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Exhibit 10.4
LEGACY RESERVES LP
PURCHASE/PLACEMENT AGREEMENT
March 6, 2006
Friedman, Billings, Ramsey & Co., Inc.
600 Travis Street
Suite 6070
Houston, Texas 77002
Ladies and Gentlemen:
Legacy Reserves LP, a Delaware limited partnership (the
"PARTNERSHIP"),
proposes to issue and sell to you, Friedman, Billings, Ramsey &
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
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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 Andrews Kurth 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 Andrews Kurth 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, LaRoche 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
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<PAGE>
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 wells,
gas wells, water wells, injection wells, 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
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<PAGE>
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
<PAGE>
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 Lehman 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.
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(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
