Exhibit 1.1
Constellation Energy Partners
LLC
4,500,000 Common Units
Representing Class B Limited Liability Company
Interests
Underwriting Agreement
New York, New York
November 14, 2006
Citigroup Global Markets
Inc.
Lehman Brothers Inc.
As Representatives of the several
Underwriters,
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Constellation Energy Partners LLC, a
limited liability company organized under the laws of Delaware (the
“ Company ”), proposes to sell to the several
underwriters named in Schedule I hereto (the “
Underwriters ”), for whom you (the “
Representatives ”) are acting as representatives,
4,500,000 common units each representing a Class B limited
liability company interest (“ Common Units ”) of
the Company as set forth in Schedule I hereto (said Common
Units to be issued and sold by the Company being hereinafter called
the “ Underwritten Units ”). The Company also
proposes to grant to the Underwriters an option to purchase up to
675,000 additional Common Units to cover over-allotments (the
“ Option Units ”; the Option Units, together
with the Underwritten Units, being hereinafter called the “
Units ”).
To the extent there are no
additional Underwriters listed on Schedule I other than you,
the term Representatives as used herein shall mean you, as
Underwriters, and the terms Representatives and Underwriters shall
mean either the singular or plural as the context requires. Certain
terms used herein are defined in Section 19 hereof.
As of the date hereof:
(a) Constellation Energy Group,
Inc., a Maryland corporation (“ Constellation
”), is the indirect sole shareholder of Constellation
Holdings, Inc., a Maryland corporation (“ CHI ”)
and the indirect sole member of CEP Equity II, LLC, a Delaware
limited liability company (“ CEP Equity ”). CHI
is the indirect sole shareholder of Constellation Energy
Commodities Group, Inc., a Delaware corporation (“ CCG
”). CCG is the sole member of Constellation Energy Partners
Holdings, LLC, a Delaware limited liability company (“
CEPH ”). CEPH is the sole member of Constellation
Energy Partners Management, LLC, a Delaware limited liability
company (“ CEPM ”).
(b) The Company is the sole member
of Robinson’s Bend Marketing II, LLC, a Delaware limited
liability company (“ RB Marketing ”),
Robinson’s Bend Operating II, LLC, a Delaware limited
liability company (“ RB Operating ”) and
Robinson’s Bend Production II, LLC, a Delaware limited
liability company (“ RB Production ” and
together with RB Marketing and RB Operating, the “
Operating Subsidiaries ”).
(c) The Company and the Operating
Subsidiaries have entered into the Credit Agreement (the “
Credit Agreement ”) dated October 31, 2006 by and
among the Company and the Royal Bank of Scotland plc, as
Administrative Agent, RBS Securities Corporation, as Lead Arranger
and Sole Book Runner, BNP Paribas, and Wachovia Bank N.A. as
Co-Syndication Agents, and the lenders party thereto, which
provides for a reserve-based credit facility with an initial
borrowing base of $75.0 million (the “ Reserve-Based
Credit Facility ”).
Immediately prior to or on the
Closing Date (as defined in Section 3 hereof), the following
transactions will occur:
(a) The limited liability company
interests held in the Company by CEPH will be converted into
226,406 Class A units each representing a Class A limited
liability company interest (“ Class A Units ”)
of the Company, 6,593,894 Common Units (“ Sponsor Common
Units ”) and the management incentive interests (as
defined in the Company LLC Agreement (as defined herein)) (“
Management Incentive Interests ”).
(b) CHI, CEPH, CEPM, the Company and
CEP Equity will enter into various bills of sale, assignments,
conveyances and related documents (collectively, the “
Contribution Documents ”) pursuant to which the
following transactions will occur immediately prior to or on the
Closing Date:
(1) Upon such conversion as
described in clause (a) above, CEPH will contribute the
Class A Units and the Management Incentive Interests to
CEPM.
(2) CHI will contribute to the
Company $8.0 million (“ Class D Contribution ”)
in exchange for all of the Class D interests (“ Class D
Interests ”) of the Company.
(3) The Company will sell to CEP
Equity an undivided mineral interest in certain properties of the
Company described in the Prospectus as the “ Floyd Shale
Rights .”
(c) The Company will borrow $30.0
million under its Reserve-Based Credit Facility (“ Debt
Proceeds ”).
(d) The public, through the
Underwriters, will contribute $94.5 million (the “
Offering Proceeds ”) to the Company in exchange for
4,500,000 Common Units representing a 40% limited liability company
interest in the Company.
(e) The Company will use the
Offering Proceeds, the Debt Proceeds and the Class D Contribution
to (i) pay the underwriting discounts and commissions and
the
2
structuring fee related to the
offering of the Units, (ii) pay approximately $3.2 million
(excluding the underwriting discounts and commissions and the
structuring fee) in offering expenses incurred by the Company,
(iii) distribute $111.0 million to CEPH as reimbursement for
capital expenditures incurred by CCG, (iv) repay $8.0 million
of indebtedness outstanding under the Reserve-Based Credit Facility
and (v) provide $3.9 million of working capital.
(f) CEPH and CHI will enter into the
Second Amended and Restated Operating Agreement of the Company (the
“ Company LLC Agreement ”).
(g) The Company, CCG and the
Operating Subsidiaries will enter into the Omnibus Agreement (the
“ Omnibus Agreement ”).
(h) The Company and CEPM will enter
into the Management Services Agreement (the “ Management
Agreement ”).
(i) The Company and Constellation
will enter into the Trademark License Agreement (the “
License Agreement ”).
(j) If the Underwriters exercise
their option to purchase any Option Units within 30 days after the
date of this Agreement as provided for in Section 2, the
Company will sell the Option Units to the Underwriters at the price
set forth in Section 2.
The Company and the Operating
Subsidiaries are hereinafter referred to as the “
Constellation Parties .” CHI, CCG, CEPH, CEPM, CEP
Equity and the Constellation Parties are sometimes referred to
herein collectively as the “ Constellation Entities
.” Constellation and the Constellation Entities are referred
to herein collectively as the “ Constellation Group
.”
1. Representations and
Warranties. The Constellation Parties and CCG, jointly and
severally, represent and warrant to, and agree with, each
Underwriter as set forth below in this Section 1.
(a) The Company has prepared and
filed with the Commission a registration statement on Form S-1
(File No. 333-134995), including a related preliminary
prospectus, for registration under the Act of the offering and sale
of the Units. Such Registration Statement, including any amendments
thereto filed prior to the Execution Time, has become effective.
The Company may have filed one or more amendments thereto,
including a related preliminary prospectus, each of which has
previously been furnished to you. The Company will file with the
Commission a final prospectus in accordance with Rule 424(b). As
filed, such final prospectus shall contain all information required
by the Act and the rules thereunder and, except to the extent the
Representatives shall agree in writing to a modification, shall be
in all substantive respects in the form furnished to you prior to
the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary
Prospectus) as the Company has advised you, prior to the Execution
Time, will be included or made therein.
3
(b) On the Effective Date, the
Registration Statement and the Preliminary Prospectus included
therein as of the Effective Date did, and when the Prospectus is
first filed (if required) in accordance with Rule 424(b) and
on the Closing Date (as defined herein) and on any date on which
Option Units are purchased, if such date is not the Closing Date (a
“ settlement date ”), the Prospectus (and any
supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the rules thereunder; on the
Effective Date and at the Execution Time, the Registration
Statement did not and will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein
not misleading; and on the date of any filing pursuant to
Rule 424(b) and on the Closing Date and any settlement date,
the Prospectus (together with any supplement thereto) will not
include 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 were made, not
misleading; provided , however , that the Company
makes no representations or warranties as to the information
contained in or omitted from the Registration Statement, the
Preliminary Prospectus included in the Registration Statement on
the Effective Date or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion in the Registration
Statement, the Preliminary Prospectus included in the Registration
Statement on the Effective Date or the Prospectus (or any
supplement thereto), it being understood and agreed that the only
such information furnished by any Underwriter consists of the
information described as such in Section 8 hereof. Each of the
statements made by the Company in such documents within the
coverage of Rule 175(b), including (but not limited to) any
projections or statements with respect to future available cash or
future cash distributions of the Company or the anticipated ratio
of taxable income to distributions and any statements made in
support thereof or related thereto under the headings “How We
Make Cash Distributions” and “Cash Distribution Policy
and Restrictions on Distributions,” was made or will be made
with a reasonable basis and in good faith.
(c) (i) The Disclosure Package
and the price to the public, the number of Underwritten Units and
the number of Option Units to be included on the cover page of the
Prospectus, when taken together as a whole, and (ii) each
electronic road show when taken together as a whole with the
Disclosure Package, and the price to the public, the number of
Underwritten Units and the number of Option Units to be included on
the cover page of the Prospectus, do not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
preceding sentence does not apply to statements in or omissions
from the Disclosure Package based upon and in conformity with
written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being
understood and agreed that the only such information furnished by
or on behalf of any Underwriter consists of the information
described as such in Section 8 hereof.
(d) (i) At the time of filing
the Registration Statement and (ii) as of the Execution Time
(with such date being used as the determination date for purposes
of this
4
clause (ii)), the Company was not
and is not an Ineligible Issuer (as defined in Rule 405), without
taking account of any determination by the Commission pursuant to
Rule 405 that it is not necessary that the Company be considered an
Ineligible Issuer.
(e) Each Issuer Free Writing
Prospectus complies or will comply in all material respects with
the applicable requirements of the Act and the rules thereunder on
the date of first use, and the Company has complied with all
prospectus delivery and any filing requirements applicable to such
Issuer Free Writing Prospectus pursuant to the Act and the rules
thereunder. The Company has not made any offer relating to the
Units that would constitute an Issuer Free Writing Prospectus
without the prior written consent of the Representatives; provided
that the prior written consent of the parties hereto shall be
deemed to have been given in respect of the Free Writing
Prospectuses included in Schedule II hereto and any electronic
road show. The Company has retained in accordance with the Act and
the rules thereunder all Issuer Free Writing Prospectuses that were
not required to be filed pursuant to the Act and the rules
thereunder.
(f) Each Issuer Free Writing
Prospectus does not include any information that conflicts with the
information contained in the Registration Statement. The foregoing
sentence does not apply to statements in or omissions from any
Issuer Free Writing Prospectus based upon and in conformity with
written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being
understood and agreed that the only such information furnished by
any Underwriter consists of the information described as such in
Section 8 hereof.
(g) Each of CCG, CEPH, CEPM, CEP
Equity and the Constellation Parties has been duly formed or
incorporated, as the case may be, and is validly existing in good
standing as a limited liability company or corporation, as the case
may be, under the laws of the State of Delaware with full limited
liability company or corporate, as the case may be, power and
authority to own, lease and operate its properties and to conduct
its business as described in the Disclosure Package and the
Prospectus and to enter into and perform its obligations under this
Agreement and the Operative Agreements, as the case may be, and is
duly registered or qualified to do business as a foreign limited
liability company or corporation, as the case may be, and is in
good standing under the laws of each jurisdiction which requires
such registration or qualification, all of such jurisdictions being
listed on Schedule II hereto, except where failure to so
register or qualify could not reasonably be expected to
(i) have a material adverse effect on the condition (financial
or otherwise), earnings, business, properties, operations or
prospects, of the Constellation Parties, taken as a whole, whether
or not arising from transactions in the ordinary course of business
(“ Material Adverse Effect ”) or
(ii) subject the members of the Company to any material
liability or disability.
(h) Each of Constellation and CHI
has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the State of Maryland with full
corporate power and authority to own, lease and operate its
properties and to conduct its business in which it is engaged and
to enter into and perform its obligations under this Agreement and
the Operative Agreements, as the case may be, and is duly
registered or qualified to do business as a foreign corporation and
is in good standing under the laws of
5
each jurisdiction which requires
such registration or qualification, all of such jurisdictions being
listed on Schedule II hereto, except where failure to so register
or qualify could not reasonably be expected to (i) have a
Material Adverse Effect or (ii) subject the members of the
Company to any material liability or disability.
(i) At the Closing Date, other than
the Units, the Company will have no limited liability company
interests issued and outstanding other than the
following:
(1) the Class D Interests held by
CHI;
(2) the Sponsor Common Units held by
CEPH; and
(3) the Class A Units and the
Management Incentive Interests held by CEPM.
All of such Class D Interests,
Sponsor Common Units, Class A Units and Management Incentive
Interests will be duly authorized and validly issued in accordance
with the Company LLC Agreement and will be fully paid (to the
extent required in the Company LLC Agreement) and nonassessable
(except as such nonassessability may be affected by Sections 18-607
and 18-804 of the Delaware Limited Liability Company Act (the
“ Delaware LLC Act ”)); and CHI, CEPH and CEPM
will own such Class D Interests, Sponsor Common Units, Class A
Units and Management Incentive Interests, in each case, free and
clear of any perfected security interest or any other security
interests, claims, liens or encumbrances (except restrictions on
transferability as contained in the Company LLC Agreement); and the
Class D Interests, Sponsor Common Units, Class A Units and
Management Incentive Interests when issued and delivered will
conform in all material respects to the descriptions thereof
contained in the Disclosure Package and the Prospectus.
(j) The Units to be issued and sold
by the Company to the Underwriters pursuant to this Agreement will
be duly authorized in accordance with the Company LLC Agreement
and, when issued and delivered to and paid for by the Underwriters
in accordance with this Agreement and the Company LLC Agreement,
will be validly issued in accordance with the Company LLC
Agreement, fully paid (to the extent required in the Company LLC
Agreement) and nonassessable (except as such nonassessability may
be affected by Sections 18-607 and 18-804 of the Delaware LLC Act);
the Units when issued and delivered against payment therefor in
accordance with this Agreement and the Company LLC Agreement will
conform in all material respects to the descriptions thereof
contained in the Disclosure Package and the Prospectus.
(k) The Company owns directly 100%
of the limited liability company interests in each of the Operating
Subsidiaries; such limited liability company interests have been
duly authorized and validly issued in accordance with the
respective limited liability company agreements of each of the
Operating Subsidiaries, as the case may be, (as to each individual
Operating Subsidiary, the “ Operating Subsidiary LLC
Agreement ”) and are fully paid (to the extent required
in the applicable Operating Subsidiary LLC Agreement) and
nonassessable (except as such nonassessability may be affected
by
6
Sections 18-607 and 18-804 of the
Delaware LLC Act); and the Company directly owns such limited
liability company interests free and clear of any perfected
security interest or any other security interests, claims, liens or
encumbrances, other than those permitted or arising under the
Credit Agreement and restrictions on transferability contained in
any of the Operating Subsidiaries LLC Agreements.
(l) Other than the Company’s
ownership of 100% of the limited liability company interests in
each of the Operating Subsidiaries, none of the Company or any of
the Operating Subsidiaries owns or will own directly or indirectly
any equity or long-term debt securities of any corporation,
partnership, limited liability company, joint venture, association
or other entity.
(m) Constellation directly or
indirectly owns 100% of the outstanding capital stock or limited
liability company interests, as the case may be, of each of CHI,
CCG, CEPM, CEPH and CEP Equity; all such stock or limited liability
company interests have been duly authorized and validly issued in
accordance with the certificate of incorporation and bylaws or
certificate of formation and the limited liability company
agreement of each of CHI, CCG, CEPM, CEPH and CEP Equity, as the
case may be (as to each of CHI, CCG, CEPM, CEPH and CEP Equity, the
“ Constellation Subsidiary Operative Document ”)
and are fully paid (to the extent required in the applicable
Constellation Subsidiary Operative Document) and nonassessable
(except as such nonassessability may be affected by Sections 18-607
and 18-804 of the Delaware LLC Act); and Constellation directly or
indirectly owns all such stock or limited liability company
interests, as the case may be, free and clear of any perfected
security interest or any other security interests, claims, liens or
encumbrances.
(n) The Company’s authorized
equity capitalization is as set forth in the Disclosure Package and
the Prospectus.
(o) (i) Except as described in
the Disclosure Package and the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of any equity securities of
the Company or any Operating Subsidiary; (ii) except as
described in the Disclosure Package and the Prospectus, no options,
warrants or other rights to purchase, agreements or other
obligations to issue, or rights to convert any obligations into or
exchange any securities for limited liability company interests of
or ownership interests in the Company or any Operating Subsidiary
are outstanding; and (iii) neither the filing of the
Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any rights for or
relating to the registration of any Units or other securities of
the Company or any Operating Subsidiary.
(p) The sale and issuance of the
Sponsor Common Units to CEPH, the Class D Interests to CHI and the
Class A Units and the Management Incentive Interests to CEPM
pursuant to the Operative Agreements, as applicable, are exempt
from the registration requirements of the Act and the securities
laws of any state having jurisdiction with respect thereto, and
none of the Constellation Parties has taken or will take any action
that would cause the loss of such exemption.
7
(q) The Company has all requisite
limited liability company power and authority to issue, sell and
deliver (i) the Units, in accordance with and upon the terms
and conditions set forth in this Agreement and the Company LLC
Agreement, and (ii) the Class D Interests, Sponsor Common
Units, Class A Units and Management Incentive Interests, in
accordance with and upon the terms and conditions set forth in the
Company LLC Agreement and the Contribution Documents. All corporate
and limited liability company action, as the case may be, required
to be taken by the Constellation Entities or any of their
stockholders or members for (i) the authorization, issuance
and sale of the Units, Class D Interests, Sponsor Common Units,
Class A Units and Management Incentive Interests, and the
delivery of the same if certificated, (ii) the execution and
delivery by the Constellation Entities of the Operative Agreements
(as defined in Section 1(s) hereof) and (iii) the
consummation of the transactions contemplated by this Agreement and
the Operative Agreements, shall have been validly taken.
(r) This Agreement has been duly
authorized and validly executed and delivered by the Constellation
Parties and CCG.
(s) On or before the Closing
Date:
(1) the Company LLC Agreement will
have been duly authorized, executed and delivered by CEPH and CHI
and will be a valid and legally binding agreement of each of them,
enforceable against each of them in accordance with its
terms;
(2) each of the Operating
Subsidiaries LLC Agreements will have been duly authorized,
executed and delivered by the Company and any other necessary
parties, as applicable, and will be a valid and legally binding
agreement of the respective parties, enforceable against the
respective parties in accordance with its terms;
(3) the Omnibus Agreement will have
been duly authorized, executed and delivered by each of CCG, the
Company and the Operating Subsidiaries, and will be a valid and
legally binding agreement of each of them, enforceable against each
of them in accordance with its terms;
(4) the Credit Agreement will have
been duly authorized, executed and delivered by the Company and
will be a valid and legally binding agreement of it, enforceable
against it, in accordance with its terms;
(5) each of the Contribution
Documents will have been duly authorized, executed and delivered by
the Constellation Entities party thereto and will be a valid and
legally binding agreement of such parties thereto, enforceable
against such parties thereto in accordance with its terms;
and
(6) the Management Agreement will
have been duly authorized, executed and delivered by the Company
and CEPM and will be a valid and legally binding agreement of such
parties thereto, enforceable against such parties thereto in
accordance with its terms;
8
(7) the License Agreement will have
been duly authorized, executed and delivered by the Company and
Constellation and will be a valid and legally binding agreement of
such parties thereto, enforceable against such parties thereto in
accordance with its terms;
provided that, with respect to each
agreement described in this Section 1(s) the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws relating to
or affecting creditors’ rights generally and by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); provided further;
that the indemnity, contribution and exoneration provisions
contained in any of such agreements may be limited by applicable
laws and public policy.
The Company LLC Agreement, the
Operating Subsidiaries LLC Agreements, the Omnibus Agreement, the
Credit Agreement, the Management Agreement, the License Agreement
and the Contribution Documents, as they may be amended or restated
at or prior to the Closing Date, are herein collectively referred
to as the “ Operative Agreements .”
(t) The Units have been approved for
listing on the New York Stock Exchange Arca (the “ NYSE
Arca ”), subject to official notice of
issuance.
(u) Except as otherwise disclosed in
the Disclosure Package and the Prospectus, subsequent to the
respective dates as of which information is given in the Disclosure
Package and the Prospectus, (i) there has been no material
loss or interference with the business or properties of the
Constellation Parties from fire, explosion, flood or other accident
or calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order, investigation or
decree; (ii) there has been no adverse change, or any
development, individually or in the aggregate, that could
reasonably be expected to result in a material adverse change, in
the general affairs, condition (financial or otherwise),
management, earnings, business, properties, operations or
prospects, whether or not arising from transactions in the ordinary
course of business, of the Constellation Parties, taken as a whole;
(iii) none of the Constellation Parties has incurred any
material liability or obligation, direct, indirect or contingent,
or entered into any material transaction or agreement; and
(iv) there has been no material change in the consolidated
capitalization of the Constellation Parties, taken as a
whole.
(v) There is no franchise, contract
or other document of a character required to be described in the
Registration Statement or the Prospectus, or to be filed as an
exhibit to the Registration Statement, which is not described or
filed as required by the Act (and the Preliminary Prospectus
included in the Registration Statement at the Effective Date
contains in all material respects the same description of the
foregoing matters contained in the Prospectus); and the statements
in the Preliminary Prospectus included in the Registration
Statement at the Effective Date and the Prospectus under the
headings “Summary—The Offering,” “How We
Make Cash Distributions,” “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Capital Resources and
Liquidity—Reserve-Based Credit Facility,”
9
“Business—Natural Gas
Data—Torch Royalty NPI”,
“Business—Environmental Matters and Regulation,”
“Business—Legal Proceedings,” “Certain
Relationships and Related Party Transactions,”
“Conflicts of Interest and Fiduciary Duties,”
“Description of the Common Units,” “The Limited
Liability Company Agreement,” “Investment in Our
Company by Employee Benefit Plans,” “Material Tax
Consequences” and “Underwriting” insofar as such
statements summarize the law, agreements, documents or proceedings
discussed therein, are accurate and fair summaries in all material
respects of such law, agreements, documents or proceedings, except
that no representation or warranty is given herein as to the
information described in Section 8 hereof specifically
identified as information furnished by any Underwriter.
(w) None of the Constellation
Parties is or, after giving effect to the offering and sale of the
Units and the application of the proceeds thereof as described in
the Disclosure Package and the Prospectus, will be an
“investment company” as defined in the Investment
Company Act of 1940, as amended.
(x) Except such as have been
obtained or made by the Company under the Act, the Exchange Act and
applicable state securities laws, no consent, approval,
authorization, filing with or order of any court or governmental
agency or body is required by any member of the Constellation Group
for the execution, delivery and performance by any Constellation
Group member of this Agreement or the Operative Agreements to which
such member of the Constellation Group is a party or for the
consummation of the transactions contemplated herein and in the
Disclosure Package and the Prospectus.
(y) None of the offering, issuance
or sale of the Units, the application of the proceeds therefrom as
described under the caption “Use of Proceeds” in the
Disclosure Package and the Prospectus, the execution, delivery or
performance of this Agreement or the Operative Agreements by any
member of the Constellation Group that is a party thereto or the
consummation by any member of the Constellation Group of any of the
transactions contemplated herein or therein, conflict or will
conflict with, or result or will result in, a breach or violation
of or a default under (or an event which, with notice or lapse of
time or both would constitute such an event), or imposition of any
lien, charge or encumbrance upon any property or assets of any
member of the Constellation Group (other than the liens, charges
and encumbrances to be imposed or permitted under the Credit
Agreement as described in the Disclosure Package and the
Prospectus) pursuant to, (i) the certificate of formation,
limited liability company agreement, certificate of incorporation
and bylaws or other organizational documents of any member of the
Constellation Group, (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or
instrument to which any member of the Constellation Group is a
party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or
decree applicable to any member of the Constellation Group of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over any member
of the Constellation Group or any of its properties.
10
(z) The historical financial
statements (including the related notes and supporting schedules)
included in the Disclosure Package, the Prospectus and the
Registration Statement present fairly in all material respects the
financial condition, results of operations and cash flows of the
entities purported to be shown thereby on the basis stated therein
as of the dates and for the periods indicated, comply as to form in
all material respects with the applicable accounting requirements
of the Act and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted
therein). The financial data set forth under the captions
“Summary—Summary Historical and Pro Forma Consolidated
Financial Data,” “Summary—Non-GAAP Financial
Measure—Adjusted EBITDA,” “Capitalization”
and “Selected Historical and Pro Forma Consolidated Financial
Data” in the Disclosure Package, the Prospectus and
Registration Statement fairly present in all material respects, on
the basis stated in the Disclosure Package, the Prospectus and the
Registration Statement, the information included therein. The pro
forma financial statements included in the Disclosure Package, the
Prospectus and the Registration Statement include assumptions that
provide a reasonable basis for presenting in all material respects
the significant effects directly attributable to the transactions
and events described therein, the related pro forma adjustments
give appropriate effect in all material respects to those
assumptions, and the pro forma adjustments reflect in all material
respects the proper application of those adjustments to the
historical financial statement amounts in the pro forma financial
statements included in the Disclosure Package, the Prospectus and
the Registration Statement. The pro forma financial statements
included in the Disclosure Package, the Prospectus and the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of Regulation S-X under
the Act and the pro forma adjustments have been properly applied to
the historical amounts in the compilation of those statements. No
other financial statements or supporting schedules are required to
be included in the Registration Statement. As of September 30,
2006, the Company would have had on the consolidated pro forma
basis indicated in the Disclosure Package and the Prospectus, a
consolidated pro forma capitalization in all material respects as
set forth therein.
(aa) Except as set forth in or
contemplated in the Disclosure Package and the Prospectus, no
action, suit, proceeding, inquiry or investigation by or before any
court or governmental or other regulatory or administrative agency,
authority or body or any arbitrator involving any of the
Constellation Parties or its or their property is pending or, to
the knowledge of the Constellation Parties, threatened or
contemplated that (i) could reasonably be expected to have a
material adverse effect on the performance by any member of the
Constellation Group of this Agreement or any of the Operative
Agreements or the consummation by any member of the Constellation
Group of any of the transactions contemplated herein or therein;
(ii) could reasonably be expected to have a Material Adverse
Effect; or (iii) that are required to be described in the
Preliminary Prospectus or the Prospectus but are not described as
required.
(bb) Netherland, Sewell &
Associates, Inc. are independent petroleum engineers with respect
to the Constellation Parties.
11
(cc) Except as described in the
Disclosure Package and the Prospectus, the oil and gas reserve
estimates of the Constellation Parties contained in the
Registration Statement, the Disclosure Package and the Prospectus
that have been prepared by the Company have been so prepared in all
material respects in accordance with the Commission guidelines
applied on a consistent basis throughout the periods involved and
none of the Constellation Parties has any reason to believe that
such reserve estimates do not fairly reflect the oil and gas
reserves of the Constellation Parties as the dates indicated in the
Registration Statement, the Disclosure Package and the
Prospectus.
(dd) The Constellation Parties have
good and indefeasible title to the interests in the oil and gas
properties underlying the Company’s estimates of its net
proved reserves contained in the Registration Statement, the
Disclosure Package and the Prospectus and to all other real and
personal property reflected in the Registration Statement, the
Disclosure Package and the Prospectus as assets owned by them, in
each case free and clear of all liens, encumbrances and defects
except as such are described in the Registration Statement, the
Disclosure Package and the Prospectus or are permitted or arise
under the Credit Agreement; and any other real property and
buildings held under lease by the Constellation Parties are held by
them under valid, subsisting and enforceable leases with such
exceptions as could not reasonably be expected to have a Material
Adverse Effect; the working interests derived from oil, gas and
mineral leases or mineral interests which constitute a portion of
the real property held or leased by the Constellation Parties
reflect in all material respects the right of the Constellation
Parties to explore, develop or produce hydrocarbons from such real
property as described in the Disclosure Package and the Prospectus,
and the care taken by the Constellation Parties with respect to
acquiring or otherwise procuring such leases or mineral interests
was generally consistent with standard industry practices in the
areas in which the Constellation Parties operate for acquiring or
procuring leases and interests therein to explore, develop or
produce hydrocarbons.
(ee) No member of the Constellation
Group is in violation, breach or default (or, with the giving of
notice or lapse of time, would be in violation, breach or default)
of (i) any provision of its certificate of formation, limited
liability company agreement or other organizational documents,
(ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which it is a
party or bound or to which its property is subject (not including
the agreements described in clause (iv) below and, with
respect to the Execution Time only, not including the Credit
Agreement), (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, governmental, regulatory or
administrative authority, agency or body, arbitrator or other
authority having jurisdiction over such Constellation Group member
or any of its properties, as applicable, or (iv) the Oil and
Gas Purchase Agreement dated October 1, 1993 by and between
Torch Energy Marketing, Inc., Torch Royalty Company and Velasco Gas
Co. Ltd. (the “ Oil and Gas Purchase Agreement
”) or the Net Overriding Royalty Conveyance dated
November 22, 1993 but effective as of October 1, 1993,
from, pursuant to Part I thereof, Velasco Gas Company, L.P. and
Torch Energy Advisors Incorporated and, pursuant to Part II
thereof, from Torch Energy Advisors Incorporated to the Trust (the
“ Net Overriding Royalty Conveyance ”). To the
knowledge of the Constellation Parties, (i) no third party
to any
12
indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which any
Constellation Group member is a party or by which any of them is
bound or to which any of their properties is subject,
including the Oil and Gas Purchase Agreement or the Net
Overriding Royalty Conveyance, is in default under any such
agreement, which default would, if continued, have a Material
Adverse Effect; and (ii) no party to any such agreement
referred to in clause (i) of this sentence has asserted that
any member of the Constellation Group is in default under any such
agreement.
(ff) Except as set forth in the
Disclosure Package and the Prospectus, to the knowledge of the
Constellation Parties, no action has been taken or threatened by
the trustee of Torch Energy Royalty Trust (the “ Trust
”) or any holder of Trust units or any other person to
terminate the Trust.
(gg) PricewaterhouseCoopers LLP, who
has certified certain financial statements (including the related
notes and supporting schedules) filed with the Commission as part
of the Registration Statement and included in the Disclosure
Package and the Prospectus and delivered their reports related
thereto, is an independent registered public accounting firm with
respect to the Company within the meaning of the Act and the
applicable published rules and regulations thereunder and was
during the periods covered by the financial statements on which
they reported.
(hh) There are no transfer taxes or
other similar fees or charges under federal law or the laws of any
state, or any political subdivision thereof, required to be paid in
connection with the execution and delivery by the Constellation
Parties of this Agreement or the issuance or sale by the Company of
the Units.
(ii) Each of the Constellation
Parties has filed in a timely manner all federal, state and local
tax returns that are required to be filed or has requested
extensions thereof, which such returns and extensions are correct
and complete in all material respects, and has paid in a timely
manner all taxes required to be paid by any of them and any other
assessment, fine or penalty levied against any of them, to the
extent that any of the foregoing is due and payable, except for
(i) any such tax, assessment, fine or penalty that is
currently being contested in good faith and for which adequate
reserves have been established in accordance with generally
accepted accounting principles or (ii) where the failure to
pay would not have a Material Adverse Effect.
(jj) No labor problem or dispute
with the employees of any of the Constellation Parties or CEPM
exists or is threatened or imminent, and the Constellation Parties
are not aware of any existing or threatened or imminent labor
disturbance by the employees of any of the Constellation
Parties’ principal suppliers, contractors or customers, that
could have a Material Adverse Effect.
(kk) The Constellation Parties
maintain insurance covering their respective properties,
operations, personnel and businesses as each of the
Constellation Parties reasonably deems adequate; such
insurance insures against such losses and risks to an extent that
is adequate in accordance with customary industry practice to
protect the Constellation Parties and their respective businesses;
all such insurance is fully in force;
13
none of the Constellation
Parties has reason to believe that it will not be able to
renew any such insurance as and when such insurance
expires.
(ll) No Operating Subsidiary is
currently prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on
such Operating Subsidiary’s limited liability company
interests, from repaying to the Company any loans or advances to
such Operating Subsidiary from the Company or from transferring any
of such Operating Subsidiary’s property or assets to the
Company or any other Operating Subsidiary, except as described in
or contemplated by the Disclosure Package and the
Prospectus.
(mm) Each of the Constellation
Parties possesses all such valid and current licenses,
certificates, permits and other authorizations issued by the
appropriate foreign, federal, state or local regulatory authorities
as are necessary to own or lease their respective properties and to
conduct their respective businesses, and none of the Constellation
Parties has received any notice of proceedings relating to the
revocation or modification of, or noncompliance with, any such
license, certificate, permit or authorization which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(nn) The Constellation Parties
maintain a system of internal 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. The
Constellation Parties’ internal controls over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) are
effective and the Constellation Parties are not aware of any
significant deficiencies or material weakness in the internal
controls over financial reporting of the Constellation Parties or
any fraud, whether or not material, that involves management or
other employees who have significant roles in the internal controls
over financial reporting of the Constellation Parties.
(oo) The Constellation Parties
maintain “disclosure controls and procedures” (as is
defined in Rule 13a-15(e) under the Exchange Act); and such
disclosure controls and procedures are effective.
(pp) No member of the Constellation
Group has taken or will take, directly or indirectly, any action
designed to or that would constitute or that might reasonably be
expected to cause or result in, under the Exchange Act or
otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Units.
(qq) Except as otherwise disclosed
in the Disclosure Package and the Prospectus, (i) none of the
Constellation Parties is in violation of any federal, state
or
14
local law, regulation, order, permit
or other requirement relating to pollution or protection of human
health or the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases
of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products
(collectively, “ Materials of Environmental Concern
”), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environment Concern (collectively, “
Environmental Laws ”), which violation includes, but
is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the
business of any of the Constellation Parties under applicable
Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has any of the Constellation Parties received any
written communication, whether from a governmental authority,
citizens group, employee or otherwise, that alleges that any of the
Constellation Parties is in violation of any Environmental Law,
except as would not, individually or in the aggregate, have a
Material Adverse Effect; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no
investigation with respect to which the Company has received
written notice, and no written notice by any person or entity
alleging potential liability for investigatory costs, cleanup
costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys’ fees or
penalties arising out of, based on or resulting from the presence,
or release into the environment, of any Material of Environmental
Concern at any location owned, leased or operated by any of the
Constellation Parties, now or in the past (collectively, “
Environmental Claims ”), pending or, to the knowledge
of the Constellation Parties, threatened against any of the
Constellation Parties or any person or entity whose liability for
any Environmental Claim any of the Constellation Parties has
retained or assumed either contractually or by operation of law,
except as would not, individually or in the aggregate, have a
Material Adverse Effect; (iii) to the knowledge of the
Constellation Parties, there are no past, present or anticipated
future actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental
Concern, that reasonably could result in a violation of any
Environmental Law, require expenditures to be incurred pursuant to
Environmental Law, or form the basis of a potential Environmental
Claim against the Company or any of the Operating Subsidiaries or
against any person or entity whose liability for any Environmental
Claim the Company or any of the Operating Subsidiaries has retained
or assumed either contractually or by operation of law, except as
would not, individually or in the aggregate, have a Material
Adverse Effect; and (iv) none of the Constellation Parties is
subject to any pending or threatened proceeding under Environmental
Law to which a governmental authority is a party and which has the
potential to result in monetary sanctions of $100,000 or
more.
(rr) None of the Constellation
Parties has established or maintained any “pension
plan” (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder (“
ERISA ”)). Each of the Constellation Parties has
fulfilled its obligations, if any, under Section 515 of ERISA.
None of the Constellation Parties maintains or is required to
contribute to a “welfare plan” (as defined in
Section 3(1) of ERISA) which provides
15
retiree or other post-employment
welfare benefits or insurance coverage (other than
“continuation coverage” (as defined in Section 602
of ERISA)). None of the Constellation Parties has incurred any
withdrawal liability under Section 4201 of ERISA, any
liability under Section 4062, 4063, or 4064 of ERISA, or any
other liability under Title IV of ERISA.
(ss) Any statistical and
market-related data included in the Disclosure Package and the
Prospectus are based on or derived from sources the Constellation
Parties believe to be reliable and accurate, and the Constellation
Parties have obtained the written consent to the use of such data
from such sources to the extent required.
(tt) There are no relationships or
related party transactions involving the Constellation Group or any
other person required to be described in the Preliminary Prospectus
or the Prospectus that have not been described as
required.
(uu) There are no outstanding loans,
advances (except normal advances for business expenses in the
ordinary course of business) or guarantees or indebtedness by the
Constellation Parties to or for the benefit of any of the officers
or managers of any of the Constellation Parties or any affiliate
thereof, except as disclosed in the Disclosure Package and the
Prospectus.
(vv) There is and has been no
failure on the part of the Company and any of the Company’s
managers or officers, in their capacities as such, to comply with
any applicable provision of the Sarbanes-Oxley Act of 2002 and the
rules and regulations promulgated in connection therewith (the
“ Sarbanes-Oxley Act ”), including
Section 402 related to loans and Sections 302 and 906 related
to certifications, to the extent that the Company or any such
managers or officers is or has been required to comply with such
provision of the Sarbanes-Oxley Act.
(ww) None of the Constellation
Parties or any manager, officer or employee or, to the knowledge of
the Constellation Parties, any agent or other person associated
with or acting on behalf of any of the Constellation Parties is
aware of or has taken any action, directly or indirectly, that
would result in a violation by such persons of the FCPA, including,
without limitation, making use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of
an offer, payment, promise to pay or authorization of the payment
of any money, or other property, gift, promise to give, or
authorization of the giving of anything of value to any
“foreign official” (as such term is defined in the
FCPA) or any foreign political party or official thereof or any
candidate for foreign political office, in contravention of the
FCPA and the Company, the Operating Subsidiaries and, to the
knowledge of the Constellation Parties, their affiliates have
conducted their businesses in compliance with the FCPA and have
instituted and maintain policies and procedures designed to ensure,
and which are reasonably expected to continue to ensure, continued
compliance therewith.
(xx) The operations of the
Constellation Parties are and have been conducted at all times in
compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act
of 1970, as
16
amended, the money laundering
statutes of all applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental
agency (collectively, the “ Money Laundering Laws
”), and no action, suit or proceeding by or before any court
or governmental agency, authority or body or any arbitrator
involving the Constellation Parties with respect to the Money
Laundering Laws is pending or threatened.
(yy) None of the Constellation
Parties nor, to the knowledge of the Constellation Parties, any
manager, officer, agent, employee or affiliate of the Constellation
Parties is currently subject to any U.S. sanctions administered by
the Office of Foreign Assets Control of the U.S. Treasury
Department (“ OFAC ”); and no member of the
Constellation Group will, directly or indirectly, use the proceeds
of the sale of the Units, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or
other person or entity, for the purpose of financing the activities
of any person known by such Constellation Group member to be
currently subject to any U.S. sanctions administered by
OFAC.
(zz) RB Marketing, RB Operating and
RB Production are the only significant subsidiaries of the Company
as defined by Rule 1-02 of Regulation S-X.
(aaa) Except as disclosed in the
Disclosure Package and the Prospectus, none of the Constellation
Parties has any material lending or other relationship with any
bank or lender, in either case known by the Constellation Parties
to be an affiliate of any Underwriter. The Company intends to use
the proceeds from the sale of the Units hereunder as described
under the caption “Use of Proceeds” in the Preliminary
Prospectus included in the Registration Statement at the Effective
Date and the Prospectus.
(bbb) None of the Constellation
Entities has distributed any offering material in connection with
the offering and sale of the Units other than the Preliminary
Prospectus, the Prospectus, any Issuer Free Writing Prospectus
reviewed and consented to by the Representatives in accordance with
Section 5 or included in Schedule III hereto or the
Registration Statement.
(ccc) Except as described in the
Disclosure Package and the Prospectus, there are no contracts,
agreements or understandings between any of the Constellation
Entities and any person that would give rise to a valid claim
against any of the Constellation Entities or any Underwriter for a
brokerage commission, finder’s fee or other like payments in
connection with any transactions contemplated by this
Agreement.
Any certificate signed by any
officer of any of the Constellation Parties and delivered pursuant
to this Agreement to the Representatives or counsel for the
Underwriters in connection with the offering of the Units shall be
deemed a representation and warranty by such Constellation Party,
as the case may be, as to matters covered thereby, to each
Underwriter.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company
agrees to sell to
17
each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a
purchase price of $19.66125 per Common Unit, the number of the
Underwritten Units set forth opposite such Underwriter’s name
in Schedule I hereto.
(b) Subject to the terms and
conditions and in reliance upon the representations and warranties
herein set forth, the Company hereby grants an option to the
several Underwriters to purchase, severally and not jointly, up to
675,000 Option Units at the same purchase price per unit as the
Underwriters shall pay for the Underwritten Units pursuant to
Section 2(a) above. The Underwriters agree to exercise such
option only to cover over-allotments in the sale of the
Underwritten Units by the Underwriters. Said option may be
exercised in whole or in part at any time on or before the 30th day
after the date of the Prospectus upon written or telegraphic notice
by the Representatives to the Company setting forth the number of
Option Units as to which the several Underwriters are exercising
the option and the settlement date. The number of Option Units to
be purchased by each Underwriter shall be the same percentage of
the total number of Option Units to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten
Units, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional units.
3. Delivery and Payment.
Delivery of and payment for the Underwritten Units and the Option
Units (if the option provided for in Section 2(b) hereof shall
have been exercised on or before the third Business Day prior to
the Closing Date) shall be made at 10:00 AM, New York City
time, on November 20, 2006, or at such time on such later date
not more than three Business Days after the foregoing date as the
Representatives shall designate, which date and time may be
postponed by agreement between the Representatives and the Company
or as provided in Section 9 hereof (such date and time of
delivery and payment for the Units being herein called the “
Closing Date ”). Delivery of the Units shall be made
to the Representatives for the respective accounts of the several
Underwriters against payment by the several Underwriters through
the Representatives of the purchase price thereof to or upon the
order of the Company by wire transfer payable in same-day funds to
an account specified by the Company. Delivery of the Underwritten
Units and the Option Units shall be made through the facilities of
The Depository Trust Company (“ DTC ”) unless
the Representatives shall otherwise instruct not later than three
Business Days prior to the Closing Date.
If the option provided for in
Section 2(b) hereof is exercised after the third Business Day
prior to the Closing Date, the Company will deliver through the
facilities of DTC the Option Units (at the expense of the Company)
to the Representatives, at 388 Greenwich Street, New York, New
York, on the date specified by the Representatives (which shall be
wit
