Document:

VLL7INC - Investment Management Agreement

INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT (this “Agreement”) is made as of __________, 2012, between VENTURE LENDING & LEASING VII, INC., a Maryland corporation (the “Fund”), and WESTECH INVESTMENT ADVISORS, LLC, a California limited liability company (“Westech Advisors”).  Westech Advisors is sometimes referred to herein as the “Manager”.
WHEREAS, the Fund is a newly organized, non-diversified closed-end management investment company that has elected status as a business development company (“BDC”) under the Investment Company Act of 1940 (“1940 Act”), whose sole shareholder is Venture Lending & Leasing VII, LLC, a Delaware limited liability company (the “LLC”);
WHEREAS, the Manager is an investment adviser registered as such under the Investment Advisers Act of 1940 (“Advisers Act”); and
WHEREAS, the Fund desires to retain the Manager to furnish certain investment advisory, portfolio management and administrative services to the Fund, and the Manager is willing to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties as follows:
1.Appointment.  The Fund hereby appoints Westech Advisors as Investment Manager for the period and on the terms set forth in this Agreement.  Westech Advisors accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2.    Investment Duties.  Subject to the supervision of the Fund’s Board of Directors (the “Board”), the Manager will provide a continuous investment program for the Fund and will determine from time to time what securities and other investments will be purchased, retained or sold by the Fund.  Subject to investment policies and guidelines established by the Board, the Manager will identify, evaluate, structure and close the investments to be made by the Fund, provide portfolio management and servicing of loans held in the Fund’s portfolio, and administer the Fund’s day-to-day affairs.  The Manger will also arrange and recommend debt financing for the Fund, provided that no such debt may be incurred without the prior approval of the Board.
3.    Administrative Duties.  The Manager will administer the affairs of the Fund under the supervision of the Board and subject to the following:
(a)    The Manager will supervise all aspects of the operations of the Fund, including oversight of transfer agency, custodial and accounting services; provided, however, that nothing contained herein shall be deemed to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Fund.
(b)    The Manager will arrange, but not pay, for the periodic preparation, updating, filing and dissemination (as required) of the Fund’s registration statement under the Securities Exchange 

    

Act of 1934, proxy material, tax returns and required reports to the Fund’s shareholders and the Securities and Exchange Commission (“SEC”) and other appropriate federal or state regulatory authorities.
(c)    The Manager will oversee the computation of the net asset value and the net income of the Fund in accordance with procedures adopted by the Board.
(d)    The Manager will maintain or oversee the maintenance of all books and records with respect to the Fund, and will furnish the Board with such periodic and special reports as the Board reasonably may request.  In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Manager hereby agrees that all records that it maintains for the Fund are the property of the Fund, agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and that are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees, upon request by the Fund, to surrender promptly to the Fund any records that it maintains for the Fund.
(e)    All cash, securities and other assets of the Fund will be maintained in the custody of one or more banks in accordance with the provisions of Section 17(f) of the 1940 Act and the rules thereunder; the authority of the Manager to instruct the Fund’s custodian(s) to deliver and receive such cash, securities and other assets on behalf of the Fund will be governed by a custodian agreement between the Fund and each such custodian, and by resolution of the Board.
(f)    The Manager will arrange for the Fund, at the Fund’s expense, to obtain (i) annual audited financial statements and cause such financial statements to be distributed to the Fund’s shareholders within 120 days of the end of the Fund’s fiscal year, and (ii) audited financial statements upon the Fund’s liquidation, and cause such financial statements to be distributed to the Fund’s shareholders promptly after the completion of such audit.  All such financial statements shall be prepared in accordance with generally accepted accounting principles and audited by an independent public accountant that is registered with, and subject to regular inspection as of the commencement of the professional engagement period, and as of each calendar year-end, by, the Public Company Accounting Oversight Board in accordance with its rules.
4.    Further Duties.  In all matters relating to the performance of this Agreement, the Manager will act in conformity with the Articles of Incorporation and Bylaws of the Fund and with the instructions and directions of the Board and will comply with the requirements of the 1940 Act, the rules thereunder, and all other applicable federal and state laws and regulations.
5.    Services Not Exclusive.
(a)    The services furnished by the Manager hereunder are not to be deemed exclusive and the Manager, except as otherwise expressly provided in this Section 5, shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby.  Except as otherwise expressly provided in this Section 5, nothing in this Agreement shall limit or restrict the right of any director, officer or employee of the Manager, who may also be a director, officer or employee of the Fund, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar or dissimilar nature.

    

(b)    Until the earlier of (i) the termination of the Investment Period (as defined below) and (ii) such time as the LLC has called capital and either the LLC and/or the Fund has invested at least 75% of the total amounts subscribed for by the investors in the LLC, except as provided below, neither the Manager nor any “Controlled Person” of the Manager will, without the consent of the LLC, shall call down capital from any pooled investment vehicle other than VLLI Holdings II, LLC, Venture Lending & Leasing III, LLC, Venture Lending & Leasing IV, Inc., Venture Lending & Leasing IV, LLC, Venture Lending & Leasing V, Inc., Venture Lending & Leasing V, LLC, Venture Lending & Leasing VI, Inc., Venture Lending & Leasing VI, LLC, the LLC or the Fund, or act as investment adviser or manager to any client, if the investment program of such pooled investment vehicle or client includes, as a primary or major component, the provision of asset-backed financing to domestic venture capital-backed companies.  If the LLC elects irrevocably to release the members of the LLC from any uncalled portion of their subscription obligations, then the “total amounts subscribed for” shall be deemed reduced to reflect such release.  The foregoing restriction shall not be deemed to prohibit the Manager or any Controlled Person thereof from acting as investment adviser or manager with respect to any existing client of such party as of         , 2012; provided, however, that, until the 75% investment threshold described above has occurred, such party shall not, without the consent of the Fund, accept from such existing clients any additional investment funds (other than amounts required for follow-on investments to existing investments) beyond the funds invested or committed to such existing clients as of __________, 2012.  A “Controlled Person” of the Manager as used in this paragraph means any entity (i) 50% or more of whose voting securities are beneficially owned by the Manager or (ii) 50% or more of whose voting securities are controlled in the aggregate by Ronald W. Swenson, Salvador O. Gutierrez, Maurice C. Werdegar, David R. Wanek or Jay L. Cohan.  “Investment Period” as used in this paragraph means the period commencing on the date of the first investment by the Fund (or, if earlier, the LLC) and ending on the last day of the calendar quarter during which the fifth anniversary of such date occurs; provided, however, that the Manager shall be permitted to extend such period by up to two (2) additional calendar quarters in its sole and absolute discretion.
6.    Expenses.
(a)    The Fund will pay all expenses (including, without limitation, accounting, legal, printing, clerical, filing and other expenses) incurred by the Fund, the Manager or its affiliates on behalf of the Fund in connection with the organization of the Fund and the initial offering of its shares.  Except as otherwise expressly provided for in Section 6(b), during the term of this Agreement, the Fund will bear all of its expenses incurred in its operations including, but not limited to, the following:  (i) brokerage and commission expense and other transaction costs incident to acquisitions and dispositions of investments and the creation and perfection of security interests with respect thereto; (ii) federal, state and local taxes and fees, including transfer taxes and filing fees, incurred by or levied upon the Fund; (iii) interest charges and other fees in connection with borrowings; (iv) SEC fees and expenses, including the expenses of compliance with SEC rules and regulations, and any fees and expenses of state securities regulatory authorities; (v) expenses of printing and distributing reports and notices to shareholders; (vi) costs of proxy solicitation; (vii) costs of meetings of shareholders and the Board; (viii) charges and expenses of the Fund’s custodian, transfer and dividend disbursing agents; (ix) compensation and expenses of the Fund’s directors who are not interested persons of the Fund, the Manager or the placement agent, and of any of the Fund’s officers who are not interested persons of the Manager, and expenses of all directors in attending Board or shareholder meetings, expenses of directors & officers liability 

    

insurance, and payments under indemnification agreements; (x) legal and auditing expenses, including expenses incident to the documentation for, and consummation of, venture lending and leasing transactions and legal actions to enforce the Fund’s rights under such loans and leases; (xi) expenses associated with the preparation of tax returns and tax advice; (xii) costs of any certificates representing the Shares; (xiii) costs of stationery and supplies; (xiv) the costs of membership by the Fund in any trade organizations and (xv) expenses associated with litigation and other extraordinary or non-recurring expenses.  
(b)    The expenses to be borne by the Manager in connection with its duties to the Fund hereunder are limited to the following:  (i) all costs and fees incident to the selection and investigation of prospective Fund investments, such as travel expenses and professional fees (but excluding broker, legal and accounting fees and other costs incident to the closing, documentation or consummation of such transactions); (ii) the cost of adequate office space for the Fund and all necessary office equipment and services, including telephone service, heat, utilities and similar items and (iii) the cost of providing the Fund with such corporate, administrative and clerical personnel (including officers and directors of the Fund who are interested persons of the Manager and are acting in their respective capacities as officers and directors) as the Board reasonably deems necessary or advisable to perform the services required to be performed by the Manager under this Agreement.
(c)    The Fund may pay directly any expenses incurred by it in its normal operations and, if any such payment is consented to by the Manager and acknowledged as otherwise payable by the Manager pursuant to this Agreement, the Fund may reduce the fee payable to the Manager pursuant to Section 7 hereof by such amount.  To the extent that such deductions exceed the fee payable to the Manager on any quarterly payment date, such excess shall be carried forward and deducted in the same manner from the fee payable on succeeding quarterly payment dates.
(d)    The payment or assumption by the Manager of any expense of the Fund that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense of the Fund on any subsequent occasion.
7.    Management Fee.
(a)    For the services provided and the expenses assumed pursuant to this Agreement, the Fund or its successor trustees will pay to the Manager, whether before or after dissolution of the Fund, a management fee (the “Management Fee”), computed and paid quarterly as follows:
(i)    for the first two years following the first closing of the initial offering of interests in the LLC, at an annual rate equal to 2.5% of Member Committed Equity Capital (as defined below) (regardless of when or if such committed capital is called) as of the last day of each such fiscal quarter; 
(ii)    for each quarter thereafter, at an annual rate equal to 2.5% of the total value of the Fund’s assets (including amounts derived from borrowed funds), as of the last day of each such fiscal quarter.  

    

The “Member Committed Equity Capital”, as of the end of any fiscal quarter, shall be the aggregate amount of subscription obligations for the purchase of interests in the LLC (including any amounts of such obligations that have been satisfied) as of the end of such fiscal quarter.  For purposes of calculating the Management Fee, any capital committed to the LLC at a closing subsequent to the first closing (regardless of when or if such committed capital is called) shall be deemed to have been committed to the LLC as of the first closing.
(b)    If this Agreement becomes effective or terminates before the end of any fiscal quarter, the Management Fee for the period from the effective day to the end of the fiscal quarter or from the beginning of such fiscal quarter to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full fiscal quarter in which such effectiveness or termination occurs.
(c)    If (i) the Manager, (ii) an officer, director or employee of the Manager, (iii) a company controlling, controlled by or under common control with the Manager, or (iv) an officer, director or employee of any such company receives any compensation from a company whose securities are held in the Fund’s portfolio in connection with the provision to that company of significant managerial assistance, the compensation due to the Manager hereunder shall be reduced by the amount of such fee.  If such amounts have not been fully offset at the time of termination of this Agreement, the Manager shall pay such excess amounts to the Fund upon termination.
8.    Limitation of Liability of Manager.  The Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from its reckless disregard of its obligations and duties under this Agreement.  Any person, even though also an officer, director, employee or agent of the Manager, who may be or become an officer, director, employee or agent of the Fund shall be deemed, when rendering services to the Fund or acting with respect to any business of the Fund, to be rendering such service to, or acting solely on behalf of, the Fund and not as an officer, director, employee or agent or one under the control or direction of the Manager even though paid by it.
9.    Duration and Termination.
(a)    This Agreement shall become effective upon the date hereabove written provided that this Agreement shall not take effect unless it has first been approved (i) by a vote of a majority of those directors of the Fund who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the Fund’s outstanding voting securities.
(b)    Unless sooner terminated as provided herein, this Agreement shall continue in effect for two years from the above written date.  Thereafter, regardless of the dissolution of the Fund, if not terminated, this Agreement shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of those directors of the Fund who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or by vote of a majority of the outstanding voting securities of the Fund.

    

(c)    Notwithstanding the foregoing, this Agreement may be terminated:  (i) by vote of the Board or by a vote of a majority of the outstanding voting securities of the Fund at any time, without the payment of any penalty, on sixty days’ written notice to the Manager or (ii) by the Manager at any time, without the payment of any penalty, on sixty days’ written notice to the Fund.  This Agreement will automatically terminate in the event of its assignment.
10.    Amendment of this Agreement.  No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved by vote of a majority of the Fund’s outstanding voting securities.
11.    Governing Law.  This Agreement shall be construed in accordance with the laws of the State of Maryland, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act.  To the extent that the applicable laws of the State of Maryland conflict with the applicable provisions of the 1940 Act, the latter shall control.
12.    Miscellaneous.  The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.  If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors.  As used in this Agreement, the terms “majority of the outstanding voting securities”, “interested person”, “assignment”, “broker”, “investment adviser”, “security” and “significant managerial assistance” shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the SEC by any rule, regulation or order.  Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated as of the day and year first above written.
VENTURE LENDING & LEASING VII, INC.    WESTECH INVESTMENT ADVISORS, LLC
	
					
	By:
	 
	By:
	 
	 

	 
	Martin D. Eng
	 
	Ronald W. Swenson
	 

	 
	Chief Financial Officer
	 
	Chief Executive OfficerEXHIBIT 10.04

Atmos Energy Marketing, LLC                                      BASE CONTRACT

11251 Northwest Freeway, Suite 400, Houston, TX 77092            FOR SALE AND PURCHASE OF NATURAL GAS

	
Date:

	
 

	
Contract No.:

	
 

	
Seller:

	
Atmos Energy Marketing, LLC

	
Buyer:

	
Delta Natural Gas Company Inc.

	
 

	
381 Riverside Drive - Suite 120

	
 

	
3617 Lexington Road

	
 

	
Franklin, TN37064

	
 

	
Winchester, KY 40391-9797

	
Attn:

	
Zachry H. Littrell

	
Attn:

	
Brian Ramsey

	
Phone:

	
615-595-2878

	
Phone:

	
(859) 744-6171 Ext. 158

	
Fax:

	
615-794-0947

	
Fax:

	
(859) 744-3623

	
Email:

	
Zac.littrell@atmosenergy.com

	
Email:

	
bramsey@deltagas.com

	
Payment Address:             Bank of America

	
Invoice Address:

	
 

	
 

	
Dallas, TX 75284-7311

	
 

	
Delta Natural Gas Company Inc.

	
 

	
ABA #111 000 012

	
 

	
3617 Lexington Road

	
 

	
Atmos Energy Marketing, LLC

	
 

	
Winchester, KY 40391-9797

	
 

	
Acct. #375 1561125

	
 

	
 

Choice of Law:                                              State of Texas

Special Provisions:

The General Terms and Conditions attached hereto are incorporated in this Base Contract and made a part hereof for all purposes. An reference to the Base Contract shall include the General Terms and Conditions.

SELLER:                                                                                                               BUYER:

Atmos Energy Marketing, LLC                                                                     Delta Natural Gas Company Inc.

By:  /s/ Rob Ellis                                                                                                            By:  /s/George S. Billings

Name: Rob Ellis                                                                                                             Name: George S. Billings

Title: Sr. Vice President                                                                                          Title: Mgr. – Gas Supply

GENERAL TERMS AND CONDITIONS (attached to and made a part of Base Contract)

1. PURPOSE AND PROCEDURES: This Base Contract is intended to facilitate transactions for the purchase and sale of gas on a Firm or Interruptible, basis. "Firm" shall mean that either party may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure. "Interruptible" shall mean that Seller may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability. "Transaction Confirmation" shall mean a document, similar to the form of Exhibit A, setting forth the terms of a transaction formed pursuant to this Paragraph 1 for a particular Delivery Period. The parties will use the following Transaction Confirmation procedure. Any gas purchase and sale transaction may be effectuated in a telephone conversation. Either party may record any telephone conversation between the parties for the purpose of documenting oral agreements for the purchase and sale of gas. Any agreement  for the purchase and sale of gas t hat is reached in a telephone conversation is legally binding if it is recorded by at least one party and the recording ("Recording") evidences that the parties agreed upon the Delivery Period, Delivery Points, Performance Obligation, Contract Price, and Contract Quantity. In the event Contract Quantity is stated on a monthly basis, then for purposes of Sections 2 and 3 where references are made to the amount of gas delivered on a certain day, then the monthly Contract Quantity amount shall be divided by the number of days in that month to determine a daily Contract Quantity. A Recording is a "signed writing" and satisfies any applicable statute of frauds as to both patties. Seller shall and Buyer may send a Transaction Confirmation to confirm any agreement for the purchase and sale of Gas that is reached in a telephone conversation regardless of whether or not it is recorded. A party may send a Transaction Confirmation by telephonic facsimile transmission, or other mutually agreeable electronic means. Any Transaction Confirmation must be sent to the other party by the close of business on the Business Day immediately following the date the agreement was reached. "Business Day" shall mean any day except Saturday, Sunday or Federal Reserve Bank holidays. Seller adopts its confirming letterhead, or the like, as its signature on any Transaction Confirmation as the identification and authentication of Seller. Any Transaction Confirmation that a party receives is legally binding as to that patty and satisfies any applicable statute of frauds as to that part unless the receiving party notifies the sending party by the Confirm Deadline of any misstatement in the Transaction Confirmation of the terms of the transaction. "Confirm Deadline" shall mean 5:00 p.m. Central Prevailing Time on the second Business Day following the Day a Transaction Confirmation is received and any Transaction Confirmation time stamped after 5:00 p.m. Central Prevailing Time, shall be deemed received at the opening of the next Business Day. If there are material differences between timely sent Transaction Confirmations governing the same transaction or a party sends a timely notice disputing the Transaction Confirmation governing a transaction, then none of the Transaction Confirmations is legally binding or satisfies the statute of frauds as to either party notwithstanding anything to the contrary. However, the fact that there is not a binding Transaction Confirmation shall not prevent the enforcement of any agreement for the purchase and sale of gas if there is a Recording. The entire

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Agreement between the parties (the "Contract") consists of the provisions contained in and listed in order of priority: (i) any Recording; (ii) any binding Transaction Confirmation, (iii) this Base Contract. If there is any conflict among items (i), (ii) and (iii) in the immediately preceding sentence as to the Delivery Period. Delivery Points, Performance Obligation, Contract Price or Contract Quantity, then said items shall govern in the priority listed in the immediately preceding sentence. The parties agree that each party may electronically record all telephone conversations with respect to this Contract between their respective employees, without any special or further notice to the other patty. Each party shall obtain any necessary consent of its agents and employees to such recording. The parties agree not to contest the validity or enforceability of telephonic recordings entered into in accordance with the requirements of this Base Contract. If the Transaction Confirmation contains an;, provisions other than those relating to the commercial terms of the transaction (i.e., price, quantity, performance obligation, delivery point, period of delivery and/or transportation conditions), which modify or supplement this Base Contract (e.g., arbitration or additional representations and warranties), such provisions shall not be deemed to be accepted pursuant to this paragraph I but must be expressly agreed to by both parties in writing; provided that the foregoing shall not invalidate any transaction agreed to by the parties.

2. PERFORMANCE OBLIGATION: Seller agrees to sell and deliver, and Buyer agrees to receive and purchase the Contract Quantity for a particular transaction in accordance with the terms of the Contract. Sales and purchases will be on a Firm or Interruptible basis, as agreed to by the parties in a transaction. The sole and exclusive remedy of the Buyer in the event of a breach by Seller on any day(s) of a Firm obligation to deliver gas shall be recovery of the following: (i) payment by Seller to Buyer in an amount equal to the positive difference, if any, between the purchase price paid by Buyer (using commercially reasonable efforts to obtain gas or an alternate fuel if elected by Buyer and replacement Gas is not available at a price reasonable for the delivery area, consistent with: the amount of notice provided by Seller; the immediacy of the Buyer's gas consumption needs; the quantities involved; and the anticipated length of failure by Seller) and the Contract Price, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s); or (ii) in the event that Buyer has used commercially reasonable efforts to replace the gas, and no such replacement is available, then the sole and exclusive remedy of the Buyer shall be any unfavorable difference between the Contract Price and the Henry Hub midpoint price listed in Gas Daily multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s).   The sole and exclusive remedy of the Seller in the event of a breach by Buyer of a Firm obligation to receive gas on any day(s) shall be limited to the payment by Buyer to Seller in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the Henry Hub midpoint price listed in Gas Daily from the Contract Price.

3. TRANSPORTATION, NOMINATIONS AND IMBALANCES: Seller shall have the sole responsibility for transporting the gas to the Delivery Point. Buyer shall have the sole responsibility for transporting the gas from the Delivery Point. The parties shall coordinate their nomination activities, giving sufficient notice to meet the deadlines of the affected transporter(s); "Transporter(s)" shall mean all Gas gathering or pipeline companies, utilities or local distribution companies, acting in the capacity of a transporter, transporting Gas for Seller or Buyer upstream or downstream, respectively, of the Delivery Point pursuant to this Base Contract; of the gas to be delivered and purchased each Day. Should either party become aware that actual deliveries at the Delivery Point are greater or less than the quantity of gas confirmed by the transporter(s) for movement, transportation or management (the "Scheduled Gas"), such party shall promptly notify the other party. The parties shall use commercially reasonable efforts to avoid imposition of any fees, penalties, cash‐outs, costs (including but not limited to costs of purchased or borrowed gas) or other charges (in cash or in kind) assessed by any transporter(s) for the failure to comply with or to satisfy: (i) any nomination or usage requirements or (ii) daily and/or monthly imbalance, or (iii) any directive by any transporter(s) to revise nominations or scheduling ("Imbalance Charges"). Buyer shall promptly communicate to Seller any notification or directive by any transporter(s) of potential or effective Imbalance Charges. Any Imbalance Charges resulting from failure to timely communicate and/or comply with such notification or directive shall be the responsibility of the party whose failure caused the imbalance. If the Imbalance Charges were incurred as a result of Buyer's receipt of quantities of Gas greater than or less than the Scheduled Gas, then Buyer shall pay for such Imbalance Charges or reimburse Seller for such Imbalance Charges paid by Seller. If the Imbalance Charges were incurred as a result of Seller's delivery of quantities of Gas greater than or less than the Scheduled Gas, then Seller shall pay for such Imbalance Charges or reimburse Buyer for such Imbalance Charges paid by Buyer. Without limiting the generality of the foregoing provisions of this paragraph 3, and for the avoidance of doubt, the parties acknowledge that sharp changes in available pipeline capacity may occur with little or no notice on one or more transporters that move, transport or manage gas purchased and sold hereunder resulting from pipeline capacity allocations, operational flow orders ("OFO"), pipeline interconnect problems, unscheduled maintenance or other similar causes. In such event, the parties shall use reasonable efforts to avoid the imposition of Imbalance Charges; however, Buyer shall reimburse Seller if such Imbalance Charges are incurred by or imposed upon Seller notwithstanding the Seller's exercise of reasonable efforts to avoid such charges by revising nominations or by otherwise rescheduling the quantities to be delivered to or for the account of Buyer hereunder. Seller shall leave the ability to utilize alternate transportation; however, Seller shall not pass through resulting incremental transportation charges or avoided transportation charges to Buyer.

4. QUALITY AND MEASUREMENT: All gas delivered by Seller shall meet the pressure, quality and heat content requirements of the receiving transporter. The unit of quantity measurement for purposes of this Contract shall be one MMBtu dry. Measurement of gas' quantities shall be in accordance with the established procedures of the receiving transporter.

5. TAXES. Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges, .imposed by any government authority ("Taxes") on or with respect to the gas prior to the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the gas at the Delivery Point(s) and all Taxes after the Delivery Point(s). Notwithstanding the foregoing, Buyer agrees to reimburse Seller for any additional, or any increase in, any sales, use, utility, utility receipts, gross receipts or similar tax imposed in the future by any taxing or other governmental authority with respect to the sale, use, or transportation of the gas sold pursuant to this Agreement. If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof.

6. BILLINGS AND PAYMENTS: Seller shall invoice Buyer by mail or electronically via fax or e‐mail on or before the fifteenth (15th) day of each month for actual quantities delivered by Seller and received by Buyer in the prior month. If actual quantities cannot be determined by the billing date, Seller shall invoice, and Buyer shall pay, based on the quantity of Scheduled Gas. Buyer will pay Seller's invoice, whether based on actual deliveries or Scheduled Gas, by wire transfer within ten (10) days after receipt of Seller's invoice, or by the twenty‐fifth (25th) day of the month immediately

following the month of delivery, whichever is later. Seller shall notify Buyer of any necessary adjustments to volumes on the next succeeding invoice. If a payment date falls on a day that is not a Business Day, payment will be made on the next Business Day. If Buyer fails to pay amounts due Seller when same is due, interest shall accrue at the lesser of (i) the prime rate of interest as published from time to time by the Chase Manhattan Bank, New York plus two percent (2%) from the date that such payment is due until the same is paid; or (ii) the maximum applicable lawful interest rate. Buyer agrees to pay all collection costs, including reasonable attorney's fees and court costs, incurred by Seller in collecting such past due amounts. Seller, in addition to other remedies available, may suspend performance until all past due amounts, late payment charges, and collection costs are paid. Buyer and Seller agree to net all undisputed amounts due and owing, and/or past due, arising under this Contract such that the party owing the greater amount shall make a single payment of the net amount to the other in accordance with this Section. Payments required to be made pursuant to the terms of any adequate assurance or credit support obligations shall not be subject to netting under this Contract.

 

7. TITLE, WARRANTY, AND INDEMNITY: Unless otherwise specifically agreed, title to the gas shall pass from Seller to Buyer at the Delivery Point(s). Seller shall have responsibility for and assume any liability with respect to the gas prior to its delivery to Buyer at the Delivery Point(s). Buyer shall have responsibility for and any liability with respect to said gas after its delivery to Buyer at the Delivery Point(s). Seller warrants that it will have the right to convey and will transfer good and merchantable title to all gas sold hereunder and delivered by it to Buyer, free and clear of all liens, encumbrances, and claims. EXCEPT AS PROVIDED IN THIS SECTION, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE, ARE DISCLAIMED. SELLER AGREES TO INDEMNIFY BUYER AND SAVE IT HARMLESS FROM ALL LOSSES, LIABILITIES OR CLAIMS INCLUDING REASONABLE ATTORNEYS' FEES AND COSTS OF COURT ("CLAIMS"), FROM ANY AND ALL PERSONS, ARISING FROM OR OUT OF CLAIMS OF TITLE, PERSONAL INJURY OR PROPERTY DAMAGE FROM SAID GAS OR OTHER CHARGES THEREON WHICH ATTACH BEFORE TITLE PASSES TO BUYER (EXCEPT TO THE EXTENT SUCH INJURIES AND DAMAGE ARE CAUSED BY THE NEGLIGENCE OF BUYER). BUYER AGREES TO INDEMNIFY SELLER AND SAVE IT HARMLESS FROM ALL CLAIMS, FROM ANY AND ALL PERSONS, ARISING FROM OR OUT OF CLAIMS REGARDING PAYMENT, PERSONAL INJURY OR PROPERTY DAMAGE FROM SAID GAS OR OTHER CHARGES THEREON WHICH ATTACH AFTER TITLE PASSES TO BUYER (EXCEPT TO THE EXTENT SUCH INJURIES AND DAMAGE ARE CAUSED BY THE NEGLIGENCE OF SELLER).

8. FINANCIAL RESPONSIBILITY: If Seller has reasonable grounds for insecurity regarding the performance of any obligation under the Contract (whether or not then due) by the Buyer (including, without limitation, the occurrence of a material change in the creditworthiness of Buyer), Seller may demand Adequate Assurance of Performance. "Adequate Assurance of Performance" shall mean sufficient security in the form, amount and for the term reasonably acceptable to Seller, including, but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in an asset or a performance bond or guaranty (including the issuer of any such security).

9. DEFAULT: If Buyer or its guarantor shall: (i) make an assignment or any general arrangement for the benefit of creditors; (ii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or case under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; (iii) otherwise become bankrupt or insolvent (however evidenced); (iv) be unable to pay its debts as they fall due; (v) have a receiver, provisional liquidator, conservator, custodian, trustee or other similar official appointed with respect to it or substantially all of its assets; (vi) fail to give Adequate Assurances of Performance as required herein within 2 Business Days of a written request by Seller; or (vii) not have paid any amount due hereunder on or before the second Business Day following written notice that such payment is due; then the Seller shall have the right, at its sole election, to immediately withhold and/or suspend deliveries or payments upon notice and/or to terminate this Contract, in the manner provided in Section 10, in addition to any and all other remedies available hereunder. Without limiting the applicability of any other provision of the U.S. Bankruptcy Code as amended (the "Bankruptcy Code") (including without limitation Sections 362, 546, 556, and 560 thereof and the applicable definitions in Section 101 thereof), the parties acknowledge and agree that all Transaction Confirmations and Recordings entered into hereunder will constitute "forward contracts" or "swap agreements" as defined in Section 101 of the Bankruptcy Code, that the rights of the parties under Section 9 of this Agreement will constitute contractual rights to liquidate Transactions, that any margin or collateral provided under any margin, collateral, security, or similar agreement related hereto will constitute a "margin payment" as defined in Section 101 of the Bankruptcy Code, and that the parties are entitled to the rights under, and protections afforded by, Sections 362, 546, 556, and 560 of the Bankruptcy Code.

10. EARLY TERMINATION DAMAGES: If this Contract is terminated by either party, Seller shall determine, in good faith and in a commercially reasonable manner: (i) the amount owed to Seller (whether or not then due) for which payment has not yet been made, and (ii) the Market Value, as defined below, of all transactions under the Contract. Seller shall liquidate and accelerate this Contract and each terminated transaction at its Market Value so that each amount equal to the difference between such Market Value and the Contract Value, as defined below shall be due to the Seller.  "Contract Value" means the amount of gas remaining to be delivered or purchased under this Contract and any transactions) multiplied by the Contract Price, and "Market Value" means the amount of gas remaining to be delivered or purchased under this Contract and any transactions) multiplied by the market price for a similar transaction at the Delivery Point determined by Seller in a commercially reasonable manner. To ascertain the Market Value, Seller may consider, among other valuations, any or all of the settlement prices of NYMEX Gas futures contracts, quotations from leading dealers in energy swap contracts or physical gas trading markets, similar sales or purchases and any other bona fide third‐party offers, all adjusted for the length of the term and differences in transportation costs. Seller shall not be required to enter into a replacement agreement or transaction(s) in order to determine the Market Value. Any extension(s) of the term of a transaction to which parties are not bound as of the termination date (including but not limited to "evergreen provisions") shall not be considered in determining Contract Values and Market Values.  For the avoidance of doubt. any option pursuant to which one party has the right to extend the term of a transaction shall be considered in determining Contract Values and Market Values. The rate of interest used in calculating net present value shall be determined by Seller in a commercially reasonable manner. Seller shall give Buyer written notice of the amount, including reasonable detail of calculations, and Buyer shall pay the amount within 20 (twenty) days of receipt of such notice

11. FORCE MAJEURE: Except with regard to a party's obligation to make payment(s) and Imbalance Charges due hereunder, neither party shall be liable to the other for failure to perform a Firm obligation; to the extent such failure was caused by Force Majeure. The term "Force Majeure" as employed herein means any cause not reasonably within the control of the party claiming suspension, including (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings, such as hurricanes, which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe; (iii) interruption and/or curtailment of Firm transportation (including in‐path and out‐of‐path transportation) and/or storage by Transporters; (iv) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections or wars; and (v) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, regulation, or policy having the effect of law promulgated by a governmental authority having jurisdiction. Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance. Neither party shall be entitled to the benefit of the provisions of Force Majeure if the party claiming excuse failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch. The party whose performance is

 

prevented by Force Majeure must provide Notice to the other patty. Initial Notice may be given orally; however. written Notice with reasonably full particulars of the event or occurrence is required as soon as reasonably possible. Upon providing written Notice of Force Majeure to the other party, the affected party will be relieved of its obligation, from the onset of the Force Majeure event, to make or accept delivery of Gas. as applicable, to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event.

12. TERM: This Contract may be terminated on 60 (sixty) days written notice, but shall remain in effect until the expiration of the latest Delivery Period of any transaction(s). Notwithstanding the foregoing, the rights of either party to make adjustments pursuant to Sections 6 or 16 hereof, the obligation of either party to indemnify the other, the netting rights of the parties, and the obligation to make any and all payments hereunder shall survive termination of this Contract or any transaction.

13. LIMITATIONS: FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY. A PARTY'S LIABILITY HEREUNDER SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN OR IN A TRANSACTION, A PARTY'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS.

14. APPLICABLE LAW, REGULATIONS, OR TARIFFS: This Contract is subject to all existing and future legislation, governmental laws, orders, directives, rules, regulations, and tariffs (including without limitation those applying to the maximum price which may be charged for the sale of gas) issued by any regulatory body or transporter(s) having jurisdiction hereunder. In the event any regulatory body directly or indirectly asserts jurisdiction over the sale, purchase, or transportation of gas hereunder, then either party shall have the right to contest the validity of such law, order, rule, or regulation and neither acquiescence therein or compliance therewith for any period of time, nor any other provision contained herein, shall be construed as a waiver of such right. Buyer agrees to reimburse Seller for any increase in tariffs) imposed in the future by any regulatory authority or transporter(s) with respect to the sale, use, or transportation of the natural gas sold pursuant to this Agreement.

15. ASSIGNMENT: No assignment of this Contract or of any right or obligation hereunder shall be made without written consent of the other party, which consent shall not be unreasonably withheld or delayed. Change of control or ownership, merger or recapitalization of either party shall not be considered an assignment.

16. ADJUSTMENT RIGHT: Either party shall have the right at all reasonable times to examine the records of the other to the extent necessary to verify the accuracy of any statement, charge or computation made under or pursuant to any provision of this Contract. The parties agree to cooperate and to negotiate any dispute with transporter(s) on errors in measurement or reporting. Either party may request and will receive payment for any verifiable statement adjustment within two (2) years of any statement.

17. NOTICES: All Transaction Confirmations, invoices, payments, notices of force majeure and other communications ("Notices") shall be made to the addresses specified in writing by the respective parties from time to time. All Notices required hereunder may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail or hand delivered. Notice shall be given when received on a Business Day by the addressee. In the absence of proof of the actual receipt date, the following presumptions will apply. Notices sent by facsimile shall be deemed to have been received upon the sending party's receipt of its facsimile machine's confirmation of successful transmission. If the day on which such facsimile is received is not a Business Day or is after five p.m. on a Business Day, then such facsimile shall be deemed to have been received on the next following Business Day. Notice by overnight mail or courier shall be deemed to have been received on the next Business Day after it was sent or such earlier time as is confirmed by the receiving patty. Notice via first class mail shall be considered delivered five (5) Business Days after mailing.

18. PRICING: Buyer has the option to lock‐in the price for specified quantities, not to exceed the Contract Quantity, at a mutually agreeable price.

19. MISCELLANEOUS: If any provision in this Contract is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Contract. This Contract sets forth all understandings between the parties respecting each transaction subject hereto, and any prior contracts, understandings and representations, whether oral or written, relating to such transactions are merged into and superseded by this Contract and any effective transaction(s). This Contract

may be amended only by a writing executed by both parties.  Each Party acknowledges and agrees that, for purposes of this Agreement, the other Party is not a "utility" as such term is used in Section 366 of the Bankruptcy Code, and each Party agrees to waive and not to assert the applicability of the provisions of Section 366 in any bankruptcy proceeding wherein such Party is a debtor. In any such proceeding, each Party further agrees to waive the right to assert that the other Party is a provider of last resort.

20. ENFORCEABILITY: Each Party represents and warrants that it has full and complete authority to enter into and perform its obligations under this Agreement and that this Agreement constitutes a legal, valid and binding obligation of that Party; enforceable against it in accordance with its terms, except as such enforceability may be affected by any bankruptcy law or the application of principles of equity. Each person who executes this Agreement on behalf of either party represents and warrants that it has full and complete authority to do so and that such party will be bound thereby.

 

Page 4 of 4

 

 

 

EXHIBIT A

Atmos Energy Marketing, LLC                   TRANSACTION CONFIRMATION

13430 Northwest Freeway, Suite 400, Houston, TX 77040        FOR IMMEDIATE DELIVERY

 

	
Date:

	
 

	
Transaction Confirmation #:

	
Seller:

	
Atmos Energy Marketing, LLC

	
Buyer:

	
Delta Natural Gas Company Inc.

	
 

	
2000 Warrington Way, Suite 230

	
 

	
3617 Lexington Road

	
 

	
Louisville, KY  40222

 

 

	
 

	
Winchester, KY 40391-9797

	
Attn:

	
Trevor Atkins

	
Attn:

	
Brian Ramsey

	
Phone:

	
502-326-1381

	
Phone:

	
(859) 744-6171 Ext. 158

	
Fax:

	
502-326-1411

	
Fax:

	
(859) 744-3623

	
Email:

	
trevor.atkins@atmosenergy.com

	
Email:

	
bramsey@deltagas.com

 

Delivery Period:                         Begin:                                            May 1, 2010     End:          April 30, 2011

Transporter:                                     TETCO

Service Level:                                Firm

Delivery Point:                               73131 and 73196

(If a pooling point is used, list a specific geographic location and pipeline location)

	
 

 

Begin Flow Date

	
 

 

End Flow Date

	
Contract

Quantity MMBtus/Day

	
 

 

Contract Price (US$/MMBtu)

	
 

	
 

	
 

	
 

	
 

	
 

	
May 1, 2010

	
Aril 30, 2011

	
Up to 1,000

	
NYMEX Last Day Settle

	
TETCO ELA- M2

	
$0.38

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

Special Conditions: 1) At the expiration of the Delivery Period, this Transaction Confirmation shall automatically extend for twelve (12) successive months unless terminated on sixty (60) days written notice by either party.

This Transaction Confirmation constitutes and confirms an agreement by the parties to sell and purchase gas in accordance with the terms described herein and is subject to the Base Contract for Sale and Purchase of Natural Gas between Seller and Buyer.

Please confirm that the foregoing correctly sets forth the terms of our agreement with respect to this transaction by signing in the space provided below and returning a copy of the executed confirmation to us. Your failure to execute and return this confirmation or to advise us of any errors by the time specified in the Base Contract or in the NAESB, or, if not so specified, before the gas begins to flow, shall constitute your acceptance of these terms.

Page l of 2

AGREED TO AND ACCEPTED: SELLER                    AGREED TO AND ACCEPTED: BUYER

 

Atmos Energy Marketing, LLC                                Delta Natural Gas Company, Inc.

By: /s/Rob Ellis                                              By: /s/Brian Ramsey

By: /s/Brian Ramsey

           Printed Name:  Brian Ramsey

Printed Name:

Title:                                                      Title: VP – Transmission & Gas Supply

 

 

SYMBOLS: Unless expressly provided otherwise all prices are per MMBtu of gas. "GD" means Gas Daily ® Midpoint or Index, as applicable, for the applicable delivery day for the specified location. "IF" means Inside F.E.R.C.s Gas Market Report, Index, first publication for the month, for the delivery month for the specified location. "NGW" means Natural Gas Week ®. "NGI" means Natural Gas Intelligence. "NYMEX" means New York Mercantile Exchange. "KCBOT" means Kansas City Board of Trade.

 

Page 2 of 2

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