Earnout Agreement - Magna Carta Group, L.L.C.

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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