Document:

ex10-1.htm

Exhibit 10.1

 

ESCROW AGREEMENT

This AGREEMENT, dated as of ___________, 2014 (together with Schedule A and Schedule B hereto, this “Agreement”), is by and among Energy 11, L.P., a Delaware limited partnership, with principal offices located at 120 West 3rd Street, Suite 220, Ft. Worth, Texas (the “Company”); AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC, a New York limited liability trust company, with principal offices located at 6201 15th Avenue, Brooklyn, New York, 11219 (“Escrow Agent”); and David Lerner Associates, Inc., a New York corporation, with principal offices located at 477 Jericho Turnpike, Syosset, New York 11791 (the “Dealer Manager”).

WHEREAS, the Company has engaged the Dealer Manager to sell (the “Financing”) up to 100,263,158 common units of limited partner interest (“Common Units”) in the Company (“Maximum Amount”), with a minimum investment of $5,000 in Units at a price of $19.00 per Common Unit, until the minimum offering of 5,263,158 Common Units ($100,000,000) is achieved (“Minimum Amount”) and thereafter $20.00 per Common Unit, on a best efforts basis, pursuant to a Registration Statement on Form S-1 File No. 333-197476 filed with the Securities and Exchange Commission (“SEC”) which includes a prospectus, as supplemented and amended from time to time (the “Offering Document”);

WHEREAS, the Common Units are being offered to persons who meet the suitability requirements described in the Offering Document (“Purchasers”); and

WHEREAS, proceeds received from subscriptions for the Common Units shall be held in escrow by Escrow Agent pending a Closing (as defined below).

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:

	
1.  

	
Definitions.  The following terms shall have the meanings indicated or referred to below, inclusive of their singular and plural forms, except where the context requires otherwise.  Unless the context requires otherwise, all references to “years,” “months,” or “days” shall mean “calendar years,” “calendar months,” and “calendar days.”  References in this Agreement to “including” shall mean “including, without limitation,” whether or not so specified.  Any term not defined below which is initially capitalized in this Agreement shall have the meaning ascribed to it in this Agreement.

 

“Affiliate” means, with respect to any person, (a) a person which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with such person, (b) any person of which such person is the beneficial owner of a twenty-five percent (25%) or greater interest, or (c) any person which acquires all or substantially all of the assets of such person.  A person is deemed to control another person if such person, directly or indirectly, has the power to direct the management, operations or business of such person.  The term “beneficial owner” is to be determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended.

 

  

1

  

 

“Business Day” shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

 

“Cash Investment” shall mean the number of Common Units to be purchased by a Purchaser multiplied by the offering price of $19.00 until the Minimum Amount is achieved and thereafter $20.00, in each case per Common Unit as set forth in the Offering Document.  Cash Investment shall not include any interest or other earnings thereon.

“Cash Investment Instrument” shall mean a check, money order or similar instrument made payable to “David Lerner Associates, Inc.”, or those funds in a customer’s account at the Dealer Manager which the customer has authorized to be used in full payment for the Common Units to be purchased by the customer.

“Closing” shall mean each closing conducted by the Company and the Dealer Manager with respect to the sale of Common Units.

“Escrow Funds” shall mean the funds deposited with Escrow Agent pursuant to Section 3 of this Agreement and any interest and other earnings thereon.

“Joint Written Direction” shall mean a written direction executed and delivered by the Company and the Dealer Manager, directing the Escrow Agent to disburse all or a portion of the Escrow Funds or otherwise directing any party hereto to take or refrain from taking an action pursuant to this Agreement.  Any Joint Written Direction relating to a disbursement of Escrow Funds shall certify with reasonable detail satisfactory to Escrow Agent in its sole discretion (i) that the Company has received and accepted subscription agreements (and the accompanying payments have been deposited in the Escrow Funds and have cleared) equal to the Minimum Amount and (ii) its instructions as to the payment of the subscription proceeds.  Each Joint Written Direction shall be accompanied by the documents set forth in Schedule B hereto.

“Pro Rata Basis” with respect to the allocation among Purchasers of interest and other earnings held in the Escrow Funds, shall mean, for each Purchaser, the Purchaser’s Cash Investment multiplied by the number of days the Cash Investment of such Purchaser was held in interest-bearing investments pursuant to Section 6 hereof, divided by the product of the total subscriptions multiplied by the number of days invested, multiplied by the investment earnings on the Escrow Funds during such period of days.

“Subscription Accounting” shall mean an accounting for all subscriptions for Common Units received and accepted by the Company as of the date of such accounting, indicating for each subscription the Purchaser’s name, social security number and address, the number and total purchase price of the subscribed Common Units, the date of receipt by the Dealer Manager of the Cash Investment Instrument, and notations of any nonpayment of the Cash Investment Instrument submitted with such subscription, any withdrawal of such subscription by the Purchaser, any rejection of such subscription by the Company, or other termination, for whatever reason, of such subscription.

 

  

2

  

“Termination Date” shall mean the date on which the Minimum Amount has been sold or _____________, 2016, whichever event occurs first; provided, however, that the Company may extend the preceding date in this definition for up to 90 days upon delivery of a Joint Written Direction to Escrow Agent and its statement that it has received and accepted subscription statements (and the accompanying payments have been deposited in the Escrow Funds and have cleared) equal to the Minimum Amount.

	
2.  

	
Appointment of Escrow Agent.  The Company and the Dealer Manager hereby appoint Escrow Agent as escrow agent in accordance with the terms and conditions set forth herein, and Escrow Agent hereby accepts such appointment.

 

	
3.  

	
Delivery of Subscription Proceeds.  Upon receipt by Dealer Manager of any Cash Investment Instrument for the purchase of Common Units, Dealer Manager shall, by noon (Eastern time) of the next Business Day, wire to Escrow Agent funds aggregating the sum total of all Cash Investment Instruments received the previous Business Day.  Each such deposit shall be accompanied by the following documents:

 

	
(1)   

	
A report containing such Purchaser’s name, social security number or taxpayer identification number, address and other information required for withholding purposes;

 

	
(2)   

	
A Subscription Accounting; and

 

	
(3)   

	
Instructions, if any, regarding the investment of such deposited funds in accordance with Section 6 hereof.

 

The Escrow Agent is under no obligation to accept deposits from anyone other than the Dealer Manager.  If a deposit is received by 12:00 P.M. Eastern time on a given Business Day, it will be accepted that Business Day; otherwise it will be accepted on or as of the next Business Day, except that a wire of funds will be deemed to be received on the actual day of receipt.

ALL FUNDS SO DEPOSITED SHALL REMAIN THE PROPERTY OF THE PURCHASERS ACCORDING TO THEIR RESPECTIVE INTERESTS AND SHALL NOT BE SUBJECT TO ANY LIEN OR CHARGE BY ESCROW AGENT OR BY JUDGMENT OR CREDITORS’ CLAIM AGAINST THE COMPANY OR ESCROW AGENT UNTIL RELEASED TO THE COMPANY IN ACCORDANCE WITH THIS AGREEMENT.

	
4.  

	
Escrow Agent to Hold and Disburse Funds.  The Escrow Agent will hold all Escrow Funds in a segregated account titled in the name of Escrow Agent and established for the benefit of the Purchasers and the Company and disburse all Escrow Funds as follows:

 

  

3

  

 

	
(a)   

	
If, prior to the Termination Date, the Escrow Agent has received Escrow Funds equal to or greater than the Minimum Amount the Escrow Agent shall, pursuant to a Joint Written Direction, pay such Escrow Funds (excluding, however, any interest or other earnings on Cash Investments) to the Company within three (3) Business Days of receipt of such Joint Written Direction.  Thereafter, in respect to any additional Escrow Funds held by the Escrow Agent prior to the Termination Date, the Escrow Agent shall, pursuant to one or more Joint Written Directions, pay such Escrow Funds to the Company at one or more subsequent Closings within three (3) Business Days of receipt of such Joint Written Direction.  If, subsequent to any Closing, the Escrow Agent shall not have received a Joint Written Direction in accordance with the preceding sentence addressing the disposition of any remaining Escrow Funds, the Escrow Agent shall return the remaining Escrow Funds by wire transfer to the Dealer Manager within five (5) Business Days of such Closing. The Dealer Manager shall thereafter promptly pay each Purchaser their share of the remaining Escrow Funds on a Pro Rata Basis.

 

	
(b)   

	
(i) If no Closing has taken place by the Termination Date or (ii) if the Company and the Dealer Manager by a Joint Written Direction notify the Escrow Agent in writing at any earlier time that no Closing will take place, the Escrow Agent shall, within five (5) Business Days after the Termination Date or receipt of such Joint Written Direction (as the case may be), without any further instruction from the Company or Dealer Manager, return to the Dealer Manager, by wire transfer, the Cash Investment and any amounts earned on the Escrowed Funds for all Purchasers.  The Dealer Manager shall thereafter promptly pay each Purchaser their Cash Investment and share of earnings thereon on a Pro Rata Basis.

 

	
(c)   

	
Notwithstanding anything to the contrary contained herein, if the Escrow Agent has not received Cash Investments at least equaling the Minimum Amount by the Termination Date, the Escrow Agent shall within five (5) Business Days after the Termination Date, without any further instruction from the Company or Dealer Manager, return to the Dealer Manager, by wire transfer, the Cash Investment and any amounts earned on the Escrowed Funds for all Purchasers.  The Dealer Manager shall thereafter promptly pay each Purchaser their Cash Investment and share of earnings thereon on a Pro Rata Basis.

 

	
(d)   

	
If any amount of Escrow Funds was returned to Escrow Agent as undeliverable following the operation of Section 4(a), Section 4(b) and Section 4(c) above, Escrow Agent, in addition to its other rights herein, (x) (A) may maintain and manage such Escrow Funds for such period of time as it determines may be necessary or appropriate, including in accordance with applicable state escheatment and unclaimed property laws, as determined by Escrow Agent in its sole discretion and (B) shall have the right to escheat any such Escrow Funds pursuant to applicable state escheatment and unclaimed property laws and (y) may take any other action permitted by this Agreement, including Section 5, Section 7 and Section 10 of this Agreement.

 

  

4

  

 

	
(e)   

	
No later than five (5) Business Days after receipt by Escrow Agent of written notice (i) from the Company or the Dealer Manager that the Company intends to reject a Purchaser’s subscription, or (ii) that a Purchaser has revoked his subscription, or (iii) from the SEC or any other federal or state regulatory authority that a stop order has been issued with respect to the Offering Document and has remained in effect for at least twenty (20) days, Escrow Agent will, without any further instruction from the Company or Dealer Manager, transmit to the Dealer Manager that portion of the Escrow Funds attributable to such Purchaser or Purchasers affected by such event, or equal to the amount of the reduction in a subscription, as the case may be, with interest, and the Dealer Manager shall promptly deposit such funds directly to the account of the Purchaser or Purchasers entitled thereto.

 

	
(f)   

	
At such time as amounts comprising the Cash Investment portion of the Escrow Funds are paid to the Company pursuant to Section 4(a) of this Escrow Agreement, Escrow Agent shall simultaneously pay to Dealer Manager the portion of the Escrow Funds comprising interest and other earnings on the Cash Investment.  Such interest and other earnings shall thereafter promptly be paid by the Dealer Manager to Purchasers in a manner determined by Dealer Manager to be consistent with the Offering Document.

 

All disbursements of Escrow Funds in Section 4(a) above to the Company shall be subject to the fees, costs, expenses and other amounts due to Escrow Agent and any other Indemnified Party (as defined below) hereunder.

 

	
5.  

	
Suspension of Performance; Disbursement into Court.  If, at any time, (i) there shall exist any dispute between or among the Company and the Dealer Manager  with respect to the holding or disposition of all or any portion of the Escrow Funds or any other obligations of Escrow Agent hereunder, (ii) Escrow Agent is unable to determine, to Escrow Agent’s sole satisfaction, the proper disposition of all or any portion of the Escrow Funds or Escrow Agent’s proper actions with respect to its obligations hereunder, or (iii) the Company has not, within thirty (30) days of the furnishing by Escrow Agent of a notice of resignation pursuant to Section 7 hereof, appointed a successor escrow agent to act hereunder (which such successor escrow agent has accepted such appointment), then Escrow Agent may, in its sole discretion, take either or both of the following actions:

 

	
(a)   

	
suspend the performance of any of its obligations (including any disbursement obligations) under this Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of Escrow Agent or until a successor escrow agent shall have been appointed (as the case may be); and/or

 

	
(b)   

	
petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in New York City, for instructions with respect to such dispute or uncertainty, and to the extent required or permitted by law, pay into such court, for holding and disposition in accordance with the instructions of such court, all Escrow Funds.

 

  

5

  

 

Escrow Agent shall have no liability to the Company or the Dealer Manager, or to their respective shareholders, partners, or members, officers or directors, employees, Affiliates or any other person with respect to any such suspension of performance or disbursement into court (including any disbursement obligations hereunder), specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of Escrow Funds or any delay in or with respect to any other action required or requested of Escrow Agent.

 

	
6.  

	
Funds.  Escrow Agent shall invest and reinvest the Escrow Funds as Company shall direct (subject to applicable minimum investment requirements) in writing; provided, however, that no investment or reinvestment may be made except in investments permissible under SEC Rule 15c2-4, as further explained in NASD Notice to Members 84-7, including the following:

 

	
(a)   

	
bank accounts, including savings accounts and bank money market accounts (as bank is defined in Section 3(a)(6) of the Securities Exchange Act of 1934) (including bank money market accounts managed by Escrow Agent and its affiliates);

 

	
(b)   

	
Short-term direct obligations of the United States of America or obligations the principal of and the interest on which are unconditionally guaranteed by the United States of America; or

 

	
(c)   

	
Short-term certificates of deposit issued by any bank (as defined in Section 3(a)(6) of the Securities Exchange Act of 1934) (including Escrow Agent and its affiliates) located in the United States and having a net worth of at least $50,000,000.

 

If Escrow Agent has not received written instructions from Company at any time that an investment decision must be made, Escrow Agent shall invest the Escrow Funds, or such portion thereof as to which no written instructions have been received, in a CIT Bank Insured Money Market Account. Each of the foregoing investments shall be made in the name of Escrow Agent in its stated capacity as escrow agent. No investment shall be made in any instrument or security that has a maturity of greater than three (3) months. Notwithstanding anything to the contrary contained herein, Escrow Agent may, without notice to Company or Dealer Manager, sell or liquidate any of the foregoing investments at any time if the proceeds thereof are required for any release of funds permitted or required hereunder, and Escrow Agent shall not be liable or responsible for any loss, cost or penalty resulting from any such sale or liquidation. With respect to any funds received by Escrow Agent for deposit into the Escrow Funds or any written investment instruction of Company received by Escrow Agent after ten o’clock, a.m., Eastern time, Escrow Agent shall not be required to invest such funds or to effect such investment instruction until the next Business Day.

 

The Escrow Agent shall provide to the Company and the Dealer Manager (i) upon request by Company or Dealer Manager, an accounting of all funds held in escrow pursuant to this Agreement, to the extent such funds have not been previously paid over by Escrow Agent, and (ii) monthly statements identifying transactions, transfers or holdings of Escrow Property and each such statement shall be deemed to be correct and final upon receipt thereof by the Company and the Dealer Manager unless the Escrow Agent is notified in writing, by the Company and the Dealer Manager, to the contrary within thirty (30) business days of the date of such statement.

 

  

6

  

 

	
7.  

	
Termination of Agreement; Resignation of Agent.  Upon the first to occur of (i) the disbursement of all amounts of the Escrow Funds in accordance with this Agreement (including Section 4(d) and the operation of applicable state escheatment and unclaimed property laws) or (ii) the resignation of Escrow Agent, Escrow Agent shall be released from its obligations hereunder and Escrow Agent shall have no further obligation or liability whatsoever with respect to this Agreement or the Escrow Funds, but shall not be discharged from any actions taken as Escrow Agent prior to the earlier to occur of paragraph (i) or (ii).  The obligations of the Company continue to exist notwithstanding the termination or discharge of Escrow Agent’s obligations or liabilities hereunder until the obligations of the Company have been fully performed.

 

Escrow Agent may resign at any time and be discharged from its duties as Escrow Agent hereunder by giving the Company and the Dealer Manager at least ten (10) days’ notice thereof and the Company and the Dealer Manager may remove the Escrow Agent by giving a Joint Written Direction at least ten days’ prior to such removal.  Such registration or removal shall be effective upon the appointment of a successor Escrow Agent as provided herein.  Upon any such notice of resignation, the Company and the Dealer Manager shall jointly issue to Escrow Agent a Joint Written Direction authorizing redelivery of the Escrow Funds to a depository that has been retained as successor to Escrow Agent hereunder prior to the effective date of such resignation.  As soon as practicable after its resignation, Escrow Agent shall turn over to such successor escrow agent all monies and property held hereunder upon presentation of the document appointing the new escrow agent and such escrow agent’s acceptance thereof.

 

After any retiring Escrow Agent’s resignation, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Agreement.  Any corporation or other entity into which Escrow Agent may be merged or converted or with which it may be merged or consolidated, or any other entity to which all or a majority of all of Escrow Agent’s escrow business may be transferred by sale of assets or otherwise, shall be Escrow Agent under this Agreement without further act or consent of any party hereto.

 

	
8.  

	
Liability of Escrow Agent.

 

	
(a)   

	
Escrow Agent shall have no duties or responsibilities other than the ministerial duties as expressly set forth herein and no other duties and obligations shall be implied (fiduciary or otherwise).  Escrow Agent shall have no duty to enforce any obligation of any person to make any payment or delivery, or to direct or cause any payment or delivery to be made, or to enforce any obligation of any person to perform any other act.  Escrow Agent shall be under no liability to the other parties hereto or to anyone else by reason of any failure on the part of any party hereto or any maker, guarantor, endorser or other signatory of any document or any other person to perform such person’s obligations under any such document.  Except for amendments to this Agreement referred to below, and except for instructions given to Escrow Agent pursuant to a Joint Written Direction, Escrow Agent shall not be obligated to recognize any agreement between any and all of the persons referred to herein, notwithstanding that references thereto may be made herein and whether or not it has knowledge thereof.  In the event of any conflict between the terms and provisions of this Agreement and any other agreement, as to Escrow Agent, the terms and conditions of this Agreement shall control subject to Section 28 hereof.

 

  

7

  

 

	
(b)   

	
Escrow Agent shall not be liable to the Company or the Dealer Manager or to anyone else for any action taken or omitted by it in good faith except to the extent that a court of competent jurisdiction determines that Escrow Agent’s gross negligence or willful misconduct was the primary cause of any loss to the Company or the Dealer Manager.  In no event shall Escrow Agent be liable for incidental, indirect, special, consequential or punitive damages of any kind whatsoever (including lost profits), even if Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. The officers, directors, members, partners, trustees, employees, agents, attorneys or other representatives and Affiliates of Escrow Agent owe no duty or obligation to any party hereunder and shall have no liability to any person by reason of any error of judgment, for any act done or not done, for any mistake of fact or law, or otherwise.  Escrow Agent may rely conclusively, and shall be protected in acting, upon any order, notice, instruction (including a Joint Written Direction (such as a wire transfer instruction)), request, demand, certificate, opinion or advice of counsel (including counsel chosen by Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity (including the authority of the person signing or presenting the same) and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained), which is believed by Escrow Agent to be genuine and to be signed or presented by the proper person or persons.  Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement or any of the terms thereof, unless evidenced by a writing delivered to Escrow Agent signed by the proper party or parties and, if the duties or rights of Escrow Agent are affected, unless it shall give its prior written consent thereto.

 

	
(c)   

	
Escrow Agent shall not be obligated to take any legal or other action or commence any proceeding in connection with the Escrow Funds, any account in which Escrow Funds are deposited, this Agreement or any other agreement, or to appear in, prosecute or defend any such legal action or proceeding (whether or not it shall have been furnished with acceptable indemnification and advancement).  Escrow Agent may consult legal counsel selected by it in the event of any dispute or question as to the construction of any of the provisions hereof or of any other agreement or of its duties hereunder, or relating to any dispute or question involving any party hereto, and shall incur no liability and shall be fully indemnified from any liability whatsoever in acting in accordance with the opinion or instruction of such counsel.  The Company shall promptly pay, upon demand, the reasonable fees, costs and expenses of any such counsel.

 

  

8

  

 

	
(d)   

	
Escrow Agent shall not be responsible for the sufficiency or accuracy of the form of, or the execution, validity, value or genuineness of, any document or property received, held or delivered by it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall Escrow Agent be responsible or liable to the other parties hereto or to anyone else in any respect on account of the identity, authority or rights of the persons executing or delivering or purporting to execute or deliver any document or property or this Agreement.  Escrow Agent shall have no responsibility with respect to the use or application of any Escrow Funds paid by Escrow Agent pursuant to the provisions hereof.  Escrow Agent shall have no duty to solicit any payment which may be due to be paid in Escrow Funds or to confirm or verify the accuracy or correctness of any amounts delivered in accordance with this Agreement or the calculation of the Minimum Amount or the Maximum Amount in respect to the Escrow Funds.  Escrow Agent shall not be liable to the Company or to anyone else for any loss which may be incurred by reason of any investment of any monies which it holds hereunder.

 

	
(e)   

	
Escrow Agent shall have the right to assume in the absence of written notice to the contrary from the proper person or persons that a fact or an event by reason of which an action would or might be taken by Escrow Agent does not exist or has not occurred, without incurring liability to the other parties hereto or to anyone else for any action taken or omitted, or any action suffered by it to be taken or omitted, in good faith, in reliance upon such assumption.

 

	
(f)   

	
Escrow Agent is authorized, in its sole discretion, to comply with orders issued or process entered by any court with respect to the Escrow Funds, without determination by Escrow Agent of such court’s jurisdiction in the matter.  If any portion of the Escrow Funds is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in any such event, Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree which it is advised by legal counsel selected by it is binding upon it without the need for appeal or other action; and if Escrow Agent complies with any such order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person or entity by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.

 

  

9

  

 

	
9.  

	
Indemnification of Escrow Agent.  From and at all times after the date of this Agreement, the Company shall, to the fullest extent permitted by law, defend, indemnify and hold harmless Escrow Agent and each director, officer, member, partner, trustee, employee, attorney, agent and Affiliate of Escrow Agent (collectively, the “Indemnified Parties”) against any and all actions, claims (whether or not valid), losses, damages, liabilities, costs, penalties, settlements, judgments and expenses of any kind or nature whatsoever (including costs and expenses and reasonable attorneys’ fees) incurred by or asserted against any of the Indemnified Parties from and after the date hereof, whether direct, indirect or consequential, as a result of, in connection with, or arising from or in any way relating to any claim, demand, suit, action or proceeding (including any inquiry or investigation) by any person, including the Company and/or the Dealer Manager, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person (whether it is an Indemnified Party or not) under any statute or regulation, including any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or failure of performance of this Agreement or any transactions contemplated herein or relating hereto (including tax reporting or withholding or the enforcement of any rights or remedies under or in connection with this Agreement), whether or not any such Indemnified Party is a party to any such action, proceeding, suit or the target of any such inquiry or investigation (without derogation of any other indemnity afforded to Escrow Agent); provided, however, that no Indemnified Party shall have the right to be indemnified hereunder for any liability finally determined by a court of competent jurisdiction, subject to no further appeal, to have resulted solely from the gross negligence or willful misconduct of such Indemnified Party.  If any such action or claim shall be brought or asserted against any Indemnified Party, such Indemnified Party shall promptly notify Company in writing, and Company shall assume the defense thereof, including the employment of counsel and the payment of all expenses. Such Indemnified Party shall, in its sole discretion, have the right to employ separate counsel in any such action and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such Indemnified Party unless (a) Company agrees to pay such fees and expenses, or (b) Company shall fail to assume the defense of such action or proceeding or shall fail, in the reasonable discretion of such Indemnified Party, to employ counsel satisfactory to the Indemnified Party in any such action or proceeding, or (c) the named parties to any such action or proceeding (including any impleaded parties) include both Indemnified Party and Company, and Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to Company.

 

	
10.  

	
Fees, Costs and Expenses of Escrow Agent.  The Company shall compensate Escrow Agent for its services hereunder in accordance with Schedule A attached hereto and, in addition, shall reimburse Escrow Agent for all of its reasonable and necessary out-of-pocket costs and expenses, including attorneys’ fees, travel expenses, telephone and facsimile transmission costs, postage (including express mail and overnight delivery charges), copying charges and the like.  The additional provisions and information set forth on Schedule A hereto are hereby incorporated by this reference, and form a part of this Agreement.  All of the compensation and reimbursement obligations set forth in this Section 10 shall be payable by the Company upon execution of this Agreement and, in the future, upon demand by Escrow Agent.  Escrow Agent is authorized to and may disburse from time to time, to itself or to any Indemnified Party from the Escrow Funds (but only to the extent of Company’s rights thereto), the amount of any compensation and reimbursement of out-of-pocket expenses due and payable hereunder (including any amount to which Escrow Agent or any Indemnified Party is entitled to seek indemnification pursuant to Section 8 hereof, but only to the extent of Company’s rights thereto).  Escrow Agent shall notify the Company of any disbursement from the Escrow Funds to itself or any other Indemnified Party in respect of any compensation or reimbursement hereunder and shall furnish to the Company copies of all related invoices and other statements.

 

  

10

  

 

	
11.  

	
Representations and Warranties.  Each of the Company and the Dealer Manager severally covenants and makes the following representations and warranties to Escrow Agent:

 

	
(a)   

	
It is duly organized, validly existing, and in good standing under the laws of the state of its incorporation or organization, and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

 

	
(b)   

	
This Agreement has been duly approved by all necessary action, including any necessary shareholder or membership approval, has been executed by its duly authorized officers, and constitutes its valid and binding agreement enforceable in accordance with its terms.

 

	
(c)   

	
The execution, delivery, and performance of this Agreement is in accordance with the agreements related to the Financing and will not violate, conflict with, or cause a default under its articles of incorporation, bylaws, management agreement or other organizational document, as applicable, any applicable law, rule or regulation, any court order or administrative ruling or decree to which it is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement, including the agreements related to the Financing, to which it is a party or any of its property is subject.

 

	
(d)   

	
Escrow Agent is appointed to act as agent only for the limited purposes set forth in this Agreement; no representation, statement, communication or other suggestion shall be made that Escrow Agent has investigated the desirability or advisability of investment in the Common Units or has approved, endorsed or passed upon the merits of purchasing the  Common Units; and the name of Escrow Agent has not and shall not be used in any manner in connection with the offering of the Common Units other than to state that Escrow Agent has agreed to serve as escrow agent for the limited purposes set forth in this Agreement.

 

	
(e)   

	
No party other than the parties hereto has, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof.  No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.

 

	
(f)   

	
It possesses such valid and current licenses, certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct its respective businesses, and it has not received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such license, certificate, authorization or permit.

 

  

11

  

 

	
(g)   

	
All of its representations and warranties contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement of Escrow Funds.

 

	
12.  

	
Patriot Act Disclosure.  The Company acknowledges that a portion of the identifying information provided to Escrow Agent pursuant to Section 3 hereof is being requested in connection with the USA Patriot Act, Pub.L.107-56 (the “Act”), and the Company agrees to provide any additional information requested by Escrow Agent in connection with the Act or any similar law, rule, regulation, order, or other governmental act to which Escrow Agent is subject, in a timely manner and consent to Escrow Agent obtaining from third parties any such identifying information. The Company represents that all identifying information set forth on Schedule A hereto, including its Taxpayer Identification Number assigned by the Internal Revenue Service or any other taxing authority, is true and complete on the date hereof and will be true and complete at the time of any disbursement of Escrow Funds. For a non-individual person such as a charity, a trust, or other legal entity, Escrow Agent may require documentation to verify formation and existence as a legal entity.  Escrow Agent may also require financial statements, licenses, identification and authorization documentation from any individual claiming authority to represent the entity or other relevant documentation.

 

	
13.  

	
Consent to Jurisdiction and Venue. In the event that any party hereto commences a lawsuit or other proceeding relating to or arising from this Agreement, the parties hereto agree that the United States District Court for the Southern District of the State of New York shall have the sole and exclusive jurisdiction over any such proceeding.  If such court lacks federal subject matter jurisdiction, the parties hereto agree that the Supreme Court of the State of New York within New York County shall have sole and exclusive jurisdiction.  Any final judgment shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Any of these courts shall be proper venue for any such lawsuit or judicial proceeding and the parties hereto waive any objection to such venue and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit or proceeding in any such court has been brought in an inconvenient forum.

 

The parties hereto consent to and agree to submit to the jurisdiction of any of the courts specified herein and agree to accept service of process to vest personal jurisdiction over them in any of these courts.

 

Each party hereto irrevocably and unconditionally waives any right to a trial by jury and agrees that any of them may file a copy of this section of this Agreement with any court as written evidence of the knowing, voluntary and bargained-for agreement among the parties hereto irrevocably to waive the right to trial by jury in any litigation related to or arising under this Agreement.

 

  

12

  

 

	
14.  

	
Notice.  All notices, instructions (pursuant to a Joint Written Direction or otherwise), approvals, consents, requests, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when such writing is delivered by hand or overnight delivery service, or (b) upon telephone call-back in accordance with Section 15 below, after being sent by e-mail with PDF attachment from the designated e-mail account(s) of the sending person(s) as designated on Schedule A hereto to the designated e-mail account(s) of the receiving person(s) as designated on Schedule A hereto or (c) three (3) Business Days after being mailed by first class mail (postage prepaid), in each case to the address set forth on Schedule A hereto or to such other address as each party hereto may designate for itself by like notice.

 

	
15.  

	
Security Procedures.  If notices, instructions (pursuant to a Joint Written Direction or otherwise), approvals, consents, requests, and other communications, are received by the Escrow Agent by e-mail at its e-mail account(s) as designated on Schedule A hereto, the Escrow Agent is authorized, but not required, to seek prompt confirmation of such communications by telephone call-back to the sending person or persons’ telephone number(s) as designated on Schedule A hereto, and the Escrow Agent may rely upon the confirmation of anyone purporting to be the person or persons so designated in that call-back.  Any e-mail by PDF attachment executed by more than one person shall be sent by each signatory.  The persons and their telephone numbers authorized to receive call-backs as designated in Schedule A hereto may be changed only in a writing actually received and acknowledged by the Escrow Agent and delivered in accordance with Section 14 above and, if applicable, this Section 15.  If Escrow Agent is unable to contact any such designated person, Escrow Agent is hereby authorized (but not required) both to receive written instructions from and seek confirmation of such instructions by telephone call-back to any one or more of the Company’s or the Dealer Manager’s executive officers (each, an “Executive Officer”), as the case may be, who shall include individuals holding titles of Manager of the Company’s general partner (for the Company) or [ ] for the Dealer Manager, or in each case more senior thereto, as Escrow Agent may select.  Such Executive Officer(s) shall deliver to Escrow Agent a fully executed incumbency certificate upon Escrow Agent’s request, and Escrow Agent may rely upon the confirmation of anyone purporting to be any such Executive Officer(s). The parties to this Agreement acknowledge and agree that the security procedures set forth above are commercially reasonable.

 

The Escrow Agent in any funds transfer may rely solely upon any account numbers or similar identifying numbers provided by the Company to identify (i) a beneficiary, (ii) a beneficiary's bank, or (iii) an intermediary bank.  The Escrow Agent may apply any of the Escrow Funds for any payment order it executes using any such identifying number, even where its use may result in a person other than a beneficiary being paid, or the transfer of funds to a bank other than a beneficiary's bank or an intermediary bank designated.

 

	
16.  

	
Amendment or Waiver.  This Agreement may be changed, waived, discharged or terminated only by a writing signed by the parties hereto.  No delay or omission by any party hereto in exercising any right with respect hereto shall operate as a waiver.  A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion.

 

  

13

  

 

	
17.  

	
Severability.  To the extent any provision of this Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

	
18.  

	
Governing Law.  This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York without giving effect to the conflict of laws principles thereof.

 

	
19.  

	
Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto relating to the holding, investment and disbursement of Escrow Funds and sets forth in their entirety the obligations and duties of Escrow Agent with respect to the Escrow Funds.

 

	
20.  

	
Binding Effect.  All of the terms of this Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the Company, Escrow Agent and the Dealer Manager.

 

	
21.  

	
Execution in Counterparts.  This Agreement and any Joint Written Direction may be executed in two or more counterparts, which when so executed shall constitute one and the same agreement or direction.  Subject to Section 14 and Section 15 hereof, this Agreement and any Joint Written Direction may be executed and delivered by e-mailing a PDF version of a signed signature page, which shall have the same force and effect as the delivery of an originally executed signature page.

 

	
22.  

	
Dealings.  Escrow Agent and any stockholder, director, officer or employee of Escrow Agent may buy, sell, and deal in any of the securities of the Company and become pecuniarily interested in any transaction in which the Company may be interested, and contract and lend money to the Company and otherwise act as fully and freely as though it were not Escrow Agent under this Agreement.  Nothing herein shall preclude Escrow Agent from acting in any other capacity for the Company or for any other entity.

 

	
23.  

	
Currency.  The currency applicable to any amount payable or receivable under this Agreement is United States dollars.

 

	
24.  

	
Late Payment.  [Reserved].

 

	
25.  

	
Force Majeure.  Notwithstanding anything to the contrary hereunder, Escrow Agent shall not be liable for any delay, failure to perform, or other act or non-act resulting from acts beyond its reasonable control, including acts of God, terrorism, shortage of supply, labor difficulties (including strikes), war, civil unrest, fire, floods, electrical outages, equipment or transmission failures, internet interruption, vendor failures (including information technology providers), and other similar causes.

 

	
26.  

	
No Third Party Beneficiaries.  This Agreement and all of its terms and conditions are for the sole and exclusive benefit of the parties hereto and their respective permitted successors and assigns.  Nothing expressed or referred to in this Agreement will be construed to give any person or entity other than the parties to this Agreement any legal or equitable rights, remedy, or claim under or with respect to this Agreement or any term or condition of this Agreement.

 

  

14

  

 

	
27.  

	
No Strict Construction.  The parties hereto have participated jointly in the negotiation and draft of this Agreement.  In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if it were drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of authorship of any provision of this Agreement.

 

	
28.  

	
Priority.

 

	
(a)   

	
In the event of any conflict between the provisions of Schedule A or Schedule B hereto and the remainder of this Agreement, this Agreement shall be construed in a manner prescribed by Escrow Agent acting in good faith.

 

	
(b)   

	
Nothing contained in this Agreement shall amend, replace or supersede any agreement between the Company and Escrow Agent to act as the Company’s transfer agent, which agreement shall remain of full force and effect.

 

	
29.  

	
Headings.  The headings in this Agreement are for convenience purposes and shall be ignored for purposes of enforcing this Agreement, do not constitute a part of this Agreement, and may not be used by any party hereto to characterize, interpret, limit or affect otherwise any provision of this Agreement.

 

[signature page follows]

 

 

 

  

15

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

ENERGY 11, L.P.

By:  ____________________________________

Name:

Title:

AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC,

as Escrow Agent

By:  _____________________________________

Name:

Title:

DAVID LERNER ASSOCIATES, INC.

By:  ____________________________________

Name:

Title:

  

  

  

SCHEDULE A

	
1.  

	
Escrow Funds.

 

	
Escrow Funds wiring instructions:

	
Re: [Account Name,  #]

 

	
2.  

	
Escrow Agent Fees.

 

	
Acceptance Fee:

	
$                    

	
Escrow Fee:

	
$                    

	
Out-of-Pocket Expenses:

	
$                    

	
[Transactional Costs]:

	
$                    

	
[Other Fees/Attorney, etc.]:

	
$                    

	
TOTAL

	
$                    

 

The Acceptance Fee and the Escrow Fee are payable upon execution of this Agreement.  In the event the escrow is not funded, the Acceptance Fee and all related expenses, including attorneys’ fees, costs and expenses remain due and payable, and if paid, will not be refunded.

The fees quoted in this schedule apply to services ordinarily rendered in the administration of an escrow account and are subject to reasonable adjustment based on final review of documents, or when Escrow Agent is called upon to undertake unusual or extraordinary duties or responsibilities, or as changes in law, procedures, or the cost of doing business demand.  Services in addition to and not contemplated in this Agreement, including document amendments and revisions, non-standard cash and/or investment transactions, calculations, notices and reports, and legal fees, will be billed as expenses.

Unless otherwise indicated, the above fees relate to the establishment of one escrow account.  Additional sub-accounts governed by this Agreement may incur an additional charge.  Transaction costs include charges for wire transfers, checks, internal transfers and securities transactions.

The fees quoted in this schedule are subject to reasonable adjustment by Escrow Agent in accordance with its customary practices and if it is called upon to undertake further unusual or extraordinary duties or responsibilities, or as changes in law, procedures, or the cost of doing business demand.

	
3.  

	
Taxpayer Identification Number.

Company: 46-3070515

	
4.  

	
Notice Addresses.

If to the Company at:

 

Energy 11, L.P.

c/o Energy 11 GP LLC

120 W. 3rd Street

Ft. Worth, Texas 76102

Attention: David McKenney

Tel: (817) 882.9192

Fax: (804) 727.6351

 

  

A-1

  

 

with copy to:

Haynes and Boone, LLP

1221 McKinney Street, Suite 2100

Houston, Texas 77010

Attention: George G.  Young III

If to Escrow Agent at:

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attn: Corporate Actions

Tel: (718) 921.8200

 

with copy to:

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attn: General Counsel

Tel: (718) 921.8200

If to the Dealer Manager at:

David Lerner Associates, Inc.

477 Jericho Turnpike

PO Box 9006

Syosset, New York 11791

Attention: Alan P. Chodosh

with copy to:

 

Pillsbury Winthrop Shaw Pittman LLP

1540 Broadway

New York, NY 10036

Fax: (212) 858.1500

Attention: Peter A. Baumgaertner

 

  

A-2

  

	
5.  

	
Designated Email Accounts and Telephone Call-Back Numbers (for persons designated to send and receive notices by e-mail).

Company:                               Name                                Email Address                                                       Phone

 David McKenney           [dmckenney@applereit.com]                             (817) 882.9192

 

Escrow Agent:                       Name                                Email Address                                                      Phone

[Escrow Agent to insert]

Dealer Manager:                    Name                                Email Address                                                      Phone

[Dealer Manager to insert]

  

A-3

  

 

SCHEDULE B

 

 

	
1.  

	
Certificates of each of the Chief Financial Officer and the Corporate Secretary of the Company that (a) the offer and sale of the  Common Units described in the Prospectus, dated ________] have been registered under the Securities Act of 1933, as amended, and have been qualified for sale or are exempt from applicable state securities or “blue sky” laws and (b) all representations and warranties of the Company set forth in the Agreement are true and correct in all material respects on and as of the date of such certificate as if made on the date thereof; and

 

	
2.  

	
Certificate of each of an authorized officer and the Corporate Secretary of the Dealer Manager that all representations and warranties of the Dealer Manager set forth in the Agreement are true and correct in all material respects on and as of the date of such certificate as if made on the date thereof.

 

 

 

 

 

B-1ex10-2.htm

Exhibit 10.2

 

MANAGEMENT SERVICES AGREEMENT

 

 

BY AND AMONG

 

 

E11 MANAGEMENT, LLC,

an Oklahoma Limited Liability Company

 

 

E11 INCENTIVE HOLDINGS, LLC

an Oklahoma Limited Liability Company

 

 

ENERGY 11, L.P.

a Delaware Limited Partnership

 

 

 

AND

 

 

 

ENERGY 11 OPERATING COMPANY, LLC

a Delaware Limited Liability Company and

Wholly Owned Subsidiary of ENERGY 11, L.P.

 

 

Dated ____________, 2014

 

  

  

  

 

TABLE OF CONTENTS

 

 

	
Article I. DEFINED TERMS, INTERPRETATION

	
1

	
Section 1.1

	
Defined Terms

	
1

	
Section 1.2

	
References and Titles

	
10

	
Article II. MANAGEMENT SERVICES

	
11

	
Section 2.1

	
Engagement of Manager

	
11

	
Section 2.2

	
Services

	
11

	
Section 2.3

	
Direction of Services

	
11

	
Section 2.4

	
Management Standards

	
11

	
Section 2.5

	
Records; Financial Reports; Instruments of Service

	
11

	
Section 2.6

	
Certain Limitations on Management Services

	
12

	
Section 2.7

	
Well Operations

	
12

	
Article III. FINANCIAL ADMINISTRATION

	
13

	
Section 3.1

	
Budget

	
13

	
Section 3.2

	
Cash Management

	
14

	
Section 3.3

	
Revenues and Joint Interest Billings

	
14

	
Section 3.4

	
Manager Payments

	
14

	
Section 3.5

	
Payment to Owner

	
14

	
Article IV. CONTRACT ADMINISTRATION; POWER OF ATTORNEY

	
15

	
Section 4.1

	
Contract Administration

	
15

	
Section 4.2

	
Purchases for Owner

	
15

	
Section 4.3

	
Affiliate Transactions

	
15

	
Section 4.4

	
Power of Attorney

	
15

	
Article V. COMPENSATION AND EXPENSES

	
16

	
Section 5.1

	
G&A Reimbursement

	
15

	
Section 5.2

	
Reimbursement of Out-of-Pocket Expenses

	
16

	
Article VI. REPRESENTATIONS, WARRANTIES AND COVENANTS

	
17

	
Article VII. ADDITIONAL AGREEMENTS OF MANAGER; RESTRICTIONS ON MANAGER

	
18

	
Section 7.1

	
Compliance with Laws

	
18

	
Section 7.2

	
Compliance with Obligations

	
18

	
Section 7.3

	
Prohibited Acts

	
18

	
Section 7.4

	
Emergencies

	
20

	
Section 7.5

	
Manager’s Insurance

	
20

 

  

i

  

 

	
Section 7.6

	
Changes in Information Provided

	
21

	
Section 7.7

	
Personnel.

	
21

	
Article VIII. PERSONNEL ADMINISTRATION

	
21

	
Section 8.1

	
General

	
21

	
Section 8.2

	
Key Employee.

	
21

	
Section 8.3

	
Responsibility

	
22

	
Article IX. INVESTMENT OPPORTUNITIES

	
22

	
Section 9.1

	
Investment Opportunities

	
22

	
Section 9.2

	
Initial Budget; Revisions to Budget.

	
23

	
Article X. TERM; TERMINATION

	
23

	
Section 10.1

	
Term

	
23

	
Section 10.2

	
Termination.

	
24

	
Section 10.3

	
Transition Services

	
25

	
Section 10.4

	
Effect of Termination.

	
25

	
Article XI. INDEMNIFICATION

	
25

	
Section 11.1

	
Indemnification

	
25

	
Section 11.2

	
EXTENT OF INDEMNIFICATION; EXPRESS NEGLIGENCE RULE

	
26

	
Section 11.3

	
Indemnification Procedure

	
27

	
Section 11.4

	
Limitation on Consequential and Other Damages

	
27

	
Section 11.5

	
Manager Liability

	
28

	
Section 11.6

	
Conspicuous

	
28

	
Article XII. FORCE MAJEURE

	
28

	
Article XIII. MISCELLANEOUS

	
28

	
Section 13.1

	
Time

	
28

	
Section 13.2

	
Independent Contractor

	
28

	
Section 13.3

	
Notices

	
29

	
Section 13.4

	
Cooperation

	
30

	
Section 13.5

	
No Third Party Beneficiaries

	
30

	
Section 13.6

	
Cumulative Remedies

	
31

	
Section 13.7

	
Governing Law; Jurisdiction; Waiver of Jury Trial

	
31

	
Section 13.8

	
Entire Agreement

	
31

	
Section 13.9

	
Assignment

	
31

	
Section 13.10

	
Amendment

	
31

	
Section 13.11

	
Severability

	
32

 

  

ii

  

 

	
Section 13.12

	
Waiver

	
32

	
Section 13.13

	
Counterparts; Facsimiles; Electronic Transmission

	
32

	
Section 13.14

	
Corporate Opportunity

	
32

	
Section 13.15

	
Joint Acknowledgement

	
32

	
Section 13.16

	
Acknowledgement by Incentive Holdings

	
32

	 	 	 
	  	  	  
	
EXHIBITS:

	  	  
	
Exhibit A

	
Scope of Services

	
A-1

	
Exhibit B

	
Key Employee

	
B-1

	
Exhibit C

	
Manager's Insurance

	
C-1

	
Exhibit D

	
Cost Reimbursement

	
D-1

 

  

iii

  

 

MANAGEMENT SERVICES AGREEMENT

 

This MANAGEMENT SERVICES AGREEMENT (this “Agreement”), dated as of [•] [•], 2014 and effective for all purposes as of the Initial Closing (the “Effective Date”), is by and among E11 Management, LLC, an Oklahoma limited liability company (the “Manager”), E11 Incentive Holdings, LLC, an Oklahoma limited liability company and an Affiliate of the Manager (“Incentive Holdings”), Energy 11, L.P., a Delaware limited partnership (“Parent”), and Energy 11 Operating Company, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Owner”).  The Manager, Incentive Holdings, Parent and Owner are referred to herein individually as a “Party,” and collectively as the “Parties.”  Capitalized terms used but not defined herein shall have the meanings assigned to such terms in Article I.

 

BACKGROUND:

 

 

A. Energy 11 GP, LLC, a Delaware limited liability company, is the sole general partner of Parent; and

 

B. Owner is engaged in the Business; and

 

C. Affiliates of the Manager are experienced and skilled in the conduct of business in the oil and gas acquisition, exploration, development and production industry, and have the ability to provide technical, commercial and management services that may be necessary or useful to Owner; and

 

D. Owner desires to engage the Manager to perform and provide, and the Manager desires to perform and provide for and on behalf of Owner, the Services as set forth herein and in accordance with the terms and conditions hereof.

 

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

 

ARTICLE I.

DEFINED TERMS, INTERPRETATION

 

Section 1.1 Defined Terms.  As used in this Agreement, each of the following terms has the meaning given in this Section 1 as follows:

 “Affiliate” means, with respect to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with such Person, provided, however, that the Parties specifically acknowledge and agree that for purposes of this Agreement neither Energy 11 GP nor Owner is an Affiliate of the Manager.

 

“Agreement” means this Agreement, as amended, supplemented or modified from time to time.

 

  

1

  

 

“Approved Credit Facility” means a revolving or other credit facility entered into by Parent, Owner or a Subsidiary of Owner.

 

“Assets” means (a) the Leases; (b) the Wells; (c) all royalty, overriding royalty, production payments, net profits interests and other interests in oil and gas properties owned by Owner and its Subsidiaries from time to time; (d) all tangible personal property, equipment, machinery, inventory, supplies, spare parts, fixtures and improvements that are a part of any such interests or Lease or Well or are owned by or in the possession of Owner; and (e) all files, records and business data that relate to any Lease or Well or any of the business of Owner.

 

“Bankruptcy” means, with respect to any Person, the occurrence of any of the following events, conditions or circumstances:  (i) such Person shall file a voluntary petition in bankruptcy or shall be adjudicated as bankrupt or insolvent, or shall file any petition or answer or consent seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under the United States Bankruptcy Reform Act of 1978 (the “Bankruptcy Code”) or any present or future applicable federal, state or other statute or Law relating to bankruptcy, insolvency, reorganization or other relief for debtors, or shall seek or consent to, or acquiesce in, the appointment of any trustee, receiver, conservator or liquidator of such Person or of all or any substantial part of its properties (the term “acquiesce,” as used in this definition, includes the failure to file a petition or motion to vacate or discharge any order, judgment or decree within 20 days, after entry of such order, judgment or decree); (ii) an involuntary case or other proceeding shall be commenced against such Person seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief with respect to such Person or its debts under the Bankruptcy Code or any present or future applicable federal, state or other statute or Law relating to bankruptcy, insolvency, reorganization or other relief for debtors, or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 90 consecutive days, (iii) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against such Person seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Bankruptcy Code, or any other present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, reorganization or other relief for debtors, and such Person shall acquiesce in the entry of such order, judgment or decree or such order, judgment or decree shall remain unvacated and unstayed for an aggregate of 90 days (whether or not consecutive) from the date of entry thereof, or any trustee, receiver, conservator or liquidator of such Person or of all or any substantial part of its property shall be appointed without the consent or acquiescence of such Person and such appointment shall remain unvacated and unstayed for an aggregate of 90 days (whether or not consecutive); (iv) such Person shall admit in writing its inability to pay its debts as they mature or shall generally not be paying its debts as they become due; or (v) such Person shall make a general assignment for the benefit of creditors or take any other similar action for the protection or benefit of creditors.

 

“Basket Amount” means the following:  (i) prior to 90 days following the end of the second Fiscal Year after the occurrence of the Full Investment Date, 2.0% of the Net Proceeds received by Parent on or before such date, and (ii) after 90 days following the end of the second Fiscal Year after the occurrence of the Full Investment Date, 2.0% of the after tax present value, discounted at 10%, of the cash flows attributable to Parent’s consolidated estimated net proved reserves as set forth in Parent’s financial statements filed with the Securities and Exchange Commission.

 

  

2

  

 

“Budget” means the budget approved pursuant to Section 3.1(a), as amended and revised from time to time in accordance with Section 3.1(b).

 

“Business” of Owner and its Subsidiaries is (a) to acquire, hold, maintain, renew, drill, develop, operate and sell working interests, net profits interests, leasehold interests, royalties, and other types of oil and gas interests and/or equity interests in corporate, limited liability company or partnership entities owning oil and gas interests; (b) to produce, collect, store, treat, deliver, market, sell, farm-out or otherwise dispose of oil, gas and related hydrocarbons and minerals from its properties and interests; and (c) to take all such other actions incidental to any of the foregoing as may be necessary or desirable.

 

“Business Day” means any day other than a Saturday or Sunday or any day on which commercial banks in Fort Worth, Texas are authorized or required by Law to close.

 

“Calendar Month” means any of the months in the Gregorian calendar.

 

“Calendar Quarter” means the calendar quarter of each Fiscal Year ending March 31, June 30, September 30 and December 31.

 

“Calendar Year” means a 12 consecutive Calendar Month period commencing on January 1.

 

“Company Agreement” means the First Amended and Restated Limited Liability Company Agreement of Energy 11 GP, as same may be amended, supplemented or restated during the term of this Agreement.

 

“Control” (including collective meanings, “controlling,” “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

“Development Activities” means all operations and activities related to the development of the Assets, including the drilling of any wells, recompletions, workovers and operations subsequent to a well reaching its objective depth on any Lease or other prospect held by Owner or its Subsidiaries and related proposals, activities and operations required to commence and sustain production from such well(s), including the design, fabrication or other acquisition, and installation, of a related development system.

 

“Draft Budget” has the meaning set forth in Section 3.1.

 

“DRULPA” means the Delaware Revised Uniform Limited Partnership Act or any successor statute, as amended from time to time.

 

  

3

  

 

“Economic Run” means data and other information, delivered in written or electronic formats, necessary to present a base case, an upside case and a downside case economic analysis of a Property Acquisition, including, at a minimum and without limitation, the following:

 

(a)           Cash flow financial model analysis, including:

 

(i)           a calculation of the Property Acquisition internal rate of return using such assumptions with respect to leverage, debt amortization and general and administrative expenses and monthly G&A Reimbursement as Manager and Owner mutually agree at any time and from time to time are appropriate for financial modeling purposes with respect to Property Acquisitions; and

 

(ii)           projected financial results from the Property Acquisition;

 

(b)           supporting property-level reserve reports prepared by either qualified internal or independent reserve engineers as determined by the Manager in its discretion; and

 

(c)           a cash flow analysis showing the projected impact of the Property Acquisition on the projected cash flow of Owner.

 

“Effective Date” means the date of the Initial Closing.

 

“Emergency” means any sudden or unexpected event which causes, or risks causing, (a) substantial damage to any Asset or the property of a Third Party, or (b) death of or injury to any Person, (c) damage or substantial risk of damage to natural resources (including wildlife) or the environment, (d) safety concerns associated with continued operations, or (e) non-compliance with applicable Law, in each case which event is of such a nature that a response cannot, in the reasonable discretion of Manager, await the decision of Owner.  For the avoidance of doubt, an “Emergency” shall include any release or threatened release of Hazardous Substances into the environment that requires notification to any Governmental Authority under applicable Law.

 

“Employee” means each employee or individual independent contractor of Manager, including each Key Employee.

 

“Energy 11 GP” means Energy 11 GP LLC, a Delaware limited liability company and the general partner of Parent.

 

 “Excluded Area” means (i) the Southern Wolfcamp play area of the Central Permian Basin in West Texas, (ii) the Utica Shale and liquids rich portion of the Marcellus Shale areas in Ohio, West Virginia and Pennsylvania and (iii) the Woodford Shale area in Central Northern Oklahoma.

 

“Excluded Assets” means leasehold interests, working interests, royalty, overriding royalty, production payments, net profits interests and other interests in developed and undeveloped oil and gas properties, including, without limitation, Leases and Wells, in the Excluded Area and properties in the continental United States that consist entirely of properties that will not be operated by the Manager or any of its Affiliates or any opportunity to acquire or develop midstream assets in the continental United States.

 

  

4

  

 

“Fiscal Year” means the period that begins on January 1 of each Calendar Year and ends on December 31 of such Calendar Year, but the first Fiscal Year will begin on the Effective Date and the last Fiscal Year will end on the date Owner is dissolved.

 

“Force Majeure Event” means any cause or event not reasonably within the control of the Party whose performance is sought to be excused thereby, including the following causes and events (solely to the extent such causes and events are not reasonably within the control of the Party claiming suspension): acts of God, strikes, lockouts, or other industrial disputes or disturbances, acts of the public enemy, wars, blockades, insurrections, civil disturbances and riots, epidemics, landslides, lightning, earthquakes, fires, tornadoes, hurricanes, storms, floods, washouts and warnings for any of the foregoing which may necessitate the precautionary shut-down of wells, plants, pipelines, gathering systems, or other related facilities; arrests, orders, directives, restraints and requirements of governments and government agencies, either federal or state, civil and military including moratoriums on drilling, hydraulic fracturing or other oil and gas development activities; lack of availability of drilling and completion equipment; outages (shutdown) for the making of repairs, alterations, relocations or inspections; inability to secure labor or materials, inclement weather that necessitates extraordinary measures and expense to construct facilities or maintain operations, or any other causes, whether of the kind enumerated herein or otherwise, not reasonably within the control of the Party claiming suspension. Such term shall likewise include, in those instances where either Party is required to obtain servitudes, rights-of-way, grants, permits, or licenses to enable such Party to fulfill its obligations hereunder, the inability of such Party to acquire, or delays on the part of such Party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way, grants, permits or licenses, and in those instances where either Party hereto is required to secured permits or permissions from any Governmental Authority to enable such Party to fulfill its obligations hereunder, the inability of such Party to acquire, or delays on the part of such Party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such permits and permissions.

 

“Full Investment Date” means the date on which Parent and Owner have invested, committed for investment or otherwise spent 90% or more of the Net Proceeds contributed to Parent.

 

“FWPP” means the Chesapeake Energy Corporation Founders Well Participation Program, dated as of June 10, 2005.

 

“FWPP Assets” shall mean any assets or properties acquired by Aubrey K. McClendon, directly or through any of his Affiliates or by his spouse, in connection with or pursuant to the FWPP.

 

“FWPP Opportunity” shall mean any right of Aubrey K. McClendon or any entity of which he is an Affiliate to acquire a working interest in any oil and gas property pursuant to the FWPP.

 

“GAAP” means generally accepted accounting principles, as recognized by the U.S. Financial Accounting Standards Board (or any generally recognized successor).

 

  

5

  

 

“General Parameters” means the general parameters for a Property Acquisition as the Manager and Owner may mutually agree at any time and as same may thereafter be amended, modified or superseded by mutual agreement of the Manager and Owner, which general parameters shall include, without limitation, general parameters for terms and conditions of Property Acquisitions with respect to title, environmental, other liabilities, indemnification, gas imbalances, conditions to closing and other matters mutually determined to be appropriate.

 

“Governmental Authority” means any federal, national, regional, state, municipal or local government, any political subdivision or any governmental, judicial, public or statutory instrumentality, tribunal, court, arbitral panel, or other regulatory bureau, authority, body or entity having legal jurisdiction over the matter or Person in question.

 

“Hazardous Substances” means any pollutants, contaminants, toxic or hazardous substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or may form the basis of liability under any environmental Laws, including asbestos-containing materials (but excluding any NORM).

 

“Hedging Policy” means a policy or policy with respect to Hedges that Owner approves as the Hedging Policy of Owner from time to time.

 

“Hedges” means any commodity futures contract, commodity swap, commodity option, commodity forward sale, commodity put, call or collar or other similar agreement or arrangement designed to protect against fluctuations in the price of oil, gas or other hydrocarbons used, sold or produced by a person.

 

“Incentive Holdings” has the meaning specified in the introductory paragraph.

 

“Initial Closing” means the initial closing of the purchase of Units from Parent by Investors pursuant to the Offering.

 

“Initial Term” has the meaning specified in Section 10.1.

 

“Insured” has the meaning specified in Section 7.5.

 

“Investors” means purchasers of Units from Parent pursuant to the Offering.

 

“Invoice” has the meaning specified in Section 5.1.

 

“Key Employee” means the Employee of the Manager listed on Exhibit B, which schedule may be amended from time to time by the Parties.

 

“Law” means any and all applicable laws, statutes, ordinances, permits, decrees, rulings, writs, injunctions, orders, codes, judgments, principles of common law, rules or regulations which are promulgated, issued or enacted by a Governmental Authority having jurisdiction.

 

“Lease Operations” means all necessary or useful lease and land administration services and maintaining all land, lease and other related records (including title to Owner’s Assets and the maintenance and curing of the same) and all technical, regulatory, permitting and other supervision and oversight determined by the Manager to be necessary or appropriate to assure that Owner’s Assets are being explored, developed, produced, gathered and operated in accordance with this Agreement and Operating Agreements and other applicable contracts and agreements.

 

  

6

  

 

“Leases” means the oil, gas and mineral leases and operating rights owned by Owner.

 

“Loan(s)” means any indebtedness or obligation in respect of borrowed money or evidenced by a bond(s), note(s), deed(s) of trust, Letter(s) of credit, volumetric production payment(s), or similar investment(s), including a secured and mezzanine Loan(s).

 

“Management Services” has the meaning specified in Exhibit A.

 

“Management Standards” means all of the standards and requirements for performance by the Manager of the Services under Section 2.4.

 

“Manager” has the meaning specified in the introductory paragraph of this Agreement.

 

“Manager Change of Control” means that Aubrey K. McClendon or any family trust or family limited partnership established by Aubrey K. McClendon for estate planning purposes ceases to own or control the Manager.

 

“Manager Indemnified Parties” has the meaning specified in Section 11.1(a).

 

“Manager Personnel” means the officers and employees of the Manager, the officers and employees of Affiliates of the Manager, and all other persons otherwise engaged by the Manager for the provision of the Management Services hereunder.

 

“Material Commitment” means any agreement, contract or other arrangement binding on Owner or any of its subsidiaries which could reasonably be expected to result in payments by Owner or any of its Subsidiaries of more than the Basket Amount then in effect.

 

“Monthly G&A Reimbursement” has the meaning specified in Section 5.1.

 

 “Net Proceeds” means the net sales price of all Units issued by Parent to Investors in the Offering, after deduction of the fees payable to any dealer manager, any marketing expense, selling commissions or Organization and Offering Expenses.

 

“Offering” means the best efforts registered public offering of Units consisting of (i) a minimum offering of 5,263,158 Units for gross proceeds of $100.0 million and (ii) a maximum offering of 100,263,158 Units for gross proceeds of $2.0 billion.

 

“Operating Agreement” has the meaning specified in Section 2.7.

 

“Operator” means the person appointed as Operator of any Asset owned by Owner pursuant to the applicable Operating Agreement, which shall be (a) the Manager or an Affiliate of the Manager with respect to Assets operated by the Manager or an Affiliate of Manager pursuant to Section 2.7 and (b) the third party designated as operator with respect to Assets not operated by the Manager or an Affiliate of the Manager.

 

  

7

  

 

“Operating Services” has the meaning specified in Exhibit A.

 

“Organization and Offering Expenses” means all out-of-pocket costs and expenses payable to Third Parties of organizing and selling the Offering (other than the selling commissions and the dealer manager fees) paid by Energy 11 GP, the Manager or its Affiliates in connection with the Offering, including, but not limited to, expenses for printing, engraving, mailing, filing, accounting and legal fees, charges of transfer agents, registrars, trustees, escrow holders or escrow agent, depositaries, engineers and their experts, expenses of qualification of the sale of the Units under federal and state law, including taxes and fees, incurred by or on behalf of Energy 11 GP or the Manager in connection with the formation of Parent, Owner and the Manager, the preparation, negotiation, and execution of the Partnership Agreement, this Agreement, any dealer manager or soliciting dealer agreement, escrow agent agreement subscription agreement and any other agreement in connection with or relating to the Offering, issuance of Units in the Offering and reimbursement the Manager or its Affiliates for costs in connection with preparing supplemental sales materials.

 

“Out-of-Pocket Expenses” has the meaning specified in Section 5.2.

 

“Owner” has the meaning specified in the introductory paragraph of this Agreement and, unless the context otherwise requires, includes the subsidiaries of Owner.

 

“Owner Agreement” means the First Amended and Restated Limited Liability Company Agreement of Owner, as same may be amended, supplemented or restated during the term of this Agreement.

 

“Owner Indemnified Parties” has the meaning specified in Section 11.1(b).

 

“Parent” has the meaning specified in the introductory paragraph.

 

“Parties” has the meaning specified in the introductory paragraph.

 

“Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of Parent, as same may be amended, supplemented or restated during the term of this Agreement.

 

“Permitted Investment” means (a) any evidence of indebtedness, maturing not more than one (1) year after such time, issued or guaranteed by the United States Government, (b) commercial paper, maturing not more than nine (9) months from the date of issue, which is issued by a corporation (other than an Affiliate of the Manager) organized under the laws of any state of the United States or of the District of Columbia and rated A-l by Standard & Poor’s Ratings Group, or any successor thereto, or P-l by Moody’s Investors Service, Inc., (c) any certificate of deposit or bankers acceptance, maturing not more than one (1) year after such time, which is issued by a commercial banking institution that is a member of the U.S. Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (d) any repurchase agreement entered into with any commercial banking institution of the stature referred to in clause (c) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder.

 

  

8

  

 

“Permits” has the meaning specified in Exhibit A.

 

“Person” (whether or not capitalized) means any natural person, corporation, company, limited or general partnership, joint stock company, joint venture, association, limited liability company, trust, bank, trust company, land trust, business trust or other entity or organization, whether or not a Governmental Authority.

 

“Property Acquisition” means any acquisition or proposed acquisition of oil and gas properties where such properties are located onshore in the United States, but excluding any Excluded Assets and any FWPP Opportunity.

 

“Proposal” has the meaning specified in Section 9.1(c).

 

“Records” has the meaning specified in Section 2.5.

 

“Reimbursement Percent” for any month, means the percent set forth below:

	
From the Initial Closing to the last day of the 6th whole month after the Initial Closing - 1.75%.

 

	
From the first day of the 7th month after the Initial Closing to the last day of the 36th month after Initial Closing - 3.5%.

 

	
From the first day of the 37th month after the Initial Closing to the last day of the 60th month after the Initial Closing - 3.0%.

 

	
From the first day of the 61st month after the Initial Closing to the last day of the 84th month after the Initial Closing - 2.5%.

 

 Thereafter - 2.0%

 

“Rejected Proposal” has the meaning specified in Section 9.1(b).

 

“Services” has the meaning set forth in Section 2.1.

 

“Subsidiary” means with respect to any Person (including a corporation or partnership) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of at least a majority of the directors or other governing body of such Person.

 

“Term” has the meaning specified in Section 10.1.

 

  

9

  

 

“Third Party” means any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement.

 

“Unallocated Funds” means, as of any date, (i) the amount of capital contributions received by Parent and which have not been spent by Parent or Owner, plus all available borrowings under an Approved Credit Facility, less (ii) the amount, if any, set aside by Parent or Owner to invest in Development Activities on Assets acquired or to be acquired by Owner, or other expenses of the Parent or Owner.

 

“Units” means limited partner interests of Parent issued to Investors in the Offering.

 

“Wells” means all oil, gas and other hydrocarbon wells now owned or hereafter participated in by Owner.

 

Section 1.2 References and Titles.  All references in this Agreement to Exhibits, Schedules, Sections, paragraphs, subsections and other subdivisions refer to the corresponding Exhibits, Schedules, Sections, paragraphs, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise.  The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Section, subsection or other subdivision unless expressly so limited.  The word “including” (in its various forms) means including without limitation.  All references to “$” or “dollars” shall be deemed references to United States Dollars.  Titles appearing at the beginning of any Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof.  The words “this Agreement,” “here “ “hereby,” “hereunder’’ and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited.  The words “this Section” and “this subsection,” and words of similar import, refer only to Section or subsection hereof in which such words occur.  The word “or” is not exclusive.  Each accounting term not defined herein, and each accounting term partly defined herein to the extent not defined, will have the meaning given to it under GAAP.  Exhibits and Schedules referred to herein are attached to and by this reference incorporated herein for all purposes.  Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.  References to any Law or agreement (or contract) means such Law or agreement (or contract) as it may be amended from time-to-time.  If an ambiguity, question of intent or question of interpretation arises, this Agreement must be construed as if drafted jointly, and there must not be any presumption, inference or conclusion drawn against either Party by virtue of the fact that its representatives have authored this Agreement or any of its terms.  Any reference to an agreement or contract herein shall include any amendment, modification or replacement thereof that is in accordance with the provisions of this Agreement.

  

10

  

 

ARTICLE II.

MANAGEMENT SERVICES

 

Section 2.1 Engagement of Manager.  Commencing on the Effective Date, Owner hereby appoints, retains and authorizes the Manager, and the Manager hereby accepts and agrees, to perform in a timely, prudent and diligent manner the Management Services and Operating Services (collectively, the “Services”) during the Term at all times in accordance with the terms and conditions set forth in this Agreement.

 

Section 2.2 Services.  Commencing on the Effective Date and during the Term, the Manager shall provide the Services as defined on Exhibit A.

 

Section 2.3 Direction of Services.  Except with respect to the means or method by which the Manager performs the Services (which shall at all times be subject to the good faith direction or control of the Manager), the provision of the Services hereunder shall at all times be subject to the direction of Owner, including, without limitation, Owner’s right, subject to Section 3.5, to direct the Manager with respect to funds held in any Owner’s account(s) managed by the Manager.  The Parties acknowledge that Owner’s need for and scope of the Services may change from time to time depending on the nature, number and size of the interests comprising the Assets held by Owner at any given time, and Owner reserves the right to change the scope of the Services consistent with Exhibit A from time to time by agreement with the Manager.

 

Section 2.4 Management Standards.  Manager will act in compliance in accordance with the express provisions of this Agreement and, where this Agreement does not specifically establish a particular obligation or standard, (a) with respect to Assets subject to an Operating Agreement of which Manager or an Affiliate of Manager is the Operator as a reasonable and prudent operator and in a manner consistent with generally accepted standards for oil and gas exploration and production businesses similar to the Business conducted by Owner having Assets similar to the Assets then owned by Owner; (b) with respect to Assets subject to an operating agreement of which the Manager is not the Operator, based on information regarding such operations furnished or otherwise obtained by the Manager and to the extent reasonably practicable under the circumstances such Assets appear to the Manager to be operated in all material respects in accordance with good oilfield practices and (c) with respect to Assets or business of Owner not subject to an Operating Agreement, in a commercially reasonable manner consistent with generally acceptable standards in the oil and gas business (the “Management Standards”).  The Manager shall have no obligation to advance funds for the account of Owner or to pay any sums of its own in connection with the performance of the actions which it is authorized or required to take on behalf of Owner hereunder.

 

Section 2.5 Records; Financial Reports; Instruments of Service.  At all times during the Term, the Manager shall maintain complete books of account, receipts, disbursements, Permits and all other records relating to the Services performed hereunder (the “Records”), and all accounting Records shall be maintained in accordance with GAAP.  The Manager shall deliver (i) monthly financial and operating reports to Owner in respect of the most recently ended Calendar Month in a form requested and as may be required by Owner, but in any event no later than 20 days after the end of each Calendar Month, and (ii) quarterly cash flow forecasts for Owner as may be required by Owner, but in any event no later than 20 days prior to the start of the applicable Calendar Quarter.  Further, the Manager shall prepare and submit to Owner a monthly management report in respect of the most recently ended Calendar Month with such information as Owner may request, as well as any other information (without regard to whether relating to such Calendar Month) that Owner may request.  Owner and/or any representatives designated by Owner may at any time during normal business hours, upon two (2) business days’ advance notice, examine and/or make and retain copies of said Records.

 

  

11

  

 

Section 2.6 Certain Limitations on Management Services.  It is the intent of Owner and the Manager to maintain the separate corporate existence of both entities, to hold themselves out to others as separate corporate entities and to conduct their respective businesses in a manner which respects and preserves their separate identities.  Owner and the Manager also acknowledge and agree that Parent, as the sole member of Owner, is relying on the establishment and maintenance of the separate corporate entity of Owner.  Accordingly, the Manager will provide the Management Services, and Owner will operate its business, consistent with this intent.  Without limiting the foregoing, each of Owner and the Manager, to the extent applicable when providing Management Services on behalf of Owner, shall (i) not hold the Manager’s employees out as Owner’s employees when transacting with third parties on behalf of Owner, (ii) maintain proper books and records that show the assets, liabilities and transactions of Owner separate from those of any other person and prepare financial statements for Owner in the same manner, (iii) not commingle the funds received by or on behalf of Owner with any other person’s funds, (iv) pay liabilities and expenses invoiced directly to Owner or its Assets only out of Owner’s own funds maintained by or on behalf of Owner, and (v) maintain separate bank accounts belonging only to, or maintained by Owner. Nothing in this Agreement shall prohibit the Manager and Owner from acknowledging to third parties their status as parties to this Agreement.

 

Section 2.7                                Well Operations.  If the interest of Owner in a Lease (together with any interest owned by the Manager and its Affiliates) entitles Owner to appoint the Operator of the property, the owner shall take such commercially reasonably actions as are necessary to appoint the Manager (or its designated Affiliate) as the Operator of such Lease and the Manager (or its designated Affiliate) shall use its reasonable commercial efforts to assist Owner to take the actions necessary to designate the Manager as the Operator of such property, which designation shall be pursuant to either (i) the operating agreement currently in effect with respect to a property acquired by Owner or (ii) if any of such properties are not currently operated pursuant to an operating agreement, an operating agreement to be agreed upon with the Manager (or its designated Affiliate) at the time of the acquisition of such properties (such agreement(s) entered into under (i) or (ii) an “Operating Agreement”).  To the extent any of the Services described herein are duplicative of services to be provided by the Manager or any of its Affiliates under any joint operating agreement or other agreement, no additional obligations will be incurred or implied by any of the terms of this Agreement and such joint operating agreements or other agreement (and not this Agreement) will govern the terms of such services.

 

  

12

  

 

ARTICLE III.

FINANCIAL ADMINISTRATION

 

Section 3.1 Budget

 

(a)           Annual Budget Process.  The Manager shall prepare and submit to Owner at least 45 days before the beginning of each Fiscal Year after the first Property Acquisition by Owner, a budget (“Draft Budget”) detailing the Development Activities planned to be commenced during the relevant Fiscal Year, which sets out the amounts expected to be spent by Owner during such year to conduct such Development Activities, and to otherwise own its Assets and conduct the Business during such Fiscal Year; provided that in connection with the first acquisition made by Owner, the Manager shall deliver a Draft Budget to Owner in connection with such acquisition as contemplated by Section 9.2(a).  Owner shall approve or disapprove the Draft Budget no later than 15 days prior to the start of the Fiscal Year; provided that the first Draft Budget shall be approved as provided in Section 9.2(a).  If Owner approves the Draft Budget, the Draft Budget shall be deemed the Budget for purposes of this Agreement, until revised in accordance with paragraph (b) below. If Owner fails to approve a Draft Budget by the commencement of a Fiscal Year, then until a Draft Budget for such Fiscal Year is approved, the Manager is authorized to pay from Owner’s account the costs and expenses incurred in the ordinary course of business in amounts materially consistent with, and for Development Activities and other activities set forth in, the prior Fiscal Year’s Budget as adjusted for supplements to such Budget attributable to any subsequent Property Acquisition(s), including in respect of costs and expenses to the extent incurred pursuant to the contractual obligations of Owner, including any Material Commitments, and other costs and expenses approved as provided in this Agreement.

 

(b)           Approval of Additional Activities.  From time to time prior to the termination of this Agreement, the Manager may present to Owner supplemental Development Activities or other activities that the Manager proposes to be undertaken by Owner and that are not included in the applicable approved Budget for such Fiscal Year, and revisions to a previously approved Budget that the Manager recommends be adopted by Owner.  If Owner approves such revised Budget, the revised Budget shall be deemed the Budget as used in this Agreement.  In addition, the Budget shall be deemed to be amended as provided in Section 9.2(b).

 

(c)           Cooperation.  Prior to and in respect of any proposals made by the Manager to Owner pursuant to Section 3.1(b), the Manager and Owner agree to use good faith efforts (1) to exchange information regarding such proposals and proposed activities to be undertaken in connection with any such proposal or potential alternatives to any such proposal and (2) to ensure an efficient and expedient review and decision-making process in respect of such proposals.

 

(d)           Permitted Overruns.  Whenever any provision of this Agreement permits the Manager to make an expenditure or conduct a Development Activity or other operation as provided in the Budget, the Manager will be deemed to have made such expenditure or conducted such Development Activity or other operation in accordance with the Budget if (1) the aggregate expenditures during any Budget period do not exceed the amount set forth in the approved Budget for such Budget period for such Development Activity or other operation by more than 10.0% or (2) the expenditure(s) are reasonably determined by the Manager to be required in connection with an Emergency pursuant to Section 7.4; provided that in the event of an expenditure under (d)(1) or (d)(2), Manager shall promptly inform Owner of such expenditure and the reasons therefor.

 

  

13

  

 

Section 3.2 Cash Management.  The Manager shall have a fiduciary responsibility to Owner for the safekeeping of the Owner’s funds that Manager possesses or controls.  The Manager shall implement a cash management system for the cash and cash equivalents of Owner.  The Manager shall invest any cash held on behalf of Owner only in Permitted Investments and shall hold all such Permitted Investments and any cash in trust on behalf of Owner.  The Manager shall as promptly as commercially practicable deposit all cash and Permitted Investments held on behalf of Owner in excess of 50% of the then remaining unexpended portion of the approved Budget as directed by Owner in one or more accounts of Owner.

 

Section 3.3 Revenues and Joint Interest Billings.  The Manager shall receive all revenues and joint interest billings for the account of Owner and promptly credit or charge, as the case may be, Owner with Owner’s net revenue and joint interest billings with respect to its properties, on a property-by-property basis.

 

Section 3.4 Manager Payments.  The Manager shall maintain funds of Owner in a separate account(s) managed by the Manager and shall not comingle funds of Owner with funds of any other Person.  Any funds of Owner maintained by Manager shall be used for the exclusive benefit of Owner as provided in this Agreement.  From time to time, Manager shall pay, unless otherwise instructed by Owner, from Owner’s funds administered by the Manager, as and to the extent required by any applicable contract, or Law and, to the Manager’s knowledge, to the extent not previously paid by any purchaser, operator or Third Party, in each case to the extent such liability is attributable to Owner’s interest in a property or otherwise an obligation of Owner, all taxes, royalties, overriding royalties, delay rentals, operating expenses and other charges under operating agreements, debt service on Owner’s debts, the Monthly G&A Reimbursement (which shall be paid to the Manager in accordance with Section 5.1) and other debts and obligations of Owner.

 

Section 3.5 Payment to Owner.  As contemplated pursuant to Section 2.3, from time to time Owner may direct the Manager to transfer to an account specified by Owner funds in accounts maintained for Owner by the Manager that Owner and the Manager agree are not necessary for the conduct of Owner’s business as contemplated by the Budget then in effect (for purposes of determining the funds necessary to be retained, taking into account, among other items, funds required in accordance with the Budget then in effect for working capital purposes, reserves for capital expenditures and reserves for an approved Property Acquisition; provided, however, that if in accordance with the direction by Owner of the Manager in accordance with Section 2.3 or Section 3.4 or otherwise an activity contemplated in the Budget then in effect and for which funds are retained is abandoned, cancelled or otherwise not consummated, then any remaining funds retained therefor will then be transferred to Owner).

 

  

14

  

ARTICLE IV.

CONTRACT ADMINISTRATION; POWER OF ATTORNEY

 

Section 4.1 Contract Administration.  The Services shall include negotiating, administering and terminating contracts, by and on behalf of Owner, in the ordinary course of Business, but in all cases in compliance with the Budget.  All such contracts shall be executed by the Manager in the name of Owner, pursuant to the power of attorney granted herein.

 

Section 4.2 Purchases for Owner.  The day-to-day operations and management of Owner’s Business shall include the purchase (or lease) of such equipment, supplies and other goods necessary for the efficient operation of the Business and as shall be consistent with the Budget.  Purchases shall be made only at reasonable costs pursuant to the “prudent buyer” principle.

 

Section 4.3 Affiliate Transactions.  The Manager shall not make or cause Owner to make any contract (other than an Operating Agreement as provided herein) with or purchase or sell goods or services from or to the Manager or any Affiliate of the Manager, unless such contract or purchase or sale is specifically identified as an Affiliate transaction in the Budget, or with the prior written approval of Owner.  Nothing in this Section 4.3 shall be construed to limit or restrict the right of the Manager to engage, or require Owner’s prior approval of the engagement by Manager of, any Affiliate of Manager to perform any of the Services on behalf of the Manager so long as the Affiliate of Manager is not entitled to any payment by Owner for providing such Services.  In addition, without the prior consent of Owner, Manager or an Affiliate may transfer to Owner drilling or production equipment maintained in the inventory of Manager or an Affiliate of the Manager at cost (with no internal profit margin) in the ordinary course of business and with an aggregate value in any Budget period not exceeding $1,000,000.

 

Section 4.4 Power of Attorney.  (i) By execution of this Agreement, Owner does hereby make, constitute and appoint the Manager, and its successors, with full power of substitution, as its true and lawful attorney and agent with full power and authority in its name, place and stead to execute, swear to, acknowledge, deliver, file, record in the appropriate public offices and publish any and all contracts, agreements, instruments, conveyances, mortgages, deeds, notes and other documents of any kind or nature related to, arising out of or in connection with the Manager’s performance of this Agreement.

 

(ii)                      During the Term of this Agreement, the power of attorney granted in this Section 4.4 shall survive the Bankruptcy, dissolution or other termination of Owner, shall extend and be binding upon Owner’s successors and assigns and shall continue in full force and effect regardless of the occurrence of any of the foregoing.  Owner hereby agrees to be bound by any such contracts, agreements, instruments, conveyances, mortgages, deeds, notes and other documents executed or otherwise entered into by the attorney and agent acting in good faith pursuant hereto and pursuant to such power of attorney, and hereby waives any and all defenses that may be available to contest, negate, or disaffirm any action of the attorney and agent taken under such power of attorney, except in cases of bad faith, gross negligence, willful misconduct or material breach of this Agreement.

 

  

15

  

 

ARTICLE V.

COMPENSATION AND EXPENSES

 

Section 5.1 G&A Reimbursement.  In consideration for the performance by the Manager of Management Services, Owner shall pay to the Manager monthly, in advance, an amount rounded to the nearest $10.00 (such amount, the “Monthly G&A Reimbursement”), which amount is equal to the product of (a)(i) the Reimbursement Percent for such Calendar Month times (ii) 8.3333% times (b) the sum of (i) the Net Proceeds determined as of the last day of the preceding Calendar Month and (ii) the average outstanding indebtedness for borrowed money under an Approved Credit Facility (determined on a consolidated basis) during the preceding Calendar Month.  A Monthly G&A Reimbursement shall not be payable for any period prior to the Initial Closing.  On or before the 20th day of the Calendar Month immediately following the Calendar Month in which the Management Services have been provided, the Manager shall furnish to Owner in writing its calculation of the Monthly G&A Reimbursement that is payable in respect of the preceding Calendar Month.  The Monthly G&A Reimbursement payable to the Manager by Owner will be in addition to all fixed rate and other charges under any joint operating agreements in which the Manager or its Affiliates act as operator and Owner owns a working interest.  Each Calendar Month after the Initial Closing and prior to the end of the Term, the Manager will deliver, together with its calculation of the Monthly G&A Reimbursement to be paid by Owner for the proceeding Calendar Month as provided in the second preceding sentence, a summary of the costs and expenses to be reimbursed to the Manager in accordance with the immediately preceding sentence (each such written calculation and summary, an “Invoice”).  At any time that is not less than ten (10) Business Days following the date that Owner receives an Invoice, the Manager may apply any funds that it holds on behalf of Owner to payment of the amount specified in the Invoice less any amount(s) to which Owner has reasonably objected in writing during such 10-Business Day period.  If Owner timely objects to any amount in an Invoice, Owner and the Manager shall use their reasonable commercial efforts to resolve such dispute amicably, and promptly after the resolution of such matter the Manager may apply any funds that it holds on behalf of Owner to payment of the amount determined to be owing to the Manager.  If the funds that the Manager holds on behalf of Owner are insufficient to pay in full when due the amounts due to the Manager pursuant to this Section 5.1, then Owner will promptly make payment to the Manager of the amount due and unpaid in immediately available funds by wire transfer to an account specified by the Manager to Owner.  Payment of an Invoice shall not prejudice or otherwise affect the rights of Owner to audit any amounts included in an Invoice for compliance with this Agreement and to seek reimbursement from Manager for any amounts included in an Invoice that were not included in accordance with this Agreement.

 

Section 5.2 Reimbursement of Out-of-Pocket Expenses.  The Manager shall pay all reasonable out-of-pocket expenses incurred and paid the Manager and its agents and consultants (“Out-of-Pocket Expenses”), pursuant to the policies and procedures established by the Manager and approved by the Owner and in accordance with the Budget, and consistent with the allocations set forth in Exhibit D hereto, for the payment or reimbursement of such costs with respect to activities conducted for the Owner pursuant to this Agreement.  The Owner shall reimburse the Manager for all such Out-of-Pocket Expenses paid by the Manager to Third Parties on behalf of the Owner or in connection with the Business of the Owner, and on or before the 20th day after each Calendar Month in which the Manager incurs Out-of-Pocket Expenses, the Manager will invoice the Owner for such Out-of Pocket Expenses paid to Third Parties during the preceding month accompanied by reasonable supporting detail.  At any time that is not less than ten (10) Business Days following the date that Owner receives an invoice for Out-of-Pocket Expenses pursuant to this Section 5.2, the Manager may apply any funds that it holds on behalf of Owner to payment of the amount specified in such invoice, less any amount(s) to which Owner has reasonably objected in writing during such 10-Business Day period.  If the Owner timely objects to any amount in any such invoice, Owner and Manager shall use their reasonable commercial efforts to resolve such dispute amicably, and promptly after the resolution of such matter, the Manager may apply any funds that it holds on behalf of Owner to payment of the amount determined to be owing to the Manager.  If the funds that the Manager holds on behalf of Owner are insufficient to pay in full when due the amounts due to the Manager pursuant to this Section 5.2, then Owner will promptly make payment to the Manager of the amount due and unpaid in immediately available funds by wire transfer to an account specified by the Manager to Owner.  Payment of Out-of-Pocket Expenses shall not prejudice or otherwise affect the right of Owner to audit any amounts of the Out-of-Pocket Expenses for compliance with this Agreement and to seek reimbursement from Manager for any Out-of-Pocket Expenses that were not incurred in accordance with this Agreement.

 

  

16

  

ARTICLE VI.

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Manager represents, warrants and covenants to Parent and Owner, and each of them, as follows:

 

(a)           Organization, Good Standing, Etc.  The Manager is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Oklahoma.  Before commencing operations in any State where Leases are located the Manager will be duly qualified and/or licensed to the extent and as may be required, and in good standing in such State.

 

(b)           Authority; Enforceable Agreement.  The Manager has taken all necessary action to authorize the execution, delivery and performance of this Agreement and has adequate power, authority and legal right to enter into, execute, deliver and perform this Agreement.  This Agreement is legal, valid and binding with respect to the Manager and is enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally.

 

(c)           Legal Requirements.  The Manager has, or before commencing activities in any State or other jurisdiction will have, all requisite power, approvals, authorizations, consents, licenses, orders, franchises, rights, registrations and permits of all Governmental Authorities of such State or other jurisdiction required for the Manager to provide the Management Services in such jurisdiction; each of the foregoing is or will be in full force and effect and has been duly and validly issued; and at the time Management Services are performed the Manager will be in compliance in all material respects with all terms and conditions of each of the foregoing.

 

  

17

  

 

(d)           No Consent.  No permit, consent, approval, authorization or order of, and no notice to or filing with, any Governmental Authority or third party is required in connection with the execution, delivery or performance by the Manager of this Agreement or to consummate any transactions contemplated hereby and thereby.

 

(e)           Information Provided.  The information regarding the Manager and its Affiliates set forth in the Parent’s registration statement (“Registration Statement”) on Form S-1 (SEC File No. 333-   197476) as of the date such Registration Statement was declared effective by the Securities and Exchange Commission, did not, as of such effective date, contain an untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading.

 

ARTICLE VII.

ADDITIONAL AGREEMENTS OF MANAGER; RESTRICTIONS ON MANAGER

 

Section 7.1 Compliance with Laws.  In the performance of Services pursuant to this Agreement, the Manager shall comply in all material respects with applicable Law relative to the use, operation, development and maintenance of the Business and the Assets.  The Manager shall use its reasonable commercial efforts to remedy any violation of any such applicable Law that comes to its attention.  The Manager shall promptly notify Owner of any material violation of applicable Law in the performance of the Services pursuant to this Agreement, and the Manager shall transmit promptly to Owner a copy of any citation or other communication received by the Manager setting forth any such violation.

 

Section 7.2 Compliance with Obligations.  The Manager, to the extent such matters are reasonably within its control, shall use diligent and reasonable efforts to cause compliance in all material respects with all terms and conditions contained in any contract, agreement, judicial, administrative or governmental order, law or ruling, lease, mortgage, deed of trust or other contractual or security instrument affecting the Business or any of the Assets; provided, however, that, except as otherwise set forth herein, the Manager shall not be required to make any payment or incur any liability on account thereof.  The Manager shall promptly notify Owner of any material violation of any such instrument or agreement in any material respect.

 

Section 7.3 Prohibited Acts.  Notwithstanding anything to the contrary, express or implied, in this Agreement, without the consent of Owner the Manager shall not:

 

(a)           Affect Title.  Other than by way of a pledge, mortgage, deed of trust or trust indenture in connection with the terms of an Approved Credit Facility or a farmout, joint operating agreement, participation agreement or other similar arrangement, sell, assign, surrender or relinquish, farm out, encumber, hypothecate, mortgage, burden, or otherwise alter or impair Owner’s title in, to, or under, or that may be derived from, any of the Assets, or take any act that has the natural and foreseeable consequence of causing any of the foregoing.  The prohibition in the immediately preceding sentence does not apply, however, to any loss, alteration, or impairment of title resulting (i) from the abandonment of any well, cessation of operations, non-commencement of the drilling of any well or any other operations, or non-payment of delay rentals, advance royalties, shut-in well payments, or any other payments when done with Owner’s written consent or in accordance with the other terms of this Agreement; (ii) by virtue of the non-consent, non-participation, or non-performance of any Third Party under any Operating Agreement; (iii) from the pooling, unitization, or communitization of all or any part of Owner’s interest in a property; (iv) from the sale or disposition of worn out or obsolete equipment or spare parts; (v) from the sale of natural gas, crude oil, natural gas liquids, condensate, other products and other hydrocarbons produced from the Assets; (vi) from causes or circumstances beyond Manager’s reasonable control; or (vii) any sale or disposition of Assets in addition to those referred to in items (i) through (vi) above that, in one transaction or series of related transactions. is less than the Basket Amount in effect at the time of sale.

 

  

18

  

 

(b)           Borrow Funds. Except in accordance with Section 7.4, borrow any funds on behalf of Owner (other than trade accounts payable in the ordinary course of business).

 

(c)           Litigation Matters.  (i) Except for the filing or prosecution of any lawsuits for the collection of any monies owed to Owner in the ordinary course of business, file or prosecute any lawsuit, or (ii) confess any judgment or compromise or settle any pending, threatened, or asserted claim or litigation, in each case with respect to or on behalf of Owner or any of the Assets.

 

(d)           Resign as Operator.  Resign as Operator of any operated Asset except in accordance with this Agreement.

 

(e)           Tax Status.  Take any action which would cause Parent or Owner not to be classified and treated as a partnership or disregarded entity for federal income tax purposes.

 

(f)           Approved Credit Facility.  Amend or waive any provision of the Approved Credit Facility or take any actions which would result in a default by Owner under an Approved Credit Facility.

 

(g)           Expenditures.  Except in accordance with Article III, Section 4.3, and Article V, Section 7.1, Section 7.2 or Section 7.4, make or approve any expenditure for Owner’s account, or obligate Owner to make any expenditure, other than for operating expenses (including any Operating Agreement then in effect) made pursuant to operating agreements covering Owner’s Assets or as provided in the Budget.

 

(h)           Activities; Budget.  Conduct for Owner’s account, or consent to or obligate Owner, to engage in any activity, other than an activity provided for in the approved Budget or reasonable determined by the Manager to be required in connection with an Emergency in accordance with Section 7.4.

 

(i)           Acquisitions and Joint Ventures.  Cause or obligate Owner to enter into any business combination transaction, including any merger, consolidation, equity exchange, acquisition, sale joint venture, partnership or similar arrangement, or acquire any assets, properties or rights, including leasehold and working interests, in any case involving or that is reasonably expected to involve, aggregate consideration paid by Owner with a value in excess of the Basket Amount during any Budget period.

 

  

19

  

 

(j)           Hedging.  Cause Owner to adopt, revise or waive compliance with, the Hedging Policy, or cause Owner to enter into or become obligated under any Hedges that are not in accordance with the Hedging Policy.

 

(k)           Material Commitment.  Enter into any contract or agreement on behalf of Owner, or otherwise obligate Owner under any contract or agreement, that would reasonably be expected to constitute a Material Commitment.

 

(l)           Affiliate Transactions.  Except in compliance with Section 4.3, cause Owner to enter into, or obligate Owner with respect to, any contract or other arrangement or transaction with the Manager or an Affiliate of the Manager.

 

(m)           Amendment to Agreements; Waiver of Rights.  Cause Owner to enter into or replace or amend, modify or restate or supplement in a manner adverse to Owner in any material respect, or cause Owner to waive or fail to enforce on behalf of Owner any material rights of Owner under any participation, joint venture, operating, area of mutual interest or other similar agreement to which Owner is a party (provided that the restriction set forth in this clause (m) shall not apply to any extension or termination of any agreement in accordance with its terms).

 

(n)           Certain Non-Consent Activities.  Cause Owner to make any election or exercise any vote, or cause Owner not to exercise any vote, that has the effect of causing Owner to not participate in any Development Activities or other activities or operations under an Operating Agreement in which the Manager or an Affiliate of the Manager owns a working interest, unless the Manager or such Affiliate also declines to participate in such activity or operations, unless Owner’s election or exercise of, or failure to elect or exercise, any such vote is a result of Owner’s inability to fund the cost of the applicable Development Activities or other activities or operation, as the case may be, in which event neither Manager nor any Affiliate shall be required to decline to participate in such activity in respect of its working interest therein.

 

(o)           Directed Activities.  Take on behalf of Owner or cause Owner to take any action or commit to any action that is contrary to the reasonable instructions of Owner, provided that the foregoing shall not be construed to require the Manager to take any action in violation of applicable Law or to incur any cost or obligation that Manager is not obligated to incur pursuant to this Agreement unless the Manager is entitled to be reimbursed, indemnified or paid for such cost or obligation by Owner.

 

Section 7.4 Emergencies.  Notwithstanding anything to the contrary in this Agreement, if the Manager reasonably believes there is any Emergency, then the Manager may, in the sole exercise of its discretion and at Owner’s expense, act for and on behalf of Owner in any manner reasonably necessary or useful under the circumstances without the necessity of giving prior notice to Owner or receiving any approval or consent from Owner.  If the Manager takes any such action pursuant to this Section 7.4, Manager shall promptly notify Owner of such Emergency and of the actions and/or expenditures approved by the Manager as soon thereafter as is reasonably practicable.

 

Section 7.5 Manager’s Insurance.  The Manager shall at all times maintain the insurance coverage described on Exhibit C with financially sound and reputable insurance companies, together with any other insurance that the Manager generally provides or extends to its subsidiaries.  During the Term of this Agreement, the Manager will, subject to reimbursement by Owner for the incremental cost thereof, take the actions necessary to cause Owner to be Insured, under the insurance policies described, and as indicated, in Exhibit C.  As used herein, the term “Insured” means Owner will be (i) a named insured to the extent possible, (ii) in the case of workers’ compensation, named as an alternate employer, or (iii) an additional insured in all other cases; provided, however, that the Manager will take reasonable commercial efforts to provide for endorsement of Owner as a named insured under each policy described in Exhibit C.

 

  

20

  

 

Section 7.6 Changes in Information Provided.  If, during any time that the Parent is offering Units pursuant to the Registration Statement, any event relating to or affecting the Manager or its Affiliates shall occur which would cause the information in the Registration Statement regarding the Manager or its Affiliates to include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, the Manager shall promptly notify the Parent of such event and shall cooperate with Parent in amending the Registration Statement so that the representation and warranty of Manager in paragraph (d) of Article IV of this Agreement is true and correct as of the time of such amendment.

 

 

Section 7.7 Personnel.  The Manager shall at all times have qualified personnel employed by it, or employed by an Affiliate and available to Manager, so as to permit Manager to perform the Services in the manner and in accordance with the standards of performance provided for in this Agreement.

 

ARTICLE VIII.

PERSONNEL ADMINISTRATION

 

Section 8.1 General.  The Manager shall have in its employ or available to it at all times during the Term of Agreement a sufficient number of qualified technical, land, financial, accounting, clerical and other personnel to enable it to properly, timely, and diligently supply all the Services as herein provided.

 

Section 8.2 Key Employee.

 

(i)                      The Manager currently employs the Key Employee, and agrees to maintain the full-time employment of such Key Employees for the full duration of this Agreement and agrees to cause the Key Employee to devote such of his time and attention to the Business and the performance of Manager’s obligations under this Agreement as shall be reasonably necessary for Manager to properly discharge its obligations under this Agreement in accordance with the Management Standards.

 

(ii)                      If, for any reason, the Key Employee ceases to be employed on a full time basis by the Manager, whether by reason of termination of employment with or without cause, death, disability, voluntary resignation or for any other reason, the Manager will give prompt (but in any event within three Business Days) notice to Owner of such cessation of employment.  Within 21 Business Days following such notice, the Manager will notify Owner of a proposed replacement for the Key Employee who is no longer employed by the Manager.  Owner shall have the right, acting reasonably, for five (5) Business Days following the notice by the Manager of the proposed replacement for the Key Employee to disapprove of the proposed replacement for the Key Employee.  If (i) the Manager fails to propose a replacement for the Key Employee as provided above or (ii) within such 21 Business Day period Owner notifies the Manager of its disapproval of the replacement for the Key Employee, then Owner shall have the right to terminate this Agreement by giving notice of such termination to the Manager within 10 Business Days following: (i) if the Manager fails to notify Owner of the termination of employment, the date of Owner’s actual knowledge of such termination of employment; (ii) if the Manager fails to propose a replacement for the Key Employee, the date the Manager was required to propose a replacement for the Key Employee or (iii) if Owner does not approve of the replacement for the Key Employee, on the date Owner notifies the Manager that it has not approved the proposed replacement.  If Owner does not terminate this Agreement as provided above, the person proposed as the replacement for the former Key Employee by the Manager shall be deemed a Key Employee as provided herein.

 

  

21

  

 

Section 8.3 Responsibility.  All matters pertaining to the employment, supervision compensation, promotion and discharge of any employees or personnel of the Manager or its Affiliates are the responsibility of the Manager, which is (or its Affiliate is) in all respects the employer of any such employees, provided that the Manager will at all times maintain employment of the Key Employee.  All such employment arrangements are solely the concern of the Manager and, if applicable, its Affiliate(s) and, other than as expressly set forth in Exhibit D hereto, Owner shall have no liability with respect thereto.

 

ARTICLE IX.

INVESTMENT OPPORTUNITIES

 

Section 9.1 Investment Opportunities.

 

(a)                      Commensurate with the Net Proceeds raised by Parent from time to time that have not been previously invested in Property Acquisitions or reserved for Development Activities or other investment in any Assets or for payment of fees or expenses pursuant to this Agreement or the Partnership Agreement, and the availability to Owner of debt financing the Manager shall prepare and deliver to Owner a Proposal with respect to any Property Acquisition that (i) the Manager identifies in accordance with the performance of Item 14 of its Management Services described in Exhibit A or that otherwise becomes available to the Manager and (ii) which the Manager believes may be appropriate for acquisition by the Owner.

 

(b)                      The Manager shall deliver a Proposal to Owner regarding any Property Acquisition referred to in Section 9.1(a) in accordance with the terms of Section 9.1(c).  Upon receipt of any Proposal, Owner shall decide in accordance with Section 9.1(d) whether or not to approve the Property Acquisition that is the subject of such Proposal.  If Owner determines not to approve or otherwise fails to approve such Property Acquisition within three (3) Business Days after Owner’s receipt of a Proposal (a “Rejected Proposal”), then the Manager or any of its Affiliates may pursue and, if successful in such pursuit, participate in such Property Acquisition.

 

(c)                      If the Manager proposes to refer a Property Acquisition or other acquisition of oil and gas properties to Owner, the Manager shall submit a written report (“Proposal”) to Owner for its consideration.  Such Proposal shall be in the form or format that the Manager generally uses, or will have used when presenting any such Property Acquisition or other acquisition of oil and gas properties to Owner and shall contain the Economic Run for the Property Acquisition or other acquisition of oil and gas properties, the initial Budget or any revisions to the Budget as provided in Section 9.2, and all other information determined by the Manager or requested by Owner as necessary or appropriate to describe the terms, economics, oil and gas reserve information, anticipated risk management instruments, and other information requested by Owner as necessary or appropriate to evaluate and consider the Proposal.  Additionally, if the Manager or an Affiliate of the Manager has an existing economic interest in more than 10% of the properties that are the subject of the Proposal, the Manager shall disclose this fact to Owner in the Proposal.  Information submitted to Owner in the Proposal shall include, without limitation, the Economic Run data with respect to the acquisition that is the subject of the Proposal, authorization(s) for expenditure, budgeting information, a recommendation with respect to the amount of indebtedness to be incurred pursuant to the Approved Credit Facility, key terms related to such Proposal, including, without limitation, whether such terms deviate or, to Manager’s knowledge, are expected to deviate from the General Parameters, if applicable, and any other available information determined by the Manager to be relevant to Owner’s investment decision or requested by Owner.

 

  

22

  

 

(d)                      Upon receipt of a Proposal, Owner shall have three (3) Business Days to notify the Manager of Owner’s intent to make the Property Acquisition as described in the Proposal.  If Owner does not provide such notice to the Manager within such time, Owner shall be deemed to have rejected the Property Acquisition that is the subject of the Proposal and such Proposal shall thereafter constitute a Rejected Proposal.

 

(e)                      Nothing in this Agreement shall prohibit Parent from acquiring an oil and gas property or other Asset in the Excluded Area, or an Excluded Asset.  If Parent proposes to acquire an oil and gas property or other Asset in the Excluded Area, or to acquire an Excluded Asset, Parent will form a subsidiary separate from Owner and acquire such property or Asset in such separate subsidiary.  Manager shall have no obligation to provide Services with respect to such subsidiary.

 

Section 9.2 Initial Budget; Revisions to Budget.

 

(a)           Initial Budget.  In connection with the first Property Acquisition, the Manager shall prepare a Draft Budget for operation of the properties proposed to be acquired and submit such Draft Budget to Owner with the Proposal as contemplated by Section 9.1.  If Owner approves the Property Acquisition, Owner shall be deemed to have approved the Draft Budget and such Draft Budget shall then constitute the approved Budget as contemplated by Section 3.1.

 

(b)           Revised Budgets.  In connection with each Property Acquisition following the first Property Acquisition, the Manager may prepare an amendment to the then existing approved Budget to reflect the additional costs and expenses associated with the ownership of the Assets proposed to be acquired and submit such proposed revision to Owner as contemplated by Section 9.1.  If Owner approves the Property Acquisition, Owner shall be deemed to have approved the revision to the Budget and such revised Budget shall then constitute the approved Budget as contemplated by Section 3.1(b).

 

ARTICLE X.

TERM; TERMINATION

 

Section 10.1 Term.  The initial term of this Agreement will begin on the Effective Date and, subject to termination in accordance with Section 10.2 shall continue for so long as Owner holds any Assets (the “Initial Term”), and so long after the Initial Term as the Parties may mutually agree; provided, however, that following the Initial Term, either Party may terminate this Agreement upon not less than 30 days’ prior written notice to the other (the Initial Term together with any such extension thereafter, the “Term”).  Except as expressly provided herein, the expiration or earlier termination of this Agreement shall not relieve any Party of any obligation or liability arising prior to such expiration or termination.

 

  

23

  

 

Section 10.2 Termination.

 

(a)                      This Agreement shall terminate (the “Termination Date”) on the first to occur of (i) the date on which the Parties mutually agree to terminate this Agreement and (ii) the termination date set forth on any notice given in accordance with Section 10.2(b) or 10.2(c) (each, a “Termination Notice”).  Each Termination Notice shall be provided in writing and set forth in reasonable detail the basis for the termination and the Termination Date.  If requested by Owner, the Manager, following its receipt of a Termination Notice, shall continue to perform the Services in accordance with this Agreement for a period not to exceed 120 days of such notice and, in such event, the date on which such continued Services are no longer necessary (as specified by Owner in the Termination Notice) will be considered the Termination Date for purposes hereof.

 

(b)                      Owner may terminate this Agreement by delivery of a Termination Notice to the Manager following the occurrence of any of the following events:

 

	
  

	
(i)

	
the sale of all or substantially all of the Assets;

 

	
  

	
(ii)

	
at any time within 30 days after a Manager Change in Control;

 

	
  

	
(iii)

	
as provided in Section 8.2(b);

 

	
  

	
(iv)

	
during the Bankruptcy of the Manager;

 

	
  

	
(v)

	
at any time during the 30 days after a material breach by the Manager of its obligations hereunder that remains uncured 60 days following the receipt by the Manager of written notice of such breach by Owner;

 

	
  

	
(vi)

	
the failure by the Manager to recommended to the Parent and Owner by delivery to Owner of a Proposal covering one or more Property Acquisitions reasonably capable of consummation at any time that the Parent has Unallocated Funds of $100 million or more, which failure continues for 60 consecutive days commencing when the Parent first notifies the Manager that Parent has Unallocated Funds of at least $100 million; and

 

	
  

	
(vii)

	
the Manager or any of its Affiliates have defrauded Owner or stolen or misappropriated any of the Assets and such circumstances have not been cured or remedied by Manager within 60 days following the receipt by the Manager of written notice of such fraud, theft or misappropriation of Assets accompanied by such documentation with respect thereto as is available to Owner.

 

  

24

  

 

(c)                      The Manager may terminate this Agreement by delivery of a Termination Notice to Owner (i) following the Bankruptcy of Owner or (ii) at any time during the 30 days after a material breach by Owner of its obligations hereunder that remains uncured 60 days following the receipt by Owner of notice of such breach by the Manager.

 

Section 10.3 Transition Services.  The Manager shall, until the Termination Date, continue to provide the Management Services in accordance with this Agreement and upon request from Owner will reasonably cooperate with Owner in the transition of such services to a new manager appointed by Owner by (i) turning over Owner’s books and records and any other relevant information reasonably requested of the Manager, (ii) if applicable, assigning to Owner all of the Manager’s rights under subcontracts and other contractual arrangements entered into by the Manager in connection with the performance of the Services and (iii) facilitating the transfer of Well operations and the management of the Assets to the successor manager.  At the end of the Term, the Manager shall deliver to Owner the Records.  Following the termination of this Agreement, Owner shall have the right to appoint any other Person as manager to perform the Management Services by whatever method Owner may deem expedient or appropriate.  Following the termination of this Agreement, the Manager shall have no further rights under this Agreement (except as provided in Section 10.4) and shall not be entitled to receive any further payments under this Agreement.

 

Section 10.4 Effect of Termination.

 

(i)                      The termination of this Agreement shall not relieve any Party from any expense, liability or other obligation or remedy therefor that has accrued or attached prior to the Termination Date and the following provisions of this Agreement shall survive such termination:  each of the indemnity obligations, and the limitation on consequential and other damages under Article XI and the provisions of Article XII, which shall survive indefinitely.

 

 

ARTICLE XI.

INDEMNIFICATION

 

Section 11.1 Indemnification.  From and after the Effective Date, the Parties will indemnify each other as follows:

 

(a)           Owner Indemnification.

 

(i)           Owner shall indemnify, defend, reimburse and hold harmless the Manager and its Affiliates and their respective officers, managers, representatives, agents, members, employees (together with the Manager, the “Manager Indemnified Parties”) from and against and in respect of any and all claims, liabilities, losses, costs, expenses (including reasonable attorneys’ fees and costs of investigation), judgments, fines, penalties, interest, settlement or damages (collectively, “Liabilities”) incurred or suffered by a Manager Indemnified Party in connection with, arising out of, or relating to, directly or indirectly, its performance of the Management Services and or Operating Services hereunder, EVEN IF SUCH LIABILITIES AROSE IN WHOLE OR IN PART FROM THE ACTIVE, PASSIVE, SOLE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF A MANAGER INDEMNIFIED PARTY, except that such indemnity will not apply in cases in which any such Liabilities are determined by a final and non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or intentional misconduct of the Manager or any other Manager Indemnified Party or from any failure by the Manager to follow any lawful direction of Owner.

  

25

  

 

(ii)           To the fullest extent permitted by applicable Law and subject to Parent and Owner having sufficient funds available, reasonable expenses (including reasonable legal fees and expenses) incurred by a Manager Indemnified Party who is indemnified pursuant to Section 11.1(a) in defending any claim, demand, action, suit or proceeding relating to acts or omissions with respect to the performance of duties or services pursuant to this Agreement, from time to time, shall be advanced by Parent prior to a determination that the Indemnitee is not entitled to be indemnified upon receipt by Parent of an undertaking by or on behalf of such Manager Indemnified Party to repay such amount if it shall be determined that the Manager Indemnified Party is not entitled to be indemnified as authorized in Section 11.1(a).

 

(iii)           The indemnification provided by this Section 11.1(a) shall be in addition to any other rights to which a Manager Indemnified Party may be entitled under any agreement, pursuant to any approval by Parent, as a matter of law or otherwise, both as to actions in the Manager Indemnified Party’s capacity as a Manager Indemnified Party and as to actions in any other capacity and shall continue as to a Manager Indemnified Party who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Manager.

 

 

(b)           Manager Indemnification.  The Manager shall indemnify, defend and hold harmless Energy 11 GP, Parent, Owner, its Subsidiaries and Affiliates and their respective officers, directors, representatives, agents, members and employees (collectively, “Owner Indemnified Parties”) from and against and in respect of any and all Liabilities incurred or suffered by (a) an Owner Indemnified Party in connection with, arising out of, or relating to, the gross negligence or intentional misconduct of the Manager or another Manager Indemnified Party in the Manager’s performance of the Management Services or from any failure by the Manager to follow any lawful direction of Owner.

 

Section 11.2 EXTENT OF INDEMNIFICATION; EXPRESS NEGLIGENCE RULE.  WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION, DEFENSE AND ASSUMPTION PROVISIONS SET FORTH IN THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS OF SECTION 11.1 REGARDLESS OF WHETHER THE ACT, OCCURRENCE OR CIRCUMSTANCE GIVING RISE TO ANY SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE) OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR BY ANY SUCH OWNER INDEMNIFIED PARTY; PROVIDED, HOWEVER, THAT NO SUCH INDEMNIFICATION SHALL BE APPLICABLE TO THE EXTENT OF ANY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.

 

  

26

  

 

Section 11.3 Indemnification Procedure.  If any indemnified party discovers or otherwise becomes aware of an indemnification claim arising under this Agreement, such party will give written notice to the indemnifying Party, specifying such claim, and may thereafter exercise any remedies available to such indemnified party under this Agreement; provided, however, the failure of any indemnified party to give notice as provided herein will not relieve the indemnifying Party of any obligations hereunder, to the extent the indemnifying Party is not materially prejudiced thereby.  Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made against the indemnifying Party, the indemnified party will give written notice to the indemnifying Party of the commencement of such action, accompanied by a copy of all papers, if any, served with respect to the action or proceeding; provided, however, the failure of any indemnified party to give notice as provided herein will not relieve the indemnifying Party of any obligations hereunder, to the extent the indemnifying Party is not materially prejudiced thereby.

 

Section 11.4 Limitation on Consequential and Other Damages.

 

(a)           EACH OF THE MANAGER, PARENT AND OWNER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY (a) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION OR ARBITRATION ANY “SPECIAL DAMAGES,” AS DEFINED BELOW, (b) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR  COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED  THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (c) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION, IN EACH CASE IT BEING THE EXPRESS INTENT, UNDERSTANDING AND AGREEMENT OF THE PARTIES THAT SUCH WAIVERS ARE TO BE GIVEN THE FULLEST EFFECT, NOTWITHSTANDING THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY PARTY.  AS USED IN THIS SECTION, “SPECIAL DAMAGES” MEANS ALL SPECIAL,  CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO OR ANY CLAIMS OF ANY PERSON FOR WHICH ONE PARTY HAS AGREED TO INDEMNIFY THE OTHER PARTY UNDER THIS AGREEMENT.

 

(b)           The amount of damages for which an indemnified Party is entitled to indemnity under this Article XI shall be reduced by the amount of insurance proceeds received by the indemnified Party or its Affiliates with respect to such damages (net of any collection costs and net of any increase in premiums resulting from claims with respect to such damages), and, to the extent insurance coverage for such damages is available under insurance policies of the indemnified Party and not under the insurance policies of the indemnifying Party, the indemnified Party will use commercially reasonable efforts to assert claims under such insurance coverage with respect to such damages.

 

  

27

  

 

Section 11.5 Manager Liability.  Subject to the rights of Owner to terminate this Agreement, in no event shall the Manager or its Affiliates have any liability under this Agreement, any Operating Agreement or applicable Law, with respect to the provision of the Services under this Agreement or acting as contract operator for any claim, damage, loss or liability sustained or incurred in connection with its operations with respect to the Assets or the provision of the Services or any breach of any provision of this Agreement regarding the standard of performance of the Manager in performing the Services or operations under this Agreement (including any breach of Section 3.2) or any Operating Agreement, except to the extent (and only to the extent) such liability is attributable to or arises from the gross negligence or intentional misconduct of any Manager Indemnified Parties, and Owner, on its own behalf and on behalf of its Affiliates, releases the Manager and its Affiliates from such liability, except to the extent (and only to the extent) such liability is attributable to or arises from the gross negligence or intentional misconduct of any Manager Indemnified Party.  Nothing in this Section 11.5 shall be deemed to be a release by Owner or any of its Affiliates of any claims against the Manager arising from a breach by the Manager of its obligation to pay amounts owing to Owner pursuant to the terms hereof.

 

Section 11.6 Conspicuous.  THE PARTIES AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE OR ENFORCEABLE, THE PROVISIONS IN THIS AGREEMENT IN ALL-CAPS FONT ARE “CONSPICUOUS” FOR THE PURPOSE OF ANY APPLICABLE LAW.

 

ARTICLE XII.

FORCE MAJEURE

 

If a Party is rendered unable, wholly or in part, by reason of a Force Majeure Event to perform its obligations under this Agreement, other than obligations to make payments or provide indemnification or defense when due hereunder, then such Party’s obligations shall be suspended to the extent affected by the Force Majeure Event.  Any Party claiming any Force Majeure Event shall provide prompt written notice thereof to the other Party including full particulars of such Force Majeure Event.

 

ARTICLE XIII.

MISCELLANEOUS

 

Section 13.1 Time.  The Parties agree that time is of the essence in the performance of this Agreement.

 

Section 13.2 Independent Contractor.  Manager and Owner are independent contractors and this Agreement shall not be construed as one of partnership, agency, joint venture, or employment between Manager and Owner, and the rights, duties, obligations and liabilities of each of the Parties under this Agreement shall be individual, not collective or joint.  As between the Parties, (a) it is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a mining or other partnership, joint venture, association or trust, (b) the Manager is not the actual or implied agent for Owner, and (c) subject to the other express provisions of this Agreement and the right of Owner to direct the Manager with respect to the ends to be accomplished, the Manager shall have the exclusive responsibility and liability for (i) the direction and supervision of its personnel, (ii) the salary, employee benefits, other compensation and related costs of such Manager personnel, (iii) the collection and payment of any payroll taxes or contributions or taxes for unemployment insurance, workers’ compensation, pensions and social security for the Manager personnel that are imposed by any Governmental Authority and (iv) to control and direct the specific means, method and manner of performance of the details of the Management Services to be provided hereunder.

 

  

28

  

 

Section 13.3 Notices.  All notices and communications required or permitted under this Agreement shall be in writing addressed as indicated below, and any communication or delivery hereunder shall be deemed to have been duly delivered upon the earliest of: (a) actual receipt by the Party to be notified; (b) if sent by U.S. certified mail, postage prepaid, return receipt requested, then the date shown as received on the return notice; (c) if by facsimile transmission, then upon confirmation by the recipient of receipt; (d) if by email, then upon an affirmative reply by email by the intended recipient that such email was received (provided that, for the avoidance of doubt, an automated response from the e-mail account or server of the intended recipient shall constitute an affirmative reply); or (e) if by Federal Express overnight delivery (or other reputable overnight delivery service), the date shown on the notice of delivery.  Addresses for all such notices and communication shall be as follows:

 

	
To the Manager:

	
E11 Management, LLC

301 Northwest 63rd Street, Suite 600

Oklahoma City, Oklahoma  73116

Attention:  Scott R. Mueller, Chief  Financial Officer

Phone: (405) 418-8000

Fax:       (405) 418-8040

Email: scott.mueller@aep-lp.com

	
 

With a copy to:

	
 

E11 Management, LLC

301 Northwest 63rd Street, Suite 600

Oklahoma City, Oklahoma  73116

Attention: Thomas J. Blalock, Chief Legal Officer

Phone:  (405) 418-8000

Fax:        (405) 418-8040

Email:  tom.blalock@aep-lp.com

	
 

To Incentive Holdings:

	
 

E11 Incentive Holdings, LLC

301 Northwest 63rd Street, Suite 600

Oklahoma City, Oklahoma  73116

Attention:  Scott R. Mueller, Chief  Financial Officer

Phone: (405) 418-8000

Fax:       (405) 418-8040

Email:  scott.mueller @aep-lp.com

 

  

29

  

 

	
With a copy to:

	
E11 Incentive Holdings, LLC

301 Northwest 63rd Street, Suite 600

Oklahoma City, Oklahoma  73116

Attention:   Thomas J. Blalock, Chief Legal Officer

Phone: (405) 418-8000

Fax:      (405) 418-8040

Email:  tom.blalock @aep.lp.com

	
 

To Parent:

	
 

Energy 11, L.P.

c/o Energy 11 GP LLC

120 W. 3rd Street

Ft. Worth, Texas  76102

Attention: David McKenney

Phone: (817) 882-9192 

Fax: (804) 727-6351                               

Email: dmckenney@applereit.com                   

 

	
 

With a copy to:

	
 

David Buckley

814 East Main Street

Richmond. Virginia 23219

Phone: (804) 344-8121

	
 

To Owner:

	
 

Energy 11 Operating Company, LLC

120 3rd Street

Ft. Worth, Texas  76102

Attention: David McKenney

Phone:(817) 882-9192 

Fax:  (804) 727-6351                               

Email: dmckenney@applereit.com                          

	
 

With a copy to:

	
 

David Buckley

814 East Main Street

Richmond. Virginia 23219

Phone: (804) 344-8121

 

Either Party may, upon written notice to the other Party, change the address(es) and person(s) to whom such communications are to be directed.

 

Section 13.4 Cooperation.  Prior to termination of this Agreement and at all times following the consummation of this Agreement, the Parties agree to execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such documents and instruments and do, or cause to be done, such other acts and things as may reasonably be requested by any Party to this Agreement, or are otherwise necessary or advisable, to assure that the benefits of this Agreement are realized by the Parties and that the Parties carry out their obligations under this Agreement and any document or other instrument delivered pursuant hereto.

 

Section 13.5 No Third Party Beneficiaries.  Except for the indemnification rights under Article XI, nothing in this Agreement, express or implied, is intended to confer upon anyone, other than the Parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement or to constitute any Person a Third Party beneficiary of this Agreement.

 

  

30

  

 

Section 13.6 Cumulative Remedies.  Subject to the other provisions hereof, no failure on the part of any Party to this Agreement to exercise and no delay in exercising any right hereunder will operate as a waiver thereof, nor will any single or partial exercise by any Party hereto of any right hereunder preclude any other or further right of exercise thereof or the exercise of any other right.

 

Section 13.7 Governing Law; Jurisdiction; Waiver of Jury Trial.  THE VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICTS RULES WHICH WOULD OTHERWISE APPLY THE LAWS OF ANOTHER JURISDICTION.  EACH PARTY AGREES THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN ANY U.S. FEDERAL OR STATE COURT IN THE STATE OF TEXAS AND (A) IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN SUCH COURTS, (C) WAIVES ANY OBJECTION THAT SUCH COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER IT AND (D) AGREES THAT SERVICE OF PROCESS UPON IT MAY BE EFFECTED BY MAILING A COPY THEREOF POSTAGE PREPAID, REGISTERED OR CERTIFIED WITH RETURN RECEIPT REQUESTED AT THE ADDRESS SPECIFIED IN SECTION 13.3.  THE FOREGOING CONSENTS TO JURISDICTION AND SERVICE OF PROCESS SHALL NOT CONSTITUTE GENERAL CONSENTS TO SERVICE OF PROCESS IN THE STATE OF TEXAS FOR ANY PURPOSE EXCEPT AS PROVIDED HEREIN AND SHALL NOT BE DEEMED TO CONFER RIGHTS ON ANY PERSON OTHER THAN THE PARTIES.  FURTHER, EACH PARTY HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING UNDER, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

Section 13.8 Entire Agreement.  This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof, supersedes any prior agreements with respect to the subject matter hereof and there are no agreements, understandings, warranties or representations except as set forth herein.

 

Section 13.9 Assignment.  Neither Party may assign any of its rights or delegate any of its duties under this Agreement without the express written consent of the other Party, except that the Manager may assign any such rights or delegate any such duties to any of its Affiliates.  Any assignment of rights or delegation of duties under this Agreement in violation of this section shall be void ab initio.

 

Section 13.10 Amendment.  Neither this Agreement, nor any of the provisions hereof can be changed, waived, discharged or terminated, except by an instrument in writing hand-signed by the Party against whom enforcement of the change, waiver, discharge or termination is sought.

 

  

31

  

 

Section 13.11 Severability.  If any clause or provision of this Agreement is illegal, invalid or unenforceable under any present or future law, the remainder of this Agreement will not be affected thereby.  It is the intention of the Parties that if any such provision is held to be illegal, invalid or unenforceable, there will be added in lieu thereof a provision as similar in terms to such provisions as is possible to make such provision legal, valid and enforceable.

 

Section 13.12 Waiver.  Waiver of performance of any obligation or term contained in this Agreement by any Party, or waiver by one Party of the other’s default hereunder, will not operate as a waiver of performance of any other obligation or term of this Agreement or a future waiver of the same obligation or a waiver of any future default.

 

Section 13.13 Counterparts; Facsimiles; Electronic Transmission.  This Agreement may be executed in multiple counterparts, each of which will be an original instrument, but all of which will constitute one agreement.  The execution and delivery of this Agreement by any Party may be evidenced by facsimile or other electronic transmission (including scanned documents delivered by email), which shall be binding upon all Parties.

 

Section 13.14 Corporate Opportunity.  (a) Parent and Owner acknowledge and agree that the Manager and its Affiliates engage and intend to continue to engage in the exploration, development, production, acquisition and disposition of oil and gas properties in North America and the marketing of production from such properties, which activities may be in competition with the Business of Parent and Owner.  Parent and Owner acknowledge, covenant and agree that except for the obligation set forth in Article IX of this Agreement, notwithstanding anything to the contrary in this Agreement or any implied duty under applicable Law, in equity or otherwise, (a) none of the Manager or any of its Affiliates that acquire knowledge of a potential oil and gas lease, acquisition, or investment opportunity, or exploration or development transaction involving oil and gas properties and that may be an opportunity for Parent or Owner shall have any duty to communicate or offer such opportunity to Parent or Owner, (b) it shall be deemed not to be breach of any duty or any other obligation of any type whatsoever, express or implied, under this Agreement or applicable Law, of the Manager or any of its Affiliates to not communicate or offer such opportunity to Parent or Owner, and (c) none of the Manager or any of its Affiliates shall be liable to Parent or Owner or any other Person by reason of the fact that the Manager or any of its Affiliates pursues or acquires for itself or its Affiliates, or otherwise directs, any such opportunity to another Person or does not communicate such opportunity or information to Parent or Owner.

(b)           Consistent with the terms of Section 13.14(a), Parent and Owner acknowledge and agree that Affiliates of the Manager serve or will serve as the manager of American Energy - Utica, LLC (“AEU”), American Energy - Woodford, LLC (“AEW”), American Energy - Permian Basin, LLC (“AEPB”), American Energy - Marcellus, LLC (“AEM”), American Energy Capital Partners, LP (“AECP”), American Energy – Nonop, LLC (“AENO”), American Energy – Midstream, LLC (“AEMIDCO”) and any Affiliates of the foregoing, and may serve as a manager of other entities in the future.  Parent and Owner further acknowledge and agree that each of AEU, AEW, AEPB, AEM, AECP, AENO and AEMIDCO engage, and such other entities or Affiliates for whom Affiliates of the Manager may serve as manager now or in the future may also engage, in the acquisition, ownership, development and sale of oil and gas properties in the continental United States.

 

Section 13.15 Joint Acknowledgement.  This written Agreement represents the final agreement between the Parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the Parties.  There are no unwritten oral agreements between the Parties.

 

Section 13.16 Acknowledgement by Incentive Holdings.

 

(a)  Parent is issuing 100,000 Class B Units (as defined in the Partnership Agreement) to Incentive Holdings in accordance with Section 5.9(a) of the Partnership Agreement.  Incentive Holdings hereby executes this Agreement in acknowledgement and agreement that any Class B Units issued to it by the Partnership are subject to the provisions of the Partnership Agreement, including but not limited to Section 5.9 thereof.

 

  

32

  

 

(b)  Incentive Holdings represents and warrants to Parent as follows:

 

(i)               The Class B Units are being acquired for Incentive Holdings’ own account, not as a nominee or agent, and with no present intention of distributing the Class B Units or any part thereof, and Incentive Holdings has no present intention of selling or granting any participation in or otherwise distributing the same in any transaction in violation of the securities laws of the United States or any state.

 

(ii)               Incentive Holdings (a) is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated by the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (“Securities Act”) and (b) by reason of its business and financial experience it has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Class B Units, is able to bear the economic risk of such investment and, at the present time, would be able to afford a complete loss of such investment.  Incentive Holdings has made, or had the opportunity to make, or had the opportunity to have advisors of it make, such investigation into the affairs, reputation, business, business plans and  financial condition of the Parent and its Affiliates as it deemed necessary and that the Parent and its representatives have answered and accommodated such investigation.

 

(iii)               Incentive Holdings understands that the Class B Units it is acquiring are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Parent in a transaction not involving a public offering and that under such securities laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances.  In this connection, Incentive Holdings represents that it is knowledgeable with respect to Rule 144 under the Securities Act.

 

(iv)               Incentive Holdings agrees that any certificates representing the Class B Units will bear a legend as follows: “The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended.  These securities may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or the issuer has received documentation reasonably satisfactory to it, including an opinion of legal counsel in form and substance reasonably satisfactory to the issuer, that such transaction does not require registration under such Act.”  Incentive Holdings consents to the placement of stop transfer instructions with regards to the transfer of the Class B Units unless the requirements of such legend are satisfied.

 

 

[Remainder of Page Intentionally Left Blank

 

Signature Pages Follow]

 

  

  

  

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

 

MANAGER:

 

E11 Management, LLC

a Delaware limited liability company

 

By:                                                                                    

Scott R. Mueller, Chief Financial Officer

 

INCENTIVE HOLDINGS

 

E11 Incentive Holdings, LLC

a Delaware limited liability company

 

By:                                                                                    

Scott R. Mueller, Chief Financial Officer

 

PARENT

 

Energy 11, L.P.

a Delaware limited liability company

 

By:           Energy 11 GP, LLC

 General Partner

 

 

By:                                                                                    

          David McKenney 

          Its:  Chief Financial Officer

 

  

  

  

 

OWNER:

Energy 11 Operating Company LLC

a Delaware limited liability company

 

By:           Energy 11 GP, LLC

 Manager

 

 

By:                                                                                    

          David McKenney 

          Its:  Chief Financial Officer

 

  

  

  

 

EXHIBIT A

 

SCOPE OF SERVICES

 

The “Services” shall mean general management, administrative and operating services reasonably requested by and at the direction of Owner and shall include, collectively, the Management Services and the Operating Services performed on behalf of Owner and any Subsidiary, and other service or activity agreed by Owner and the Manager.  At all times, the Manager’s provision of the Management Services and Operating Services shall be subject to the limitations set forth in this Agreement, and any other limits or restrictions mutually agreed by Owner and the Manager.

 

The following services shall constitute “Management Services”:

 

1.           General.  The Manager shall (a) execute and carry out any lawful decisions or courses of action that have been approved by Owner in writing, (b) maintain the files and records for engineering, design, accounting, tax, regulatory, land and such other matters as are generally necessary for the conduct of the business of Owner, (c) assist and support Owner in general planning and budgeting activities and (d) coordinate and manage Owner’s reporting requirements for regulatory, tax, environmental or local compliance purposes.

 

2.           Overhead Services.  The Manager will provide all general and administrative overhead services required for Owner to conduct their respective business and operations.

 

3.           Management.  The Manager shall provide services in respect of the management of Owner’s business and its Assets as may be requested by Owner, including (a) services necessary to satisfy Owner’s contractual obligations and obligations under applicable Law and permits and Annual Budgets, (b) making recommendations relating to the improvement of Owner’s operations and maintenance (including major maintenance) of its Assets and (c) the management and administration of Owner’s contracts and liaising with any Person that is party to a material contract with Owner.

 

4.           Liens.  The Manager shall assist Owner, in keeping Owner’s Assets free and clear of all liens and encumbrances excluding liens and encumbrances arising in the ordinary course of business.

 

5.           Funds and Funds Management.  The Manager shall (a) supervise all disbursements from, and to the extent of the availability of, funds received on behalf of or provided by Owner necessary to pay its debts and obligations and (b) open accounts in the name of Owner and deposit, withdraw and maintain funds provided by Owner or its members, in banks, savings and loan associations or other financial institutions.  The Manager shall not under any circumstances commingle any funds received for Owner or held for the account of Owner with the Manager’s or any other Person’s funds.

 

6.           Tax and Accounting Services.  The Manager shall (a) provide and oversee financial and tax reporting (including all tax work necessary for DMOG, LLC to fulfill its obligations as “tax matters partner” under the Partnership Agreement, the Company Agreement or the limited liability company agreement of Owner) and cash management services, (b) monitor Owner’s compliance with its debt and financing documents and (c) perform such other accounting services as Owner may reasonably request and sufficient for Owner to satisfy Parent’s reporting obligations under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

  

A-1

  

 

7.           IT Services.  The Manager shall provide (or cause to be provided) information technology services that are necessary for Owner to perform and otherwise complete its business activities, including services for (a) the management and maintenance of computer networks and databases, technology systems, and phone networks and plans, (b) the development and implementation of plans and standards relating to information technology and procurement, (c) the development and implementation of security policies and systems for the computer databases and technology systems of Owner and (d) the procurement and acquisition of any other information technology services requested by Owner.

 

8.           Third Party Services.  The Manager shall (a) engage and manage outside legal, accounting and tax services for Owner including, at Owner’s request and direction, providing Owner with legal, accounting or tax counseling or recordkeeping as to Owner’s business activities, and at Owner’s request and direction, initiating, maintaining, investigating and defending any claims, actions or proceedings to which Owner is a party, (b) engage and manage engineering, operations and other technical consulting services as required in connection with Owner’s business and (c) engage environmental consulting services, including services (i) advising and counseling Owner with respect to environmental compliance issues, including researching applicable environmental Laws and (ii) assisting Owner in obtaining and maintaining compliance with any and all necessary environmental permits, registrations, authorizations, licenses, approvals or consents from relevant organizations and governmental authorities.

 

9.           Regulatory.  The Manager shall (a) engage and manage regulatory consultants and cause the admission of Owner into regional and industry associations if such admission would, in the judgment of Owner, be required or desirable for the operations of Owner’s business, and (b) with the approval of Owner, engage and manage representation in lobbying, studies, special or extraordinary sessions determined to involve or be in the interest of Owner, including assisting Owner in its dealings with governmental, semi-governmental, administrative, fiscal or judicial bodies, departments, commissions, authorities, agencies or other entities having jurisdiction or regulatory power over Owner’s business activities.

 

10.           Insurance.  The Manager shall make recommendations to Owner in respect of the types, amounts and content of insurance necessary or desirable for Owner and its business or the business and Assets of Owner.  At the direction of Owner, the Manager shall procure, at Owner’s expense, on behalf of Owner or Owner insurance policies providing the coverage and in the amounts specified by Owner, and maintain such policies in full force and effect.  The Manager shall be named as an additional insured in respect of all liability insurance policies maintained by Owner, with waiver of subrogation.

 

11.           Supervision.  The Manager shall provide supervisory services for Owner or Owner’s contractors and operators in connection with the operation of Business and Assets.

 

  

A-2

  

 

12.           Staffing.  As authorized, coordinated and approved by Owner (including pursuant to an Annual Budget), the Manager will contract out those services most effectively and efficiently provided by third parties on behalf of Owner.

 

13.           Compliance with Credit Documentation.  Upon the reasonable request by Owner at any time or from time to time the Manager will assist Owner in the negotiation of an Approved Credit Facility.  The Manager shall provide a statement indicating the compliance, or failure to comply, of Owner with any financial covenants, cash flow requirements, maintenance ratios and reserve balances in any Approved Credit Facility for the periods covered by such financial statements.

 

14.           Business Development.  The Manager will use reasonable commercial efforts to identify Property Acquisitions for Owner to directly or indirectly acquire that the Manager believes fall within the acquisition parameters established from time to time by agreement between Parent and Manager.  The Manager shall provide quarterly reports to Owner regarding its activities in connection with identifying Property Acquisitions.  If Owner elects in accordance with Section 9.1 to pursue a Property Acquisition, Manager will use its commercially reasonable efforts to negotiate with the Seller and submit to Owner for execution, a Purchase and Sale Agreement and other applicable transaction documents which, to the extent reasonably possible, shall comply with the General Parameters.  The Manager will provide Owner with each Proposal for any Property Acquisition the information specified in Section 9.1(c), copies of all title reports and environmental reports obtained by the Manager with respect to such Property Acquisitions and other such information that is available to the Manager and that is reasonably requested by Owner regarding such Property Acquisition, and will meet with management of Owner and its advisors to discuss the evaluation any Property Acquisition pursued by Owner.

 

15.           Sale Preparation.  At Owner’s request, the Manager will take such actions to prepare (and arrange for) all or any portion of Owner’s Assets to be sold or otherwise liquidated (including through a dissolution or winding up of Owner).

 

16.           Financing Coordination.  At Owner’s request, at any time or from time to time, the Manager will take such actions (a) to investigate and evaluate financing alternatives for (i) any Property Acquisition, (ii) the ownership, development and operation of any portion of Owner’s Assets, or (iii) any refinancing of the foregoing, (b) will advise Owner of financing alternatives that the Manager believes to be appropriate under the circumstances for Owner’s consideration, and (c) at Owner’s request will assist Owner in negotiating the final definitive terms of any Loan documents for execution by Owner and any of its affiliates subject to any applicable limitations thereon set forth in the Partnership Agreement that the Manager has been notified by Owner apply in respect of such Loan documents.

 

The following services shall constitute “Operating Services”:

 

1.           Lease Operations.  The Manager shall perform all Lease Operations in accordance with the standards set forth in Section 2.4.  The Manager shall manage the progress, evaluation and implementation of all projects (including multi-well drilling, workover and recompletion projects and secondary/tertiary recovery projects) being carried out in connection with the performance of Lease Operations.

 

  

A-3

  

 

2.           The Manager shall apply, pay for (subject to reimbursement by Owner as set forth herein), obtain, and maintain in a timely manner all approvals, authorizations, licenses and permits necessary or advisable for or in connection with Owner’s ownership of the Assets and operation of its Business (the “Permits”).

 

3.           Authorizations.  The Manager shall provide the oversight to assure that the operator of Owner’s Assets acquires all permits, consents, approvals, surface or other rights that may be required for or in connection with the conduct of the Lease Operations.

 

4.           Technical Evaluation.  The Manager shall provide the oversight to assure that the operator of Owner’s Assets performs the technical, geological, petroleum engineering and related evaluations that are necessary or appropriate under the standards set forth in Section 2.4 to perform the Lease Operations and to evaluate proposed acquisitions of oil and gas properties by Owner.

 

5.           Marketing and Transportation.  The Manager shall provide the oversight to assure that the operator of Owner’s Assets arranges for the purchase, transportation and storage of all hydrocarbons and all supplies, materials and equipment needed in order to perform the Lease Operations.

 

6.           Safety.  The Manager shall provide the oversight to assure that the operator of Owner’s Assets takes customary measures consistent with the standards set forth in Section 2.4 for the protection of life, health, the environment and property in the case of an emergency.

 

7.           Releases.  The Manager shall provide the oversight necessary or appropriate to assure that the operator of Owner’s Assets reports any spill and environmental releases to the appropriate state or federal regulatory agencies as required by applicable Law.

 

8.           Information.  The Manager shall maintain the following data and reports as they are produced or compiled from Lease Operations: (a) copies of all logs and surveys furnished by the operator(s) of Owner Assets; (b) regular drilling, workover or similar operations reports furnished by the operator(s) of Owner’s Assets; (c) copies of all plugging reports; (d) copies of all geological and geophysical maps and reports; (e) well tests, completion and similar operations reports furnished by the operator(s) of Owner’s Assets; (f) if prepared, engineering studies, development schedules and annual progress reports on development projects; (g) field and well performance reports, including reservoir studies and reserve estimates; (h) lease documents, contracts, agreements, title instruments and title files; and (i) such additional information as would be maintained by a reasonably prudent operator.

 

  

A-4

  

 

EXHIBIT B

KEY EMPLOYEE

 

Aubrey K. McClendon

 

 

  

B-1

  

 

EXHIBIT C

MANAGER’S INSURANCE

 

	
TYPE OF INSURANCE

	
POLICY LIMITS

	
General Liability

	  
	
Including coverage for Personal & Advertising Injury, Products-Completed Operations and Underground Resources

	  
	General aggregate	
$10,000,000

	Each occurrence	
$10,000,000

	  	  
	
Automobile Liability

	  
	
Any auto -Each accident

	
$10,000,000

	
Employers Liability

	  
	
Each accident

	
$10,000,000

	
Workers' Compensation

	
Statutory limits

	
Pollution Liability

	  
	Each claim	
$1,000,000

	Policy aggregate	
$2,000,000

 

	
Limits required herein may be satisfied by a combination of primary and excess/umbrella insurance.

 

Owner named as Alternate Employer under Workers Compensation and Employers Liability policies except where a state's monopolistic workers compensation program does not permit.

 

Owner named as an additional insured on all other policies.

 

Waiver of Subrogation in favor of Owner applies to all policies.

 

  

C-1

  

 

EXHIBIT D

 

COST REIMBURSEMENT

 

In addition to the payment of costs and expenses incurred in connection with the provision of Services under this Agreement as expressly set forth in Section 5.2 of this Agreement, the Manager shall be responsible to pay without reimbursement of any kind from Owner, all of the following:

Personnel salaries and bonuses

Personnel burdens and benefits

Pension, retirement and insurance plans

Unemployment, payroll and other taxes

Administrative contractors or consultants

Office rent and occupancy costs

Office equipment and rentals

Office supplies

Office utilities

Data processing

Office maintenance and repairs

Employee parking

Telephone and communications

Postage and delivery expense

Business meals

Professional dues and subscriptions

Training expenses

Club memberships

Outsourced accounting services

Computer and software support

Payroll and other fees

Banking and industry relationships

General land services (unless associated with a Proposal)

Private aircraft travel

 

Except to the extent that the following Services are included within the items for which the Manager is responsible as provided above, the Manager shall be entitled to reasonable reimbursement in accordance with Section 5.2 of the Management Agreement for the following out-of-pocket expenses to the extent such costs and expenses are incurred in accordance with the terms of the Agreement and any applicable joint operating agreement or applicable law:

Audit expense

Independent geological, geophysical and engineering services and the services of other independent specialized technical consultants

Tax return services

Investor reporting expense

 

  

D-1

  

 

Legal services (other than legal services for prosecuting or defending claims regarding breach of this Agreement or claims brought by employees, consultants, officers, directors or agents or in formation of the Manager)

Acquisition and due diligence costs - engineering, title, general land services associated with a Proposal, third-party consultants, environmental, broker fees, travel, meals and lodging directly related to Property Acquisitions for Owner

Divestiture costs - engineering, title, third-party consultants, financial advisors, environmental, broker fees, travel, meals and lodging directly related to Assets of Owner

Formation and offering costs of Owner

Travel costs and expenses associated with meeting with any Owner or Investors

Bank services, including without limitation, the Approved Credit Facility and any amendment, restatement or replacement thereof and any waiver thereunder COPAS overhead fees and standard district office expenses rebillable under the applicable operating agreement

Insurance

Franchise or state taxes

Third Party marketing fees

Risk management expenses

 

  

D-2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00236-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00236-of-00352.parquet"}]]