Investors Agreement

Interim Investors Agreement

Exhibit 10.2

 

Execution Version

 

INTERIM INVESTORS AGREEMENT

 

This INTERIM INVESTORS AGREEMENT (this “Agreement”), dated as of January 12, 2017 is by and between Sanchez Energy Corporation, a Delaware corporation (“Sanchez Energy”), SN EF Maverick, LLC, a Delaware limited liability company (“SN”), SN EF UnSub, LP, a Delaware limited partnership (“UnSub,” and collectively with Sanchez Energy and SN, “Sanchez,” and each such entity, a “Sanchez Party”), Aguila Production, LLC, a Delaware limited liability company (“Aguila”), Aguila Production HoldCo, LLC, a Delaware limited liability company (“HoldCo”), and the Blackstone Funds (as defined below) (collectively with Aguila and HoldCo, “Blackstone,” and each such entity a “Blackstone Party”). Sanchez and Blackstone are referred to herein as the “Investors,” and the Investors are referred to individually as a “Party” and collectively as the “Parties.” Capitalized terms used herein but not defined shall have the meanings given to them in the Purchase Agreement (as defined below). The Parties agree that in this Agreement the term “Investor” is used to refer to Sanchez Energy, UnSub, SN, Aguila, HoldCo and the Blackstone Funds collectively, unless expressly specified otherwise or to the extent that only certain of such parties are or will be, as the case may be, actual signatories to a particular agreement referred to herein, such as the Purchase Agreement, in which case the term shall refer to those entities among Sanchez Energy, UnSub, SN, Aguila, HoldCo and the Blackstone Funds that are or will be, as the case may be, signatories to any such agreement (including the Purchase Agreement).

 

RECITALS

 

WHEREAS, concurrently with the execution of this Agreement, SN, UnSub and Aguila (and Sanchez Energy for the limited purposes set forth therein) entered into that certain Purchase and Sale Agreement with Anadarko E&P Onshore LLC and Kerr-McGee Oil & Gas Onshore LP (collectively, “Anadarko”) (together with any purchase agreement entered into with [redacted] (“[redacted]”) pursuant to certain tag-along rights, the “Purchase Agreement”), pursuant to which Aguila, SN and SN UnSub collectively will purchase the fifty percent (50%) of 8/8ths Working Interests of Anadarko and, subject to the exercise by [redacted] of its tag-along rights and the execution of a purchase agreement with [redacted] on the same terms and conditions as the Purchase Agreement, the twenty-five percent (25%) of 8/8ths Working Interests of [redacted] in certain developed and undeveloped oil and gas assets (the “Assets”) in Maverick, Dimmit, Webb and LaSalle Counties, Texas (the “Acquisition”), which Purchase Agreement for the acquisition of Assets from Anadarko is attached hereto as Annex A;

 

WHEREAS, on or prior to the date hereof, in order to provide certain funds to effect the Acquisition, Blackstone Capital Partners VII L.P. (“BCP VII”) and Blackstone Energy Partners II L.P. (“BEP II” and together with BCP VII, the “Blackstone Funds”) have executed and delivered an Equity Commitment Letter, dated the date hereof (the “Blackstone Commitment Letter”), pursuant to which the Blackstone Funds have committed, subject to the terms and conditions set forth therein, to contribute capital to Aguila in an amount equal to $672,500,000;

 

WHEREAS, on or prior to the date hereof, in order to provide certain funds to effect the Acquisition, Sanchez Energy executed and delivered (i) an Equity Commitment Letter, dated the

 

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date hereof (the “SN Commitment Letter”), pursuant to which Sanchez has committed, subject to the terms and conditions set forth therein, to contribute capital in an amount equal to $293,548,387 to SN, and (ii) an Equity Commitment Letter, dated the date hereof (the “UnSub Commitment Letter” and together with the SN Commitment Letter, the “Sanchez Commitment Letters” and together with the Blackstone Commitment Letter, the “Commitment Letters”), pursuant to which Sanchez has committed, subject to the terms and conditions set forth therein, to contribute capital in an amount equal to $66,666,667 to UnSub;

 

WHEREAS, on the Closing Date, in order to consummate the Acquisition and provide for the administration, development and operation of the Assets, the Parties or an Affiliate of the Parties (as indicated by the applicable agreement) shall enter into a Joint Development Agreement, a Management Services Agreement, and an Amended and Restated Limited Liability Company Agreement of HoldCo, including the issuance of certain profits interests as contemplated therein, the forms of which are attached hereto and further described below; and

 

WHEREAS, the Parties desire to enter into this Agreement to govern the relationship of the Parties pending the Closing and in connection with the transactions and conveyances contemplated by the Purchase Agreement.

 

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

 

ARTICLE I

 

CLOSING ARRANGEMENTS

 

Section 1.1         Joint Development Agreement. Each of SN, UnSub and Aguila, concurrently with the Closing (unless any Party is a Failing Investor, a Closing Investor elects to pursue its rights under clause (b) of Section 6.3(a) and all Requisite Documents have been received and are in full force and effect at or prior to the Closing), shall enter into the Joint Development Agreement in the form attached hereto as Annex B (the “Joint Development Agreement”), in order to provide for the exploration, development and operation of the Assets.

 

Section 1.2         Management Services Agreement. Concurrently with the Closing (unless any Party is a Failing Investor, a Closing Investor elects to pursue its rights under clause (b) of Section 6.3(a) and all Requisite Documents have been received and are in full force and effect at or prior to the Closing), HoldCo shall enter into, and Sanchez Energy shall cause an entity controlled by Sanchez Energy (“Manager”) to enter into, the Management Services Agreement in the form attached hereto as Annex C (the “Management Services Agreement”), in order for Manager to provide certain services to HoldCo for the operation and management of the Assets.

 

Section 1.3         LLC Agreement. Concurrently with the Closing (unless any Party is a Failing Investor, a Closing Investor elects to pursue its rights under clause (b) of Section 6.3(a)

 

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and all Requisite Documents have been received and are in full force and effect at or prior to the Closing), the Limited Liability Company Agreement of HoldCo shall be Amended and Restated in its entirety in the form as attached hereto as Annex D (the “LLC Agreement”), and Sanchez Energy shall cause the Manager to, and the Blackstone Funds shall cause Aguila Production Aggregator, LLC to, execute and deliver the LLC Agreement, in order to admit Manager as a member of HoldCo, provide for the governance, rights and obligations of HoldCo with regard to the ownership of the Assets and to provide for certain profits interests to be granted to Manager as set forth in the LLC Agreement.

 

Section 1.4         Shareholders Agreement. Concurrently with the Closing (unless any Party is a Failing Investor, a Closing Investor elects to pursue its rights under clause (b) of Section 6.3(a) and all Requisite Documents have been received and are in full force and effect at or prior to the Closing), HoldCo and Sanchez Energy shall enter the Shareholders Agreement in the form attached hereto as Annex H (the “Shareholders Agreement”), in order to govern the rights of Sanchez Energy and HoldCo with respect to HoldCo’s right to appoint an observer to the board of directors of Sanchez Energy.

 

Section 1.5         Production and Marketing Agreement. Concurrently with the termination of the Marketing Transition Services Agreement, Aguila and SN shall enter into (i) the Crude Oil Production Marketing Agreement in the form attached hereto as Annex I, (ii) the NGL Production Marketing Agreement in the form attached hereto as Annex J, and (iii) the Residue Gas Production Marketing Agreement in the form attached hereto as Annex K in order to provide for the marketing of Aguila’s Hydrocarbons produced from the Assets.

 

ARTICLE II

 

EQUITY AND OTHER ARRANGEMENTS

 

Section 2.1         Initial Commitment Obligations. Each of the Blackstone Funds and Sanchez Energy provided the Commitment Letters in accordance with this Agreement which describe the several commitments of the parties thereto to provide or cause to be provided capital contributions to fund the Adjusted Purchase Price under the Agreement at Closing. The rights and obligations of the Investors and the other parties thereto under their respective Commitment Letters may not be transferred, assigned, amended, supplemented, modified or terminated except in accordance with this Agreement and the Purchase Agreement. Notwithstanding anything herein to the contrary, (i) no transfer or assignment of a Commitment Letter will relieve the transferring or assigning Investor of its obligations hereunder or under its respective Commitment Letter and (ii) no restricted subsidiary of Sanchez Energy under its credit facility or indentures governing its outstanding notes will be required provide any equity commitment or funding to any unrestricted subsidiary of Sanchez Energy under its credit facility or indentures governing its outstanding notes.

 

Section 2.2         Blackstone Preferential Purchase Right. In the event Sanchez Energy offers new shares of common stock of Sanchez Energy, par value $0.01 per share (“Sanchez Common Stock”), for cash on or after the date the Purchase Agreement is publicly announced in a transaction that does not constitute an Excluded Transaction (as defined below) (“Sanchez Equity Issuance”), HoldCo shall have the right to acquire up to fifteen percent (15%) of any

 

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shares of Sanchez Common Stock offered pursuant to the first such Sanchez Equity Issuance; provided, that such Sanchez Equity Issuance must result in net proceeds to Sanchez Energy of at least $100,000,000, unless waived by HoldCo. HoldCo’s rights under this Section 2.2 shall be subject to the following and exercised in accordance with the procedures below:

 

(a)        Subject to Section 2.2(f), in connection with the first Sanchez Equity Issuance after the Purchase Agreement is publicly announced, to the extent meeting the criteria specified above, Sanchez Energy hereby grants HoldCo a preemptive right to acquire from Sanchez Energy, for the same price offered to investors in such Sanchez Equity Issuance and otherwise on the same terms as such shares of Sanchez Common Stock are proposed to be offered to such investors, up to a number of shares of Sanchez Common Stock equal to fifteen percent (15%) of the number of shares of Sanchez Common Stock Sanchez Energy proposes to offer in such Sanchez Equity Issuance, rounded down to the nearest whole number of shares of Sanchez Common Stock.

 

(b)        Subject to Section 2.2(f), in the event Sanchez Energy proposes to conduct a Sanchez Equity Issuance after the Purchase Agreement is publicly announced, solely with respect to the first such Sanchez Equity Issuance, it shall give HoldCo prior written notice of its intention, describing the price (or range of prices), anticipated amount of shares of Sanchez Common Stock to be offered, timing and other material terms upon which Sanchez Energy proposes to offer the same to investors in such Sanchez Equity Issuance, no later than five (5) days prior to the commencement of such offer or sale, as the case may be. HoldCo shall have five (5) days from the date of receipt of such a notice to notify Sanchez Energy in writing the extent, if any, to which it intends to exercise such purchase rights and as to the number of shares of Sanchez Energy Common Stock HoldCo desires to purchase. Subject to Section 2.2(f), the failure of HoldCo to respond within such five (5) day period shall be deemed to be a waiver of HoldCo’s rights under this Section 2.2. If HoldCo exercises its preemptive rights provided in this Section 2.2, the closing of the purchase of the shares of Sanchez Common Stock with respect to which such right has been exercised shall take place simultaneously with the closing of such Sanchez Equity Issuance to other investors pursuant to a securities purchase agreement in form and substance reasonably acceptable to Sanchez Energy and HoldCo, except as provided below. Each of Sanchez Energy and HoldCo agrees to use its reasonable best efforts to secure any regulatory or other consents or stockholder approval, and to comply with any Law or regulation (including any waiting period) necessary in connection with the offer, sale and purchase of such shares of Sanchez Common Stock (such consents, approvals and compliance, collectively, “Approvals”); provided, however, that in the event that either Sanchez Energy or HoldCo has been advised by their respective outside counsel that the issuance of Sanchez Common Stock in full to HoldCo pursuant to this Section 2.2 would require any Approvals that could delay in any material respect the proposed closing of the Sanchez Equity Issuance with respect to which HoldCo’s preemptive rights are being exercised, (i) Sanchez Energy may nevertheless consummate the proposed Sanchez Equity Issuance without consummating the issuance of Sanchez Common Stock to HoldCo that gives rise to any such Approvals and each of Sanchez Energy and HoldCo shall use its reasonable best efforts to promptly obtain any such Approvals, (ii) HoldCo and Sanchez Energy shall consummate the issuance to HoldCo of the portion of the issuance of Sanchez Common Stock pursuant to this Section 2.2 that does not require any Approvals (or for which any Approvals have been obtained) and (iii) the closing of the portion of the issuance of shares of Sanchez Common Stock to HoldCo that gives rise to any such

 

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Approvals shall not occur until such Approvals have been obtained; provided further, however, that if Sanchez Energy and HoldCo have used their reasonable best efforts to obtain any required Approvals and such required Approvals have not been obtained within 365 days after notice of the first Sanchez Equity Issuance is given to HoldCo under Section 2.2(a), the excess amount of such shares of Sanchez Common Stock, to the extent otherwise triggering such Approvals, will be excluded from the total number of shares of Sanchez Common Stock that HoldCo would otherwise have a right to purchase pursuant to this Section 2.2 (which exclusion may result in HoldCo not having the right to purchase any shares of Sanchez Common Stock pursuant to this Section 2.2); provided, further, in the event that a Sanchez Equity Issuance is consummated prior to the Closing Date, when determining whether the approval of Sanchez Energy’s stockholders is required under the rules and regulations of any national securities exchange (including The New York Stock Exchange) and the number of shares of Sanchez Energy Common Stock that may be issued to HoldCo without obtaining such Approvals, all warrants and other securities issued or to be issued in connection with the Acquisition shall be deemed outstanding and given priority and reduce the number of shares of Sanchez Common Stock that may be issued to HoldCo without obtaining such Approvals; and for purposes of such determination, the number of shares underlying such warrants shall be the maximum possible number of shares that could be issued pursuant to the warrant.

 

(c)         In the event HoldCo fails to exercise its preemptive rights provided in this Section 2.2 within the prescribed five (5) day period, Sanchez Energy shall thereafter be entitled to sell the Sanchez Common Stock not elected to be purchased pursuant to this Section 2.2.

 

(d)        Sanchez Energy and HoldCo shall cooperate in good faith to facilitate the exercise of HoldCo’s rights hereunder, including securing any required approvals or consents.

 

(e)         The preemptive rights set forth in this Section 2.2 shall terminate and be of no further effect upon the date on which HoldCo has failed to (i) exercise its preemptive rights provided in this Section 2.2 within the five (5) day prescribed period or (ii) consummate a purchase for which it has exercised its preemptive rights pursuant to Section 2.2(b) above within the time period specified in Section 2.2(c) above. Furthermore, HoldCo’s rights hereunder as to any Sanchez Equity Issuance shall terminate upon the earlier of (i) termination of the Purchase Agreement or this Agreement, in each case in its entirety or only as to a Sanchez Party, and (ii) the consummation of the first Sanchez Equity Issuance to which HoldCo’s preemptive rights hereunder apply.

 

(f)         “Excluded Transactions” means issuances of securities of Sanchez Energy (i) pursuant to a dividend payable in securities of Sanchez Energy, or upon any subdivision or split-up of outstanding securities of Sanchez Energy, (ii) to directors, advisors, employees or consultants of Sanchez Energy (including upon exercise of options) pursuant to a stock option plan, employee stock purchase plan, restricted stock plan, other employee benefit plan or other similar compensatory agreement or arrangement, (iii) pursuant to the overallotment option granted to the underwriters in connection with a Sanchez Equity Issuance and (iv) as consideration in connection with a merger, acquisition or similar transaction.

 

(g)         Notwithstanding anything in this Agreement to the contrary, HoldCo may, in compliance with applicable securities laws, assign its rights under this Section 2.2 to any

 

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Affiliate of HoldCo that, prior to the acquisition of any Sanchez Energy Common Stock, will be a party to or otherwise bound by (or the Blackstone Funds shall be liable for causing such Affiliate to comply with) the Standstill and Voting Agreement referred to in Section 2.4, provided, that no such assignment shall relieve HoldCo from any liabilities or obligations under this Section 2.2.

 

Section 2.3         Sanchez Warrants. Concurrently with the Closing (unless any Party is a Failing Investor, except if a Closing Investor elects to pursue its rights under clause (b) of Section 6.3(a) and all Requisite Documents have been received and are in full force and effect at or prior to the Closing), Sanchez Energy and HoldCo shall enter into that certain Warrant Agreement in the form attached hereto as Annex E in order to issue a warrant on the Closing Date, exercisable for a total of 6,500,000 shares of Sanchez Common Stock, to HoldCo with a strike price of $10 per share (the “Warrants”).

 

Section 2.4         Equity Issuance Documents. In connection with the issuance of the Warrants on the Closing Date (unless any Party is a Failing Investor, except if a Closing Investor elects to pursue its rights under clause (b) of Section 6.3(a) and all Requisite Documents have been received and are in full force and effect at or prior to the Closing) and, if applicable, a Sanchez Equity Issuance, the Investors shall (a) enter into the Standstill and Voting Agreement in the form attached hereto as Annex F, and (b) the Registration Rights Agreement in the form attached hereto as Annex G; provided, however, that, for the avoidance of doubt, if (i) HoldCo acquires Sanchez Energy Common Stock prior to the Closing pursuant to Section 2.2, the Standstill and Voting Agreement and Registration Rights Agreement shall be structured to include the Warrants and/or the underlying Sanchez Energy Common Stock (which would be effective if such securities are acquired at the Closing), (ii) if HoldCo acquires the Warrants prior to the acquisition of Sanchez Energy Common Stock under Section 2.2, the Standstill and Voting Agreement and Registration Rights Agreement shall be structured to include such Sanchez Energy Common Stock (which would be effective if such securities are acquired pursuant to Section 2.2) and (iii) the two-year lockup period in the Standstill and Voting Agreement shall run from the time HoldCo first acquires any Sanchez Energy securities until the two-year anniversary of the Closing, unless the Acquisition is not consummated and the Closing does not occur, in which event the two-year lockup period for the Sanchez Energy Common Stock issued pursuant to Section 2.2 shall expire on the two year anniversary of the date of issuance.

 

Section 2.5         Allocation to Side-by-Side and Similar Funds. Blackstone may, at or prior to the Closing, allocate a portion of its equity commitments set forth in the Blackstone Commitment Letter to one or more side-by-side, supplemental or other related investment funds or vehicles (a) which are under common control with BCP VII or BEP II, (b) as to which funds were, prior to the date of this Agreement, already committed in an amount sufficient to cover such allocation, and (c) which in the ordinary course invest and exit together with BCP VII and/or BEP II in transactions of this type.

 

Section 2.6         Allocation to Separately Managed Accounts, Etc. Blackstone may, at or prior to the Closing, allocate a portion of its equity commitments set forth in the Blackstone Commitment Letters to one or more potential equity financing sources who are passive investors in investments, funds, vehicles or accounts that are managed, sponsored or advised by Blackstone (or special purpose vehicles in which any such passive investors are the sole

 

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investors), the equity investments of which are managed or controlled by an Affiliate of Blackstone.

 

Section 2.7         Transaction Covenants. Blackstone hereby covenants that (i) at the Closing Aguila shall be a wholly-owned subsidiary of HoldCo and (ii) from the date hereof to the earlier of (A) the Closing Date and (B) the termination of the Purchase Agreement pursuant to Section 7.1 therein, the Blackstone Funds shall (and shall cause Blackstone (as defined in the LLC Agreement), HoldCo and its and their Affiliates to) comply with Section 3.3(c) of the LLC Agreement as set forth therein and as if the Blackstone Funds are the “Company” and “Blackstone” thereunder.

 

ARTICLE III

INTERIM GOVERNANCE

 

Section 3.1         Actions Pending the Closing. The Investors will promptly share with each other all material information they receive from or on behalf of Seller in connection with the Acquisition. Sanchez and Blackstone agree and acknowledge that SN has been appointed as “Buyer Party Representative” pursuant to, and solely to the extent contemplated by, Section 15.21 of the Purchase Agreement for the purposes of: (a) any matters related to the Hedging Transactions, including the entry, assignment, or novation thereof; and (b) any title and/or environmental matters set forth in Articles XIII and XIV of the Purchase Agreement (collectively, “Buyer Party Representative Matters”). Notwithstanding anything to the contrary herein or in the Purchase Agreement, SN may only take action with respect to any Buyer Party Representative Matter with the prior consent of Aguila (which consent must be in writing with respect to any Hedging Transaction related to Aguila), and Sanchez Energy shall cause SN to act accordingly. Without limiting the foregoing, the mutual agreement and cooperation of Sanchez and Aguila will be required for all decisions made, and actions taken, by any Buyer Party under the Purchase Agreement, including with respect to Buyer Party Representative Matters, in the period between execution of the Purchase Agreement and Closing (the “Interim Period”). Decisions referenced in the preceding sentence that require the mutual agreement of all Buyer Parties under the Purchase Agreement include, but are not limited to, (a) consents required from Sanchez and Aguila during the Interim Period that relate to ongoing operations, (b) determining that the conditions to Closing specified in the Purchase Agreement have been satisfied, (c) waiving compliance with any agreements and Closing conditions contained in the Purchase Agreement, (d) amending, supplementing or modifying the Purchase Agreement, (e) exercising any remedies available under the Purchase Agreement in connection with a breach by Seller, including all matters with respect to Title Defects and Environmental Defects and (f) contacting, cooperating, complying with and/or negotiating with any third party whose consent or approval may be required in connection with consummation of the transactions contemplated by the Purchase Agreement. For the avoidance of doubt, from and after the time that any Investor becomes a Failing Investor (as defined below), the approval or consent of such Failing Investor (or its Affiliates) shall no longer be required for any purposes under this Article III and such other Investors (and their Affiliates) may take all actions of “Buyer” or “Buyer Party Representative” under the Purchase Agreement on a unilateral basis (with the consent of each other non-failing Investor that is not an Affiliate of the Failing Investor) and the Failing Investor (and its Affiliates party hereto) shall take all action required within its reasonable control to

 

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allow the other Investors (and their Affiliates) to take such actions on a unilateral basis (with the consent of each other non-failing Investor that is not an Affiliate of the Failing Investor); provided that any Failing Investor that ultimately participates in the transaction as a result of the Closing Investor exercising its right to seek specific performance hereunder or the Seller exercising its specific performance right under the Purchase Agreement shall, for all purposes hereunder, no longer be deemed a “Failing Investor,” and its approval or consent rights shall be restored as of the date such previously Failing Investor cures its performance failure). Notwithstanding anything else to the contrary in this Agreement, but subject to SN’s appointment as the Buyer Party Representative with respect to the Buyer Party Representative Matters, the Investors expressly agree that each Investor may act on a unilateral basis without requiring the consent of the other Investors to the extent such Investor is exercising its rights with respect to any Hedging Transactions pursuant to Section 11.9 of the Purchase Agreement.

 

Section 3.2         Expenses. Each of Sanchez, on the one hand, and Blackstone, on the other hand, shall be responsible for its and its Affiliates’ own fees and expenses and those of their respective accountants, bankers, counsel, and other advisors that are incurred on connection with this Agreement and the transactions contemplated by the Purchase Agreement.

 

Section 3.3         Regulatory Matters. Each Investor will use reasonable best efforts to promptly supply and provide information that is accurate in all material respects to any Governmental Authority requesting or requiring such information in connection with filings or notifications under, or relating to any applicable Laws and to otherwise cooperate in connection with any such submission or application as is necessary and customary under the circumstances.

 

Section 3.4         Debt Financing. Each Investor (a) shall negotiate and use its reasonable best efforts to enter into definitive agreements relating to its portion of the Debt Financing, pursuant to the terms set forth in their respective Debt Commitment Letters, or if such Debt Financing is not available, pursue such Alternate Financing as may be required by the Purchase Agreement and (b) may arrange for, market and negotiate and enter into definitive agreements relating to any Alternate Financing to the extent not required by the Purchase Agreement, including agreeing to the financial terms of such debt, to be issued at the Closing to such Investor or any direct or indirect subsidiary of the applicable Investor. No Investor may terminate its respective Debt Commitment Letter without the prior written consent of the other Investors.

 

Section 3.5         Cooperation. The Investors agree to cooperate with one another in connection with the arrangement of the Debt Financing (or any permitted replacement, amendment, modification or any Alternate Financing) as may be reasonably requested by an Investor. Any reasonable, out-of-pocket expenses incurred by an Investor in providing reasonable cooperation to the other Investor in accordance with this Section 3.5 shall be reimbursed by the Investor seeking such cooperation.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF SANCHEZ

 

Each Sanchez Party hereby represents, warrants and covenants to Blackstone that, as of the date hereof and as of the Closing:

 

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Section 4.1         Organization and Qualification. Each Sanchez Party is a corporation, limited liability company, limited partnership or other entity, as the case may be, has been duly formed or organized, and is validly existing and in good standing, under the Laws of the jurisdiction of its formation or organization. There is no pending or, to the actual knowledge of the senior management of a Sanchez Party, threatened, action, appeal, petition, plea, charge, complaint, claim, suit, demand, proceeding, litigation, hearing, inquiry, arbitration, mediation, investigation, audit, or similar event, occurrence, or proceeding by or before any Governmental Authority, whether civil, criminal, administrative, arbitrative or investigative (collectively, an “Action”) (or basis therefor) for the dissolution, liquidation, or insolvency of such Sanchez Party.

 

Section 4.2         Authority; Enforceability. Each Sanchez Party has all requisite power and authority to execute and deliver this Agreement, the Sanchez Commitment Letters (in the case of Sanchez Energy), and the Contracts attached hereto as Annexes A-K to which it is a party (the “Sanchez Transaction Documents”), to consummate the transactions contemplated by the Sanchez Transaction Documents to which it is a party and to perform all of the terms and conditions of the Sanchez Transaction Documents to be performed by it. This Agreement and the other Sanchez Transaction Documents have been or will be at the Closing, as applicable, duly executed and delivered by each Sanchez Party that is a party thereto. This Agreement and the Sanchez Commitment Letters constitute, and the other Sanchez Transaction Documents will constitute, the valid and binding obligation of each Sanchez Party that is a party thereto, enforceable against such Sanchez Party in accordance with the terms hereof or thereof, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium, or other Laws relating to or affecting the rights of creditors, and general principles of equity.

 

Section 4.3         No Conflicts; Consents, Etc. Except as contemplated or required by or specified in the Purchase Agreement (or the transactions contemplated thereby), this Agreement or the agreements attached hereto as Annexes B — G, the execution by each Sanchez Party of the Sanchez Transaction Documents to which it is a party and the performance by such Sanchez Party of the transactions contemplated by the Sanchez Transaction Documents to which it is a party do not and will not (a) violate, conflict with, result in a default under or require consent under the certificate of incorporation, by-laws, certificate of formation, limited liability company operating agreement, limited liability partnership agreement, partnership or limited partnership agreement, or other similar formation or governing documents (“Organizational Documents”) of such Sanchez Party, (b) violate, conflict with, or result in a violation of (whether after the giving of notice, lapse of time or both) any Law, (c) require any consent, authorization, approval or order from, or registration, qualification or filing with, any Governmental Authority, other than those which have been obtained or made, as the case may be, or as may be required under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, state and foreign securities or “blue sky” laws, The New York Stock Exchange or any other applicable self-regulatory organization, (d) require any consent from any other third Person, which consent has not been obtained, or (e) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any contract, agreement, arrangement, commitment, letter of intent, memorandum of understanding, heads of agreement, promise, obligation, instrument, document, or other similar understanding (“Contract”), order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent,

 

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approval, award, judgment, injunction, or other similar determination by, before, or under the supervision of any Governmental Authority, arbitrator, or mediator (“Order”), or permit to which a Sanchez Party is a party or by which such Sanchez Party is bound or to which any of such Sanchez Party’s assets is subject, which violations or defaults have not been waived. Each Sanchez Party has obtained (or will obtain at or prior to the Closing or, if later, when so required under this Agreement or other agreement contemplated hereby) all necessary consents, authorizations, approvals and Orders, and has made (or will make at or prior to the Closing or, if later, when so required under this Agreement or other agreement contemplated hereby) all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by it in connection with the consummation of the transactions contemplated hereby, other than such consents, authorizations, approvals, Orders, registrations, qualifications, designations, declarations and filings contemplated or required by the Purchase Agreement or the agreements attached hereto as Annexes B — G.

 

Section 4.4                           No Other Arrangements. No Sanchez Party has entered into any Contract with Seller or its Affiliates that relates to this Agreement or the Purchase Agreement, other than (i) this Agreement and the agreements expressly contemplated by this Agreement and all the exhibits, schedules, and annexes to any of the foregoing, (ii) as may be related to the equity financing of UnSub, and (iii) any debt or equity financing arrangements to consummate the transactions contemplated by the Purchase Agreement.

 

Section 4.5                           Access to Capital. Sanchez Energy has, or has access to, and at Closing will have, unfunded capital commitments or otherwise have sufficient funds in an amount not less than amount necessary to fund its obligations under the Sanchez Equity Commitment Letter and no internal or other approval is required for Sanchez Energy to fulfill each of its obligations under the Sanchez Commitment Letters.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF BLACKSTONE

 

Each Blackstone Party hereby represents, warrants and covenants to Sanchez that, as of the date hereof and as of the Closing:

 

Section 5.1                           Organization and Qualification. Each Blackstone Party is a corporation, limited liability company, limited partnership or other entity, as the case may be, has been duly formed or organized, and is validly existing and in good standing, under the Laws of the jurisdiction of its formation or organization. There is no pending or, to the actual knowledge of the senior management of such Blackstone Party, threatened, Action (or basis therefor) for the dissolution, liquidation, or insolvency of such Blackstone Party.

 

Section 5.2                           Authority; Enforceability. Each Blackstone Party has all requisite power and authority to execute and deliver this Agreement, the Blackstone Commitment Letter (in the case of the Blackstone Funds), and the Contracts attached hereto as Annexes A-K to which it is a party (the “Blackstone Transaction Documents”), to consummate the transactions contemplated by the Blackstone Transaction Documents to which it is a party and to perform all of the terms

 

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and conditions of the Blackstone Transaction Documents to be performed by it. This Agreement and the other Blackstone Transaction Documents have been or will be at the Closing, as applicable, duly executed and delivered by each Blackstone Party that is a party thereto. This Agreement and the Blackstone Commitment Letter constitutes, and the other Blackstone Transaction Documents will constitute, the valid and binding obligation of each Blackstone Party that is a party thereto, enforceable against such Blackstone Party in accordance with the terms hereof or thereof, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium, or other Laws relating to or affecting the rights of creditors, and general principles of equity.

 

Section 5.3                           No Conflicts; Consents, Etc. Except as contemplated or required by or specified in the Purchase Agreement (or the transactions contemplated thereby), this Agreement or the agreements attached hereto as Annexes B — G, the execution by each Blackstone Party of the Blackstone Transaction Documents and the performance by such Blackstone Party of the transactions contemplated the Blackstone Transaction Documents to which it is a party do not and will not (a) violate, conflict with, result in a default under or require consent under the Organizational Documents of such Blackstone Party, (b) violate, conflict with, or result in a violation of (whether after the giving of notice, lapse of time or both) any Law, (c) require any consent, authorization, approval or order from, or registration, qualification or filing with, any Governmental Authority, other than those which have been obtained or made, as the case may be, (d) require any consent from any other third Person, which consent has not been obtained, or (e) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any Contract, Order, or permit to which a Blackstone Party is a party or by which such Blackstone Party is bound or to which any of such Blackstone Party’s assets is subject, which violations or defaults have not been waived. Each Blackstone Party has obtained (or will obtain at or prior to the Closing or, if later, when so required under this Agreement or other agreement contemplated hereby) all necessary consents, authorizations, approvals and Orders, and has made (or will make at or prior to the Closing or, if later, when so required under this Agreement or other agreement contemplated hereby) all registrations, qualifications, designations, declarations or filings with all federal, state, or other relevant Governmental Authorities, required by such authorities to be obtained or made, as applicable, by it in connection with the consummation of the transactions contemplated hereby, other than such consents,                      authorizations, approvals, Orders, registrations, qualifications, designations, declarations and filings contemplated or required by the Purchase Agreement or the agreements attached hereto as Annexes B - G.

 

Section 5.4                           No Other Arrangements. No Blackstone Party has entered into any Contract with the Seller or its Affiliates that relates to this Agreement or the Purchase Agreement, other than this Agreement and the agreements expressly contemplated by this Agreement and all the exhibits, schedules, and annexes to any of the foregoing.

 

Section 5.5                           Access to Capital. The Blackstone Funds have, or have access to, and at Closing will have, unfunded capital commitments or otherwise have sufficient funds in an amount not less than amount necessary to fund its obligations under the Blackstone Equity Commitment Letter and no internal or other approvals that have not been obtained as of the date of this Agreement will be required for each of the Blackstone Funds to fulfill each of its obligations under the Blackstone Commitment Letter.

 

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Section 5.6                           Sanchez Energy Ownership. As of the Execution Date, HoldCo and its Affiliates (excluding any portfolio companies in which the Blackstone Funds have a direct or indirect investment) do not own, beneficially or of record, directly or indirectly, (i) any class or series of capital stock of Sanchez Energy, (ii) any option, warrant, convertible security, stock appreciation right, swap or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of Sanchez Energy or with a value derived in whole or in part from the value of any class or series of shares of Sanchez Energy, whether or not such instrument or right is subject to settlement in the underlying class or series of shares of Sanchez Energy or otherwise or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of Sanchez Energy, (iii) any proxy, contract, arrangement, understanding or relationship pursuant to which such Person has a right to vote any shares of Sanchez Energy, (iv) any short interest in any security of Sanchez Energy, or (v) any rights to dividends on the shares of Sanchez Energy that are separated or separable from the underlying shares of Sanchez Energy, representing, in the aggregate, beneficial ownership of Sanchez Energy Common Stock sufficient to require a filing by any such Person with the SEC of a statement on Schedule 13D reporting such beneficial ownership.

 

ARTICLE VI

 

MISCELLANEOUS

 

Section 6.1                           Amendment. This Agreement may be amended or modified and the provisions hereof may be waived, only by an agreement in writing signed by each of the Investors; provided, that any provision herein requiring the approval of any Investor who is distinguished from the other Investors or requiring the unanimous approval of the Investors may only be amended, modified or waived by an agreement in writing signed by the specified Investors, or all of the Investors, as applicable.

 

Section 6.2                           Severability. In the event that any provision hereof would, under applicable Law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable Law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof.

 

Section 6.3                           Remedies.

 

(a)                         In the event that the Closing is required to occur pursuant to the terms of the Purchase Agreement and (x) either Investor (it being understood that for purposes of this Section 6.3, the use of Investor as it relates to the Purchase Agreement is intended to refer to SN and UnSub collectively, on the one hand, and Aguila, on the other hand) is prepared to fund its portion of the Adjusted Purchase Price pursuant to Article VI of the Purchase Agreement and otherwise consummate the Acquisition as required by the Purchase Agreement, as evidenced in writing to the other Investor, or (y) an award of specific performance to fund and/or cause the funding of the Investors’ respective Equity Financing and Debt Financing is granted under and in accordance with the Purchase Agreement (the Investor who is so prepared to fund in either case,

 

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the “Closing Investor”), but one Investor fails to perform its material obligations under the Purchase Agreement (that are not, other than funding failures, cured within three (3) Business Days’ written notice from the other Investor), including its obligation to fund its portion of the Adjusted Purchase Price as required by the Purchase Agreement, or provides written notice that it will not perform any of such obligations, including its obligation to fund its portion of the Adjusted Purchase Price as required by the Purchase Agreement (such Investor, a “Failing Investor”), the Closing Investor shall be entitled (in addition to the right set forth in Section 6.3(b) hereof), in its discretion, to (a) specific performance of the terms of Sections 2.1, 3.4 and 3.5 hereof to cause the Failing Investor to cause the funding of its Equity Financing and take all actions required of such Investor under the Purchase Agreement to cause the funding of its portion of the Debt Financing and use such funds to fund its portion of the Adjusted Purchase Price as contemplated by the Purchase Agreement, whether before or after the Closing, together with obtaining reimbursement by the Failing Investor of any costs of enforcement incurred by the Closing Investor in seeking to enforce such remedy, or (b) subject to obtaining any necessary amendments and/or assignments to the Purchase Agreement to remove the Failing Investor as a Buyer Party thereunder and releases of Failing Investor from Anadarko from liabilities arising under the Purchase Agreement from and after the date of such amendments and/or assignment (the “Requisite Documents”), terminate the participation in the transaction (and all rights under Articles I and III (other than Section 3.2) and, if Aguila is the Failing Investor, Sections 2,2, 2.3 and 2.4 and Article IV (with respect to breaches or violations after such termination) of, and if SN or UnSub is the Failing Investor, Section 2.7 and Article V (with respect to breaches or violations after such termination) of, this Agreement and/or the Purchase Agreement) of any Failing Investor (in which case the Failing Investor shall cooperate to effect the amendment of the Purchase Agreement and/or assignment of any of its rights under the Purchase Agreement to the Closing Investor to the extent reasonably requested by the Closing Investor), and such Closing Investor may fund the Failing Investor’s portion of the Adjusted Purchase Price as may be required to consummate the Closing at the time of such termination of such Failing Investor; provided, that such termination shall not affect the Closing Investor’s rights against such Failing Investor with respect to such failure to fund or such Failing Investor’s continuing obligations hereunder as set forth in this Agreement and the Purchase Agreement.

 

(b)                         In the event (i) a Failing Investor fails to perform its obligations under the Purchase Agreement and a Closing Investor takes either of the actions contemplated by Section 6.3(a) or (ii) the Purchase Agreement is terminated and (A) Seller is entitled to retain the Deposit under the Purchase Agreement and/or (B) any other losses or damages are payable to Seller thereunder, including Hedging Losses, and (iii) a Failing Investor’s (A) breach (including anticipatory breach) of its obligations under the Purchase Agreement or this Agreement, (B) failure to obtain its portion of the Debt Financing or Equity Financing as contemplated by the Purchase Agreement or (C) failure to otherwise fund its portion of the Adjusted Purchase Price and consummate the Closing when required under the Purchase Agreement has been the principal or proximate cause of the termination giving rise to such obligation to forfeit the Deposit or pay any other losses or damages to Seller (such Investor, the “Indemnifying Investor”), the Indemnifying Investor shall indemnify and hold harmless the Closing Investor (the “non-Indemnifying Investor”) from and against all out-of-pocket costs and expenses incurred by the non-Indemnifying Investor and its Affiliates in connection with the transactions contemplated by the Purchase Agreement and this Agreement (including all legal, financial and other advisory costs and expenses) incurred or reasonably anticipated to be incurred, including

 

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any forfeiture of its portion of the Deposit (or requirement to pay the portion of the Indemnifying Investor’s Deposit) and any Hedging Losses incurred by such a Closing Investor or any costs and expenses relating to any other hedging transactions put into place by the Closing Investor or any of its Affiliates in connection with the Transaction (including deal-contingent hedges), but shall not include any amounts payable to any equity or debt financing sources, including in the case of UnSub, any amounts payable to GSO Capital Partners L.P. or any of the controlled Affiliates of GSO Capital Partners L.P., other than the reimbursement of out-of-pocket expenses, in connection with the transactions related to the Purchase Agreement (collectively, the “Indemnifiable Losses”). The indemnification rights and obligations set forth in the immediately preceding sentence shall terminate, and be of no further force or effect, on the first (1st) anniversary of the termination date of the Purchase Agreement, unless an indemnity claim had been previously made in respect thereof on the Indemnifying Investor (in which case, such indemnification rights and obligations shall survive until the conclusion of such indemnity claim). For the avoidance of doubt and notwithstanding anything in this Agreement or any other agreement to the contrary, Sanchez Energy shall be responsible for causing SN and UnSub to comply with all obligations of SN and UnSub, respectively, under this Agreement, including payment of all amounts that may be payable by SN and/or UnSub pursuant to this Section 6.3, and shall, as a result, be directly liable for such payment obligations in the event that SN and/or UnSub do not satisfy any such payment obligations in full. For the avoidance of doubt and notwithstanding anything in this Agreement or any other agreement to the contrary, the Blackstone Funds shall be responsible for, and have joint liability for, all obligations of Aguila under this Agreement, including payment of all amounts that may be payable by Aguila pursuant to this Section 6.3; provided, that BEP II shall responsible for 60% of any amounts payable by Aguila under this Agreement and BCP VII shall be responsible for 40% of any amounts payable by Aguila under this Agreement. For the avoidance of doubt, “Indemnifiable Losses” shall not include any lost profits, punitive, consequential, exemplary, benefit-of-the-bargain, indirect and similar damages, except to the extent recovered by Seller or any non-Affiliate of the non- Indemnifying Investor and which otherwise constitutes Indemnifiable Losses.

 

(c)                          In the event that the Purchase Agreement is terminated by Seller pursuant to Section 7.1(c) or Section 7.1(i) therein, then no later than three (3) Business Days following delivery of written notice of termination to the Parties by Seller, each of Sanchez Energy and the Blackstone Funds shall deliver to the other Investor an irrevocable, standby letter of credit in an amount equal to the Cash Deposit Amount or the Deposit LC Amount, as applicable, issued by a U.S. commercial bank or the U.S. branch of a foreign bank with ratings of at least “A-” by S&P and at least “A3” by Moody’s, and having total assets of at least $10,000,000,000, in a form reasonably acceptable to the other Party with draw-down by either Sanchez Energy or the Blackstone Funds conditioned only upon the satisfaction of any of the Draw-Down Conditions set forth below (each such letter of credit, an “LC”). Each LC shall only be drawn upon or payable upon (i) the mutual agreement of the Parties, or (ii) the issuance of a final non- appealable judgment of (A) a court of competent jurisdiction in accordance with Section 6.5 or (B) an arbitration panel pursuant to the terms of Section 6.3(f) (collectively, the “Draw-Down Conditions”), that Indemnifiable Losses are payable by one Party to the other, as applicable, and in such event the non-Indemnifying Investor may only collect from the other Party’s LC, as applicable, the amount of Indemnifiable Losses awarded to the non-Indemnifying Investor by such court of competent jurisdiction (or arbitration panel) or as otherwise mutually agreed upon by the Parties, including, for the avoidance of doubt, any interest payable pursuant to Section

 

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6.3(h). In the event that Blackstone, on the one hand, or Sanchez, on the other hand, does not make a claim against the other Party pursuant to this Section 6.3 for Indemnifiable Losses within three (3) months following any termination of the Purchase Agreement, then, if Blackstone has not made a claim, Sanchez Energy shall have the right to withdraw its LC and Blackstone shall return such LC to Sanchez Energy, or if Sanchez has not made a claim, the Blackstone Funds shall have the right to withdraw its LC and Sanchez shall return such LC to the Blackstone Funds; provided, that notwithstanding anything to this contrary in this Agreement, if a claim under this Section 6.3 has been made against Blackstone or Sanchez, as the case may be, then the form of security provided by the applicable Party against whom the claim has been made shall be required to remain effective until such claim has been satisfied or upon the date that a court of competent jurisdiction or an arbitration panel pursuant to the terms of Section 6.3(f) has ruled against the validity of such claim and determined that no Indemnifiable Losses are payable pursuant thereto.

 

(d)                         In the event that (i) the Purchase Agreement is terminated for any reason other than a termination pursuant to Section 7.2(b) therein and (ii) Seller obtains reimbursement for Hedging Losses pursuant to Section 7.2(c) of the Purchase Agreement from the Cash Deposit Amount and any such Hedging Losses are attributable to Hedging Transactions of Aguila (the “Blackstone Hedging Losses”), then Aguila shall reimburse Sanchez for the Blackstone Hedging Losses and such amounts shall be treated as Indemnifiable Losses hereunder; provided, that in the event that Sanchez is an Indemnifying Investor, Sanchez shall not be entitled to reimbursement for the Blackstone Hedging Losses pursuant to this Section 6.3(d).

 

(e)                          In the event that (i) the Purchase Agreement is terminated for any reason other than a termination pursuant to Section 7.2(b) therein and (ii) Seller obtains reimbursement for Hedging Losses pursuant to Section 7.2(c) of the Purchase Agreement from the Deposit LC Amount and any such Hedging Losses are attributable to Hedging Transactions of UnSub or SN (the “Sanchez Hedging Losses”), then UnSub or SN, as applicable, shall reimburse Aguila for the Sanchez Hedging Losses and such amounts shall be treated as Indemnifiable Losses hereunder; provided, that in the event that Aguila is an Indemnifying Investor, Aguila shall not be entitled to reimbursement for the Sanchez Hedging Losses pursuant to this Section 6.3(e).

 

(f)                           In the event a Party wishes to contest whether it owes Indemnifiable Losses as an Indemnifying Investor (the “Contesting Party”), such Party shall provide the non- Indemnifying Investor (the “non-Contesting Party”), with its written objection within ten (10) days after receipt of notice of the non-Contesting Party’s written claim for Indemnifiable Losses (the “Objection Notice”). In such event, a representative of the Contesting Party and the non- Contesting Party shall meet and use commercially reasonable efforts to mutually agree on a resolution. If such representatives are unable to resolve the disagreement within fifteen (15) days after receipt of the Objection Notice, then the non-Contesting Party, in its sole discretion, may elect to litigate such matter in accordance with Section 6.5 or have such disagreement resolved in accordance with by accelerated arbitration, which arbitration proceedings shall be held in New York, New York and conducted pursuant to the Rules for Commercial Arbitration promulgated by the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section 6.3. The dispute shall be adjudicated by a panel of three (3) arbitrators. The Contesting Party and the non-Contesting Party shall each be able to choose one (1) arbitrator, and such chosen arbitrators shall choose the third arbitrator. If the any of the Parties fail to

 

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choose an arbitrator, then any arbitrator chosen by a Party shall be empowered to choose the two (2) additional arbitrators required by this Section 6.3(f). The third arbitrator shall be appointed within thirty (30) days after receipt of the Objection Notice. Each arbitrator shall be a practicing attorney or retired judge with at least fifteen (15) years total working experience as such and shall not have worked as an employee, consultant, independent contractor or outside counsel for any of the Parties to such dispute or any of their respective Affiliates during the ten (10) year period preceding the arbitration or have any financial interest in the dispute or any assets or businesses of the parties to such dispute. The arbitrators shall require exchange by the Parties of documents relevant to the issues raised by any claim or defense or on which the producing Party may rely in support of or in opposition to any claim or defense, with due regard for eliminating undue burden and expense and the accelerated nature of the arbitration. These exchanges shall occur no later than a specified date within thirty (30) days following the appointment of the third arbitrator. At the request of a Party, the arbitrators may at their discretion order the depositions of witnesses. Depositions shall be limited to a maximum of two depositions per Party, each for a maximum of four hours duration, unless the arbitrators otherwise determine. All discovery shall be completed within forty-five (45) days following the appointment of the third arbitrator. The final arbitration hearing shall commence within sixty (60) days following the appointment of the third arbitrator. The arbitrators shall issue a reasoned decision in writing within fifteen (15) Business Days after conclusion of the final arbitration hearing and, absent manifest error, shall be final and binding upon the Parties to such dispute, without right of appeal, and may be entered in any court having jurisdiction thereof. In making its determination, the arbitrators shall be and remain at all times wholly impartial, and, once appointed, the arbitrators shall have no ex parte communications with any of the Parties to the dispute concerning the arbitration or the underlying dispute. The costs and expenses of the arbitrators shall be equally split between the Parties. The arbitration proceeding and arbitration award shall be maintained by the Parties as strictly confidential, except as is otherwise required by court order or as is necessary to confirm, vacate or enforce the award and for disclosure in confidence to the Parties’ respective attorneys, tax advisors and senior management, or as disclosure may be permitted under Section 6.9. Compliance with this 6.3(f) shall not be required if the effect thereof would prevent a claim from being brought within a statute of limitations or other time period hereunder within which a claim must be brought. The initiation of arbitration pursuant to this Section 6.3(f) will toll the applicable statute of limitations for the duration of any such proceedings. Notwithstanding anything herein to the contrary, the Parties may take any such action required to effectuate such tolling.

 

(g)                          Notwithstanding anything to the contrary herein or in the Purchase Agreement, if Seller terminates the Purchase Agreement because an Investor claims that a closing condition set forth in Article IV of the Purchase Agreement (a “Buyer Closing Condition”) has not been satisfied (the “Claiming Investor”), the Claiming Investor shall have the right to direct any defense in litigation brought by Seller or any of its Affiliates to dispute the failure of such Buyer Closing Condition (“Closing Condition Litigation”). The Investor that is not the Claiming Investor (the “non-Claiming Investor”) agrees to reasonably cooperate with the Claiming Investor and agrees not to take any action that would be reasonably likely to undermine the defense of the Claiming Investor in any material respect, other than to the extent required by Law. In the event that Seller prevails in any Closing Condition Litigation, the Claiming Investor shall be the Indemnifying Investor and liable to the non-Claiming Investor for

 

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all Indemnifiable Losses incurred in connection with such Closing Condition Litigation in accordance with this Section 6.3.

 

(h)                          Any Indemnifiable Losses payable or otherwise granted to a Party in accordance with this Section 6.3 shall, to the fullest extent permitted by Law, include interest accruing daily at a rate of 15% annually (or if a lower rate is required by applicable Law, such maximum rate permitted by applicable Law), from the date upon which it is determined the events giving rise to a Party becoming a Failing Investor or Indemnifying Investor, as applicable, began until the date such Party has satisfied in full its payment obligations under this Section 6.3.

 

(i)                              The Parties agree that, except as provided herein, this Agreement will be enforceable by all available remedies at Law or in equity (including, without limitation, specific performance); provided, that notwithstanding anything in this Agreement to the contrary, this Section 6.3 shall be the exclusive remedy of the Parties following the termination of the Purchase Agreement.

 

Section 6.4                            No Recourse. Notwithstanding anything that may be expressed or implied in this Agreement, and notwithstanding the fact that certain of the Investors may be partnerships or limited liability companies, each Investor covenants, agrees and acknowledges that this Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto and not against any of the former, current or future general or limited partners, equityholders, managers, members, directors, officers, employees, subsidiaries, Affiliates (other than any assignee permitted by Section 6.7 or any entity that is a Party to this Agreement), agents or representatives of the Investors (each, an “Investor Related Party”) and no Investor Related Party that is not a party hereto shall have any liability hereunder for any obligations or liabilities of the parties to this Agreement or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, the transactions contemplated hereby or in respect of any oral representations made or alleged to be made in connection herewith.

 

Section 6.5                            Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT WOULD REQUIRE THE APPLICATION OF ANY OTHER LAW. EACH OF THE PARTIES CONSENTS TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF NEW YORK FOR ANY ACTION ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS SHALL BE EXCLUSIVELY LITIGATED IN COURTS HAVING SITES IN NEW YORK CITY, NEW YORK. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

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Section 6.6                           Exercise of Rights and Remedies. No delay of or omission in the exercise of any right, power or remedy accruing to any Party as a result of any breach or default by any other Party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

 

Section 6.7                           Other Agreements; Assignment. This Agreement, together with the agreements and Exhibits referenced herein, constitutes the entire agreement, and supersedes all prior agreements, understandings, negotiations and statements, both written and oral, among the Parties or any of their Affiliates with respect to the subject matter contained herein except for such other agreements as are referenced herein which shall continue in full force and effect in accordance with their terms. Other than as provided herein, this Agreement shall not be assigned without the prior consent of the Parties hereto.

 

Section 6.8                           Press Release; Communications. Any general notices, releases, statements or communications to the general public or the press relating to this Agreement or the transactions contemplated hereby and the Purchase Agreement shall be made only at such times and in such manner as may be mutually agreed upon by the Investors; provided, that the Parties hereto shall be entitled to issue such press releases and to make such public statements as are required by applicable Law, the applicable rules of any national securities exchange or if required in connection with any required filing or notice with any Governmental Authority relating to the transactions contemplated by the Purchase Agreement without the mutual agreement of the Investors, in which case the Investors shall be advised thereof and the Parties shall use their reasonable best efforts to cause a mutually agreeable release or announcement to be issued (provided, that nothing herein shall prevent a Party from making a required disclosure within the timeframe required by such applicable Laws, rules or requirements of Governmental Authorities). Once information has been made available to the general public in accordance with this Agreement, this Section 6.8 shall no longer apply to such information.

 

Section 6.9                           Confidentiality. Each party hereto shall, and shall cause its Affiliates, directors, officers, employees, agents, advisors and representatives (“Representatives”) to, keep any information supplied by or on behalf of any of the other Parties pursuant to this Agreement (“Confidential Information”), confidential and to use, and cause its Representatives to use, the Confidential Information only in connection with the Acquisition and the transactions contemplated hereby; provided, that the term “Confidential Information” does not include information that (a) is already in such Party’s possession; provided, that such information is not subject to another confidentiality agreement with or other obligation of secrecy to any Person, (b) is or becomes generally available to the public other than as a result of a disclosure, directly or indirectly, by such Party or such Party’s Representatives, or (c) is or becomes available to such Party on a non-confidential basis from a source other than any of the Parties hereto or any of their respective Representatives; provided, that such source is not known by such Party to be bound by a confidentiality agreement with or other obligation of secrecy to any Person; provided further, however, that nothing herein shall prevent any Party hereto from disclosing Confidential Information (i) upon the order of any court or administrative agency, (ii) upon the request or demand of any regulatory agency or authority having jurisdiction over such party, (iii) to the

 

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extent required by Law or regulation, (iv) to the extent necessary in connection with the exercise of any remedy, hereunder, and (v) to such Party’s Representatives that need to know such information (it being understood and agreed that, in the case of clause (i), (ii) or (iii), such Party shall notify the other Investors of the proposed disclosure as far in advance of such disclosure as practicable and use reasonable best efforts to ensure that any information so disclosed is accorded confidential treatment, when and if available, unless Section 6.8 applies to such disclosure); provided, that notwithstanding the foregoing, notice to any Investor shall not be required where disclosure is made (i) in response to a request by a regulatory or self-regulatory authority or (ii) in connection with a routine audit or examination by a bank examiner or auditor and such audit or examination does not reference such Investor or this Agreement. This Section 6.9 shall survive for one year following termination or expiration of this Agreement. In the event of a conflict between Section 6.8 and Section 6.9, Section 6.8 shall control to the extent of such conflict.

 

Section 6.10 Specific Performance. The Parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement contemplated to be performed herein was not performed by any such Party in accordance with the terms hereof and that monetary damages, even if available, would not be an adequate remedy therefor. As a result, each Party shall be entitled to specific performance to prevent breaches of this Agreement and enforce the terms hereof, without proof of actual damages (and each Party hereby waives any requirement for the securing or posting of any bond in connection with such remedy) in addition to any other remedy at Law or equity. In connection with the exercise of any Party’s rights under this Section 6.10, the Parties agree not to assert that a remedy of specific performance is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy for any such breach.

 

Section 6.11 Effectiveness. This Agreement shall become effective on the date hereof and shall terminate upon the earlier of (a) the Closing and (b) the termination of the Purchase Agreement in accordance with its terms; provided, however, that notwithstanding the foregoing:

 

(i) the provisions set forth in Article I (Closing Arrangements) (but only to the extent that the Sanchez Transaction Documents or Blackstone Transaction Documents have not been entered into by the applicable parties thereto as of the Closing), Section 2.2 (Blackstone Preferential Purchase Right) (but only to the extent not earlier terminated or expired as provided therein), Section 2.3 (Sanchez Warrants) and Section 2.4 (Equity Issuance Documents) (but, in the case of Section 2.3 or Section 2.4, only to the extent that such Sanchez Transaction Documents or Blackstone Transaction Documents have not been entered into by the applicable parties thereto as of the Closing), Section 3.2 (Expenses) and Article VI (Miscellaneous), other than Section 6.3 (Remedies, other than those sub-sections of Section 6.3 (including Section 6.3(i)) that are intended by their terms to survive the Closing), shall remain in full force and effect and survive any termination of this Agreement pursuant to the foregoing clause (a) in accordance with its terms;

 

(ii) the provisions set forth in Section 3.2 (Expenses), Article IV (Representations and Warranties of Sanchez, other than Section 4.4 (No Other Arrangements) and Section 4.5 (Access to Capital)), Article V (Representations and Warranties of Blackstone Parties, other than Section 5.4 (No Other Arrangements), Section 5.5 (Access to Capital), and Article VI

 

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(Miscellaneous), including Section 6.3 (Remedies), shall remain in full force and effect and survive any termination of this Agreement pursuant to the foregoing clause (b) in accordance with its terms; and

 

(iii) any liability for failure to comply with this Agreement or breach of this Agreement prior to termination shall survive termination of this Agreement.

 

Section 6.12                            No Third Party Beneficiaries. Except for Section 6.3, this Agreement shall be binding on each Party solely for the benefit of each other Party hereto and nothing set forth in this Agreement, express or implied, shall be construed to confer, directly or indirectly, upon or give to any Person other than the Parties any benefits, rights or remedies under or by reason of, or any rights to enforce or cause the parties hereto to enforce, any provisions of this Agreement.

 

Section 6.13                            No Representations or Duty. Each Investor specifically understands and agrees that no Investor has made or will make any representation or warranty with respect to the terms, value or any other aspect of the transactions contemplated hereby, and each Investor explicitly disclaims any warranty, express or implied, with respect to such matters. In addition, each Investor specifically acknowledges, represents and warrants that it is not relying on any other Investor (a) for its due diligence concerning, or evaluation of, the Seller or its assets or businesses, (b) for its decision with respect to making any investment contemplated hereby or (c) with respect to tax and other economic considerations involved in such investment. In making any determination contemplated by this Agreement, each Investor may make such determination in its sole and absolute discretion, taking into account only such Investor’s own views, self- interest, objectives and concerns. No Investor shall have any fiduciary or other duty to any other Investor except as expressly set forth in this Agreement.

 

Section 6.14                     Adjustments. Sanchez Common Stock share numbers underlying the Warrant Agreement and the exercise price per share of Sanchez Common Stock shall be appropriately adjusted for combinations, share splits, recapitalizations, pro rata distributions of shares and the like occurring after the date of this Agreement, in accordance with the adjustment mechanisms set forth in the Warrant Agreement.

 

[Signature pages follow]

 

20



 

IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement (or caused this Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) as of the date first above written.

 

[Signature Page to Interim Investors Agreement]

 



 

 

SANCHEZ ENERGY CORPORATION:

 

 

 

 

 

 

 

By:

/s/ Antonio R. Sanchez, III

 

Name:

Antonio R. Sanchez, III

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

SN EF MAVERICK, LLC:

 

 

 

 

 

 

 

By:

/s/ Antonio R. Sanchez, III

 

Name:

Antonio R. Sanchez, III

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

SN EF UNSUB, LP:

 

 

 

 

 

By: SN EF UNSUB GP, LLC, its general partner

 

 

 

 

By:

/s/ Antonio R. Sanchez, III

 

Name:

Antonio R. Sanchez, III

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

AGUILA PRODUCTION, LLC:

 

 

 

 

 

 

 

By:

/s/ Angelo Acconcia

 

Name:

Angelo Acconcia

 

Title:

President

 

 

 

 

 

 

 

AGUILA PRODUCTION HOLDCO, LLC:

 

 

 

 

 

 

 

By:

/s/ Angelo Acconcia

 

Name:

Angelo Acconcia

 

Title:

President

 

[Signature Page to Interim Investors Agreement]

 



 

 

BLACKSTONE CAPITAL PARTNERS VII L.P.

 

 

 

 

 

 

 

By:

/s/ Angelo Acconcia

 

Name:

Angelo Acconcia

 

Title:

President

 

 

 

 

 

 

 

BLACKSTONE ENERGY PARTNERS II L.P.

 

 

 

 

 

 

 

By:

/s/ Angelo Acconcia

 

Name:

Angelo Acconcia

 

Title:

President

 



 

ANNEX A

 

PURCHASE AND SALE AGREEMENT

 



 

ANNEX B

 

FORM OF

JOINT DEVELOPMENT AGREEMENT

 



 

Final Form

 

FORM OF

 

JOINT DEVELOPMENT AGREEMENT

 

By and Among

 

AGUILA PRODUCTION, LLC,

 

SN EF MAVERICK, LLC,

 

SN EF UNSUB, LP,

 

and

 

SANCHEZ ENERGY CORPORATION, but solely with respect to Section 2.2, Section 4.2, Section 4.5 and Article VII

 

Dated as of [·]

 



 

TABLE OF CONTENTS

 

 

 

Page

ARTICLE I DEFINITIONS

1

1.1

Specific Definitions

1

1.2

Construction

1

ARTICLE II WORKING INTERESTS; REPRESENTATIONS AND WARRANTIES

2

2.1

Working Interest

2

2.2

Representations and Warranties

2

ARTICLE III OPERATING COMMITTEE; B UDGETS AND WORK PLAN

2

3.1

Management by Operating Committee

2

3.2

Function of the Operating Committee

2

3.3

Operating Committee

4

3.4

Meetings of the Operating Committee

5

3.5

Quorum and Voting

6

3.6

Deadlock Mechanisms

7

3.7

Budgets and Work Plan; AFEs and Approved Operations

7

3.8

Operatorship Under the Operating Agreement

11

3.9

Default

17

ARTICLE IV TRANSFER; EXIT OPPORTUNITIES

18

4.1

Restrictions on the Transfer of Interests

18

4.2

Tag-Along Right

20

4.3

Right of First Offer

23

4.4

Initial Public Offering

25

4.5

Sale Transaction

25

ARTICLE V ADDITIONAL C OVENANTS

32

5.1

Information Rights

32

5.2

Area of Mutual Interest

34

5.3

Spacing Protections

36

5.4

Cooperation

38

ARTICLE VI TERM AND TERMINATION

38

6.1

Term and Termination

38

6.2

Effect of Termination

39

ARTICLE VII GENERAL PROVISIONS

40

7.1

Entire Agreement

40

7.2

Waivers

40

7.3

Assignment; Binding Effect

40

7.4

Governing Law; Severability

40

7.5

Further Assurances

41

7.6

Counterparts

41

7.7

Confidential Information

41

7.8

No Third Party Beneficiaries

43

7.9

Non-Solicitation

43

7.10

Notices

43

 



 

7.11

Remedies

45

7.12

Disputes

46

7.13

Expenses

47

7.14

No Recourse

48

7.15

Conflict

48

7.16

Subchapter K

48

7.17

Relationship of SN and SN UnSub

48

7.18

Operating Committee; Affiliates

49

7.19

Force Majeure

49

 

Annex I

Definitions

Annex II

Representatives

Annex III

Working Interests

Annex IV

Approved Financial Advisor Arbiters

Annex V

Existing Producing Wells

Annex VI

Existing Drilled and Uncompleted Wells

Annex VII

Restricted Areas

Exhibit A

Initial Budget and Work Plan

Exhibit B

Form of Operating Agreement

Exhibit C

Area of Mutual Interest

Exhibit D

Form of Assignment

Exhibit E

Form of Memorandum of Joint Development Agreement

Exhibit F

Form of Notice of Termination of the Joint Development Agreement

 



 

JOINT DEVELOPMENT AGREEMENT

 

This JOINT DEVELOPMENT AGREEMENT (this “Agreement”), is entered into as of [·] (the “Effective Date”), by and between SN EF Maverick, LLC, a Delaware limited liability company (“SN”), SN EF UnSub, LP, a Delaware limited partnership (“SN UnSub”), and Aguila Production, LLC, a Delaware limited liability company (“Blackstone”) and, solely for the purposes of Section 2.2, Section 4.2, Section 4.5 and Article VII, Sanchez Energy Corporation, a Delaware corporation (“Sanchez Energy”). Each of SN, SN UnSub, Sanchez Energy (with respect to the provisions of this Agreement to which it is a party) and Blackstone are referred to herein individually as a “Party” and collectively as the “Parties”.

 

RECITALS

 

WHEREAS, the Parties and, solely for the purposes of Section 15.22 thereof, Sanchez Energy, entered into that certain Purchase and Sale Agreement, dated as of [•], by and among Anadarko E&P Onshore LLC and Kerr-McGee Oil & Gas Onshore LP (together, “Anadarko”) and the Parties ([together with any purchase agreement entered into with [redacted] (“[redacted]”) pursuant to certain tag-along rights,](1) the “Purchase Agreement”), pursuant to which the Parties collectively purchased all of the Working Interests of Anadarko [and [redacted], collectively] comprising an undivided [fifty percent (50%)] [seventy five percent (75%)] Working Interest in certain developed and undeveloped oil and gas assets in Maverick, Dimmit, Webb, and LaSalle Counties, Texas, as described in more detail in Annex III; and

 

WHEREAS, the Parties desire to enter into this Agreement in connection with the transactions and conveyances contemplated by the Purchase Agreement to, among other things, provide for certain capital planning, operatorship, transfer, and economic rights between the Parties with respect to the development, operation, and maintenance of the Assets and the Parties’ interests therein.

 

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

 

ARTICLE I

DEFINITIONS

 

1.1        Specific Definitions. Capitalized terms used in this Agreement shall be given the meanings ascribed to such terms on Annex I.

 

1.2        Construction. Unless the context otherwise requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter, the singular shall include the plural, and the plural shall include the singular. Any references to Articles and Sections refer to articles and sections of this Agreement, and all references to Exhibits, Annexes and Schedules are to exhibits, annexes and schedules attached hereto, each of which is incorporated herein for

 


(1)        Note to Draft: [redacted] reference to be removed if [redacted] elects not to tag.

 

1



 

all purposes. Article and section titles or headings are for convenience only, and neither limit nor amplify the provisions of the Agreement itself, and all references herein to articles, sections, or subdivisions thereof shall refer to the corresponding article, section, or subdivision thereof of this Agreement unless specific reference is made to such articles, sections or subdivisions of another document or instrument. Unless the context of this Agreement clearly requires otherwise, the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation,” and the words “hereof,” “herein,” “hereunder,” and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or article in which such words appear.

 

ARTICLE II

WORKING INTERESTS; REPRESENTATIONS AND WARRANTIES

 

2.1        Working Interest. As of the Effective Date, the Parties each own the Working Interests in each of the Leases as set forth on Annex III.

 

2.2        Representations and Warranties. Each of the Parties, severally and not jointly, solely in respect of itself and not another Party, hereby represents and warrants to the other Parties as follows as of the Effective Date: (a) such Party is duly formed, validly existing, and in good standing under the laws of its jurisdiction of formation, (b) such Party 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, (c) such Party has duly executed and delivered this Agreement and this Agreement is legal, valid, and binding with respect to such Party and is enforceable against such Party in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, or similar laws affecting creditors’ rights generally, (d) except to the extent contemplated herein, no permit, consent, approval, authorization or order of, and no notice to or filing with, any Governmental Authority or Third Party (collectively, “Consents”) is required in connection with the execution, delivery, or performance by such Party of this Agreement, or to consummate any transactions contemplated hereby that have not been obtained or waived prior to the Effective Date, and (e) provided, that the Consents are obtained, the authorization, execution, delivery, and performance of this Agreement by such Party does not, and will not, breach or conflict with or constitute a default under (A) such Party’s organizational documents or (B) any agreement or arrangement to which such Party is a party or by which it is otherwise bound.

 

ARTICLE III

OPERATING COMMITTEE; BUDGETS AND WORK PLAN

 

3.1        Management by Operating Committee. The Parties hereby establish an operating committee composed of representatives (each, a “Representative”) from the Parties duly appointed in accordance with this Article III (the “Operating Committee”). The Operating Committee shall exercise its rights and carry out its duties over the Assets in compliance with this Agreement.

 

3.2        Function of the Operating Committee. The Parties agree that, among the Parties, the timing, scope and budgeting of operations on the Assets (other than with respect to

 

2



 

the Initial Budget and Work Plan) and amendments to the Initial Budget and Work Plan shall be ultimately approved by the Operating Committee. To the extent permitted or allowed under the applicable Operating Agreement, the Operator shall, in its own discretion and in accordance with the applicable Operating Agreement, propose, approve, and undertake any actions or decisions pursuant to such applicable Operating Agreement unless Unanimous Consent of the Operating Committee is required under this Agreement. The Operating Committee shall have no authority over the ownership of any interest in an Asset, which authority shall remain exclusively with the Party holding such ownership interest, subject to the other terms of this Agreement, including Article IV. The matters set forth below shall require the Unanimous Consent of the Operating Committee, and each Party agrees that it will not take or knowingly facilitate, and will cause its Controlled Affiliates and shall use its reasonable best efforts to cause its other Affiliates not to take or knowingly facilitate, any action under any applicable Operating Agreement or otherwise with respect to the Assets contemplated by clauses (a) through (h) of this Section 3.2 without the Unanimous Consent of the Operating Committee.

 

(a)         approving any Subsequent Budget and Work Plan;

 

(b)         making any amendments or modifications of the previously approved Initial Budget and Work Plan or any Subsequent Budget and Work Plan; provided, that, any increase to the aggregate amount of expenditures in the previously approved Initial Budget and Work Plan or any Subsequent Budget and Work Plan (as applicable) shall not require Unanimous Consent of the Operating Committee so long as such increase would not exceed the approved budgeted amount by more than ten percent (10%) and is otherwise consistent with the applicable Approved Budget;

 

(c)         approving any AFE with respect to an Approved Operation to the extent that all AFEs issued for such Approved Operation exceed 120% of the budgeted amount for such Approved Operation in an Approved Budget; provided, however, that any AFEs so approved by Unanimous Consent shall not be counted toward the ten percent (10%) overage referenced above in Section 3.2(b);

 

(d)         approving any E&D Operations or S&A Operations proposed by a Third Party unless previously authorized pursuant to an Approved Budget; provided, however, that any such E&D Operations or S&A Operations that are so approved by Unanimous Consent shall not be counted toward the ten percent (10%) overage referenced above in Section 3.2(b);

 

(e)         designating a new Operator (other than as provided in Section 3.8(e) or Section 3.8(f));

 

(f)         commencing or settling litigation related to the Assets that affect or would reasonably be expected to affect all Parties with respect to their ownership of the Working Interests, if the claims or settlements at issue exceed, or would reasonably be expected to exceed, a total of $2,000,000 in the aggregate or otherwise involve any equitable relief, or request for equitable relief, related to the Assets;

 

(g)         amending this Agreement or any applicable Operating Agreement; and

 

(h)         approving or amending of any Material Contracts.

 

3



 

(i)          In the event that the Operating Committee approves any matter under Section 3.2 by Unanimous Consent, each Party shall take, and shall cause its Affiliates to take, such actions within such Party’s Control under an applicable Operating Agreement that are reasonably necessary to effectuate such approved matter (and shall not knowingly take any action that could reasonably be expected to subvert, or otherwise materially interfere with the effectuation of such approved matter, including by encouraging Third Party Working Interest holders under an Operating Agreement to submit alternative or competing proposals against those proposals approved by the Operating Committee pursuant to this Section 3.2). Without limiting the generality of the foregoing but subject to Section 3.7(c), each Party will vote its respective Working Interests under an applicable Operating Agreement in favor of, and make appropriate elections with respect to, and the Operator will make proposals for the activities contemplated by, matters that have been approved by the necessary consents required by this Section 3.2 as provided hereunder, and are otherwise in accordance with the terms of this Agreement and any applicable Operating Agreement. Once a matter is approved pursuant to the applicable Operating Agreement, the Joint Exploration Agreement, and the Participation Agreement, the provisions of such other agreements shall control the implementation of such matter other than as expressly set forth in this Agreement.

 

3.3        Operating Committee.

 

(a)        Composition.

 

(i)          The Operating Committee shall consist of six (6) natural persons.

 

(ii)         SN shall have the right to appoint two (2) Representatives and SN UnSub shall have the right to appoint one (1) Representative (each, a “Sanchez Representative”), provided, however, at any time following a Qualified Foreclosure Transfer, the Qualified Foreclosure Transferee shall have the right to appoint one (1) Representative (the “Qualified Foreclosure Transferee Representative”) and SN shall have the right to appoint two (2) Representatives (which such two (2) Representatives shall then be the only Sanchez Representatives hereunder), and SN UnSub will no longer have the right to appoint a Representative. Notwithstanding anything in this Agreement to the contrary, (a) SN shall have the right to direct the vote of each Sanchez Representative appointed by SN, (b) SN UnSub will have the right to direct the vote of the Sanchez Representative appointed by SN UnSub, and (c) the Qualified Foreclosure Transferee shall have the right to direct the vote of the Qualified Foreclosure Transferee Representative. Notwithstanding anything to the contrary in this Agreement, at any time that SN is in Default, the Sanchez Representative appointed by SN UnSub shall be an investment professional affiliated with GSO for so long as GSO owns any interest in SN UnSub.

 

(iii)        Blackstone shall have the right to appoint three (3) Representatives (each, a “Blackstone Representative”). Notwithstanding anything in this Agreement to the contrary, Blackstone shall have the right to direct the vote of each Blackstone Representative.

 

(iv)       The initial Representatives are set forth on Annex II.

 

4



 

(v)        Each Representative may vote by delivering his or her written proxy to another Representative. A Representative shall serve until such Representative resigns or is removed as provided in Section 3.3(b).

 

(b)        Resignation; Removal and Vacancies. Any Representative may resign at any time by giving written notice to the Operating Committee. The resignation of any Representative shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any Sanchez Representative may be removed at any time, with or without cause, by (and only by) SN (if such Sanchez Representative was appointed by SN) or SN UnSub (if such Sanchez Representative was appointed by SN UnSub). Any Blackstone Representative may be removed at any time, with or without cause, by (and only by) Blackstone. Any Qualified Foreclosure Transferee Representative may be removed at any time, with or without cause, by (and only by) the Qualified Foreclosure Transferee. The removal of a Representative shall be effective only upon receipt of notice thereof by the remaining Representatives and by SN, SN UnSub, Blackstone, or the Qualified Foreclosure Transferee, as applicable. Any vacancy in the number of Representatives occurring for any reason shall be filled promptly by the appointment of a new Representative by (i) SN, with respect to a Sanchez Representative appointed by SN, (ii) SN UnSub, with respect to a Sanchez Representative appointed by SN UnSub, (iii) Blackstone, with respect to a Blackstone Representative, and (iv) the Qualified Foreclosure Transferee, with respect to the Qualified Foreclosure Transferee Representative. The appointment of a new Representative is effective upon receipt of notice thereof by or at such time as shall be specified in such notice to the remaining Representatives.

 

3.4        Meetings of the Operating Committee.

 

(a)        Regular meetings of the Operating Committee shall be held on a regular basis, but not less than monthly, at such times or places as may be determined by the Operating Committee. Special meetings of the Operating Committee may be called by any of the Representatives, subject to the requirements listed under Section 3.4(b). Each Party shall use reasonable best efforts, in good faith, to cause its designated Representatives to attend each regular or special meeting of the Operating Committee. The Operating Committee and the Operator shall hold bi-monthly conference calls on the 1st and the 15th of each month (or if any such dates are not a Business Day, the immediately following Business Day) to discuss the daily drilling operations, the production reports required to be provided pursuant to Section 5.1(a) and other operational updates during regular business hours, and the Operator shall otherwise provide the Parties with full access to, and shall make its personnel available upon reasonable prior notice to discuss with the Operating Committee such matters; provided, that upon the reasonable request by any Party, the Operating Committee and Operator will hold additional conference calls not to exceed one conference call per week.

 

(b)        Notice of the time and place of any regular meeting of the Operating Committee shall be in accordance with the meeting schedule approved by the Operating Committee or as otherwise agreed to by the Parties. Special meetings of the Operating Committee may be called by any Party by providing notice to the Representatives at least three (3) days prior to such meeting. Special meetings of the Operating Committee to deal with

 

5



 

emergencies may be called by a Party providing at least twelve (12) hours’ notice prior to the meeting, so long as each Representative provides written confirmation of receipt of notice or waives notice (including by attending the emergency meeting). Written notice of meetings of the Operating Committee, including the purpose of the meeting for special (including emergency) meetings, shall be given to each Representative with the notice of the meeting. Any Representative may waive notice of any meeting by the execution of a written waiver prior or subsequent to such meeting. The attendance of a Representative at any meeting shall constitute a waiver of notice of such meeting, except where a Representative attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction or voting of any business or matter because the meeting has not been lawfully called or convened. Notice may be given by electronic mail to an electronic mail address provided in writing by a Representative, by facsimile to a facsimile number provided in writing by a Representative, by personal delivery, or by national reputable courier service such as Federal Express or United Parcel Service to an address specified in writing by a Representative.

 

(c)         The Operating Committee may adopt whatever rules and procedures relating to its activities as it may deem appropriate; provided, that such rules and procedures shall not be inconsistent with or violate the provisions of this Agreement; and provided, further, that such rules and regulations shall permit Representatives to participate in meetings (and the representatives of the Parties to observe) by telephone, video conference or the like, or by written proxy, and such participation shall be deemed attendance for purposes of determining whether a Quorum is present.

 

(d)         At each regular meeting of the Operating Committee, the Operator shall update the Operating Committee on the operational performance of the Assets being operated by the Operator, including by presenting relevant quality, health, safety and environmental metrics regarding operations.

 

3.5        Quorum and Voting.

 

(a)         At all meetings of the Operating Committee, the presence of a majority of the Representatives (including at least one (1) Sanchez Representative appointed by SN, one (1) Blackstone Representative and either the Sanchez Representative appointed by SN UnSub or the Qualified Foreclosure Transferee Representative, as applicable) shall be necessary and sufficient to constitute a quorum of the Operating Committee for the transaction of business (a “Quorum”).

 

(b)         Each Representative shall be entitled to one (1) vote on each matter to be voted upon by the Operating Committee.

 

(c)         All actions and approvals of the Operating Committee listed in Section 3.2(a)-(h) shall be approved and passed at a meeting at which a Quorum is present by Unanimous Consent.

 

(d)         Any Representative may participate in a meeting of the Operating Committee via conference telephone or any communications equipment that allows all Representatives and other individuals participating in the meeting to communicate with each other.

 

6



 

(e)         Any action required or permitted to be taken at any meeting of the Operating Committee may be taken without a meeting or a vote, if consents in writing, setting forth the action so taken, are signed by Representatives constituting Unanimous Consent. Each written consent shall bear the date and signature of each Representative who signs the consent.

 

3.6        Deadlock Mechanisms.

 

(a)        If any matter or proposal requiring Unanimous Consent for approval by the Operating Committee (i) is brought before the Operating Committee and such matter or proposal is not approved by Unanimous Consent or (ii) would have been brought before the Operating Committee, but for the fact that a Quorum was not present at three (3) consecutive meetings called for the purpose of approving such matter or proposal, then any Representative(s), by written notice to the other Representatives may call a meeting of the Operating Committee to reconsider such matter or proposal. Such meeting shall be held when, where and as reasonably specified in such notice, but not less than three (3) Business Days nor more than seven (7) Business Days after such notice has been delivered. If such meeting is called and held as provided in the immediately preceding sentence and the matter or proposal is offered at such meeting again and (A) is not approved by Unanimous Consent or (B) a Quorum is not present at such Operating Committee meeting, then any Representative(s) may within three (3) Business Days thereafter, declare a deadlock (a “Deadlock”) by giving written notice to the other Representatives containing a brief description of the nature of the issue subject to such Deadlock (a “Deadlock Notice”). A Deadlock may also be declared as provided in Section 5.3(e)(ii). All Deadlocks shall be subject to the provisions of Section 3.6(b) and, if applicable, mediation, in accordance with Section 3.6(c).

 

(b)        Within ten (10) Business Days after the receipt of a Deadlock Notice, a designated senior executive from each Party shall meet in good faith effort to reach an accord that will end the Deadlock. If a decision is not made by common accord that ends the Deadlock within ten (10) Business Days after the date of such meeting, any Representative(s) may declare a final Deadlock (a “Final Deadlock”) by providing written notice to the other Representative (a “Final Deadlock Notice”). Notwithstanding anything in this Agreement to the contrary, if the designated senior executive of any Party is unwilling or unable to meet with the designated senior representative of any other Party, then any Representative(s) may immediately invoke the provisions of Section 3.6(c).

 

(c)         If within ten (10) Business Days following receipt of a Final Deadlock Notice, the matter or proposal subject to such Final Deadlock remains in contention, then any Representative may subject the matter or proposal to non-binding mediation, which process shall be conducted as promptly as reasonably practicable, and the Parties will use their good faith efforts to cause a Representative and/or a designated senior executive to participate in such non- binding mediation.

 

3.7        Budgets and Work Plan; AFEs and Approved Operations.

 

(a)        Initial Budget and Work Plan. On the Effective Date and automatically upon the execution of this Agreement by the Parties, the Parties approved the Initial Budget and Work Plan attached hereto as Exhibit A (as may be amended from time to time by Unanimous

 

7



 

Consent under Section 3.2(a), the “Initial Budget and Work Plan”), which sets forth estimates of the amounts to be incurred by the Operator (subject to authorization required under an applicable Operating Agreement) to conduct (x) the activities approved in such Initial Budget and Work Plan and (y) other operations related to the Assets contemplated by such Initial Budget and Work Plan, in each case, from the Effective Date through the second (2nd) anniversary of the execution of the Purchase Agreement (such activities and operations being the “Initial Approved Operations”). Each AFE issued by the Operator to implement an Approved Operation shall be deemed an Approved AFE in accordance with Section 3.2(c) and each Party shall consent to such Approved AFEs under any applicable Operating Agreement. Operator shall promptly issue supplements to any Approved AFE that it reasonably anticipates will exceed the estimated expenditures thereunder by one hundred twenty percent (120%) of the budgeted amount subject to approval by Unanimous Consent of the Operating Committee.

 

(b)         Subsequent Budgets and Work Plans.

 

(i)          The Operator shall prepare and submit to the Operating Committee for approval no later than October 1, 2018, and every October 1 thereafter, (A) a proposal for E&D Operations and S&A Operations to be conducted by the Operator during the subsequent twelve (12) month period and (B) a proposed budget (together, a “Subsequent Budget and Work Plan”) which sets forth in reasonable detail the projects and activities (the “Subsequent Proposed Operations”) and estimated amounts expected to be incurred by the Operator during the subsequent twelve (12) month period to conduct (x) the Subsequent Proposed Operations and (y) other estimated operating expenses related to the Assets. For the avoidance of doubt the expiration of an Approved Budget shall not affect any Approved Operation in such Approved Budget which is not yet complete. In the event that there is more than one Operator as a result of a Division of Operatorship or any other reason, then the applicable Post-Division Operators shall cooperate in good faith to submit such proposals to the Operating Committee as contemplated above.

 

(ii)         The Operating Committee shall work in good faith to approve or disapprove of the Subsequent Budget and Work Plan no later than forty-five (45) days prior to the expiration date of the Approved Budget then in effect. Upon approval, the Subsequent Budget and Work Plan shall become the Approved Budget (all Subsequent Proposed Operations, as may be approved or amended by the Operating Committee, shall become “Subsequent Approved Operations”).

 

(iii)        If the Operating Committee approves the Subsequent Budget and Work Plan, then the Operator shall (A) use its reasonable best efforts to propose to Working Interest holders under any applicable Operating Agreement and put into effect such Subsequent Approved Operations in accordance with the Approved Budgets and (B) incur costs and expenses in accordance with the Approved Budget, in each case to the extent such actions are approved by the required vote under the applicable Operating Agreement.

 

(iv)        If the Operating Committee fails to approve a Subsequent Budget and Work Plan by the expiration date of the Approved Budget then in effect, and such Approved Budget is (A) the Initial Budget and Work Plan, then the Operating Committee

 

8



 

shall continue to negotiate in good faith (as among the Representatives and between the Operating Committee and the Operator, as applicable) for a six (6) month period following the expiration of the Initial Budget and Work Plan, or (B) any Subsequent Budget and Work Plan, then the Operating Committee shall continue to negotiate in good faith for a three (3) month period following the expiration of the applicable Approved Budget (as applicable, the “Budget Negotiation Period”). During the Budget Negotiation Period, until a Subsequent Budget and Work Plan is approved by the Operating Committee and agreed to by the Operator, the most recent Approved Budget shall remain in effect as between the Parties, subject to a ten percent (10%) increase for each line item of the then-existing Approved Budget during the Budget Negotiation Period, after which all activities shall cease if a Subsequent Budget and Work Plan is not approved; provided, that, during the Budget Negotiation Period, the Operator shall use its reasonable best efforts to (A) for the first three months during a Budget Negotiation Period, continue to engage in E&D Operations and S&A Operations which were approved pursuant to Approved Budgets (but for the avoidance of doubt, except as specifically approved by the Operating Committee pursuant to Section 3.2, the Operator shall not be authorized to engage in any E&D Operations or S&A Operations not included in an Approved Budget) (provided, that after such Budget Negotiation Period, no new E&D Operations and S&A Operations may be initiated regardless of whether they were previously included in an Approved Budget), (B) take such actions as may be necessary to comply with the APC Well Commitment and satisfy continuous drilling obligations and otherwise maintain the Leases in accordance with their terms, and (C) incur costs and expenses in the ordinary course of business in amounts consistent with the most recent Approved Budget, including with respect to producing wells pursuant to any applicable Operating Agreement, in each case to the extent such actions are approved by the required vote or are otherwise permissible under the applicable Operating Agreement.

 

(c)         Approval of Additional Activities. From time to time, SN, SN UnSub, Blackstone or, if applicable, the Qualified Foreclosure Transferee may present to the Operating Committee, E&D Operations and S&A Operations proposed to be undertaken with respect to the Assets that were not included in an Approved Budget.

 

(i)          For any new E&D Operations proposed to be undertaken that are not included in an Approved Budget (an “Additional E&D Proposal”), SN, SN UnSub or Blackstone or, if applicable, the Qualified Foreclosure Transferee, shall present to the Operating Committee and the Operator (A) proposed revisions to the Approved Budget in respect of such activities, (B) the surface location and objective formation of each vertical and lateral wellbore included in the Additional E&D Proposal, (C) the proposed spud and completion dates for each such wellbore, (D) relevant seismic/geophysical and reservoir data, anticipated oil, gas, and liquids ratios, initial production and estimated ultimate recovery figures, decline curves, and the drilling and completion design for each proposed well, (E) the total estimated cost (including Capital Expenditures and allocable overhead) of such activities, allocated by well, (F) an AFE in respect of such Additional E&D Proposal, and (G) any other information reasonably requested by the Operating Committee and the Operator. The Operating Committee and the Operator shall evaluate such Additional E&D Proposal and such portion of the Additional E&D Proposal that receives the Unanimous Consent of the Operating Committee shall be incorporated into

 

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the applicable Approved Budget and implemented by the Operator. Once approved, the Operator shall administer AFEs for such activities, subject to Section 3.2 and Section 3.7(a), which shall be deemed Subsequent Approved Operations and incorporated into an Approved Budget.

 

(ii)         For any new S&A Operations proposed to be undertaken that are not included in an Approved Budget (an “Additional S&A Proposal”), SN, SN UnSub, Blackstone or, if applicable, the Qualified Foreclosure Transferee shall present to the Operating Committee and the Operator, (A) proposed revisions to the Approved Budget in respect of such activities, (B) the proposed date of commencement of such activities and the proposed development and construction program for each included project (including the proposed timing and project scheduling), (C) the anticipated upside/cost saving for each included project and total estimated cost (including Capital Expenditures and allocable overhead) of such activities, allocated by project, (D) an AFE in respect of such Additional S&A Proposal, (E) any relevant data from any prior or comparable operations undertaken by SN, Blackstone or, if applicable, the Qualified Foreclosure Transferee or third parties relevant to the cost/benefit analysis of the proposed project(s), and (F) any other information reasonably requested by the Operating Committee or the Operator. The Operating Committee and the Operator shall evaluate such Additional S&A Proposal and such portion of the Additional S&A Proposal that receives the Unanimous Consent of the Operating Committee shall be incorporated into the Approved Budget and implemented by the Operator. Once approved, the Operator shall administer AFEs for such activities, subject to Section 3.7(a), which shall be deemed Subsequent Approved Operations and incorporated into an Approved Budget.

 

(d)        Timely Payment Commitment. Notwithstanding anything in the applicable Operating Agreements to the contrary, on or before the 15th day of each month, Operator shall provide the other Party(ies) an invoice (“Monthly Invoice”) for (i) such Party(ies) proportionate share of all projected cash outlays for the following month (“Estimated Cash Outlays”) and (ii) any adjustments to the previously sent invoices so that the amount ultimately paid by a Party for a given month is equal to the actual amounts expended by Operator for such month (“True-Up Amount”) (e.g., Operator will send a Monthly Invoice on or before June 15 and such Monthly Invoice will consist of the Estimated Cash Outlays for July plus or minus a True-Up Amount (if any) to reconcile the Estimated Cash Outlays for May). Each Party shall pay the Monthly Invoice on or before the last day of the month in which the Monthly Invoice was delivered to such Party.

 

(e)         APC Well Commitment; Other Required Actions. Unless otherwise approved by the Operating Committee by Unanimous Consent, Operator will propose wells necessary to the meet the APC Well Commitment and avoid any financial penalty thereunder and shall be authorized to take any other action to the extent necessary to meet any continuous drilling obligations under any Lease. To the extent Operator does not propose such wells when required pursuant to the foregoing sentence, any Party is permitted to propose wells under any applicable Operating Agreements in order to ensure such APC Well Commitment is satisfied to the extent that failure to propose wells at such point in time would reasonably be likely to result in financial penalty under the APC Well Commitment. Further, any Party shall be permitted to propose the taking of any other action reasonably required to meet any continuous drilling obligations under any Lease.

 

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3.8                               Operatorship Under the Operating Agreement.

 

(a)                         As of the Effective Date, the Parties acknowledge and agree that SN is designated as the operator of the Assets pursuant to, and in accordance with, the Operating Agreements (in such capacity, “Sanchez Operator”). As contemplated by this Agreement, Blackstone or its designee, including a buyer or its designee in connection with a Sale Transaction may succeed to SN’s status as operator of some or all of the Assets (in such capacity, “Blackstone Operator”) and, in that event, Sanchez Operator may thereafter succeed to Blackstone Operator’s status as operator of some or all of the Assets. Sanchez Operator and Blackstone Operator shall be referred to interchangeably as the “Operator,” and each reference to the “Operator” herein means either Sanchez Operator or Blackstone Operator, depending on which of such parties holds the operatorship of the Assets in question following the receipt of all Required Operatorship Consents. For the avoidance of doubt, the term “Operator” does not include any successor Third Party operator of the Assets other than Blackstone Operator once such successor Third Party operator has obtained all Required Operatorship Consents with respect to any applicable Lease, Wellpad or other Asset. None of the Operating Committee or the Parties, by virtue of their ownership of an interest in the Assets, shall have any power, authority, or any Control over the day-to-day operation or management of the Assets, which authority and obligations reside with the Operator pursuant to the Operating Agreements. The Operator shall use its reasonable best efforts to execute an Approved Budget as agreed upon by the Parties pursuant to this Agreement and act under each Operating Agreement consistently with this Agreement, including with respect to carrying out the development plan and budget as set forth in an Approved Budget; provided, however, notwithstanding anything to the contrary herein, if this Agreement and the express requirements of the Operator under an Operating Agreement directly conflict, the Operator shall comply with such Operating Agreement to the extent necessary to avoid violating the terms of such Operating Agreement; provided, further, that Operator shall use reasonable best efforts to follow the estimated detailed drilling and completion specifications set forth in each Approved Budget but immaterial deviations shall not require an amendment of the applicable Approved Budget or an approval by Unanimous Consent of the Operating Committee nor shall such immaterial deviations be considered a default or breach of the Operator’s obligations under this Agreement.

 

(b)                         Notwithstanding anything to the contrary in this Agreement, including the Operating Committee’s actions pursuant to Section 3.2, if any Party reasonably believes there is any emergency involving actual or imminent loss of life, material damage to any of the Assets or the environment, or substantial and immediate financial loss, such Party may, in the sole exercise of its discretion, act for and on behalf of the Parties (including by causing the Operator to take such actions) in any manner reasonably necessary or useful under the circumstances without the necessity of giving prior notice to the other Parties or receiving any approval or consent from the Operating Committee or any Party. In the event that any Party takes any action pursuant to this Section 3.8(b) without the prior approval of the Operating Committee, such Party shall promptly (but in all events within twenty-four (24) hours) notify the Operating Committee of the taking of such actions.

 

(c)                          Without the prior written consent of Blackstone, SN UnSub, and if applicable, the Qualified Foreclosure Transferee, except as required to implement a transfer of operatorship required by this Agreement, SN (in its capacity as Sanchez Operator) shall not

 

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resign or attempt to resign as the operator under any Operating Agreement or take or omit to take any action that would effectively or constructively result in the termination of its status as operator under any Operating Agreement.

 

(d)                          In the event of a transfer of operatorship under any Operating Agreement in accordance with Section 3.8(f), the Alternate Operator or its designee as successor operator shall, as a condition to such transfer, be deemed to become a party to this Agreement as Operator under such Operating Agreement and bound by the terms hereof in the same capacity as Operator, mutatis mutandis, and if not a Party to this Agreement, such operator shall be required to execute a joinder of this Agreement to such effect, and the Defaulting Operator shall be automatically discharged from all further obligations as the Operator under this Agreement with respect to any such Operating Agreement and the Assets subject to such Operating Agreement.

 

(e)                           Division of Operatorship. The following rights and procedures shall apply if (i) the Operating Committee is unable to approve a Subsequent Budget and Work Plan within the Budget Negotiation Period or (ii) either Blackstone or SN otherwise elects to cause a Division of Operatorship pursuant to this Section 3.8(e) for any reason during a Budget Negotiation Period or, as applicable, in the event that an Equitable Partition is to be consummated pursuant to Section 4.5, then, upon the expiration of such Budget Negotiation Period or at any time during such Budget Negotiation Period:

 

(i)                              Either Blackstone or SN shall have the right to cause a division of operatorship (a “Division of Operatorship”) pursuant to which, subject to the terms of the applicable Operating Agreements and the other provisions of this Section 3.8(e), the rights to operatorship pursuant to applicable Operating Agreements for the Wellpads shall be divided between Blackstone Operator and Sanchez Operator on a geographic Wellpad-by-Wellpad basis approximating an alternating, checkerboard pattern (or such other pattern as may be mutually agreed by SN and Blackstone), such that once the Division of Operatorship is completed, such Division of Operatorship shall (A) result in Blackstone Operator and Sanchez Operator each having rights to operatorship pursuant to applicable Operating Agreements over a number of Wellpads that constitute approximately fifty percent (50%) of the aggregate Fair Market Value of (x) the Working Interests underlying all the Wellpads and (y) the Existing Producing Wells and related offset locations and sections, and (B) evenly (or as evenly as commercially practicable) distribute to Blackstone Operator and Sanchez Operator: (1) the remaining drilling obligations under the APC Well Commitment and continuous drilling obligations under the oil and gas leases to which the applicable Working Interests are subject, (2) producing wells and current production, (3) remaining reserves, (4) potential future well locations, and (5) operatorship of the Existing Producing Wells and related offset locations and sections (an “Equitable Division”) and (6) in the case of an Alternative Equitable Partition, such other criteria set forth in Section 4.5(a). Upon the election of any Party to cause a Division of Operatorship, SN and Blackstone shall negotiate in good faith for a period of forty-five (45) days to designate by area, and based on substantially equal geographic divisions, all Wellpads under the Leases based on customary industry practices and their respective reserve reports covering the previous 12-month period and agree upon an Equitable Division. If, following such forty-five (45) day period, SN and Blackstone are unable to agree upon an Equitable Division, each of them shall retain an

 

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independent, Third Party financial advisor or investment bank with expertise in valuing oil and gas assets in the Eagle Ford Shale (a “Financial Advisor”) to determine an Equitable Division which will largely be based on such Party’s engineering and geological reserve reports for the last twelve (12) month period and taking into account the then current strip pricing forecast. Sanchez and Blackstone shall each present the results of its Financial Advisor and provide its associated reserve reporting, including reasonable supporting information, after a period of thirty (30) days to the other Party and each such Party shall have ten (10) days to review the proposal of such other Party. If SN and Blackstone are unable to agree upon an Equitable Division after the period described in the preceding sentence, then SN and Blackstone shall choose within ten (10) Business Days a third Financial Advisor and an engineering and geological advisor to audit the reserve reports of SN and Blackstone (the “Reserve Auditor”) from among the entities listed on Annex IV (or if SN and Blackstone are unable to agree on a Reserve Auditor and/or the third Financial Advisor within a reasonable timeframe, they shall cause the other Financial Advisors to choose a third Financial Advisor and Reserve Auditor from among the entities listed on Annex IV within the subsequent five (5) Business Day period) to determine an Equitable Division which shall (A) be based on the provisions set forth in this Section 3.8(e), (B) reflect the Equitable Division proposals by the two (or three, in the case of an Equitable Partition) Financial Advisors (unless such proposal is not consistent with the terms herein in which case such proposal will be rejected and not considered), (C) be rendered as promptly as practicable (but in any event no later than thirty (30) days after the appointment of such Financial Advisor and Reserve Auditor), and (D) be binding on the Parties. The Parties shall cooperate to provide all relevant information reasonably requested by such third Financial Advisor in connection with the determination of a final Equitable Division, including the audit of the Reserve Auditor of the reserve reports provided by SN and Blackstone. With respect to each applicable Operating Agreement, the Party (or its designee) who had operatorship prior to the Division of Operatorship shall be referred to as the “Pre-Division Operator,” the Party who is awarded operatorship pursuant to such Division of Operatorship (or where applicable pursuant to an Equitable Partition) shall be referred to as the “Post-Division Operator,” and the other Party to such Division of Operatorship shall be referred to as the “Post-Division Non-Operator.” For the avoidance of doubt, in the case of an Equitable Division, the provisions of this Section 3.8(e)(i) shall be deemed and interpreted to include SN UnSub as well as SN and Blackstone as part of the evaluation process, as contemplated in Section 4.5(a).

 

(ii)                           Following the final resolution of an Equitable Division pursuant to Section 3.8(e)(i) or an Equitable Partition pursuant to Section 4.5, each Party shall use its reasonable best efforts to take or cause to be taken all actions required to obtain as promptly as practicable any necessary consents or amendments required for a change in operatorship (“the “Required Operatorship Consents”) under the Leases, Operating Agreements and any other Material Contracts, including all purchase, marketing, transportation, storage, processing and/or sales contracts, related to the Wellpads or Leases reasonably identified by a Party and any other actions reasonably necessary or desirable to effect a Division of Operatorship or an Equitable Partition, including any required notices or filings with applicable Governmental Authorities. If any such required consent or amendment for a Wellpad or Lease is not obtained by the time an

 

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Equitable Division or an Equitable Partition, respectively, has been finalized pursuant to Section 3.8(e)(i), then the Parties shall continue to use their respective reasonable best efforts to obtain each required consent or amendment and until such consent or amendment is obtained (or until such other time as the Post-Division Operator reasonably determines that it has the right and capability to assume operatorship), the Pre-Division Operator shall maintain formal rights of operatorship for such Wellpad or Lease and the Post-Division Operator shall have the right to (A) be designated as the contract operator pursuant to the applicable Operating Agreement with respect to such Wellpad or Lease based on customary terms and conditions, whereby the Post-Division Operator shall have the right to physically conduct all operations, and/or (B) direct the Pre-Division Operator in its exercise of all rights of a reasonable operator with respect to such Wellpad or Lease as though the Post-Division Operator had been appointed as successor operator for such Wellpad or Lease, to the extent (in either case (A) or (B)) reasonably consistent with the Pre-Division Operator’s duties as operator under the applicable Operating Agreement, in which case the Pre-Division Operator shall remain the operator with respect to the applicable Asset and carry out all directions of the Post-Division Operator and not take any action under an Operating Agreement unless approved by the Post-Division Operator or required under the applicable Operating Agreement.

 

(iii)                        Upon the consummation of an Equitable Division, the Parties shall use their reasonable best efforts to (A) (1) cause all existing Operating Agreements to be terminated to the extent any such Operating Agreements apply to multiple Wellpads allocated to both SN and Blackstone in connection with an Equitable Division and (2) execute and cause Third Party Working Interest holders in such Wellpads to execute, in place of each terminated Operating Agreement, the Form Operating Agreement (and agree to any reasonable modifications that may be requested by any such Third Party Working Interest holder to such Form Operating Agreement that are reasonably necessary to obtain any required approval), attached hereto as Exhibit B, for each individual Wellpad allocated to a Party pursuant to a Division of Operatorship or (B) with respect to any Wellpad that is subject to an Operating Agreement relating only to such Wellpad, take such action as may be necessary to obtain the required approval to transfer operatorship rights to the applicable Post-Division Operator as successor operator under such Operating Agreement. Additionally, each Post-Division Operator shall provide the other Parties on an annual basis with an approved one (1) year budget and work plan and a three (3) year budgeted forecast regarding the development of each Party’s respective Assets for which such Post-Division Operator has been allocated rights of operatorship pursuant to a Division of Operatorship or an Equitable Partition.

 

(iv)                       Notwithstanding anything else to the contrary in this Agreement, at any time that a Non-Defaulting Party or its designee has rights to operatorship over one- hundred percent (100%) of the Leases or Wellpads, or following the date upon which any Operator Default Event (as defined below) has occurred and is not cured as provided in Section 3.9, the Defaulting Party or its Affiliates shall no longer have the right to elect to cause a Division of Operatorship pursuant to this Section 3.8(e).

 

(v)       Following a Division of Operatorship or an Equitable Partition, if a Post-Division Operator under any Operating Agreement elects to sell or otherwise

 

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transfer all of its interest in the assets covered by such Operating Agreement to a Third Party, and if such Third Party desires and is duly qualified to be selected as the successor operator under such Operating Agreement, the Post-Division Non-Operator and SN UnSub (to the extent they each then continue to own interests and have voting rights under such Operating Agreement) agree to vote for such Third Party to be selected as the successor operator, including a Third Party buyer in connection with a Sale Transaction or following an Equitable Partition. In all other circumstances in which a Post-Division Operator resigns (other than as a result of a transfer of operatorship to an Affiliate) or is removed as operator under an Operating Agreement, if the Post-Division Non-Operator desires and is duly qualified to be selected as the successor operator under such Operating Agreement, the Post-Division Operator and SN UnSub (to the extent they each then continue to own interests and have voting rights under such Operating Agreement) agree to vote for the Post-Division Non-Operator as successor operator. This Section 3.8(e)(v) shall survive the termination of this Agreement for a period of ten (10) years.

 

(vi)                       Promptly following the date of this Agreement, upon the request of Blackstone, the Parties shall use their good faith efforts to engage the Third Party owners of Working Interests in the Leases and enter into new joint operating agreements for each Wellpad consistent in all material respects with the existing Operating Agreements, in addition to any modifications upon which the Parties may agree, in order to facilitate an orderly Division of Operatorship if and when pursued pursuant to this Agreement.

 

(vii)                    Blackstone will indemnify SN and SN UnSub or, if applicable, the Qualified Foreclosure Transferee, for all damages incurred by such Parties (a) to the Consenting Parties or any other parties whose consent is required under any applicable Operating Agreements arising out of any litigation brought by the Consenting Parties under the Consent Agreement as a result of the consummation of an Equitable Division or an Equitable Partition and (b) to counterparties from whom a Required Operatorship Consent is required in connection with effecting a Division of Operatorship or an Equitable Partition without having obtained any Required Operatorship Consents, which in either case shall include all reasonable legal expenses. In connection with any such litigation pursuant to which Blackstone is obligated to indemnify SN and SN UnSub under this Section 3.8(e)(vii), Blackstone shall have the right to control the defense on behalf of Blackstone, SN, SN UnSub and their respective Affiliates and SN, SN UnSub or, if applicable, the Qualified Foreclosure Transferee, and their respective Affiliates shall reasonably cooperate in connection with such defense; provided, that the appointment of counsel by Blackstone shall be subject to the consent of SN, not to be unreasonably withheld, conditioned or delayed, and SN and SN UnSub or, if applicable, the Qualified Foreclosure Transferee shall have the right to participate in connection with the defense of any such litigation. In connection with the consummation and implementation of an Equitable Division or an Equitable Partition, the Parties will use their respective commercially reasonable efforts to cooperate with the Consenting Parties to provide for an orderly transition of operatorship and consult with the consenting parties in connection with the implementation of such transition, in each case, in order to maintain an amicable working relationship with the Consenting Parties.

 

(f)                                   Transfer of Operatorship Generally. Effective immediately upon the

 

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occurrence of any of the following: (i) Operator is removed as operator pursuant to the terms of any applicable Operating Agreement, (ii) Operator suffers a Specified Event of Default under a Specified Credit Agreement, (iii) Operator resigns as operator under any applicable Operating Agreement with or without the consent of the other parties thereto, (iv) Operator commits an act of gross negligence or willful misconduct with respect to its duties under an applicable Operating Agreement (“Negligent Operator Action”); provided, that notice of any Negligent Operator Action must be given to Operator detailing the alleged acts by Operator and Operator shall have a thirty (30) day period from receipt of such notice to cure any such Negligent Operator Action, unless the Negligent Operator Action concerns an ongoing operation being conducted, in which case, Operator must cure such Negligent Operator Action within forty-eight (48) hours of its receipt of the notice; (v) SN or any of its Affiliates breaches in any material respect its obligations under Section 4.5 or (vi) either Party while acting as Operator has committed a Default under this Agreement (any such event described in the preceding clauses (i) through (vi), collectively, an “Operator Default Event”), the operatorship of the applicable Assets (which, in cases (i), (iii), and (iv) above, for avoidance of doubt, shall mean only those Assets covered by the applicable Operating Agreement) and the right to serve as, or to designate, the operator of such Assets under the applicable Operating Agreement(s) shall, subject to the terms of such Operating Agreement(s), be transferred to Blackstone (if SN is then the Operator) or SN (if Blackstone is then the Operator), as applicable (the “Alternate Operator”) or its designated Affiliate or a qualified Third Party operator capable of operating the Assets and selected by the Alternate Operator (a “Third Party Operator”). The Operator who is replaced as a result of such Event of Default (the “Defaulting Operator”) shall (and shall cause its Controlled Affiliates, and shall use its reasonable best efforts to cause its other Affiliates, to) use their reasonable best efforts to (i) take all actions required (at the reasonable direction of the Alternate Operator to effectuate such transfer, including voting its and its Affiliates’ interests for an election of the Alternate Operator, its designee or a Third Party Operator, including through one or a series of related transactions, in each case to the extent permitted under the applicable Operating Agreement, (ii) obtain any necessary consents or amendments otherwise required for a change in operatorship under the Leases and applicable Operating Agreements and any other applicable Material Contracts including all Required Operatorship Consents, and (iii) carry out any other actions reasonably necessary to effect such transfer of operatorship. In the event the operatorship of an Asset is transferred to the Alternate Operator, its designee or a Third Party Operator pursuant to this Section 3.8(f), the Alternate Operator shall (and shall cause the successor operator, if other than the Alternate Operator, to), defend, indemnify and hold harmless the Defaulting Operator from all claims, Losses and damages raised by any Third Party related to the applicable Operating Agreements with respect to which operatorship has been transferred to the extent resulting from, pertaining to or arising from the operation of the applicable Assets by the Alternate Operator, its designee or the Third Party Operator from and after the date of such transfer of operatorship of the applicable Assets. The Alternate Operator shall (and shall cause the successor operator, if other than such Alternate Operator to) also use its reasonable best efforts to comply with all requirements of an operator under the applicable Operating Agreement or applicable law. In connection with any transfer of operatorship pursuant to this Section 3.8, the Parties shall use their reasonable best efforts to ensure that the new Operator shall have access to all assets relating to the Assets in which the Parties all hold an ownership interest in the same manner as the Defaulting Operator had prior to any such operatorship transfer, to the extent that a Division of Operatorship has not occurred or this Agreement has not been terminated. If

 

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any required consent or amendment required to effect the transfer of operatorship under any applicable Operating Agreement or any required consent or amendment for any other Material Contract related to a Lease or Wellpad for which operatorship is to be transferred, in each case as contemplated by this Section 3.8(f), is not obtained, including all Required Operatorship Consents, then until such consent or amendment is obtained (or until such other time as the Alternate Operator reasonably determines that it has the right and capability to assume operatorship), (i) the Parties shall continue to use their respective reasonable best efforts to obtain each required consent or amendment, (ii) the Defaulting Operator shall maintain formal rights of operatorship for such applicable Lease or Wellpad, and (iii) the Alternate Operator shall have the right to (A) be designated as the contract operator pursuant to the applicable Operating Agreement with respect to such Wellpad based on customary terms and conditions, whereby the Alternate Operator shall have the right to physically conduct all operations, and/or (B) direct the Defaulting Operator in its exercise of all rights of an operator with respect to such Wellpad as though such Alternate Operator had been appointed as successor operator for such Wellpad to the extent reasonably consistent with the Defaulting Operator’s express duties as operator under the applicable Operating Agreement, in which case the Defaulting Operator shall remain the operator with respect to the applicable Asset and carry out all directions of the Alternate Operator and not take any action under an Operating Agreement unless approved by the Alternate Operator or expressly required under the applicable Operating Agreement. For the avoidance of doubt and notwithstanding anything in this Agreement to the contrary, the transfer of operatorship and the rights related thereto described in this Section 3.8(f) shall be triggered automatically upon the occurrence of an Operator Default Event and shall not be affected in any respect by any change in, or cure of, an Operator Default Event.

 

3.9                               Default.

 

(a)                         Remedy Upon Default. For so long as SN, SN UnSub, Blackstone or, if applicable, the Qualified Foreclosure Transferee is in Default (a “Defaulting Party”), (i) its rights under Section 3.2 (Function of the Operating Committee), Section 3.7(b) (Subsequent Budgets and Work Plans), Section 3.8(e) (Operatorship) (such that a Defaulting Party shall not have the right to elect to cause a Division of Operatorship), Section 4.1(a) (Permitted Transfers) (such that a Defaulting Party shall not have a right to Transfer its Asset Interest to a Third Party even after the expiration of the three year limitation in Section 4.1(a), without the prior written consent of the Parties not in Default (the “Non-Defaulting Parties”) and provided, however, that such Default shall not affect rights regarding Permitted Liens), Section 4.2 (Tag-Along Rights), Section 4.3 (Right of First Offer), Section 4.5 (Sale Transaction) (such that if Blackstone is the Defaulting Party, it shall not have a right to compel the other Parties to participate in a Sale Transaction,), and Section 5.2 (Area of Mutual Interest) shall be suspended and any control rights associated with such provisions shall revert to the benefit of the Non-Defaulting Parties in percentages equal to their proportionate share of an AMI acquisition pending such cure or resolution of such Default and in connection therewith, the Representative(s) appointed by the Defaulting Party shall lose all voting rights with respect to the Operating Committee, and the affirmative vote of the Representatives who have not lost voting rights shall be the only votes required for any action to be taken by the Operating Committee (and shall be deemed to constitute Unanimous Consent); provided, that, (i) such rights shall not be suspended in the event the Party alleged to be in Default is contesting such allegation in good faith, pursuant to a binding arbitration process in accordance with Section 7.12(c), which shall be conducted as

 

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promptly as reasonably practicable (and the Parties will use their good faith efforts to cause a Representative and/or a designated senior executive to participate in such process), and (ii) the Operating Committee shall not have the authority to bind the Defaulting Party and its Affiliates to Subsequent Budgets and Work Plans or to any increases to the then-existing Approved Budget except to the extent that all such increases in the aggregate do not exceed such Approved Budget by more than ten percent (10%). A Default shall not be deemed to be continuing after the Defaulting Party has (i) cured such Default, (ii) entered into and satisfied its obligations under a binding written settlement with the Non-Defaulting Parties related to such Default, or (iii) satisfied its obligations, if any, arising from any arbitration or judicial proceeding related to such Default.

 

(i)                             Any reasonable, documented legal fees and other out-of-pocket costs of each Party to a dispute governed under this Section 3.9 shall be borne solely by the non-prevailing Party, as determined in connection with the relevant proceedings and, the prevailing Party in such proceedings shall be entitled, in addition to such other relief as may be granted, to reimbursement of such reasonable legal fees and costs from the non-prevailing Party.

 

(ii)                                  Any monetary award granted to a Party in connection with a dispute governed under this Section 3.9 shall include interest accruing daily at a rate of 1.1% per month, compounding monthly, from the date upon which it is determined the applicable state of Default began, until the Party in Default has satisfied in full its obligations arising from the arbitration proceedings (including the payment of such interest amount).

 

(b)                         Remedy Not Exclusive. The rights of the Non-Defaulting Party set forth in this Section 3.9 or elsewhere in this Agreement shall be in addition to such other rights and remedies that may exist at Law, in equity or under contract on account of such Default.

 

ARTICLE IV

TRANSFER; EXIT OPPORTUNITIES

 

4.1                               Restrictions on the Transfer of Interests.

 

(a)                         Permitted Transfers. Each Party may Transfer all or part of such Party’s rights, title and interest to any Asset or related assets in the Core Area acquired after the Effective Date and held directly or indirectly by any of the Parties (an “Asset Interest”), including such Party’s Working Interests, only in accordance with applicable Law and the provisions of this Agreement, including this Article IV. Prior to the third (3rd) anniversary of the Effective Date, except for transfers to Permitted Transferees and Foreclosure Transfers, none of the Parties shall be permitted to Transfer all or any portion of such Party’s Asset Interests without the prior written consent of the non-transferring Parties (each, a “Non-Transferring Party”), which consent may be given or withheld in the sole discretion of such Party. Any purported Transfer in breach of the terms of this Agreement shall be null and void ab initio, and the Non-Transferring Party shall not recognize any such prohibited Transfer. Any Party who Transfers or attempts to Transfer any Asset Interests (the “Transferring Party”) except in compliance herewith shall be liable to, and shall indemnify and hold harmless, the Non-

 

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Transferring Parties for all costs, expenses, damages, and other Liabilities resulting therefrom. No Party shall place or allow to be placed any Lien on any of its Asset Interests other than Permitted Liens. “Permitted Liens” means (i) Liens required of the Parties and/or subsidiary guarantors under any Applicable Credit Agreement (so long as such Applicable Credit Agreement is not, after the Effective Date, amended, restated, modified, renewed, refunded, replaced or refinanced in a manner that places Liens on the Asset Interests that restrict the exercise of another Party’s rights under this Agreement in a manner that is materially more restrictive (including in a manner that would adversely impact the exercise of any Party’s rights under this Article IV) than the restrictions imposed by such Liens on the Effective Date), (ii) Liens under or required by an applicable Operating Agreement, (iii) statutory Liens securing amounts not yet due and payable or which are being contested in good faith, (iv) judgment Liens that are bonded for appeal or will be paid by insurance, (iv) all overriding royalty and net profits interests affecting the Assets on the Effective Date, (v) Liens securing hedging related to the Assets, (vi) Liens related to debt financing arrangements that do not restrict the exercise of another Party’s rights under this Agreement in a manner that is materially more restrictive than the restrictions imposed by Liens that were in place on the Effective Date under other debt arrangements of such Party or its Affiliates, (vii) Liens related to marketing or midstream arrangements, (viii) any volumetric production payment transaction affecting a Party’s Asset Interest, provided such volumetric production payment transaction shall be released in connection with a Sale Transaction, (ix) all cashiers’, landlords’, workmens’, repairmens’, mechanics’, materialmens’, warehousemens’ and carriers’ Liens and other similar Liens imposed by Law, in each case, incurred in the ordinary course of business, (x) pledges, deposits or other Liens securing the performance of bids, trade contracts, leases or statutory obligations in each case, incurred in the ordinary course of business, (xi) purchase money Liens incurred in the ordinary course of business, (xii) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities which do not materially interfere with the present use of any of the Asset Interests, (xiii) encumbrances in favor of a bank or other financial institution encumbering deposits or other funds maintained with a bank or other financial institution (which in no event shall burden any Working Interests), or (xiv) encumbrances arising out of, under or in connection with applicable securities Laws (which in no event shall burden any Working Interests and which shall be removed prior to the consummation of any Sale Transaction) or custodial arrangements with custodians of securities (which in no event shall burden any Working Interests).

 

(b)                          Effect of Permitted Transfer. Any Permitted Transferee must satisfy and comply with all requirements of a transferee of a Working Interest under any applicable Operating Agreement. Any Permitted Transferee to which any Asset Interests are Transferred hereunder shall be bound by, and sign on to and join, this Agreement, and shall become a Party for all purposes hereof and be bound by all provisions to which the Party that Transferred Asset Interests to it was or remains bound, provided that if a Permitted Transferee does not acquire all or substantially all Asset Interests of a Transferring Party hereunder, then it should obtain no rights under Article III. No Transfer of an Asset Interest shall relieve the Transferring Party of any obligations accruing prior to such Transfer under this Agreement or the applicable Operating Agreement. In a Foreclosure Transfer with respect to the Asset Interests of UnSub (a “Qualified Foreclosure Transfer”), the UnSub Agent or any designated special purpose vehicle established by the UnSub Agent, and in each case, any Permitted Transferee thereof (the “Qualified Foreclosure Transferee”) (a) shall be bound by, and sign on to and join, this Agreement, (b) shall

 

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become a Party (and replace SN UnSub as a Party) for all purposes hereof and (c) each other Party shall be deemed to consent to the Qualified Foreclosure Transferee becoming a Party; provided, however, that if such Foreclosure Transfer covers less than all or substantially all of SN UnSub’s Asset Interests, then unless otherwise agreed by SN UnSub and the Permitted Transferee, such Qualified Foreclosure Transferee shall not succeed to SN UnSub’s rights under Article III. Except as provided in Section 6.2 or in a Foreclosure Transfer, if a Transfer is made to a Third Party in manner permitted by this Agreement or otherwise with the consent of the Non-Transferring Parties, then this Agreement shall terminate upon the consummation of such Transfer but only with respect to the Asset Interest transferred (and this Agreement will remain in effect with respect to the remainder of the Asset Interests).

 

(c)                           Expenses. The Transferring Party shall bear all costs and expenses incurred in connection with any Transfer of all or any portion of its Asset Interests. Any transfer or similar taxes arising as a result of such Transfer shall be paid by the Transferring Party.

 

(d)                          Certain Indirect Transfers. Except for Transfers to Permitted Transferees, no Party shall indirectly Transfer any Asset Interests to the extent such Party is not permitted to Transfer Asset Interests directly pursuant to the terms hereof and any indirect Transfer shall be structured and consummated in such a manner that the Non-Transferring Party shall be provided the same rights and protections as it would have had if such Transfer were structured as a direct Transfer of such Asset Interests pursuant to the terms hereof; provided, however, that the sale of any equity interest in a Qualified Foreclosure Transferee to the extent necessary or desirable to comply with Law (including any bank regulatory requirements) shall not be subject to the restrictions set forth in Section 4.1(a). Notwithstanding anything in this Agreement to the contrary, a Transfer resulting from any change in control or transfer of ownership interests in Sanchez Energy shall not be treated as a Transfer under this Article 4 unless such Transfer constitutes a Change of Control in which case Section 4.2 shall apply.

 

4.2                               Tag-Along Right.

 

(a)                          Other than in connection with an IPO as contemplated by Section 4.4 and in connection with a Foreclosure Transfer, if at any time after the third (3rd) anniversary of the Effective Date and prior to an IPO of such Party (as defined herein), a Party proposes to Transfer all or any portion of its Asset Interests, whether in a single or series of related transactions, that constitute greater than thirty-five percent (35%) of such Party’s total Asset Interests held as of the Effective Date to a Third Party purchaser or purchasers (a “Proposed Sale”), after complying with Section 4.3, the Transferring Party shall furnish to the other Parties (the “Non-Initiating Parties”) a written notice of such Proposed Sale (the “Tag-Along Notice”) and provide the Non- Initiating Parties the opportunity to participate in such Proposed Sale on the terms described in this Section 4.2 to the extent of their respective ownership interests in the assets to be transferred in such Proposed Sale. The Tag-Along Notice will include:

 

(i)                              the material terms and conditions of the Proposed Sale, including (A) the Asset Interests to be Transferred, (B) the name of the proposed transferee (the “Proposed Transferee”), (C) the proposed amount and form of consideration (including the proposed price on a per Working Interest percentage basis based on an allocation of value by applicable Leases, Wellpads, and other applicable Assets, which will include an

 

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allocation to individual producing wells and undeveloped acreage based on the bona fide third party offer), and (D) the proposed Transfer date, if known, which date shall not be less than forty-five (45) Business Days after delivery of such Tag-Along Notice; and

 

(ii)                          an invitation to the Non-Initiating Party to participate in such Proposed Sale at the same per Working Interest percentage price per applicable Asset, for the same form of consideration and on the same terms and conditions as those offered to the Transferring Party in the Proposed Sale. The Transferring Party will deliver or cause to be delivered to the Non-Initiating Party copies of all transaction documents relating to the Proposed Sale as promptly as practicable after they become available.

 

(b)                         A Non-Initiating Party must exercise the tag-along rights provided by this Section 4.2 within twenty (20) Business Days following delivery of the Tag-Along Notice by delivering a notice (the “Tag-Along Offer”) to the Transferring Party indicating its desire to exercise its tag-along rights hereunder. If the Non-Initiating Party does not make a Tag-Along Offer within twenty (20) Business Days following delivery of the Tag-Along Notice, the Non- Initiating Party shall be deemed to have waived its rights under this Section 4.2 with respect to such Proposed Sale, and the Transferring Party shall thereafter be free to Transfer the applicable Asset Interests (as defined in Section 4.5(a)) to the Proposed Transferee without the participation of such Non-Initiating Party, for the same form of consideration set forth in the Tag-Along Notice, at a per Working Interest percentage price no greater than the per Working Interest percentage price per applicable Asset set forth in the Tag-Along Notice, and on other terms and conditions which are not more favorable to the Transferring Party than those set forth in the Tag- Along Notice. If one or more Non-Initiating Parties elects to participate in the Proposed Sale pursuant to this Section 4.2, (i) the consideration to be received by the Parties in such sale (a “Tag-Along Transaction”) will be calculated by taking the aggregate proceeds from such Tag- Along Transaction and allocating such proceeds among the Parties based upon the relative Fair Market Value of the Leases, Wellpads, and other applicable Assets and other interests included by the Parties (collectively, the “Tag Interests”), as agreed by the Parties or as otherwise determined pursuant to the valuation process set forth in Section 4.5(c), taking into account (in either case) the Parties’ proportionate ownership of the Working Interests in the properties transferred pursuant to the Tag-Along Transaction, the allocation of value among the Working Interests included in the sale as determined with the Third Party buyer (but only to the extent that all Parties approved in writing such allocation prior to execution of the applicable agreement), and any other relevant information, provided, that the total Fair Market Value of the aggregate interests to be sold for purposes hereunder will be equal to the sale price determined by the purchaser of the interests included by the Parties in the Proposed Sale; and (ii) the Non-Initiating Parties shall agree to make to the Proposed Transferee the same representations and warranties, covenants and indemnities as the Transferring Party agrees to make in connection with the Proposed Sale (which may be modified as necessary as to form to the extent one Party is Transferring Working Interests and the other Party is Transferring equity interests holding Working Interests, and such other distinctions as may be applicable to the Parties or their interests in the Leases, Wellpads, and other applicable Assets); provided, that (A) no Party shall be liable for the breach of any covenant by any other Party, (B) in no event shall any Party be required to make representations and warranties or provide indemnities as to any other Party, and (C) in no event shall a Non-Initiating Party be responsible for any Liabilities or indemnities in

 

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connection with such Proposed Sale in excess of the proceeds received by such Non-Initiating Party in the Proposed Sale.

 

(c)                          In the event that the consideration received in connection with a Proposed Sale consists of securities that are not registered under the Securities Act, and any Non-Initiating Party exercises its tag-along rights hereunder in connection with such Proposed Sale, if the Transferring Party is entitled to registration rights in respect of such securities, the Transferring Party shall ensure that each Non-Initiating Party, as applicable, will receive pro rata piggy back registration rights on any registration in which the Transferring Party is entitled to register such securities (together with a pro rata number of the total demand registrations granted to the Transferring Party).

 

(d)                         The offer of a Non-Initiating Party contained in any Tag-Along Offer shall be irrevocable, and, to the extent such Tag-Along Offer is accepted, such Non-Initiating Party shall be bound and obligated to Transfer in the Proposed Sale on the same terms and conditions, with respect to each Asset Interest Transferred, as the Transferring Party; provided, however, that if the terms of the Proposed Sale change with the result that the per Working Interest percentage price shall be less than the per Working Interest percentage price set forth in the Tag-Along Notice, the form of consideration shall be different or the other terms and conditions (other than, for the avoidance of doubt, inside tax basis associated with such interests, if applicable) shall be materially less favorable to such Non-Initiating Party than those set forth in the Tag-Along Notice, such Non-Initiating Party shall be permitted to withdraw the offer contained in the applicable Tag-Along Offer by written notice to the Transferring Party and upon such withdrawal shall be released from such Party’s obligations.

 

(e)                          If a Party exercises its rights under this Section 4.2, the closing of the sale of each Party’s Asset Interest in the Tag-Along Transaction will take place concurrently, other than in connection with a Change of Control. If the closing with the Proposed Transferee (whether or not the Non-Initiating Party has exercised its rights under this Section 4.2) shall not have occurred by 5:00 p.m. Eastern Time on the date that is one-hundred and twenty (120) days after the date of the Tag-Along Notice, as such period may be extended to obtain any required regulatory approvals, and on terms and conditions not more favorable to the Transferring Party than those set forth in the Tag-Along Notice, all the restrictions on Transfer contained herein shall again be in effect with respect to such Asset Interest and proposed Transfer.

 

(f)                           The costs of any transactions contemplated by this Section 4.2 shall be deducted pro rata from the proceeds to be paid to each Party in connection with such transaction, other than in connection with a Change of Control, in which case each Party participating in a Tag Transaction shall bear its own costs and expenses.

 

(g)                          Notwithstanding anything in this Agreement to the contrary, the Parties agree that a Change of Control with respect to Sanchez Energy shall be treated as a Transfer pursuant to this Section 4.2, provided that (i) a Tag Notice in such circumstances shall be given no later than two (2) Business Days following the public announcement of definitive documentation providing for a Change of Control, (ii) such Change of Control may be consummated prior to the consummation of the acquisition of the Non-Initiating Party’s Tag Interests (which at the election of the Non-Initiating Party may be effected as an asset sale or as

 

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the sale of equity interests of an entity directly or indirectly owning the Assets of the Non- Initiating Party (provided that the Proposed Transferee shall not be required to assume any indebtedness for borrowed money and such entity shall have had no material business operations since its formation other than as related to the Assets)), (iii) the Proposed Transferee and the Non-Initiating Party shall enter into a purchase agreement providing for the acquisition of the Non-Initiating Party’s Tag Interests no later than twenty five (25) Business Days after the Non- Initiating Party’s acceptance of a Tag Offer, which purchase agreement shall be substantially similar in all material respects to the terms and conditions of the Purchase Agreement, and (iv) the purchase price to be paid for the Non-Initiating Party’s Tag Interests shall be determined based on the Fair Market Value of such Tag Interests in accordance with Section 4.5(f), subject to any applicable purchase price adjustments set forth in the purchase agreement referenced in the foregoing clause (iii). Sanchez Energy shall use its reasonable best efforts to cause a proposed transferee to comply with the terms of this Section 4.2(g); provided that in any consensual transaction between Sanchez Energy and a proposed transferee that results in a Change of Control, including a transaction where the board of directors of Sanchez Energy approve such transaction, Sanchez Energy shall cause such transferee to comply with this Section 4.2(g).

 

4.3                               Right of First Offer.

 

(a)                         Other than in connection with an IPO as contemplated by Section 4.4, or in connection with a Foreclosure Transfer, and subject to the terms of any applicable Operating Agreement, if any Party proposes to Transfer any of the Asset Interests held by such Party, including Blackstone pursuant to Section 4.5 (a “ROFO Transferor”) to a Third Party purchaser, the ROFO Transferor agrees that, before entering into negotiations with a Third Party, the Transferring Party will first provide notice (a “ROFO Notice”) to the other Parties (the “ROFO Recipients”) that the ROFO Transferor proposes to pursue such a transaction. Each such ROFO Notice will invite the ROFO Recipient to submit to the ROFO Transferor an offer in writing (a “ROFO Offer”), which offer shall (i) be irrevocable and in good faith, (ii) be for all cash (except SN may choose to fund a ROFO Offer with cash or SN Common Stock or a combination thereof) (any such ROFO Offer including SN Common Stock as consideration an “SN Equity Financed Offer”)), (iii) specify in reasonable detail the material terms and conditions of such offer (including as set forth in Section 4.3(b) with respect to a SN Equity Financed Offer), (iv) shall provide for a closing date of no longer than ninety (90) days from the execution of a definitive purchase agreement and provide for no holdback or escrow of purchase price, and (v) shall remain open for acceptance by the ROFO Transferor for thirty (30) days after the ROFO Transferor’s receipt of such ROFO Offer, to purchase from the ROFO Transferor one hundred percent (100%) of the Asset Interests that are the subject of the ROFO Notice, which at the sole election of the ROFO Transferor may be structured as a purchase of Working Interests or equity interests of an entity holding Asset Interests (the “ROFO Interests”). The ROFO Offer shall be submitted to the ROFO Transferor within thirty (30) days after the ROFO Recipient’s receipt of the ROFO Notice and shall include a proposed definitive purchase agreement that such ROFO Recipient is prepared to execute upon the acceptance by the ROFO Transferor of the ROFO Offer. Upon the receipt by the ROFO Transferor of any ROFO Offer, the ROFO Transferor and the applicable ROFO Recipient shall negotiate in good faith for a period of thirty (30) days regarding the ROFO Offer. In the event the Parties are unable to reach agreement during such period, the ROFO Transferor may elect by notice to such ROFO Recipient submitted at any time

 

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during the 30-day period following such negotiation period to accept or reject the ROFO Offer (it being understood that a failure of the ROFO Transferor to submit an unqualified acceptance notice within such 30-day period shall constitute a rejection of the ROFO Offer). If the ROFO Transferor timely submits an acceptance notice, the ROFO Transferor and the applicable ROFO Recipient shall in good faith negotiate a definitive purchase and sale agreement (which shall include the terms and conditions set forth in the ROFO Offer) and use their reasonable best efforts to consummate the purchase and sale of the ROFO Interests as promptly as practicable and in any event within ninety (90) days from the execution of a definitive purchase agreement. If only one ROFO Recipient timely submits a ROFO Offer, the ROFO Transferor may effectuate the sale of all the ROFO Interests to such ROFO Recipient alone. If neither ROFO Recipient timely submits a ROFO Offer or any ROFO Offer is rejected (or deemed rejected as described above) by the ROFO Transferor, the ROFO Transferor may effectuate a sale of all the ROFO Interests to a Third Party so long as (i) if a ROFO Offer was made, the Transfer price is at least one hundred percent (100%) of the offer price set forth in such ROFO Offer (taking into account Section 4.3(b) below) and the other terms and conditions offered to the Third Party are not materially more favorable to the Third Party than those of such ROFO Offer; and (ii) the execution of definitive documentation for the sale of such ROFO Interests to such Third Party shall occur no later than two hundred and seventy (270) days after a rejection (or deemed rejection) of such ROFO Offer.

 

(b)                                 In connection with any SN Equity Financed Offer:

 

(i)                             the determination of the value of SN Common Stock included in a SN Equity Financed Offer shall (i) apply an appropriate illiquidity discount, which may take into account, as applicable, the discounts applied to comparable private placements or block trades of comparable size as compared to the applicable market price of such securities and/or discounts applied to publicly traded common equity used as acquisition currency by relevant valuation methodologies customarily used by leading financial valuation firms in similar circumstances and (ii) be discounted for any adverse liquidity effects that are attributable to the payment of any applicable taxes associated with the receipt of such SN Common Stock, in each case (i) and (ii), as reasonably determined by the ROFO Transferor, provided, that no discount with respect to clause (ii) shall apply if the SN Equity Financed Offer includes a portion of cash consideration equal to or greater than the expected aggregate amount of tax payable by the ROFO Transferor, including Blackstone and any of its direct and indirect equity owners as a result of the consummation of such SN Equity Financed Offer and assuming that the aggregate amount of such tax shall by computed using an assumed tax rate equal to the highest maximum combined marginal federal, state and local income tax rates applicable to an individual or corporate taxpayer resident in New York, NY;

 

(ii)                          the ROFO Offer shall provide for a fixed value, including a fixed value for the portion of consideration represented by SN Common Stock, payable upon closing, unless otherwise agreed to by the ROFO Transferor;

 

(iii)                       if the ROFO Transferor would beneficially own on a pro forma basis (calculated in accordance with clause (vi) below) more than 20% of the outstanding SN Common Stock, Sanchez Energy shall provide representation rights for the Sanchez

 

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Energy Board of Directors to the ROFO Transferor approximately equal to its pro forma beneficial ownership percentage of SN Common Stock following the consummation of any ROFO Offer pursuant to documentation reasonably acceptable to Blackstone;

 

(iv)                              no Event of Default (as such term may be then defined under the SN Credit Agreement) shall have occurred under the SN Credit Agreement;

 

(v)                          Sanchez Energy shall have a rating equal to or higher than “B3” (or the equivalent) by Moody’s or its successors, or an equivalent rating by S&P or Fitch, Inc. (or either of its successors);

 

(vi)                       the resulting share issuance will not cause the ROFO Transferor to beneficially own more than 35% of outstanding SN Common Stock on a pro forma basis excluding any SN Common Stock owned prior to the Effective Date or issued to Blackstone or GSO pursuant to this Agreement after the Effective Date;

 

(vii)                           the SN Common Stock shall be listed on the New York Stock Exchange or the NASDAQ Stock Market (or their respective successors); and

 

(viii)                 the SN Common Stock to be issued to the ROFO Transferor shall be entitled to the benefits of a registration rights agreement substantially similar in form and substance to the Registration Rights Agreement.

 

4.4                        Initial Public Offering. Notwithstanding anything to the contrary herein, at any time following the third (3rd) anniversary of the Effective Date, any Party shall have the right to consummate an initial public offering of a vehicle that includes its respective Working Interests in the Assets at the time such IPO is initiated (“IPO”). The Party planning to carry out the IPO (the “IPO Party”) may elect to exercise such right by delivering written notice of such election (an “IPO Notice”) to the other Parties (each a “Non-IPO Party”). Each Non-IPO Party shall (and shall cause its Controlled Affiliates, and shall use its reasonable best efforts to cause its other Affiliates, to), following receipt of an IPO Notice, cooperate and take such actions as are reasonably requested by the IPO Party or its Affiliates to help facilitate any such IPO, and the IPO Party shall reimburse each Non-IPO Party and its Affiliates for their reasonable out-of- pocket costs and expenses incurred in connection therewith.

 

4.5                               Sale Transaction.

 

Subject to the limitations and conditions set forth in this Section 4.5 and the Right of First Offer set forth in Section 4.3:

 

(a)                          If at any time after the third (3rd) anniversary of the Effective Date (or within nine (9) months following the termination of this Agreement), Blackstone elects, pursuant to a Bona Fide Offer, to pursue a Transfer to a Third Party (other than GSO or any of its Affiliates) pursuant to the terms of such Bona Fide Offer (the “Sale Transaction Transferee”) of all or substantially all of the Working Interests and other Assets acquired by Blackstone pursuant to the Purchase Agreement and all related assets in the Core Area acquired after the Effective Date and then held directly or indirectly by Blackstone and its Affiliates (including all rights to operatorship of Blackstone and its Affiliates related to the Leases and/or Wellpads) (other than

 

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with respect to Excluded AMI Transactions (as defined in Section 5.2)), or all of the equity interests of any entity directly or indirectly owning all of such Working Interests and other Assets and related assets (a “Sale Transaction,” which shall include a Sale Transaction Equitable Partition and the consummation of the sale contemplated thereby, but not an Alternative Equity Partition), and provided, that (i) Blackstone is not the Operator of all of the Assets, (ii) SN or any of its Affiliates is the Operator of any of the Assets and (iii) SN, SN UnSub and any of their respective Affiliates that then own any interests in the Asset Interests have not unconditionally agreed in writing to vote their applicable interests to support the designation of the Third Party who has made such Bona Fide Offer as operator under the applicable Operating Agreements, Blackstone shall, subject to Section 4.5, including Sections 4.5(h) and 4.5(i), have the right to compel Sanchez Energy, SN, SN UnSub, and their respective Affiliates to sell or otherwise convey to the Sale Transaction Transferee all of their Working Interests and other Assets (and other related assets acquired following the Effective Date) (including all rights to operatorship of SN and its Affiliates related to the Leases and/or Wellpads (“SN Operatorship Rights”)) within an area of land comprising 75% of the Fair Market Value of the Core Area (the “Included Percentage”) (provided that if the transfer of such land would result in Sanchez Energy transferring all or substantially all of its assets pursuant to applicable Law, then such applicable percentage of Fair Market Value shall be such lesser percentage that would not constitute all or substantially all of the assets of Sanchez Energy pursuant to applicable Law, but in no event shall such percentage be lower than 66%) (it being agreed that for purposes of this Section 4.5, the Core Area shall not include any acreage for which a Party or any of its Affiliates does not then own Working Interests) (such area, the “Included Sale Transaction Area,” and the remainder of the Core Area, the “Excluded Sale Transaction Area” and such remaining percentage, the “Excluded Percentage”) to be determined as provided below in this Section 4.5(a), and in connection and contemporaneously with such Sale Transaction, Blackstone shall convey (and if applicable, cause its Affiliates to convey) all of their Working Interests and other Assets (and other related assets acquired following the Effective Date) (including all rights to operatorship of Blackstone and its Affiliates related to the Leases and/or Wellpads (“Blackstone Operatorship Rights”)) within the Excluded Sale Transaction Area to SN and SN UnSub. Upon the election by Blackstone to pursue a Sale Transaction, SN, SN UnSub, and Blackstone shall negotiate in good faith for a period of forty-five (45) days to agree upon and designate the Included Sale Transaction Area and the Excluded Sale Transaction Area, based on substantially proportionate geographic divisions and customary industry practices and their respective reserve reports covering the previous 12-month period, such that the Included Sale Transaction Area comprises the Included Percentage and the Excluded Sale Transaction Area comprises the Excluded Percentage, respectively, of the aggregate Fair Market Value of the Core Area (a “Sale Transaction Equitable Partition”) in addition to an alternative partition such that the Included Sale Transaction Area comprises Assets in the Core Area equal to 50% of the aggregate Fair Market Value of the Core Area (or if at such time the relative ownership percentages of SN and its Affiliates and Blackstone and its Affiliates in the Core Area are not 50%/50%, then the percentage of the Fair Market Value owned in the Core Area by Blackstone and its Affiliates as compared to SN and its Affiliates) (such percentage, the “Blackstone Percentage”) and the Excluded Sale Transaction Area comprises that percentage of Assets in the Core Area equal to 100% less the Blackstone Percentage (an “Alternative Equitable Partition” and together with a Sale Transaction Equitable Partition, each an “Equitable Partition”). An Equitable Partition shall (i) proportionately distribute to SN and SN UnSub, on the one hand, and the Sale Transaction

 

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Transferee or Blackstone, as applicable, on the other hand, in the same proportion and with substantially similar characteristics as each Party held in the Core Area, prior to the Equitable Partition, the following: (1) the remaining drilling obligations under the APC Well Commitment and continuous drilling obligations under the oil and gas leases to which the applicable Working Interests are subject, (2) producing wells and current production (including substantially similar decline profiles and cash flow profiles), proved developed non-producing acreage and undeveloped acreage, (3) remaining reserves, (4) potential future well locations, and (5) allocation of exposure to demand charges, minimum volume commitments and commodity charges (and other similar costs and obligations) under the midstream and marketing agreements in place in the Core Area; (ii) seek to allocate the entirety of a Lease and the acreage governed by an applicable joint operating agreement into either the Included Sale Transaction Area or the Excluded Sale Transaction Area; (iii) take into account any other relevant factors, including, if applicable, a prior Division of Operatorship, and any restrictions on assignment of the applicable Working Interests and other Assets and, subject to the other express provisions of this Section 4.5, seek to mitigate any such restrictions if they are reasonably likely to impede or delay an Equitable Partition and (iv) in the case of an Alternative Equitable Partition, in no event shall SN UnSub have lower values of PDP PV-10 or projected cash flow from PDP reserves after such Alternative Equitable Partition and provided further that any assignments and conveyances among the Parties under an Alternative Equitable Partition shall be on terms substantially similar to the assignment and conveyance terms under the Purchase Agreement). If, following such forty-five (45) day period, SN, SN UnSub, and Blackstone are unable to agree upon an Equitable Partition, then the Equitable Partitions shall be decided by Financial Advisors and Reserve Auditor(s) using the same process as provided for an Equitable Division pursuant to Section 3.8(e)(i), mutatis mutandis (but with such modifications as may be necessary to determine a Sale Transaction Equitable Partition and an Alternative Equitable Partition in accordance with this Section 4.5, including in order to include SN UnSub as a party to such process), and after the final determination of the Equitable Divisions by the Financial Advisors and upon the execution of definitive documentation as required to carry out the Sale Transaction or the Alternative Equitable Partition, as applicable, pursuant to this Section 4.5, the Parties hereto and their Affiliates shall use their respective reasonable best efforts to effectuate the applicable Equitable Division as promptly as practicable (for no additional consideration other than as may be necessary to ensure that the relative percentages of Fair Market Value in an Alternative Equitable Partition are satisfied). In order to facilitate an efficient and orderly Sale Transaction process, Blackstone may elect to initiate (and cause Sanchez Energy to participate in) the determination of the Equitable Partitions upon the delivery by Blackstone of a ROFO Notice, and from such time as a ROFO Notice is provided until the time that a Sale Transaction or Equitable Division is consummated as provided for in this Section 4.5, neither SN nor its Affiliates shall initiate a Division of Operatorship. In the event that Blackstone is unable to cause Sanchez Energy, SN, SN UnSub and/or their respective Affiliates to participate in a Sale Transaction as a result of any of the limitations set forth in this Section 4.5, then Blackstone shall have the right to effectuate an Alternative Equitable Partition, whereby Blackstone shall be entitled to all Assets of the Parties in the Included Sale Transaction Area and SN and SN UnSub shall be entitled to all Assets of the Parties in the Excluded Sale Transaction Area (in each case as such areas are determined pursuant to this Section 4.5(a) with respect to an Alternative Equitable Partition, for no consideration payable other than as may be necessary to ensure that the relative percentages of Fair Market Value in an Alternative Equitable Partition are satisfied), and the Parties shall use

 

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their respective reasonable best efforts to effect such Alternative Equitable Partition as promptly as practicable. In connection with the effectuation of an Alternative Equitable Partition and to the extent a Sale Transaction has not been consummated, the Parties shall use their respective reasonable best efforts to cause Blackstone or its designee (or if applicable a Sale Transaction Transferee) to become operator under each joint operating agreement applicable to the Assets included in the Included Sale Transaction Area and cause SN or its designee to become operator under each joint operating agreement applicable to the Assets included in the Excluded Sale Transaction Area, and in the event that such operatorship is not vested in the applicable party prior to the time that a Sale Transaction Equitable Partition (which shall be consummated as of the closing of a Sale Transaction or as promptly as practicable thereafter) or Alternative Equitable Partition is otherwise ready to be completed, then the principles of Section 3.8(e) shall apply, mutatis mutandis, as though the party to whom operatorship should be transferred were the Post-Division Operator and the Party or its Affiliate that is the operator under an applicable joint operatorship were the Pre-Division Operator (including, without limitation, Section 3.8(e)(ii)), and, if necessary, the Pre-Division Operator shall maintain a sufficient minimal interest so as to not effect an automatic resignation of operatorship under the applicable operating agreements.

 

(b)                         Each of Blackstone, Sanchez Energy, SN and SN UnSub and each of their applicable Affiliates shall consent to such Sale Transaction or to carry out an Alternative Equitable Partition and will cooperate in good faith and use reasonable best efforts to obtain all necessary approvals and authorizations from its and its subsidiaries’ shareholders (including holders of any preferred equity interests), Board of Directors or other governing bodies, joint venture partners and lenders (including, for the avoidance of doubt, consent from lenders to an Alternative Equitable Partition as required hereunder, notwithstanding any applicable minimum cash consideration requirement that would otherwise be applicable thereto, and regardless of whether any restriction or limitation in any financing arrangement that is otherwise permitted by this Section 4.5), as applicable, and will cooperate in good faith and use reasonable best efforts to remove all Permitted Liens (other than the Permitted Liens described in clauses (iv) and (xii) of the definition thereof) from the applicable Assets and other interests to be conveyed in a Sale Transaction or Alternative Equitable Partition and to take or cause to be taken all other reasonable actions, including seeking any necessary consents required for assignment of interests in the Assets and related interests to be conveyed in a Sale Transaction or Alternative Equitable Partition or a change in operatorship to the applicable purchaser in a Sale Transaction or in an Alternative Equitable Partition or any other actions reasonably necessary or desirable to cause the consummation of such Sale Transaction on the terms of the Bona Fide Offer and in order to maximize the value to be realized by the Parties in connection with a Sale Transaction or otherwise to effect an Alternative Equitable Partition. For the avoidance of doubt, the preceding sentence shall not be construed to require Sanchez Energy, SN or SN UnSub to restructure its ownership of the Assets, provided that, subject to the terms of this Agreement, none of Blackstone, Sanchez Energy, SN and SN UnSub nor any of their Affiliates shall take any action for the purpose of preventing or materially impeding the consummation of a Sale Transaction or an Alternative Equitable Partition. Notwithstanding anything in Section 4.5 or this Agreement to the contrary, (i) Blackstone’s rights to compel a Sale Transaction or an Alternative Equitable Partition and (ii) the obligations of Sanchez Energy, SN, SN UnSub, and their respective Affiliates to consent to such transaction, are subject to (a) compliance by SN, SN UnSub and their respective Affiliates with the requirements under each of their debt financing arrangements

 

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as of the Effective Date (as the same may be amended and together with any new debt financing arrangement, in each case that shall have been established in good faith and for valid business purposes and on market terms); provided that Sanchez Energy, SN, SN UnSub, and their respective Affiliates shall use their respective reasonable best efforts to ensure that any new debt financing arrangement or amendment of an existing financing arrangement entered into after the Effective Date shall not expressly restrict an Alternative Equitable Partition as required hereunder, notwithstanding any applicable minimum cash consideration requirement that would otherwise be applicable thereto, (b) compliance with all of the provisions of this Section 4.5, or (c) required landowner consents, midstream consents or other third party consents.

 

(c)                                  [Intentionally Omitted]

 

(d)                         Subject to the limitations and conditions of this Section 4.5, the Parties will execute the agreement negotiated by Blackstone in connection with such a Sale Transaction (a “Sale Transaction Agreement”) and will take such other actions as may be reasonably requested by Blackstone to effect such Sale Transaction; provided, however, that (i) Sanchez Energy, SN, SN UnSub or their Affiliates bound hereby, as applicable, shall only be required to make the same (or substantially similar in all material respects) representations, warranties and covenants and the same indemnities as Blackstone agrees to make in connection with the Sale Transaction (unless expressly contemplated otherwise in this Section 4.5), except that in no event shall any Party be required to agree to any non-competition or non-solicitation covenant in connection with the Sale Transaction or to make any representation or warranty that would be inaccurate when made without the ability to provide disclosure against such representation or warranty; (ii) no Party shall be liable for the breach of any covenants of any other Party; (iii) in no event shall any Party be required to make representations and warranties or provide indemnities as to any other Party; (iv) any liability relating to representations and warranties (and related indemnities) or other indemnification obligations in connection with the Sale Transaction and related to the Assets shall be shared by the Parties pro rata on a several (but not joint) basis in proportion to the proceeds received by each Party in the Sale Transaction; (v) no Party shall have aggregate liability relating to the representations and warranties (and related indemnities) or other indemnification obligations in excess of the purchase price (nor shall any Party have aggregate liability with respect to the breach of non-fundamental or tax-related representations and warranties (and related indemnities) in excess of twenty five percent (25%) of the purchase price to be received in the Sale Transaction by such Party without such Party’s consent, which may be withheld by such Party in its sole discretion); and (vi) any escrow or other holdback of proceeds shall be allocated on a pro rata basis among the applicable Parties.

 

(e)                          In connection with a Sale Transaction, the form of consideration will consist of either (i) all cash or (ii) cash and not more than twenty-five (25%) in value of publicly traded securities, subject to the following: In connection with such a Sale Transaction (i) if the form of consideration is a combination of cash and securities, the portion of such consideration that is cash shall be the greater percentage of (A) seventy-five (75%) percent cash and (B) the percentage of cash necessary for Sanchez Energy, SN and its Affiliates to meet any debt financing covenants which are then in existence (up to 100% cash requirements) (provided that Blackstone or its applicable Affiliate may elect to take a higher percentage of equity consideration in a Sale Transaction than the other participating sale parties in order to satisfy the requirements of this clause (i)), (ii) subject to the preceding clause (i), all Parties shall be

 

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allocated the same form of consideration, or if any Parties are given an option as to the form and amount of consideration to be received, all Parties will be given the same option, and (iii) the consideration to be received by the Parties in a Sale Transaction will be calculated by taking the aggregate proceeds from such Sale Transaction (excluding all out-of-pocket costs incurred by the Parties in connection with such Sale Transaction, which shall be borne by the Parties in proportion to their respective rights to the aggregate sale proceeds; provided, that any agreements with accountants, attorneys, investment bankers or other such professional service firms in connection with a Sale Transaction shall be negotiated at arms-length and be at prevailing market rates and provided, further, that SN shall have the right to consent to any investment bank hired to direct the Sale Transaction process, such consent not to be unreasonably withheld, conditioned or delayed) and allocating such proceeds among the Parties based upon the relative Fair Market Value of the Assets and other interests included by Blackstone, SN, and SN UnSub and their respective Affiliates in the Sale Transaction (collectively, the “Drag Interests”), as agreed by the Parties or as otherwise determined pursuant to an Equitable Partition.

 

(f)                           For purposes of Section 4.5(e) and Section 4.2(b), in the event the applicable Parties (for purposes of this paragraph, collectively, the “Dispute Parties”) disagree as to the relative Fair Market Value of the Drag Interests or Tag Interests, as applicable, included by each Party and cannot resolve such dispute (after good faith negotiations lasting no more than ten (10) Business Days) (it being agreed that an Equitable Partition determined in accordance with Section 4.5(a) shall be final and binding on the Parties), then any Dispute Party may elect for the Dispute Parties to engage one mutually-agreeable reputable national or regional investment bank or valuation firm with experience in the valuation of oil and gas interests in Eagle Ford Shale (the “Valuation Firm”) to determine the relative Fair Market Value (on a percentage basis) of the Drag Interests or Tag Interests, as applicable, included by each Party. In the event that Blackstone has not effected a Division of Operatorship, any determination of the Fair Market Value shall assume that Blackstone holds rights to operatorship of such portion of the Assets as though an Equitable Division had been consummated. The Valuation Firm shall be selected by the Dispute Parties from among the parties included on Annex IV and if the Dispute Parties are unable to agree then SN in the case of a Sale Transaction or Blackstone in the case of a Proposed Sale shall choose. The Dispute Parties shall each cooperate fully with the Valuation Firm, including by providing all reasonably requested information, data and work papers of such Dispute Party and shall make available personnel and accountants to explain any such information, data or work papers. The Parties shall cause the Valuation Firm to render its determination as soon as reasonably practicable but in no event later than fifteen (15) Business Days after the Valuation Firm was engaged; provided, however, if the dispute relates to Tag Interests, the Parties shall cause the Valuation Firm to render its determination no later than the second (2nd) Business Day prior to the expiration of the Tag-Along Offer. The Valuation Firm’s determination of the relative value of the Drag Interests (the “Final Valuation”) shall be final and binding on the Dispute Parties, and any proceeds to be received in such indirect approved sale shall be split between the Dispute Parties based upon the relative valuation percentages set forth in the Final Valuation. The fees and costs of the Valuation Firm shall be split equally between the Parties based on their respective proportionate amount of Working Interests to be conveyed in the applicable transaction, and the Parties shall provide, and shall cause their Controlled Affiliates, and shall use their reasonable best efforts to cause their other Affiliates to provide, all information available to them that may be reasonably requested by the Valuation Firm.

 

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(g)                          In connection with a Sale Transaction, if reasonably requested by the applicable buyer, Sanchez Energy, if the Sanchez Operator remains the Operator for any Wellpads or Leases, shall use its commercially reasonable efforts to enter into a customary transition services agreement with the purchaser at the closing of such Sale Transaction, or Sanchez Energy shall cause any applicable Affiliate or entity then providing management services to Sanchez Energy and capable of providing transition services to enter into such agreement, which transition services agreement shall be substantially similar in all material respects to the transition services agreement with Affiliates of Anadarko pursuant to the Purchase Agreement, provided, that the term shall be no more than two months and Sanchez Energy or its Affiliate shall be entitled to earn a mark-up of 10% over cost on all services provided thereunder.

 

(h)                         Notwithstanding anything contained in this Section 4.5 to the contrary but, with respect to SN UnSub, subject to Section 4.5(i), (i) there shall be no liability or obligation on behalf of Blackstone or its Affiliates if such entities determine, for any reason, not to consummate a Sale Transaction or an Equitable Partition, and Blackstone shall be permitted to discontinue at any time any Sale Transaction or Equitable Partition initiated by Blackstone by providing written notice to SN and SN UnSub; (ii) Blackstone may not cause Sanchez Energy, SN, SN UnSub and their respective Affiliates to participate in a Sale Transaction unless the consideration received by Sanchez Energy, SN, SN UnSub and their respective Affiliates in such Sale Transaction (including distributions of cash on hand at SN and SN UnSub that are made to SN and UnSub in connection with such sale) would be greater than or equal to the sum (the “Required Return Sum”), without duplication, of (A) (i) the amount of capital which was invested, borrowed, used or otherwise provided in connection with the financing, acquisition, ownership or operation of the Assets, and any related assets (including for the avoidance of doubt, any assets being retained by SN or Unsub in the Sale Transaction) less all distributions previously made on account of any equity capital invested by Parties other than GSO (or its Affiliates), (ii) payments by the relevant Person and its Affiliates arising under or related to the redemption, repayment or refinancing of any securities, credit facilities, financial vehicles, debentures, notes, guarantees or liabilities procured to carry out any and all transactions contemplated under the Purchase Agreement or this Agreement, in each case, that are required as a result of the consummation of a Sale Transaction, and (iii) disbursements, fees or costs reasonably incurred or to be incurred by the relevant Person and its Affiliates to suspend, reassign, demobilize, stack, terminate, sell off and restructure all applicable personnel, equipment and operations related, directly or indirectly, to the Assets in connection with such Sale Transaction, (B) the amount of capital GSO (or its Affiliates) invested in SN UnSub, (C) the Base Preferred Return Amount as required under the SN UnSub Partnership Agreement and (D) the outstanding indebtedness for borrowed money of SN and SN UnSub upon such applicable date of determination (net of any cash and cash equivalents of SN and SN UnSub as of such date) to the extent that a buyer in connection with a Sale Transaction does not assume or directly repay such outstanding indebtedness; provided for purposes of the foregoing subparts (A) through (D), that such equity or debt that is amended, incurred or established following the Effective Date is done so in good faith and for valid business purposes and on terms determined in the reasonable judgment and in good faith by the party amending, incurring or establishing such equity or debt; provided further that with the written consent of GSO, the Required Return Sum will be adjusted downward equitably to reflect the percentage of Assets actually to be transferred in a Sale Transaction by SN and SN UnSub as compared to the Assets acquired by

 

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SN and SN UnSub pursuant to the Purchase Agreement. In addition, (i) a fair and reasonable allocation of the proceeds from a proposed Sale Transaction between SN and SN UnSub shall be made in the reasonable judgment, in good faith and for valid business purposes, of Sanchez Energy, SN and SN UnSub (in accordance with their then existing debt arrangements) and (ii) in no event shall SN or SN UnSub be compelled to enter into a Sale Transaction unless, after the application of the proceeds from such Sale Transaction, after satisfying the conditions in the foregoing subpart (i), the proceeds payable to SN UnSub shall be an amount sufficient to return to its equity holders 100% of the equity invested in SN UnSub.

 

(i)                             Notwithstanding anything in this Section 4.5 or this Agreement to the contrary, prior to the Redemption Date, without the prior written consent of GSO, SN UnSub shall not (and shall not be required to), and no Party shall cause SN Unsub to participate in any transfer or disposition (or enter into definitive documentation providing for any transfer or disposition) of any of its Working Interest or other Assets (or any portion thereof) under this Section 4.5 (other than an Alternative Equitable Partition), and Blackstone shall not have the right to compel a Sale Transaction with respect to SN UnSub’s Working Interests and Assets (or any portion thereof), unless such transfer or disposition complies with the terms and conditions of SN UnSub’s (i) debt financing arrangements applicable as of the Effective Date and such other debt financing arrangements that as amended, or as incurred or established following the Effective Date in good faith and for valid business purposes and on terms determined in the reasonable judgment and in good faith by the party amending, incurring or establishing such debt, and (ii) the requirement that the Preferred Units receive an amount of cash equal to the Base Preferred Return Amount with respect to each Preferred Unit in redemption in full of all outstanding Preferred Units, pursuant to and in compliance with the SN UnSub GP LLC Agreement and SN UnSub Partnership Agreement, less any debt incurred, Preferred Units or Common Units issued by SN UnSub in connection with funding of properties outside of the AMI, and (iii) GSO shall have the right to act on behalf of, and enforce all rights of, SN UnSub in connection with this Section 4.5. For the avoidance of doubt and for purposes of clarity, an Alternative Equitable Partition is intended to provide SN UnSub with substantially similar characteristics and value, after giving effect to such Alternative Equitable Partition, as SN UnSub held in the Core Area prior to the Alternative Equitable Partition, in accordance with the procedures in Section 4.5(a).

 

ARTICLE V

ADDITIONAL COVENANTS

 

5.1                               Information Rights.

 

(a)                         Notwithstanding anything to the contrary in the Operating Agreements (but, for the avoidance of doubt, in addition to the information and data required to be provided to the Parties pursuant any Operating Agreement), Operator shall provide the Parties, in electronic format, with the following information and reports with respect to the Assets reasonably promptly after such information becomes available to Operator or could have been prepared without incurring unreasonable time and cost by Operator or any of its Affiliates:

 

(i)                                     daily volumes for oil, gas, condensate, and water, choke size and tubing, casing, and flowing pressure;

 

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(ii)                           monthly lease operating expense statement;

 

(iii)                        monthly oil, gas, and condensate sales reports;

 

(iv)                       drilling and workover reports, which shall include the current depth, the corresponding lithological information, data on drilling fluid characteristics, information about drilling difficulties or delays (if any), mud checks, mud logs, and hydrocarbon information, casing and cementation tallies, and estimated cumulative costs;

 

(v)                          daily drilling (including completion, stimulation, testing, artificial lifting, daily mud reports, mud logging, directional drilling, etc.) reports;

 

(vi)                       copies of all completion and plugging reports;

 

(vii)                    to the extent permissible, copies of all seismic data and reports, well tests, core data, microseismic, and associated analysis reports;

 

(viii)                 to the extent Operator prepares or receives such information, (A) geological and geophysical, reservoir engineering, drilling and well completion studies, development schedules, and annual progress reports on development projects and (B) well performance reports;

 

(ix)                       copies of written notices provided by Governmental Authorities or any Third Party regarding material violations or potential material violations of applicable Law;

 

(x)                          copies of all material reports provided by Operator to, or filings made by Operator with, any Governmental Authority relating to material violations or potential material violations of applicable Law;

 

(xi)                       copies of any material correspondence between Operator and any Governmental Authority relating to material violations or potential material violations of applicable law;

 

(xii)                    to the extent not included in clauses (i)-(xi) above, all material information, data, projections, interpretative data and analysis, operating plans, records, and analysis utilized by Operator in preparing (including the basis for proposing) a Subsequent Budget and Work Plan; and

 

(xiii)                 to the extent not included in clauses (i)-(xii) above, as soon as reasonably practicable following a request from a Party, all information reasonably requested by a Party for any purposes, including in connection with satisfying or complying with information requests and disclosure requirements in respect of financing or other capital market activities, including requests from current and prospective lenders and investors, rating agencies, securities exchanges, and Governmental Authorities.

 

(b)                                 The information described in Section 5.1(a) shall be stored on a commercially available secure, third-party electronic database and document sharing platform

 

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and made available to each Party (“VDR”). Such VDR shall be Intralinks, Merrill Datasite, or another VDR platform that is mutually agreeable to the Parties. The VDR shall be maintained by Operator and such expenses shall be shared equally amongst the Parties.

 

5.2                               Area of Mutual Interest.

 

(a)                         The Parties hereby establish an Area of Mutual Interest (“AMI”), commencing on the Effective Date of this Agreement and covering lands depicted on Exhibit C attached hereto, plus a 4-mile halo in any direction from the perimeter of such lands (excluding, however, any properties owned by SN and its Affiliates as of the Effective Date within the lands depicted on Exhibit C, which shall not be included within the AMI nor otherwise be subject to this Agreement). The AMI shall terminate and have no further force and effect on the earlier of (i) the date that is five (5) years after the Effective Date, or (ii) the date on which this Agreement is terminated in its entirety in accordance with Section 6.1.

 

(b)                         For purposes of this Section 5.2, an “Acquisition” shall mean any acquisition of, or agreement or option to acquire, rights, title or interests to any oil and gas properties covering lands within the AMI by a Party or any of its Affiliates (which in the case of Blackstone, for the avoidance of doubt, shall include HoldCo), subject to Section 5.2(h), between the Effective Date and the expiration of the AMI pursuant to Section 5.2(a). Such Acquisition whether acquired directly or indirectly, shall include without limitation, oil and gas leases, options to lease, farm-ins, options to farm-in, acreage contributions, bottom hole agreements or exploratory agreements. If an Acquisition includes lands located within the AMI and lands located outside the boundaries of the AMI, the Acquisition shall be deemed to include only the lands located inside the AMI, unless the Parties agree otherwise.

 

(c)                          All Acquisitions must be reported by the acquiring Party to the non- acquiring Parties thirty (30) days prior to the actual closing date of such Acquisition. Such notification shall include, but is not be limited to, a description of the interest acquired, the area covered, the terms of the Acquisition and the cost (including brokerage fees), and a copy of the proposed agreement for the Acquisition.

 

(d)                         For purposes of this Section 5.2, the proportionate shares of Blackstone, SN, and SN UnSub or the Qualified Foreclosure Transferee, if applicable, in the right to participate in an Acquisition shall be fifty percent (50%), thirty percent (30%), and twenty percent (20%), respectively. Each non-acquiring Party will have twenty (20) days after receipt of the notice to furnish the acquiring Party with written notice of its election to acquire, or cause its subsidiary to acquire, its proportionate share of the Acquisition for its proportionate share of the purchase price (or cash equal to fair equivalent value if the Acquisition was made for non- cash consideration); provided, however, that if Blackstone or its Affiliates is the acquiring Party, SN UnSub may assign its right to participate in such Acquisition to SN, or SN may assign its right to participate in such Acquisition to SN UnSub, in which case SN and SN UnSub shall provide a joint written notice evidencing SN’s (or SN UnSub’s) election to acquire both shares and SN UnSub’s (or SN’s) agreement to such election; provided, further, that if SN, SN Unsub or their respective Affiliates is the acquiring party, Blackstone shall have the right to assign its right to participate in such Acquisition to HoldCo, or, subject to the prior written consent of SN in its sole discretion, any other Affiliate. Failure of a Party to provide a written notice of its

 

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election within the twenty (20) day period will be deemed an election not to acquire its proportionate share of the Acquisition which will thereafter no longer be subject to the AMI provisions under this Agreement or any applicable Operating Agreement. Further, if neither non-acquiring Party elects to acquire its proportionate share of an Acquisition, the properties acquired in such Acquisition shall not be subject to this Agreement.

 

(e)                          If a non-acquiring Party elects to acquire its proportionate share (or, if applicable, SN elects to acquire both its share and SN UnSub’s share or SN UnSub elects to acquire both its share and SN’s share) of the Acquisition, such non-acquiring Party shall promptly (within ten (10) days of giving its notice) pay for its proportionate share(s) of the Acquisition, and the acquiring Party, within three (3) Business Days of receipt of that payment from the non-acquiring Party for its share(s) of the Acquisition cost, shall deliver (or cause its Affiliates to deliver) to the non-acquiring Party an assignment of the non-acquiring Party’s proportionate share(s) of the Acquisition. Assignments pursuant to the AMI shall not contain any reservations in favor of the acquiring Party (or its Affiliates), other than the reservations burdening the Acquisition as of the date of the Acquisition by the acquiring Party (or its Affiliates). Such assignments shall be prepared in accordance with Exhibit D and be properly executed and notarized for recording purposes.

 

(f)                           The acquiring Party shall have the right to serve as operator pursuant to an applicable Operating Agreement for an Acquisition that such acquiring Party brings to the other Party pursuant to this Section 5.2 (to the extent permitted by such Operating Agreement); provided, that, prior to the occurrence of an Operator Default Event of SN, SN shall be entitled to serve as Operator for any Acquisitions within the Core Area and any oil and gas leasehold interests covering lands within the Core Area shall be subject to the terms and conditions of this Agreement as though it were an Asset (and shall be deemed to be included in the definition of “Asset” for all purposes hereunder) and added to Annex III accordingly.

 

(g)                          If any Party is in Default, any other Party may (provided, that such other Party is not in Default) elect, by written notice, to have the terms of this Section 5.2 not restrict the activities of such other Party or any of its Affiliates during the period that the Default is continuing (provided, that a Party may thereafter continue to own and develop assets acquired during the applicable period) and any assets acquired by a Non-Defaulting Party during a Default shall be offered only to the other Non-Defaulting Party under this Section 5.2 and the Defaulting Party shall not be deemed to own or in any way otherwise be entitled to any rights or benefits in respect thereof.

 

(h)                         Notwithstanding the foregoing, the provisions set forth in this Section 5.2 shall not in any way limit or apply to (i) the activities of any Affiliate of SN or SN UnSub not Controlled by SN or SN UnSub, as applicable (except for in the case of SN, Sanchez Energy and its subsidiaries (other than SN UnSub and its subsidiaries), so long as SN remains a Controlled Affiliate of Sanchez Energy), or (ii) (A) the activities of any Affiliate of Blackstone in its business other than the private equity investments made by the “Blackstone Capital Partners VI,” “Blackstone Capital Partners VII,” “Blackstone Energy Partners I,” and/or “Blackstone Energy Partners II” investment funds (collectively, the “Blackstone Funds”) affiliated with or managed by Blackstone Management Partners L.L.C., (B) the activities of GSO Capital Partners L.P. or any investment funds or vehicles managed by GSO Capital Partners L.P. or any portfolio

 

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companies or other investments of GSO Capital Partners L.P., or (C) the acquisition by any investment funds or vehicles managed by Blackstone Management Partners L.L.C. or any of its Affiliates to the extent such transaction represents the acquisition of any securities of an entity owning an interest in the AMI if such class of securities being acquired are listed on a national securities exchange and such acquisition does not provide for voting interests in excess of 25% of such entity, provided, that in each of clauses (ii)(A), (B) and (C), (y) Blackstone does not Control or have the right to Control any of the Persons mentioned in clauses (ii)(A), (B) or (C) above, and (z) any of such Persons does not act at the direction of or with encouragement from Blackstone with respect to any matters contemplated by this Section 5.2. For the avoidance of doubt, if any of the actions prohibited under clauses (y) or (z) above occurs, the respective Persons mentioned in clauses (ii)(A), (B) or (C) above shall be subject to, and their activities shall be limited in accordance with, this Section 5.2; provided, however, that for the avoidance of doubt, portfolio companies of GSO Capital Partners L.P. for which neither GSO Capital Partners L.P. nor its Affiliates have majority board control shall not be subject to the AMI provisions of this Section 5.2 notwithstanding the foregoing. The transactions and other activities excluded by this Section 5.2(h) from the other provisions of this Section 5.2 shall be referred to herein as “Excluded AMI Transactions.”

 

(i)                             Agreement Memorandum. The Parties hereby agree to execute and promptly file a memorandum of this Agreement in the real property records of Maverick, Dimmit, Webb, and LaSalle Counties substantially in the form attached hereto as Exhibit E.

 

5.3                               Spacing Protections.

 

(a)                                 Limited Restricted Zone. With respect to each well drilled on lands in the AMI after the Effective Date but prior to the Redemption Date, each Party agrees:

 

(i)                             not to, and to cause its Affiliates not to, plan or propose, or permit the Operator to plan or propose, to drill any part or segment of the horizontal portion of the wellbore of such well within the Limited Restricted Zone of any Existing Producing Well;

 

(ii)                          not to include in any Approved Budget or Work Plan any well or wells that would be drilled into the Limited Restricted Zone of any Existing Producing Well;

 

(iii)                       not to participate in or consent to any operation proposed or conducted by a third party under an Operating Agreement to drill a well or wells that would be drilled into the Limited Restricted Zone of any Existing Producing Well; and

 

(iv)                      not to complete or produce the horizontal portion of the wellbore of any well drilled into the Limited Restricted Zone of an Existing Producing Well (unless, in the case of the Operator, it is required to do so under an applicable Operating Agreement) (collectively (i) through (iv) above, the “Limited Spacing Restrictions”).

 

(b)                                 Full Restricted Zone. Except for Exception Wells as provided below, with respect to each well drilled on lands in the AMI after the Effective Date but prior to the earlier of

 

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(x) the fifth (5th) anniversary of the Effective Date, (y) the Redemption Date, or (z) mutual agreement of the Parties to modify these restrictions, each Party agrees:

 

(i)                              not to, and to cause its Affiliates not to, plan or propose, or permit the Operator to plan or propose, to drill any part or segment of the horizontal portion of the wellbore of such well within the Full Restricted Zone of any Existing Producing Well;

 

(ii)                           not to include in any Approved Budget or Work Plan any well or wells that would be drilled into the Full Restricted Zone of any Existing Producing Well;

 

(iii)                        not to participate in or consent to any operation proposed or conducted by a third party under an Operating Agreement to drill a well or wells that would be drilled into the Full Restricted Zone of any Existing Producing Well; and

 

(iv)                       not to complete or produce the horizontal portion of the wellbore of any well drilled into the Full Restricted Zone of an Existing Producing Well (unless, in the case of the Operator, it is required to do so under an applicable Operating Agreement) (collectively (i) through (iv) above, the “Full Spacing Restrictions”).

 

(c)                                  Illustration.                                Illustrations of the Limited Restricted Zone and Full Restricted Zones are shown in Annex VII attached hereto.

 

(d)                          Exceptions to Full Spacing Restrictions. Notwithstanding the foregoing, the Operator may drill and complete up to thirty (30) wells (the “Exception Wells”) in the areas in the AMI shown in Annex VII (the “AMI Test Areas”) that do not comply with the Full Spacing Restrictions as long as such Exception Wells comply with the Limited Spacing Restrictions.

 

(e)                                  Modifications to Full Restricted Zone.

 

(i)                              Notice. Any Party may request that the Full Restricted Zone be modified by giving written notice to the other Parties if (1) twenty (20) Exception Wells have been drilled and completed, (2) at least six (6) Exception Wells have been drilled and completed in each AMI Test Area subject to the proposed modification of the Full Restricted Zone (the “Test Wells”), and (3) the Test Wells have been producing for at least six (6) months. Such written notice shall include a description of the proposed modifications to the Full Restricted Zone and reasonably detailed technical information and data from such requesting Party’s consulting reservoir engineers supporting such modifications to the Full Restricted Zone (the “Proposed Modifications”). Each Party shall work in good faith to review the Proposed Modifications and all supporting information. The Proposed Modifications may not contain spacing restrictions that are less restrictive or protective in either the horizontal or vertical plane than those in the Limited Restricted Zone. If the other Parties (and their respective consulting engineers) agree that the Proposed Modifications will not lead to any material reduction in value to each Party’s respective Asset base, then the Full Spacing Restrictions shall be modified pursuant to the Proposed Modifications until such time that the Parties agree to subsequent Proposed Modification.

 

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(ii)                          Failure to Agree. If the other Parties (and their respective consulting engineers) fail to agree that the Proposed Modifications will not lead to any reduction in value to each Party’s respective Asset base within 30 days after the date of the first notice provided in Section 5.3(e)(i), then any Party may within seven (7) Business Days thereafter, declare a Deadlock by providing a Deadlock Notice to the other Parties. Thereafter, such Deadlock shall be subject to the provisions of Section 3.6(b) and, if applicable, non-binding mediation, in accordance with Section 3.6(c). For the avoidance of doubt, as it relates to this Section 5.3, any decision on behalf of SN UnSub prior to the Redemption Date shall require the approval of the Class B Member of SN UnSub.

 

(iii)                       Amendment. Prior to drilling offset wells pursuant to such Proposed Modifications, then this Annex VII shall be amended to reflect the Proposed Modifications to the Full Restricted Zone agreed to by the Parties hereunder.

 

(f)                           Covenants Running with the Land and Assumption. The obligations of the Parties in this Section 5.3 are covenants running with the land and shall be binding upon the Parties and their successors and assigns. For the avoidance of doubt, the Parties agree that the obligations in this Section 5.3 will burden the lands in the AMI and create a privity of estate between the Parties. It is the Parties’ express intent that such obligations will not be subject to rejection in the event of any bankruptcy involving any Party or any successor or assign to any of the leases, lands, or wells that are subject to this Agreement. Each Party agrees to cause its successors and assigns to expressly assume the obligations under this Section 5.3 in connection with any Transfer of all or part of its Assets.

 

(g)                          Existing Producing Wells and Drilled and Uncompleted Wells. The restrictions listed in this Section 5.3 shall apply solely to wells that are drilled and completed within the Limited Restricted Zone or the Full Restricted Zone of an Existing Well and shall not apply to the Existing Drilled and Uncompleted Wells.

 

(h)                         Applicability to Blackstone. Notwithstanding anything in Section 5.3, Blackstone shall not be subject to either the Full Spacing Restrictions or the Limited Spacing Restrictions in Section 5.3 after 5 years following the Effective Date.

 

5.4                       Cooperation. The Parties agree to cooperate, and to cause their Affiliates to cooperate, with one another in connection with the arrangement of any debt financing related to the Assets as may be reasonably requested by a Party. Any reasonable, out-of-pocket expenses incurred by a Party and its Affiliates in providing reasonable cooperation to a Party in accordance with this Section 5.4 shall be reimbursed by the Party seeking such cooperation.

 

ARTICLE VI

TERM AND TERMINATION

 

6.1                       Term and Termination. Subject to Section 6.2, the term of this Agreement shall commence on the Effective Date and continue until the earliest of:

 

(a)                         termination by mutual written agreement of each Party;

 

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(b)                         the eighth anniversary of the Effective Date;

 

(c)                          with respect to any interest in the Assets transferred (other than pursuant to a Permitted Transfer or a Foreclosure Transfer) to a Third Party (which for the avoidance of doubt shall not include Sanchez Production Partners LP, Sanchez Oil & Gas Corporation or its Affiliates, any Permitted Holder or any other entity Controlled by any Permitted Holder), upon the consummation of such transfer but only with respect to the interest transferred (and this Agreement will remain in effect with respect to the remainder of the Assets), subject to Section 4.1(b) and the provisions that survive pursuant to Section 6.2 and which are assigned in connection with a Transfer pursuant to Section 7.3;

 

(d)                         termination by any Party in its sole discretion after a Division of Operatorship or an Alternative Equitable Partition is completed, but only within thirty (30) days after the consummation of the Alternative Equitable Partition or final Equitable Division resulting therefrom; and

 

(e)                          termination by a Non-Defaulting Party in its sole discretion following a Default, but only within thirty (30) days after such Default. Following the termination of this Agreement in accordance with this Section 6.1, upon the written request of any Party, the Parties agree to execute and file for record a notice of termination of this Agreement in the form attached hereto as Exhibit G.

 

6.2                       Effect of Termination. The expiration or termination of this Agreement, for any reason, shall not release any Party from any obligation or liability to any other Party, including any payment obligation, that (i) has already accrued hereunder, (ii) comes into effect due to the expiration or termination of the Agreement, or (iii) otherwise survives the expiration or termination of this Agreement. Notwithstanding anything in this Agreement to the contrary, (i) the right of Blackstone to pursue a Sale Transaction and/or an Equitable Division pursuant to Section 4.5 (and the provisions set forth in Article VII as they may relate to Section 4.5) shall survive termination due to Division of Operatorship for the later of (A) a period of nine (9) months following the consummation of such Division of Operatorship (it being understood that in the event an Alternative Equitable Partition is to be completed, then the parties shall complete such Alternative Equitable Partition regardless of whether such nine (9) month period has expired) or (B) five (5) months after determination of a final and binding Equitable Partition in accordance with Section 4.5; (ii) the information rights set forth in Section 5.1 shall survive a termination due to a Division of Operatorship indefinitely or until neither Blackstone, SN, nor any of their Affiliates (or any designee thereof) operates any of the Assets, (iii) Section 3.8(e)(i) shall survive for a period of six months following a termination resulting from a sale by SN, or any other Affiliate thereof serving as Operator, to a Third Party, or following a termination under Section 6.1(d), (iv) Section 3.8(e)(ii) and Section 3.8(e)(iii) and the penultimate sentence of Section 3.8(e) shall survive termination indefinitely until all Required Operatorship Consents are obtained (including to the extent a Division of Operatorship is effected following termination of the Agreement pursuant to the immediately preceding clause (iii)), provided that the last sentence of Section 3.8(e)(iii) shall survive the termination of this Agreement in any event for a period of ten years; (v) the provisions of Section 3.8(e)(v) shall survive the termination of this Agreement

 

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for a period of ten years; and (vi) the spacing restrictions in Section 5.3 shall survive termination until the dates set forth in Section 5.3 .

 

ARTICLE VII

GENERAL PROVISIONS

 

7.1                       Entire Agreement. This Agreement, the Operating Agreements and the Purchase Agreement, constitute the entire agreement with respect to the subject matter covered hereby and supersede (i) all prior oral or written proposals, term sheets or agreements, (ii) all contemporaneous oral proposals or agreements, and (iii) all previous negotiations and all other communications or understandings between the Parties with respect to the subject matter hereof.

 

7.2                       Waivers. Neither action taken (including any investigation by or on behalf of any Party) nor inaction pursuant to this Agreement shall be deemed to constitute a waiver of compliance with any representation, warranty, covenant or agreement contained herein by the Party not committing such action or inaction. A waiver by any Party of a particular right, including breach of any provision of this Agreement, shall not operate or be construed as a subsequent waiver of that same right or a waiver of any other right.

 

7.3                       Assignment; Binding Effect. Subject to the terms and conditions hereunder, each Party may assign its rights or interests under this Agreement, or delegate any duties hereunder, without the prior written consent of the other Party, provided, that such assignment or delegation is made in connection with the conveyance by a Party or its Affiliate of (i) all its interest in an Asset to a Third Party, (ii) all or some of its interests in an Asset to an Affiliate, in each case in accordance with the terms of this Agreement or (iii) otherwise in connection with a Sale Transaction, including, for the avoidance of doubt, all rights set forth in Section 3.8(e)(ii) (including with respect to the survival period of such provision as set forth under Section 6.2). This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, legal representatives, successors and permitted assigns; provided, however, that in the case of only a partial assignment by a Party of their rights or interests under this Agreement to an Affiliate or Permitted Transferee, such Affiliate or Permitted Transferee shall not succeed to such transferring Party’s rights under Article III, unless otherwise agreed by the Parties and such Affiliate or Permitted Transferee.

 

7.4                       Governing Law; Severability.

 

(a)                         THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE CONSTRUEDINTERPRETED AND GOVERNED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES WHICHIF APPLIED, MIGHT PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

 

(b)                         In the event of a direct conflict between the provisions of this Agreement and any mandatory provision of applicable Law, the applicable provision of Law shall control. If any provision of this Agreement or the application thereof to any Person or circumstance, is held invalid or unenforceable to any extent, the remainder of this Agreement and the application

 

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of that provision to other Persons or circumstances shall not be affected thereby and that provision shall be enforced to the greatest extent permitted by applicable Law.

 

7.5                       Further Assurances. Subject to the terms and conditions set forth in this Agreement, each of the Parties agrees to use its reasonable best efforts to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement. In case, at any time after the execution of this Agreement, any further action is necessary or desirable to carry out its purposes, the proper officers or directors of the Parties shall take or cause to be taken all such necessary action.

 

7.6                       Counterparts. This Agreement may be executed in multiple counterparts and delivered by facsimile or portable document format, each of which, when executed, shall be deemed an original, and all of which shall constitute but one and the same instrument.

 

7.7                       Confidential Information.

 

(a)                         The Parties acknowledge that they and their respective appointed Representatives (if any) shall receive information from or regarding Assets in the nature of trade secrets or that otherwise is confidential information or proprietary information (as further defined below in this Section 7.7(a), “Confidential Information”), the release of which would be damaging to the Parties or Persons with which the Parties conduct business. Each Party shall hold in strict confidence, and shall require that such Party’s appointed Representatives (if any) hold in strict confidence, any Confidential Information that such Party or such Party’s appointed Representative receives, and each Party shall not, and each Party shall require that such Party’s appointed Representatives agree not to, disclose such Confidential Information to any Person other than another Party or Representative, or use such information for any purpose other than to evaluate, analyze, and keep apprised of the Assets and such Party’s interest therein, except for disclosures (i) to comply with any Laws (including applicable stock exchange or quotation system requirements), provided, that, if permitted by applicable Law, a Party or Representative must notify all the Parties promptly of any disclosure of Confidential Information which is required by Law, and any such disclosure of Confidential Information shall be to the minimum extent required by Law, (ii) to Affiliates, partners, members, stockholders, investors, directors, officers, employees, agents, attorneys, consultants, lenders, professional advisers or representatives of the Party or Representative or their Affiliates; provided, that such Party or Representative shall be responsible for assuring such Affiliates,’ partners,’ members,’ stockholders,’ investors,’ directors,’ officers,’ employees,’ agents,’ attorneys,’ consultants,’ lenders,’ professional advisers’ and representatives’ compliance with the terms hereof (and such Party or Representative, as applicable, shall be liable for any non-compliance by such Persons as if such Persons were bound as a Party hereto), except to the extent any such Person who is not an Affiliate, partner, member, stockholder, director, officer or employee has agreed in writing addressed to all the Parties to be bound by customary undertakings with respect to confidential and proprietary information similar to this Section 7.7(a), (iii) to Persons to which that Party’s Asset Interests may be Transferred as permitted by this Agreement, but only if the recipients of such information have agreed to be bound by customary confidentiality and non-use undertakings similar to this Section 7.7(a), (iv) of information that a Party or Representative also has received from a source independent of another Party or Representative and that such Party or

 

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Representative reasonably believes such source obtained such information without breach of any obligation of confidentiality to another Party, Representative or any of their Affiliates, (v) that have been or become independently developed by a Party, a Representative or their Affiliates, or on their behalf without using any of the Confidential Information, (vi) that are or become generally available to the public (other than as a result of a prohibited disclosure by such Party or Representative or Persons for which such Party or Representative is responsible for under clause (ii) above), (vii) in connection with any proposed Transfer of all or part the Working Interests of a Party, the proposed sale of all or substantially all of a Party or its direct or indirect parent or the proposed debt or equity financing of a Party or its direct or indirect parent, to Persons to which such interest may be directly or indirectly transferred or which may provide such debt or equity financing (and their respective advisors or representatives), but only if the recipients of such information have agreed to be bound by customary undertakings with respect to confidential and proprietary information similar to this Section 7.7(a) (unless, in the case of advisors or representatives, such Persons are otherwise bound by a duty of non-disclosure and non-use with respect to confidential and proprietary information), (viii) to Third Parties to the extent necessary for a Person to provide services in connection with its capacity as Operator, as applicable, or (ix) to the extent the non-disclosing Parties shall have consented to such disclosure in writing. The Parties agree that breach of the provisions of this Section 7.7(a) by such Party or such Party’s appointed Representative (if any) would cause irreparable injury to the non-disclosing Parties for which monetary damages (or other remedy at Law) would be inadequate in view of (i) the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of a Party or Representative to comply with such provisions and (ii) the uniqueness of the Assets and the confidential nature of the Confidential Information. Accordingly, the Parties agree that the provisions of this Section 7.7(a) may be enforced by any Party by temporary or permanent injunction (without the need to post bond or other security, therefor), specific performance or other equitable remedy and by any other rights or remedies that may be available at law or in equity. The term “Confidential Information” shall include any information pertaining to the identity of the Parties and the Assets, which is not available to the public, whether written, oral, electronic, visual form or in any other media, including, such information that is proprietary, confidential or concerning the Parties ownership and operation of the Assets or related matter, including any actual or proposed operations or development project or strategies, other operations and business plans, actual or projected revenues and expenses, finances, contracts and books and records. Notwithstanding the foregoing, Blackstone and its Affiliates may make disclosures to its direct and indirect limited partners and members such information (including Confidential Information) as is customarily provided to current or prospective limited partners in private equity funds sponsored or managed by Affiliates of Blackstone, provided, that if such Persons are receiving Confidential Information such Persons are bound by customary undertakings with respect to confidential and proprietary information similar to this Section 7.7(a). In the event that a Party wishes to issue a press release relating in any respect to the Assets that in the opinion of such Party does not contain Confidential Information, each Party shall be consulted and have a reasonable amount of time to review and comment upon such proposed press release prior to its issuance. Notwithstanding anything herein to the contrary, in the event a Party has approved or been consulted with respect to any disclosures as required hereunder, the other Party, its Representatives or its Affiliates shall be entitled to make disclosures substantially similar (as to form and content) to those prior

 

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disclosures that the non-disclosing Party has approved or been consulted with respect to, as applicable.

 

(b)                          The Parties acknowledge and agree that none of the Parties shall furnish or otherwise provide a copy of this Agreement (or any part hereof) to any Person (other than the Parties, their Representatives, and Affiliates, and their respective representative(s) and adviser(s)), unless (i) otherwise agreed in writing by each of the Parties, (ii) required by applicable Laws (and if required by applicable Laws, a copy of the applicable portions of this Agreement shall be furnished only to the extent necessary to comply with such applicable Laws), (iii) by any Party, as required to implement any of the hedging arrangements and financings, and (iv) in compliance with clauses (i)-(ix) of Section 7.7(a), as if this Agreement were Confidential Information.

 

7.8                        No Third Party Beneficiaries. Except as set forth in Section 7.14, except for the UnSub Agent in respect of the Cure Right and rights of a Qualified Foreclosure Transferee, and except for the rights of GSO under Section 4.5 (which may be enforced by GSO) the provisions of this Agreement are for the exclusive benefit of the Parties and their respective successors and permitted assigns. Except for the foregoing, this Agreement is not intended to benefit or create rights in any other Person, including (a) any Person to whom any debts, Liabilities, or obligations are owed by a Party, or (b) any liquidator, trustee, or creditor acting on behalf of any Party, and no such creditor or any other Person shall have any rights under this Agreement.

 

7.9                        Non-Solicitation. For a period from and after the date hereof until the date that is sixty (60) months after the termination of this Agreement Blackstone shall not, and Blackstone shall cause entities that are Controlled Affiliates of the Blackstone Funds not to, directly or indirectly, (i) solicit, induce or encourage any such employee or officer of the SN, SN UnSub or any of their respective Affiliates to leave their respective positions of employment with SN, SN UnSub and/or or any of their respective Affiliates, (ii) hire or employ any of such employees or officers, whether as a consultant or otherwise, or (iii) hire or employ any such former employee or officer, whether as a consultant or otherwise, within six (6) months of such person’s final employment date with SN, SN UnSub or or any of their respective Affiliates; provided, that this Section 7.9 shall not preclude Blackstone or any of its Affiliates from soliciting for employment or hiring any such employee, agent or contractor who has been terminated (and not rehired) by SN, SN UnSub or any of their respective Affiliates. Notwithstanding anything in this Agreement to the contrary, a breach of this Section 7.9 shall not be considered for purposes of determining a Default hereunder unless the breach was effected with the knowledge of a private equity professional of the Blackstone Funds and the action underlying such breach would violate the terms of this Section 7.9, or alternatively if Sanchez Energy is able to establish a sustained pattern of breaches of this Section 7.9, and in each case provided that Blackstone take such steps necessary to immediately terminate such employee unless otherwise waived in writing by Sanchez Energy.

 

7.10                 Notices. Except as otherwise provided in this Agreement to the contrary, any notice or communication required or permitted to be given under this Agreement shall be in writing and sent to the address of the Party (or Person) set forth below, or to such other more recent address of which the sending Party actually has received written notice:

 

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(a)    if to SN, to:

 

Sanchez Energy Corporation

1000 Main Street, Suite 3000

Houston, Texas 77002

Attention: Greg Kopel

Electronic Mail: [email protected]

 

and with a copy to (which shall not constitute notice):

 

Akin Gump Strauss Hauer & Feld LLP

1111 Louisiana Street, 43rd Floor

Houston, TX 77002

Fax: 713-236-0822

Attn:                                       David Elder

Michael J. Byrd

Electronic Mail: [email protected]

[email protected]

 

(b)    if to SN UnSub, to:

 

SN EF UnSub, LP

c/o Sanchez Energy Corporation

1000 Main Street, Suite 3000

Houston, Texas 77002

Tel:                                              713.756.2782

 

with a copy to:

 

GSO ST Holdings LP

1111 Bagby Street, Suite 2050

Houston, TX 77002

Attention: Robert Horn

Electronic Mail: [email protected]

 

With a copy to:

 

Christopher Richardson

Andrews Kurth Kenyon LLP

600 Travis

Suite 4200

Houston, TX 77002

Electronic Mail: [email protected]

 

(c) if to Blackstone, to:

 

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Aguila Production, LLC

345 Park Avenue, 43rd Floor

New York, New York 10154

Attention: Angelo Acconcia

Electronic Mail: [email protected]

 

and with copies to:

 

Blackstone Management Partners L.L.C.

345 Park Avenue, 43rd Floor

New York, New York 10154

Attention: Angelo Acconcia

Electronic Mail: [email protected]

 

and

 

Kirkland & Ellis LLP

 

600 Travis St., Suite 3300

 

Houston, Texas 77002

 

Attention:

Andrew Calder, P.C.

 

Rhett Van Syoc

Electronic Mail:

[email protected]

 

[email protected]

 

and

 

(d)                          if to the UnSub Agent, to:

 

JPMorgan Chase Bank, N.A.

712 Main Street, 12th Floor South

Houston, TX 77002

Attention:Darren Vanek

Electronic Mail: [email protected]

 

and with a copy to (which shall not constitute notice):

 

Each such notice or other communication shall be sent by personal delivery, by registered or certified mail (return receipt requested), by national, reputable courier service (such as Federal Express or United Parcel Service) or by electronic mail.

 

7.11                 Remedies. Except as provided herein, the rights, obligations, and remedies created by this Agreement are cumulative and in addition to any other rights, obligations, or remedies otherwise available at Law or in equity. In addition, any successful Party is entitled to costs related to enforcing this Agreement, including, reasonable and documented attorneys’ fees and court costs. Notwithstanding anything herein to the contrary, the Parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed by either Party in accordance with the terms hereof and that monetary damages, even if available, would not be an adequate remedy therefor. As a result of the preceding sentence, each Party shall be entitled to specific performance to prevent breaches of this Agreement and

 

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the terms hereof (including the obligation consummate transactions contemplated herein), without proof of actual damages (and each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy) in addition to any other remedy at Law or equity. The Parties further agree not to assert that a remedy of specific performance is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy for any such breach.

 

7.12                        Disputes.

 

(a)                         Consent to Jurisdiction and Service of Process; Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES DISTRICT COURT LOCATED IN HOUSTON, TEXAS OR TEXAS STATE COURT LOCATED IN HOUSTON, TEXAS AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER SUCH ACTIONS OR PROCEEDINGS ARE BASED IN STATUTE, TORT, CONTRACT OR OTHERWISE), SHALL BE LITIGATED IN SUCH COURTS. EACH PARTY (i) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF SUCH COURTS FOR SUCH ACTIONS OR PROCEEDINGS, (ii) AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (iii) AGREES THAT IT WILL NOT BRING ANY SUCH ACTION OR PROCEEDING IN ANY COURT OTHER THAN SUCH COURTS. EACH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE AND IRREVOCABLE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY NON-APPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH ACTIONS OR PROCEEDINGS. A COPY OF ANY SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

(b)                         Waiver of Jury Trial. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL

 

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DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

(c)                           Notwithstanding anything contained in Section 7.12(a), in the event a Party wishes to contest whether it is in Default (the “Contesting Party”), such Party shall provide the Non-Defaulting Parties with its written objection within fifteen (15) days after receipt of a notice of Default (the “Objection Notice”). In such event, a representative of the Contesting Party and each of the Non-Defaulting Parties shall meet and use good faith efforts to mutually agree on a resolution. If such representatives are unable to resolve the disagreement within fifteen (15) days after receipt of the Objection Notice, then the disagreement shall be resolved by arbitration, which arbitration proceedings shall be held in Houston, Texas and conducted pursuant to the Rules for Commercial Arbitration promulgated by the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section 7.12(c). In connection therewith, the arbitrator shall be selected by mutual agreement of the parties to such dispute, or absent such agreement, within ten (10) Business Days of becoming aware that such agreement cannot be made as to the selection of the arbitrator, by the American Arbitration Association. The arbitrator shall not have worked as an employee, consultant, independent contractor or outside counsel for any of the Parties to such dispute or any of their respective Affiliates during the ten (10) year period preceding the arbitration or have any financial interest in the dispute or any assets or businesses of the parties to such dispute. The arbitrator’s determination shall be made within fifteen (15) Business Days after submission of the matters in dispute and, absent manifest error, shall be final and binding upon the Parties to such dispute, without right of appeal. In making its determination, the arbitrator shall be and remain at all times wholly impartial, and, once appointed, the arbitrator shall have no ex parte communications with any of the Parties to the dispute concerning the arbitration or the underlying dispute.

 

7.13                 Expenses. Except as otherwise provided in this Agreement, each of the Parties shall bear its own costs and expenses (including any legal, accounting and other professional fees and expenses) incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby.

 

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7.14                 No Recourse. Notwithstanding anything that may be expressed or implied in this Agreement or any document, agreement, or instrument delivered contemporaneously herewith, and notwithstanding the fact that any Party may be a partnership or limited liability company, each Party, by its acceptance of the benefits of this Agreement, covenants, agrees, and acknowledges that no Persons other than the Parties shall have any obligation hereunder and that it has no rights of recovery hereunder against, and no recourse hereunder or under any documents, agreements, or instruments delivered contemporaneously herewith or in respect of any oral representations made or alleged to be made in connection herewith or therewith shall be had against, any former, current or future director, officer, agent, Affiliate, manager, assignee, incorporator, Controlling Person, fiduciary, representative, or employee of any Party (or any of their successor or permitted assignees), against any former, current, or future general or limited partner, manager, stockholder, or member of any Party (or any of their successors or permitted assignees), or any Affiliate thereof, or against any former, current or future director, officer, agent, employee, Affiliate, manager, assignee, incorporator, Controlling Person, fiduciary, representative, general or limited partner, stockholder, manager, or member of any of the foregoing, but in each case not including the Parties (each, but excluding for the avoidance of doubt, the Parties, a “Party Affiliate”), whether by or through attempted piercing of the corporate veil, by or through a claim (whether in tort, contract, or otherwise) by or on behalf of such Party against the Party Affiliates, by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation, or other applicable law, or otherwise; it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on, or otherwise be incurred by any Party Affiliate, as such, for any obligations of the applicable Party under this Agreement or the transactions contemplated hereby, under any documents or instruments delivered contemporaneously herewith, in respect of any oral representations made or alleged to be made in connection herewith or therewith, or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, such obligations or their creation.

 

7.15                 Conflict. In the event of a conflict between the terms of this Agreement and the terms of any Operating Agreement applicable to the Assets, the terms of this Agreement shall control as among the Parties.

 

7.16                 Subchapter K. The Parties hereby agree that any arrangement established pursuant to this Agreement be excluded from the application of Subchapter K of Chapter 1 of the Code

 

7.17                 Relationship of SN and SN UnSub. Notwithstanding anything herein to the contrary, (a) the obligations under this Agreement of SN, on the one hand, and SN UnSub, on the other hand, are several and such obligations shall not be deemed “joint and several,” (b) SN shall not have any liability, penalties, or limitation of rights for any breach of this Agreement or any provision hereof by SN UnSub, and (c) SN UnSub shall not have any liability, penalties, or limitation of rights for any breach of this Agreement or any provision hereof by SN. Furthermore, and for the avoidance of doubt, no Party shall be responsible in any way for the performance of the obligations of any other Party under this Agreement. Nothing contained herein, and no action taken by any Party pursuant thereto, shall be deemed to constitute or form a partnership, association, joint venture or any other kind of group or entity, or create a presumption that a Party is in any way acting in concert or as a group with respect to such

 

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obligations or the transactions contemplated by this Agreement. Each Party shall be entitled to independently protect and enforce its rights, in equity, contract or law, including, the rights arising out of this Agreement, and it shall not be necessary for any other Party to be joined as an additional party in any proceeding for such purpose.

 

7.18                Operating Committee; Affiliates. To the extent that this Agreement expressly purports to require any Representative of a Party or the Operating Committee to take any action or refrain from taking any action, each such Party agrees to use its reasonable best efforts to cause its Representative(s) and the Operating Committee, as applicable, to take such action or refrain from taking such action, as applicable. To the extent this Agreement purports to require a Party to require any of its Affiliates to take any action or refrain from taking any action, each such Party shall only be required to use its reasonable best efforts to cause an Affiliate not Controlled by it (except for in the case of SN, Sanchez Energy and its subsidiaries (other than SN UnSub and its subsidiaries), so long as SN remains a Controlled Affiliate of Sanchez Energy) to take such action or refrain from taking such action, as applicable.

 

7.19                Force Majeure. If any Party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this Agreement, other than the obligation to indemnify or make money payments or furnish security, that Party shall give to all other Parties prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the Party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The term “force majeure,” as used in this Section, shall mean an act of God, strike, lockout, or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood or other act of nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other event, circumstance or cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the Party claiming suspension. The affected Party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall be entirely within the discretion of the Party concerned.

 

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IN WITNESS WHEREOF, the Parties have executed this Joint Development Agreement as of the date first set forth above.

 

SANCHEZ ENERGY CORPORATION:

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

SN EF MAVERICK, LLC:

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

SN EF UNSUB, LP:

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

AGUILA PRODUCTION, LLC:

 

 

 

 

 

 

 

By:

 

 

Name:

Angelo Acconcia

 

Title:

President

 

 

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Annex I

 

Defined Terms

 

As used in this Agreement, the following terms have the following meanings:

 

Acquisition” has the meaning set forth in Section 5.2(b).

 

Additional E&D Proposal” has the meaning set forth in Section 3.7(c)(i).

 

Additional S&A Proposal” has the meaning set forth in Section 3.7(c)(ii).

 

AFE” means a written description and cost estimate of a proposed activity or operation accompanying a proposal for such activity or operation made pursuant to an Operating Agreement and forwarded to the Operating Committee by Operator pursuant to an Operating Agreement. Any AFE that proposes more than one operation shall be considered a separate AFE as to each operation only for those operations for which the Parties are permitted to make separate elections under the terms of the relevant Operating Agreement.

 

Affiliate” means, when used with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person in question; provided, that, notwithstanding the foregoing, (a) SN and its respective Affiliates, (b) SN UnSub and its respective Affiliates, and (c) Blackstone and its Affiliates, shall not be considered Affiliates of one another solely by virtue of (x) their ownership or Control of the Assets or (y) being a Party to this Agreement, an Operating Agreement or any management services agreement.  For purposes of this Agreement, (i) subject to the preceding sentence, Sanchez Oil & Gas Corporation and its Affiliates including all Permitted Holders, shall be deemed to be Affiliates of SN; provided, however, (i) The Blackstone Group, L.P. and all private equity funds, portfolio companies, parallel investment entities, and alternative investment entities owned, managed, or Controlled by The Blackstone Group, L.P. or its Affiliates that are not part of the credit-related businesses of The Blackstone Group L.P. shall not be considered or otherwise deemed to be an Affiliate of GSO or any of its Affiliates that are part of the credit- related businesses of The Blackstone Group L.P., and (ii) none of GSO or its Affiliates or any fund or account managed, advised or subadvised by GSO or its Affiliates shall constitute an Affiliate of SN, SN UnSub, or any of their Affiliates, nor shall ownership by GSO or its Affiliates or any fund or account managed, advised or subadvised by GSO or its Affiliates of any ownership interest in the Partnership or the General Partner result in GSO or its Affiliates or any fund or account managed, advised or subadvised by GSO or its Affiliates constituting an Affiliate of SN, SN UnSub, or any of their Affiliates.

 

Agreement” has the meaning set forth in the preamble.

 

Alternate Operator” has the meaning set forth in Section 3.8(f).

 

Alternative Equitable Partition” has the meaning set forth in Section 4.5(a).

 

AMI” has the meaning set forth in Section 5.2.

 

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Anadarko” has the meaning set forth in the recitals.

 

APC Well Commitment” means wells required to be drilled pursuant to that certain Development Agreement, dated as of the date hereof, by and among Anadarko, SN, SN UnSub and Blackstone

 

Applicable Credit Agreement” means, in the case of (i) SN, the Second Amended and Restated Credit Agreement, dated as of June 30, 2014, among Sanchez Energy, Royal Bank of Canada, as administrative agent and the other financial institutions party thereto from time to time, as amended, restated, modified, renewed, refunded, replaced in any manner or refinanced in whole or in part from time to time (the “SN Credit Agreement”), (ii) SN UnSub, [describe new credit facility], as amended, restated, modified, renewed, refunded, replaced in any manner or refinanced in whole or in part from time to time (the “UnSub Credit Agreement”)], (iii) Blackstone Operator, [describe new Blackstone credit agreement], as amended, restated, modified, renewed, refunded, replaced in any manner or refinanced in whole or in part from time to time (the “BX Credit Agreement”), and (iv) a Third Party Operator, any of such Third Party Operator’s debt facilities, indentures, commercial paper facilities, secured or unsecured capital market financings or other debt issuances, in each case with banks or other institutional lenders or institutional investors or other lenders or credit providers providing for revolving credit loans, term loans, receivables financing, letters of credit or other borrowings, capital markets financings or other debt issuances, in each case, as amended, restated, modified, renewed, refunded, replaced in any manner or refinanced in whole or in part from time to time (the “Third Party Credit Agreement”), and (v) a Qualified Foreclosure Transferee, any of such Qualified Foreclosure Transferee’s debt facilities, indentures, commercial paper facilities, secured or unsecured capital market financings or other debt issuances, in each case with banks or other institutional lenders or institutional investors or other lenders or credit providers providing for revolving credit loans, term loans, receivables financing, letters of credit or other borrowings, capital markets financings or other debt issuances, in each case, as amended, restated, modified, renewed, refunded, replaced in any manner or refinanced in whole or in part from time to time.

 

Approved AFE” means an AFE approved by the Operating Committee pursuant to Section 3.2(g) or deemed approved under Section 3.7(c).

 

Approved Budget” means the Initial Budget and Work Plan, any Subsequent Budget and Work Plan approved under Section 3.7(b)(ii), and any amendment to the Initial Budget and Work Plan or approved Subsequent Budget and Work Plan approved as provided under Section 3.2.

 

Approved Operation” means an Initial Approved Operation and any Subsequent Approved Operation.

 

Area of Mutual Interest” has the meaning set forth in Section 5.2(a).

 

Asset Interest” has the meaning set forth in Section 4.1(a).

 

Assets” means collectively, the right, title and interest in and to the assets included in the term “Asset” as used in the Purchase Agreement.

 

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Base Preferred Return Amount” has the meaning give to such term in the SN UnSub Partnership Agreement as in effect as of the Effective Date.

 

Blackstone” has the meaning set forth in the preamble.

 

Blackstone Percentage” has the meaning set forth in Section 4.5(a).

 

Blackstone Operator” has the meaning set forth in Section 3.8(a).

 

Blackstone Operatorship Rights” has the meaning set forth in Section 4.5(a).

 

Blackstone Representative” has the meaning set forth in Section 3.3(a)(iii).

 

Board of Directors” means the board of directors of SN.

 

Bona Fide Offer” means a bona fide offer received by Blackstone from a Third Party that was obtained or marketed by Blackstone through a bona fide arms-length process (it being understood that such process need not be a broadly marketed process, but could be a direct negotiation and offer from a single party) designed to achieve the fair market value for the Working Interests, Assets and/or other related assets, or equity interests, as applicable, related to such offer.  For the avoidance of doubt, a Bona Fide Offer will be deemed not to include a Foreclosure Transfer.

 

Budget Negotiation Period” has the meaning set forth in Section 3.7(b)(iv).

 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required by applicable Law to be closed in New York, New York or Houston, Texas.

 

BX Credit Agreement” has the meaning set for in the definition of “Applicable Credit Agreement.”

 

Capital Expenditures” means any expenditure by a Party that is required to be capitalized for purposes of such Party’s financial statements in accordance with GAAP.

 

Change of Control” means, with respect to Sanchez Energy, any of the following transactions: (a) a merger, consolidation or other reorganization, unless securities representing more than 35% of the total combined voting power of the voting securities of the successor entity are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the Persons who beneficially owned Sanchez Energy’s outstanding voting securities immediately prior to such transaction; or (b) any transaction or series of transactions pursuant to which any “person” or “group” (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) becomes directly or indirectly the beneficial owner of any of Sanchez Energy’s securities possessing more than 65% of the total combined voting power of Sanchez’s securities (as measured in terms of the power to vote with respect to the election of its board of directors) outstanding immediately after the consummation of such transaction or series of transactions, whether such transaction involves a direct issuance from Sanchez Energy or the acquisition of outstanding securities held by one or more of Sanchez Energy’s existing

 

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stockholders; excluding, in each case of (a) or (b) above, any transaction with a Permitted Transferee or a Permitted Holder.

 

Closing” means the closing of the transactions contemplated by the Purchase Agreement.

 

Confidential Information” has the meaning set forth in Section 7.7(a).

 

Consent” has the meaning set forth in Section 2.2.

 

Consent Agreement” means that certain Consent to Assignment of Interest dated December 24, 2016, from Briscoe Ranch, Inc. et al. to Sanchez Energy and Anadarko E&P Onshore LLC.

 

Consenting Parties” means Briscoe Ranch, Inc., Miramar Holdings, L.P., Rancho la Cochina Minerals, Ltd., Janey Briscoe Marmion GST Trust, and El Pescado Minerals, Ltd.

 

Control” (including its derivatives and similar terms) means, with respect to any specified Person, the power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, by contract or otherwise.

 

Core Area” means the area marked in [blue] on Exhibit C.

 

Cure Right” has the meaning set forth in the definition of “Default”.

 

Deadlock” has the meaning set forth in Section 3.6(a).

 

Deadlock Notice” has the meaning set forth in Section 3.6(a).

 

Default” means, in respect of any Party, the failure by such Party or any of its Affiliates to remedy, within thirty (30) days of receipt of a Default Notice from any other Party, the material non-performance or material non-compliance with a material provision of this Agreement by such Party or any of its Affiliates (provided, however, that UnSub and SN shall not be considered to be “Affiliates” for the purposes of this definition of “Default”, such that a Default by SN (or by SN’s Affiliates other than SN UnSub) shall not be deemed to be a default by SN UnSub, and a Default by SN UnSub shall not be deemed to be a Default by SN); provided, however, in the event of a failure by UnSub, the UnSub Agent shall also have the right (but not the obligation) to remedy any such failure within such thirty (30) day time period (the “Cure Right”).

 

Default Notice” means a written notice from a Party containing a detailed description of the basis of a claim that another Party has materially failed to perform or materially failed to comply with this Agreement, including specific references to the provisions in this Agreement that such Party has materially failed to comply with or perform; provided, however, in the event of an alleged failure by UnSub, such written notice shall also be delivered to the administrative agent under the UnSub Credit Agreement (the “UnSub Agent”) substantially concurrently with delivery to UnSub.

 

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Defaulting Operator” has the meaning set forth in Section 3.8(f).

 

Defaulting Party” has the meaning set forth in Section 3.9(a).

 

Dispute Parties” has the meaning set forth in Section 4.5(f).

 

Division of Operatorship” has the meaning set forth in Section 3.8(e)(i).

 

Drag Interests” has the meaning set forth in Section 4.5(e).

 

E&D Operations” means all activities and operations related to subsurface exploration and development of the Assets (including all drilling, reworking, plugging back, shutting-in, completing, re-completing, re-fracturing, stimulation, acidization, enhanced recovery operations, plugging and abandonment operations) as well as construction of wellpads and installation and operation of wellsite facilities.

 

Effective Date” has the meaning set forth in the preamble.

 

Equitable Division” has the meaning set forth in Section 3.8(f)(i).

 

Equitable Partition” has the meaning set forth in Section 4.5(a).

 

Equity Interest” means (a) with respect to a corporation, any and all shares of capital stock and any commitments with respect thereto, (b) with respect to a partnership, limited liability company, trust or similar Person, any and all units, equity interests or other partnership/limited liability company interests, and any commitments with respect thereto, and (c) any other direct or indirect equity ownership or participation in a Person.

 

Estimated Cash Outlays” has the meaning set forth in Section 3.7(d).

 

Excluded AMI Transactions” has the meaning set forth in Section 5.2(h).

 

Excluded Sale Transaction Area” has the meaning set forth in Section 4.5(a). 

 

Existing Drilled and Uncompleted Wells” means the oil and gas wells listed in Annex VI.

 

Existing Producing Wells” means the oil and gas wells listed in Annex V.

 

Existing Wellpad” means, as of any date of determination, each then-existing wellpad with average daily production in excess of [300] BOE/D over the prior twelve-month period under the Leases pursuant to which the Parties (including their respective Affiliates) retain any Working Interests.

 

Fair Market Valuemeans the value of any specified interest or property, which shall not in any event be less than zero, that would be obtained in an arm’s length transaction for cash between an informed and willing buyer and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, and without regard to the particular circumstances of the

 

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buyer or seller, conveyance of operatorship associated with any specified interest or property or a control premium.

 

Final Deadlock” has the meaning set forth in Section 3.6(a).

 

Final Deadlock Notice” has the meaning set forth in Section 3.6(b).

 

Final Valuation” has the meaning set forth in Section 4.5(f)(ii).

 

Financial Advisor” has the meaning set forth in Section 3.8(e)(i).

 

Foreclosure Transfer” means any assignment, transfer, conveyance, exchange or any other alienation resulting from any judicial or non-judicial foreclosure by the holder of a security interest or other encumbrance or any Transfer to the holder of a security interest or other encumbrance in connection with a workout, bankruptcy, restructuring or similar arrangement, including in each case to the extent effectuated pursuant to Sections 363 or 1129 of the U.S. Bankruptcy Code.

 

Form Operating Agreement” means the form of AAPL Joint Operating Agreement attached hereto as Exhibit B.

 

Full Restricted Zone” means, for each Existing Producing Well, a three dimensional area in the shape of a rectangular prism, defined by the following: the rectangular subsurface zone extending perpendicularly (i) 600 feet on the horizontal plane in either direction from any part of the perforated interval of the wellbore of such Existing Producing Well and (ii) 150 feet on the vertical plane in either direction from any part of the perforated interval of the wellbore of such Existing Producing Well.

 

Full Spacing Restrictions” has the meaning set forth in Section 5.4(a)(iii).

 

Future Wellpads” means all prospective wellpads for acreage under the Leases on which there are no Existing Wellpads based on customary industry practices and the reserve report for each Party covering the previous 12-month period.

 

GAAP” means those generally accepted accounting principles and practices that are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor).

 

Governmental Authority” means any legislature, court, tribunal, arbitrator, authority, agency, department, commission, division, board, bureau, branch, official or other instrumentality of the U.S., or any domestic state, county, city, tribal or other political subdivision, governmental department or similar governing entity, and including any governmental, quasi-governmental, regulatory, administrative or non-governmental body exercising similar powers of authority.

 

GSO” means ST Holdings L.P.

 

HoldCo” means Aguila Production HoldCo, LLC.

 

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Included Area Value Percentage” has the meaning set forth in Section 4.5(a).

 

Initial Approved Operations” has the meaning set forth in Section 3.7(a).

 

Initial Budget and Work Plan” has the meaning set forth in Section 3.7(a).

 

Included Sale Transaction Area” has the meaning set forth in Section 4.5(a).

 

IPO” has the meaning set forth in Section 4.4.

 

IPO Notice” has the meaning set forth in Section 4.4.

 

IPO Party” has the meaning set forth in Section 4.4.

 

Joint Exploration Agreement” means the Joint Exploration Agreement, dated to be effective as of March 1, 2008, by and between Anadarko E&P Company LP and TXCO Energy Corp., as amended from time to time.

 

[redacted]” has the meaning set forth in the recitals.

 

Laws” means all federal, state and local statutes, laws (including common law), rules, regulations, codes, orders, ordinances, licenses, writs, injunctions, judgments, subpoenas, awards and decrees and other legally enforceable requirements enacted, adopted, issued or promulgated by any Governmental Authority.

 

Leases” means, collectively, the oil, gas and mineral leases and subleases, royalties, overriding royalties, net profits interests, carried and convertible interests, and other rights included in the term “Leases” as used in the Purchase Agreement.

 

Liabilities” means, as to any Person, all liabilities and obligations of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent, and whether or not required to be considered pursuant to GAAP.

 

Lien” shall have the meaning ascribed to “Encumbrance” in the Purchase Agreement.

 

Limited Restricted Zone” means, for each Existing Producing Well, two overlapping three dimensional areas, each in the shape of a rectangular prism, defined by the following: (i) the rectangular subsurface zone extending perpendicularly (A) 600 feet on the horizontal plane in either direction from any part of the perforated interval of the wellbore of such Existing Producing Well and (B) 90 feet on the vertical plane in either direction from any part of the perforated interval of the wellbore of such Existing Producing Well; and (ii) the rectangular subsurface zone extending perpendicularly (A) 275 feet on the horizontal plane in either direction from any part of the perforated interval of the wellbore of such Existing Producing Well and (B) 150 feet on the vertical plane in either direction from any part of the perforated interval of the wellbore of such Existing Producing Well.

 

Limited Spacing Restrictions” has the meaning set forth in Section 5.4(a)(iv).

 

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Losses” mean means any liabilities, losses (including first party losses), fines, penalties, interest, damages, costs, expenses (including expenses of actions, amounts paid in connection with any assessments, judgments or settlements relating thereto, interest and penalties recovered by a Third Party with respect thereto and out-of-pocket expenses and reasonable attorneys’ fees, experts’ fees and expenses reasonably incurred in defending against any such action) arising from or related to an injury, illness, death, property damage, property loss or environmental pollution or contamination, and any other costs associated with control, removal, restoration and cleanup of pollution or contamination.

 

Material Contracts” means [any contract related to E&D Operations or S&A Operations or otherwise relating to the Assets, including drilling and completion agreements, gathering agreements, processing agreements, transportation agreements, supply agreements, disposal agreements, electric supply agreements or marketing or sales agreements worth more than $1,000,000.]

 

Monthly Invoice” has the meaning set forth in Section 3.7(d).

 

Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

 

Non-Core Area” means the area marked in [green] on Exhibit C.

 

Non-Defaulting Party” has the meaning set forth in Section 3.9(a).

 

Non-Initiating Party” has the meaning set forth in Section 4.2(a).

 

Non-IPO Party” has the meaning set forth in Section 4.4.

 

Non-Operating Party” has the meaning set forth in Section 3.10.

 

Non-Transferring Party” has the meaning set forth in Section 4.1(a).

 

Operating Agreement” means any Joint Operating Agreement for any of the Leases and, to the extent applicable, the Joint Exploration Agreement and Participation Agreement as it may relate to a Party’s ownership of any interest in a Lease.

 

Operating Committee” has the meaning set forth in Section 3.1.

 

Operator” has the meaning set forth in Section 3.8(a).

 

Operator Default Event” has the meaning set forth in Section 3.8(f).

 

Participation Agreement” means that certain Maverick Basin Area Participation Agreement, dated effective January 1, 2011, by and between Anadarko and [redacted]. “Parties” has the meaning set forth in the preamble.

 

Party” has the meaning set forth in the preamble.

 

Party Affiliate” has the meaning set forth in Section 7.14.

 

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Permitted Holders” means (a) Antonio R. Sanchez, III and A.R. Sanchez, Jr., (b) any spouse or descendant of any individual named in (a), or (c) any other natural person who is related to, or who has been adopted by, any such individual or such individual’s spouse referenced in (a)-(b) above within the second degree of kinship, or (d) any Person Controlled, directly or indirectly, by any of the Persons referenced in clauses (a)-(c) above, individually or collectively by one or more of such Persons.

 

Permitted Liens” has the meaning set forth in Section 4.1(a).

 

Permitted Transferee” means, when used with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, such Person.  For purposes of this Agreement, (i) Sanchez Production Partners LP and its Controlled Affiliates shall be deemed to be a Permitted Transferee of SN, except with respect to Section 4.2 for which purposes Sanchez Production Partners LP and its Controlled Affiliates shall not be deemed to be a Permitted Transferee of Sanchez, (ii) Permitted Holders shall be a Permitted Transferee of SN; and (iii) SN and SN UnSub shall each be treated as a Permitted Transferee of each other.

 

Person” means any individual or entity, including any corporation, limited liability company, partnership (general or limited), joint venture, association, joint stock company, trust, unincorporated organization or Governmental Authority.

 

Post-Division Non-Operator” has the meaning set forth in Section 3.8(e)(i).

 

Post-Division Operator” has the meaning set forth in Section 3.8(e)(i).

 

Pre-Division Operator” has the meaning set forth in Section 3.8(e)(i).

 

Preferred Units” has the meaning give to such term in the SN UnSub Partnership Agreement.

 

Proposed Sale” has the meaning set forth in Section 4.2(a).

 

Proposed Transferee” has the meaning set forth in Section 4.2(a)(i).

 

Purchase Agreement” has the meaning set forth in the recitals.

 

Qualified Foreclosure Transferee” has the meaning set forth in Section 4.1(b).

 

Qualified Foreclosure Transferee Representative” has the meaning set forth in Section 4.1(b).

 

Quorum” has the meaning set forth in Section 3.5(a).

 

Redemption Date” means the date of redemption of all outstanding Preferred Units in cash under the SN UnSub Partnership Agreement, as such agreement may be amended from time to time, issued as of the Effective Date pursuant to that certain Securities Purchase Agreement dated as of January 12, 2017, by and among Sanchez Energy, SN UR Holdings, LLC, a Delaware

 

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limited liability company; SN EF UnSub Holdings, LLC, a Delaware limited liability company; SN UnSub; SN EF UnSub GP, LLC, a Delaware limited liability company; GSO ST Holdings Associates LLC, a Delaware limited liability company; and GSO ST Holdings LP, a Delaware limited partnership.

 

Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of the date hereof, by and between HoldCo and Sanchez Energy.

 

Representative” has the meaning set forth in Section 3.1.

 

Required Return Sum” has the meaning set forth in Section 4.5(i).

 

Reserve Auditor” has the meaning set forth in Section 3.8(f)(i).

 

ROFO Interests” has the meaning set forth in Section 4.3.

 

ROFO Notice” has the meaning set forth in Section 4.3.

 

ROFO Offer” has the meaning set forth in Section 4.3.

 

ROFO Recipient” has the meaning set forth in Section 4.3.

 

ROFO Transferor” has the meaning set forth in Section 4.3.

 

S&A Operations” means any and all activities and operations associated with development and operation of the Assets other than E&D Operations, including, without limitation, procurement, construction, and operation of non-wellsite surface facilities such as water supply, storage, gathering and disposal facilities; electric power facilities; lease roads, frac ponds, and central tank batteries; gathering, treating, compression, dehydration, stabilization, and fractionation facilities; in each case, insofar as such operations are not otherwise dedicated to third-parties pursuant to existing contractual commitments burdening the Assets.

 

S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, and any successor thereto.

 

Sale Transaction” has the meaning set forth in Section 4.5(a).

 

Sale Transaction Agreement” has the meaning set forth in Section 4.5(d).

 

Sale Transaction Equitable Partition” has the meaning set forth in Section 4.5(b).

 

Sale Transaction Transferee” has the meaning set forth in Section 4.5(a).

 

Sanchez Energy” means Sanchez Energy Corporation, a Delaware corporation, or for purposes of Section 4.3, any issuer of SN Common Stock.

 

Sanchez Operator” has the meaning set forth in Section 3.8(a).

 

Sanchez Representative” has the meaning set forth in Section 3.3(a)(ii).

 

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SN Common Stock” means shares of common stock of Sanchez Energy, par value $0.01 per share, and any class of stock or other securities resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any liquidation, dissolution or winding up of Sanchez Energy, and any shares or other securities issued in respect of SN Common Stock in connection with any exchange for or replacement of such shares of SN Common Stock, recapitalization, merger, consolidation, conversion or similar transaction.

 

SN Credit Agreement” has the meaning set for in the definition of “Applicable Credit Agreement.”

 

SN Equity Financed Offer” has the meaning set forth in Section 4.3.

 

SN Operatorship Rights” has the meaning set forth in Section 4.5(a).

 

SN UnSub Partnership Agreement” means that certain Amended and Restated Agreement of Limited Partnership of SN UnSub, dated as of [·].

 

SN UnSub GP LLC Agreement” means that certain Amended and Restated Limited Liability Company Agreement of SN EF UnSub GP, LLC, dated as of [·].

 

Specified Credit Agreement” means if Operator is (i) SN, the SN Credit Agreement, (ii) BX, the BX Credit Agreement, or (iii) a Third Party, a Third Party Credit Agreement.

 

Specified Event of Default” means an Event of Default as such may be defined from time to time under a Specified Credit Agreement, and as a result of such Event of Default, Operator’s obligations thereunder have been accelerated prior to their stated maturity and the obligations which have been so accelerated exceed $20,000,000.

 

Subsequent Approved Operations” has the meaning set forth in Section 3.7(b) and Section 3.7(c).

 

Subsequent Budget and Work Plan” has the meaning set forth in Section 3.7(b)(i).

 

Subsequent Proposed Operations” has the meaning set forth in Section 3.7(b)(i).

 

Ta g-Along Notice” has the meaning set forth in Section 4.2(a).

 

Ta g-Along Offer” has the meaning set forth in Section 4.2(b).

 

Ta g-Along Transaction” has the meaning set forth in Section 4.2(b).

 

Tag Interests” has the meaning set forth in Section 4.2(b).

 

Third Party” means any Person other than a Party or one of their Affiliates or a Permitted Holder.

 

Third Party Credit Agreement” has the meaning set for in the definition of “Applicable Credit Agreement.”

 

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Third Party Operator” has the meaning set forth in Section 3.8(f).

 

Transfer” (including its derivatives and similar terms) means, with respect to an Asset Interest, a direct or indirect, voluntary or involuntary, sale, assignment, transfer, conveyance, exchange, bequest, devise, gift or any other alienation, including, except to the extent constituting Permitted Liens, any pledge or grant of a security interest (in each case, with or without consideration and whether by operation of Law or otherwise, including, by merger or consolidation) of any rights, interests or obligations with respect to all or any portion of such Asset Interest.

 

Transferring Party” has the meaning set forth in Section 4.1(a).

 

True-Up Amount” has the meaning set forth in Section 3.7(d).

 

Unanimous Consent” means (x) the affirmative vote of all of the Representatives of a Party not then in Default in attendance at a duly called and convened meeting of the Operating Committee, which for the avoidance of doubt (assuming no Party is in Default) shall include the affirmative vote of at least one (1) Sanchez Representative appointed by SN, at least one (1) Blackstone Representative, and, either (1) Sanchez Representative appointed by SN UnSub or, if applicable, the Qualified Foreclosure Transferee Representative, or (y) the affirmative written consent in lieu of a meeting executed by all of the Representatives of Parties not in Default then constituting the Operating Committee.

 

UnSub Agent” has the meaning set forth in the definition of “Default Notice”.

 

UnSub Credit Agreement” has the meaning set for in the definition of “Applicable Credit Agreement.”

 

Valuation Firm” has the meaning set forth in Section 4.5(f)(i).

 

VDR” has the meaning set forth in Section 5.1(b).

 

Wellpads” means, collectively, the Existing Wellpads and the Future Wellpads.

 

Working Interest” means with respect to any lease or well or wellpad relating to the Assets, the fractional interest in and to such lease, well or wellpad that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such lease or well.

 

*          *          *

 

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ANNEX C

 

FORM OF

MANAGEMENT SERVICES AGREEMENT

 



 

Final Form

 

MANAGEMENT SERVICES AGREEMENT

 

This MANAGEMENT SERVICES AGREEMENT (this “Agreement”), dated [·] (the “Effective Date”), is by and between Aguila Production HoldCo, LLC, a Delaware limited liability company (the “Company”), and [[·], a [·]] (“Sanchez”) and solely for the purposes of Section 5.8(d), SN EF Maverick, LLC, a Delaware limited liability company (“SN”).  Sanchez and the Company are referred to herein separately as a “Party” and collectively as the “Parties.”

 

Recitals:

 

WHEREAS, the Company desires to engage Manager (as defined below) to provide the comprehensive management services described herein to the Company and all of its subsidiaries (collectively, the “Company Group”), including the facilitation of the ownership, operation, finance, maintenance, exploration, production and development of oil and gas opportunities and investments and other related rights, assets and interests in Maverick, Dimmit, Webb and LaSalle Counties, Texas.

 

WHEREAS, the Manager is willing to undertake such engagement, subject to the terms and conditions of this Agreement.

 

Agreements:

 

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

 

ARTICLE I

Definitions

 

Capitalized terms used in this Agreement but not expressly defined in this Agreement shall have the respective meanings ascribed to such terms in the LLC Agreement (as defined below).  As used in this Agreement, the following terms shall have the meanings set forth below:

 

Administrative Fee” means an administrative fee of two percent (2%) of annual G&A Costs.

 

Affiliates” has the meaning set forth in the LLC Agreement.

 

Agreed Rate” means two percent (2%) plus the prime rate on corporate loans at large U.S. money center commercial banks as set forth in The Wall Street Journal “Money Rates” table under the heading “Prime Rate,” on the first date of publication for the month in which payment is due, or the maximum rate of interest permitted by applicable Laws.

 

Agreement” has the meaning set forth in the Preamble.

 

Approved Budget” has the meaning set forth in the Joint Development Agreement.

 

Blackstone” has the meaning set forth in the LLC Agreement.

 



 

Blackstone Group” means Blackstone Capital Partners VII L.P. and Blackstone Energy Partners II L.P.

 

Board” has the meaning set forth in the LLC Agreement.

 

Change in Control” means, with respect to the Company, any events, transactions or other circumstances (or any series of the foregoing) resulting in the Blackstone Group no longer owning (directly or indirectly, individually or collectively) Equity Interests (i) representing over 50% of the Voting Stock of the Company or (ii) entitling the Blackstone Group to elect at least a majority of directors (or Persons with management authority performing similar functions) of the Company.

 

Company” has the meaning set forth in the Preamble.

 

Company Bank Accounts” has the meaning set forth in Section 3.1.

 

Company Business” means the ownership, operation (including marketing and hedging activities), finance, maintenance, exploration, production and development of Hydrocarbon Interests owned by a member of the Company Group.

 

Company Confidential Information” means all nonpublic or confidential information (i) furnished to Manager or its representatives by or on behalf of Company or (ii) prepared by Company (and disclosed to Manager) or at the direction of Company in the performance of Services utilizing the information referred to in clause (i) (in each case irrespective of the form of communication and whether such information is furnished on or after the date hereof).

 

Company Group” has the meaning set forth in the recitals.

 

Company Revenues” has the meaning set forth in Section 3.1.

 

Effective Date” has the meaning set forth in the Preamble.

 

Equity Interest” means (a) with respect to a corporation, any and all shares of capital stock and any commitments with respect thereto, (b) with respect to a partnership, limited liability company, trust or similar Person, any and all units, equity interests or other partnership/limited liability company interests, and any commitments with respect thereto, and (c) any other direct or indirect equity ownership or participation in a Person.

 

Excluded Services” has the meaning set forth in Section 2.2(b).

 

Financial Records” has the meaning set forth in Section 4.1.

 

Force Majeure Events” has the meaning set forth in Section 7.10.

 

G&A Costs” means the cost of providing the Services allocated in accordance with Manager’s (or such other Affiliate’s, including SOG’s) regular and consistent accounting practices, including (a) the cost of supplies and the operation and maintenance of equipment used in the provision of the Services, (b) the cost of employee wages, bonuses, severance payments,

 

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employment taxes (including social security taxes and unemployment taxes) and benefits for employees participating in the provision or support of the provision of the Services, (c) direct costs, (d) indirect administrative costs and (e) general and overhead costs and equity compensation expenses, in each case, excluding any Operating Expenses and disbursements paid to Third Parties under Section 3.2(a); provided, that G&A Costs for any month shall be no greater than $500,000 per month to the Company subject to reasonable adjustments that are consistent with market terms as a result of an increase in actual G&A Costs incurred by Manager and/or its Affiliates (including SOG) and based upon a reasonable allocation of such costs among the Company and other entities for which Manager and/or its Affiliates provides management services as reasonably agreed upon by the Company and Manager; provided, further, that there shall be no duplication with respect to any costs that are treated as G&A Costs pursuant to this Agreement and the same costs that are charged to the Company Group by Manager or any of its Affiliates pursuant to any applicable operating agreement relating to the Company Business pursuant to which Manager or any of its Affiliates serves as operator; provided, further, that G&A Costs shall include the Administrative Fee.

 

Governmental Authority” has the meaning set forth in the LLC Agreement.

 

Hydrocarbon Interests” means (a) all oil, gas and/or mineral leases, oil, gas or mineral properties, mineral servitudes and/or mineral rights of any kind (including fee mineral interests, lease interests, farmout interests, overriding royalty and royalty interests, net profits interests, oil payment interests, production payment interests and other types of mineral interests), including any rights to acquire any of the foregoing, and (b) all oil and gas gathering, treating, compression, storage, processing and handling assets of any kind, including all pipelines, wells, wellhead equipment, pumping units, flowlines, tanks, buildings, injection facilities, saltwater disposal facilities, compression facilities, gathering systems, processing plants, and other related equipment of any kind.

 

Indemnified Manager Persons” has the meaning set forth in Section 5.8(a).

 

Inventions” has the meaning set forth in Section 2.8.

 

IPO” has the meaning set forth in the Joint Development Agreement.

 

Joint Development Agreement” means that certain Joint Development Agreement by and among Aguila Production, LLC, a Delaware limited liability company, SN EF Maverick, LLC, a Delaware limited liability company, SN EF UnSub, LP, a Delaware limited partnership and solely for the purposes of Section 2.2., Section 4.2, Section 4.5 and Article VII therein, Sanchez Energy Corporation, a Delaware corporation, in effect as of the Effective Date.

 

Laws” has the meaning set forth in the LLC Agreement.

 

LLC Agreement” means that certain Amended and Restated Limited Liability Company Agreement of Aguila Production HoldCo, LLC, dated as of the Effective Date.

 

Losses” means all costs, expenses (including reasonable attorneys’ fees, court costs, and other costs of suit), demands, damages, suits, judgments, orders, penalties, liabilities, and other losses, including in connection with seeking indemnification, whether joint or several.

 

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Loss Notice Amount” means $75,000.

 

Majority Consent” has the meaning set forth in the LLC Agreement.

 

Manager” means Sanchez or an Affiliate thereof designated by Sanchez.

 

Manager Confidential Information” means any and all nonpublic or confidential information provided by or on behalf of Manager in the performance of the Services, including under Section 5.10(c) (in each case irrespective of the form of communication and whether such information is furnished on or after the date hereof).

 

Marketing Transition Services Agreement” means that certain Marketing Transition Services Agreement, dated as of the date hereof, by and among SN EF Maverick, LLC, Anadarko Energy Services Company, Kerr-McGee Oil & Gas Onshore LP and Anadarko E&P Onshore LLC.

 

Notice” has the meaning set forth in Section 7.2.

 

Operating Agreement” has the meaning set forth in the Joint Development Agreement.

 

Operating Expenses” means any reasonable costs and expenses incurred directly by the Company and paid for out of the Company Bank Accounts.

 

Operator” has the meaning set forth in the Joint Development Agreement.

 

Out-of-Pocket Expenses” has the meaning set forth in Section 5.6.

 

Party” and “Parties” are defined in the Preamble.

 

Payment Reserves” has the meaning set forth in Section 3.3(b).

 

Permitted Actions” means all agreements, contracts and actions permitted to be taken by Manager under this Agreement or the LLC Agreement or that do not expressly require approval of the Board, any committee of the Board or any of Company’s members under Article VI of the LLC Agreement, or which have been so approved.

 

Permitted Encumbrances” means and includes:  (a) lessor’s royalties, overriding royalties, production payments, and carried interests; (b) sales contracts covering oil, gas, or associated liquid or gaseous hydrocarbons that individually or in the aggregate are not such as to materially detract from the value of or materially interfere with the ownership of the assets of the Company; (c) preferential rights to purchase and required third party consents to assignments and similar agreements (x) with respect to which waivers or consents are obtained from the appropriate parties or required notices have been given to the holders of such rights and the appropriate time period for asserting such rights has expired without an exercise of such rights or (y) which are not applicable to, or exercisable in connection with, the execution and delivery of this Agreement and the LLC Agreement or the consummation of the transactions contemplated hereunder or thereunder; (d) all rights to consent by, required notices to, filings with, or other actions by any Governmental Authority in connection with the sale or conveyance of oil and gas

 

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leases or interests therein or sale of production therefrom if the same are customarily obtained subsequent to such sale or conveyance; (e) Liens for taxes or assessments not due or not delinquent on the Effective Date; (f) defects or irregularities of title arising out of events that have been barred by limitations; (g) any Liens permitted or contemplated by the terms and conditions of this Agreement or that are customarily associated with the performance of the Services hereunder; (h) any Liens resulting or arising from, directly or indirectly, the failure of any member of the Company Group to pay any amounts owed by such Person to a Third Party, Manager or any of Manager’s Affiliates or to deposit funds in the Company Bank Accounts when so required hereunder; (i) Liens arising under operating agreements, unitization and pooling agreements and sales contracts in the ordinary course of business; (j) materialman’s, mechanic’s, repairman’s, contractor’s, operator’s, and other similar Liens or charges arising in the ordinary course of business and (k) any matter waived in writing by the Company.

 

Person” has the meaning set forth in the LLC Agreement.

 

Sanchez” has the meaning set forth in the Preamble.

 

Sanchez Credit Agreement” means:

 

a)             that certain Second Amended and Restated Credit Agreement, dated as of June 30, 2014 among Sanchez Energy Corporation, a Delaware corporation, as borrower, the lenders party thereto and Royal Bank of Canada as administrative agent, as amended by that certain First Amendment to Second Amended and Restated Credit Agreement, dated as of September 9, 2014, as amended by that certain Second Amendment to Second Amended and Restated Credit Agreement, dated as of March 31, 2015, as amended by that certain Third Amendment to Second Amended and Restated Credit Agreement, dated as of July 20, 2015, as amended by that certain Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of September 29, 2015, as amended by that certain Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of October 30, 2015, as amended by that certain Sixth Amendment to Second Amended and Restated Credit Agreement, dated as of January 22, 2016 and as amended by that certain Seventh Amendment to Second Amended and Restated Credit Agreement, dated as of March 18, 2016;

 

b)             that certain 6.125% Senior Secured Notes Due 2023 Indenture dated June 27, 2014 among Sanchez Energy Corporation, a Delaware corporation, the guarantors party thereto, and U.S. Bank National Association, as trustee; and

 

c)              that certain 7.75% Senior Notes Due 2021 Indenture dated June 13, 2013 among Sanchez Energy Corporation, a Delaware corporation, the guarantors party thereto, and U.S. Bank National Association, as trustee, as supplemented by that certain First Supplemental Indenture, dated as of September 11, 2013 and as further supplemented by that certain Second Supplemental Indenture, dated as of June 2, 2014, in each of (a), (b) and (c), as amended, restated, supplemented, refinanced or replaced from time to time.

 

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Services” has the meaning set forth in Section 2.2(a).

 

SOG” means Sanchez Oil & Gas Corporation, a Delaware corporation.

 

Successor Manager” has the meaning set forth in Section 6.1(b).

 

Third Party” has the meaning set forth in the LLC Agreement.

 

Transition Services Agreement” means that certain Transition Services Agreement, dated as of the date hereof, by and between Anadarko E&P Onshore LLC and SN EF Maverick, LLC.

 

Voting Stock” means, with respect to any Person, Equity Interests in such Person (and/or, if applicable, such Person’s general partner), the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or Persons with management authority performing similar functions) of such Person.

 

Working Capital Reserves” has the meaning set forth in Section 3.3(a).

 

ARTICLE II Services

Regarding Assets

 

Section 2.1                            Manager.

 

(a)                          Engagement.    Subject  to the terms and provisions of this Agreement, effective as of the Effective Date and continuing for the term set forth in Article VI, the Company engages and hires Manager, and Manager accepts such engagement and hiring, to perform the Services. Subject to Article V, all services provided, acts performed, and activities conducted (whether by employees of Manager or by contractors, consultants, accountants, attorneys, or other Third Parties) under and in accordance with this Agreement shall be for the account of the Company or other member of the Company Group.

 

(b)                          Role.   Subject to the terms of the LLC Agreement, the Company and Manager intend that, as of the Effective Date and continuing for the term set forth in Article VI, Manager shall serve as manager of the Company Business pursuant to the terms of this Agreement.

 

Section 2.2                            Performance of Services.

 

(a)                          Manager shall provide to the Company Group day-to-day general, administrative, business and financial services consistent with the purpose of the Company as specified in Section 2.4 of the LLC Agreement and of a type customarily provided to a non- operator of Hydrocarbon Interests, which services shall, to the extent consistent with the foregoing, include (i) the services listed on Schedule 1 and (ii) the following additional services on behalf of the Company Group (collectively, the “Services”) but, in all cases, excluding the Excluded Services or services that do not constitute Permitted Actions:

 

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(i)         Discharge of Obligations.   Manager shall pay and discharge, on behalf of the Company Group, to the extent the Company has made such funds available to Manager, all expenses incurred with respect to the Company Business, and, to the extent the Company has made such funds available to Manager, shall pay and discharge, on behalf of the Company Group, all other liabilities related to the Company Business, in each instance, in the manner provided for in Article III.  Manager shall keep a complete and accurate record (in all material respects) of the accounts upon which such expenses and liabilities are based, showing charges and credits made and received, including overriding royalties and other burdens on the assets of the Company Group in accordance with applicable agreements and Laws. Upon reasonable notice to Manager, the Company shall have access to such records during normal business hours in accordance with, and subject to the limitations set forth in Section 4.1, as if such records are Financial Records.

 

(ii)        Protection from Liens.  Manager, solely in its capacity as Manager acting under this Agreement, shall not place any Liens on the assets, except for Permitted Encumbrances, or to the extent the Company directs Manager to do so or such liens or encumbrances arise as a result of any contract or agreement entered into or any action or inaction taken by the Manager at the direction or with the consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed.

 

(iii)      Receipt of Notices and Other Communication.    Manager shall review, categorize, classify, organize, record, file, and maintain all notices, correspondence, reports, instruments, writings, agreements, documents, claims, assertions, demands, records, invoices, and other communications received by Manager addressed to (or intended for) any member of the Company Group and pertaining to the Company Group, and shall use commercially reasonable efforts to respond in a timely manner to the foregoing as necessary on behalf of the Company Group.  Manager shall promptly deliver Notice to the Company with respect to any claim or demand received by Manager adversely affecting the Company Group and the Company Business that could reasonably be expected to exceed the Loss Notice Amount or otherwise adversely impact the Company Group or their assets in any material respect.

 

(iv)       Regulatory Compliance.  Manager shall, on behalf of the Company Group, prepare, apply for, submit, file, receive, hold, use, abandon, or relinquish, as appropriate, all permits and licenses required by applicable Laws in connection with the assets and the conduct of the business of the Company Group.  Such permits and licenses shall be in the name of the applicable member of the Company Group and such member shall be financially responsible for all matters involving or relating to such permits and licenses and any circumstances arising from or relating to such permits and licenses.

 

(v)        Claims and Actions.   Subject to Section 5.8, Manager shall, in cooperation with the Company, protect and defend against any non-material

 

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adverse claim or demand made jointly against any member of the Company Group and Manager by, and pursue non-material claims of the Company Group and Manager made jointly against, Third Parties with respect to the Company Business, and all interests attributable thereto, including the employment or use of counsel for the prosecution or defense of litigation and the contest, settlement, release, or discharge of any such claim or demand. Manager shall notify the Company of (i) every adverse claim or demand made or threatened to be made by any Person (including any Governmental Authority) involving the Company or Manager (with respect to the performance of Services hereunder) to which Manager becomes aware that could reasonably be expected to exceed the Loss Notice Amount or otherwise adversely impact the Company Group in any material respect and (ii) any lawsuits or proceedings instituted with respect to the Company Group or their assets or production attributable thereto to which Manager becomes aware. Manager shall have no authority to retain Third Party counsel on the Company Group’s behalf with respect to any such claim or demand or settle any such claim or demand on the Company Group’s behalf without the prior written consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed.

 

(vi)                       Suspense Accounts.       Manager shall maintain, on behalf of the Company, all suspense accounts related to the Company Business.

 

(vii)      Performance of Contracts.     Manager shall, on behalf of the Company, use its commercially reasonable efforts to cause to be performed and observed the terms and conditions of all agreements to which any member of the Company Group is a party.

 

(viii)    Environmental Audit.     At the request of the Company, Manager shall cooperate with and facilitate the Company’s retention of any qualified environmental consultant to provide such reports to the Company concerning any Hydrocarbon Interest of the Company Group as the Company shall reasonably request; provided, however, that the Company shall timely provide the Company funds necessary to pay and discharge all costs and expenses associated with the retention of such environmental consultant.

 

(b)        Excluded Services.   Notwithstanding anything in this Agreement to the contrary, in no event shall Manager be required under this Agreement to perform any functions, duties or services of the Operator (under the Joint Development Agreement, any Operating Agreement or otherwise) or other operator of the Hydrocarbon Interests that are or would otherwise customarily be performed by such Person (collectively, the “Excluded Services”). Manager’s obligation to provide the Services shall be conditioned upon and subject to any legal obligations, prohibitions or restrictions applicable to it, and this Agreement shall not obligate Manager to violate, modify or eliminate any such obligation, prohibition or restriction. Notwithstanding anything herein to the contrary, the failure of Manager to provide to any member of the Company Group any Service for which Manager is not entitled to receive full reimbursement under this Agreement shall not be deemed a breach or violation of (or failure to perform under) this Agreement.

 

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Section 2.3      Prohibited Acts.  Manager shall not have the authority or be permitted to take, in the name or on behalf of the Company, any action, unless and until the Company has the authority and is permitted to take such action under the LLC Agreement, including the approval of the Board as contemplated by Section 6.3 of the LLC Agreement, it being agreed to and understood that, without limiting any other powers or duties of Manager provided in this Agreement, Manager is hereby authorized to act as agent of Company and each other member of the Company Group for the procurement or performance of all Services to be procured for the Company or any other member of the Company Group by Manager pursuant to this Agreement, and to, in Company’s name or in the name of any other member of the Company Group and on its or such other member’s behalf or in the name of Manager but subject to the terms of this Agreement, to take all Permitted Actions in connection with the performance of the Services, including the execution of any agreements or other instruments.

 

Section 2.4      Insurance Coverage.  Manager shall use commercially reasonable efforts to either (i) cause the Company Group to obtain and maintain in full force and effect during the term of this Agreement the coverages set forth on Schedule 2 (and Company shall be obligated to obtain and maintain such insurance), which shall name Manager and SOG as an additional insured thereunder and shall contain waivers by the insurers of any and all rights of subrogation to pursue any claims or causes of action against Manager and SOG or (ii) name the Company and Manager as an additional insured under an insurance policy of SOG and cause such insurance policy to be maintained in full force and effect during the term of this Agreement with coverages equivalent to or greater than as set forth on Schedule 2 and contain waivers by the insurers of any and all rights of subrogation to pursue any claims or causes of action against Manager and SOG.

 

Section 2.5      Seismic Agreements.  Seismic and other reserve related data Sanchez has access to, solely to the extent such data is relevant to the assets of the Company Group, shall be made available to the Company Group subject to and in accordance with the terms of a geophysical seismic data use license agreement in a form reasonably acceptable to Manager and its Affiliates to be entered into by Manager (or one or more of its Affiliates) and the appropriate member(s) of the Company Group (provided such access does not breach, conflict or violate any Third Party licensing agreement or other contract).

 

Section 2.6      Employees  of  the  Manager.     Manager shall select, employ, pay compensation (including the payment of all social security taxes, unemployment taxes and similar payments related thereto) and any applicable severance (which severance shall be reimbursable by the Company to Manager) to, supervise and direct all personnel and employees of the Manager necessary for the performance of the Services.

 

Section 2.7      No Commingling of Assets.  To the extent Manager shall have charge or possession of any of the Company Group’s assets in connection with the provision of the Services pursuant to this Agreement, Manager shall (a) hold such assets in the name and for the benefit of the Company Group and (b) separately maintain and not commingle such assets with any assets of the Manager or any other Person.

 

Section 2.8      Inventions and IP Ownership.   The Parties agree that any inventions, improvements, designs, original works of authorship, formulas, processes, compositions of

 

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matter, computer software programs, databases, mask works, and trade secrets (whether or not patentable, copyrightable or protectable as trade secrets or other intellectual property rights) that, in each case, are conceived, first reduced to practice, or created, by Manager in connection with providing the Services, either alone or jointly with others (“Inventions”), will be the sole and exclusive property of Manager.  Company hereby assigns, and agrees to assign, to Manager any and all rights that Company may have in any such Inventions and in any intellectual property rights therein or related thereto.  Company agrees to assist Manager and any Manager designee in obtaining, enforcing, and perfecting, Manager’s right in the Inventions in any and all countries, including by executing any intellectual property assignment agreements.   Company hereby appoints Manager as Company’s attorney-in-fact to execute documents on Company’s behalf for the purposes set forth in this paragraph.

 

Section 2.9                           Company Information.  It is contemplated by the Parties that, during the term of this Agreement, Company will be required to provide certain notices, information and data necessary for Manager to perform the Services and its obligations under this Agreement. Manager shall be permitted to rely on any information or data provided by Company to Manager in connection with the performance of its duties and provision of Services under this Agreement.

 

ARTICLE III

Revenues and Disbursements

 

Section 3.1                           Receipt of Revenues.    Manager shall have the authority and duty to collect on behalf of the Company Group all proceeds and cash attributable to the Company Group’s assets (the “Company Revenues”) into one or more banks accounts maintained in the name of the Company or other member of the Company Group (the “Company Bank Accounts”).  Manager shall use commercially reasonable efforts to cause all amounts due and owing to the Company Group to be paid on a timely basis.  Manager shall keep a complete and accurate account (in all material respects) of all proceeds received on behalf of the Company Group.   All Company Revenues received by the Manager on behalf of the Company Group (other than in respect of amounts due and owing to Manager or its Affiliates) shall promptly be deposited in the Company Bank Accounts and shall only be disbursed therefrom in accordance with this Agreement.  To the extent Manager or any of its Affiliates receives any Company Revenues (other than in respect of amounts due and owing to such Person), Manager shall, or shall cause its Affiliate to, as applicable, promptly deposit such Company Revenues in the Company Bank Accounts.

 

Section 3.2                           Disbursements.

 

(a)                         Payments.  Manager shall make disbursements of the Company Revenues from the Company Bank Accounts from time to time necessary to timely discharge all costs and expenses and other amounts due and owing by the Company Group, including those costs and expenses attributable to ownership of the assets of the Company Group and other related business activities (and not discharged out of gross revenues before such member of the Company Group receives such revenues), and payment of applicable sales, use, excise, value added and other similar taxes assessed or imposed on the assets of the Company Group.

 

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(b)                          No Liability.  The disbursement of funds, or the failure to so disburse, by Manager under this Agreement shall in no event relieve the Company Group of any liability, except to the extent Manager applies the Company Revenues against amounts owing to it or its Affiliates.

 

Section 3.3                           Reserve Accounts.

 

(a)                          Working Capital.   Manager, using its reasonable professional judgment, shall advise the Board in connection with establishing appropriate working capital reserves (“Working Capital Reserves”) out of the Company Revenues of amounts sufficient for the Company Group to timely discharge obligations which are reasonably anticipated to be incurred in excess of anticipated revenue receipts.

 

(b)                          Payment Reserves.  Manager, using its reasonable professional judgment, shall advise the Board in connection with establishing appropriate reserves out of the Company Revenues of amounts sufficient for the Company Group to timely pay disputed liabilities of the Company Group or refund disputed proceeds received by the Company Group, in each instance, as attributable to the assets of the Company Group (“Payment Reserves”).

 

(c)                           Insufficient Funds.  The inadequacy of any Working Capital Reserves or Payment Reserves shall in no event relieve the Company Group of any liability under this Agreement or otherwise.

 

Section 3.4                            Arrangements with Banking Institutions.   Manager and the Company agree to take all such steps as are reasonably requested by any bank or banks, solely in respect of the Company Bank Accounts in which the Company Revenues are deposited, to accord Manager the authority to deposit and disburse funds therefrom solely as provided herein.

 

ARTICLE IV

Accounting and Reports

 

Section 4.1                            Accounting and Audit.  Manager will maintain the books, records, and accounts of operations, revenues, and expenditures of the Company Group in respect of the assets of the Company Group, and shall report all such information to the Company from time to time as requested by the Company.  All such records (collectively, the “Financial Records”) shall be maintained at the principal office of Manager.  All Financial Records shall be available, upon 30 days’ prior notice to Manager, for reasonable audit, inspection, or copying by the Company or any of its representatives during normal business hours at the Manager’s principal office no more than twice per calendar year.  If the Company or any of its members gives Manager Notice of any exception or objection to any item of accounting for the Company Revenues or disbursements hereunder (in accordance with the provisions of Article III) within two (2) years after the end of the calendar year during which such accounting item was entered into the books maintained by Manager pursuant to this Section 4.1, Manager shall work in good faith with the Company or such member, as the case may be, to resolve such exception or objection as soon as reasonably practicable.  Any amount determined to be owing to the Company Group by Manager (or to Manager by Company Group) in connection with such exception or objection shall bear interest at the Agreed Rate from the date such amount should have been distributed to or retained

 

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by the Company Group (or Manager) pursuant to Article III until the date such amount is paid by Manager to the Company (or to Manager by Company Group).  If the Company or any member of the Company fails to object or except to any item of accounting or disbursement within such two-year (2) period, then the books maintained by Manager for such calendar year shall be deemed to be final and no further adjustment shall be made to any accounting items or disbursements for such calendar year.

 

Section 4.2                            LLC Reports.   Manager shall provide to the Company any statements, reports, and other information provided for in Section 9.3 of the LLC Agreement by the dates set forth therein and such other information and reports as may from time to time be reasonably requested by the Company.

 

ARTICLE V

Standard of Performance; Reimbursement of Costs; Indemnification

 

Section 5.1                            Standard of Conduct.  With respect to the conduct and performance of all duties, services, and obligations of Manager under this Agreement, Manager, at a particular time, shall conduct itself with a degree of care, diligence, and skill, as the same may change from time to time, but applied in light of the facts known at the time, of a reasonably prudent operator, consistent with general industry-standard practices applied or utilized in comparable circumstances in the oil and gas industry in the geographic region(s) where the Company Business is conducted. Notwithstanding the foregoing, Manager shall not be deemed in breach or violation of (or to have failed to perform) its obligations under this Section 5.1 unless Manager’s conduct or performance hereunder constitutes bad faith, gross negligence, willful misconduct, or actual fraud.

 

Section 5.2                            Compliance with Laws; Conflicts.  In conducting its services and duties hereunder, Manager shall comply, in all material respects, with all applicable Laws.

 

Section 5.3                            Proper Staff.      Manager covenants and agrees that it will use commercially reasonable efforts to at all times retain and have available to it a professional staff and outside consultants which together will be reasonably adequate in size, experience, and competency, as determined by Manager, to discharge properly the duties and functions of Manager hereunder, including engineers, geologists, and other technical personnel, accountants, and secretarial and clerical personnel. Manager shall devote all such personnel and time as are necessary to provide the Services hereunder consistent with the standards set forth in this Article V, as determined by Manager.

 

Section 5.4                            Budget.    With respect to Manager’s activities under this Agreement, Manager agrees to use commercially reasonable efforts to operate in a manner that is consistent with the applicable Approved Budget then in effect or otherwise pursuant to such budget as is established by the Company and approved by Manager (such consent not to be unreasonably withheld, conditioned or delayed).  Notwithstanding the foregoing, Manager shall not be liable for a breach of this Section 5.4, or any other provision of this Agreement for any actions performed or omissions made (i) in accordance with directions given by the Company Group, or (ii) as a result of the failure by the Company to timely provide to Manager the funds necessary to pay all costs and expenses incurred (or to be incurred) by Manager in providing the Services.

 

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Notwithstanding anything to the contrary contained herein, Manager shall have no obligation to pay any costs and expenses in connection with the Services hereunder (under Article III, Section 5.6 or otherwise) out of its own funds (and seek reimbursement from Company), it being required instead that Company, at Manager’s request, will ensure that the funds to pay such costs and expenses are deposited in the Company Bank Accounts and available for withdrawal or use by Manager or otherwise paid or made available to Manager in advance (and the Company hereby agrees to the foregoing).

 

Section 5.5                            Contractors; Affiliate Transactions.

 

(a)                          Contractors.   All Services provided hereunder shall be performed by Manager, by its Affiliates, or by contractors, consultants, accountants, attorneys, or other Third Parties engaged by Manager.  Manager shall (i) if an agreement is to be entered into with a Third Party, engage such Third Parties under such agreements with terms which are customary and reasonable for the type and character of the Services being provided hereunder and which provide for such Services to be furnished at rates competitive with those otherwise generally available in the area in which such Services are performed and (ii) review and monitor the provision of any such Services by such Third Parties.  Manager shall not charge the Company any mark-up or other profit over the actual costs charged Manager by such providers.

 

(b)                          Affiliates.      Other than compensatory, indemnification and similar arrangements with individuals and arrangements and agreements with SOG and Sanchez Production Partners LP, Manager will not enter into any agreement or arrangement with any Affiliate of Manager for the performance of Services hereunder unless (i) approved by the Company by Majority Consent, such consent not to be unreasonably withheld, conditioned or delayed (as provided in Section 6.11 of the LLC Agreement) or (ii) the terms of such agreement or arrangement are on an arm’s-length basis and not materially less favorable, directly or indirectly, to the Company than would be obtained in a transaction with a Third Party.

 

Section 5.6                            Third Party Costs.  The Company will pay, or cause to be paid, directly, or (at Manager’s election) reimburse Manager and its Affiliates for, their respective Out-of- Pocket Expenses (as defined below) incurred by Manager or its Affiliates in accordance with Section 5.10; provided, that Manager shall be entitled to make such payments on the Company’s behalf from the Company Bank Accounts.  For the purposes of this Agreement, the term “Out- of-Pocket Expenses” means the out-of-pocket costs and expenses reasonably incurred by Manager and its Affiliates in connection with providing the Services hereunder, or otherwise incurred by Manager or its Affiliates from time to time in the future in connection with their provision of Services hereunder (excluding for the avoidance of doubt G&A Costs, Operating Expenses or equity compensation expenses for which Manager and its Affiliates have been paid or reimbursed under Section 5.7 or disbursements which have been paid on behalf of the Company directly under Section 3.2(a)) including, without limitation, (a) fees and disbursements of any independent professionals and organizations, including independent accountants, outside legal counsel or consultants, retained by Manager or any of its Affiliates, (b) costs of any outside services or independent contractors such as financial printers, couriers, business publications, on- line financial services or similar services, retained or used by Manager or any of its Affiliates, and (c) Third Party transportation, per diem costs, word processing expenses or any similar expense not associated with Manager or its Affiliates’ ordinary operations.  Notwithstanding the

 

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foregoing, Out-of-Pocket Expenses shall not include expenses incurred by Manager and its Affiliates in connection with a sale or transfer of Manager’s or any of its Affiliates’ interests in the Company nor taxes payable by Manager (other than sales and similar taxes payable to Third Party vendors), subject to Section 5.9.   All payments or reimbursements for Out-of-Pocket Expenses will be made by wire transfer in same-day funds promptly upon or as soon as practicable following request for payment or reimbursement in accordance with this Agreement, to the bank account indicated to the Company by the relevant payee.

 

Section 5.7                            General and Administrative Costs.    The Company shall reimburse Manager for the G&A Costs attributable to or allocated to the Services in accordance with Section 5.10.

 

Section 5.8                            Indemnification and Exculpation.

 

(a)                          The Company shall indemnify the Manager and its Affiliates (and their respective directors, officers, employees, managers, members, partners, controlling Persons and equityholders) (collectively, “Indemnified Manager Persons”) in respect of, and hold it harmless from and against, any and all Losses suffered, incurred or sustained by any Indemnified Manager Person or to which it becomes subject, however so arising whether under tort, contract, negligence, strict liability or otherwise, to the extent resulting from, arising out of, or relating to or in connection with (i) any breach of any covenant, obligation or agreement on the part of any member of the Company Group contained in this Agreement, (ii) the nonfulfillment of or failure to perform any covenant or agreement on the part of any member of the Company Group contained in this Agreement, and (iii) the Services or this Agreement, except to the extent that any Losses have been caused by the bad faith, gross negligence, willful misconduct or actual fraud of Manager or any of its Affiliates or representatives, and for any Losses suffered, incurred, or sustained by an Indemnified Manager Person as a result of any uncured, intentional, and material breach by the Manager of any of its covenants or agreements contained in this Agreement. The Company will reimburse the Indemnified Manager Persons for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses of one counsel for all such Indemnified Manager Persons (and any required local counsel) and any other litigation-related expenses) as they are incurred in connection with investigating, preparing, pursuing, defending or assisting in the defense of any action, claim, suit, investigation or proceeding for which the Indemnified Manager Persons are entitled to indemnification under the terms of this Section 5.8(a), or any action or proceeding arising therefrom, whether or not such Indemnified Manager Person is a party thereto.

 

(b)                          In no event shall either Party or its respective directors, officers, employees, managers, members, partners, controlling Persons and equityholders have any liability for any Losses under any provision of this Agreement for any punitive, consequential, special or indirect damages, whether based on statute, contract, tort or otherwise, and whether or not arising from the other Party’s sole, joint, or concurrent negligence, strict liability, criminal liability or other fault other than punitive, consequential, special or indirect damages suffered by a Person other than an Indemnified Manager Person for which the Company has responsibility pursuant to this Article V.

 

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(c)                           The Parties acknowledge and agree that the indemnification provisions of this Article V and any other rights and remedies available to a Party under this Agreement are cumulative and in addition to, not exclusive of or in substitution for, any implied rights or remedies provided by law or equity for the breach or nonfulfillment of any covenant or agreement on the part of the Company and Manager under this Agreement.

 

(d)                          Notwithstanding Manager’s agreement to perform, or cause to be performed, the Services in accordance with the provisions hereof, the Company acknowledges, on its own behalf and on behalf of each member of the Company Group, that performance by Manager or any other Person of Services pursuant to this Agreement will not subject Manager or any other Indemnified Manager Persons to any Losses whatsoever, except to the extent resulting from, arising out of or relating to or in connection with Manager’s bad faith, gross negligence, willful misconduct, or actual fraud in performing its obligations under this Agreement; provided, however, that (i) Manager’s and each of its Affiliates (and their respective directors, officers, employees, managers, members, partners, controlling Persons and equityholders) aggregate liability, collectively, as a result of such bad faith, gross negligence, willful misconduct or actual fraud will be limited to an amount equal to the G&A Costs paid by the Company to Manager over the 24 month period preceding the date of the action or inaction that gave rise to such liability and (ii) SN shall be liable for the Losses incurred by the Company described in the preceding clause (i); provided, further, that any damages payable pursuant to this Section 5.8(d) shall be subject to the terms and conditions of the Sanchez Credit Agreement; provided, further, however, that if any of such Losses are covered by any insurance policy of the Company, the aggregate liability of such Indemnified Manager Person with respect to such Losses shall be reduced by the amount recovered by the Company under such policy in respect of such Losses.

 

(e)                           Whenever any claim arises for indemnification hereunder, the indemnified Person shall promptly notify the indemnifying Party of the claim and, when known, the facts constituting the basis for such claim, except that in the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a Third Party, except as otherwise expressly provided in this Section 5.8, such notice shall specify, if known, the amount or an estimate of the amount of the Losses asserted by such Third Party.

 

(f)                            In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a Person who is not a Party, the indemnifying Party, may, upon notice to the indemnified Person, assume the defense of any such claim or legal proceeding.  Except with the written consent of the indemnified Person, the indemnifying Party shall not consent to the entry of any judgment or settlement arising from any such claim or legal proceedings which, in each case, provides for any non-monetary relief or does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified Person of a release from all Losses in respect thereof, unless in the latter case the indemnifying Party has actually paid to the indemnified Person the full amount of such judgment or settlement.   Any indemnified Person shall be entitled to participate in (but not control) the defense of any such claim or litigation resulting therefrom.  If the indemnifying Party does not elect to control the litigation as provided above, the indemnified Person may defend against such claim or litigation in such manner as it may deem appropriate, including, without limitation, settling such claim or litigation, after giving notice of the same to the indemnifying Party, on such terms as such indemnified Person may deem appropriate, and the indemnifying Party shall

 

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promptly reimburse the indemnified Person (subject to Section 5.8(b)) from time to time as such Losses are incurred.  All indemnification hereunder shall be effected by payment of cash or delivery of a certified or official bank check in the amount of the indemnification Losses.

 

(g)                           Except as provided above, all claims for Losses brought by Third Parties against Company or any Subsidiary (x) arising out of or in any way relating to the provision of Services hereunder and (y) not discharged by insurance required hereunder, shall only be settled or, with Manager’s concurrence, defended by Manager, at Company’s expense.

 

Section 5.9                            Taxes.   In addition to the other sums payable under this Agreement, the Company shall pay, and hold Manager harmless against, all sales, use or other taxes, or other fees or assessments imposed by any applicable Laws in connection with the provision of the Services, other than income, franchise or margin taxes measured by Manager’s net income or margin and any gross receipts of other privilege taxes imposed on Manager.  Manager and the Company shall cooperate with each other and use commercially reasonable efforts to assist the other in entering into such arrangements as the other may reasonably request in order to minimize, to the extent lawful and feasible, the payment or assessment of any taxes relating to the transactions contemplated by this Agreement; provided, however, that nothing in this Section 5.9 shall obligate Manager to cooperate with, or assist, the Company in any arrangement proposed by the Company that would, as determined by Manager in such Party’s sole discretion, have a detrimental effect on such Party.

 

Section 5.10                     Invoicing and Payment.

 

(a)                          On the Effective Date, the Company will pay to Sanchez an amount equal to $1,000,000.  Manager will invoice Company on or before the last day of each month for G&A Costs, Out-of-Pocket Expenses or amounts payable under Article III incurred during the immediately prior month and, in addition, provide an estimate of the current month’s G&A Costs (not to exceed the then-current monthly cap) and Out-of-Pocket Expenses.  The Company shall pay invoiced amounts within 15 days after the receipt of each such invoice.  Any requests for payment in subsequent months will include corrections for any variances between estimated costs and actual costs incurred in prior months and shall reflect payment for or application of previous months’ variances.  Notwithstanding the foregoing or anything else in this Agreement to the contrary, Manager may elect to retain proceeds that it receives on behalf of the Company to the extent it would otherwise invoice Company for such amounts and in such event it shall show any such retained amounts as a credit on such invoice. Failure by Manager to submit an invoice for any amounts due hereunder shall not relieve Company of its payment obligations under this Agreement when due hereunder.

 

(b)                          For the term of the Transition Services Agreement and the Marketing Transition Services Agreement, the Company shall fund into the Company Bank Accounts the Company’s proportionate share of the fees due under the Transition Services Agreement and the Marketing Services Transition Agreement at least three (3) business days before payment under such agreements is due.

 

(c)                           THE COMPANY MAY, WITHIN 120 DAYS AFTER THE END OF THE CALENDAR YEAR DURING WHICH AN INVOICE WAS RECEIVED FROM

 

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MANAGER, TAKE WRITTEN EXCEPTION TO ANY CHARGE, ON THE GROUND THAT THE SAME WAS NOT AN ACTUAL (OR, IF APPLICABLE, REASONABLE) COST, FEE OR EXPENSE INCURRED BY OR DUE TO MANAGER IN CONNECTION WITH THE PROVISION OF SERVICES, OR ON ACCOUNT OF ANY ERROR OR INACCURACY ON ANY INVOICE.   THE COMPANY SHALL NEVERTHELESS PAY MANAGER ANY INVOICED OR OTHER AMOUNT IN FULL WHEN DUE OR REQUESTED, OR DEPOSIT SUCH AMOUNTS INTO THE COMPANY BANK ACCOUNTS WHEN SO REQUESTED FOR WITHDRAWAL BY MANAGER.  SUCH PAYMENT OR DEPOSIT SHALL NOT BE DEEMED A WAIVER OF THE RIGHT OF THE COMPANY TO RECOUP OR RECEIVE CREDIT FOR ANY CONTESTED PORTION OF ANY AMOUNT SO PAID.   IF THE AMOUNT AS TO WHICH SUCH WRITTEN EXCEPTION IS TAKEN, OR ANY PART THEREOF, IS ULTIMATELY DETERMINED NOT TO BE AN ACTUAL (OR, IF APPLICABLE, REASONABLE) COST, FEE OR EXPENSE INCURRED BY OR DUE TO MANAGER, OR IS OTHERWISE AN ERROR OR INACCURACY IN CONNECTION WITH THE PROVISION OF SERVICES, SUCH AMOUNT OR PORTION THEREOF (AS THE CASE MAY BE) SHALL BE CREDITED AGAINST FUTURE AMOUNTS DUE HEREUNDER OR, UPON EXPIRATION OR TERMINATION OF THIS AGREEMENT AFTER ALL SUCH CREDITS HAVE BEEN APPLIED, REFUNDED BY MANAGER TO COMPANY.   COMPANY SHALL HAVE NO RIGHT TO DISPUTE ANY PAYMENT, INVOICE OR WITHDRAWAL AFTER SUCH 120 DAY PERIOD, AND SHALL BE DEEMED TO HAVE WAIVED ANY CLAIMS OR RIGHTS WITH RESPECT TO SUCH AMOUNTS TO THE EXTENT NOT DISPUTED WITHIN SUCH PERIOD.

 

(d)                          Company shall have the right, upon 30 days’ prior notice to Manager, and at reasonable times during usual business hours of Manager or its Affiliates to, no more than twice per year, audit the records of Manager (excluding the Financial Records) for the purposes of this Section 5.10; provided, however, that such audit does not unreasonably interfere with the operations of Manager or its Affiliates.  Company shall bear all costs and expenses incurred in connection with any audit.  Notwithstanding anything herein to the contrary, Manager shall not be obligated to disclose or make available to the Company any information prohibited by applicable Laws or restricted by contractual obligations of confidentiality. This Section 5.10 shall survive termination or expiration of this Agreement for a period of two years from termination or expiration with respect to periods prior to such termination or expiration.

 

(e)                           Any amount determined to be owing by one Party to the other Party in connection with a dispute under Section 5.10(d) shall bear interest at the Agreed Rate from the date such amount should have been paid to or retained by the Company until the date such amount is paid by the Party required to make such payment to the other Party.

 

ARTICLE VI

Term

 

Section 6.1                            Term; Effect of Termination.

 

(a)                          Term.  The term of this Agreement (or with respect to clause (iii) below, the term of this Agreement solely with respect to any particular Service so terminated) shall commence on the Effective Date hereof and continue until the earlier of:

 

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(i)          termination by mutual written agreement of Manager and the Company (by Majority Consent);

 

(ii)         by either the Company or the Manager upon the occurrence of an IPO of the Company or the date on which the Company otherwise ceases to own any interest in the Company Business or has disposed of, directly or indirectly, all or substantially all of its assets (provided that the terminating party shall have provided at least ninety (90) days written notice of the date of termination under this Section 6.1(a)(ii));

 

(iii)        termination by the Company (by Majority Consent) of any particular Services after the first anniversary of the Effective Date upon thirty (30) days written notice to Manager or earlier as agreed by the Parties (provided that such written notice has specified in reasonable detail the Services that the Company has elected to terminate);

 

(iv)        termination by the Company (by Majority Consent) if (A) Manager fails to perform in any material respect any of its material obligations under this Agreement and (B) such failure is not (x) excused by Force Majeure Events or (y) cured by Manager within thirty (30) days after Notice thereof by the Company (unless such failure is not reasonably capable of being cured within such thirty- day (30) period, in which case Manager shall have commenced remedial action to cure such failure within such thirty-day (30) period and continued to diligently and timely pursue the completion of such remedial action and shall have cured within sixty (60) days after Notice);

 

(v)         termination by Manager if (A) the Company fails to perform in any material respect any of its material obligations under this Agreement (including any payment obligation) and (B) such failure is not cured by the Company within thirty (30) days after Notice thereof by Manager (unless such failure, other than a payment failure, is not reasonably capable of being cured within such thirty-day (30) period, in which case Manager shall have commenced remedial action to cure such failure within such thirty-day (30) period and continued to diligently and timely pursue the completion of such remedial action and shall have cured within sixty (60) days after Notice);

 

(vi)        termination by Manager following the date on which (i) Blackstone, together with its Affiliates, first ceases to own, collectively, over 50% of each class or series of Voting Stock of the Company or (ii) a Change in Control occurs;

 

(vii)       termination by Manager following the date on which Manager or an Affiliate of Manager is no longer a member in the Company or is not the Operator or a Party to the Joint Development Agreement or no longer entitled to appoint any Representatives to the Operating Committee (as such terms are defined in the Joint Development Agreement);

 

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(viii)     termination by a Party if the other Party: (A) makes a general assignment for the benefit of creditors; (B) files a voluntary bankruptcy petition; (C) becomes the subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceeding; (D) files a petition or answer in a court of competent jurisdiction seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Law; (E) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed in a proceeding of the type described in subclauses (A) through (D) of this clause (viii); (F) seeks, consents, or acquiesces to the appointment of a trustee, receiver, or liquidator of all or any substantial part of such its assets or properties; or (G) such Party is liquidated and dissolved; or

 

(ix)       termination by Manager following the date on which Manager has determined, in good faith, that all Services for which Manager was engaged under this Agreement have been terminated by the Company under Section 6.1(a)(iii); provided, that Manager delivers written notice to the Company and the Company fails to respond within fifteen (15) days.

 

(b)           Effect of Termination.  Upon any termination of this Agreement under Section 6.1(a) (other than Section 6.1(a)(iii)) and following any transition period under Section 6.4, all rights and obligations under this Agreement shall cease except for (i) rights or obligations that are expressly stated to survive a termination of this Agreement, (ii) liabilities and obligations that have accrued prior to such termination, including the obligation to pay any amounts that have become due and payable prior to such termination and provide transition services under Section 6.4, and (iii) Section 7.16 and those provisions specified therein to survive termination or expiration of this Agreement.  Manager shall promptly relinquish its role as manager hereunder and ensure the transition of such role to such Person as may be designated by the Board by Majority Consent, subject to Section 6.4 (such Person, the “Successor Manager”).

 

Section 6.2            No Early Termination.  Except for the events of termination provided for in Section 6.1(a) or upon the written consent of the Company, Manager shall not resign as Manager hereunder or otherwise terminate this Agreement for any reason. Notwithstanding the events of termination provided for in Section 6.1(a), neither the Company nor Manager may terminate this Agreement during the first ninety (90) days after the Effective Date.

 

Section 6.3            Delivery.  Upon termination of this Agreement under Section 6.1(a) and the conclusion of any transition period under Section 6.4 and/or appointment of a Successor Manager (if applicable), Manager shall promptly deliver to the Successor Manager, or such other person as the Company may designate in writing upon Majority Consent of the Board or as otherwise specified herein, copies of all title files, division order files, well files, production records, equipment inventories, and production, severance and ad valorem tax records pertaining to the Company Business and other information about the Company Business reasonably requested by the Company (which are in the possession of Manager) and the Financial Records (in the case of Section 6.1(a)(iii) solely to the extent relating to the Services terminated), but in all cases excluding confidential or proprietary information of Manager or its Affiliates, including seismic and related data or information.  The Company shall pay all reasonable out-of-pocket costs incurred by Manager to prepare and deliver such files and records.

 

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Section 6.4            Transition Services.  Upon termination of this Agreement under Section 6.1(a), other than Section 6.1(a)(iii) and Section 6.1(a)(v), Manager shall, at the Company’s request (i) continue to provide the Services to the Company under this Agreement as if this Agreement had not been terminated for up to 60 days following termination, until such time that the Successor Manager has been designated pursuant to Section 6.1(b) and engaged by the Company, and (ii) assist the Company for up to 60 days following termination in identifying and engaging a Successor Manager capable of providing substantially all of the Services as were provided by the Manager at no greater cost than that charged hereunder.  After the Successor Manager has been engaged by the Company, Manager, if it is required to provide the transition assistance pursuant to the first sentence of this Section 6.4, shall use commercially reasonable efforts to provide the Successor Manager reasonable assistance for a period of up to 2 months following the date on which a termination of this Agreement is effective under Section 6.1(a) to transition the Manager’s duties under this Agreement to the Successor Manager.  In providing the transition services hereunder, Manager shall use the same degree of care used in performing the Services previously on behalf of the Company in accordance with this Agreement.  The Company will reimburse Manager for its reasonable and documented out-of-pocket costs and expenses incurred in providing transition services hereunder, provided that the Services provided under clause (i) of the first sentence of this Section 6.4 shall be provided in accordance with the terms of this Agreement as if such termination had not occurred.

 

ARTICLE VII

Other Provisions

 

Section 7.1            Assignment and Binding Effect.  Manager shall not assign its rights or, except as contemplated by Section 5.5, delegate its duties under this Agreement without the prior written consent of the Company (it being understood that Manager shall have the right to delegate any of its duties under this Agreement to SOG and other Affiliates of Manager). Subject to the foregoing, this Agreement shall be binding upon the Parties and their successors and assigns.

 

Section 7.2            Notices.  Except as otherwise provided in this Agreement to the contrary, any notice or communication required or permitted to be given under this Agreement shall be in writing and sent to the address of the Party set forth below, or to such other more recent address of which the sending Party actually has received written notice (the “Notice”):

 

If to the Company:

 

Aguila Production HoldCo, LLC

c/o Blackstone Management Partners L.L.C.

345 Park Avenue, 31st Floor

New York, NY 10154

Attention: Angelo Acconcia

Email: [email protected]

 

with a copy (which shall not constitute Notice) to:

 

20



 

Kirkland & Ellis LLP

600 Travis Street, Suite 3300

Houston, Texas 77002

Attention:                                         Andrew Calder, P.C.

Rhett Van Syoc

Facsimile:                                         (713) 835-3601

Email:                                                            [email protected]

[email protected]

 

If to Manager:

 

[                ]

[                ]

[                ]

[                ]

 

Attention: [                ]

Facsimile: [                ]

 

Each such notice or other communication shall be sent by personal delivery, by registered or certified mail (return receipt requested), by national, reputable courier service (such as Federal Express or United Parcel Service) or by facsimile or electronic mail.

 

Section 7.3            Entire Agreement.  This Agreement and each other document, agreement, instrument or certificate delivered in connection herewith constitute the entire agreement of the Parties with respect to subject matter hereof and shall not be changed or modified except by written agreement executed by all Parties.

 

Section 7.4            Waivers.  The waiver by a Party of a breach of any provision of this Agreement by the other Party shall not be construed as a waiver of any subsequent or other breach by the other Party.

 

Section 7.5            Invalidity.  If any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the remaining provisions of this Agreement and this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein.

 

Section 7.6            Applicable Law.  This Agreement shall be construed under and governed by the laws of the State of Delaware, without regards to any conflict of laws principles which, if applied, might permit or require the application of the laws of another jurisdiction.

 

Section 7.7            Consent to Jurisdiction and Service of Process; Appointment of Agent for Service of Process; Damages.  EACH PARTY HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES DISTRICT COURT LOCATED IN HOUSTON, TEXAS OR TEXAS STATE COURT LOCATED IN HOUSTON, TEXAS AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED

 

21



 

HEREBY (WHETHER SUCH ACTIONS OR PROCEEDINGS ARE BASED IN STATUTE, TORT, CONTRACT OR OTHERWISE), SHALL BE LITIGATED IN SUCH COURT.  EACH PARTY (A) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF SUCH COURT FOR SUCH ACTIONS OR PROCEEDINGS, (B) AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (C) AGREES THAT IT WILL NOT BRING ANY SUCH ACTION OR PROCEEDING IN ANY COURT OTHER THAN SUCH COURT.  EACH PARTY HERETO ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE AND IRREVOCABLE JURISDICTION AND VENUE OF THE AFORESAID COURT AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY NON-APPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH ACTIONS OR PROCEEDINGS.  A COPY OF ANY SERVICE OF PROCESS SERVED UPON THE PARTIES HERETO SHALL BE MAILED BY REGISTERED MAIL TO THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.  IF ANY AGENT APPOINTED BY A PARTY HERETO REFUSES TO ACCEPT SERVICE, EACH PARTY HERETO AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  IN NO EVENT SHALL ANY PARTY BE LIABLE UNDER THIS AGREEMENT TO THE OTHER PARTY FOR ANY CONSEQUENTIAL DAMAGES, INCLUDING ANY DAMAGES FOR BUSINESS INTERRUPTION, LOSS OF USE, DATA, REVENUE OR PROFIT, WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE AND WHETHER OR NOT THE OTHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT A PARTY MAY RECOVER FROM ANY OTHER PARTY ALL COSTS, EXPENSES OR DAMAGES, INCLUDING LOST PROFITS, EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES PAID OR OWED TO ANY THIRD PERSON FOR WHICH SUCH PARTY HAS A RIGHT TO RECOVER FROM SUCH OTHER PARTY UNDER THE TERMS HEREOF.

 

Section 7.8            Waiver of Jury TrialTO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS BEING ESTABLISHED.  EACH PARTY ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY OF THE OTHER PARTIES HERETO.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER

 

22



 

COMMON LAW AND STATUTORY CLAIMS.  EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HERETO HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY HERETO WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.  EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH PARTY HERETO KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY.   IN THE EVENT OF LITIGATION, THIS AGREEMENT MAYBE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

Section 7.9            Relationship of Parties.  In the performance of the Services hereunder, Manager shall act as an independent contractor for the Company.  The Parties do not intend to create, nor shall this Agreement be construed as creating, a partnership or association which might render the Parties liable as partners.  Manager shall be responsible for the payment of federal income tax, social security tax, workers’ compensation insurance, unemployment tax, and other similar payments, if any, relating to Manager’s business and employees, and the Company shall not be responsible for any such amounts.

 

Section 7.10         Force Majeure.  Manager shall not be responsible for any loss or damage to the Company (or be in breach or violation of this Agreement) for nonperformance or delay in performing any of Manager’s obligations under this Agreement to the extent resulting from any act of God, fire, lightning, landslide, earthquake, storm, storm warning, flood, or other adverse weather condition; strike, lockout, or other industrial disturbance in respect of Manager’s employees; war, act of terrorism, military operation, or national emergency; the inability of Manager to acquire at reasonable prices, or the delay on the part of Manager in acquiring at reasonable prices, materials, equipment or permits, needed to enable Manager to perform; explosions, breakage or destruction of or accident or damage to machinery, equipment, facilities, or lines of pipe, and the repair, maintenance, improvement, or replacement of equipment, facilities, or lines of pipe; and acts of any Governmental Authority or any other material disruptive events outside the reasonable control of Manager (“Force Majeure Events”).  Manager shall use its commercially reasonable efforts to cure any such Force Majeure Events as soon as reasonably practicable (other than in the case of a strike or lockout of Manager’s employees), and use its commercially reasonable efforts to complete, as soon as reasonably practicable, performance of Manager’s obligations under this Agreement.

 

Section 7.11         Construction of Agreement.  In construing this Agreement:

 

(a)           no consideration shall be given to the captions of the articles, sections, subsections, or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in its construction;

 

23



 

(b)           no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Agreement;

 

(c)            examples shall not be construed to limit, expressly or by implication, the matter they illustrate;

 

(d)           the word “includes” and its derivatives means “includes, but is not limited to” and corresponding derivative expressions;

 

(e)            a defined term has its defined meaning throughout this Agreement and each exhibit to this Agreement, regardless of whether it appears before or after the place where it is defined;

 

(f)            the plural shall be deemed to include the singular, and vice versa;

 

(g)            each gender shall be deemed to include the other genders; and

 

(h)           each exhibit to this Agreement is a part of this Agreement, but if there is any conflict or inconsistency between the main body of this Agreement and any exhibit, attachment, or schedule, the provisions of the main body of this Agreement shall prevail.

 

Section 7.12          Third Party Beneficiaries.  Except as set forth in Section 7.13, nothing in this Agreement, express or implied, is intended or shall confer upon any Person other than the Parties or their respective successors and permitted assigns and the indemnified Persons (for purposes of Section 5.8), any rights, remedies or liabilities under or by reason of this Agreement.

 

Section 7.13          No Recourse.  This Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as Parties hereto and no Affiliates of any Party (or any other Manager Indemnified Person or Company Indemnified Person, as applicable, other than the Parties hereto) shall have any liability for any obligations or liabilities of the Parties or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of the transactions contemplated hereby or in respect of any oral representations made or alleged to be made in connection herewith.

 

Section 7.14          Confidential Information.

 

(a)           Company Confidential Information.  Manager shall maintain the confidentiality of all Company Confidential Information; provided, however, that Manager may disclose such Company Confidential Information (i) to its Affiliates to the extent deemed by Manager to be reasonably necessary or desirable to enable it to perform the Services (provided, however, that such Affiliate is informed of the confidentiality and non use provisions of this Agreement and agrees to comply with such provisions); (ii) to the extent necessary for Manager or its Affiliates to provide services for Third Parties that have interests in the Properties; (iii) in any judicial or alternative dispute resolution proceeding to resolve disputes between Manager or its Affiliates and Company or its Affiliates arising hereunder; (iv) to the extent disclosure is legally required under applicable Laws (provided, however, that prior to making any legally

 

24



 

required disclosures in any judicial, regulatory or dispute resolution proceeding, Manager shall promptly notify the Company and, if requested by the Company and at the Company’s sole cost and expense, seek a protective order or other relief to prevent or reduce the scope of such disclosure) or any agreement existing on the date hereof to which Manager is a party or by which it is bound and which have been disclosed to the Company; (v) to Manager’s or its Affiliates’ existing or potential lenders, investors, joint interest owners, purchasers or other parties with whom Manager or its Affiliates may enter into contractual relationships, to the extent deemed by Manager to be reasonably necessary or desirable to enable it to perform the Services or to obtain the financing or to pursue such other transaction or contractual arrangement for which such disclosure is necessary or desirable, as applicable (provided, however, that Manager shall require such Third Parties to agree to maintain the confidentiality of the Company Confidential Information so disclosed); (vi) if authorized by the Company; and (vii) to the extent such Company Confidential Information was already known to Manager or its Affiliates (through a source other than the Company or its representatives or Affiliates) or becomes publicly available other than through a breach by Manager of its obligations arising under this Section 7.14(a) or is independently made known to Manager or its Affiliates (by a source not known by Manager or such Affiliate, as the case may be, to be in breach of a confidentiality obligation with respect to such disclosure). Manager acknowledges and agrees that (x) the Company Confidential Information is being furnished to it for the sole and exclusive purpose of enabling it to perform the Services and (y) the Company Confidential Information may not be used by it for any other purposes, unless disclosure is permitted by clauses (i), (ii), (iii), (iv), (v) and (vi) above, and in such event may be used solely to the extent contemplated by such clauses, or by clause (vii).

 

(b)           Manager Confidential Information.  The Company shall maintain the confidentiality of all Manager Confidential Information; provided, however, that the Company may disclose Manager Confidential Information (i) in order to permit Manager to perform the Services, as determined in advance by Manager in writing (provided, however, that if Manager does not consent to such disclosure and, as a result thereof, Manager is not able to perform the Services, the Company shall not be in breach of this Agreement as a result thereof); (ii) in any judicial or alternative dispute resolution proceeding to resolve disputes between the Company or its Affiliates and Manager or its Affiliates arising hereunder; (iii) to the extent disclosure is legally required under applicable Laws (provided, however, that prior to making any legally required disclosures in any judicial, regulatory or dispute resolution proceeding, the Company shall promptly notify Manager thereof and, if requested by Manager, at Manager’s sole cost and expense, seek a protective order or other relief to prevent or reduce the scope of such disclosure); (iv) if authorized by Manager in writing; and (v) to the extent such Manager Confidential Information was already known to the Company (through a source other than Manager or its representatives or Affiliates) or becomes publicly available other than through a breach by the Company of its obligations arising under this Section 7.14(b) or is independently made known to the Company or its Affiliates (by a source not known by the Company or such Affiliate, as the case may be, to be in breach of a confidentiality obligation with respect to such disclosure).  The Company acknowledges and agrees that (x) the Manager Confidential Information is being furnished to it for the sole and exclusive purpose of enabling it to perform the Services and (y) the Manager Confidential Information may not be used by it for any other purposes, unless disclosure is permitted by clauses (i), (ii), (iii), and (iv) above, and in such event may be used solely to the extent contemplated by such clause, or by clause (v).

 

25



 

(c)            Business Conduct. Nothing in this Section 7.14 shall prohibit Manager or any of its Affiliates or other Persons to whom it provides similar services from conducting business in the areas where the Company Group’s properties are located or otherwise competing with the Company Group.

 

(d)           Remedies and Enforcement.  Manager and the Company each acknowledge and agree that a breach by it of its obligations under this Section 7.14 would cause irreparable harm to the other Party and that monetary damages would not be adequate to compensate the other Party. Accordingly, Manager and the Company agree that the other Party shall be entitled to immediate equitable relief, including a temporary or permanent injunction, to prevent any threatened, likely or ongoing violation of this Section 7.14, without the necessity of posting bond or other security.  Manager’s and the Company’s right to equitable relief shall be in addition to other rights and remedies available to Manager or the Company, for monetary damages or otherwise.

 

(e)            This Section 7.14 shall survive termination or expiration of this Agreement for a period of two years from termination or expiration with respect to periods prior to such termination or expiration.

 

Section 7.15          Counterparts.  This Agreement may be executed in any number of counterparts with the same effect as if both of the signatory parties had signed the same document.  All counterparts shall be construed together and shall constitute one and the same instrument.

 

Section 7.16          Survival of Agreements.  The Company’s and Manager’s various representations, warranties, covenants, agreements and duties in and under this Agreement shall survive the execution and delivery of this Agreement and terminate upon termination or expiration of this Agreement, except for Sections 2.8 (Inventions and IP Ownership), 5.6 (Third Party Costs), 5.7 (General and Administrative Costs) and 5.10 (Invoicing and Payment) (in each of Section 5.6, 5.7 and 5.10, with respect to any accrued by unpaid obligations as of the date of termination or expiration (and including, without limitation, any severance costs incurred prior to or after termination or expiration)), 5.8 (Indemnification and Exculpation), 6.3 (Delivery), 7.2 (Notices), 7.6 (Applicable Law), 7.7 (Consent to Jurisdiction and Service of Process; Appointment of Agent for Service of Process), 7.8 (Waiver of Jury Trial), 7.11 (Construction of Agreement), 7.12 (Third Party Beneficiaries), 7.13 (No Recourse), 7.14 (Confidential Information), 7.16 (Survival of Agreements), 7.17 (Competition and Corporate Opportunities), 7.18 (Warranty Disclaimers), 7.19 (Authorizations) and 7.21 (Conspicuousness of Provisions), which shall survive termination or expiration of this Agreement.

 

Section 7.17          Competition and Corporate Opportunities.  Subject to Section 7.14, Manager and its Affiliates are and shall be free to engage in any business activity whatsoever, including, without limitation, those that may be in direct competition with the Company and its Affiliates.  The Parties further understand and agree that Manager and its Affiliates (including SOG) provide or may provide services similar to the Services provided hereunder to certain of its present and former Affiliates. To the extent of any conflict of interest between the Parties or their Affiliates or in the event of any other corporate or business opportunity (including, without limitation, a corporate or business opportunity that might otherwise constitute, an asset acquisition opportunity), the Parties agree that Manager and its Affiliates may resolve any such

 

26



 

conflict in a manner and on terms that it deems appropriate, in its sole discretion and without any further liability to the Company or any other Person; provided, however, that this Section 7.14 is subject, in all respects, to Section 5.2 of the Joint Development Agreement. The Company, on its own behalf and on behalf of its subsidiaries, hereby waives any interest with respect to any such matter to the same extent as if such matter had been presented to and rejected by each member of the Company Group and the Company Group had then consented to Manager or any of Manager’s Affiliates acting as it determines in its sole discretion and whether on behalf of itself or any of its present or former Affiliates.

 

Section 7.18          Warranty Disclaimers.

 

(a)           OTHER THAN AS EXPRESSLY SET FORTH HEREIN, MANAGER DISCLAIMS ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS (EXPRESS OR IMPLIED, ORAL OR WRITTEN) WITH RESPECT TO SERVICES RENDERED OR PRODUCTS PROCURED FOR THE COMPANY OR ITS SUBSIDIARIES, OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OF NON-INFRINGEMENT MERCHANTABILITY OR FITNESS OR SUITABILITY FOR ANY PURPOSE (WHETHER MANAGER KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING.

 

(b)           MANAGER MAKES NO EXPRESS OR IMPLIED WARRANTY, GUARANTY OR REPRESENTATION, INCLUDING, WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR PARTICULAR PURPOSE, SUITABILITY OR MERCHANTABILITY REGARDING ANY EQUIPMENT, MATERIALS, SUPPLIES OR SERVICES ACQUIRED FROM VENDORS, SUPPLIERS OR SUBCONTRACTORS.  THE COMPANY’S AND ITS SUBSIDIARIES’ EXCLUSIVE REMEDIES WITH RESPECT TO EQUIPMENT, MATERIALS, SUPPLIES OR SERVICES OBTAINED BY MANAGER FROM VENDORS, SUPPLIERS AND SUBCONTRACTORS SHALL BE THOSE UNDER THE VENDOR, SUPPLIER AND SUBCONTRACTOR WARRANTIES, IF ANY, AND MANAGER’S ONLY OBLIGATION, ARISING OUT OF OR IN CONNECTION WITH ANY SUCH WARRANTY OR BREACH THEREOF, SHALL BE TO USE DILIGENT EFFORTS TO ENFORCE SUCH WARRANTIES ON BEHALF OF THE COMPANY, AND THE COMPANY (AND ITS SUBSIDIARIES) SHALL HAVE NO OTHER REMEDIES AGAINST MANAGER WITH RESPECT TO EQUIPMENT, MATERIALS, SUPPLIES OR SERVICES OBTAINED BY MANAGER FROM ITS VENDORS, SUPPLIERS AND SUBCONTRACTORS.

 

Section 7.19          Authorizations.  The Company represents and warrants to Manager that the Company has the right, and that the Company has the right on behalf of its Affiliates, to make the commitments under this Agreement, including the appointment of Manager to take any actions permitted under this Agreement and to perform the Services for each member of the Company Group at any time and from time to time after the Effective Date.

 

Section 7.21          Laws and Regulations.  Notwithstanding any provision of this Agreement to the contrary, no Party shall be required to take any act, or fail to take any act,

 

27



 

under this Agreement if the effect thereof would be to cause such Party to be in violation of any applicable Laws.

 

Section 7.22          Conspicuousness of ProvisionsThe Parties acknowledge and agree that the provisions contained in this Agreement that are set out in capital letters or “bold” satisfy the requirement of the “express negligence rule” and any applicable Laws or equitable doctrine that provisions in a contract be conspicuously marked or highlighted.

 

Section 7.23          Amendment.  No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by all Parties and no waiver of any provision of this Agreement, and no consent to any departure by any Party therefrom, shall be effective unless it is in writing and signed by the other Parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

[Remainder of page intentionally left blank]

 

28



 

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

 

 

THE COMPANY:

 

 

 

AGUILA PRODUCTION HOLDCO, LLC

 

 

 

 

 

By:

 

 

Name:

Angelo Acconcia

 

Title:

President

 

 

 

 

 

MANAGER:

 

 

 

 

[                                        ]

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

 

Solely for the purposes of Section 5.8(d):

 

 

 

 

SN EF MAVERICK, LLC

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Signature Page to Management Services Agreement

 



 

Schedule 1

 

Categories of Services

 

The Services performed by Manager shall include services of a type customarily performed for a non-operator of Hydrocarbon Interests which may include, to the extent that Manager or any of its Affiliates is capable of providing such Services, the items listed below:

 

(1)                                 Financial and Operational Accounting.

 

(2)                                 Accounts Payable and Receivables.

 

(3)                                 Contract Negotiation and Management.

 

(4)                                 Finance.

 

(5)                                 Real Property Title and Land Record-Keeping and Similar Services.

 

(6)                                 Legal Services.

 

(7)                                 Tax Services.

 

(8)                                 Treasury Services.

 

(9)                                 Financial Reporting and Reserve Reporting, as required under Section 9.3 of the LLC Agreement.

 

(10)                          Personnel, Outside Contractors and Consultants.

 

(11)                          General and Administrative, including Records Retention.

 

(12)                          Government and Public Relations; Permitting and Regulatory Affairs.

 

(13)                          Reservoir Engineering and Geology and Geophysics.

 



 

Schedule 2

 

Insurance

 

A.           General Liability Insurance:   Commercial General Liability insurance covering all operations hereunder against claims for bodily injury (including death) and property damage (including loss of use), including independent contractors working on the Parties’ behalf, products/completed operations, contractual liability and sudden and accidental pollution, with a limit of $[1,000,000] per occurrence and in the annual aggregate.

 

B.            Excess Insurance:  Excess (or Umbrella) Liability insurance following form of General Liability Insurance above (including sudden and accidental pollution) with a limit of $[50,000,000] per occurrence.

 

C.            Workers’ Compensation and Employer’s Liability Insurance:  Workers’ Compensation insurance or its’ equivalent, including Occupational Disease coverage, as required by law for all employees, agents, and subcontractors.  Employer’s Liability insurance (including Occupational Disease coverage) in the amount of $[1,000,000] per accident.   Such insurance shall provide coverage in the locations in which the Services are performed.

 

D.            Automobile Liability Insurance:  Automobile Liability insurance against claims of bodily injury (including death) and property damage (including loss of use) covering all owned, non-owned, and hired vehicles used in the performance of the Services, with a limit of $[1,000,000] per accident.

 



 

ANNEX D

 

FORM OF BLACKSTONE LLC

AGREEMENT

 



 

Final Form

 

FORM OF AMENDED AND

 

RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

AGUILA PRODUCTION HOLDCO, LLC

a Delaware limited liability company

 

Dated as of [__________], 2017

 

THE MEMBERSHIP INTERESTS REFERENCED IN THIS LIMITED LIABILITY COMPANY AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND THEIR OFFER AND SALE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE.  THE MEMBERSHIP INTERESTS WHICH ARE REFERENCED HEREIN MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IF THE OFFER OR SALE HAS BEEN REGISTERED AND/OR QUALIFIED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION AND/OR QUALIFICATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE.  THERE IS CURRENTLY NO TRADING MARKET FOR THE MEMBERSHIP INTERESTS, AND IT IS NOT ANTICIPATED THAT ONE WILL DEVELOP.  THERE ARE SUBSTANTIAL RESTRICTIONS UPON THE TRANSFERABILITY AND VOTING RIGHTS OF THE MEMBERSHIP INTERESTS SET FORTH HEREIN.  NO SALE, TRANSFER OR OTHER DISPOSITION BY A MEMBER OF ITS MEMBERSHIP INTERESTS MAY BE MADE EXCEPT IN ACCORDANCE WITH THE TERMS SET FORTH HEREIN.  THEREFORE, MEMBERS MAY NOT BE ABLE TO READILY LIQUIDATE THEIR INVESTMENTS.

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

ARTICLE I DEFINITIONS

1

1.1

Specific Definitions

1

1.2

Other Terms

12

1.3

Construction

12

 

 

 

ARTICLE II ORGANIZATION

13

2.1

Formation

13

2.2

Name

13

2.3

Principal U.S. Office; Registered Office and Registered Agent; Other Offices

13

2.4

Purpose

13

2.5

Foreign Qualification

13

2.6

Term

13

2.7

Fiduciary Duties

14

 

 

 

ARTICLE III MEMBERSHIP INTERESTS AND TRANSFERS

15

3.1

Classes and Series of Membership Interests; Members

15

3.2

Number of Members

16

3.3

Representations, Warranties and Covenants

16

3.4

Restrictions on the Transfer of Interests

19

3.5

Bankruptcy-Related Events

20

3.6

Tag-Along Rights

20

3.7

Drag-Along Rights

22

3.8

Vesting of Class A Units

24

 

 

 

ARTICLE IV CAPITAL CONTRIBUTIONS

25

4.1

Capital Contributions; Return of Cash

25

4.2

Capital Accounts

25

4.3

Contributions of Contributed Property

27

 

 

 

ARTICLE V ALLOCATIONS AND DISTRIBUTIONS

27

5.1

Allocations for Capital Account Purposes

27

5.2

Allocations for Tax Purposes

30

5.3

Requirement of Distributions

32

5.4

Withholding

34

5.5

Deemed Distribution

34

5.6

Distributions upon Merger, Sale or Similar Transaction

35

 

 

 

ARTICLE VI MANAGEMENT OF THE COMPANY

35

6.1

Management by Managers

35

6.2

Board

36

6.3

Powers of the Board

37

6.4

Meetings of the Board

37

 

i



 

6.5

Quorum and Voting

38

6.6

Resignation; Removal and Vacancies

39

6.7

Discharge of Duties; Reliance on Reports

39

6.8

Officers

40

6.9

Term of Officers

40

6.10

Compensation and Reimbursement

40

6.11

Management Services

40

6.12

Member Meetings

41

6.13

VCOC Management Rights

41

6.14

Affiliate Transactions

42

 

 

 

ARTICLE VII INDEMNIFICATION

42

7.1

Right to Indemnification

42

7.2

Indemnification of Officers, Employees (if any) and Agents

43

7.3

Advance Payment

43

7.4

Appearance as a Witness

43

7.5

Nonexclusivity of Rights

43

7.6

Insurance

43

7.7

Member Notification

43

7.8

Savings Clause

44

7.9

Scope of Indemnity

44

7.10

Other Indemnities

44

7.11

Certain Limitations

44

 

 

 

ARTICLE VIII TAXES

45

8.1

Tax Returns

45

8.2

Tax Elections

45

8.3

Tax Matters Member

45

8.4

PTP Qualifying Income

46

8.5

Code Section 83 Safe Harbor Election

46

 

 

 

ARTICLE IX BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS

47

9.1

Maintenance of Books

47

9.2

Rights of Members

47

9.3

Reports

48

 

 

 

ARTICLE X DISSOLUTION, LIQUIDATION, AND TERMINATION

49

10.1

Dissolution

49

10.2

Liquidation and Termination

49

10.3

Provision for Contingent Claims

50

10.4

Deficit Capital Accounts

50

10.5

Deemed Contribution and Distribution

50

 

 

 

ARTICLE XI AMENDMENT OF THE AGREEMENT; OTHER TRANSACTIONS

51

11.1

Amendments to be Adopted by the Company

51

11.2

Amendment Procedures

51

 

ii



 

11.3

Decisions Requiring Additional Consents

51

 

 

 

ARTICLE XII MEMBERSHIP INTERESTS

52

12.1

Certificates

52

12.2

Registered Holders

52

12.3

Security

52

 

 

 

ARTICLE XIII GENERAL PROVISIONS

53

13.1

Offset

53

13.2

Entire Agreement

53

13.3

Waivers

53

13.4

Binding Effect

53

13.5

Governing Law; Severability

53

13.6

Further Assurances

54

13.7

Exercise of Certain Rights

54

13.8

Notice to Members of Provisions of this Agreement

54

13.9

Counterparts

54

13.10

Books and Records

54

13.11

Information

54

13.12

Liability to Third Parties

56

13.13

No Third Party Beneficiaries

56

13.14

Notices

57

13.15

Disputes

58

13.16

Expenses

59

13.17

No Recourse

59

13.18

Adjustments for Unit Splits

60

 

Attachments

 

 

 

Exhibit A

Ownership Information

Exhibit B

Initial Capital Contributions

Schedule 6.2

Initial Board of Managers

Schedule 6.8

Initial Officers

Annex A

Form of VCOC Management Rights Letter

 

iii



 

AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

AGUILA PRODUCTION HOLDCO, LLC

a Delaware limited liability company

 

This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of Aguila Production HoldCo, LLC (the “Company”), dated as of [·], 2017 (the “Effective Date”), is (a) adopted by the Members (as defined below) and (b) executed and agreed to, for good and valuable consideration, by the Members.

 

RECITALS:

 

WHEREAS, the Company was formed as a limited liability company pursuant to the Delaware Limited Liability Company Act by filing a Certificate of Formation with the Secretary of State of the State of Delaware on January 9, 2017 (the “Formation Date”), and was governed by an initial limited liability company agreement by and between Blackstone and the Company (the “Original Agreement”);

 

WHEREAS, contemporaneously with the execution of this Agreement and in order to provide for certain services to the Company, the Company and Sanchez (as defined herein) have entered into the Management Services Agreement (as defined herein), pursuant to which Sanchez will agree, among other things, to provide certain services, or cause such services to be provided, to the Company; and

 

WHEREAS, for the foregoing purposes the Parties wish to amend and restate the Original Agreement in its entirety to, among other things, (a) admit Sanchez as a Member, (b) issue to Sanchez the Class A Units (as defined herein) which will be entitled to the rights set forth herein, (c) provide for the management of the Company and (d) set forth their respective rights and obligations.

 

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

 

ARTICLE I

 

DEFINITIONS

 

1.1          Specific Definitions.  As used in this Agreement, the following terms have the following meanings:

 

Act” means the Delaware Limited Liability Company Act, and any successor statute, as amended from time to time.

 

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Adjusted Capital Account” means the Capital Account, with respect to each Member, maintained for such Member as of the end of each taxable year of the Company, (a) increased by any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations sections 1.704-2(g)(1) and (i)(5), and (b) decreased by the items described in Treasury Regulations sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).  The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

Adjusted Property” means any property the Carrying Value of which has been adjusted pursuant to Section 4.2(d).

 

Affiliate” means, when used with respect to any Person, any other Person that, directly or indirectly, through one (1) or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person in question.

 

Aggregate Capital Contributions Amount” means, with respect to a Member as of a given time of determination, the aggregate amount of Capital Contributions made to the Company by such Member from the Effective Date through such time of determination.

 

Agreed Allocation” means any allocation, other than a Required Allocation, of an item of income, gain, loss or deduction pursuant to the provisions of Section 5.1.

 

Agreed Duties” has the meaning set forth in Section 2.7(a)(i).

 

Agreed Value” of any Contributed Property means the Fair Market Value of such property at the time of contribution as determined by Majority Consent.

 

Agreement” means this Amended and Restated Limited Liability Company Agreement of the Company (including any schedules, exhibits and annexes hereto), as amended, supplemented or otherwise modified from time to time.

 

AMI Properties” means any rights, title or interests to any oil and gas properties covering lands within the AMI (as defined in the Joint Development Agreement).

 

Assignee” means any Person that acquires an interest in any Membership Interest but has not been admitted as a Member in accordance with the terms of this Agreement.

 

Available Cash” means, as of the end of each quarter ended March 31, June 30, September 30 and December 31 immediately preceding the date of distribution or any other date of Distribution as the Board may determine, the following, without duplication:

 

(a)         all revenues and other cash or cash equivalent amounts collected or received by the Company and its Subsidiaries from any and all sources during such quarter, plus cash and cash equivalents of the Company and its Subsidiaries on hand (other than Capital Contributions and the proceeds of indebtedness for borrowed money), less

 

2



 

(b)         the bona fide costs and expenses paid by the Company and its Subsidiaries to other Persons during such quarter and amounts reserved for payment of costs, including capital costs and administrative and operating costs and expenses production taxes and other applicable taxes and similar amounts, debt service, or other reasonable reserves in each case determined in good faith by the Board.

 

BBA” means Subchapter C of Chapter 63 of the Code (Sections 6221 through 6241 of the Code), as enacted by the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, as amended from time to time, and the Treasury Regulations thereunder (whether proposed, temporary or final), including any subsequent amendments, successor provisions or other guidance thereunder, and any equivalent provisions for state or local tax purposes.

 

BBA Effective Period” means any taxable year commencing after 2017, taking into account any extensions of the effective date set forth in Bipartisan Budget Act Section 1101(g)(1), as applicable, or in any other BBA guidance.

 

Blackstone” means Aguila Production Aggregator, LLC.

 

Blackstone Funds” shall have the meaning set forth in the Joint Development Agreement.

 

Board” has the meaning set forth in Section 6.1(a).

 

Book-Tax Disparity” means with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date.

 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required by applicable Law to be closed in New York, New York or Houston, Texas.

 

Capital Account” means the capital account maintained for each Member pursuant to Section 4.2.

 

Capital Contribution” means any cash, cash equivalents or the Agreed Value of Contributed Property that a Member contributes to the Company in respect of Common Units.

 

Carrying Value” means (a) with respect to Contributed Property, the Agreed Value of such property reduced (but not below zero (0)) by all Depreciation and depletion (including Simulated Depletion), deductions charged to the Members’ Capital Accounts in respect of such Contributed Property, and (b) with respect to any other Company property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination.  In the case of oil and gas property (as defined in section 614 of the Code), adjusted basis shall be determined pursuant to Treasury Regulation section 1.613A-3(e).   Notwithstanding the foregoing, the Carrying Value of any property shall be adjusted from time to time in accordance with Section 4.2(d) to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Company properties, as deemed appropriate by the Board.

 

3



 

Certificate” has the meaning set forth in Section 2.1.

 

Chairman” has the meaning set forth in Section 6.2(a)(iii).

 

Change in Control” means, with respect to the Company, any events, transactions or other circumstances (or any series of the foregoing) resulting in the Blackstone Funds no longer owning (directly or indirectly, individually or collectively) Common Units or other Equity Interests in the Company that entitle the holders thereof to, in the absence of contingencies, vote for the election of Managers (or Persons with management authority performing similar functions) (i) representing over 50% of the voting interests in the Company or (ii) entitling the Blackstone Funds to elect at least a majority of Managers (or Persons with management authority performing similar functions).

 

Class A Units” has the meaning set forth in Section 3.1(a).

 

Class A Units Member” means Sanchez and any other Members holding a Class A Unit, including upon any Transfer of Class A Units permitted by this Agreement.

 

Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

Common Units” has the meaning set forth in Section 3.1(a).

 

Common Units Member” means all Members holding a Common Unit, including upon any Transfer of any Common Units permitted by this Agreement.  If at any time any other new Common Units Member is admitted to the Company so that more than one (1) Member holds a Common Unit, then the term “Common Units Member” is intended to include and shall be deemed to include all such Members holding Common Units whether or not references to the term “Common Units Member” herein are singular or plural, unless otherwise stated otherwise herein.

 

Company” has the meaning set forth in the Preamble.

 

Company Business” means the business related to (a) the acquisition, ownership, operation and finance, of oil, gas or mineral fee interests and royalty interests and other related rights, assets and interests, the sale or other disposition of such interests, and any other activities related or incidental thereto or in anticipation thereof, (b) the acquisition, ownership, operation, finance, maintenance, exploration, production and development of oil, gas or mineral leases and other related rights, assets and interests, the production and sale of oil, gas and other hydrocarbons produced from such interests, the sale or other disposition of such interests, (c) any midstream business or activities or oil or gas marketing activities or any other energy related activities (including activities related to the provision or disposal of water), and any other activities related or incidental thereto or in anticipation thereof, and (d) any additional activities as mutually agreed by the Members.

 

Company Minimum Gain” has the meaning given the term “partnership minimum gain” in Treasury Regulation section 1.704-2(b)(2) and the amount of which shall be determined in accordance with the principles of Treasury Regulation section 1.704-2(d).

 

4



 

Confidential Information” has the meaning set forth in Section 13.11(a).

 

Consent” means the affirmative consent of the indicated party (including the Board or any committee thereof) to the action requested, whether by an affirmative vote of the required number of Managers at a duly called and convened meeting of the Board where a quorum is present or the execution of a written consent by the required number of Managers, in either case in accordance with the terms hereof and any applicable requirements of the Act.

 

Contributed Property” means each property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed to the Company.  Once the Carrying Value of a Contributed Property is adjusted pursuant to Section 4.2(d), such property shall no longer constitute a Contributed Property, but shall be deemed an Adjusted Property.

 

Control” (including its derivatives and similar terms) means possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of any such relevant Person by ownership of voting interest, by contract or otherwise.

 

Core Acquisition” means an acquisition in the Core Area.

 

Core Area” has the meaning set forth in the Joint Development Agreement.

 

Curative Allocation” means any allocation of an item of income, gain, deduction or loss pursuant to the provisions of Section 5.1(c)(xi).

 

Depreciation” means, for any Fiscal Year or other period, except as provided in Treasury Regulation section 1.704-3(d)(2), an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such year or other period, except that, if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation will be an amount that bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; except that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero (0), Depreciation will be determined with reference to such beginning Carrying Value using any reasonable method selected by the Tax Matters Member.

 

Dissolution Event” has the meaning set forth in Section 10.1.

 

Drag-Along Transaction” has the meaning set forth in Section 3.7(a).

 

Economic Risk of Loss” has the meaning set forth in Treasury Regulation section 1.752-2(a).

 

Effective Date” has the meaning set forth in the Preamble.

 

Equity Interest” means (a) with respect to a corporation, any and all shares of capital stock and any commitments with respect thereto, (b) with respect to a partnership, limited liability company, trust or similar Person, any and all units, equity interests or other

 

5



 

partnership/limited liability company interests, and any commitments with respect thereto, and (c) any other direct or indirect equity ownership or participation in a Person.

 

Estimated Tax Payment Date” has the meaning set forth in Section 5.3(b)(i).

 

Estimated Tax Period” has the meaning set forth in Section 5.3(b)(i).

 

Excluded AMI Transactions” has the meaning set forth in the Joint Development Agreement.

 

Fair Market Value” means the value of any specified interest or property, which shall not in any event be less than zero (0), that would be obtained in an arm’s length transaction for cash between an informed and willing buyer and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, and without regard to the particular circumstances of the buyer or seller.

 

Fiscal Year” means the fiscal year of the Company, and its taxable year for federal income tax purposes, each of which shall be the calendar year unless otherwise established by the Board; provided, that, for purposes of making allocations under Article V hereof, Fiscal Year shall also include or mean any other period in which it becomes necessary to allocate items of income, gain, loss or deduction for tax purposes.

 

Formation Date” has the meaning set forth in the Recitals.

 

GAAP” means those generally accepted accounting principles and practices that are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor) and that, in the case of the Company and its consolidated Subsidiaries, are applied for all periods after the date hereof in a consistent manner.   If any change in any accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor) in order for such principle or practice to continue as a generally accepted accounting principle or practice, all reports and financial statements required hereunder with respect to the Company or with respect to the Company and its consolidated Subsidiaries shall be prepared in accordance with such change.

 

Governmental Authority” means any legislature, court, tribunal, arbitrator, authority, agency, department, commission, division, board, bureau, branch, official or other instrumentality of the U.S., or any domestic state, county, city, tribal or other political subdivision, governmental department or similar governing entity, and including any governmental, quasi-governmental, regulatory, administrative or non-governmental body exercising similar powers of authority.

 

IDCs” has the meaning set forth in Section 5.1(c)(ix).

 

Indemnitee” has the meaning set forth in Section 7.1.

 

Independent Expert” means a Person appointed by the Board in good faith who is independent of the Company and its Affiliates who is in the business of rendering opinions

 

6



 

regarding the value of oil and gas properties based upon the evaluation of all pertinent economic, financial, geologic and engineering information available to the Company or its Affiliates.

 

Interim Investors Agreement” means that certain Interim Investors Agreement, dated as of January 12, 2017 among Sanchez Energy Corporation, SN EF Maverick, LLC, SN EF UnSub, LP, the Company, Blackstone Capital Partners VII L.P. and Blackstone Energy Partners II L.P.

 

Internal Rate of Return” means the interest rate at which the holder’s cash flow in respect of a Common Unit, both positive and negative (that is, the Aggregate Capital Contributions Amount made by the holder and his predecessors in interest in respect of such Common Unit and the aggregate amount of distributions made with respect to such Common Unit) must be discounted on an annual basis (to account for the time value of money concept) so that the aggregate of such discounted amount equals zero (0).

 

JDA Default” has the meaning set forth in the definition of “Default” in the Joint Development Agreement.

 

JDA Default Notice” has the meaning set forth in the definition of “Default Notice” in the Joint Development Agreement. “Joinder” has the meaning set forth in Section 3.4(c).

 

Joint Development Agreement” means that certain Joint Development Agreement dated as of [·] by and between SN EF Maverick, LLC, SN EF UnSub, LP, and Aguila Production, LLC, in effect as of the Effective Date.

 

Laws” means all federal, state and local statutes, laws (including common law), rules, regulations, codes, orders, ordinances, licenses, writs, injunctions, judgments, subpoenas, awards and decrees and other legally enforceable requirements enacted, adopted, issued or promulgated by any Governmental Authority.

 

Liabilities” means, as to any Person, all liabilities and obligations of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent, and whether or not required to be considered pursuant to GAAP.

 

Lien” means, with respect to any property or assets, any right or interest therein of a creditor to secure Liabilities owed to it or any other arrangement with such creditor that provides for the payment of such Liabilities out of such property or assets or that allows such creditor to have such Liabilities satisfied out of such property or assets prior to the general creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien (other than a lien for taxes that are not yet due and payable), mechanic’s or materialman’s lien, or any other charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but excluding any right of offset that arises without agreement in the ordinary course of business.  “Lien” also means any filed financing statement, any registration of a pledge (such as with a lender of uncertificated securities), or any other arrangement or action that would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists.

 

7



 

Liquidator” has the meaning set forth in Section 10.2.

 

Majority Consent” means the affirmative vote at any duly called and convened meeting of the Board of more than fifty percent (50%) of all Managers then constituting the entire Board.

 

Management Services Agreement” means the Management Services Agreement, dated as of the date hereof, by and between the Company and Sanchez, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the provisions thereof.

 

Manager” has the meaning set forth in Section 6.1(a).

 

Manager Alternate” has the meaning set forth in Section 6.2(a)(ii).

 

Member” means any Person executing this Agreement as of the date of this Agreement as a Member or any Person hereafter admitted to the Company as a new Member as provided in this Agreement, but does not include any Assignee or any Person who has ceased to be a Member in the Company.

 

Member Affiliate” has the meaning set forth in Section 13.17.

 

Member Nonrecourse Debt” has the meaning set forth for “partner nonrecourse liability” in Treasury Regulation section 1.704-2(b)(4).

 

Member Nonrecourse Debt Minimum Gain” has the meaning set forth for the term “partner nonrecourse debt minimum gain” in Treasury Regulation section 1.704-2(i)(2).

 

Member Nonrecourse Deductions” means any and all items of loss, deduction, expenditure (including any expenditure described in section 705(a)(2)(B) of the Code), Simulated Depletion or Simulated Loss that, in accordance with the principles of Treasury Regulation section 1.704-2(i), are attributable to Member Nonrecourse Debt.

 

Membership Interest” means the limited liability company interest of a Member in the Company.

 

Non-Core Acquisition” means an Acquisition (as defined in the Joint Development Agreement) in the Non-Core Area.

 

Non-Core Area” has the meaning set forth in the Joint Development Agreement.

 

Nonrecourse Built-in Gain” means with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Members if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration.

 

Nonrecourse Deductions” means any and all items of loss, deduction, expenditure (described in section 705(a)(2)(b) of the Code), Simulated Depletion or Simulated Loss that, in

 

8



 

accordance with the principles of Treasury Regulation section 1.704-2(b)(1), are attributable to a Nonrecourse Liability.

 

Nonrecourse Liability” has the meaning assigned to such term in Treasury Regulation section 1.704-2(b)(3).

 

Non-Core Area” has the meaning set forth in the Joint Development Agreement.

 

Notice” has the meaning set forth in Section 8.5(b).

 

Observer” has the meaning set forth in Section 6.2(c).

 

Officers” has the meaning set forth in Section 6.8(a).

 

Original Agreement” has the meaning set forth in the recitals.

 

Other Indemnification Agreement” means one (1) or more certificate or articles of incorporation, by-laws, limited liability company operating agreement, limited partnership agreement and any other organizational document, and insurance policies maintained by any Member or Manager or Affiliate thereof providing for, among other things, indemnification of and advancement of expenses for any Indemnitee for, among other things, the same matters that are subject to indemnification and advancement of expenses under this Agreement.

 

Parties” means the Members and the Company.

 

Percentage Interest” means, as of any date with respect to any Member other than a Class A Units Member (in its capacity as such), a percentage equal to the aggregate number of Common Units owned by such Member as of such date divided by the aggregate number of all Common Units issued and outstanding as of such date. No Class A Units Member (in its capacity as such) shall be entitled to a Percentage Interest.

 

Permitted Affiliate” means, when used with respect to any Person, any other Person that, directly or indirectly, through one (1) or more intermediaries, Controls, or is Controlled by, or is under common Control with, such Person.  For the Common Units Member, Permitted Affiliate shall include any entity affiliated with or managed by the Blackstone Funds.

 

Permitted Holders” has the meaning set forth in the Joint Development Agreement.

 

Person” means any individual or entity, including any corporation, limited liability company, partnership (general or limited), joint venture, association, joint stock company, trust, unincorporated organization or Governmental Authority.

 

Pro Rata Share” means, with respect to each Membership Interest as of any date of determination, the proportionate amount such Membership Interest would receive if an amount equal to the Total Equity Value were distributed to all Membership Interests in accordance with the provisions of Section 5.3.

 

Proceeding” has the meaning set forth in Section 7.1.

 

9



 

Proposed Sale” has the meaning set forth in Section 3.6(a).

 

Proposed Transferee” has the meaning set forth in Section 3.6(a)(i).

 

Purchase Agreement” means that certain Purchase and Sale Agreement, dated as of January 12, 2017, among Anadarko E&P Onshore LLC, Kerr-McGee Oil & Gas Onshore LP, Sanchez Energy Corporation, SN EF Maverick, LLC and SN EF UnSub, LP, in effect as of the Effective Date.

 

Required Allocations” means any allocation of an item of income, gain, loss or deduction  pursuant  to  Section  5.1(c)(i),  Section  5.1(c)(ii),  Section  5.1(c)(iii),  Section 5.1(c)(iv), Section 5.1(c)(v), Section 5.1(c)(vi), Section 5.1(c)(vii) and Section 5.1(c)(viii).

 

Sanchez” means [____________](1).

 

Securities Act” means the Securities Act of 1933, as amended.

 

Security Interest” means any security interest, lien, mortgage, deed of trust, encumbrance, hypothecation, pledge, purchase option or other similar adverse claim or obligation, whether created by operation of Law or otherwise, created by any Person in any of its property or rights.

 

Simulated Basis” means, with respect to each oil and gas property, the Carrying Value of such property.  For purposes of such computation, the Simulated Basis of each oil and gas property shall be allocated to each Member in accordance with such Member’s relative Percentage Interest as of the time such oil and gas property is acquired by the Company, and shall be reallocated among the Members in accordance with the Members’ relative Percentage Interest as determined immediately following the occurrence of an event giving rise to any adjustment to the Carrying Values of the Company’s oil and gas properties pursuant to the terms of this Agreement.

 

Simulated Depletion” means a depletion allowance computed for each oil and gas property (as defined in section 614 of the Code) using the cost depletion method, subject, however, to the requirements set forth in Treasury Regulation section 1.704-1(b)(2)(iv)(k).  For the purposes of computing Simulated Depletion with respect to any oil and gas property (as defined in section 614 of the Code), the Simulated Basis of such property shall be deemed to be the Carrying Value of such property, and in no event shall such allowance for Simulated Depletion, in the aggregate, exceed such Simulated Basis.  If the Carrying Value of an oil and gas property is adjusted pursuant to Section 4.2(d) during a taxable period, following such adjustment Simulated Depletion shall thereafter be calculated under the foregoing provisions based upon such adjusted Carrying Value.

 

Simulated Gain” or “Simulated Loss” means the simulated gain or loss, as applicable, computed with respect to a sale or other disposition of an oil and gas property pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(k).

 


(1)              NTD: The entity designated by Sanchez Energy Corporation to sign the Management Services Agreement.

 

10



 

Subsidiary” means, with respect to any relevant Person as of the date the determination is being made, any other Person that (a) is Controlled (directly or indirectly) by such Person and (b) the equity entitled to vote to elect the board of directors, board of managers or other governing authority of which is more than fifty percent (50%) owned (directly or indirectly) by the relevant Person.

 

Tag-Along Member” has the meaning set forth in Section 3.6(a).

 

Tag-Along Notice” has the meaning set forth in Section 3.6(a).

 

Tag-Along Offer” has the meaning set forth in Section 3.6(b).

 

Tag-Along Sale” has the meaning set forth in Section 3.6(g).

 

Tag-Along Sale Percentage” has the meaning set forth in Section 3.6(a)(i).

 

Tax Advances” has the meaning set forth in Section 5.4.

 

Tax Matters Member” has the meaning set forth in Section 8.3(a).

 

Tax Rate” has the meaning set forth in Section 5.3(b)(i).

 

Third Party” means any Person other than the Members’ respective Permitted Affiliates, and the Company and its Subsidiaries.

 

Total Equity Value” means, at any time or with respect to any transaction or potential transaction, the aggregate proceeds which would be received by the holders of Membership Interests if: (a) all of the assets of the Company were sold at their Fair Market Value to an unrelated third-party on arm’s-length terms (including price), with neither the seller nor the buyer being under compulsion to buy or sell such assets and (b) the Company satisfied and paid in full all of its obligations and liabilities (limited in the case of a nonrecourse liability to the value of any asset securing such liability), including all taxes, costs and expenses incurred and imposed on the Company (as opposed to its direct or indirect owners) in connection with such transaction and any amounts agreed by the Board to be reserved by the Company after the actions in clause (a) and this clause (b) with respect to any contingent or other liabilities.

 

Transfer” or “Transferred” means, with respect to a Membership Interest, (a) a direct or indirect voluntary or involuntary, sale, assignment, transfer, conveyance, exchange, bequest, devise, gift or any other alienation, including any pledge or grant of a security interest (in each case, with or without consideration and whether by operation of Law or otherwise, including by merger or consolidation) of any rights, interests or obligations with respect to all or any portion of such Membership Interest, or (b) a grant or sufferance of a Security Interest on all or any portion of such Membership Interest.

 

Transferee” means a Person who receives all or part of a Member’s Membership Interest through a Transfer.

 

Transferring Member” has the meaning set forth in Section 3.4(a).

 

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Treasury Regulation” means the Income Tax Regulations promulgated under the Code, as may be amended from time to time (including corresponding provisions of successor regulations).

 

Unanimous Consent” means the affirmative vote of all of the Managers constituting the entire Board at a duly called and convened meeting of the Board or the affirmative written consent in lieu of a meeting executed by all of the Managers.

 

Units” has the meaning set forth in Section 13.18.

 

Unpaid Indemnity Amounts” means any amount that the Company fails to indemnify or advance to an Indemnitee as required by Article VII of this Agreement.

 

Unrealized Gain” attributable to any item of Company property means, as of any date of determination, the excess, if any, of (a) the Fair Market Value of such property as of such date (as determined under Section 4.2(d)) over (b) the Carrying Value of such property as of such date (prior to any adjustment to be made pursuant to Section 4.2(d) as of such date).

 

Unrealized Loss” attributable to any item of Company property means, as of any date of determination, the excess, if any, of (a) the Carrying Value of such property as of such date (prior to any adjustment to be made pursuant to Section 4.2(d) as of such date) over (b) the Fair Market Value of such property as of such date (as determined under Section 4.2(d)).

 

Vested Class A Units” means any issued Class A Units that have vested as of the date of determination pursuant to this Agreement.

 

Withheld Amounts” has the meaning set forth in Section 5.3(b)(iii).

 

1.2                               Other Terms.  Other capitalized terms may be defined elsewhere in the text of this Agreement and shall have the meaning so given.

 

1.3                       Construction.   Unless the context otherwise requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter, the singular shall include the plural, and the plural shall include the singular.  All references to Articles and Sections refer to articles and sections of this Agreement, and, unless otherwise indicated, all references to Exhibits and Schedules are to exhibits and schedules attached hereto, each of which is incorporated herein for all purposes.  Article and section titles or headings are for convenience only, and neither limit nor amplify the provisions of the Agreement itself; and all references herein to articles, sections or subdivisions thereof shall refer to the corresponding article, section or subdivision thereof of this Agreement unless specific reference is made to such articles, sections or subdivisions of another document or instrument.   Unless the context of this Agreement clearly requires otherwise, the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation,” and the words “hereof,” “herein,” “hereunder” and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or Article in which such words appear.

 

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ARTICLE II

 

ORGANIZATION

 

2.1                               Formation.   The Company was organized as a Delaware limited liability company by the filing of a Certificate of Formation (as such Certificate of Formation may be amended, supplemented or otherwise modified from time to time, the “Certificate”) with the Secretary of State of the State of Delaware pursuant to the Act on the Formation Date.   This Agreement is adopted and agreed to by the Members to set forth their agreement with respect to the Company’s business and the rights, duties and obligations of the Members.

 

2.2                        Name.  The name of the Company is “Aguila Production HoldCo, LLC,” and all Company Business shall be conducted in that name or such other names that comply with Law as the Board may select from time to time.

 

2.3                        Principal U.S. Office; Registered Office and Registered Agent; Other Offices. The principal office of the Company in the United States shall be at 200 Bellevue Parkway, Suite 210, Wilmington, New Castle County, Delaware 19809, or at such other place as the Board may designate from time to time, which need not be in the State of Delaware.  The Company may have such other offices as the Board may designate from time to time.

 

2.4                        Purpose.   The sole purpose of the Company is (a) to engage in the Company Business and (b) to engage in all lawful activities and to enter into, exercise the rights and enjoy the benefits under, and discharge the obligations of the Company pursuant to, all contracts, agreements, and other instruments which the Board determines to be necessary or suitable for or incidental to the accomplishment and conduct of the purposes in the foregoing clause (a).  The Company shall not engage in any activity or conduct inconsistent with the Company Business.

 

2.5                        Foreign Qualification.   Prior to the Company’s conducting business in any jurisdiction other than Delaware, the Board shall cause the Company to comply, to the extent procedures are available and those matters are reasonably within the control of the Company, with all requirements necessary to qualify the Company as a foreign limited liability company, and, if necessary, to make such filings and take such actions as may be required to keep the Company in good standing in that jurisdiction, it being understood that the Board shall cause the Company to be registered as a foreign limited liability company in the State of Texas.   Each Member agrees to execute, acknowledge and deliver such certificates and other instruments, if any, that are necessary or appropriate to qualify, continue and terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct business.

 

2.6                               Term.   Subject to earlier termination pursuant to other provisions of this Agreement (including those contained in Article X), the term of the Company shall be perpetual.

 

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2.7                               Fiduciary Duties.

 

(a)                         Fiduciary Duties.  Subject in all respects to Section 7.11:

 

(i)                             Each Member and Manager shall, to the fullest extent required by Delaware law, owe to the Company and its Members the duties of good faith and fair dealing, and in the case of each Manager, the duty not to exceed in such capacity the bounds of the authority granted to any Manager by this Agreement and Delaware law (all such duties collectively, the “Agreed Duties”).

 

(ii)                          To the fullest extent permitted by Law,

 

(A)                               except for the Agreed Duties and as expressly provided in this Agreement, none of the Managers shall owe any fiduciary or similar duty or obligation whatsoever to the Company, any Member (other than the Member designating such Manager), Assignee or the other Managers, except as required by any provisions of applicable Law that cannot be waived, and

 

(B)                               to the extent that, at law or in equity, a Manager owes any duties (including fiduciary duties) to the Company, any other Member or any Assignee pursuant to applicable Law, any such duty other than the Agreed Duties is hereby eliminated to the fullest extent permitted pursuant to applicable Law.

 

(iii)                       Subject to the foregoing clauses (i) and (ii), the Company and the Members acknowledge and agree that each Manager may decide or determine any matter subject to the Board’s approval hereunder in the sole and absolute discretion of such Manager, it being the intent of all Members that such Manager have the right to make such decision or determination solely on the basis of the interests such Manager desires to consider, including such Manager’s own interests, the interests of the Member(s) that designated such Member and the interests of such Member’s Affiliates.

 

(iv)                      The Company and the Members agree that any claims against, actions, rights to sue, other remedies or recourse to or against any Manager (except for such claims, actions, rights to sue, remedies or recourse that may be initiated or brought solely by the Member that appointed such Manager) grounded in or alleging any breach of any fiduciary or similar duty, other than an Agreed Duty, are expressly released and waived by the Company and each Member (and each Assignee), to the fullest extent permitted by Law, as a condition to and as part of the consideration for the execution of this Agreement and the undertaking to incur the obligations provided for in this Agreement.

 

(v)                         To the extent that, at law or in equity, a Member owes any duties (including fiduciary duties) to the Company, any other Member or any Assignee pursuant to applicable Law, any such duty, other than the Agreed Duties, is hereby eliminated to the fullest extent permitted pursuant to applicable Law, it

 

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being the intent of the Members that to the extent permitted by Law and except to the extent set forth in this Section 2.7 or expressly specified elsewhere in this Agreement or the Management Services Agreement, no Member or Manager shall owe any duties of any nature whatsoever to the Company, the other Members or any Assignee, other than the Agreed Duties, and each Member may decide or determine any matter in its sole and absolute discretion taking into account solely its interests and those of its Affiliates (excluding the Company and its Subsidiaries) subject to the Agreed Duties.  Each Member further acknowledges and agrees that it would not have become a Member in the Company if this arrangement were not acceptable to it.

 

(vi)                      Nothing herein is intended to create a partnership, joint venture, agency or other relationship creating fiduciary or quasi-fiduciary duties or similar duties or obligations, otherwise subject the Members to joint and several liability or vicarious liability or to impose any duty, obligation or liability that would arise therefrom with respect to any or all of the Members or the Company.

 

ARTICLE III

 

MEMBERSHIP INTERESTS AND TRANSFERS

 

3.1                               Classes and Series of Membership Interests; Members.

 

(a)                                 Classes.   The Company is hereby authorized to issue two (2) classes of Membership Interests of the Company, with such classes referred to herein as the “Common Units” and the “Class A Units.” Common Units and Class A Units may be issued in whole or fractional interests.  A total of 1,000 Common Units are hereby authorized for issuance, and a total of 100 Class A Units are hereby authorized for issuance.  The holders of Class A Units and Common Units shall have the respective rights, preferences, privileges, restrictions and obligations set forth in this Agreement and, to the extent applicable, the Act.

 

(b)                                 Members.  At the Effective Date, and upon the execution and delivery by the Members of this Agreement, the Company issued:

 

(i)                                     100 Common Units to Blackstone, and Blackstone was admitted to the Company as a Common Units Member; and

 

(ii)                                  100 Class A Units to Sanchez, and Sanchez was admitted to the Company as Class A Units Member.

 

Additional Persons may be admitted to the Company as new Members only as provided in this Agreement.

 

(c)                                  Amendments to Exhibit A.  The Class A Units and the Common Units and respective Membership Interests held by each Member and the Percentage Interests of each Member are set forth on Exhibit A hereto.   Exhibit A shall be amended from time to time to reflect changes and adjustments resulting from (i) the admission of any new Member, (ii) any Transfer in accordance with this Agreement, and/or (iii) any Capital Contributions made,

 

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changes to Membership Interests or additional Membership Interests issued, in each case as permitted by this Agreement (provided, that a failure to reflect such change or adjustment on Exhibit A shall not prevent any otherwise valid change or adjustment from being effective); provided, that the Board shall provide each Member with a copy of any amendment to Exhibit A within thirty (30) Business Days after adoption thereof.

 

3.2                               Number of Members.  The number of Members of the Company shall never be less than one (1).

 

3.3                               Representations, Warranties and Covenants.

 

(a)                                  Member  Representations  and  Warranties.    Each  Member  hereby represents and warrants to the Company and each other Member as of the date of such Member’s admittance to the Company that:

 

(i)                              To the extent it is not a natural person, it is duly formed, validly existing and in good standing under the Laws of the jurisdiction of its formation, and if required by Law is duly qualified to conduct business and is in good standing in the jurisdiction of its principal place of business (if not formed in such jurisdiction);

 

(ii)                           To the extent it is not a natural person, it has full corporate, limited liability company, partnership, trust or other applicable power and authority to execute and deliver this Agreement and to perform its obligations hereunder and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries or other Persons necessary for the due authorization, execution, delivery and performance of this Agreement by that Member have been duly taken;

 

(iii)                        It has duly executed and delivered this Agreement, and this Agreement is enforceable against such Member in accordance with its terms, subject to bankruptcy, moratorium, insolvency and other Laws generally affecting creditors’ rights and general principles of equity (whether applied in a proceeding in a court of law or equity);

 

(iv)                       Its authorization, execution, delivery, and performance of this Agreement does not breach or conflict with or constitute a default under (i) such Member’s charter or other governing documents to the extent it is not a natural person or (ii) any material obligation under any other material agreement or arrangement to which that Member is a party or by which it is bound; and

 

(v)                          It (i) has been furnished with such information about the Company and the Membership Interest as that Member has requested, (ii) has made its own independent inquiry and investigation into, and based thereon has formed an independent judgment concerning, the Company and such Member’s Membership Interest herein, (iii) has adequate means of providing for its current needs and possible contingencies, is able to bear the economic risks of this investment and has a sufficient net worth to sustain a loss of its entire investment in the Company

 

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in the event such loss should occur, (iv) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Company, (v) solely in respect of the Common Units Member, is an “accredited investor,” as that term is defined in Rule 501(a) of Regulation D, promulgated under the Securities Act, and (vi) understands and agrees that its Membership Interest shall not be sold, pledged, hypothecated or otherwise Transferred except in accordance with the terms of this Agreement and pursuant to an effective registration statement under the Securities Act or an applicable exemption from registration and/or qualification under the Securities Act and applicable state securities Laws.

 

(b)                                  Company Representations, Warranties and Covenants.   The Company hereby represents, warrants and covenants to each Member as of the date of such Member’s admittance to the Company that:

 

(i)                              The Class A Units have been duly authorized and, when issued in accordance with this Agreement, will be duly and validly issued and will be free and clear of all Encumbrances (as defined in the Purchase Agreement), other than Encumbrances created by the Class A Units Member and restrictions on transfer imposed by this Agreement, the Securities Act, and applicable state securities Laws.

 

(ii)                           Assuming the accuracy of the Class A Units Member’s representations and warranties set forth in this Agreement, the Company has complied in all material respects with all applicable federal and state securities Laws in connection with the issuance of the Class A Units.  Neither the Company nor any Person acting on its behalf has taken or will take any other action (including any offer, issuance or sale of any security of the Company under any circumstances which might require the integration of such security with the Class A Units under the Securities Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder), in either case so as to subject the issuance of the Class A Units to the registration provisions of the Securities Act. Neither the Company nor any Person acting on its behalf has offered the Membership Interests to any Person by means of general or public solicitation or general or public advertising, such as by newspaper or magazine advertisements, by broadcast media, or at any seminar or meeting whose attendees were solicited by such means.

 

(iii)                        The Company has had no operations or business, incurred no debt or liability, and has no assets, other than, in each case, in connection with the transactions contemplated by the Purchase Agreement and the Interim Investors Agreement and related matters.

 

(c)                                   AMI Acquisitions.  The Company hereby covenants that any Acquisition (as defined in the Joint Development Agreement) of AMI Properties shall be subject to the following:

 

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(i)                              In the event that the Company, Blackstone or any Affiliate of Blackstone elects to make any Core Acquisitions, such Core Acquisitions shall be acquired directly or indirectly by the Company with the consent of the Class A Units Member, or by an Affiliate of the Company with a capital structure similar and limited liability company agreement substantially similar to those of the Company, and in which only Sanchez and/or one or more of its designated Affiliates that are reasonably acceptable to the Company holds a profits interest with rights identical to the Class A Units, and distributions with respect to such Core Acquisition, including in connection with any exit event, shall be applied in the same order of priority as set forth in Section 5.3(a); provided, that the Class A Units (or such other profits interests) shall be entitled to only 50% of the distributions that such Class A Units (or such other profits interests) would be entitled to under clause (i) of Section 5.3(a) at each distribution tier with respect to the portion of any Core Acquisitions that result in the Company and its Affiliates owning, in the aggregate, greater than a 35% working interest in the Leases (as defined in the Purchase Agreement).

 

(ii)                           In the event that the Company, Blackstone or any Affiliate of Blackstone elects to make any Non-Core Acquisitions in which Sanchez or any of its Affiliates elects to participate, such Non-Core Acquisitions shall be acquired directly or indirectly by the Company with the consent of the Class A Units Member, or by an Affiliate of the Company; provided that such Affiliate adopts a limited liability company agreement substantially similar to that of the Company, and in which Sanchez and/or one or more of its designated Affiliates that are reasonably acceptable to such Affiliate will hold a profits interest with rights identical to the Class A Units, and distributions with respect to such Core Acquisition, including in connection with any exit event, shall be applied in the same order of priority as set forth in Section 5.3(a).  Notwithstanding the foregoing, Sanchez or such designated Affiliate will be entitled to (A) 50% of the distributions that such Class A Units (or such other profits interests) would be entitled to under clause (i) of Section 5.3(a) at each distribution tier with respect to any Non-Core Acquisition that is originally proprietary to the Company or any of its Affiliates and not operated by Sanchez or any of its Affiliates, and (B) 100% of the distributions that such Class A Units (or such other profits interests) would be entitled to under clause (i) of Section 5.3(a) at each distribution tier with respect to any other Non-Core Acquisition made by Blackstone or any of its Controlled Affiliates.

 

(iii)                        Sanchez shall cause its Affiliates and all Permitted Holders that are members or shareholders in Sanchez, or such other designated Affiliate referred to above, if applicable, or otherwise hold, directly or indirectly, incentive equity units directly linked to the Class A Units or such other profits interests, if applicable (and Affiliates of such Permitted Holders that are Controlled by such Permitted Holders), to comply with the provisions of Section 5.2 of the Joint Development Agreement in the same manner as required by SN EF Maverick, LLC and SN EF UnSub, LP thereunder.  Notwithstanding anything to the contrary

 

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in this Agreement, the obligations set forth in this Section 3.3(c) with respect to Blackstone and its Affiliates shall not apply to Excluded AMI Transactions.

 

(iv)                      Any Acquisitions made by Sanchez or any of its Affiliates, on the one hand, or the Company, Blackstone or any of their Affiliates, on the other hand, on or after the execution of the Purchase Agreement and prior to the Effective Date, shall be subject to the provisions of this Section 3.3(c) as if such Acquisition had occurred on or after the Effective Date.

 

(d)                                 Available Cash. The Company hereby covenants that it will not maintain excessive levels of Available Cash as determined in the reasonable business judgment of the Board.

 

3.4                               Restrictions on the Transfer of Interests.

 

(a)                         Permitted Transfers.   Any Member may Transfer all or part of such Member’s Membership Interests (a “Transferring Member”) only in accordance with applicable Law and the provisions of this Agreement, including this Article III to a Person.  A Common Units Member may transfer its Common Units without the prior written consent of any other Member, but subject to compliance with the other provisions of this Section 3.4.  Except for Transfers pursuant to Section 3.6 or Section 3.7, no Class A Units Member may Transfer, directly or indirectly, any Class A Units without the consent of the Common Units Member, which consent may be given or withheld in the sole discretion of the Common Units Member. Any purported Transfer in breach of the terms of this Agreement shall be null and void ab initio, and the Company shall not recognize any such prohibited Transfer on its books and records. Any Member who Transfers any Membership Interests except in compliance herewith shall be liable to, and shall indemnify and hold harmless, the Company and the other Members for all costs, expenses, damages and other liabilities resulting therefrom.  For the avoidance of doubt, all Transfers to Permitted Affiliates shall comply with Sections 3.4(b) through 3.4(e).

 

(b)                         Securities Laws.   Notwithstanding anything in this Agreement to the contrary, no Membership Interest shall be Transferred except pursuant to an effective registration statement under the securities Laws or an applicable exemption from registration and/or qualification under the Securities Act and applicable state securities Laws.

 

(c)                          Documentation; Validity of Permitted Transfer.   Any Transfer of a Membership Interest that complies with Section 3.4(a) and Section 3.4(b) shall be effective to assign the right to become a Member, and, without the need for any action or consent of any other Person, a Transferee of such Membership Interest shall automatically be admitted as a Member once the Company has received a customary joinder agreement in a form reasonably acceptable to the Board which has been executed by such Transferee (a “Joinder”), pursuant to which such Transferee shall (i) become a party to this Agreement as a Member and shall have the rights and obligations of a Member hereunder, (ii) expressly assume all liabilities and obligations of the Transferring Member (or its applicable Affiliates) to the Company or the other Members and (iii) if the Transferee is to be admitted to the Company as a new Member, acknowledge the representations and warranties in Section 3.3(a) are true and correct with

 

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respect to such Transferee as of the date of the Joinder.  Each Transfer is effective against the Company as of the first (1st) Business Day following delivery of the Joinder to the Company.

 

(d)                         Expenses.  Any costs incurred by the Company in connection with any Transfer by a Member of all or a part of its Membership Interests shall be borne by such Transferring Member.  Any transfer or similar taxes arising as a result of the Transfer of a Member’s Membership Interest shall be paid by the Transferring Member.

 

(e)                          Distributions.  Any distribution or payment made by the Company to the Transferring Member prior to such time as the Transferee was admitted as a Member pursuant to the provisions of this Agreement with respect to the Transferred Membership Interests shall constitute a release of the Company, the Managers authorizing such distribution and the Members of all liability to such Assignee or new Member who may be interested in such distribution or payment by reason of such Transfer.

 

(f)                           Certain Indirect Transfers.  Except for Transfers to Permitted Affiliates thereof, no Member shall indirectly Transfer any Membership Interests to the extent such Member is not permitted to sell Membership Interests directly pursuant to the terms hereof and any indirect sale shall be structured and consummated in such a manner that each other Member is given the same rights and protections as it would have had if such Transfer were structured as a direct sale of Membership Interests pursuant to the terms hereof.

 

3.5                               Bankruptcy-Related Events.  Without the prior written consent of the Common Units Member, no Member shall take any action to directly encumber the assets of the Company, or subject such assets to a right of foreclosure in favor of any Person.  To the extent that prior to the date hereof any Member has entered into any contract, agreement or understanding with the effect of directly encumbering such assets, or subjecting such assets to a right of foreclosure in favor of any Person, such Member shall take all actions necessary to release such assets from such contract, agreement or understanding as promptly as practicable.

 

3.6                               Tag-Along Rights.

 

(a)                                 If at any time following the Effective Date, the Common Units Member proposes to Transfer in a transaction or series of related transactions greater than sixty percent (60%) of the outstanding Common Units to a Third Party purchaser (a “Proposed Sale”), then the Common Units Member (the “Tag-Along Member”) shall furnish to the Class A Unit Members a written notice of such Proposed Sale (the “Tag-Along Notice”) and provide them the opportunity to participate in such Proposed Sale on the terms described in this Section 3.6.  The Tag-Along Notice will include:

 

(i)                             the material terms and conditions of the Proposed Sale, including (A) the number of Common Units proposed to be so Transferred, (B) the name of the proposed Transferee (the “Proposed Transferee”), (C) the proposed amount and form of consideration (including the consideration payable to each Common Units Member and Class A Member assuming each Common Units Member and Class A Units Member included the maximum percentage of Membership Interests it would be entitled to sell in such Proposed Sale, such amounts

 

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calculated based on a hypothetical application of Section 5.3) and all other material terms of the Proposed Sale, (D) the proposed Transfer date, if known, which date shall not be less than thirty (30) Business Days after delivery of such Tag-Along Notice and (E) the fraction, expressed as a percentage, determined by dividing (I) the number of Common Units to be Transferred by the Tag-Along Member, by (II) the total number of Common Units held by the Tag-Along Member (the “Tag-Along Sale Percentage”); and

 

(ii)                          an invitation to each Class A Units Member to include a percentage of its Class A Units in the Proposed Sale up to a number equal to (A) the Tag-Along Sale Percentage multiplied by (B) the total Class A Units held by such Member.  The Tag-Along Member will deliver or cause to be delivered to the other Members copies of all transaction documents relating to the Proposed Sale as promptly as practicable after they become available.

 

(b)                                 Each other Member must exercise the tag-along rights provided by this Section 3.6 within twenty one (21) calendar days following delivery of the Tag-Along Notice by delivering a notice (the “Tag-Along Offer”) to the Tag-Along Member indicating its desire to exercise its rights hereunder and specifying the percentage of Class A Units it elects to include in the Proposed Sale pursuant to Section 3.6(a)(ii).   If any other Member does not make a Tag- Along Offer within twenty one (21) calendar days following delivery of the Tag-Along Notice, such other Member shall be deemed to have waived its rights under this Section 3.6 with respect to such Proposed Sale, and the Tag-Along Member shall thereafter be free to Transfer the Common Units to the Proposed Transferee without the participation of such other Member, in the same amount and for the same form of consideration set forth in the Tag-Along Notice, at a price no greater than the price set forth in the Tag-Along Notice and on other terms and conditions which are not more favorable to the Tag-Along Member than those set forth in the Tag-Along Notice.  If any other Member elects to participate in the Proposed Sale pursuant to this Section 3.6, such other Member shall agree to make to the Proposed Transferee the same representations and warranties, covenants and indemnities as the Tag-Along Member agrees to make in connection with the Proposed Sale; provided, that (w) such other Member shall not be liable for the breach of any covenant by the Tag-Along Member (or any other Member) and vice versa, (x) in no event shall any Member be required to make representations and warranties or provide indemnities as to any other Member or to make representations or warranties or covenants (including indemnities) not required by each other Member, (y) any liability relating to representations and warranties (and related indemnities) or other indemnification obligations regarding the business of the Company in connection with the Proposed Sale shall be shared by the Members pro rata on a several but not joint basis in proportion to the consideration to be received in the Proposed Sale by each Member and (z) in no event shall any Member other than the Tag-Along Member be responsible for any liabilities or indemnities in connection with such Proposed Sale in excess of the proceeds received by such Member in the Proposed Sale.

 

(c)                                  In the event that the consideration received in connection with a Proposed Sale consists of securities that are not registered under the Securities Act, and one or more Members exercise their tag-along rights hereunder in connection with such Proposed Sale, if the Tag-Along Member is entitled to registration rights in respect of such securities, the Tag-Along Member shall ensure that such Members will receive piggy-back registration rights on any

 

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registration in which the Tag-Along Member is entitled to register such securities (including any demand registrations exercised by the Tag-Along Member).

 

(d)                                  The offer of any Member contained in such Member’s Tag-Along Offer shall be irrevocable, and, to the extent such offer is accepted, such Member shall be bound and obligated to Transfer in the Proposed Sale on the same terms and conditions (other than, for the avoidance of doubt, inside tax basis associated with such interests), with respect to all of the Class A Units Transferred, as the Tag-Along Member, up to such percentage of Class A Units as such Member shall have specified in its Tag-Along Offer; provided, however, that if the material terms of the Proposed Sale change with the result that the price applicable to the Class A Units shall be less than the price applicable to the Class A Units set forth in the Tag-Along Notice, the form of consideration shall be different or the other terms and conditions shall be less favorable to such Member than those set forth in the Tag-Along Notice, such Member shall be permitted to withdraw the offer contained in the applicable Tag-Along Offer by written notice to the Tag- Along Member and upon such withdrawal shall be released from such holder’s obligations.

 

(e)                                   If a Member exercises its rights under this Section 3.6, the closing of the sale of each Member’s Membership Interest in the Proposed Sale will take place concurrently.  If the closing with the Proposed Transferee (whether or not a Member has exercised its rights under this Section 3.6) shall not have occurred by 5:00 p.m.  Eastern Time on the date that is ninety (90) days after the date of the Tag-Along Notice, as such period may be extended to obtain any required regulatory approvals or any other required consent (but in no event later than one hundred eighty (180) days after the date of the Tag-Along Notice), and on terms and conditions not more favorable to the Tag-Along Member than those set forth in the Tag-Along Notice, all the restrictions on Transfer contained herein shall again be in effect with respect to such Common Units and proposed Transfer.

 

(f)                                    Each Member shall bear its own costs in connection with the transactions contemplated by this Section 3.6.

 

(g)                                   The aggregate consideration to be paid in connection with any sale consummated pursuant to this Section 3.6 (a “Tag-Along Sale”) shall be allocated among each Membership Interest included therein on a proportionate basis based on such Membership Interest’s Pro Rata Share, which shall be determined based on the Total Equity Value implied by the price offered in the Tag-Along Sale.

 

3.7                               Drag-Along Rights.

 

(a)                                  Subject to the limitations and conditions set forth in this Section 3.7, Section 6.14 and Article V and Article XI, (x) if the Common Units Member elects to consummate, or to cause the Company to consummate, a sale of all of the assets or all of the equity interests in the Company by whatever means (including merger, consolidation, equity purchase, sale of assets or otherwise) following the Effective Date or (y) if the Common Units Member elects to cause a public offering of the Company (each, a “Drag-Along Transaction”), the other Members will consent to such Drag-Along Transaction, and will take or cause to be taken all other actions, reasonably necessary or desirable to cause the consummation of such Drag-Along Transaction on the terms proposed by the Common Units Member, including

 

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entering into a customary registration rights agreement in connection with a public offering of the Company; provided, however, that none of the transactions described in clauses (x) or (y) of this sentence shall constitute a Drag-Along Transaction unless it is made to a Third Party on an arm’s-length basis.  The Members will execute any applicable merger, asset purchase, security purchase, recapitalization or other agreement negotiated by the Common Units Member in connection with such Drag-Along Transaction; provided, that (v) each Member shall make the same representations and warranties, covenants and indemnities as the Common Units Member agrees to make in connection with the Drag-Along Transaction, except that in no event shall any Member be required to agree to any non-competition or non-solicitation covenant in connection with the Drag-Along Transaction or to make any representation or warranty that would be inaccurate when made without the ability to provide disclosure against such representation or warranty; (v) no Member shall be liable for the breach of any covenants of any other Member; (w) in no event shall any Member be required to make representations and warranties or provide indemnities as to any other Member; (x) any liability relating to representations and warranties (and related indemnities) or other indemnification obligations regarding the business of the Company in connection with the Drag-Along Transaction shall be shared by the Members pro rata on a several but not joint basis in proportion to the proceeds received by each Member in the Drag-Along Transaction, and in no event shall any Member other than the Common Units Member be responsible for any liabilities or indemnities in connection with such Drag-Along Transaction in excess of the proceeds received by such Member in the Drag-Along Transaction; (y) each Class A Member shall only be obligated to provide representations, warranties, covenants or indemnities to the extent all other Members are similarly obligated; and (z) any escrow or other holdback of proceeds shall be allocated on a pro rata basis among the applicable Members.

 

(b)                                 In connection with a Drag-Along Transaction, (i) all of the Members shall be allocated the same form of consideration, or if any Members are given an option as to the form and amount of consideration to be received, all Members will be given the same option, and (ii) the consideration to be received by the Members in a Drag-Along Transaction will be calculated by taking the aggregate proceeds from such Drag-Along Transaction and allocating such proceeds among the Members in such relative amounts as would have resulted if the Company had liquidated and sold its assets for a cash amount equal to such consideration, valuing any non-cash consideration at its Fair Market Value, and immediately distributed such proceeds to the Members in accordance with Section 10.2(d).

 

(c)                                  The Company shall bear the reasonable and documented costs incurred by each Member arising pursuant to a Drag-Along Transaction; provided that costs incurred by or on behalf of a Member for its sole benefit will not be considered costs of the transaction hereunder.

 

(d)                                 Notwithstanding anything contained in this Section 3.7 to the contrary, there shall be no liability or obligation on behalf of the Common Units Member or its Affiliates or the Company if either determines, for any reason, not to consummate a Drag-Along Transaction, and the Common Units Member shall be permitted to, and shall have the authority to cause the Company to, discontinue at any time any Drag-Along Transaction initiated by the Common Units Member by providing written notice to the Company and the other Members.

 

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(e)                                  In the event that the Common Units Member is entitled to registration rights in respect of its securities in a Drag Along Transaction, the Common Units Member shall ensure that the Class A Units Member will receive piggy-back registration rights on any registration in which the Common Units Member is entitled to register such securities (including any demand registrations exercised by the Common Units Member).

 

3.8                               Vesting of Class A Units; Forfeiture.

 

(a)                                 Subject to the provisions of this Section 3.8, twenty percent (20%) of the Class A Units shall become Vested Class A Units on each of the first five (5) anniversaries of the Effective Date; provided, however, that if (i) the Company, directly or indirectly, disposes of all or substantially all of its interests in the Assets (as defined in the Joint Development Agreement) in one or more transactions to a Person that is not a Member or an Affiliate of a Member, (ii) Blackstone, together with its Affiliates, ceases to own at least fifty percent (50)% of the Common Units, or (iii) a Change in Control occurs, any Class A Units that remain unvested shall fully vest and become Vested Class A Units.

 

(b)                                 In the event of a JDA Default, as a condition precedent to a forfeiture event under Section 3.8(c), the Company must assert such JDA Default pursuant to a JDA Default Notice within three (3) years of the date on which the alleged JDA Default occurred (and to the extent any director or officer of the Company or employee of Blackstone obtains actual knowledge of any such alleged JDA Default, the Company must assert such JDA Default within sixty (60) days from such date).   During the pendency of an alleged JDA Default, any distributions with respect to Class A Units shall be retained by the Company and held in trust in a segregated escrow account for the benefit of the Class A Unit Members until such time that it is determined whether a JDA Default has occurred by a court of competent jurisdiction pursuant to a final, nonappealable order. In the event it is determined that a JDA Default has not occurred by a court of competent jurisdiction pursuant to a final, nonappealable order, the monetary value of the Vested Class A Units shall accrue interest at a rate of 5%, compounded annually, from the date upon which the JDA Default is first alleged to have occurred.  For the avoidance of doubt, the Company shall have the burden of proof for determining whether a JDA Default has occurred.

 

(c)                                  In the event of the occurrence of a JDA Default (as determined by a court of competent jurisdiction pursuant to a final, nonappealable order) that results in material irreparable harm to the Company for which monetary damages (or other remedy at Law) would be inadequate, all Class A Units shall be cancelled and forfeited without payment of any kind with respect thereto.  In the event such JDA Default is reasonably curable by monetary damages, the number of Class A Units cancelled and forfeited in lieu thereof shall equal the amount of monetary damages awarded plus accrued interest at a rate of 5% compounded annually from the date upon which the JDA Default occurred.

 

(d)                                 The Company and its Subsidiaries shall not incur any material costs or expenses not reasonably related to its business, as set forth in Section 2.4, or incur any costs or expenses that disproportionately and adversely affect the Class A Unit Members as compared to the other Members.

 

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ARTICLE IV

 

CAPITAL CONTRIBUTIONS

 

4.1                               Capital Contributions; Return of Cash.

 

(a)                                 General.   No Member shall be required to make any additional Capital Contributions to the Company, except as agreed to in writing by such Member.

 

(b)                          Allocation of Capital Contributions.   Unless otherwise agreed by the Majority Consent of the Board, Capital Contributions made by the Common Units Members under this Section 4.1 shall be deemed to be Capital Contributions made with respect to such Common Units Members’ Common Units.  No additional Membership Interest shall be issued to any Common Units Member in exchange for such Member making Capital Contributions.

 

4.2                               Capital Accounts.  The Company shall maintain a separate Capital Account for each Member with respect to with respect to the Membership Interests owned by such Member in accordance with the rules of Treasury Regulation section 1.704-1(b)(2)(iv) and in accordance with the following provisions:

 

(a)                                  Each Member’s Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Company by such Member pursuant to this Agreement (net of any liabilities assumed by the Company in connection with such Capital Contributions and any liabilities to which any property comprising such Capital Contributions is subject), and (ii) all items of Company income and gain (including Simulated Gain and income and gain exempt from tax) computed in accordance with Section 4.2(b) and allocated with respect to such Member pursuant to Section 5.1, and decreased by (x) the amount of cash or Agreed Value of property actually or deemed distributed to such Member pursuant to this Agreement (net of liabilities assumed by such Member and the liabilities to which such property is subject), and (y) all items of Company deduction and loss (including Simulated Loss and Simulated Depletion) computed in accordance with Section 4.2(b) and allocated to such Member pursuant to Section 5.1.  The initial Capital Accounts of the Members are listed on Exhibit B to this Agreement.

 

(b)                                  For purposes of computing the amount of any item of income, gain, loss, deduction, Simulated Depletion, Simulated Gain or Simulated Loss which is to be allocated pursuant to Article V and is to be reflected in the Members’ Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes, provided, that:

 

(i)                              All fees and other expenses incurred by the Company to promote the sale of (or to sell) a Membership Interest that can neither be deducted nor amortized under section 709 of the Code, if any, shall, for purposes of Capital Account maintenance, be treated as an item of deduction at the time such fees and other expenses are incurred and shall be allocated among the Members pursuant to Section 5.1.

 

(ii)                           As to those items described in section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross

 

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income or are neither currently deductible nor capitalized for federal income tax purposes.  To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment in the Capital Accounts shall be treated as an item of gain or loss.

 

(iii)                       In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such items, there shall be taken into account Depreciation, computed in accordance with the definition of “Depreciation.” Simulated Depletion will be computed in accordance with the definition of “Simulated Depletion.”

 

(iv)                      For purposes of determining income, gain, loss, and deduction, or any other item allocable to any period, such items will be determined on a daily, monthly or other basis, as reasonably determined by the Board using any permissible method under Code section 706 and the related Treasury Regulations.

 

(v)                         If the Carrying Value of any asset differs from its adjusted tax basis for U.S. federal income tax purposes, any gain, loss, Simulated Gain or Simulated Loss resulting from a disposition of such asset shall be calculated with reference to such Carrying Value.

 

(vi)                      In the event an adjustment to the Carrying Value of the assets of the Company occurs pursuant to Section 4.2(d), any Unrealized Gain or Unrealized loss shall be treated as having been actually realized.

 

(c)                                 A Transferee shall succeed to the pro rata portion of the Capital Account of the transferor relating to the Membership Interest so transferred.   Except as otherwise provided herein, all items of income, gain, expense, loss, deduction, and credit allocable to any Membership Interest that may have been transferred during any calendar year shall, if permitted by law, be allocated between the transferor and the transferee based on the portion of the calendar year during which each was recognized as owning that Membership Interest, based upon the interim closing of the books method or such other method as agreed between the transferor and the transferee; provided, however, that this allocation must be made in accordance with a method permissible under section 706 of the Code and the Treasury Regulations thereunder.

 

(d)                                In accordance with Treasury Regulation section 1.704-1(b)(2)(iv)(f), (i) on an issuance of additional Membership Interests for cash or Contributed Property (including the issuance of Membership Interests), (ii) immediately prior to any actual or deemed distribution to a Member of any Company property (other than a distribution of cash that is not in redemption or retirement of a Membership Interest) or (iii) upon the occurrence of any other event provided in such Treasury Regulation, the Capital Accounts of all Members and the Carrying Value of each Company property immediately prior to such issuance or adjustment shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company property, as if such Unrealized Gain or Unrealized Loss had been recognized on an

 

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actual sale of each such property immediately prior to such issuance or adjustment and had been allocated to the Members at such time pursuant to Section 5.1 in the same manner as any item of gain or loss actually recognized during such period would have been allocated, provided, however, that such adjustments shall be made only if the Board reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company.   In determining such Unrealized Gain or Unrealized Loss, the aggregate cash amount and Fair Market Value of all Company assets (including cash and cash equivalents) immediately prior to the event triggering such adjustment shall be determined by the Board using such method of valuation as it may reasonably adopt.  The Board shall allocate such aggregate value among the assets of the Company (in such manner as it determines) to arrive at a Fair Market Value for individual properties.

 

4.3                               Contributions of Contributed Property.                                    All Capital Contributions contemplated by this Agreement are to be made in readily available cash funds.  To the extent that any subsequent Capital Contribution is made in the form of Contributed Property, any costs or expenses associated with the transfer, assignment, conveyance or recordation of such Contributed Property, including any taxes in respect thereof, shall be borne by the Company, and any such costs or expenses, whether paid directly by the Member or reimbursed to the Company, shall not be deemed Capital Contributions.

 

ARTICLE V