proceedings.

 

4.10           Governing Law; Construction.          This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to the conflicts of law rules thereof.

 

4.11           Resolution of Breach.          In the event of a dispute arising between the Parties to this Agreement, including with respect to the breach of any terms of this Agreement, such dispute will be resolved by arbitration in Houston, Texas by a single 

 

  

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arbitrator, who, if available and without conflict, shall be Michael J. Wozniak or, if such person is not available or has a conflict, then an arbitrator mutually acceptable to the Parties or, if no such agreement can be reached, then an arbitrator selected pursuant to the rules of the American Arbitration Association.  The non-prevailing Parties in any such arbitration shall pay to each prevailing party the reasonable legal fees and expenses incurred by such prevailing party in connection with prosecuting or defending such arbitration.

 

4.12           Attorney Fees, Costs and Expenses.          Except as otherwise provided by Paragraph 4.11 above, the Parties shall each be responsible for and shall pay for all of their own respective attorney fees, costs and expenses, if any, incurred by or on behalf of each such Party in or in relation to (i) the Legal Proceedings, (ii) any actions, matters or issues between the Parties incident or related to the Legal Proceedings or (iii) the negotiation, execution and delivery of this Agreement or the Definitive Agreements.

 

5.           Confidentiality.          No Party shall disclose directly or indirectly without the prior written consent of each other Party the terms and conditions of this Agreement or any of the facts, circumstances or allegations relating to or regarding the Legal Proceedings (“Confidential Information”) to any person or entity; provided, however, that any Party may disclose such terms, conditions, facts, circumstances or allegations to the extent (a) the same is in the public domain through no action of such Party or its affiliate or (b) a Party is required by any governmental authority (including any regulatory or supervisory authority or any quasi-governmental or private body that exercises regulatory or taxing authority) or any applicable law (including judgments, decisions and awards of any governmental authority or any disclosures that are required to be made by a Party pursuant to the rules and regulations of the United States Securities and Exchange Commission or any stock exchange on which the stock 

 

  

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of such Party (or any affiliate of such Party) is listed).  Notwithstanding the foregoing, a Party may disclose Confidential Information (i) to such Party’s affiliates, owners, shareholders, directors, officers, managers, employees, advisors, counsel, lenders, financial consultants, insurers, accountants, underwriters, agents and representatives, in each case limited to the extent necessary; (ii) to prospective purchasers of all or substantially all of the (a) direct or indirect equity interests in a Party or (b) assets or business of such Party, provided, each such prospective purchaser agrees to be bound by and subject to substantially equivalent terms of confidentiality as set forth herein; (iii) to any governmental authority to the extent necessary to enforce this Agreement; and (iv) to an arbitrator pursuant to Paragraph 4.11 above in connection with any dispute arising between the Parties.

 

In the event that any Party becomes the subject of a subpoena or other legal process by which disclosure of the Confidential Information is sought, then the Party subject to the subpoena or other legal process shall, to the extent legally permissible, (a) take immediate and diligent steps to provide a full, complete copy of the subpoena or other legal process to all other Parties and (b) only disclose that portion of the Confidential Information that is required to be disclosed and use reasonable commercial efforts to ensure further confidential treatment of the Confidential Information so disclosed.

 

Notwithstanding the foregoing, (i) the Parties are free to state that the Legal Proceedings were settled by agreement upon terms to be held strictly confidential and (ii) the Parties agree that disclosure of any of the terms and conditions of any of the Definitive Agreements shall be exclusively governed by the confidentiality restrictions set forth in the Definitive Agreement to which such terms and conditions relate and not the confidentiality restrictions set forth in this Paragraph 5.

 

  

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Any breach of this provision is acknowledged and agreed by the Parties to be a material breach of this Agreement and will be subject to a claim for damages by the other Parties.

 

6.           No Waiver.          The failure of any Party at any time to enforce any provisions of this Agreement will in no way constitute or be construed as a waiver of such provision or of any other provision hereof, nor in any way affect the validity of, or the right thereafter to enforce, each and every provision of this Agreement.

 

7.           Further Assurances.          Each Party will, upon the request of any other Party, from time to time after the Execution Date, execute and deliver to the requesting Party all such further documents and instruments and take such actions as may be reasonably necessary or appropriate to consummate the transactions contemplated herein.

 

8.           Non-Economic Conditions; Termination.          The Parties to the Gas Gathering Agreement and MHP Operating and Maintenance Agreement hereby acknowledge and agree that, effective as of 11:59 p.m. (Central Standard Time) on December 31, 2013, the terms and conditions of Section 8 of the 2011 Omnibus Agreement shall apply to the Gas Gathering Agreement, MHP Operating and Maintenance Agreement, and each of the Parties thereto, and such terms and conditions shall remain in full force and effect with respect thereto.

 

[Signature Page Follows]

 

  

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IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have caused this Agreement to be executed as of the date set forth in the preamble above.

 

	
Magnum Hunter Resources Corporation

	
Magnum Hunter Production, Inc.

	
 

/s/ Gary C. Evans­­­­­ 

	
 

/s/ Gary C. Evans­­­­­ 

	 	 
	
By:  Gary C. Evans

	
By:  Gary C. Evans

	 	 
	
Title: Chairman and Chief Executive Officer

	
Title: Chief Executive Officer 

 

	
Eureka Hunter Pipeline, LLC

	
 Seminole Energy Services, L.L.C.

	
 

/s/ Gary C. Evans­­­­­ 

	
 

/s/ Alex Goldberg 

	 	 
	
By:  Gary C. Evans

	
By:  Alex Goldberg

	 	 
	
Title: Chief Executive Officer and President 

	
Title: EVP and General Counsel

 

	
Seminole Gas Company, L.L.C.

	
Seminole Murphy Liquids Terminal, L.L.C., by Seminole Energy Services, L.L.C., its Operations Manager

	
 

/s/ Alex Goldberg 

	
 

/s/ Alex Goldberg 

	 	 
	
By:  Alex Goldberg

	
By:  Alex Goldberg

	 	 
	
Title: EVP and General Counsel

	
Title: EVP and General Counsel

 

	
NGAS Gathering II, LLC

	
NGAS Gathering, LLC

	
 

/s/ Alex Goldberg 

	
 

/s/ Alex Goldberg 

	 	 
	
By:  Alex Goldberg

	
By:  Alex Goldberg

	 	 
	
Title: EVP and General Counsel

	
Title: EVP and General Counsel

 

Signature Page to Omnibus Settlement Agreement and Release

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