Exhibit 10.4
LEGACY RESERVES LP
PURCHASE/PLACEMENT AGREEMENT
March 6, 2006
Friedman, Billings, Xxxxxx & Co., Inc.
000 Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Ladies and Gentlemen:
Legacy Reserves LP, a Delaware limited partnership (the "PARTNERSHIP"),
proposes to issue and sell to you, Friedman, Billings, Xxxxxx & Co., Inc.
("FBR"), as initial purchaser, up to 5,000,000 units (the "INITIAL 144A UNITS")
representing limited partner interests in the Partnership (the "COMMON UNITS").
FBR will also act as the Partnership's exclusive placement agent in
connection with the Partnership's sale to certain "accredited investors" (as
such term is defined in Regulation D under the Securities Act of 1933, as
amended (the "SECURITIES ACT") ("REGULATION D")) (the "ACCREDITED INVESTORS"),
which may include FBR and its affiliates, of that number of Common Units equal
to the difference between 5,000,000 and the number of Initial 144A Units (the
"INITIAL PRIVATE PLACEMENT UNITS" and, together with the Initial 144A Units, the
"INITIAL UNITS"), as set forth in the Final Memorandum (as defined herein) under
the heading "Plan of Distribution."
In addition, the Partnership proposes to grant to you the option described
in Section 1(c) to purchase with respect to all or any part of 250,000
additional Common Units (the "OPTION UNITS" and, together with the Initial
Units, the "UNITS"), solely to cover either over allotments in the case of sales
under Rule 144A (the "OPTION 144A UNITS" and, together with the Initial 144A
Units, the "144A UNITS") or sales of Units subscribed for on the date hereof in
the case of placements under Regulation D (the "OPTION PRIVATE PLACEMENT UNITS"
and, together with the Initial Private Placement Units, the "PRIVATE PLACEMENT
UNITS"), if any. The offer and sale of the Private Placement Units is referred
to herein as the "PRIVATE PLACEMENT."
The offer and sale of the Units to you and to the Accredited Investors,
respectively, will be made without registration under the Securities Act, and
the rules and regulations thereunder (the "SECURITIES ACT REGULATIONS"), in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Section 4(2) thereof. You have advised the Partnership that you
will make offers and sales ("EXEMPT RESALES") of the 144A Units purchased by you
hereunder on the terms set forth in the Final Memorandum (as defined herein), as
soon as you deem advisable after this Agreement has been executed and delivered.
In connection with the sale of the Units, the Partnership has prepared (i)
a preliminary offering memorandum, subject to completion, dated February 13,
2006, as supplemented by Exhibit A to Annexes I-III (references in this
Agreement to such Annexes will be deemed to refer to such Annexes as
supplemented with such Exhibit A) to the offering memorandum (including all
documents and financial statements annexed thereto and all information
incorporated by reference therein, the "PRELIMINARY MEMORANDUM"), and (ii) a
final offering memorandum, dated the date hereof (including all documents and
financial statements annexed thereto and all information incorporated by
reference therein, the "FINAL MEMORANDUM" and, together with the Preliminary
Memorandum, the "OFFERING MEMORANDUM"). The Offering Memorandum sets forth
certain information concerning the Partnership and the Units. The Partnership
hereby confirms that it has authorized the use of the Preliminary Memorandum and
the Final Memorandum in connection with (i) the offering and resale of the 144A
Units by FBR and by all dealers to whom 144A Units may be sold and (ii) the
Private Placement. Any references herein to the Preliminary Memorandum and Final
Memorandum (or either Offering Memorandum) shall be deemed to include all
information incorporated by reference therein and all annexes and exhibits
thereto, all of which shall be deemed a part of the Offering Memorandum.
Legacy Reserves GP, LLC, a Delaware limited liability company (the "GENERAL
PARTNER"), is the Partnership's sole general partner. Legacy Reserves Operating
GP LLC, a Delaware limited liability company and a wholly owned subsidiary of
the Partnership ("OPERATING GP"), is the sole general partner of Legacy Reserves
Operating LP, a Delaware limited partnership (the "OPERATING PARTNERSHIP" and,
together with the General Partner, the Partnership and the Operating GP, the
"LEGACY PARTIES" and, together with the direct and indirect subsidiaries of the
Partnership (collectively, the "SUBSIDIARIES") listed on Schedule 1, the
"PARTNERSHIP ENTITIES").
All or some of the Partnership Entities have entered into, at or prior to
the date hereof, or will enter into, as of the Closing Time, the following
agreements (the "FORMATION DOCUMENTS") with respect to the transactions
contemplated by the Offering Memorandum: (i) the Amended and Restated Agreement
of Limited Partnership governing the Partnership (the "PARTNERSHIP AGREEMENT"),
(ii) the Amended and Restated Limited Liability Company Agreement governing the
General Partner (the "GP LLC AGREEMENT"), (iii) the Agreement of Limited
Partnership governing the Operating Partnership (the "OPERATING PARTNERSHIP
AGREEMENT"), (iv) the Limited Liability Company Agreement governing the
Operating GP (the "OPERATING GP AGREEMENT"), (v) the Founders Registration
Rights Agreement (the "FOUNDERS REGISTRATION RIGHTS AGREEMENT"), (vi) the
Omnibus Agreement pursuant to which, among other things, certain of the Parties
(as defined therein) agree to make certain contributions to the Partnership and
be granted the opportunity to enter into the Founders Registration Rights
Agreement (the "OMNIBUS AGREEMENT"), and (vii) the Contribution, Conveyance and
Assumption Agreement pursuant to which certain assets are to be contributed to
the Partnership (the "CONTRIBUTION AGREEMENT").
It is understood and acknowledged that holders (including subsequent
transferees) of the Units will have the registration rights set forth in the
registration rights agreement between the Partnership and FBR, which shall be in
substantially the form attached as Exhibit A and dated as of the Closing Time
(as defined herein) (the "REGISTRATION RIGHTS AGREEMENT" and, together with this
Agreement, the "TRANSACTION DOCUMENTS"), for so long as such securities
constitute "Registrable Units" (as defined in the Registration Rights
Agreement).
Each of the Partnership and FBR agree as follows:
1. Sale and Purchase of the Units.
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(a) 144A Units. Upon the basis of the warranties and representations and
other terms and conditions herein set forth, the Partnership agrees to issue and
sell to FBR the Initial 144A Units, and FBR agrees to purchase from the
Partnership the 144A Units at a purchase price of $15.81 per Unit (the "144A
PURCHASE PRICE"), reflecting an initial purchaser's discount of $1.19 per Unit
on the initial offering price set forth in the Final Memorandum of the 144A
Units (the "INITIAL PURCHASER'S DISCOUNT"); provided, however, that FBR shall
reimburse the Partnership, at the Closing Time, an amount equal to 1.0% of the
aggregate Initial Purchaser's Discount hereunder.
(b) Private Placement Units. The Partnership agrees to issue and sell the
Initial Private Placement Units for which the Accredited Investors have
subscribed pursuant to the terms and conditions set forth in the form of
subscription agreement substantially in the form attached to the Offering
Memorandum as Annex II or Annex III, as applicable (each a "SUBSCRIPTION
AGREEMENT"). The Initial Private Placement Units will be sold by the Partnership
pursuant to this Agreement at a price of $17.00 per Unit (the "PRIVATE PLACEMENT
PURCHASE PRICE"); provided, however, that the Private Placement Purchase Price
per Unit sold to FBR and its affiliates (excluding any employees of FBR and its
affiliates) shall be $15.98. As compensation for the services to be provided by
FBR in connection with the Private Placement, the Partnership shall pay to FBR
at the Closing Time an amount equal to $1.19 per Private Placement Unit sold
(other than those Units sold to FBR and its affiliates at a price of $15.98 per
Unit) at such time (the "PLACEMENT FEE"); provided, however, that FBR shall
reimburse the Partnership, at the Closing Time, an amount equal to 1.0% of the
aggregate Placement Fees incurred hereunder. No such reimbursement shall be
required with respect to those Units purchased by FBR and its affiliates at the
$15.98 per Unit Private Placement Purchase Price.
(c) Option Units. Upon the basis of the representations and warranties and
subject to the other terms and conditions herein set forth, the Partnership
hereby grants an option to FBR to purchase from, or place on behalf of, the
Partnership up to an aggregate of 250,000 Option Units at the 144A Purchase
Price or the Private Placement Purchase Price, per Unit, as applicable (provided
that FBR shall reimburse the Partnership at the Option Closing Time (as defined
herein) in an amount equal to 1% of the aggregate Placement Fees incurred and
Initial Purchaser Discount hereunder, as applicable). The option granted hereby
will expire 14 days after the Closing Time and may be exercised one time only
before the 15th day after the Closing Time for the purpose of covering sales of
Units initially subscribed for at the offering price set forth in the Final
Memorandum, upon written notice by FBR to the Partnership setting forth (i) the
number of Option Units as to which FBR is then exercising the option, (ii) the
names and denominations in which the Option Units exercised are to be delivered
in book-entry form through the facilities of The Depository Trust Company
("DTC") if available, (iii) the time and date of payment for and delivery of
such Option Units, and (iv) the allocation of Option Units between Option 144A
Units and Option Private Placement Units. Such time and date of delivery shall
be determined by FBR, but shall not be later than five full business days nor
earlier than two full business days after the exercise of said option, nor in
any event before the Closing Time.
(d) Payment and Delivery.
(i) 144A Units. The closing of FBR's purchase of the Initial 144A
Units shall be held at the Houston office of Xxxxxxx Xxxxx LLP (unless
another place shall be
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agreed upon by FBR and the Partnership). At the closing, subject to the
satisfaction or waiver of the closing conditions set forth herein, FBR
shall pay to the Partnership the aggregate purchase price for the Initial
144A Units sold by the Partnership by wire transfer of immediately
available funds to accounts previously designated by the Partnership in
writing against delivery by the Partnership of the certificates for the
144A Units in book entry form through the facilities of DTC in such
denominations and registered in such names as FBR shall specify. Such
payment and delivery shall be made at 10:30 a.m., Central time, on the
seventh business day after the date hereof (unless another time shall be
agreed to by FBR and the Partnership). The time at which such payment and
delivery are actually made is hereinafter sometimes called the "CLOSING
TIME."
(ii) Private Placement Units. At the Closing Time, subject to the
satisfaction or waiver of the closing conditions set forth herein, FBR
shall cause the escrow agent (the "ESCROW AGENT") holding funds required to
purchase Initial Private Placement Units to pay the Partnership the
aggregate applicable purchase price for the Private Placement Units placed
by FBR (net of any Placement Fee, if the Placement Fee is withheld as
provided herein) against the Partnership's delivery of the Initial Private
Placement Units to the purchasers thereof, in book-entry form through the
facilities of DTC.
At FBR's option, it may delay the placement of up to 3% of Initial
Private Placement Units (the "EXTENDED PRIVATE PLACEMENT UNITS") for an
additional five business days after the Closing Time (the "EXTENDED PRIVATE
PLACEMENT CLOSING Date") at which time FBR shall cause Escrow Agent, to the
extent it has available funds transferred to it by Accredited Investors, to
pay the Partnership the aggregate applicable purchase price for the
Extended Private Placement Units placed by FBR (net of any Placement Fee,
if the Placement Fee is withheld as provided herein) against the
Partnership's delivery of the Extended Private Placement Units to the
purchasers thereof, in book-entry form through the facilities of DTC.
Extended Private Placement Units may only be placed with Accredited
Investors who have committed to purchase Private Placement Units before the
Closing Date. The time at which payment and delivery on an Extended Private
Placement Closing Date is actually made is hereinafter sometimes called the
"EXTENDED CLOSING TIME."
At the Closing Time or any Extended Closing Time, as applicable,
unless FBR has caused the Escrow Agent to pay FBR such amount from the
applicable funds transferred by the Escrow Agent to the Partnership with
respect to the Private Placement Units placed by FBR on such date, the
Partnership shall pay to FBR, by wire transfer of immediately available
funds to an account or accounts designated by FBR, any Placement Fee amount
payable with respect to the Private Placement Units for which the
Partnership shall have received the purchase price.
(iii) Option Units. The closing of FBR's purchase or placement of the
Option Units shall occur at the Houston office of Xxxxxxx Xxxxx LLP (unless
another place shall be agreed upon by FBR and the Partnership). At the
Option Closing Time (as defined below), subject to the satisfaction or
waiver of the closing conditions set forth herein, FBR shall pay or cause
the Escrow Agent to pay to the Partnership the aggregate 144A Purchase
Price or
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Private Placement Purchase Price per Unit, as applicable, for the Option
Units then purchased or placed by FBR by wire transfer of immediately
available funds against the Partnership's delivery of the Option Units.
Such payment and delivery shall be made at 10:30 a.m., Central time, on the
Option Closing Time. The Option Units shall be delivered in book-entry form
through the facilities of DTC in such names and in such denominations as
FBR shall specify. The time at which payment by FBR or the Escrow Agent for
and delivery by the Partnership of any Option Units is actually made is
referred to herein as the "OPTION CLOSING TIME".
2. Representations and Warranties of the Partnership. The Legacy Parties
jointly and severally represent and warrant to FBR that, as of the date of this
Agreement:
(a) The Preliminary Memorandum does not contain, and the Final Memorandum,
in the form used by FBR to confirm sales, and at the Closing Time and the Option
Closing Time, will not contain, any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Offering Memorandum based upon information
relating to FBR furnished to the Partnership in writing by FBR to the
Partnership expressly for use therein (as indicated in the last sentence of
Section 7(c)).
(b) The statistical, market-related, customer-related, and
production-related data and estimates included in the Preliminary Memorandum and
the Final Memorandum are based on or derived from sources that the Partnership
reasonably believes to be reliable and accurate.
(c) Each Partnership Entity has been duly formed or incorporated, is
validly existing as a limited partnership, limited liability company,
corporation or other business entity, in good standing under the laws of the
state of its formation or incorporation, has the power and authority to own its
property and to conduct its business as described in the Offering Memorandum and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing could not, individually or in the
aggregate, reasonably be expected to cause a material adverse effect on the
financial condition, results of operations, partners', members' or stockholders'
equity, as applicable, properties or business of the Legacy Parties, taken as a
whole, or subject the Partnership's limited partners to any material liability
or disability (a "MATERIAL ADVERSE EFFECT").
(d) At the Closing Time, the Partnership Entities will conduct their
business as described in the Offering Memorandum. All of the equity interests of
each Subsidiary of the Partnership have been duly and validly authorized and
issued, the equity interests are fully paid and non-assessable (except as such
non-assessability may be limited by (x) Sections 17-303 or 17-607 of the
Delaware Revised Uniform Limited Partnership Act (the "DELAWARE LP ACT"), (y)
Section 18-607 of the Delaware Limited Liability Company Act (the "DELAWARE LLC
ACT") and (z) as otherwise described in the Offering Memorandum), are owned
directly or indirectly by the Partnership, free and clear of all liens,
encumbrances, mortgages, security interests, pledges, equities or claims
(collectively, "LIENS"), except for the pledge of the equity interests under the
Credit Agreement, to be dated as of or prior to the Closing Time, between the
Partnership and
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BNP Paribas, and the various financial institutions party thereto, as amended
from time to time (the "CREDIT FACILITY"), and the related applicable Security
Instruments (as defined therein), and have not been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right of partners, equity holders or members, as
the case may be, arising by operation of law, under the organizational documents
of such Subsidiary, or under any agreement to which such Subsidiary is a party.
The Partnership does not own or control, directly or indirectly, any
corporation, association or other entity other than the Subsidiaries.
(e) Entity Ownership:
(i) At the Closing Time, after giving effect to the transactions
contemplated hereby Moriah Properties, Ltd., DAB Resources, Ltd., Brothers
Production Properties, Ltd., Brothers Production Company, Inc., Brothers
Operating Company, Inc., J&W McGraw Properties, Ltd., MBN Properties LP,
and H2K Holdings, Ltd. will own 100% of the issued and outstanding
membership interests in the General Partner; such membership interests have
been duly authorized and validly issued in accordance with the GP LLC
Agreement, and are fully paid and non-assessable (except as such
non-assessability may be limited by Section 18-607 of the Delaware LLC
Act); and such persons and entities own such membership interests free and
clear of all Liens.
(ii) The General Partner is the sole general partner of the
Partnership with a 0.1% general partner interest in the Partnership; such
general partner interest has been duly authorized and validly issued in
accordance with the Partnership Agreement, and is fully paid; and the
General Partner owns such general partner interest free and clear of all
Liens; the General Partner owns no assets and has no business other than
with respect to, its 0.1% general partner interest in the Partnership.
(iii) At the Closing Time, after giving effect to the transactions
contemplated hereby and the offering contemplated hereby (including the
redemption of a portion of the Units issued in exchange for the
contribution of property to the Partnership) (assuming the option to
purchase Option Units is not exercised), the persons listed on Schedule 2
(the "EXISTING UNITHOLDERS") will own 13,292,683 Units, representing
collectively a 72.6% limited partner interest in the Partnership (the
"EXISTING UNITHOLDER RETAINED UNITS"). At the Closing Time, all of the
issued and outstanding Existing Unitholder Retained Units, and the limited
partner interests represented thereby, will be duly authorized and validly
issued in accordance with the Partnership Agreement, and will be fully paid
(to the extent required under the Partnership Agreement) and non-assessable
(except as such non-assessability may be affected by (a) the matters
described in the Offering Memorandum under the captions "The Partnership
Agreement--Limited Liability," "Risk Factors--Risks Related to this
Offering and Our Limited Partnership Structure--Your liability may not be
limited if a court finds that unitholder action constitutes control of our
business" and "Risk Factors--Risks Related to this Offering and Our Limited
Partnership Structure--
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Unitholders may have liability to repay distributions that were wrongfully
distributed to them" and (b) Sections 17-303 and 17-607 of the Delaware LP
Act).
(iv) The Units to be issued and sold by the Partnership hereunder, and
the limited partner interests represented thereby, will be duly authorized
in accordance with the Partnership Agreement and, when issued and delivered
to the purchaser thereof against payment therefor in accordance with the
terms of this Agreement, will be validly issued, fully paid (to the extent
required under the Partnership Agreement) and non-assessable (except as
such non-assessability may be affected by (a) the matters described in the
Offering Memorandum under the captions "The Partnership Agreement--Limited
Liability," "Risk Factors--Risks Related to this Offering and Our Limited
Partnership Structure--Your liability may not be limited if a court finds
that unitholder action constitutes control of our business" and "Risk
Factors--Risks Related to this Offering and Our Limited Partnership
Structure--Unitholders may have liability to repay distributions that were
wrongfully distributed to them" and (b) Sections 17-303 and 17-607 of the
Delaware LP Act).
(f) The Partnership owns 100% of the membership interests in the Operating
GP; such membership interests have been duly authorized and validly issued in
accordance with the Operating GP Agreement, and are fully paid and
non-assessable (except as such non-assessability may be limited by Section
18-607 of the Delaware LLC Act); and the Partnership owns such membership
interests free and clear of all Liens, except for the pledge of such membership
interests under the Credit Facility.
(g) (i) The Operating GP is the sole general partner of the Operating
Partnership with a 0.1% general partner interest in the Operating Partnership;
such general partner interest has been duly authorized and validly issued in
accordance with the Operating Partnership Agreement, and is fully paid; and the
Operating GP owns such general partner interest free and clear of all Liens,
except for the pledge of such general partner interest under the Credit
Facility; and (ii) the Partnership is the sole limited partner of the Operating
Partnership with a 99.9% limited partner interest in the Operating Partnership;
such limited partner interest has been duly authorized and validly issued in
accordance with the Operating Partnership Agreement and is fully paid (to the
extent required under the Operating Partnership Agreement) and non-assessable
(except as such non-assessability may be limited by Sections 17-303 or 17-607 of
the Delaware LP Act and as otherwise described in the Offering Memorandum); and
the Partnership owns such limited partner interest free and clear of all Liens,
except for the pledge of such limited partner interest under the Credit
Facility.
(h) This Agreement has been duly authorized, executed and delivered by the
Legacy Parties and is a valid and binding agreement of the Legacy Parties,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, receivership, moratorium and similar laws relating
to or affecting creditors' rights and remedies generally and equitable
principles of general applicability (whether applied by a court of law or
equity) and except as rights to indemnification and contribution hereunder may
be limited under applicable law and by an implied covenant of good faith and
fair dealing (such limitations on enforceability being referred to herein
collectively as "ENFORCEABILITY LIMITATIONS").
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(i) The Legacy Parties have full right, power and authority to execute and
deliver each Transaction Document to which they are a party and perform their
respective obligations thereunder.
(j) At the Closing Time:
(i) each Formation Document will be duly and validly authorized,
executed and delivered by the applicable parties thereto and will be a
valid and legally binding agreement of such parties, enforceable against
such parties in accordance with its terms;
(ii) the Registration Rights Agreement will be duly and validly
authorized, executed and delivered by the General Partner and the
Partnership and, assuming the due authorization, execution and delivery
thereof by FBR, will be a valid and legally binding agreement of the
General Partner and the Partnership, enforceable against the General
Partner and the Partnership in accordance with its terms; and
(iii) the Credit Facility will be duly and validly authorized,
executed and delivered by the Partnership Entities who are parties thereto
and, assuming the due authorization, execution and delivery thereof by the
other parties thereto, will be a valid and legally binding agreement of
each of the Partnership Entities who are parties thereto, enforceable
against each of them in accordance with its terms;
except, with respect to each agreement described in this Section 2(j), as
the enforceability thereof may be limited by the Enforceability
Limitations.
(k) The Contribution Agreement and related documents will be legally
sufficient to transfer or convey to the Partnership all assets as contemplated
by the Offering Memorandum, subject to the conditions, reservations and
limitations contained in the Contribution Agreement and those set forth in the
Offering Memorandum. The Partnership, upon execution and delivery of the
Contribution Agreement and related documents will succeed in all material
respects to the properties and assets contributed thereunder as reflected in the
pro forma consolidated financial statements of the Partnership included in the
Offering Memorandum, except as otherwise disclosed in the Offering Memorandum
and the Contribution Agreement.
(l) The Registration Rights Agreement, the Partnership Agreement, the
Credit Facility, the Omnibus Agreement and the Founders Registration Rights
Agreement, and the terms of the Contribution Agreement, conform to the
descriptions thereof contained in the Offering Memorandum.
(m) The statements set forth in the Offering Memorandum under the captions
"Description of the Units," and "Cash Distribution Policy and Restrictions on
Distributions" insofar as they purport to constitute a summary of the terms of
the Units and under the captions "Notice to Investors Regarding Restrictions on
Ownership and Transfer," "Material Tax Consequences," "Certain Relationships and
Related Transactions," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financing Activities,"
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"Business and Properties," "Registration Rights," "Investment in Our Company by
Employee Benefit Plans," "Plan of Distribution" and "Private Placement," insofar
as they purport to describe the provisions of the laws and documents referred to
therein, are fair summaries in all material respects.
(n) The execution and delivery by the Partnership Entities of, and the
performance by the Partnership Entities of their respective obligations under
the Transaction Documents and the Formation Documents, will not contravene any
provision of (i) applicable law, (ii) the Formation Documents, (iii) or
implicate any right of first refusal or preference right with respect to, any
agreement or other instrument binding upon any Partnership Entity or its
properties (including properties received under any Formation Document) or (iv)
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over any Partnership Entity except, in the case of the foregoing
clauses (i), (iii) and (iv), if contravention (other than with respect to the
issuance and sale of the Units) would not, singly or in the aggregate, have a
Material Adverse Effect or affect the validity of the Units or the legal
authority of the Partnership Entities to comply with the terms of the
Transaction Documents and the Formation Documents, and, assuming the accuracy of
the representations of FBR set forth in Section 3, no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Partnership Entities of their
respective obligations under the Transaction Documents and the Formation
Documents except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer, issuance and sale of the Units,
by federal and state securities laws with respect to the Legacy Party's
obligations under the Registration Rights Agreement or will be obtained prior to
the Closing Date.
(o) Except as disclosed in the Final Memorandum, no Partnership Entity is
in violation of its limited partnership agreement, limited liability company
agreement or other organizational documents and no Partnership Entity is (i) in
default, and no event has occurred which, with notice or lapse of time or both,
would constitute such a default, in the due performance or observance of any
term, covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is a party or by
which it is bound or to which any of its property or assets is subject or (ii)
in violation of any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets may be subject (including those
relating to transactions with affiliates, safety or similar laws, federal or
state laws relating to discrimination in the hiring, promotion or pay of
employees, federal or state wages and hours law), except, in the case of each of
clause (i) and (ii), for any default or violation that would not have a Material
Adverse Effect.
(p) The financial statements, together with the related schedules and
notes, included in the Offering Memorandum present fairly the financial position
of the Partnership and its consolidated subsidiaries at the dates indicated and
their results of operations, stockholders' equity and cash flows for the periods
specified, and such financial statements have been prepared in conformity with
the generally accepted accounting principles in the United States ("GAAP")
applied on a consistent basis throughout the periods involved. The financial
information contained in the Offering Memorandum under the headings "Summary
Historical and Pro Forma Consolidated Financial Data", "Selected Historical and
Pro Forma Consolidated Financial Data" and "Pro Forma Consolidated Statement of
Operations" is derived from the accounting records of the Partnership and its
subsidiaries and fairly presents the information purported to be shown
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thereby. The summary pro forma financial statements included in the Offering
Memorandum present fairly the information contained therein, have been prepared
in accordance with the rules and guidelines of the Securities and Exchange
Commission (the "COMMISSION") with respect to pro forma financial statements and
have been properly presented on the bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances referred to
therein.
(q) Each accounting firm that certified the financial statements and
supporting schedules, if any, included in the Offering Memorandum is an
independent registered public accounting firm with respect to the Partnership
and its subsidiaries within the meaning of the Securities Act and the applicable
published rules and regulations thereunder.
(r) As of the date hereof, XxXxxxx Petroleum Consultants Ltd. (the
"RESERVOIR ENGINEER"), whose report is referenced in the Offering Memorandum
(the "RESERVE REPORT") are the Partnership's independent reserve engineers. No
information has come to the attention of the Partnership or, to the
Partnership's knowledge, to the Reservoir Engineer, that could reasonably be
expected to cause the Reservoir Engineer to withdraw its Reserve Report.
(s) The information underlying the estimates of the Partnership's proved
reserves that was supplied to the Reservoir Engineer for the purposes of
preparing the Reserve Report and estimates of the proved reserves of the
Partnership disclosed in the Offering Memorandum, including, production, costs
of operation, and, to the Partnership Entities' knowledge, future operations and
sales of production, was true and correct in all material respects on the dates
such information was provided, and such information was supplied and was
prepared in accordance with customary industry practices; and the estimates of
such reserves and PV-10 thereof as described in the Offering Memorandum and
reflected in the Reserve Report referenced therein have been prepared in a
manner that complies with the applicable requirements of the Securities Act
Regulations. Other than normal production of the reserves, product price
fluctuations, and fluctuations of demand for such products, and except as
disclosed in the Offering Memorandum, no Partnership Entity is aware of any
facts or circumstances that would result in a materially adverse change in the
reserves in the aggregate, or the aggregate present value of the future net cash
flows therefrom as described in the Offering Memorandum and as reflected in the
Reserve Report.
(t) Each of the Partnership Entities has (i) legal, valid and defensible
title to the interests in Oil and Gas Properties supporting the estimates of its
net proved reserves contained in the Offering Memorandum, (ii) good and
marketable title in fee simple to all real property other than Oil and Gas
Properties covered by clause (i), and (iii) good and marketable title to all
personal property owned by them, in each case free and clear of all Liens except
such as are described in the Offering Memorandum or such as do not materially
affect the value of the property of the Partnership Entities, taken as a whole,
and do not materially interfere with the use made and proposed to be made of
such property by any of the Partnership Entities; all real property and
buildings held under lease by any of the Partnership Entities are held by them
under valid, subsisting and enforceable leases, with such exceptions as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by any of the
Partnership Entities. The Working Interests derived from the Oil and Gas
Properties evidence in all material respects the right of the Partnership
Entities to
10
explore, develop and produce hydrocarbons from such Hydrocarbon Interests, and
the acquisition and procurement of such oil and gas leases, options to lease,
drilling rights and concessions or other property interests was generally
consistent with standard industry practices in the areas in which the
Partnership Entities operate for acquiring or procuring oil and gas leases and
interests therein to explore, develop or produce hydrocarbons. "WORKING
INTEREST" means each Partnership Entity's undivided operating and
expense-bearing interest under a Hydrocarbon Interest. "OIL AND GAS PROPERTIES"
means all of the Partnership's Hydrocarbon Interests; personal property and/or
real property now or hereafter pooled or unitized with Hydrocarbon Interests;
currently existing or future unitization, pooling agreements and declarations of
pooled units and the units created thereby (including all units created under
orders, regulations and rules of any governmental body having jurisdiction)
which may affect all or any portion of the Hydrocarbon Interests; pipelines,
gathering lines, compression facilities, tanks and processing plants; oil xxxxx,
gas xxxxx, water xxxxx, injection xxxxx, platforms, spars or other offshore
facilities, casings, rods, tubing, pumping units and engines, Christmas trees,
derricks, separators, gun barrels, flow lines, gas systems (for gathering,
dehydration, treating and compression), and water systems (for treating,
disposal and injection); interests held in royalty trusts whether currently
existing or hereafter created; hydrocarbons in and under and which may be
produced, saved, processed or attributable to the Hydrocarbon Interests, the
lands covered thereby and all hydrocarbons in pipelines, gathering lines, tanks
and processing plants and all rents, issues, profits, proceeds, products,
revenues and other incomes from or attributable to the Hydrocarbon Interests;
tenements, hereditaments, appurtenances and personal property and/or real
property in any way appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests, and all rights, titles, interests and estates described
or referred to above, including any and all real property, now owned or
hereafter acquired, used or held for use in connection with the operating,
working or development of any of such Hydrocarbon Interests or personal property
and/or real property and including any and all surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing.
"HYDROCARBON INTERESTS" means all rights, titles, interests and estates now
owned or hereafter acquired in and to oil and gas leases, oil, gas and mineral
leases (including subleases), oil, gas and casinghead gas leases, or other
liquid or gaseous hydrocarbon leases, mineral fee or lease interests, other oil,
gas and mineral leasehold fee or term interests, farm outs, overriding royalty
and royalty interests, net profits interests, net revenue interests, carried
interests, oil payments, production payment interests and similar mineral
interests, including any reserved, reversionary or residual interest of whatever
nature.
(u) There has not occurred any material adverse change, or any development
that would reasonably be expected to result in a prospective material adverse
change, in the condition, financial or otherwise, or in the earnings, business
or operations of the Partnership Entities, taken as a whole, from that set forth
in the Preliminary Memorandum provided to prospective purchasers of the Units.
(v) There are no legal or governmental proceedings pending or threatened to
which any Partnership Entity is a party or to which any of the properties of any
Partnership Entity is subject other than proceedings accurately described in all
material respects in the Offering Memorandum and proceedings that would not have
a Material Adverse Effect or a material adverse effect on the power or ability
of the Partnership Entities to perform their obligations under the Transaction
Documents or to consummate the transactions contemplated by the Final
11
Memorandum. The Partnership has not received notice of any order or decree
preventing the use of the Offering Memorandum or any amendment or supplement
thereto, or any order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Securities Act,
has been issued and no proceeding for that purpose has commenced or is pending
or, to its knowledge, is contemplated.
(w) Except as described in the Final Memorandum, the Partnership Entities
(i) are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are and have been in compliance
with all terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(x) Except as described in the Final Memorandum, there are no costs or
liabilities associated with Environmental Laws (including any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(y) No Partnership Entity is, and after giving effect to the offering and
sale of the Units and the application of the proceeds thereof as described in
the Offering Memorandum will be required to register as an "investment company"
as such term is defined in the Investment Company Act of 1940, as amended.
(z) The Partnership Entities have timely filed all material federal, state,
local and foreign tax returns required to be filed through the date hereof
(taking into account any extension of time to file granted or obtained on behalf
of any Partnership Entity) and have paid all taxes shown to be due thereon,
except in each case where the failure to so file or pay would not have a
Material Adverse Effect or which are being contested in good faith and for which
adequate reserves have been established in accordance with GAAP. Since the date
of most recent audited financial statements, the Partnership Entities have not
incurred any liability for taxes other than in the ordinary course of their
business and there is no tax lien, whether imposed by any federal, state,
foreign or other taxing authority, outstanding against the assets, properties or
business of any Partnership Entity which, in either case, has had or could have,
individually or in the aggregate, a Materially Adverse Effect.
(aa) Except as described in the Offering Memorandum, subsequent to the
respective dates as of which information is given in the Offering Memorandum,
(i) no Partnership Entity has incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) there has not been any material change in the
partner interests, short-term debt or long-term debt of the Partnership and its
Subsidiaries; and (iii) no dividend or distribution of any kind has been
declared, paid or made by
12
the Partnership on any class of partner interest, or any purchase by the
Partnership of any of its outstanding partner interests.
(bb) The Partnership Entities own or possess adequate rights to use all
material patents, know how (including trade secrets and other patented or
unpatentable proprietary or confidential information, systems or procedures),
patent rights, licenses, inventions, copyrights, trademarks, service marks and
trade names necessary for the conduct of the business now operated by them,
except where the failure to own or possess any of the foregoing would not,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Effect, and no Partnership Entity has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to have a
Material Adverse Effect.
(cc) No material labor dispute with the employees of any Partnership Entity
exists or, to the knowledge of any Partnership Entity, is imminent; and no
Partnership Entity is aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors that could have a Material Adverse Effect.
(dd) Except as described in the Offering Memorandum, the Partnership
Entities are insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as, in management's judgment, are
prudent and customary in the businesses in which they are engaged; no
Partnership Entity has been refused any material insurance coverage sought or
applied for; and no Partnership Entity has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.
(ee) Except as described in the Offering Memorandum, the Partnership and
each of its Subsidiaries possess all licenses, certificates, authorizations and
permits (collectively, "GOVERNMENTAL LICENSES") issued by, and have made all
declarations and filings with, the appropriate federal, state, foreign or other
regulatory agencies or bodies, which are necessary for the ownership of their
respective properties or the conduct of their respective businesses now operated
by them, in all material respects, except where the failure to possess or make
the same would not, singularly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and effect,
except where the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not, singularly or in
the aggregate, reasonably be expected to have a Material Adverse Effect; and no
Partnership Entity has received notification of any proceeding relating to the
revocation or modification of any such Governmental Licenses or has any reason
to believe that any such Governmental Licenses will not be renewed in the
ordinary course, except where such revocation, modification or nonrenewal, would
not singularly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(ff) Except with respect to FBR and Xxxxxx Brothers Inc., no Partnership
Entity has incurred any liability for finder's fees or similar payments in
connection with the transactions contemplated by the Transaction Documents.
13
(gg) There are no, and as of the Closing Time there will not be any,
persons or entities with registration or other similar rights to have any
securities registered by the Partnership or any of its subsidiaries except as
disclosed in the Offering Memorandum.
(hh) The Offering Memorandum contains all information specified in, and
meets the requirements of, Rule 144A(d)(4).
(ii) No "prohibited transaction" (as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended from time to time (the "CODE")) has
occurred with respect to any employee benefit plan of any Partnership Entity,
excluding transactions effected pursuant to a statutory or administrative
exemption, which could reasonably be expected to have a Material Adverse Effect;
each such employee benefit plan is in compliance with applicable law, including
ERISA and the Code, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect; no Partnership Entity, or
any entity that was at any time required to be treated as a single employer
together with the Partnership under Section 414(b),(c),(m) or (o) of the Code or
Section 4001(a)(l4) of ERISA has incurred or reasonably expects to incur any
liability under Section 302 of ERISA, Section 412 of the Code or Title IV of
ERISA that could reasonably be expected to have a Material Adverse Effect; and
each such pension plan that is intended to be qualified under Section 401(a) of
the Code is so qualified, except as could not reasonably be expected to have a
Material Adverse Effect, and, to the best knowledge of the Partnership, nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification.
(jj) None of the Partnership, or any affiliate (as defined in Rule 501(b)
of Regulation D under the Securities Act, an "Affiliate") of the Partnership has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be expected to be integrated with the sale of
the Units in a manner that would require the registration under the Securities
Act of the Units, (ii) offered, solicited offers to buy or sold the Units by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act, (iii)
distributed any other offering material in connection with the offer and sale of
the Units, other than as described in the Offering Memorandum, or (iv)
authorized anyone other than FBR to make representations regarding the offer and
sale of the Units.
(kk) Assuming the accuracy of FBR's representations and warranties and
compliance with its agreements set forth in Section 3, the issuance and sale of
the 144A Units and the Private Placement Units pursuant hereto and the initial
resale of the 144A Units pursuant to the Exempt Resales, are exempt from the
registration requirements of the Securities Act.
(ll) The copies of all material contracts, agreements, instruments and
other documents (including governmental licenses, authorizations, permits,
consents and approvals and all amendments or waivers relating to any of the
foregoing) relating to the Partnership Entities that have been previously
furnished to FBR or its counsel are complete and genuine.
14
(mm) FBR or its counsel have been provided with complete and genuine copies
(or, to the extent not executed as of the date hereof, current drafts) of all
material contracts, agreements, instruments and other documents of the
Partnership that would be required at the Closing Time to be described in a
prospectus included in, or included as an exhibit to, a registration statement
with respect to the Partnership's securities on Form S-1 under the Securities
Act, and the copies of all such material contracts, agreements, instruments and
other documents (including governmental licenses, authorizations, permits,
consents and approvals and all amendments or waivers relating to any of the
foregoing) that have been previously furnished to FBR or its counsel are
complete and genuine.
(nn) The Partnership has not taken, directly or indirectly, any action
designed to cause or which has constituted or which might reasonably be expected
to cause or result, under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), or otherwise, in the stabilization or manipulation of the price
of any security of the Partnership to facilitate the offering and sale of the
Units.
(oo) No Partnership Entity is required to register as a "broker" or
"dealer" in accordance with the provisions of the Exchange Act or the rules and
regulations thereunder.
(pp) No Partnership Entity has relied upon FBR or legal counsel to FBR for
any legal, tax or accounting advice in connection with the offering and sale of
the Units.
Any certificate signed by any officer of the Partnership and delivered to
FBR or counsel for FBR in connection with the offering of the Units shall be
deemed a representation and warranty by the Partnership as to matters covered
thereby to XXX.
0. Offering of the Units; Restrictions on Transfer.
(a) FBR represents and warrants to and agrees with the Partnership that (i)
it is an Accredited Investor with such knowledge and experience in financial and
business matters as is necessary in order to evaluate the merits and risks of an
investment in the Units; (ii) it is not acquiring any Units with any present
intention of offering or selling any of the Units in a transaction that would
violate the Securities Act or the securities laws of any state of the United
States or any other applicable jurisdiction; (iii) it has not solicited and will
not solicit any offer to buy, and has not and will not make any offer to sell,
the Units by means of any form of general solicitation or general advertising
(within the meaning of Regulation D), including advertisements, articles,
notices or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising;
(iv) it has solicited and will solicit offers to buy the 144A Units only from,
and has offered and will offer, sell and deliver the 144A Units only to, persons
who it reasonably believes to be "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) ("QIBS" or "ELIGIBLE PURCHASERS") or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
it that each such account is a QIB to whom notice has been given that such sale
or delivery is being made in reliance on Rule 144A, and, in each case, in
transactions under Rule 144A and who provide to it a fully completed and
executed certificate substantially in the form of Annex I to the Preliminary
15
Memorandum or Final Memorandum; and (v) as placement agent with respect to the
Private Placement Units, (1) it has not solicited and will not solicit offers to
buy any Private Placement Units from any prospective investors, other than a
limited number of persons it reasonably believes are Accredited Investors with
whom it had a preexisting relationship, each of whom was offered the Private
Placement Units at private sale for investment, (2) immediately prior to
soliciting any offer in connection with the Private Placement Units, it had
reasonable grounds to believe and did believe that each such prospective
investor had such knowledge and experience in financial and business matters
that it was capable of evaluating the merits and risks of its prospective
investment in the Private Placement Units and (3) it will deliver the Private
Placement Units only to those Accredited Investors who have provided to FBR and
the Partnership a fully completed and executed Subscription Agreement in the
form of Annex II or Annex III, as applicable, to the Preliminary Memorandum or
Final Memorandum.
(b) The Partnership represents and warrants to and agrees with FBR that it
(together with its affiliates) has not solicited and will not solicit any offer
to buy, and it (together with its affiliates) has not offered and will not offer
to sell, the Units by means of any form of general solicitation or general
advertising (within the meaning of Regulation D), including advertisements,
articles, notices or other communications published in any newspaper, magazine
or similar medium or broadcast over television or radio or any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising, and it has solicited and will solicit offers to buy the Private
Placement Units only from, and has offered and will offer, sell or deliver the
Units only to a limited number of Accredited Investors or Eligible Purchasers
and prospective investors present at meetings attended by both the Partnership
and FBR. The Partnership also represents and warrants and agrees that it will
sell the Private Placement Units only to persons that have provided to the
Partnership a fully completed and executed Subscription Agreement in the form of
Annex II or Annex III, as applicable, to the Preliminary Memorandum or Final
Memorandum.
(c) FBR represents and warrants that it has not offered or sold, nor will
it offer or sell, any 144A Units in a jurisdiction outside of the United States
except in compliance with all applicable laws, regulations and rules of those
countries.
(d) Each of FBR and the Partnership represents and warrants to the other
that no action is being taken by it or is contemplated that would permit an
offering or sale of the Units or possession or distribution of the Preliminary
Memorandum or the Final Memorandum or any other offering material relating to
the Units in any jurisdiction where, or in any other circumstances in which,
action for those purposes is required (other than in jurisdictions where such
action has been duly taken by counsel for FBR).
(e) FBR may purchase Units for its own account and/or arrange (i) for the
private offer and sale of a portion of the 144A Units to a limited number of
Eligible Purchasers (which may include affiliates of FBR), and (ii) for the
private offer and sale of the Private Placement Units by the Partnership to
Accredited Investors (which may include affiliates of FBR), in each case under
restrictions and other circumstances designed to preclude a distribution of the
Units that would require registration of the Units under the Securities Act.
16
(f) FBR and the Partnership agree that the Units may be resold or otherwise
transferred by the holders thereof only if the offer and sale of such Units are
registered under the Securities Act or if an exemption from registration is
available. FBR hereby establishes and agrees that it has observed and will
observe the following procedures in connection with offers, sales and subsequent
resales or other transfers of any Units placed by FBR:
(i) Sales only to Eligible Purchasers. Initial offers and sales of the
144A Units will be made only in Exempt Resales by FBR to investors that FBR
reasonably believes to be Eligible Purchasers, and who have delivered to
the Partnership and FBR a fully completed and executed purchaser's letter
in the form of Annex I to the Preliminary Memorandum.
(ii) No General Solicitation. The Units will be offered only by
approaching on an individual basis prospective purchasers with whom FBR has
an existing relationship. No general solicitation or general advertising
within the meaning of Regulation D under the Securities Act will be used in
connection with the offering of the Units (including advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar medium or broadcast over television or radio or any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising).
(iii) Restrictions on Transfer. The Preliminary Memorandum and the
Final Memorandum shall state that the offer and sale of the Units have not
been and will not be registered (other than pursuant to the Registration
Rights Agreement) under the Securities Act, and that no resale or other
transfer of any Units or any interest therein prior to the date that is two
years (or such shorter period as is prescribed by Rule 144(k) under the
Securities Act as then in effect) after the later of the original issuance
of such Units and the last date on which the Partnership or any "affiliate"
(as defined in Rule 144 under the Securities Act) of the Partnership was
the owner of such Units may be made by a purchaser of such Units except as
follows:
(A) to the Partnership or any subsidiary thereof;
(B) pursuant to a registration statement that has been declared
effective under the Securities Act;
(C) for so long as the Units are eligible for resale pursuant to
Rule 144A under the Securities Act, in a transaction complying with
the requirements of Rule 144A to a person who such purchaser
reasonably believes is a QIB that purchases for its own account or for
the account of a QIB and to whom notice is given that the offer,
resale, pledge or transfer is being made in reliance on Rule 144A; or
(D) pursuant to any other available exemption from the
registration requirements of the Securities Act, in each case in
accordance with any applicable federal securities laws and the
securities laws of any state of the United States or other
jurisdiction.
17
(g) FBR and the Partnership agree that each initial resale of 144A Units by
FBR (and each purchase of 144A Units from the Partnership by FBR) in accordance
with this Section 3 shall be deemed to have been made on the basis of and in
reliance on the representations, warranties, covenants and agreements (including
agreements with respect to indemnification and contribution) of the Legacy
Parties herein contained.
(h) FBR understands that the Partnership and, for the purposes of the
opinions to be delivered to FBR pursuant to Section 5, counsel to the
Partnership and counsel to FBR will rely upon the accuracy and the truth of the
forgoing representations and FBR hereby consents to such reliance.
(i) Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act, the
global certificates representing the Private Placement Units and the 144A Units
respectively (and all securities issued in exchange therefor or in substitution
thereof) shall bear the following legend (along with such other legends as FBR
and its counsel deem necessary):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH STATE LAWS. THE SECURITIES
REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND, UNTIL THEY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, THEY MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT (A) TO US OR ANY OF OUR SUBSIDIARIES, (B) TO A PERSON
THAT THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" THAT IS PURCHASING SUCH UNITS FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A "QUALIFIED INSTITUTIONAL BUYER" TO WHOM NOTICE IS GIVEN
THAT THE OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE UPON RULE 144A OF THE SECURITIES ACT, OR (C) TO OTHER
INVESTORS WITH RESPECT TO WHICH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE, AND IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES,
AS CONFIRMED TO THE ISSUER BY AN OPINION OF COUNSEL THAT IS REASONABLY
ACCEPTABLE TO THE ISSUER."
18
4. Certain Covenants of the Partnership. The Partnership hereby agrees as
follows:
(a) subject to Section 4(b), to furnish such information as may be
reasonably required and otherwise to cooperate in qualifying the Units for offer
and sale under the securities or blue sky laws of such states and other
jurisdictions as FBR may reasonably designate or as required for the offer and
sale of the Units and to maintain such qualifications in effect as long as
required by such laws for the distribution of the Units;
(b) to cooperate with FBR and its counsel in arranging for the
qualification or registration of the Units for offering and sale under, or
establishing an exemption from such qualification or registration under, the
securities or blue sky laws of such jurisdictions as FBR may designate;
provided, that in no event shall any Legacy Party be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Units, in any jurisdiction where it
is not now so subject;
(c) to prepare the Final Memorandum in a form reasonably approved by FBR
and to furnish promptly (and with respect to the initial delivery of such Final
Memorandum, not later than 8:30 a.m. (Central time) on the third day following
the execution and delivery of this Agreement) to FBR as many copies of the Final
Memorandum (and any amendments or supplements thereto) as FBR may reasonably
request for the purposes contemplated by this Agreement;
(d) to advise FBR promptly, confirming the general nature of such advice in
writing, of (i) the happening of any event known to the Partnership prior to the
date on which all of the 144A Units have been sold by FBR, which, in the
reasonable judgment of the Partnership, would require the making of any change
in the Final Memorandum then being used so that the Final Memorandum would not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading and to
prepare and furnish, at the Partnership's expense, to FBR (and to any persons
reasonably designated by FBR) promptly any proposed amendments or supplements to
the Final Memorandum as may be necessary so that the Final Memorandum does not
include or omit to state such material fact, and (ii) the receipt of any
notification with respect to the modification, rescission, withdrawal or
suspension of the qualification of the Units, or of any exemption from such
qualification or from registration of the Units, for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes and, if any government agency or authority should issue any such
order, to make every reasonable effort to obtain the lifting or removal of such
order as soon as possible;
(e) to furnish (or, once an initial public offering registration statement
of the Partnership is effective, make available, including through electronic
filings with the Commission) to FBR for a period of two years from the Closing
Time (i) a copy of all annual, quarterly and current reports supplied to holders
of the Units, and (ii) if requested in writing by FBR, a copy of all reports
filed by the Partnership with the Commission, provided that any document filed
electronically with the Commission shall satisfy the above delivery requirements
with respect to such document;
19
(f) not to amend or supplement the Preliminary Memorandum or the Final
Memorandum unless FBR shall previously have been advised thereof and shall have
consented thereto (which consent shall not be unreasonably withheld or delayed)
or not have reasonably objected thereto (for legal reasons) in writing within a
reasonable time after being furnished a copy thereof;
(g) during any period in the two years (or such shorter period as may then
be applicable under the Securities Act regarding the holding period for
securities under Rule 144(k) under the Securities Act or any successor rule)
after the Closing Time in which the Partnership is not subject to Section 13 or
15(d) of the Exchange Act to furnish, upon request, to any holder of such Units
the information ("RULE 144A INFORMATION") specified in Rule l44A(d)(4) under the
Securities Act and any additional information ("PORTAL INFORMATION") required by
the NASD PortalSM Market ("PORTAL"), and any such Rule 144A Information will
not, at the date thereof, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading;
(h) if the 144A Units are not delivered by the Partnership to FBR for any
reason other than the termination of this Agreement pursuant to Sections
6(a)(iii) through (v) or the default by FBR in its obligations hereunder or the
failure of FBR's counsel to deliver its opinion required hereunder (provided
that counsel to the Partnership has timely delivered its opinion required
hereunder), to reimburse FBR for all of its out-of-pocket expenses relating to
the transactions contemplated hereby, including the reasonable fees and
disbursements of its legal counsel;
(i) that no Partnership Entity, nor any of their respective affiliates (as
defined in Section 501(b) of Regulation D) will, whether directly or through any
agent or person acting on its behalf (other than FBR): (i) offer Common Units or
any other securities convertible into or exchangeable or exercisable for such
Common Units in a manner in violation of the Securities Act or the rules and
regulations thereunder, (ii) distribute any other offering material in
connection with the offer and sale of the Units, other than as described in the
Offering Memorandum, or (iii) sell, offer for sale, solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act), any of which will be integrated with the offering and sale of the Units in
a manner that would require the registration under the Securities Act of the
sale to FBR or the Eligible Purchasers of the 144A Units or to the Accredited
Investors of the Private Placement Units;
(j) that no Partnership Entity nor any of its affiliates will take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the price of
the Units;
(k) that, except as permitted by the Securities Act, prior to the later of
the Closing Time, the Option Closing Time or completion of the distribution of
Units, no Partnership Entity will distribute any offering materials in
connection with Exempt Resales;
(l) except as provided in Sections 1(a) and (b), to pay all expenses, fees
and taxes in connection with (i) the preparation of the Offering Memorandum and
any amendments or supplements thereto, and the printing and furnishing of copies
of each thereof to FBR (including
20
costs of mailing and shipment), (ii) the sale and delivery of the Units,
including any stock or other transfer taxes or duties payable upon the sale of
the Units, (iii) the qualification of the Units for offering and sale under
state laws and the determination of their eligibility for investment under state
law as aforesaid (including any filing fees or legal fees and expenses of FBR)
and the printing and furnishing of copies of any blue sky surveys or legal
investment surveys to FBR and to dealers, (iv) the printing of this Agreement,
(v) the designation of the Units as PORTAL-eligible securities by PORTAL, (vi)
the costs and expenses of the Partnership and FBR incurred in connection with
the marketing of the Units, including "road show" costs and expenses (but
excluding 50% of the cost of any aircraft chartered in connection with the "road
show" which FBR will be responsible for), (vii) all fees and disbursements of
counsel and accountants for the Partnership, (viii) the fees and expenses of any
transfer agent or registrar for the Units, and (ix) the performance of the
Partnership's other obligations hereunder. Except as provided in Section 4(h)
and this Section 4(l), FBR shall bear all fees and disbursements of its legal
counsel.
(m) from and after the Closing Time, to have in place and maintain a system
of accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences;
(n) to apply the net proceeds from the sale of the Units in the manner set
forth under the caption "Use of Proceeds" in the Final Memorandum;
(o) that no Partnership Entity will be required to register as an
"investment company" within the meaning of the Investment Company Act;
(p) that, as soon as reasonably practicable following completion of the
transactions contemplated hereunder, to use commercially reasonable efforts to
cause the Partnership's or the General Partner's board of directors to approve
any changes to the corporate governance policies and procedures that may be
required by law prior to filing any registration statement with the Commission;
and
(q) to refrain during the period commencing on the date of this Agreement
until 180 days after the completion of this offering and from the effective date
of the Mandatory Shelf Registration Statement (as defined in the Registration
Rights Agreement) until 60 days thereafter, without the prior written consent of
FBR, from (i) offering, pledging, selling, contracting to sell, selling any
option or contract to purchase, purchasing any option or contract to sell,
granting any option, right or warrant for the sale of, lending or otherwise
disposing of or transferring, directly or indirectly, any equity securities of
the Partnership or any securities convertible into or exercisable or
exchangeable for equity securities of the Partnership, or (ii) entering into any
swap or other arrangement that transfers, in whole or in part, directly or
indirectly, any of the economic consequences of ownership of equity securities
of the Partnership, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Units or such other securities, in
cash or otherwise. The foregoing sentence
21
shall not apply to issuances of securities of the Partnership (A) pursuant to
this Agreement; (B) pursuant to the Contribution Agreement; (C) pursuant to the
exercise and issuance of options; (D) as a pro rata distribution to the
Partnership's partners; (E) under any of the Partnership's benefit plans; (F) to
third parties as consideration for acquisitions provided that such third parties
agree to be bound by the same restrictions; and (G) pursuant to the IPO
Registration Statement (as defined in the Registration Rights Agreement).
5. Conditions of FBR's Obligations. The obligations of FBR pursuant to this
Agreement shall be subject to the accuracy, in all material respects to the
extent not otherwise qualified by materiality, of the representations and
warranties of the Partnership contained herein as of the date and time that this
Agreement is executed and delivered by the parties hereto (the "EXECUTION
TIME"), the Closing Time and the Option Closing Time (if any), as the case may
be, to the accuracy of the certificates of the Partnership's officers given
pursuant to the provisions hereof, to the performance by the Partnership of its
covenants and agreements hereunder and to the following additional conditions:
(a) FBR shall have received on the Closing Time an opinion of Xxxxxxx Xxxxx
LLP, counsel for the Partnership, dated the Closing Time, addressed to FBR in
form and substance satisfactory to FBR.
(b) FBR shall have received on the Closing Time an opinion of Xxxxxxxx,
Xxxxxx & Finger, P.A., special counsel for the Partnership, dated the Closing
Time, addressed to FBR in form and substance satisfactory to FBR.
(c) FBR shall have received on the Closing Time an opinion of Xxxxx,
Xxxxxxxx & Xxxxx, PC, counsel for the Founding Investors and the charitable
foundations referred to in the Offering Memorandum, dated the Closing Time,
addressed to FBR in form and substance satisfactory to XXX.
(x) XXX shall have received on the Closing Time the favorable opinion of
Akin Gump Xxxxxxx Xxxxx & Xxxx LLP, dated the Closing Time, addressed to FBR and
in form and substance satisfactory to FBR.
(e) FBR shall have received from BDO Xxxxxxx LLP and Xxxxxxx, Xxxxxx & Co.
letters addressed to FBR, dated as of the date of this Agreement and the Closing
Time, respectively, in form and substance satisfactory to FBR, relating to the
financial statements described in Section 2(q) and such other matters
customarily covered by "comfort" letters issued in connection with registered
public offerings.
(f) FBR shall have received from the Reservoir Engineer, letters addressed
to FBR, dated as of the date of this Agreement and the Closing Time,
respectively, in form and substance satisfactory to FBR, relating to the oil and
gas reserves, of the Partnership, and such other matters customarily covered by
"comfort" letters issued in connection with similar offerings.
If the letters referred to in Section 5(e) or (f) set forth any such
changes, decreases or increases that, in the reasonable discretion of FBR, are
likely to result in a Material Adverse Effect, it shall be a further condition
to the obligations of FBR that such letters shall be
22
accompanied by a written explanation of the Partnership as to the significance
thereof, unless FBR deems such explanation unnecessary.
(g) At the time of execution and delivery of this Agreement, FBR shall have
received a written agreement (a "LOCK-UP AGREEMENT") in substantially the form
attached as Exhibit B from the following persons and entities: Xxxx X. Xxxxx;
Xxxxxx X. Xxxxxx; Xxxx X. XxXxxx; Xxxx X. Xxxxx; Xxxxxxx X. Xxxxxx; Xxxx X.
Xxxxx; S. Xxx XxxXxx, Xx.; Xxxxxx Properties, Ltd.; DAB Resources, Ltd.;
Brothers Production Properties, Ltd.; Brothers Production Company, Inc.;
Brothers Operating Company, Inc.; J&W McGraw Properties, Ltd.; H2K Holdings,
Ltd.; MBN Properties LP; Newstone Capital, LP; Blackstone Investments I, LP;
Blackstone Investments II, LP; Trinity Equity Partners I, LP; and SHP Capital
LP.
(h) On or before the Closing Time, FBR shall have received each of the
Formation Documents and Credit Facility as executed and delivered by the parties
thereto, in form and substance reasonably satisfactory to FBR.
(i) Before the Closing Time and the Option Closing Time, as the case may
be, (i) no suspension of the qualification of the Units for offering or sale in
any jurisdiction, or of the initiation or threatening of any proceedings for any
of such purposes, shall have occurred and (ii) the Final Memorandum and all
amendments or supplements thereto, or modifications thereof, if any, shall not
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
(j) Between the time of execution of this Agreement and the Closing Time
and the Option Closing Time, as the case may be, (i) no event, circumstance or
change constituting a Material Adverse Effect shall have occurred or become
known, (ii) no transaction which is material to the Partnership Entities, taken
as a whole, shall have been entered into by any Partnership Entity that has not
been fully and accurately disclosed in the Final Memorandum; and (iii) no order
or decree preventing the use of the Final Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Securities Act shall have been issued.
(k) FBR shall have received certificates, dated the Closing Time, of duly
authorized officers of the General Partner to the effect that:
(i) the conditions set forth in paragraph (i) and (j) shall have been
satisfied and be true and correct as of the Closing Time;
(ii) the representations and warranties of the Legacy Parties set
forth in this Agreement,
(A) to the extent such representations and warranties are subject
to qualifications and exceptions contained therein relating to
knowledge, materiality or Material Adverse Effect, shall be true and
correct as of the Closing Time, as though made on and as such date
(except to the extent that such representations
23
and warranties speak as of another date, in which case such
representations and warranties shall be true and correct as of such
other date); and
(B) to the extent such representations and warranties are not
subject to any such qualifications or exceptions, shall be true and
correct as of the Closing Time, as though made on and as such date
(except to the extent that such representations and warranties speak
as of another date, in which case such representations and warranties
shall be true and correct as of such other date), except where the
failure of such representations and warranties described in this
clause (B) to be true and correct could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
the Partnership.
(l) At the Option Closing Time, FBR shall have received:
(i) certificates, dated as of the Option Closing Time, of the officers
of the General Partner, substantially to the same effect as the
certificates delivered at Closing Time pursuant to Section 5(k), subject to
any exceptions that, in the reasonable judgment of FBR, are not material;
(ii) the opinion of (A) Xxxxxxx Xxxxx LLP, counsel for the
Partnership, (B) Xxxxxxxx, Xxxxxx & Finger, P.A., special counsel to the
Partnership, and (C) Xxxxx, Xxxxxxxx & Xxxxx, P.C., counsel to the Founding
Investors and the charitable foundations referred to in the Offering
Memorandum, each in form and substance satisfactory to FBR, dated as of the
Option Closing Time, relating to the Option Units, and otherwise
substantially to the same effect as the opinions required by Section
5(a)-(c), respectively;
(iii) "comfort" letters from BDO Xxxxxxx LLP and Xxxxxxx, Xxxxxx &
Co., in form and substance satisfactory to FBR, dated as of the Option
Closing Time, substantially the same in scope and substance as the letter
furnished to FBR pursuant to Section 5(e), except that the "specified date"
in the letter furnished pursuant to this Section 5(l)(iii) shall be a date
not more than five days prior to the Option Closing Time;
(iv) a letter from the Reservoir Engineer, in form and substance
satisfactory to FBR, dated as of the Option Closing Time, substantially the
same in scope and substance as the letter furnished to FBR pursuant to
Section 5(f), except that the "specified date" in the letter pursuant to
this Section 5(l)(iv) shall be a date not more than five days prior to the
Option Closing Time;
If any "comfort" letter referred to in Section 5(l)(iii) or (iv) sets
forth any such changes, decreases or increases that, in the reasonable
discretion of FBR, are likely to result in a Material Adverse Effect, it
shall be a further condition to the obligations of FBR that such letters
shall be accompanied by a written explanation of the Partnership as to the
significance thereof, unless FBR deems such explanation unnecessary; and
(v) the opinion of Akin Gump Xxxxxxx Xxxxx & Xxxx LLP, dated as of the
Option Closing Time, relating to the Option Units, and otherwise to the
same effect as the opinion required by Section 5(d).
24
(m) On or before the Closing Time, the Partnership shall have executed and
delivered to FBR the Registration Rights Agreement and such agreement shall be
in full force and effect;
(n) The Partnership shall have furnished to FBR such other agreements to be
executed in connection with Formation Documents and the transactions
contemplated hereby and documents and certificates as to the accuracy and
completeness of any statement in the Final Memorandum or any amendment or
supplement thereto and any additional matters, as of the Closing Time and the
Option Closing Time as FBR may reasonably request;
(o) Each Purchaser Letter/Subscription Agreement with respect to the Units
shall remain in full force and effect and no event shall have occurred giving
any party the right to terminate any such agreement pursuant to the terms
thereof, unless, in the event that such an agreement is no longer in full force
and effect, the Units covered by such agreement may be reallocated to Purchasers
who subscribed for additional Units under agreements that are in full force and
effect;
(p) FBR shall receive a certificate of the Secretary of the General Partner
certifying (i) the certificate of limited partnership and any amendments
thereto, (ii) the Partnership Agreement and any amendments thereto, (iii) that
all partnership action has been taken on the part of the Partnership necessary
to authorize the execution and delivery of the Transaction Documents, the other
offering documents to which the Partnership is a party and the transactions
contemplated herein and therein, (iv) resolutions of the Board of Directors of
the General Partner approving the original issuance and sale of the Units and
(v) a specimen Unit certificate; and
(q) The Units to be resold by FBR to QIBs pursuant to Rule 144A under the
Securities Act shall have been designated as PORTAL-eligible securities by
PORTAL.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to FBR and counsel for FBR. The
Partnership shall furnish to FBR such copies of such opinions, certificates,
letters and documents in such quantities as FBR and counsel for FBR shall
reasonably request.
6. Termination.
(a) This Agreement may be terminated at the option of FBR by giving notice
to the Partnership prior to the Closing Time or the Option Closing Time if, in
the sole discretion of FBR, any of the following makes it impracticable to
proceed with the offering of the Units or completion of the sale of the Units to
be delivered at the Closing Time or the Option Closing Time:
(i) any Legacy Party shall have failed, refused or been unable to
perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto;
(ii) the Partnership shall have, in the reasonable judgment of FBR,
sustained any Material Adverse Effect, or loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or
any legal or governmental proceeding or there shall have been
25
any event, circumstance or development that results in, or that FBR
reasonably believes would result in, a Material Adverse Effect;
(iii) trading generally in securities on the New York Stock Exchange
or Nasdaq National Market shall have been suspended or minimum or maximum
prices shall generally have been established on either such exchange or
market system, or there has been a material disruption in the securities
settlement, payment, or clearance services in the United States;
(iv) a banking moratorium shall have been declared by New York or
United States authorities; or
(v) there shall have been (A) any outbreak or escalation of national
or international hostilities or (B) any other calamity or crisis, including
any terrorist attack or similar attack, or any material adverse change in
general economic, political or financial conditions having an effect on
United States or international financial markets that, in the reasonable
judgment of FBR, makes it impractical or inadvisable to proceed with the
offering or the delivery of the Units as contemplated by the Offering
Memorandum, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 6 shall be
without liability of any party to any other party except for the expenses to be
paid by the Partnership pursuant to Section 4 and except as provided in Section
7.
7. Indemnity.
(a) The Legacy Parties, jointly and severally, agree to indemnify, defend
and hold harmless FBR and its affiliates, and their respective directors,
officers, representatives and agents, and any person who controls FBR within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any loss, expense, liability or claim (including the reasonable
cost of investigation) which, jointly or severally, FBR or any such controlling
person may incur under the Securities Act, the Exchange Act or otherwise,
insofar as such loss, expense, liability or claim arises out of or is based upon
(i) any untrue statement or alleged untrue statement made by any Legacy Party
herein, (ii) any breach by any Legacy Party or any covenant set forth herein, or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in (x) the Offering Memorandum or (y) in any materials or information
provided to investors by, or with the approval of, the Partnership in connection
with the marketing of the offering of the Units, including any road show or
investor presentations made to investors by the Partnership (whether in person
or electronically) ("MARKETING MATERIALS"), or arises out of or is based upon
any omission or alleged omission to state a material fact required to be stated
in the Offering Memorandum or the Marketing Materials or necessary to make the
statements made therein, in light of the circumstances under which they were
made not misleading, except insofar as any such loss, expense, liability or
claim arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with information
furnished in writing by FBR to the Partnership expressly for use in such Final
Memorandum (that information being limited to the information described in the
last sentence of Section 7(c))
26
(b) Subject to Section 7(h), Moriah Founders, Ltd., a Texas limited
partnership, and Brothers Founders, Ltd., a Texas limited partnership
(collectively, the "FOUNDERS"), jointly and severally, agree to indemnify,
defend and hold harmless FBR and its affiliates, and their respective directors,
officers, representatives and agents, and any person who controls FBR within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any loss, expense, liability or claim (including the reasonable
cost of investigation) which, jointly or severally, FBR or any such controlling
person may incur under the Securities Act, the Exchange Act or otherwise,
insofar as such loss, expense, liability or claim arises out of or is based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Offering Memorandum or the Marketing Materials. Each of the Founders
acknowledge that they may be required to make payments hereunder and each
covenants and agrees not to engage in any transactions the result of which would
impede FBR's and its affiliates' ability to collect any payments due to any of
them hereunder.
(c) FBR agrees to indemnify, defend and hold harmless the Partnership and
its directors and officers and any person who controls the Partnership within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any loss, expense, liability or claim (including the
reasonable cost of investigation) which, jointly or severally, the Partnership
or any such person may incur under the Securities Act, the Exchange Act or
otherwise, insofar as such loss, expense, liability or claim arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
contained in and made in reliance upon and in conformity with information
furnished in writing by FBR to the Partnership expressly for use in the Offering
Memorandum (or in any amendment or supplement thereof by the Partnership), such
information being limited to the following: the last sentence of the cover page
of the Offering Memorandum, the third sentence of the sixth paragraph of "Plan
of Distribution" in the Offering Memorandum, the first sentence of the eighth
paragraph of "Plan of Distribution" in the Offering Memorandum and the name of
the Initial Purchaser on the front and back covers of the Offering Memorandum.
(d) If any action is brought against any person or entity (each an
"INDEMNIFIED PARTY"), in respect of which indemnity may be sought pursuant to
Section 7(a), (b) or (c), the Indemnified Party shall promptly notify the
party(ies) obligated to provide such indemnity (each an "INDEMNIFYING PARTY") in
writing of the institution of such action and the Indemnifying Party shall
assume the defense of such action, including the employment of counsel and
payment of expenses; provided that the failure so to notify the Indemnifying
Party will not relieve the Indemnifying Party from any liability which the
Indemnifying Party may have to any Indemnified Party unless and to the extent
the Indemnifying Party did not otherwise know of such action and such failure
results in the forfeiture by the Indemnifying Party of rights and defenses that
would have had material value in the defense. The Indemnified Party(ies) shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of the Indemnified Party
unless the employment of such counsel shall have been authorized in writing by
the Indemnifying Party in connection with the defense of such action or the
Indemnifying Party shall not have employed counsel to have charge of the defense
of such action within a reasonable time or such Indemnified Party(ies) shall
have reasonably concluded (based on the advice of counsel) that counsel selected
by the Indemnifying Party has an actual conflict of interest or there may be
defenses available to the Indemnified Party(ies) which are different from or
additional to those available to the Indemnifying Party (in which case the
Indemnifying Party shall not have the right
27
to direct the defense of such action on behalf of the Indemnified Party(ies)),
in any of which events such fees and expenses shall be borne by the Indemnifying
Party and paid as incurred (it being understood, however, that the Indemnifying
Party shall not be liable for the fees and expenses of more than one separate
firm of counsel (in addition to local counsel) for the Indemnified Party in any
one action or series of related actions in the same jurisdiction representing
the Indemnified Parties who are parties to such action). Anything in this
paragraph to the contrary notwithstanding, the Indemnifying Party shall not be
liable for any settlement of any such claim or action effected without its
written consent. The Indemnifying Party shall have the right to settle any such
claim or action for itself and any Indemnified Party so long as the Indemnifying
Party pays any settlement payment and such settlement (i) includes a complete
and unconditional release of the Indemnified Party from all losses, expenses,
claims, damages, injunctions, liability and other obligations with respect to
any claims that are the subject matter of such action and (ii) does not include
a statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of the Indemnified Party.
(e) If the indemnification provided for in this Section 7 is unavailable to
an Indemnified Party under Section 7(a), (b) or (c) in respect of any losses,
expenses, liabilities or claims referred to therein, then each applicable
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, expenses, liabilities or claims (i) in such proportion as is
appropriate to reflect the relative benefits received by the Partnership and its
subsidiaries, on the one hand, and FBR, on the other hand, from the offering of
the Units or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Partnership and its subsidiaries, on the one hand, and of FBR, on
the other hand, in connection with the statements or omissions which resulted in
such losses, expenses, liabilities or claims, as well as any other relevant
equitable considerations. The relative benefits received by the Partnership and
its subsidiaries, on the one hand, and FBR, on the other hand, shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
initial placement agent discounts and commissions but before deducting expenses)
received by the Partnership bear to the discounts and commissions received by
FBR. The relative fault of the Partnership and its subsidiaries, on the one
hand, and of FBR, on the other hand, shall be determined by reference to, among
other things, whether the untrue statement or alleged untrue statement of a
material fact or omission or alleged omission relates to information supplied by
the Partnership or by FBR and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims, damages
and liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any claim or action.
(f) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in Section 7(e). Notwithstanding the
provisions of this Xxxxxxx 0, XXX shall not be required to contribute any amount
in excess of the amount by which the total price at which the Units were
initially offered exceeds the amount of any damages which FBR has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of
28
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(g) The indemnity and contribution agreements contained in this Section 7
and the covenants, warranties and representations of the Partnership and
contained in this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of FBR or its affiliates, or their
respective directors, officers, representatives and agents, or any person who
controls FBR within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, or by or on behalf of the Partnership or its directors
and officers or any person who controls the Partnership within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and shall
survive any termination of this Agreement or the sale and delivery of the Units.
Each of the parties to this Agreement agree promptly to notify the other parties
of the commencement of any litigation or proceeding against it and, in the case
of the Partnership or its subsidiaries, against any of their respective officers
and directors, in connection with the sale and delivery of the Units, or in
connection with the Offering Memorandum.
(h) Notwithstanding anything herein to the contrary, in no event shall the
Founders be required to make payments under Section 7(b) for aggregate losses,
expenses, liabilities or claims (including the reasonable costs of
investigation) in excess of $17,000,000; provided, however, that the
indemnification obligations of the Founders under this Section 7 shall be
limited as to amount so as to apply only after the amount of, and to the extent
that, such liabilities exceed $5,000,000.
8. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Partnership, its officers,
the Founders and FBR set forth in or delivered in connection with this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (a) any investigation made by or
on behalf of the Partnership, any of its officers or directors, FBR and each
person, if any, who controls FBR within the meaning of the Securities Act or the
Exchange Act and their respective trustees, directors, officers, employees,
agents and controlling persons referred to in Section 7 and (b) delivery of and
payment for the Units; provided, however, that, with respect to the Founders,
their respective indemnification obligations under Section 7 shall survive for
only six months from the Closing Time. The respective agreements, covenants,
indemnities and other statements set forth in Sections 4(h), 4(l), 6(b), 7-19
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
9. Research Independence. In addition, the Legacy Parties and the Founders
acknowledge that FBR's research analysts and research departments are required
to be independent from their respective investment banking divisions and are
subject to certain regulations and internal policies, and that such FBR research
analysts may hold and make statements or investment recommendations and/or
publish research reports with respect to the Partnership and/or the offering
that differ from the views of its investment bankers. The Legacy Parties and the
Founders hereby waive and release, to the fullest extent permitted by law, any
claims that the Legacy Parties or the Founders may have against FBR with respect
to any conflict of interest that may arise from the fact that the views
expressed by their independent research analysts and research departments may be
different from or inconsistent with the views or advice communicated to the
Legacy Parties or the Founders by such FBR investment banking divisions;
29
provided, however, that nothing in this Section 9 shall affect the obligations
of FBR under Section 3. The Legacy Parties and Founders acknowledge that FBR is
a full service securities firm and as such from time to time, subject to
applicable securities laws, may effect transactions for its own account or the
account of its customers and hold long or short positions in debt or equity
securities of the companies which may be the subject of the transactions
contemplated by this Agreement.
10. No Fiduciary Duty. The Legacy Parties and Founders acknowledge and
agree that in connection with this offering, the sale of the Units or any other
services FBR may be deemed to be providing hereunder, notwithstanding any
preexisting relationship, advisory or otherwise, between the parties or any oral
representations or assurances previously or subsequently made by FBR, and except
as otherwise contemplated in the placement agent arrangement herein: (i) no
fiduciary or agency relationship between the Legacy Parties, the Founders and
any other person, on the one hand, and FBR, on the other, exists; (ii) FBR is
not acting as an advisor, expert or otherwise, to any of the Legacy Parties or
the Founders, including with respect to the determination of the offering price
of the Units, and such relationship between the Legacy Parties and the Founders,
on the one hand, and FBR, on the other, is entirely and solely commercial, based
on arms-length negotiations; (iii) any duties and obligations that FBR may have
to the Legacy Parties or the Founders shall be limited to those duties and
obligations specifically stated herein; and (iv) FBR and its affiliates may have
interests that differ from those of the Legacy Parties and the Founders. The
Legacy Parties and the Founders hereby waive any claims that they may have
against FBR with respect to any breach of fiduciary duty in connection with this
offering, the sale of the Units or any other services FBR may be deemed to be
providing hereunder.
11. Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail, telex,
telecopier or air courier guaranteeing overnight delivery:
(a) if to the Legacy Parties: Legacy Reserves LP
Attn: Xxxxxx X. Xxxxxx
000 X. Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
with a copy (which shall not
constitute notice) to: Xxxxxxx Xxxxx LLP
Attn: Messrs. Xxxxx X. Xxxxx and
Xxxxxx Xxxxxxxxxx
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
30
(b) if to the Founders: Moriah Founders, Ltd.
Brothers Founders, Ltd.,
Attn: Xxxx X. Xxxxx
000 X. Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
(c) if to FBR: Friedman, Billings, Xxxxxx & Co.,
Inc.
Attn: Xx. Xxxxxxx X. Xxxxxxx,
General Counsel
0000 00xx Xxxxxx, Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Facsimile: 000-000-0000
with a copy (which shall not
constitute notice) to: Akin Gump Xxxxxxx Xxxxx & Xxxx LLP
Attn: Messrs. Xxxxxx Xxxxxx and
Xxxxx Xxxxxxxx
0000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
All such notices and communications shall be deemed to have been duly given
when received. Any party by notice to the other party may designate additional
or different addresses for subsequent notices or communications.
12. Governing Law; Consent to Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
VIRGINIA. The parties hereto agree to be subject to, and hereby irrevocably
submit to, the nonexclusive jurisdiction of any United States federal or New
York state court sitting in New York, New York, in respect of any suit, action
or proceeding arising out of or relating to this Agreement or the transactions
contemplated herein, and irrevocably agree that all claims in respect of any
such suit, action or proceeding may be heard and determined in any such court.
Each of the parties hereto irrevocably waives, to the fullest extent permitted
by applicable law, any objection to the laying of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such suit,
action or proceeding has been brought in an inconvenient forum.
13. Parties in Interest. The Agreement herein set forth has been and is
made solely for the benefit of FBR, the Founders, the Partnership and the
controlling persons, trustees, directors and officers referred to in Section 7,
and their respective successors, assigns, executors and administrators. No other
person, partnership, association or corporation (including a purchaser, as such
purchaser, from FBR) shall acquire or have any right under or by virtue of this
Agreement.
31
14. Amendments and Waivers. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
15. Successors. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties.
16. Counterpart and Facsimile Signatures. This Agreement may be in signed
counterparts, each of which shall be an original and all of which together shall
constitute one and the same agreement, and may be executed by facsimile.
17. Headings. The section headings in this Agreement have been inserted as
a matter of convenience of reference and are not a part of this Agreement.
18. Severability. In the event that any one or more of the provisions
contained herein is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions hereof shall not be in any
way impaired or affected thereby, but only to the extent that giving effect to
such provision and the remaining provisions hereof is in accordance with the
intent of the parties as reflected in this Agreement.
19. Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties hereto with respect to the matters and transactions
contemplated hereby and thereby and supersede all prior agreements and
understandings whatsoever relating to such matters and transactions, except as
provided in the following sentence. All of the obligations, agreements,
covenants, representations and warranties under the engagement letter dated
March 6, 2006, between the Partnership and FBR (the "ENGAGEMENT LETTER") entered
into immediately prior to this Agreement, shall each survive the execution,
delivery and termination and the performance of this Agreement and the
consummation of the transactions contemplated hereby without any modification
thereof; provided, that to the extent there is a conflict between the provisions
of the Engagement Letter and the provisions of this Agreement, this Agreement
shall prevail to that extent.
[SIGNATURE PAGES FOLLOW]
32
Please acknowledge and accept the foregoing provisions hereof by signing
this Agreement in the space indicated below.
Very truly yours,
LEGACY RESERVES GP, LLC
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President, Chief Financial
Officer and Secretary
LEGACY RESERVES LP
By: Legacy Reserves GP, LLC,
its general partner
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President, Chief Financial
Officer and Secretary
LEGACY RESERVES OPERATING GP LLC
By: Legacy Reserves LP,
its sole member
By: Legacy Reserves GP, LLC,
its general partner
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx
President, Chief Financial Officer
and Secretary
Signature Page - Purchase/Placement Agreement
LEGACY RESERVES OPERATING LP
By: Legacy Reserves Operating GP LLC,
its general partner
By: Legacy Reserves LP,
its sole member
By: Legacy Reserves GP, LLC,
its general partner
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President, Chief Financial
Officer and Secretary
Founders (solely for the purposes of
Sections 7 - 19):
MORIAH FOUNDERS, LTD.
By: Moriah Founders Management, LLC,
its general partner
By: /s/ Xxxx X. Xxxxx
------------------------------------
Name: Xxxx X. Xxxxx
Title: Vice President
BROTHERS FOUNDERS, LTD.
By: Brothers Founders Management, LLC,
its general partner
By: /s/ Xxxx X. XxXxxx
------------------------------------
Name: Xxxx X. XxXxxx
Title: President
Signature Page - Purchase/Placement Agreement
ACCEPTED AND AGREED
as of the date first written above:
FRIEDMAN, BILLINGS, XXXXXX & CO.,
INC., a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
-------------------------------
Title: Senior Managing Director
------------------------------
Signature Page - Purchase/Placement Agreement
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
[Intentionally Omitted]
Exhibit A
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
March [___], 2006
Friedman, Billings, Xxxxxx & Co., Inc.
0000 Xxxxxxxxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Ladies and Gentlemen:
The undersigned understands and agrees as follows:
1. Friedman, Billings, Xxxxxx & Co., Inc. ("FBR") proposes to enter into a
Purchase/Placement Agreement (the "AGREEMENT") with Legacy Reserves LP, a
Delaware limited partnership (the "PARTNERSHIP") and certain other entities,
providing for (a) the initial purchase by FBR of units representing limited
partner interests in the Partnership (the "UNITS"), and the resale of such Units
by FBR to certain eligible purchasers, (b) the direct sale by the Partnership of
Units to certain accredited investors, and (c) an option for FBR to purchase or
place Units either for resale by FBR to certain eligible purchasers or for
direct sale by the Partnership to certain accredited investors (the transactions
referred to in (a), (b) and (c) above are collectively referred to as the
"OFFERING"), in each case, in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT").
2. In connection with the Offering and pursuant to the terms of a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") to be
entered into in connection with the closing of the Offering, the Partnership has
agreed to file with the Securities and Exchange Commission one or more
registration statements providing for the resale of the Units under the
Securities Act.
3. In recognition of the benefit that the Offering will confer upon the
undersigned and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the undersigned, without the
prior written consent of FBR, the undersigned will refrain during the period
commencing on the date of the Agreement until 180 days after the completion of
the Offering and from the effective date of the Mandatory Shelf Registration
Statement (as defined in the Registration Rights Agreement entered into in
connection with the Offering) until 60 days thereafter, without the prior
written consent of FBR, from (i) offering, pledging, selling, contracting to
sell, selling any option or contract to purchase, purchasing any option or
contract to sell, granting any option, right or warrant for the sale of, lending
or otherwise disposing of or transferring, directly or indirectly, any equity
securities of the Partnership, or any securities convertible into or exercisable
or exchangeable for equity securities of the Partnership, or (ii) entering into
any swap or other arrangement that transfers to another, in whole or in part,
directly or indirectly, any of the economic consequences of ownership of equity
securities of the Partnership, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Units or such other
securities, in cash or otherwise.
Notwithstanding the foregoing, subject to applicable securities laws and
the restrictions contained in the Partnership's amended and restated partnership
agreement, the undersigned may
transfer any securities of the Partnership as follows: (i) pursuant to the
Contribution Agreement (as defined in the Agreement); (ii) pursuant to the
exercise of options; (iii) as a bona fide gift or gifts, provided that the donee
or donees thereof agree to be bound in writing by the restrictions set forth
herein; (iv) to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, provided that the trustee of the
trust agrees that the trust will be bound by the restrictions set forth herein;
(v) as a distribution to stockholders, partners or members of the undersigned,
provided that such stockholders, partners or members agree to be bound in
writing by the restrictions set forth herein; (vi) any transfer required under
any Partnership benefit plans or the Partnership's amended and restated
partnership agreement; (vii) as collateral for any bona fide loan, provided that
the lender agrees in writing to be bound by the restrictions set forth herein;
(viii) with respect to sales of securities acquired after the Closing Time in
the open market; and (ix) pursuant to the IPO Registration Statement (as defined
in the Registration Rights Agreement). For this agreement, "immediate family"
shall mean any relationship by blood, marriage or adoption, not more remote than
first cousin. This Agreement shall not apply to the undersigned with respect to
transactions by the Partnership governed by Section 4(q) of the Agreement.
For the avoidance of doubt, nothing shall prevent the undersigned from, or
restrict the ability of the undersigned to, (i) purchase Units on the open
market or (ii) exercise any options or other convertible securities granted
under any benefit plan of the Partnership.
4. The undersigned acknowledges that FBR is relying on the agreements of
the undersigned set forth herein in making its decision to enter into the
Agreement and to continue its efforts in connection with the Offering.
5. This Lock-Up Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
6. This Lock-Up Agreement may be executed in one or more counterparts and
delivered by facsimile, each of which shall be deemed to be an original but all
of which shall constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned has executed this Lock-Up Agreement, or
caused this Lock-Up Agreement to be executed, as of the date first written
above.
Very truly yours,
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
----------------------------------------
----------------------------------------
(Address)
SCHEDULE 1
LEGACY RESERVES OPERATING GP LLC
LEGACY RESERVES OPERATING LP
LEGACY RESERVES SERVICES, INC.
SCHEDULE II
EXISTING UNITHOLDERS
Moriah Properties, Ltd.
DAB Resources, Ltd.
H2K Holdings, Ltd.
Brothers Production Properties Ltd.
Brothers Production Company, Inc.
Brothers Operating Company, Inc.
J&W McGraw Properties, Ltd.
MBN Properties LP
Xxxx Xxxxxx
Xxxxxxx Xxxxxxxxxxxx
