Exhibit 10.1
EARNOUT AGREEMENT
This Earnout Agreement (this "Agreement") is entered into effective as of
April 4, 2006 (the "Effective Date") by and between The Magna Carta Group,
L.L.C., a Louisiana limited liability company (hereinafter "Seller"), and
Genesis Crude Oil, L.P., a Delaware limited partnership (hereinafter "Buyer").
Seller and Buyer are sometimes individually referred to herein as a "Party" and
collectively as "Parties."
RECITALS
WHEREAS, Seller has this date sold to Buyer a fifty percent (50%)
membership interest (the "Ownership Interest Purchased") in Sandhill Group,
L.L.C. (the "Company"), pursuant to the terms of that certain Purchase and Sale
Agreement for Membership Interest in Sandhill Group, L.L.C. between The Magna
Carta Group, L.L.C. and Genesis Crude Oil, L.P. dated March 24, 2006 (the
"PSA");
WHEREAS, the PSA provides that a portion of the purchase price is to be
calculated and paid by Buyer to Seller as an earnout based upon (i) the amount
of the Distributable Cash before Reserves (hereinafter defined) achieved by the
Company over the Term (hereinafter defined), and (ii) the amount of
Distributions (hereinafter defined) declared and paid by the Company to its
Members over the Term; and
WHEREAS, Seller and Buyer have agreed that determination and payment of the
earnout contemplated by the PSA is to be in accordance with the terms of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and provisions herein contained, Seller and Buyer agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
set forth below.
1.1 "Distributable Cash" means, with respect to any Fiscal Year, Net Cash
Provided by Operating Activities as set forth in the Statement of Cash Flows to
the Audited Financial Statements for the period, excluding adjustments for
changes to working capital accounts and excluding adjustments for Reserves, and
less the Investing and Financing Payments Related to the Pre-Closing Business.
1.2 "Distributions" means the aggregate amount of distributions declared and
paid by the Company to its Members during any Fiscal Year.
1.3 "Fiscal Year" means, with respect to the Company, the period beginning
January 1 and ending December 31 of each year. For the Fiscal Year ending
December 31, 2006, the Fiscal Year shall include Distributable Cash and
Distributions computed for the entire twelve (12) months ending December 31,
2006, notwithstanding that the Term begins on the Effective Date. The Fiscal
Year shall not refer to any period prior to January 1, 2006.
1.4 "Investing and Financing Payments Related to the Pre-Closing Business" means
principal payments on long term debt and capital leases and payments for capital
expenditures, in each case, to sustain the business of the Company as it existed
prior to January 1, 2006, rather than for growth from and after January 1, 2006.
Such payments shall include both payments made during the Fiscal Year and any
amounts due and payable at the Fiscal Year end, but shall not include payments
made during the Fiscal Year that were due and payable at year end for the
preceding Fiscal Year.
1.5 "Reserves" means the amount set aside from Distributable Cash that is
necessary and appropriate in the reasonable discretion of the Management
Committee to (i) provide for the proper conduct of the business of the Company
(including reserves for future capital expenditures and for anticipated future
credit needs of the business of the Company) subsequent to such quarter, (ii)
comply with applicable law or any loan agreement, security agreement, mortgage,
debt instrument or other agreement or obligation to which the Company is a party
or by which it is bound or its assets subject, or (iii) provide funds for
distributions in respect of any one or more of the next four quarters.
1.4 Term. The period commencing on the Effective Date and continuing until
December 31, 2012.
ARTICLE II.
EARNOUT PAYMENT
2.1 Nature of Earnout Payments.
(a) Buyer shall pay to Seller one million dollars ($1,000,000.00) (the "First
Earnout Payment"), if each of the following conditions are met:
(i) If, for any Fiscal Year(s) during the Term,
(ii) average annual Distributable Cash before Reserves for the preceding
Fiscal Year(s) back to and including the Fiscal Year ended December
31, 2006, exceeds $1,500,000, and
(iii) average annual Distributions for the same period exceeds $1,200,0000.
(b) Buyer shall pay to Seller one million dollars ($1,000,000.00) (the "Second
Earnout Payment", and collectively with the First Earnout Payment, the "Earnout
Payments"), if each of the following conditions are met:
(i) If, for any Fiscal Year(s) during the Term,
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(ii) average annual Distributable Cash before Reserves for the preceding
Fiscal Year(s) back to and including the Fiscal Year ended December
31, 2006, exceeds $2,000,000, and
(iii) average annual Distributions for the same period exceeds $1,600,0000.
(c) The calculation of Distributable Cash would be adjusted to exclude the
effect of renegotiating the terms of principal payments under the long term
indebtedness of the Company as of the Effective Date of this Agreement, to the
extent such modification results in the deferral of principal payments. In
effect, deferring principal payments shall not result in improved Distributable
Cash before Reserves for purposes of these calculations.
(d) The maximum number of Earnout Payments due from Buyer is limited to two (2)
payments totaling two million dollars ($2,000,000.00) in the aggregate.
2.2 Period for Payment. The Earnout Payments shall be due and payable by Buyer
within forty five (45) days after receipt of the Earnout Computation for each
Fiscal Year, subject to the dispute resolution procedures described in Section
3.2. If a Party disputes the Earnout Computation in accordance with the terms of
Section 3.2, then the Earnout Payments shall be due within ten (10) days
following the resolution of such dispute by agreement of the Parties or by
issuance of a final arbitration award, as applicable.
ARTICLE III.
COMPUTATION OF DISTRIBUTABLE CASH BEFORE RESERVES
3.1 Manner of Computation. For purposes of this Agreement, "Distributable Cash
before Reserves" of the Company for any Fiscal Year shall mean its Distributable
Cash as defined in Section 1.1 above, before, and without taking into account,
any reduction for the Reserves. Distributable Cash before Reserves shall be
determined initially by the Seller, following the issuance of the audited
financial statements of the Company for the applicable Fiscal Year, and Seller
shall obtain input in computing the Distributable Cash before Reserves both from
the firm of independent certified public accountants engaged by the Company for
purposes of the Company's audit ("Sandhill's Accountants") and from the
Management Committee of the Company. In determining the Distributable Cash
before Reserves:
(a) Distributable Cash before Reserves shall be computed without regard to
"extraordinary items" of gain or loss as that term shall be defined in GAAP;
(b) Distributable Cash before Reserves shall not include any gains, losses or
profits realized from the sale of any assets other than in the ordinary course
of business; and
(c) No deduction shall be made for legal or accounting fees and expenses arising
out of this Agreement or the PSA.
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3.2 Time of Determination.
(a) The Distributable Cash before Reserves, the Distributions and the average
annual amounts of each for the applicable preceding Fiscal Year(s) shall be
determined promptly after the close of each Fiscal Year over the Term, but in
any event within ninety (90) days following the close of each Fiscal Year, by
Seller, after consultation with Sandhill's Accountants and the Management
Committee of the Company (the "Earnout Computation"), and each Party shall
reasonably cooperate with each other and with Sandhill's Accountants so that
Seller can promptly prepare the Earnout Computation on or before the ninety (90)
day period. Copies of the Earnout Computation shall be submitted in writing to
Buyer and, unless Buyer notifies Seller within thirty (30) days after receipt of
the Earnout Computation that it objects to the Earnout Computation set forth
therein, the Earnout Computation shall be binding and conclusive for the
purposes of this Agreement. Each Party shall have access to the books and
records of the Company and to Sandhill's Accountants' workpapers during regular
business hours to verify the Earnout Computation.
(b) If either Seller or Buyer notifies the other in writing within thirty (30)
days after receipt of the Earnout Computation that it objects to the Earnout
Computation, the Earnout Computation shall be determined by negotiation between
Seller and Buyer. If Seller and Buyer are unable to reach agreement within
thirty (30) days after such notification, the determination of the Earnout
Computation shall be resolved in accordance with the dispute resolution
procedures set forth in Section 7.11 and Schedule 7.11 of the PSA, which
provisions are incorporated herein by reference; provided, however, the Parties
shall split equally the costs and expenses of the arbitrator(s) pending the
final award of such arbitrator(s) pursuant to Schedule 7.11.
ARTICLE IV.
MISCELLANEOUS
4.1 Benefit of Parties. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of the Parties and their respective
permitted successors and assigns. This Agreement shall not be assignable by
either Party without the express written consent of the other Party; the consent
of which shall not be unreasonably withheld.
4.2 Entire Agreement. This Agreement (including any document referred to herein)
constitutes the entire agreement of the Parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings between the
Parties with respect thereto.
4.3 Counterparts. This Agreement may be executed in one or more counterparts
(including by means of facsimile), each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
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4.4 Cooperation. During the Term, each Party will cooperate with and assist the
other party in taking such acts as may be appropriate to enable all parties to
effect compliance with the terms of this Agreement and to carry out the true
intent and purposes hereof.
4.5 Notices. All notices and consents required under this Agreement shall be in
writing and shall be deemed to have been duly given (a) when delivered by hand,
(b) when sent by facsimile (with receipt confirmed), provided that a copy is
promptly thereafter mailed in the United States of America by first class
postage prepaid mail, (c) when received by the addressee, if sent by Express
Mail, Federal Express, other express delivery service (receipt requested) or by
such other means as the Parties may agree from time to time or (d) five (5)
Business Days after being mailed in the United States of America, by first class
postage prepaid registered or certified mail, return receipt requested; in each
case to the appropriate address and facsimile number set forth below (or to such
other address and facsimile number as a Party may designate as to itself by
notice to the other Party):
(i) if to Seller:
Magna Carta Group, L.L.C.
3295 Highway 80
Brandon, MS 39042
Attention: Charles H. Simpson, Managing Member
Phone: (601) 591-4030
Fax: (601) 591-4020
(ii) if to Buyer:
Genesis Crude Oil, L.P.
500 Dallas, Suite 2500
Houston, TX 77002
Attention: Mark Gorman
Phone: (713) 860-2502
Fax: (713) 860-2636
Each Party shall have the right upon giving ten (10) Business Days prior written
notice to the other in the manner hereinabove provided, to change its address
for purposes of notice.
4.6 Waiver of Compliance. The Party for whose benefit a warranty,
representation, covenant or condition is intended may, in writing, waive any
inaccuracies in the warranties, representations, covenants or conditions
contained in this Agreement or waive compliance with any of the foregoing and so
waive performance of any of the obligations of the other Party hereto and any
defaults hereunder, provided, however, that such waiver shall not affect or
impair the waiving Party's rights in respect to any other warranty,
representation, covenant, condition or default hereunder.
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4.7 Index and Captions. The captions of the Articles and Sections of this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any Article or Section hereof
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi as applied to contracts
made and performed entirely within the State of Mississippi, without regard to
choice or conflicts of laws principles (whether of Mississippi or any other
jurisdiction).
4.9 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
4.10 Subordination to PSA. This Agreement is ancillary to the PSA. To the extent
this Agreement is in conflict with the PSA, the terms and provisions of the PSA
shall control.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
by its authorized representatives as of the Effective Date.
THE MAGNA CARTA GROUP, L.L.C.
By: /s/ Charles H. Simpson
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NAME: Charles H. Simpson
TITLE: Managing Member/Manager
GENESIS CRUDE OIL, L.P.
By Genesis Energy, Inc. its general
partner
By: /s/ Mark J. Gorman
------------------------------------
NAME: Mark J. Gorman
TITLE: President
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