Case Document 383 Filed in TXSB on 05/30/17 Page 1 of 9

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1 Case Document 383 Filed in TXSB on 05/30/17 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re MEMORIAL PRODUCTION PARTNERS, et al. 1 DEBTORS Chapter 11 Case No (MI) (Jointly Administered) LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS PURSUANT TO THE DEBTORS SECOND AMENDED JOINT CHAPTER 11 PLANS OF REORGANIZATION (relates to Docket Nos. 341 and 356) Seitel Data, Ltd., Seitel Data Corp., Seitel Delaware, Inc., Seitel Offshore Corp., Seitel Canada Ltd. f/k/a Olympic Seismic Ltd., affiliated companies (collectively, Seitel ), file this Limited Objection to Debtors Proposed Assumption of Executory Contracts Pursuant to the Debtors Second Amended Joint Chapter 11 Plans of Reorganization, and respectfully show as follows: I. BACKGROUND FACTS 1. On January 16, 2017, the Debtors filed for relief under Chapter 11 of the United States Bankruptcy Code. The Court subsequently entered an order that the bankruptcy cases be jointly administered. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, as applicable, are: Memorial Production Partners LP (6667); Memorial Production Partners GP LLC; MEMP Services LLC (1887); Memorial Production Operating LLC; Memorial Production Finance Corporation (3356); WHT Energy Partners LLC; WHT Carthage LLC; Memorial Midstream LLC; Beta Operating Company, LLC; Columbus Energy, LLC; Rise Energy Operating, LLC; Rise Energy Minerals, LLC; Rise Energy Beta, LLC; San Pedro Bay Pipeline Company (1234); and Memorial Energy Services LLC. LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 1 of /SP/45349/0150/053017

2 Case Document 383 Filed in TXSB on 05/30/17 Page 2 of 9 2. On February 15, 2017, Seitel filed its Proof of Claim in the Memorial Production Operating, LLC bankruptcy case [Claim No. 30] (the Claim ). A true and correct copy of the Claim is attached hereto as Exhibit 1 and incorporated herein On March 24, 2017, the Debtors filed their Supplement to the Amended Joint Plan of Reorganization [Docket No. 283] (the Supplement ). The Schedule of Rejected Contracts and Leases were included in the Supplement as Exhibit G. On Exhibit G, it stated that the Debtors do not currently intend to reject any executory contracts or unexpired leases. 4. On April 14, 2017, the Debtors filed their latest version of the Second Amended Joint Chapter 11 Plan of Reorganization [Docket No. 341] (the Plan ). 5. Section 8.1 of the Plan contains the treatment of executory contracts and unexpired leases: All executory contracts and unexpired leases to which any of the Debtors are parties are hereby assumed except for an executory contract or unexpired lease that (a) previously has been assumed or rejected pursuant to a Final Order of the Bankruptcy Court, (b) is specifically designed as a contract or lease to be rejected on the Schedule of Rejected Contracts and Leases, or (c) is the subject of a separate motion to assume or reject such contract or lease filed by the Debtors under section 365 of the Bankruptcy Code before the Effective Date. 6. Section 8.2 of the Plan contains the following language regarding modifications to executory contracts and unexpired leases: Assumption and assignment of any executory contract or unexpired lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, subject to satisfaction of the Cure, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed executory contract or unexpired lease at any time before the effective date of assumption and/or assignment. 2 There may also be several additional active agreements between Seitel and the Debtors, including schedules, amendments, continuation agreements, etc. LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 2 of /SP/45349/0150/053017

3 Case Document 383 Filed in TXSB on 05/30/17 Page 3 of 9 7. On April 14, 2017, the Bankruptcy Court entered the Order confirming the Plan [Docket No. 344] (the Confirmation Order ). The Confirmation Order provides that objections to the proposed assumption or assumption and assignment or executory contracts are to be filed no later than thirty (30) days from the Effective Date of the Plan. 356]. 8. On May 4, 2017, the Debtors filed the Notice of Effective Date [Docket No. II. SEITEL S INTERESTS 9. On May 10, 2016, Memorial Production Operating, LLC executed a 2D & 3D Onshore/Offshore Master Seismic Data Participation and Licensing Agreement for the ability to purchase a non-exclusive license to certain geophysical data owned proprietarily by Seitel (the Agreement, as may have been supplemented from time to time, together with all amendments, modifications, attachments and schedules). 10. The Agreement specifically enable the Debtor to receive a license of highly sensitive, highly confidential, copyrightable seismic data, which is covered under United States copyright law and federal and Texas trade secret law, the transfer and/or assignment of which is restricted absent Seitel s written consent. 11. Further, according to United States copyright law, once the seismic data is collected, it becomes copyrighted. III. LIMITED OBJECTION TO ASSUMPTION AND/OR ASSIGNMENT OF EXECUTORY CONTRACTS 12. Upon information and belief, even though the Agreement was executed, the Debtors have not purchased a license to any of Seitel s seismic data. Thus, Seitel does not object LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 3 of /SP/45349/0150/053017

4 Case Document 383 Filed in TXSB on 05/30/17 Page 4 of 9 per se to the assumption of the Agreement by the Debtors. However, Seitel files its limited objection because of the possible assumption and assignment of the Agreement as well as the potential permanent modification of the Agreement pursuant to the change in control language of the Plan. Seitel s limited objection is resolved if the Debtors agree that the Agreement is not being assigned to any other entity as part of implementation of the Plan and that the language contained in Section 8.2 of the Plan only applies to the reorganization transactions specified in the Plan and not for any future transactions involving the Debtors. The parties can resolve this limited objection by filing a stipulation to document such an agreement. 13. Seitel is unsure of the Debtors intent with respect to the Agreement and seeks to preserve its interests. To the extent that the Debtors are seeking to assign the Agreement, the Debtors have not obtained the necessary consent of Seitel to assign the Agreement. A. Seitel s Agreement Cannot be Assigned Under Applicable Copyright Law and 11 U.S.C. 365(c)(1). 14. Seitel has contracted to license to the Debtors highly sensitive, highly confidential, copyrightable and copyrighted seismic data, although Debtors did not avail themselves to the same to date. Accordingly, the Agreement cannot be assigned under 11 U.S.C. 365(c)(1) without Seitel s written consent. It is well-settled that federal copyright law makes non-exclusive copyrights non-assignable absent consent of the licensor. See, e.g., RCI Tech Corp. v. Sunterra Corp. (In re Sunterra Corp)., 361 F.3d 257, 262, n.7 (4th Cir. 2004) ("copyright law is the applicable non-bankruptcy law that would excuse RCI [a computer software licensor] from accepting performance... from an entity other than Sunterra"); In re Trump Entertainment Resorts, Inc., 526 B.R. 116, 126 (Bankr. D. Del. 2015) ("Non- exclusive... copyright licenses create only personal and not property rights in the licensed intellectual property and so are not assignable"), citing, inter alia, 4 McCarthy on LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 4 of /SP/45349/0150/053017

5 Case Document 383 Filed in TXSB on 05/30/17 Page 5 of 9 Trademarks 25:33 (4th ed. 2010); In re Golden Books Family Entertainment, Inc., 269 B.R. 311, 314 (Bankr. D. Del. 2001) ("Under copyright law, 'a nonexclusive licensee... has only a personal and not a property interest in the [intellectual property],' which 'cannot be assigned unless the [intellectual property] owner authorizes the assignment....'"), quoting In re Patient Education Media, Inc., 210 B.R. 237, (Bankr. S.D.N.Y. 1997) Accordingly, the Agreement cannot be assigned under 11 U.S.C. 365(c)(1) without Seitel s consent. Seitel does not consent to any assignment at this time. B. The Debtors May Not Assign the Agreement Without Seitel s Consent Because the Agreement is Protected Under the Texas Trade Secrets Act and 11 U.S.C. 365(c)(1). 16. Seitel further asserts that the Agreement represents the license of confidential information that are protected trade secrets pursuant to the Texas Uniform Trade Secrets Act. TEX. CIV. PRAC. & REM. CODE 134A.001, et. seq. It is well settled law in Texas courts and other jurisdictions that seismic data is considered to be trade secrets. See In re Bass, 113 S.W.3d 735, 742 (Tex. 2003); see also Musser Davis Land Co. v. Union Pac. Res., 201 F.3d 561, 569 (5th Cir. 2000)(survey of jurisdictions). Texas law creates actionable misappropriation when there is a disclosure or use of a trade secret that is done without the express or implied consent of the owner. TEX. CIV. PRAC. & REM. CODE 134A.002(3). 17. Moreover, the federal Defend Trade Secrets Act of 2016, 18 U.S.C , et seq., ( DTSA ), which largely mirrors the Uniform Trade Secrets Act, creates a federal cause of action for the same conduct. 3 See also Everex Systems, Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 679 (9th Cir. 1996) ("Federal law holds a nonexclusive patent license to be personal and nonassignable"), and cases cited therein; In re Alltech Plastics, Inc. 71 B.R. 686, 689 (Bankr. W.D.Tenn. 1987) (federal law "classifies patent licenses as personal in nature and not assignable unless expressly made so"). LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 5 of /SP/45349/0150/053017

6 Case Document 383 Filed in TXSB on 05/30/17 Page 6 of As a result, applicable non-bankruptcy law, the Texas Uniform Trade Secrets Act and the Defend Trade Secrets Act of , would restrict the assignment of the Agreement absent Seitel s consent within the meaning of 11 U.S.C. 365(c)(1) and Seitel does grant its consent at this time. C. Debtors Must Provide Adequate Assurance of Future Performance in Order to Assign the Agreement. 19. Also, the Plan and any related cure notice do not provide Seitel with adequate assurance regarding the Reorganized Debtors ability to perform the terms of Seitel s Agreement. Before assigning any executory contract, the Debtors must provide adequate assurance of future performance. 11 U.S.C. 365(b)(1). At this time, Seitel does not have such assurance. 20. Seitel is willing to discuss granting its consent with the Debtors if they can satisfy Seitel s requirements and provide adequate assurances of future performance prior to assignment. E. Any Assumption and/or Assignment of the Agreement Must Not Modify the Agreement s Terms 21. Seitel further objects to the Plan Supplement to the extent that it purports to modify any of the terms of the Agreement on a permanent basis. In this jurisdiction, [I]t is well established that as a general proposition an executory contract must be assumed or rejected in its entirety. Mirant Corp. v. Potomac Elec. Power Co. (In re Mirant Corp.), 197 Fed. Appx. 285, 288 (5th Cir. 2006) (citing Stewart Title Guaranty Co. v. Old Republic Nat l Title Ins. Co., 83 F.3d 735, 741 (5th Cir. 1996)) (internal quotation marks omitted). This means that the debtor cannot choose to accept the benefits of the contract and reject its burdens to the detriment of the 4 The DTSA does not preempt the application of similar state laws. LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 6 of /SP/45349/0150/053017

7 Case Document 383 Filed in TXSB on 05/30/17 Page 7 of 9 other party to the agreement. Id. at (internal quotation marks omitted). Thus, to reject a contract under section 365 of the Bankruptcy Code, a debtor must establish that 1) the contract is executory, and 2) the contract is either an entire agreement, or a severable portion of an agreement. Id. at 289. The issue of severability under 365 requires that an executory contract be rejected in toto to prevent a debtor from picking through an agreement, accepting the benefits while sloughing the burdens. Id. A debtor may separately assume and reject a single contract only if the contract contains separate, severable agreements. Id. 22. The provision in Section 8.2 of the Plan purports to do what is clearly prohibited abrogate all provisions of all executory contracts that contain change in control provisions without consent, thereby harming Seitel s rights. Id. Any attempt to restrict the application of any change of control provisions contained in Seitel s Agreement is improper and renders the proposed assumption or assumption and assignment unenforceable. A debtor cannot modify contracts it wants to assume or assign without consent of the contract counterparty. However, notwithstanding the objection stated above, Seitel s objection is resolved if the Debtors agree that Section 8.2 of the Plan applies only to the implementation of the Plan and not for any future transactions involving the Debtors. CONCLUSION 23. For the foregoing reasons, Seitel respectfully requests that the Court deny any authority sought by the Debtors to assume, assume and assign or otherwise transfer any executory contracts with Seitel, including the Agreement, unless the Debtors agree that the Agreement is not being assigned and that Section 8.2 of the Plan does not apply to future transactions. Seitel reserves its rights, in its absolute and sole discretion, to: (i) further object to any supplements or amendments thereto; (ii) amend, modify or supplement this Limited LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 7 of /SP/45349/0150/053017

8 Case Document 383 Filed in TXSB on 05/30/17 Page 8 of 9 Objection including in response to the service or filing of any additional documents or exhibits by the Debtors and/or any party-in-interest; and (iii) raise additional arguments at or prior to a hearing scheduled based on this Limited Objection due to subsequent filings by Debtors or other parties-in-interest. WHEREFORE, Seitel prays that this Court (i) deny the Debtors right to assume and/or assign the Agreements pursuant to 11 U.S.C. 365 absent Seitel s written consent, and (ii) grant Seitel such other and further relief to which it may be entitled. STRASBURGER & PRICE, LLP /s/ Duane J. Brescia Duane J. Brescia State Bar No Brazos, Suite 700 Austin, TX (512) (direct)(512) (fax) duane.brescia@strasburger.com Andrew G. Edson State Bar No Main Street, Suite 4400 Dallas, TX (214) (direct)(214) (fax) andrew.edson@strasburger.com Counsel for Seitel Data, Ltd. LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 8 of /SP/45349/0150/053017

9 Case Document 383 Filed in TXSB on 05/30/17 Page 9 of 9 CERTIFICATE OF SERVICE I certify that on this 30 th day of May, 2017, a true and correct copy of the above pleading was served upon all parties via the Court s electronic case filing system (ECF), and via U.S. Mail and , as indicated, on the parties listed below. /s/ Duane J. Brescia Duane J. Brescia Weil, Gotshal & Manges LLP Attorneys for Debtors Alfredo R. Perez Send vcard Attorney 700 Louisiana, Suite 1700 Houston, TX Phone: (713) Fax: (713) alfredo.perez@weil.com Gary T. Holtzer Send vcard Attorney 767 Fifth Avenue New York, NY Phone: (212) Fax: (212) gary.holtzer@weil.com Joseph H. Smolinsky Send vcard Attorney 767 Fifth Avenue New York, NY Phone: (212) Fax: (212) joseph.smolinsky@weil.com LIMITED OBJECTION OF SEITEL DATA, LTD. AND AFFILIATES TO DEBTORS PROPOSED ASSUMPTION OF EXECUTORY CONTRACTS - Page 9 of /SP/45349/0150/053017

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