Kimbell Royalty Partners, LP 8-K, filed Aug 2, 2023
Kimbell Royalty Partners, LP (KRP)
About this 8-K
Kimbell Royalty Partners, LP filed this 8-K on August 2, 2023.
Items reported
- Item 1.01: Entered into a material agreement
- Item 3.02: Unregistered sale of equity
- Item 3.03: Change to shareholders' rights
- Item 7.01: Regulation FD disclosure
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
|
|
||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code: (
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to 12(b) of the Act:
| Title of each class: | Trading symbol(s): | Name of each exchange on which registered: | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 1.01. Entry into a Material Definitive Agreement.
Purchase Agreement with LongPoint Minerals II, LLC
On August 2, 2023, Kimbell Royalty Partners, LP, a Delaware limited partnership (“Kimbell”), entered into a securities purchase agreement (the “Purchase Agreement”) with LongPoint Minerals II, LLC, a Colorado limited liability company (“LongPoint”), to acquire all of the issued and outstanding membership interests (the “Acquired Interests”) of Cherry Creek Minerals LLC, a Colorado limited liability company (the “Acquired Company”). The transactions contemplated by the Purchase Agreement are referred to herein as the “Acquisition.”
Pursuant to the terms of the Purchase Agreement, Kimbell has agreed to acquire the Acquired Interests for approximately $455 million in cash (the “Unadjusted Purchase Price”), subject to customary adjustments.
LongPoint made certain representations, warranties and covenants in the Purchase Agreement, including to conduct its business in the ordinary course during the period between the execution of the Purchase Agreement and the closing, subject to certain exceptions. Kimbell made certain customary representations, warranties and covenants in the Purchase Agreement. Kimbell, on the one hand, and LongPoint, on the other hand, have agreed to indemnify each other, their Affiliates (as defined in the Purchase Agreement) and their respective officers, directors, employees, consultants, advisors, representatives and agents against certain losses resulting from breaches of their respective representations, warranties and covenants, subject to certain negotiated limitations and survival periods set forth in the Purchase Agreement.
The Purchase Agreement provides that, during the period from the date of the signing of the Purchase Agreement until the closing of the Acquisition or termination of the Purchase Agreement, LongPoint will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals.
Completion of the Acquisition is subject to the satisfaction or waiver of certain customary closing conditions as set forth in the Purchase Agreement. The Acquisition is expected to close in the third quarter of 2023, with an effective date of June 1, 2023.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the Purchase Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 1.01.
The Purchase Agreement is filed herewith to provide investors with information regarding its terms. The Purchase Agreement is not intended to provide any other factual information about the parties to such agreement. In particular, the assertions embodied in the representations and warranties contained in the Purchase Agreement were made as of the date of the Purchase Agreement only and are qualified by information in confidential disclosure schedules provided by the parties to each other in connection with the signing of the Purchase Agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Purchase Agreement. Moreover, certain representations and warranties in the Purchase Agreement may have been used for the purpose of allocating risk between the parties rather than establishing matters of fact. Accordingly, you should not rely on the representations and warranties in the Purchase Agreement as characterizations of the actual statements of fact about the parties.
Series A Preferred Unit Purchase Agreement
On August 2, 2023, Kimbell entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Purchase Agreement”) with certain funds managed by affiliates of Apollo (NYSE: APO) (collectively, the “Purchasers”) to issue and sell up to 400,000 Series A Cumulative Convertible Preferred Units representing limited partner interests in Kimbell (the “Preferred Units”) for a cash purchase price of $1,000 per Preferred Unit (the “Issue Price”), resulting in gross proceeds to Kimbell of up to $400 million. Of the $400 million potential proceeds from the sale of Preferred Units under the Preferred Purchase Agreement, we are obligated to sell, and the Purchasers are obligated to buy, $325 million in Preferred Units as a firm commitment. The remaining $75 million in Preferred Units may be issued and sold by Kimbell to the Purchasers at Kimbell’s option. The Preferred Units will be issued in a private placement (the “Private Placement”) exempt from the registration requirements of the Securities Act, in reliance on the exemptions set forth in Section 4(a)(2) of the Securities Act. The closing of the Private Placement is subject to customary closing conditions, including the concurrent closing of the Acquisition. Kimbell expects to use the proceeds from the Private Placement to partially fund the cash purchase price of the Acquisition.
The Preferred Purchase Agreement contains customary representations, warranties and covenants of Kimbell and the Purchasers. Kimbell, on the one hand, and the Purchasers, on the other hand, agreed to indemnify each other and their representatives against certain losses resulting from breaches of their respective representations, warranties and covenants, subject to certain negotiated limitations and survival periods set forth in the Preferred Purchase Agreement.
Pursuant to the Preferred Purchase Agreement, in connection with the closing of the Private Placement, Kimbell Royalty GP, LLC, the general partner of Kimbell, will execute Amendment No. 1, including a Supplemental Terms Annex thereto, to the Fourth Amended and Restated Agreement of Limited Partnership of Kimbell (as so amended, the “Amended Partnership Agreement”), which authorizes and establishes the rights and preferences of the Preferred Units. The Preferred Units will be a new class of security that will rank senior to all classes or series of limited partner interests of Kimbell with respect to distribution rights. The Preferred Units will vote on an as-converted basis with the common units representing limited partner interest in Kimbell (the “Common Units”) and will have certain other class voting rights, including with respect to certain incurrences of debt and any amendment to the Amended Partnership Agreement if the amendment is materially adverse to any of the rights, preferences or privileges of the Preferred Units.
Commencing with the quarter ending September 30, 2023 and continuing until the conversion of the Preferred Units into Common Units or their redemption, holders of the Preferred Units are entitled to receive cumulative quarterly distributions equal to 6.0% per annum plus accrued and unpaid distributions. Kimbell has the right, in any four non-consecutive quarters, to elect not to pay such quarterly distribution in cash and instead have the unpaid distribution amount added to the liquidation preference at the rate of 10.0% per annum. If Kimbell fails to pay in full, in cash and when due, any distribution owed to the Preferred Units or otherwise materially breaches Kimbell’s obligations to the holders of the Preferred Units, the distribution rate will increase to 20.0% per annum until the accumulated distributions are paid in full in cash, or any such material breach is cured, as applicable. Each holder of the Preferred Units has the right to share in any special distributions by Kimbell of cash, securities or other property pro rata with the Common Units on an as-converted basis, subject to customary adjustments. Kimbell cannot declare or make any distributions, redemptions, or repurchases on any securities that rank junior in distribution rights to the Preferred Units, including any of the Common Units, prior to paying the quarterly distribution payable to the Preferred Units, including any previously accrued and unpaid distributions.
Beginning with the earlier of (i) the second anniversary of the closing of the Private Placement and (ii) immediately prior to a liquidation of Kimbell, each holder of the Preferred Units may, at any time (but not more often than once per quarter), elect to convert all or any portion of its Preferred Units into a number of Common Units determined by multiplying the number of Preferred Units to be converted by the then-applicable conversion rate, provided that any conversion (a) is for an amount of Common Units with an aggregate value of at least $10 million or such lesser amount that covers all of the holders’ remaining Preferred Units and (b) the closing price of the Common Units is at least 130% of the conversion price of $15.07, subject to certain anti-dilution adjustments (the “Conversion Price”) for 20 trading days during the 30-trading day period immediately preceding the conversion notice.
At any time on or after the second anniversary of the closing of the Private Placement, Kimbell will have the option to convert all or any portion of the Preferred Units into a number of Common Units determined by the then-applicable conversion rate, provided that (i) any conversion is for an amount of Common Units with an aggregate value of at least $10 million or such lesser amount that covers all of the holders’ Preferred Units, (ii) the Common Units are listed for, or admitted to, trading on a national securities exchange, (iii) the closing price of the Common Units is at least 160% of the Conversion Price for 20 trading days during the 30-trading day period immediately preceding the conversion notice and (iv) Kimbell has an effective registration statement on file with the U.S. Securities and Exchange Commission (the “Commission”) covering resales of the underlying Common Units to be received by the holders of Preferred Units upon such conversion.
At Kimbell’s option at any time or at the option of the holders of the Preferred Units beginning seven years after the closing of the Private Placement or in the event of a change of control, the Preferred Units may be redeemed for a cash amount per Preferred Unit equal to (i) the product of (A) the number of outstanding Preferred Units multiplied by (B) the greatest of (1) an amount (together with all prior distributions made in respect of such Preferred Unit) necessary to achieve the Minimum IRR (as defined below), (2) an amount (together with all prior distributions made in respect of such Preferred Unit) necessary to achieve a return on investment equal to 1.2 times with respect to such Preferred Unit and (3) the Issue Price plus accrued and unpaid distributions. For purposes of this paragraph, “Minimum IRR” means as of any measurement date: (a) prior to the fifth anniversary of closing of the Private Placement, a 12.0% internal rate of return with respect to the Preferred Units; (b) on or after the fifth anniversary of closing of the Private Placement and prior to the sixth anniversary of closing of the Private Placement, a 13.0% internal rate of return with respect to the Preferred Units; and (c) on or after the sixth anniversary of closing of the Private Placement, a 14.0% internal rate of return with respect to the Preferred Units.
As a condition to the closing of the Private Placement, Kimbell agreed to grant holders of the Preferred Units board observer rights beginning five years after the closing of the Private Placement, and board appointment rights beginning six years after the closing of the Private Placement and in the case of events of default with respect to the Preferred Units.
As of the date of this Current Report on Form 8-K, the Preferred Units have not been issued, however the Preferred Units are expected to be issued in connection with, and are conditioned upon, the closing of the Acquisition. In connection with the issuance of the Preferred Units, Kimbell will amend its partnership agreement (along with the limited liability company agreement of Kimbell Royalty Operating, LLC) to effectuate the issuance of the Preferred Units.
The Preferred Units will rank senior to the Common Units with respect to distribution rights and rights upon liquidation. These preferences could adversely affect the market price for the Common Units or could make it more difficult for Kimbell to sell the Common Units in the future.
The terms of Kimbell’s Preferred Units will contain covenants preventing Kimbell from taking certain actions without the approval of the holders of 662∕3% of the outstanding Preferred Units, voting separately as a class. The need to obtain the approval of holders of the Preferred Units before taking these actions could impede Kimbell’s ability to take certain actions that management or the Board of Directors may consider to be in the best interests of Kimbell’s common unitholders.
The affirmative vote of 662∕3% of the outstanding Preferred Units, voting separately as a class, will be necessary to amend Kimbell’s partnership agreement in any manner that is materially adverse to any of the rights, preferences and privileges of the Preferred Units. The affirmative vote of 662∕3% of the outstanding Preferred Units voting separately as a class, will be necessary to, among other things, (i) issue, authorize or create any additional Preferred Units or any class or series of partnership interests (or any obligation or security convertible into, exchangeable for or evidencing the right to purchase any class or series of partnership interests) that, with respect to distributions on such partnership interests or distributions in respect of such partnership interests upon Kimbell’s liquidation, dissolution and winding up, ranks equal to or senior to the Preferred Units or (ii) under certain circumstances, incur certain indebtedness for borrowed money.
The foregoing description of the Preferred Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the Preferred Purchase Agreement, which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated by reference into this Item 1.01.
Registration Rights Agreement
Pursuant to the terms of the Preferred Purchase Agreement, upon the closing of the transactions contemplated under the Preferred Purchase Agreement, Kimbell will enter into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which, among other things, Kimbell will (i) prepare, file with the Commission and use its reasonable best efforts to cause to become effective within 120 days of the execution of the Registration Rights Agreement, a shelf registration statement (the “Shelf Registration Statement”) with respect to the resale of the Common Units issuable upon conversion of the Preferred Units by the Purchasers (such Common Units being “Registrable Securities”) that would permit some or all of the Registrable Securities to be resold in registered transactions, (ii) use its reasonable best efforts to maintain the effectiveness of the Shelf Registration Statement while the Purchasers and each of their transferees that hold Registrable Securities are in possession of Registrable Securities and (iii) under certain circumstances, initiate underwritten offerings for the Registrable Securities.
If the Shelf Registration Statement is not effective prior to the day the Preferred Units are convertible into Common Units pursuant to the Amended Partnership Agreement, then the Purchasers will be entitled to certain liquidated damages as set forth in the Registration Rights Agreement.
In addition, the Registration Rights Agreement permits the Purchasers to request to sell any or all of their Registrable Securities in an underwritten offering that is registered pursuant to a Shelf Registration Statement, subject to certain exceptions, including, among other things, that the gross proceeds from such sale are reasonably expected to exceed $50 million in the aggregate.
The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the form of the Registration Rights Agreement, which is included as Exhibit C to the Preferred Purchase Agreement, and is incorporated by reference into this Item 1.01.
Item 3.02. Unregistered Sales of Equity Securities.
The information set forth under the captions “Series A Preferred Unit Purchase Agreement” in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02. The Private Placement of the Preferred Units pursuant to the Preferred Purchase Agreement has been undertaken in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof.
Item 3.03. Material Modification to Rights of Security Holders.
In connection with the closing of the Private Placement, the Partnership has agreed to issue the Preferred Units pursuant to the Preferred Purchase Agreement, which Preferred Units entitle their holders to certain rights that are senior to the rights of holders of Common Units, such as rights to certain distributions and rights upon liquidation of the Partnership. In addition, in connection with the closing of the Private Placement, the Partnership will enter into the Registration Rights Agreement with the Purchasers relating to the Private Placement of the Preferred Units. The general effect of the issuance of the Preferred Units and entry into the Registration Rights Agreement upon the rights of the holders of Common Units is more fully described under the captions “Series A Preferred Unit Purchase Agreement” and “Registration Rights Agreement” in Item 1.01 of this Current Report on Form 8-K, which descriptions are incorporated by reference into this Item 3.03.
Item 7.01 Regulation FD Disclosure.
On August 2, 2023, Kimbell issued a news release announcing that it had entered into the Purchase Agreement. A copy of the news release is attached hereto, furnished as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference into this Item 7.01.
The information set forth in this Item 7.01 (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.
Item 8.01 Other Events.
The Acquisition
As described more fully in Item 1.01 of this Current Report on Form 8-K, the Kimbell has agreed to acquire all of the issued and outstanding membership interests in the Acquired Company owned by LongPoint pursuant to the Purchase Agreement. Kimbell estimates that, as of June 1, 2023, the Acquired Company produced 4,840 Boe/d (1,619 Bbl/d of oil, 1,227 Bbl/d of NGLs, and 11,964 Mcf/d of natural gas) (on a 6:1 basis), which is expected to increase Kimbell’s average daily net production as of June 1, 2023 by approximately 28%. In addition, for the twelve months ending June 30, 2024, Kimbell estimates that the Acquired Company will produce approximately 4,765 Boe/d (33% oil, 41% natural gas, 26% NGLs), generating an estimated $64.3 million of cash flow at strip pricing as of July 26, 2023. Kimbell further estimates that, as of June 1, 2023, the Acquired Company consisted of approximately 49,658 net royalty acres (“NRA”) (normalized to 1/8th) and 1,613 gross producing wells in Delaware and Midland basins with current net production of 2,362 Boe/d (72% liquids, 28% gas) (on a 6:1 basis) and 2,434 gross producing wells in SCOOP/STACK with current net production of 2,478 Boe/d (46% liquids, 54% gas) (on a 6:1 basis) located in the Mid-Continent.
Kimbell estimates that the Acquired Company will reduce Kimbell’s general and administrative expense, net of non-cash unit-based compensation, by approximately 22% per Boe. As of June 30, 2023, there were 24 active rigs drilling on the Acquired Company’s acreage. Kimbell further estimates that, as of June 1, 2023, the Acquired Company consisted of 1.18 net (279 gross) drilled but uncompleted wells and 1.38 net (166 gross) permitted locations, which is expected to increase Kimbell’s total net drilled but uncompleted wells and permitted location inventory by 37% to a total of 9.41 net wells. The Acquired Company consisted of 16.63 net (2,567 gross) net upside locations, which is expected to increase Kimbell’s major drilling inventory by 25%. Kimbell expects that the Acquired Company will balance Kimbell’s commodity mix, with estimated combined next twelve months production composed of approximately 50% from liquids (6:1) (33% from oil and 17% from NGLs) and 50% from natural gas. Kimbell further estimates that, upon completion of the Acquisition, Kimbell will have over 17 million gross acres, 129,000 gross wells and a total of 100 active rigs on its properties, which represents approximately 15% of the total active land rigs drilling in the continental United States.
Reserve engineering is a complex and subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates prepared by one engineer may vary from those prepared by another. Estimates of proved reserves for Kimbell’s oil and gas properties as of December 31, 2023 will be prepared by Ryder Scott Company, L.P. using the information available at that time, and estimates of proved reserves related to the Acquisition will be prepared by Ryder Scott Company, L.P. as of December 31, 2023. Upon completion of their review, the estimate of the proved reserves for Kimbell’s oil and gas properties as of December 31, 2023 will be different from the estimate of the proved reserves for Kimbell’s oil and gas properties as of December 31, 2022, and the estimates of proved reserves of the Acquired Company as of December 31, 2023 will be different from Kimbell management’s estimates of such reserves as of December 31, 2022.
Kimbell’s assessment and estimates of the assets to be acquired in the Acquisition to date has been limited. Even by the time of closing, Kimbell’s assessment of these assets will not reveal all existing or potential problems, nor will it permit Kimbell to become familiar enough with the properties to assess fully their capabilities and deficiencies. Moreover, there can be no assurance that Kimbell and OpCo will consummate the Acquisition on the terms described in Item 1.01 of this Current Report on Form 8-K or at all. Even if Kimbell and OpCo consummate the Acquisition, they may not be able to achieve the expected benefits of the Acquisition.
Forward-Looking Statements
Certain information contained in this Current Report on Form 8-K and in the exhibits hereto includes forward-looking statements. These forward-looking statements, which include statements regarding the anticipated benefits of the Acquisition, reserves, production and other operational data with respect to the Acquisition, the expected timing of the closing of the Acquisition, the financing of the Acquisition and the proposed public offering and the use of proceeds therefrom, involve risks and uncertainties, including risks that the anticipated benefits of the Acquisition are not realized; risks relating to Kimbell’s integration of the Acquired Company; risks relating to the possibility that the Acquisition does not close when expected or at all because any conditions to the closing are not satisfied on a timely basis or at all; and risks relating to Kimbell’s business, prospects for growth and acquisitions and the securities markets generally. Except as required by law, Kimbell undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this Current Report on Form 8-K is filed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Kimbell’s filings with the SEC. These include risks inherent in oil and natural gas drilling and production activities, including risks with respect to low or declining prices for oil and natural gas that could result in downward revisions to the value of proved reserves or otherwise cause operators to delay or suspend planned drilling and completion operations or reduce production levels, which would adversely impact cash flow; risks relating to the impairment of oil and natural gas properties; risks relating to the availability of capital to fund drilling operations that can be adversely affected by adverse drilling results, production declines and declines in oil and natural gas prices; risks relating to Kimbell’s ability to meet financial covenants under its credit agreement or its ability to obtain amendments or waivers to effect such compliance; risks relating to Kimbell’s hedging activities; risks of fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpected formation pressures, environmental hazards, and other operating and production risks, which may temporarily or permanently reduce production or cause initial production or test results to not be indicative of future well performance or delay the timing of sales or completion of drilling operations; risks relating to delays in receipt of drilling permits; risks relating to unexpected adverse developments in the status of properties; risks relating to borrowing base redeterminations by Kimbell’s lenders; risks relating to the absence or delay in receipt of government approvals or third-party consents; risks relating to acquisitions, dispositions and drop downs of assets; risks relating to Kimbell’s ability to realize the anticipated benefits from and to integrate acquired assets, including the Acquired Company; and other risks described in Kimbell’s Annual Report on Form 10-K and other filings with the SEC, available at the SEC’s website at www.sec.gov. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Current Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The audited historical financial statements of LongPoint Minerals II, LLC, as of and for the years ended December 31, 2022 and 2021, and the unaudited interim financial statements of LongPoint Minerals II, LLC, as of March 31, 2023 and for the three months ended March 31, 2023 and 2022, together with the related notes to such financial statements, are filed as Exhibits 99.2 and 99.3 hereto, respectively, and incorporated by reference herein.
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information of Kimbell giving effect to the Acquisition is filed as Exhibit 99.4 hereto and incorporated by reference herein:
| · | unaudited pro forma condensed combined balance sheet as of March 31, 2023; | |
| · | unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023; and | |
| · | unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022. |
(d) Exhibits
* The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish supplementally a copy of each such schedule or exhibit to the SEC upon request.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KIMBELL ROYALTY PARTNERS, LP | ||
| By: | Kimbell Royalty GP, LLC, | |
| its general partner | ||
| By: | /s/ Matthew S. Daly | |
| Matthew S. Daly | ||
| Chief Operating Officer | ||
| Date: August 2, 2023 | ||
Exhibit 10.1
Execution Version
Securities Purchase AGREEMENT
by and among
LongPoint Minerals II, LLC
as Seller,
and
KIMBELL ROYALTY PARTNERS, LP
and
Kimbell Royalty Operating, LLC
as Buyer
Dated as of August 2, 2023
Table of Contents
| Page | ||
| ARTICLE 1 Definitions and Rules of Construction | 1 | |
| 1.1 | Definitions | 1 |
| 1.2 | Rules of Construction | 19 |
| ARTICLE 2 Purchase and Sale; Closing; Escrow | 20 | |
| 2.1 | Purchase and Sale of Acquired Interests | 20 |
| 2.2 | Consideration; Adjustment of Purchase Price at Closing | 20 |
| 2.3 | Payment of Transaction Expenses; Closing Statement | 21 |
| 2.4 | Title Review | 22 |
| 2.5 | Closing Payment and Transfer of Interests | 30 |
| 2.6 | Closing | 31 |
| 2.7 | Escrow | 32 |
| 2.8 | Post-Closing Adjustment | 33 |
| 2.9 | Purchase Price Allocation; Tax Treatment | 35 |
| 2.10 | Payments | 35 |
| ARTICLE 3 Representations and Warranties Relating to Seller | 36 | |
| 3.1 | Organization of Seller; Legal Capacity | 36 |
| 3.2 | Authorization; Enforceability | 36 |
| 3.3 | No Conflict; Consents | 37 |
| 3.4 | Litigation | 37 |
| 3.5 | Ownership of Acquired Interests | 37 |
| 3.6 | Brokers’ Fees | 38 |
| ARTICLE 4 Representations and Warranties Relating to the Acquired Company | 38 | |
| 4.1 | Organization | 38 |
| 4.2 | No Conflict; Consents | 38 |
| 4.3 | Capitalization | 39 |
| 4.4 | Litigation | 39 |
| 4.5 | Financial Statements | 39 |
| 4.6 | Absence of Certain Changes | 40 |
| 4.7 | Taxes | 41 |
| 4.8 | Contracts | 42 |
| 4.9 | Environmental Matters | 43 |
| 4.10 | Compliance with Laws | 43 |
| 4.11 | Special Warranty | 43 |
| 4.12 | No Transfers | 44 |
| 4.13 | No Cost-Bearing Interests | 44 |
| 4.14 | No Employees or Plans | 44 |
| 4.15 | Bank Accounts | 44 |
| 4.16 | Bankruptcy | 44 |
| ARTICLE 5 Representations and Warranties Relating to Buyer | 44 | |
| 5.1 | Organization of Buyer | 44 |
| 5.2 | Authorization; Enforceability | 45 |
| 5.3 | No Conflict; Consents | 45 |
| 5.4 | Brokers’ Fees | 46 |
(i)
| 5.5 | Funds | 46 |
| 5.6 | BUYER’S INDEPENDENT INVESTIGATION; DISCLAIMER | 46 |
| ARTICLE 6 Covenants | 47 | |
| 6.1 | Conduct of Seller’s Business | 47 |
| 6.2 | Access; Confidentiality | 50 |
| 6.3 | Books and Records | 50 |
| 6.4 | Insurance | 50 |
| 6.5 | Further Assurances | 50 |
| 6.6 | Publicity | 51 |
| 6.7 | Fees and Expenses; Transfer Taxes | 51 |
| 6.8 | Taxes | 52 |
| 6.9 | Confidentiality | 54 |
| 6.10 | Notices to Escrow Agent | 54 |
| 6.11 | Company Indebtedness | 55 |
| 6.12 | No Shop | 55 |
| 6.13 | Affiliate Contracts | 55 |
| 6.14 | Delivery of Interim Financial Statements | 55 |
| ARTICLE 7 Conditions to Closing | 56 | |
| 7.1 | Conditions to Obligations of Buyer to Closing | 56 |
| 7.2 | Conditions to the Obligations of Seller to Closing | 57 |
| ARTICLE 8 Termination | 57 | |
| 8.1 | Termination | 57 |
| 8.2 | Effect of Termination | 58 |
| 8.3 | Remedies for Termination | 59 |
| ARTICLE 9 Indemnification | 60 | |
| 9.1 | Survival of Representations, Warranties and Covenants | 60 |
| 9.2 | Indemnification in Favor of Buyer | 60 |
| 9.3 | Indemnification Obligations of Buyer | 61 |
| 9.4 | Indemnification Procedure | 62 |
| 9.5 | Calculation, Timing, Manner and Characterization of Indemnification Payments; Escrow | 63 |
| 9.6 | Limits of Liability | 64 |
| 9.7 | Sole and Exclusive Remedy | 65 |
| 9.8 | Compliance with Express Negligence Rule | 65 |
| 9.9 | Insurance Proceeds | 65 |
| 9.10 | Tax Treatment of Indemnity Payments | 65 |
| 9.11 | Damages Waiver | 65 |
| ARTICLE 10 Other Provisions | 66 | |
| 10.1 | Notices | 66 |
| 10.2 | Assignment | 67 |
| 10.3 | Rights of Third Parties | 67 |
| 10.4 | Counterparts | 67 |
| 10.5 | Entire Agreement | 67 |
| 10.6 | Disclosure Schedules | 68 |
(ii)
| 10.7 | Amendments | 68 |
| 10.8 | Severability | 68 |
| 10.9 | Specific Performance | 68 |
| 10.10 | Governing Law; Jurisdiction | 69 |
| 10.11 | No Recourse | 69 |
| 10.12 | Legal Representation | 70 |
| Exhibits: | |
| Exhibit A-1 | Mineral Fee Interest |
| Exhibit A-2 | RAL Interests |
| Exhibit A-3 | Additional Royalty Interests |
| Exhibit B | Mutual Release of Claims |
| Exhibit C | Form of Assignment Agreement |
| Exhibit D | Form of Seller Officer’s Certificate |
| Exhibit E | Form of Buyer Officer’s Certificate |
| Schedules: | |
| Schedule 1.2 | Target Interval |
| Schedule 2.4(b)(i) | Consents and Preferential Rights |
| Schedule 2.5(a)(iv) | Director and Officer Resignations |
| Schedule 3.3 | Seller Conflicts |
| Schedule 4.2 | Acquired Company Conflicts and Consents |
| Schedule 4.3(a) | Acquired Interests |
| Schedule 4.4 | Litigation |
| Schedule 4.5(a) | Audited Financial Statements |
| Schedule 4.5(b) | Unaudited Financial Statements |
| Schedule 4.6(b) | Certain Seller Changes |
| Schedule 4.7 | Taxes |
| Schedule 4.8(a) | Seller Material Contracts |
| Schedule 4.12 | Transfer Restrictions |
| Schedule 4.13 | Cost-Bearing Interests |
| Schedule 4.15 | Bank Accounts |
| Schedule 5.3 | Buyer Conflicts |
| Schedule 6.1 | Conduct of Seller’s Business |
| Schedule 6.13 | Affiliate Contracts |
| Schedule 8.3(b) | Termination Amount |
| Schedule 9.2(a)(v) | Specified Liabilities |
(iii)
SECURITIES PURCHASE AGREEMENT
THIS Securities PURCHASE AGREEMENT (this “Agreement”), dated as of August 2, 2023 (the “Execution Date”), is among LongPoint Minerals II, LLC, a Colorado limited liability company (the “Seller”), Kimbell Royalty Partners, LP, a Delaware limited partnership (“KRP”), and Kimbell Royalty Operating, LLC, a Delaware limited liability company (“Opco” and, together with KRP, “Buyer”). Each of Seller, KRP, and Opco are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
RECITALS
WHEREAS, Seller owns all of the issued and outstanding membership interests (the “Acquired Interests”) of Cherry Creek Minerals, LLC, a Colorado limited liability company (the “Acquired Company”); and
WHEREAS, Opco desires to acquire from Seller, and Seller desires to sell to Opco, on and subject to the terms and conditions of this Agreement, the Acquired Interests of the Acquired Company, through the purchase directly from Seller of Seller’s Acquired Interests in exchange for the consideration described in this Agreement.
NOW, THEREFORE, in consideration of the promises, agreements and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
Definitions and Rules of Construction
1.1 Definitions. Capitalized terms used throughout this Agreement and not defined in this Section 1.1 have the meaning ascribed to them elsewhere in this Agreement. As used herein, the following terms shall have the following meanings:
“Acquired Company” is defined in the recitals of this Agreement.
“Acquired Interests” is defined in the recitals of this Agreement.
“Additional Royalty Interests” shall mean each Oil and Gas Property identified on Exhibit A-3 being comprised of an overriding royalty interest, royalty interest, non-participating royalty interest, or interests in production payments in Hydrocarbons produced and saved from the Lands.
“Adjusted Purchase Price” is defined in Section 2.2(c).
“Affiliate” means, (a) with respect to any entity of any kind (other than a natural person), any other Person that, directly or indirectly, controls, is controlled by or is under common control with such specified Person through one or more intermediaries or otherwise and (b) with respect to a natural person, that natural person’s (i) lineal descendants (naturally or by adoption) of the parents of such Person, (ii) lineal ascendants of such Person, (iii) spouses of any of the foregoing, (iv) trusts for the benefit of any of the foregoing or (v) any corporation, limited liability company, partnership or other entity that is controlled by one or more of the foregoing or of which the foregoing (alone or in the aggregate) owns more than 25% of the equity interest. For the purposes of this definition, “control” means, where used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings.
1
“Agreement” is defined in the preamble to this Agreement.
“Allocated Value” means, with respect to a Company Oil and Gas Property, the portion of the Unadjusted Purchase Price attributable to such Company Oil and Gas Property as set forth on Exhibit A-1, A-2, or A-3, as applicable.
“Allocation” is defined in Section 2.9(a).
“Assessment” is defined in Section 6.2(a).
“Asset Taxes” means production, severance, sales, use, ad valorem, property, excise, real estate, personal property or similar Taxes based upon the acquisition, operation or ownership of the Company Assets, the production of Hydrocarbons therefrom or the receipt of proceeds therefrom, but excluding Income Taxes and Transfer Taxes.
“Assignment Agreement” is defined in Section 2.5(a)(i).
“Audited Financial Statements” is defined in Section 4.5(a).
“Bracewell” is defined in Section 10.12.
“Burdens” means royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests, back-in interests and other burdens upon, measured by or payable out of production of Hydrocarbons.
“Business Day” means any day that is not a Saturday, Sunday or legal holiday in the State of Texas and that is not otherwise a federal holiday in the United States.
“Buyer” is defined in the preamble to this Agreement and, for the avoidance of doubt, means KRP and Opco collectively.
“Buyer’s A&R Credit Agreement” means that certain Amended and Restated Credit Agreement, dated as of June 13, 2023, among KRP, the several lenders party thereto and Citibank, N.A., as administrative agent for a $750,000,000 Senior Secured Facility.
“Buyer Assets” means the assets, rights and interests owned by Buyer, but excluding the Company Assets.
“Buyer Cap” means, with respect to claims for indemnification initiated (a) prior to the First Stepdown Date, an amount equal to ten percent (10%) of the Unadjusted Purchase Price, (b) on or after the First Stepdown Date and prior to the Second Stepdown Date, an amount equal to the lower of (i) five percent (5%) of the Unadjusted Purchase Price and (ii) the difference between an amount equal to ten percent (10%) of the Unadjusted Purchase Price and the aggregate amount, if any, which Seller Indemnified Party has claimed pursuant to Article 9 (to the extent such claims, if any, remain unresolved) and (c) thereafter, solely with respect to claims described in clause (b)(ii) of this definition, the aggregate amount, if any, which Seller Indemnified Party claimed as described in clause (b)(ii) pursuant to Article 9 (to the extent such claims, if any, remain unresolved).
2
“Buyer Entitlements” is defined in Section 2.10(a).
“Buyer Fundamental Representations” means the representations and warranties of Buyer set forth in Sections 5.1, 5.2 and 5.4.
“Buyer Indemnified Parties” is defined in Section 9.2(a).
“Buyer Losses” is defined in Section 9.2(c).
“Buyer Material Adverse Effect” means, with respect to Buyer, any circumstance, change or effect that is or would reasonably be expected to be materially adverse to (i) the business, operations, results of operations or financial condition of Buyer and its subsidiaries taken as a whole or (ii) the Buyer’s performance of its obligations and covenants hereunder that are to be performed at Closing, but, solely with respect to clause (i) of this definition, shall exclude any circumstance, change or effect resulting or arising from: (a) any change in general conditions in the industries or markets in which Buyer and its subsidiaries operate, or any change in financial or securities markets or the economy in general, or the imposition of tariffs by any Governmental Authority; (b) any adverse change, event or effect on the global, national or regional energy industry as a whole, including those impacting the gathering, transportation, treatment or processing of oil and gas or the value of oil and gas assets and properties, or any adverse change in energy prices; (c) national or international political conditions, including any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, the occurrence of any military or terrorist attack, a shutdown of the United States federal government or any default on the debt obligations of any sovereign entity; (d) effects of weather, meteorological events, natural disasters, pandemics (including COVID-19) or other acts of God, other than any such effects that involve the physical destruction of the oil and gas properties of Buyer and its subsidiaries; (e) changes in Law or GAAP, or the interpretation thereof; (f) the entry into or announcement of this Agreement, actions taken or omitted to be taken at the explicit request of Seller or with the written consent of Seller, or the consummation of the transactions contemplated hereby (provided that this clause (f) shall not diminish the effect of, and shall be disregarded for purposes of, the representations and warranties set forth in Section 5.3); (g) any failure to meet internal or Third Party projections or forecasts or revenue or earnings or reserve predictions (provided that clause (g) shall not prevent a determination that any change, circumstance or effect underlying such failure to meet projections or forecasts or revenue or earnings or reserves predictions has resulted in a Buyer Material Adverse Effect); (h) the insolvency, bankruptcy, placing into of receivership or similar proceeding of any operator of any well associated with the oil and gas properties of Buyer and its subsidiaries; or (i) natural declines in well performance or reclassification or recalculation of reserves in the ordinary course of business; except to the extent such circumstance, change or effect resulting or arising from clauses (c), (d) or (e) above materially and disproportionately affects Buyer and its subsidiaries relative to other participants in the industries in which Buyer and its subsidiaries participate.
3
“Buyer Obligations” is defined in Section 2.10(a).
“Buyer Transaction Expenses” means any attorneys’, investment bankers’, accountants’ or other advisors’ or consultants’ fees and expenses and other similar transaction fees and expenses incurred by Buyer or any of its Affiliates in connection with the transactions contemplated by this Agreement.
“Cash Amount” means, as of any given date, the amount of all cash on hand and cash equivalents of the Acquired Company in bank accounts, segregated accounts, lock boxes or otherwise in the possession of the Acquired Company as of 12:01 a.m. Central Time on such date, including any deposits with financial institutions.
“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.
“Closing” is defined in Section 2.6.
“Closing Date” is defined in Section 2.6.
“Closing Escrow Amount” means Thirty-Five Million Five Hundred Thousand Dollars ($35,500,000).
“Closing Statement” is defined in Section 2.3(b).
“Code” means the Internal Revenue Code of 1986, as amended.
“Company Assets” means the assets, rights and interests owned by the Acquired Company, including the Company Oil and Gas Properties and the Records, but excluding the Excluded Assets.
“Company Oil and Gas Properties” means all of the Acquired Company’s right, title and interest in, to and under, or derived from, any Oil and Gas Properties.
“Consents” is defined in Section 2.4(b)(i).
“Constituents of Concern” means any material, substance, pollutant or waste (whether solid, liquid or gaseous) as it is defined, listed or designated as a hazardous substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, or any constituent or combination of any such material, substance, pollutant or waste, the storage, manufacture, generation, treatment, transportation, release, remediation, use, handling or disposal of which is regulated by any applicable Environmental Law due to its hazardous, toxic, dangerous or deleterious properties or characteristics.
4
“Contract” means any legally binding oral or written agreement, arrangement, understanding, commitment or contract, except for oil, gas and/or other Hydrocarbon leases or any other instruments creating or evidencing an interest in the Company Oil and Gas Properties.
“Curable Property” is defined in Section 2.4(d)(i)(B).
“Cure Period” is defined in Section 2.4(d)(i)(B).
“Customary Post-Closing Consents” means all rights to consent by, required notices to, filings with or other actions by Governmental Authorities or any other Person in connection with the sale, disposition, transfer or conveyance of any Company Oil and Gas Properties, where the same are customarily obtained subsequent to the assignment, disposition or transfer of such interests in leases.
“Defensible Title” means such right, title and interest of the Acquired Company in and to the applicable Company Oil and Gas Properties, which as of the Execution Date and the Closing Date, subject to the Permitted Encumbrances:
(a) with respect to each Mineral Interest set forth on Exhibit A-1 or Exhibit A-2, as applicable, entitles the Acquired Company to ownership of not less than the Net Royalty Acres for such Mineral Interest as set forth in the column labeled “NRA” on Exhibit A-1 or Exhibit A-2, as applicable, solely with respect to the Target Interval (except as otherwise expressly set forth on Exhibit A-1 or Exhibit A-2, as applicable, for such Mineral Interest), except as a result of (A) decreases resulting from the establishment or amendment from and after the Execution Date of pools or units (B) for, with respect to any Leased Mineral Interests, any changes in Net Royalty Acres resulting from any post-Execution Date amendment to, or expiration of, the applicable oil, gas and/or other Hydrocarbon lease burdening such Leased Mineral Interest and (C) for, with respect to any Unleased Mineral Interest, any changes in Net Royalty Acres resulting from an Unleased Mineral Interest becoming subject to an oil, gas and/or other Hydrocarbon lease after the Execution Date; provided, however, that the exceptions in subclause (A), (B) and (C) above shall not apply to any amendment, oil, gas and/or other Hydrocarbon lease or other agreement or instrument (i) to which Seller or the Acquired Company (or each of their respective Affiliates) is a party or signatory to and (ii) that has not been approved by Buyer in writing prior to the execution thereof;
(b) with respect to each Additional Royalty Interest set forth on Exhibit A-3, entitles the Acquired Company to ownership of not less than the Net Royalty Acres for such Additional Royalty Interest as set forth in the column labeled “NRA” on Exhibit A-3, solely with respect to the Target Interval (except as otherwise expressly set forth on Exhibit A-3 for such Additional Royalty Interest), except as a result of (A) decreases resulting from the establishment or amendment from and after the Execution Date of pools or units (B) for, with respect to any Leased Additional Royalty Interest, any changes in Net Royalty Acres resulting from any post-Execution Date amendment to, or expiration of, the applicable oil, gas and/or other Hydrocarbon lease burdening such Leased Additional Royalty Interest and (C) for, with respect to any Unleased Additional Royalty Interest, any changes in Net Royalty Acres resulting from an Unleased Additional Royalty Interest becoming subject to an oil, gas and/or other Hydrocarbon lease after the Execution Date; provided, however, that the exceptions in subclause (A), (B) and (C) above shall not apply to any amendment, oil, gas and/or other Hydrocarbon lease or other agreement or instrument (i) to which Seller or the Acquired Company (or each of their respective Affiliates) is a party or signatory to and (ii) that has not been approved by Buyer in writing prior to the execution thereof; and
5
(c) is free of Liens.
“Disclosure Schedules” means the disclosure schedules of the Buyer and Seller attached hereto.
“Dollars” and “$” mean the lawful currency of the United States.
“Due Diligence Information” is defined in Section 5.6(b).
“Effective Time” means 12:01 a.m., Central time, on June 1, 2023.
“Employee Benefit Plan” means (a) any “employee benefit plan” (within the meaning of Section 3(3) of ERISA) and (b) any other compensation or employee benefit plans, programs and other agreements, whether or not subject to ERISA, including cash or equity or equity-based, employment, retention, change of control, health, medical, dental, disability, accident, life insurance, vacation, severance, retirement, pension, savings, termination and other employee benefit plans, programs or other agreements.
“Environment” means ambient and indoor air, surface water, ground water, land surface or subsurface strata and biological and natural resources.
“Environmental Laws” means all applicable Laws of any Governmental Authority enacted and in effect on or prior to the Effective Time relating to the protection of the Environment or otherwise relating to the emission, discharge, release or threatened release of Constituents of Concern to the Environment or impacts of such emission, discharge or release on human health or the Environment, including such Laws regarding the release or disposal of hazardous materials, hazardous substances or waste materials, including, without limitation, the OPA90, CERCLA, the federal Resource Conservation and Recovery Act, the federal Clean Water Act, the Toxic Substances Control Act, the Hazardous Materials Transportation Act (49 USC § 5101 et seq.) and the legally-binding federal, state and local rules, regulations, ordinances, orders and governmental directives implementing such statutes.
“Escrow Account” means the escrow account created pursuant to the Escrow Agreement with respect to the Escrow Amount.
“Escrow Agent” means BOKF, N.A.
“Escrow Agreement” means that certain Escrow Agreement, dated as of the Execution Date, by and among Buyer, Seller and the Escrow Agent.
“Escrow Amount” is defined in Section 2.7(a).
“Escrow Indemnity Amount” means Ten Million Dollars ($10,000,000).
“Escrow Release Date” is defined in Section 9.5(c).
6
“Excluded Assets” means the Excluded Records, the name “LongPoint” and other trademarks, service marks and trade names owned or held for use by Seller or its Affiliates and any derivation thereof.
“Excluded Records” is defined in the definition of “Records”.
“Execution Date” is defined in the preamble to this Agreement.
“Final Closing Statement” is defined in Section 2.8(b).
“Final Determination” means (a) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final with respect to the applicable claim or Buyer or Seller (i.e., all allowable appeals have been exhausted by either party to the action), (b) a decision rendered by the arbitrator in accordance with Section 2.8 or (c) a closing agreement binding in respect of the claim has been executed by Buyer, on behalf of the Buyer Indemnified Parties, and Seller, on behalf of Seller Indemnified Parties, or, if applicable, an administrative settlement has been made with, or final administrative decision made by, the relevant Governmental Authority with respect to the applicable claim or matter.
“Final Settlement Date” is defined in Section 2.8(a).
“First Stepdown Date” means the date that is One Hundred Eighty (180) days after the Closing Date.
“Fraud” means a final determination by a court of competent jurisdiction that a Party, or its Affiliates, have committed actual, and not constructive fraud, against the other Party with respect to the statements and information contained in Article 3, Article 4 or Article 5, as applicable, or any certificate delivered by a Party pursuant to Section 2.5(a)(iii) or 2.5(b)(ii)(A) with the specific intent to deceive and mislead such other Party.
“GAAP” means generally accepted accounting principles of the United States, consistently applied.
“Governmental Authority” means any federal, state, municipal, local or similar governmental authority, legislature, court, regulatory or administrative agency or arbitral body.
“Hedging Transaction” means any futures, swap, collar, put, call, floor, cap, option or other contract that is intended to benefit from, related to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons or securities, interest rates, currencies or securities.
“Hydrocarbons” means oil, gas, casinghead gas, natural gas liquids, condensate, sulfur and other liquid or gaseous hydrocarbons, or any of them or any combination thereof, together with all products extracted, separated or processed therefrom, and all other minerals produced in association with these substances.
“Income Taxes” means income, franchise, business and occupation, business license, commercial activity or similar Taxes based upon, measured by or calculated with respect to net income, profits, gross revenues or receipts (except for sales, transfer or similar Taxes based on gross receipts), capital or similar measures (including any such Taxes with multiple bases, if one of the aforementioned bases is among the bases on which such Tax is based, measured or calculated), but excluding Asset Taxes and Transfer Taxes.
7
“Indebtedness for Borrowed Money” means, with respect to any Person, any obligations consisting of (a) the outstanding principal amount of and accrued and unpaid interest on, and other payment obligations for, borrowed money, or payment obligations issued or incurred in substitution or exchange for payment obligations for borrowed money; (b) amounts owing as deferred purchase price for property or services, including “earn-out” payments; (c) payment obligations evidenced by any promissory note, bond, debenture, mortgage or other debt instrument or debt security; (d) commitments or obligations by which such Person assures a creditor against loss, including contingent reimbursement obligations with respect to letters of credit; (e) payment obligations secured by Lien, other than a Permitted Encumbrance, on assets or properties of such Person; (f) obligations to repay deposits or other amounts advanced by and therefore owing to Third Parties; (g) obligations under capitalized leases; (h) obligations under any interest rate, currency, commodity or other hedging agreement or derivatives transaction, (i) guarantees, make-whole agreements, hold harmless agreements or other similar arrangements with respect to any amounts of a type described in clauses (a) through (h) above; and (j) any change of control payments or prepayment premiums, penalties, charges or equivalents thereof with respect to any indebtedness, obligation or liability of a type described in clauses (a) through (i) above that are required to be paid at the time of, or the payment of which would become due and payable solely as a result of, the execution of this Agreement or the consummation of the transactions contemplated by this Agreement at such time, in each case determined in accordance with GAAP; provided, however, that Indebtedness for Borrowed Money shall not include accounts payable to trade creditors and accrued expenses arising in the Ordinary Course and shall not include the endorsement of negotiable instruments for collection in the Ordinary Course.
“Indemnified Party” is defined in Section 9.4(a).
“Indemnifying Party” is defined in Section 9.4(a).
“Indemnity Deductible” means an amount equal to one percent (1%) of the Unadjusted Purchase Price.
“Independent Accountant” is defined in Section 2.8(b).
“Independent Accountant’s Closing Statement” is defined in Section 2.8(b).
“Interim Period” means the period from and including the Effective Time and ending on 12:01 a.m. Central Time on the Closing Date.
“IRS” means Internal Revenue Service of the United States.
“Joint Instruction Letter” means written instructions that are jointly signed by Seller and Buyer, which instructions shall be in a form that complies with the requirements of the Escrow Agent.
8
“Knowledge” means as to Seller, the actual knowledge of Tad Herz and Will Cullen without requirement of investigation or inquiry.
“KRP” is defined in the preamble to this Agreement.
“Lands” means (a) with respect to any Mineral Interest, the geographic area set forth on Exhibit A-1 or Exhibit A-2, as applicable, or, if no such area is set forth on Exhibit A-1 or Exhibit A-2, as applicable, for such Mineral Interest, the geographic area described in the instrument set forth on Exhibit A-1 or Exhibit A-2, as applicable, for such Mineral Interest, and (b) with respect to any Additional Royalty Interest, the geographic area set forth on Exhibit A-3, or, if no such area is set forth on Exhibit A-3 for such Additional Royalty Interest, the geographic area described in the instrument set forth on Exhibit A-3 for such Additional Royalty Interest.
“Law” means any applicable constitutional provision, statute, code, writ, law, rule, regulation, ordinance, principle of common law, Order, judgment, decision, holding, injunction, award, determination or decree of a Governmental Authority.
“Leased Additional Royalty Interest” means the Additional Royalty Interests identified on Exhibit A-3 as currently being subject to an oil, gas and/or other Hydrocarbon lease.
“Leased Mineral Interest” means the Mineral Interests identified on Exhibit A-1 or Exhibit A-2, as applicable, as currently being subject to an oil, gas and/or other Hydrocarbon lease.
“Lien” means any lien, pledge, claim, charge, mortgage, security interest, option or other similar right of any Person with respect to the applicable property.
“Losses” is defined in Section 9.2(b).
“Mineral Acre” means, as computed separately with respect to the portion of each Mineral Interest to the extent such interest is in a Company Oil and Gas Property identified on Exhibit A-1 or Exhibit A-2, as applicable, (i) the number of gross acres of Lands covered or burdened by such Mineral Interest (or portion thereof), multiplied by (ii) the Acquired Company’s undivided mineral interest, or with respect to the RAL Interests, the Acquired Company’s undivided interest (in each case, expressed as a percentage) in the Lands covered by such Mineral Interest (or portion thereof); provided, however, if clause (ii) varies as to different areas of the Lands covered by such Mineral Interest or the depths covered by such Mineral Interest, a separate calculation shall be performed with respect to each such area or depth.
“Mineral Fee Interests” means all fee mineral interests described on Exhibit A-1, as well as any and all rights to shut-in royalties, executive rights to lease, rights to produce, rights to delay rentals, rights to bonus payments, rights to royalties as a lessor derived from any oil, gas and/or Hydrocarbon lease covering such Mineral Fee Interests, rights of reversion, and any and all other rights relating to the ownership of the foregoing.
“Mineral Interests” means the Mineral Fee Interests and the RAL Interests.
9
“Net Royalty Acre” means:
(a) With respect to a Company Oil and Gas Property that is a Leased Mineral Interest identified on Exhibit A-1 or Exhibit A-2, as applicable, as to the Target Interval (except as otherwise expressly set forth on Exhibit A-1 or Exhibit A-2, as applicable, with respect to such Leased Mineral Interest) and as computed separately with respect to each such Leased Mineral Interest, (x) the Mineral Acres for such Leased Mineral Interest, multiplied by (y) a decimal interest equal to (I) the lessor’s royalty provided for in the applicable lease burdening such Mineral Interest less (II) any other Burdens directly burdening such Leased Mineral Interest, multiplied by (z) eight (8);
(b) with respect to a Company Oil and Gas Property that is an Unleased Mineral Interest identified on Exhibit A-1 or Exhibit A-2, as applicable, as to the Target Interval (except as otherwise expressly set forth on Exhibit A-1 or Exhibit A-2, as applicable, with respect to such Unleased Mineral Interest) and as computed separately with respect to each such Unleased Mineral Interest, (x) the Mineral Acres for such Unleased Mineral Interest, multiplied by (y) a decimal interest equal to (i) an imputed lessor’s royalty of (A) twenty-five percent (25%) if such Mineral Interest is located in Texas or (B) eighteen and three-quarter percent (18.75%) if such Mineral Interest is located in Oklahoma less (ii) any other Burdens directly burdening such Unleased Mineral Interest held by Persons other than the Acquired Company, multiplied by (z) eight (8);
(c) with respect to a Company Oil and Gas Property that is a Leased Additional Royalty Interest identified on Exhibit A-3, as to the Target Interval (except as otherwise expressly set forth on Exhibit A-3 with respect to such Leased Additional Royalty Interest) and as computed separately with respect to each such Leased Additional Royalty Interest, (x) the gross acres in the Lands that are encumbered by the Leased Additional Royalty Interest, multiplied by (y) the Royalty Rate for the Leased Additional Royalty Interest, multiplied by (z) eight (8); and
(d) with respect to a Company Oil and Gas Property that is an Unleased Additional Royalty Interest identified on Exhibit A-3, as to the Target Interval (except as otherwise expressly set forth on Exhibit A-3 with respect to such Unleased Additional Royalty Interest) and as computed separately with respect to each such Unleased Additional Royalty Interest, (x) the gross acres in the Lands that are encumbered by the Unleased Additional Royalty Interest multiplied by (y) the Royalty Rate for the Unleased Additional Royalty Interest, multiplied by (z) eight (8).
“Non-Recourse Party” is defined in Section 10.11.
“Notice of Disagreement” is defined in Section 2.8(a).
“Notices” is defined in Section 10.1.
“Oil and Gas Properties” means all Mineral Interests, Additional Royalty Interests, and all other interest in the oil, gas or other minerals, whether or not relating to Hydrocarbons in, on, under or which may be produced from the Lands (each, an “Oil and Gas Property” and collectively, the “Oil and Gas Properties”), together with the rights to receive production payments, bonuses, rentals and all other profits or income attributable thereto, including, without limitation, all the Acquired Company’s executive rights, rights or ingress and egress, and other rights and interests associated therewith and incidental thereto.
10
“OPA90” means the Federal Oil Pollution Act of 1990.
“Opco” is defined in the preamble to this Agreement.
“Operating Expenses” means all operating expenses of the Acquired Company, including those attributable to the Company Assets and capital expenditures incurred by the Acquired Company in the ownership of the Company Assets in the ordinary course of business, including overhead costs of the Acquired Company charged to the Company Assets as reflected in the applicable Audited Financial Statements, but excluding Taxes.
“Order” means any order, decision, holding, judgment, injunction, ruling, sentence, subpoena, writ or award issued, made, entered or rendered by any court, administrative agency or other Governmental Authority or by any administrative law judge or arbitrator.
“Ordinary Course” means, with respect to any Person, the ordinary course of business of such Person, consistent with past practice.
“Organizational Documents” means any charter, certificate of incorporation, certificate of formation, articles of association, partnership agreements, limited liability company agreements, bylaws or similar formation or governing documents and instruments.
“Party” and “Parties” are defined in the preamble to this Agreement.
“Patented Gross Acreage” means, for any Company Oil and Gas Property the number of acres stipulated for such Company Oil and Gas Property in the initial land surveys compiled by the applicable Governmental Authority in connection with the initial grant of fee interests to private landowners.
“Permitted Encumbrances” means any of the following:
(a) Liens for Taxes for which payment is not due or which are being contested in good faith by appropriate proceedings by or on behalf of the Acquired Company and for which adequate reserves have been established in accordance with GAAP;
(b) any Customary Post-Closing Consents;
(c) any consents from non-Governmental Authority Third Parties, which shall be exclusively governed in accordance with Section 2.4(a);
(d) all defects or irregularities of title, if any, affecting the Company Oil and Gas Properties which (i) would be accepted by a reasonably prudent Person engaged in the business of owning mineral interests, royalty interests or overriding royalty interests or (ii) does not reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
11
(e) the terms and conditions of any Contracts or oil, gas and/or other Hydrocarbon leases, to the extent such terms and conditions do not reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
(f) defects based solely on lack of information in the Acquired Company’s files;
(g) defects based on a gap in the Acquired Company’s chain of title unless such gap is shown to exist after a review of the available public and/or county or parish records and the Records, by an abstract of title, title opinion or landman’s title chain (which documents or references thereto shall be included in any Title Defect Notice);
(h) defects based solely upon the failure to record any overriding royalty interest in state or federal leases included in the Company Oil and Gas Properties or any assignments of interests thereof in any applicable records of the applicable State or federal agency, unless such failure has or would result in a Third Party having a superior claim of title;
(i) defects based solely on the failure to record overriding royalty interests in federal or state leases, or any assignments thereof in the real property, conveyance or other records of the county in which such lease is located unless such failure has or may reasonably result in a Third Party having a superior claim of title;
(j) except to the extent related to the Acquired Company, all defects or irregularities (i) arising out of lack of corporate authorization or an immaterial variation in corporate name, (ii) that have been cured or remedied by applicable statutes of limitation or statutes for prescription, (iii) consisting of the failure to recite marital status in documents or omissions of heirship Proceedings, or (iv) resulting from lack of survey, unless a survey is expressly required by applicable Laws, or failure to record releases of Liens that have expired by their own terms or the enforcement of which are barred by applicable statutes of limitation, in each case;
(k) any Lien or encumbrance on or affecting the Company Oil and Gas Properties which is released or discharged by Seller and no longer burdens the Company Oil and Gas Properties at or prior to Closing;
(l) defects waived in writing by Buyer;
(m) all Third Party royalties if the net cumulative effect of such burdens does not, individually or in the aggregate, reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
(n) except for mineral classified lands any easement, right of way, covenant, servitude, permit, surface lease, condition, restriction and other rights burdening the Company Oil and Gas Properties for the purpose of surface or subsurface operations, roads, alleys, highways, railways, pipelines, transmission lines, transportation lines, distribution lines, power lines, telephone lines, removal of timber, grazing, logging, operations, canals, ditches, reservoirs and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, in each case, to the extent recorded in the applicable Governmental Authority recording office as of the Execution Date, insofar as such does not, individually or in the aggregate, reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
12
(o) rights of any common owner of any interest in any mineral interests or oil, gas and/or other Hydrocarbon leases as tenants in common or through common ownership, insofar as such right does not reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
(p) delay or failure of any Governmental Authority to approve the assignment of any mineral interest to the Acquired Company or any predecessor in title to the Acquired Company unless such approval has been expressly denied or rejected in writing by such Governmental Authority;
(q) lack of (i) Contracts or rights for the transportation or processing of Hydrocarbons produced from the Company Oil and Gas Properties or (ii) any rights of way for gathering or transportation pipelines or facilities that do not constitute any of the Company Oil and Gas Properties or (iii) in the case of a well or other operation that has not been commenced as of the Closing Date, any permits, easements, rights of way, unit designations, or production or drilling units not yet obtained, formed, or created, insofar as each does not, individually or in the aggregate, reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
(r) the terms and conditions of this Agreement and any agreement or instrument that is required to be executed or delivered hereunder;
(s) as to any overriding royalty interests, Liens created under deeds of trust, mortgages and similar instruments by the lessor under an oil, gas and/or other Hydrocarbon lease covering the lessor’s surface and mineral interests in the land covered thereby to the extent (i) such mortgages, deeds of trust or similar instruments do not contain express language that prohibits the lessors from entering into an oil, gas and/or other Hydrocarbon lease or otherwise invalidates or repudiates an oil, gas and/or other Hydrocarbon lease and (ii) no mortgagee or lienholder of any such deeds of trust, mortgage, and similar instrument has, prior to the Closing Date, initiated foreclosure or similar proceedings against the interest of lessor in such lease nor has Seller received any written notice of default under any such mortgage, deed of trust, or similar instrument;
(t) lack of a division order covering any Company Oil and Gas Property (including portions of an Company Oil and Gas Property that were formerly within a unit but which have been excluded from the unit as a result of a contraction of the unit), insofar as such does not, individually or in the aggregate, reduce the Acquired Company’s Net Royalty Acre ownership in any Company Oil and Gas Property below that shown on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for such Company Oil and Gas Property;
13
(u) any defect or irregularity resulting from Seller’s conduct of business in compliance with this Agreement;
(v) any matters expressly shown on Exhibit A1, Exhibit A-2 or Exhibit A-3;
(w) any matters shown on Schedule 4.4;
(x) all rights reserved to or vested in any Governmental Authority by Law to control or regulate the Company Oil and Gas Properties in any manner; and
(y) any defects based on a deficiency in Patented Gross Acreage where the Net Royalty Acres set forth on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, for the applicable Company Oil and Gas Property are represented based on Platted Gross Acreage.
“Person” means any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind.
“Platted Gross Acreage” means, for any Company Oil and Gas Property, the number of acres stipulated for such Company Oil and Gas Property by the most recent land surveys compiled by the applicable current or former operator for such Company Oil and Gas Property.
“Preferential Rights” is defined in Section 2.4(b)(i).
“Privileged Communications” is defined in Section 10.12.
“Proceeding” means any civil, criminal, investigative, administrative or other action, suit, litigation, arbitration, lawsuit, claim, proceeding, hearing, enforcement action, audit, demand or dispute commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or any arbitrator.
“Purchase Price Adjustment” is defined in Section 2.2(c).
“RAL Interests” means the interests subject to the Texas Relinquishment Act in the lands described on Exhibit A-2, as well as any and all rights to shut-in royalties, executive rights to lease, rights to produce, rights to delay rentals, rights to bonus payments, rights to royalties as a lessor derived from any oil, gas and/or Hydrocarbon lease covering such interests, rights of reversion, and any and all other rights relating to the ownership of the foregoing and (A) any associated surface estates or interests related solely thereto and (B) all rights of the Acquired Company as agent of the State of Texas and “owner of the soil” with respect to such interests.
“Records” means all of the files, records and data (whether in hard copy or electronic format) of the Acquired Company relating to the Company Oil and Gas Properties, including lease files, reservoir and land files, well files, division order files, abstracts, property ownership and title files (including abstracts of title, title opinions and memoranda and title curative documents), engineering and/or production files, prospect files, contract files and records, maps, studies, plans, surveys and reports, check stubs, financial and accounting records, Tax records (other than records with respect to Taxes of Seller, any of its direct or indirect owners or Affiliates (other than the Acquired Company)) and environmental records, in each case, other than (a) Privileged Communications and any other items that may be subject to a valid legal privilege with Seller (other than title opinions) or to disclosure restrictions (provided that Seller shall use commercially reasonable efforts to obtain a waiver of any such disclosure restrictions), (b) items that are not transferable without payment by Seller of additional consideration (and Buyer has not agreed in writing to pay such additional consideration), (c) items that relate solely to Seller’s conduct of the sale process of the Acquired Company (including all bid materials from potential purchasers and Seller’s and its Affiliates’ analyses of, and notes regarding, such bid materials), (d) items relating to any Oil and Gas Property that is transferred to Seller or its designated Affiliate in accordance with Section 2.4 and (e) all e-mails and other electronic files (except to the extent the underlying files, records or data are only available in electronic format) on the Acquired Company’s or its Affiliates’ servers and networks relating to the foregoing items (clauses (a) through (e) of this definition are referred to as the “Excluded Records”).
14
“Representatives” means a Person’s directors, officers, partners, members, managers, employees, agents or advisors (including attorneys, accountants, consultants, bankers, financial advisors, insurers and insurance brokers, and any representatives of those advisors).
“Required Consent” means with respect to a Company Oil and Gas Property, a Consent that would be triggered by the consummation of the transactions contemplated by this Agreement and in which the applicable agreement, Contract or oil, gas and/or other Hydrocarbon lease expressly provides that the consummation of such transactions without such Consent will result in (a) termination of the owner’s existing rights in relation to such Company Oil and Gas Property, (b) the transfer being null and void as to such Company Oil and Gas Property (whether automatically or at the election of the holder thereof) or (c) the incurrence of liquidated damages in excess of fifty thousand Dollars ($50,000).
“Royalty Rate” means:
(a) As used in the calculation of Net Royalty Acres for any Leased Additional Royalty Interest, the decimal interest in and to all (8/8ths) of the Hydrocarbons produced, saved and sold from the respective gross acres of the Lands encumbered by such Leased Additional Royalty Interest to which the Acquired Company is entitled. If a Leased Additional Royalty Interest provides for a royalty based upon, or calculated from, the lessor’s royalty provided for in an oil, gas and/or Hydrocarbon lease, the Royalty Rate for such Leased Additional Royalty Interest shall be determined based upon the lessor’s royalty retained under the applicable lease; and
(b) As used in the calculation of Net Royalty Acres for any Unleased Additional Royalty Interest, the decimal interest in and to all (8/8ths) of the Hydrocarbons produced, saved and sold from the respective gross acres of the Lands encumbered by such Unleased Additional Royalty Interest to which the Acquired Company is entitled (or, if determined based upon the lessor’s royalty rate provided for in an oil, gas and/or Hydrocarbon lease encumbering the Lands covered by such Unleased Additional Royalty Interest to which the Acquired Company would be entitled, then the Royalty Rate for such Unleased Additional Royalty Interest shall be determined based upon an imputed lessor’s royalty equal to (i) twenty-five percent (25%) if such Unleased Additional Royalty Interest is located in Texas or (ii) eighteen and three-quarter percent (18.75%) if such Unleased Additional Royalty Interest is located in Oklahoma).
15
“Scheduled Closing Date” is defined in Section 2.6.
“Second Stepdown Date” means the one year anniversary of the Closing Date.
“Seller” is defined in the preamble to this Agreement.
“Seller Cap” means, with respect to claims for indemnification initiated (a) prior to the First Stepdown Date, an amount equal to ten percent (10%) of the Unadjusted Purchase Price, (b) on or after the First Stepdown Date and prior to the Second Stepdown Date, an amount equal to the lower of (i) five percent (5%) of the Unadjusted Purchase Price and (ii) the difference between an amount equal to ten percent (10%) of the Unadjusted Purchase Price and the aggregate amount, if any, which any Buyer Indemnified Party has claimed pursuant to Article 9 (to the extent such claims, if any, remain unresolved) and (c) thereafter, solely with respect to claims described in clause (b)(ii) of this definition, the aggregate amount, if any, which any Buyer Indemnified Party claimed as described in clause (b)(ii) pursuant to Article 9 (to the extent such claims, if any, remain unresolved).
“Seller Entitlements” is defined in Section 2.10(a).
“Seller Fundamental Representations” means the representations and warranties of Seller set forth in Sections 3.1, 3.2, 3.5, 3.6, 4.1 and 4.3.
“Seller Indemnified Parties” is defined in Section 9.3(a).
“Seller Losses” is defined in Section 9.3(b).
“Seller Material Adverse Effect” means, with respect to Seller or the Acquired Company, any circumstance, change or effect that is or would reasonably be expected to be materially adverse to (i) the business, operations, results of operations or financial condition of such assets, or such Person or its assets, in each case taken as a whole, or (ii) the performance of Seller’s obligations and covenants hereunder that are to be performed at Closing, but, solely with respect to clause (i) of this definition, shall exclude any circumstance, change or effect resulting or arising from: (a) any change in general conditions in the industries or markets in which the Acquired Company operates, or any change in financial or securities markets or the economy in general, or the imposition of tariffs by any Governmental Authority; (b) any adverse change, event or effect on the global, national or regional energy industry as a whole, including those impacting the gathering, transportation, treatment or processing of oil and gas or the value of oil and gas assets and properties, or any adverse change in energy prices; (c) national or international political conditions, including any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, the occurrence of any military or terrorist attack, a shutdown of the United States federal government or any default on the debt obligations of any sovereign entity; (d) effects of weather, meteorological events, natural disasters, pandemics (including COVID-19) or other acts of God, other than any such effects that involve the physical destruction of the Company Assets; (e) changes in Law or GAAP, or the interpretation thereof; (f) the entry into or announcement of this Agreement, the identity of Buyer as purchaser of the Acquired Company under this Agreement, actions taken or omitted to be taken at the explicit request of Buyer or with the written consent of Buyer, or the consummation of the transactions contemplated hereby; (g) any failure to meet internal or Third Party projections or forecasts or revenue or earnings or reserve predictions (provided that clause (g) shall not prevent a determination that any change, circumstance or effect underlying such failure to meet projections or forecasts or revenue or earnings or reserves predictions has resulted in a Seller Material Adverse Effect); (h) the insolvency, bankruptcy, placing into of receivership or similar proceeding of any operator of any well associated with the Company Assets; or (i) natural declines in well performance or reclassification or recalculation of reserves in the ordinary course of business; except to the extent such circumstance, change or effect resulting or arising from clause (c), (d) or (e) above materially and disproportionately affects the Acquired Company relative to other participants in the industries in which the Acquired Company operates.
16
“Seller Material Contract” is defined in Section 4.8(a).
“Seller Obligations” is defined in Section 2.10(a).
“Seller Tax Representations” means the representations and warranties of Seller set forth in Section 4.7.
“Seller Taxes” means any (a) Income Taxes imposed on (i) Seller, any of its direct or indirect owners or Affiliates (other than the Acquired Company), or any combined, unitary, or consolidated group of which any of the foregoing is or was a member and (ii) the Acquired Company for any Tax period (or portion thereof) ending at or prior to the Closing, (b) Asset Taxes allocable to Seller pursuant to Section 6.8(a) (taking into account, and without duplication of, such Asset Taxes effectively borne by Seller as a result of (1) the adjustments to the Unadjusted Purchase Price made pursuant to Section 2.2 or Section 2.8, and (2) any payments from one Party to the other in respect of Asset Taxes pursuant to the last sentence of Section 6.8(a)), (c) Taxes imposed on or with respect to the ownership or operation of the Excluded Assets, and (d) other Taxes (other than Income Taxes) relating to the ownership or operation of the Company Assets or the production of Hydrocarbons or the receipt of proceeds therefrom that are attributable to any Tax period, or the portion of any Straddle Period, ending prior to the Effective Time.
“Seller Transaction Expenses” means any attorneys’, investment bankers’, accountants’ or other advisors’ or consultants’ fees and expenses and other similar transaction fees and expenses incurred by Seller or any of its Affiliates in connection with the transactions contemplated by this Agreement.
“Special Warranty of Title” is defined in Section 4.11.
“Straddle Period” means any Tax period beginning before and ending after the Effective Time.
“Target Interval” has the meaning set forth on Schedule 1.2.
“Tax Returns” means any rendition, report, return, election, document, estimated tax filing, declaration, claim for refund, information returns or other filing provided to any Governmental Authority in connection with Taxes, including any schedules or attachments thereto and any amendment thereof.
17
“Taxes” means (a) all taxes, assessments, duties, fees, or other similar charges in the nature of tax imposed by a Governmental Authority, including all income, franchise, profits, margins, capital gains, capital stock, transfer, gross receipts, sales, use, transfer, service, occupation, ad valorem, real or personal property, excise, severance, windfall profits, unclaimed property and escheat obligations, customs, premium, stamp, license, payroll, employment, social security, unemployment, disability, environmental, alternative minimum, add-on, value-added, withholding and other taxes, assessments, duties, fees or other similar charges in the nature of a tax imposed by a Governmental Authority, and all estimated taxes, deficiency assessments, additions to tax, penalties and interest with respect to taxes, whether disputed or otherwise; (b) any liability for the payment of any item described in clause (a) as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any period, including pursuant to Treasury Regulations Section 1.1502-6 or any analogous or similar state, local or foreign Law; (c) any liability for the payment of any item described in clause (a) or (b) as a result of any express obligation to indemnify any Person or as a result of any obligations under any agreements or arrangements with any Person with respect to such item; or (d) any successor or transferee liability for the payment of any item described in clause (a), (b) or (c) of any Person, including by reason of being a party to any merger, consolidation or conversion.
“Termination Amount” is defined in Schedule 8.3(b).
“Third Party” means any Person other than (a) Seller or any of its Affiliates or (b) Buyer or any of its Affiliates.
“Third Party Acquisition” is defined in Section 6.12(c).
“Third-Party Claim” means a third-party claim asserted against an Indemnified Party by a Person other than (a) an Affiliate of such Indemnified Party or (b) any officer, director, member, partner, equityholder or employee of any such Indemnified Party or its Affiliates.
“Title Benefit” means any right, circumstance, or condition that entitles the Acquired Company in the case of any Company Oil and Gas Property listed on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, to a number of Net Royalty Acres greater than that shown for such Company Oil and Gas Property on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable.
“Title Benefit Value” is defined in Section 2.4(e).
“Title Claim Date” is defined in Section 2.4(d)(i)(A).
“Title Consultant” is defined in Section 2.4(d)(ii)(C).
“Title Defect” means any lien, charge, encumbrance, obligation or other defect, except for the Permitted Encumbrances, that in the case of any Company Oil and Gas Property listed on Exhibit A-1, Exhibit A-2, or Exhibit A-3, as applicable, causes the Acquired Company’s title to be less than Defensible Title as of the Closing Date.
“Title Defect Notice” is defined in Section 2.4(d)(i)(A).
“Title Defect Threshold” is defined in Section 2.4(d)(i)(D)(6).
18
“Title Defect Value” is defined in Section 2.4(d)(i)(D).
“Title Dispute” is defined in Section 2.4(d)(ii)(A).
“Title Dispute Notice” is defined in Section 2.4(d)(ii)(A).
“Transaction Documents” means the Escrow Agreement, the Assignment Agreement and the other agreements, document, instruments and certificates to be delivered by any Party at the Closing, and any other agreements, documents, instruments and certificates to be delivered by any Party in connection with this Agreement or the Closing.
“Transfer Taxes” is defined in Section 6.7(b).
“Treasury Regulations” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to Sections of the Treasury Regulations will include any corresponding provision or provisions of succeeding, similar, substitute, proposed or final Treasury Regulations.
“Unadjusted Purchase Price” is defined in Section 2.1.
“Unaudited Financial Statements” is defined in Section 4.5(b).
“United States” means the United States of America.
“Unleased Additional Royalty Interest” means each Additional Royalty Interest identified on Exhibit A-3 that is not a Leased Additional Royalty Interest.
“Unleased Mineral Interest” means each Mineral Interest identified on Exhibit A-1 or Exhibit A-2, as applicable, that is not a Leased Mineral Interest.
“Walk-Right Amounts” means the sum of the adjustments to the Unadjusted Purchase Price pursuant to Sections 2.4(b)(i), 2.4(b)(ii), 2.4(d)(i)(C) and 2.4(d)(ii)(B).
“Walk-Right Threshold” means an amount equal to twenty percent (20%) of the Unadjusted Purchase Price.
1.2 Rules of Construction.
(a) All article, section and exhibit references used in this Agreement are to articles and sections of, and exhibits to, this Agreement unless otherwise specified. The schedules and exhibits attached to this Agreement constitute a part of this Agreement and are incorporated herein for all purposes. All schedule references used in this Agreement are to the applicable Disclosure Schedules, unless otherwise specified.
(b) If a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb). Terms defined in the singular have the corresponding meanings in the plural, and vice versa. Unless the context of this Agreement clearly requires otherwise, words importing the masculine gender shall include the feminine and neutral genders and vice versa. The term “includes” or “including” shall mean “including without limitation.” The words “hereof,” “hereto,” “hereby,” “herein,” “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular section or article in which such words appear.
19
(c) The Parties acknowledge that each Party and its attorneys have reviewed this Agreement and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting Party, or any similar rule operating against the drafter of an agreement, shall not be applicable to the construction or interpretation of this Agreement.
(d) The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
(e) All references to currency herein shall be to, and all payments required hereunder shall be paid in, Dollars.
ARTICLE 2
Purchase and Sale; Closing; Escrow
2.1 Purchase and Sale of Acquired Interests. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, transfer and convey to Opco the Acquired Interests owned by Seller, in exchange for the payment by Opco to Seller of an aggregate amount of Four Hundred and Fifty-Five Million Dollars ($455,000,000) in cash (the “Unadjusted Purchase Price”).
2.2 Consideration; Adjustment of Purchase Price at Closing. The Parties acknowledge and agree that the Unadjusted Purchase Price was derived based on the aggregate Allocated Values of the Company Assets as set forth on Exhibit A-1, Exhibit A-2 and Exhibit A-3. At Closing, the Unadjusted Purchase Price shall be adjusted as follows:
(a) The Unadjusted Purchase Price shall be increased by the sum of the following, without duplication:
(i) the amount equal to the Cash Amount as of the Closing Date;
(ii) the amount equal to all Operating Expenses paid by Seller or the Acquired Company that are attributable to the Acquired Company or the Company Assets from and after the Effective Time, whether paid before or after the Effective Time;
(iii) the amount equal to the revenues, income, proceeds, receipts and credits received by Buyer or the Acquired Company (and not otherwise distributed to Seller) and attributable to the period before the Effective Time (without duplication of any amounts attributable to the Cash Amount), including on account of any leasing activity (including lease extensions, lease bonuses and delay rentals);
(iv) the amount of all Asset Taxes allocable to Buyer pursuant to Section 6.8(a) but paid or economically borne by Seller (or any of its owners or Affiliates); and
20
(v) any other amount otherwise explicitly agreed upon in writing by Seller and Buyer.
(b) The Unadjusted Purchase Price shall be decreased by the sum of the following, without duplication:
(i) the amount equal to all Operating Expenses paid by Buyer or the Acquired Company (to the extent the Acquired Company has not paid such amounts prior to Closing) that are attributable to the Acquired Company or the Company Assets prior to the Effective Time, whether paid before or after the Effective Time;
(ii) the amount equal to the revenues, income, proceeds, receipts and credits received by Seller attributable to the period on or after the Effective Time, including on account of any leasing activity (including lease extensions, lease bonuses and delay rentals);
(iii) the sum of the adjustments to the Unadjusted Purchase Price pursuant to Sections 2.4(b)(i), 2.4(b)(ii), 2.4(d)(i)(C) and 2.4(d)(ii)(B) (subject to any offsets to such adjustments pursuant to Section 2.4(e));
(iv) the amount of Seller Transaction Expenses paid by or on behalf of Buyer (but not by or on behalf of Seller) pursuant to Section 2.3(a) or payable by Buyer or the Acquired Company, if any;
(v) an amount equal to the amount of any Indebtedness for Borrowed Money of the Acquired Company as of the Closing Date;
(vi) the amount of all Asset Taxes allocable to Seller pursuant to Section 6.8(a) but paid or economically borne by Buyer (or any of its Affiliates); and
(vii) any other amount otherwise agreed upon in writing by Seller and Buyer.
(c) The net amount of the adjustments set forth in Section 2.2(a) and Section 2.2(b) shall be referred to as the “Purchase Price Adjustment.” The Unadjusted Purchase Price as adjusted by the Purchase Price Adjustment shall be referred to as the “Adjusted Purchase Price.”
2.3 Payment of Transaction Expenses; Closing Statement.
(a) Subject to the terms of this Section 2.3(a), the Buyer Transaction Expenses shall be borne solely and entirely by Buyer. Seller Transaction Expenses shall be borne solely and entirely by Seller; provided, however, that if requested by Seller, Buyer shall at Closing fund all or a portion of the Seller Transaction Expenses on behalf of Seller by wire transfer of immediately available funds to the account (or accounts), as specified by Seller to Buyer in writing no later than two (2) Business Days prior to the Closing Date, and such amounts paid by Buyer shall reduce the Unadjusted Purchase Price as set forth in Section 2.2(b)(iv).
21
(b) Not later than five (5) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement (the “Closing Statement”) setting forth Seller’s good faith estimate of the Adjusted Purchase Price calculated pursuant to Section 2.2, which statement shall include in reasonable detail Seller’s good faith estimate of the Cash Amount as of the Closing Date, the other amounts described in Section 2.2(a) and Section 2.2(b), the amount of all Asset Taxes allocable to Buyer pursuant to Section 6.8(a) but paid or economically borne by Seller (if any), and the amount of all Asset Taxes allocable to Seller pursuant to Section 6.8(a) but paid or economically borne by Buyer (or its Affiliates) (if any). If Buyer disputes any item in the Closing Statement, Buyer shall so notify Seller within two (2) Business Days prior to the Closing Date and Seller and Buyer shall use their commercially reasonable efforts to agree on the Closing Statement prior to Closing; provided that if Seller and Buyer are not able to agree on the Closing Statement prior to Closing, Closing shall not be delayed on account of such disagreement and the Closing Statement delivered by Seller will be used to adjust the Unadjusted Purchase Price at Closing absent manifest error. Any final adjustments, if necessary, will be made pursuant to Section 2.8 of this Agreement.
(c) Buyer shall treat any amounts that Buyer pays relating to Seller Transaction Expenses as part of the Unadjusted Purchase Price for U.S. federal Income Tax purposes and any other applicable Tax purposes (and therefore included in the basis of the Company Assets acquired for such purposes) and will not take any Tax deduction for such amounts.
2.4 Title Review.
(a) To allow Buyer to conduct due diligence with respect to the Acquired Company, Seller shall make the Records available in accordance with Section 6.2 to Buyer, and Buyer’s authorized Representatives, in a virtual data room and/or at the election of Seller, at the applicable office(s) of Seller, at mutually agreeable times before Closing. With the permission of Seller, Buyer may photocopy the Records at its sole expense.
(b) Preferential Rights and Consents to Assign.
(i) Notices to Holders. If the conveyance of the Acquired Company would trigger any Third Party preferential purchase rights, rights of first refusal, or similar rights (collectively, “Preferential Rights”), or, other than Customary Post-Closing Consents, any Third Party consents to assign or similar rights (collectively, “Consents”) that, in either case, would be triggered by the consummation of the transactions contemplated hereby, then, as soon as reasonably practical (and in any event, within ten (10) Business Days after the date of this Agreement), Seller shall: (A) notify such holders of the Preferential Rights and Consents, including those identified on Schedule 2.4(b)(i) that it intends to transfer the Acquired Interests to Buyer; (B) provide the holders of such Preferential Rights and Consents with any information about the transfer of the Acquired Interests to which they are entitled; (C) in the case of such Preferential Rights, request the holders of such Preferential Rights to waive their right to purchase the affected Company Asset; and (D) in the case of such Consents, request the holders of such Consents to consent to the assignment of the affected Company Asset to Buyer. Before Closing, Seller shall notify Buyer whether: (1) any Preferential Rights are exercised or waived; (2) any Consents are granted or denied or cannot be obtained before Closing; or (3) the requisite time periods have elapsed and any Preferential Rights are deemed waived or Consents deemed given by the lapse of such requisite time periods under the applicable agreements. If any Preferential Rights are exercised, the portion of the Company Asset burdened by the exercised Preferential Right shall be assigned by the Acquired Company back to Seller and excluded from Closing, and the Unadjusted Purchase Price shall be reduced by the Allocated Value of the excluded portion of the Company Assets.
22
(ii) Remedies. Before Closing, Buyer and Seller shall use commercially reasonable efforts to obtain all Consents and waivers of all Preferential Rights encumbering the conveyance of the Company Assets; provided that neither Party shall be required to incur any liability or pay any money to a Third Party in order to obtain such Consents and waivers. If Seller is unable to obtain a Required Consent or a waiver of a Preferential Right, then, any Company Asset subject to such Preferential Right or Required Consent shall be excluded from Closing, and the Unadjusted Purchase Price shall be reduced by the Allocated Value of such Company Asset. After Closing, Seller shall attempt to obtain any un-obtained Required Consents, including Required Consents alleged by Third Parties or identified after Closing, and un-waived Preferential Rights, and Buyer shall provide reasonable assistance to Seller. In the event that after Closing, but before the Final Settlement Date, Seller is able to obtain a Required Consent or waiver of a Preferential Right affecting an Company Asset which was excluded from Closing pursuant to this Section 2.4(b), then, within ten (10) days of Buyer’s receipt of such Required Consent or wavier of Preferential Right, Seller shall convey the Company Asset affected by any such Required Consent or Preferential Right pursuant to a form of assignment that is mutually agreeable to Buyer and Seller, and Buyer shall pay Seller the amount by which the Unadjusted Purchase Price was reduced at Closing for such Company Asset.
(c) General Disclaimer of Title Warranties and Representations. Except for the Special Warranty of Title and the express representations and warranties set forth in Article 4, and without limiting Buyer’s remedies for Title Defects set forth in this Section 2.4(c) (or Buyer’s remedies for Seller’s failure to obtain Consents or waivers of Preferential Rights as set forth in Section 2.4(b)(ii)), Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to Acquired Company’s title to any of the Company Oil and Gas Properties, and Buyer hereby acknowledges and agrees that it has not relied upon any such representation or warranty. Buyer hereby acknowledges and agrees that, without limiting Buyer’s rights and remedies under Section 8.1(d), Buyer’s sole and exclusive remedy for (i) any failure by Seller to obtain Consents or waivers of Preferential Rights as contemplated by Section 2.4(b)(ii) shall be as set forth in Section 2.4(b)(ii), and (ii) any defect in title or any other title matter (including any Title Defect with respect to any of the Company Oil and Gas Properties or otherwise) (A) before the Title Claim Date, shall be as set forth in Section 2.4(d) and (B) after the Title Claim Date (subject to the limitations set forth in Section 9.1 and Section 9.6), shall be pursuant to the Special Warranty of Title, and the Special Warranty of Title shall be further limited to the Allocated Value of the affected Company Oil and Gas Properties. Buyer hereby expressly waives any and all other rights or remedies with respect thereto. Buyer is not entitled to protection under the Special Warranty of Title for (I) any matter reported by Buyer under Section 2.4(c) and/or (II) any matter which Buyer had Knowledge of prior to the Title Claim Date.
23
(d) Title Defects.
(i) Notice of Title Defects; Defect Adjustments.
(A) On or before five (5) days before Closing (the “Title Claim Date”) Buyer will notify Seller in writing of any Title Defect it discovers with respect to a Company Oil and Gas Property (each a, “Title Defect Notice”). For all purposes of this Agreement and notwithstanding anything herein to the contrary (except for the Special Warranty of Title), Buyer shall be deemed to have waived, and Seller shall have no liability for, title to any alleged Title Defect, that Buyer fails to assert by a Title Defect Notice delivered to Seller on or before the Title Claim Date. Such notice shall be in writing and shall include: (i) a reasonably detailed description of the alleged Title Defect; (ii) the Company Oil and Gas Property affected; (iii) the Allocated Value of the Company Oil and Gas Property subject to the alleged Title Defect(s); (iv) supporting documentation reasonably necessary for Seller to verify the existence of such Title Defect (including copies of any title opinions, title abstracts, ownership reports, run sheets, deeds, leases or other document, reports or data, to the extent available to Buyer and used in connection with Buyer’s assessment of such alleged Title Defect(s)); and (v) the alleged Title Defect Value of the affected Company Oil and Gas Property and the computations and information upon which Buyer’s belief is based. To give Seller an opportunity to commence reviewing and curing Title Defects but without prejudice to Buyer’s right to assert Title Defects, Buyer agrees to use commercially reasonable efforts to give Seller, on or before the end of each calendar week prior to the Title Claim Date, written notice of all alleged Title Defects discovered by Buyer during the preceding calendar week, which notice may be preliminary in nature and supplemented prior to the Title Claim Date; provided that the failure to provide any such preliminary notice shall not be deemed to waive or prejudice Buyer’s right to assert Title Defects at any time not later the Title Claim Date.
(B) If any Title Defect affecting any Company Oil and Gas Property is properly asserted by Buyer in accordance with Section 2.4(d)(i)(A) and not waived in writing by Buyer or cured on or before Closing, Seller may, for a period of ninety (90) days following the Closing Date (such period, the “Cure Period”), elect to cure any such Title Defect that Seller in good faith believes can be cured during the Cure Period. The election by Seller to seek to cure such Title Defect must be made by written notice delivered to Buyer within three (3) Business Days prior to the Closing Date. Any Company Oil and Gas Property for which Seller has elected to cure a Title Defect under this paragraph shall be referred to as a “Curable Property”.
24
(C) At the Closing, the Acquired Company shall retain all right, title and interest in and to the Curable Properties. The adjustments to the Unadjusted Purchase Price under Section 2.2(b)(iii) will include the asserted Title Defect Values for all Title Defects affecting the Curable Properties that have been properly asserted in good faith by Buyer in accordance with Section 2.4(d)(i)(A) and not waived in writing by Buyer or cured on or before Closing and Buyer shall pay an amount in cash equal to the asserted Title Defect Value associated with such Curable Properties to the Escrow Agent in accordance with Section 2.7(c). If Seller cures such Title Defect during the Cure Period, then Buyer and Seller shall instruct the Escrow Agent to pay to Seller the amount that the Unadjusted Purchase Price was adjusted under Section 2.2(b)(iii) (subject to any further adjustments under Section 2.2 in respect of the applicable Oil and Gas Property) with respect to such Curable Property on account of such Title Defect at the end of the Cure Period to the extent such Title Defect is cured during the Cure Period. If a Title Defect burdening a Curable Property is not cured on or before the end of the Cure Period, then subject to Section 2.4(d)(i)(D)(5) and Section 2.4(d)(ii), Buyer and Seller shall instruct the Escrow Agent to pay to Buyer the amount that the Unadjusted Purchase Price was adjusted under Section 2.2(b)(iii) (subject to any further adjustments under Section 2.2 in respect of the applicable Oil and Gas Property) with respect to such Curable Property which was not cured on or before the end of the Cure Period.
(D) The “Title Defect Value” resulting from a Title Defect shall be determined as follows:
(1) if Buyer and Seller agree on the Title Defect Value, that amount shall be the Title Defect Value;
(2) if the Title Defect is a Lien which is undisputed and liquidated in amount, then the Title Defect Value shall be the amount necessary to be paid to remove the Title Defect from Seller’s interest in the affected Company Oil and Gas Property;
(3) if the Title Defect results from a discrepancy between (A) the Acquired Company’s Net Royalty Acre ownership in a Mineral Interest and (B) the Net Royalty Acres set forth for such Mineral Interest on Exhibit A-1 or Exhibit A-2, as applicable, then the Title Defect Value shall be the product of the Allocated Value of such Mineral Interest, multiplied by a fraction, the numerator of which is the difference between the number of Net Royalty Acres owned by the Acquired Company in such Mineral Interest as to the applicable Lands and the number of Net Royalty Acres set forth for such Mineral Interest in Exhibit A-1 or Exhibit A-2, as applicable, and the denominator of which is the Net Royalty Acres set forth for such Mineral Interest on Exhibit A-1 or Exhibit A-2, as applicable
25
(4) if the Title Defect results from a discrepancy between (A) the Acquired Company’s Net Royalty Acre ownership in an Additional Royalty Interest and (B) the Net Royalty Acres set forth for such Additional Royalty Interest on Exhibit A-3, then the Title Defect Value shall be the product of the Allocated Value of such Additional Royalty Interest, multiplied by a fraction, the numerator of which is the difference between the number of Net Royalty Acres owned by the Acquired Company in such Additional Royalty Interest as to the applicable Lands and the number of Net Royalty Acres set forth for such Additional Royalty Interest in Exhibit A-3 and the denominator of which is the Net Royalty Acres set forth for such Additional Royalty Interest on Exhibit A-3;
(5) if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Company Oil and Gas Properties of a type not described in clauses (1), (2), (3) or (4) above, the Title Defect Value shall be determined by taking into account the Allocated Value of the affected Company Oil and Gas Property, the portion of such Company Oil and Gas Properties adversely affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of Company Oil and Gas Properties, the values placed upon the asserted Title Defect by Buyer and Seller and such other factors as are necessary to make a proper evaluation; and
(6) notwithstanding anything to the contrary in this Section 2.4(d), Buyer shall have no remedy hereunder for any Title Defect unless: (A) the Title Defect Value for such Title Defect exceeds one hundred twenty-five thousand Dollars ($125,000) net to Seller’s interest in the relevant Company Oil and Gas Property (the “Title Defect Threshold”), in which event the value of such defect will be taken into account from first Dollar; and (B) the sum of the aggregate Title Defect Values for Title Defects with Title Defect Values exceeding the Title Defect Threshold exceeds one percent (1%) of the Unadjusted Purchase Price, and then only to the extent such amount exceeds one percent (1%) of the Unadjusted Purchase Price. For the avoidance of doubt, if any single matter applies to or affects multiple Company Oil and Gas Properties, Buyer may aggregate the economic impact applicable to all such Company Oil and Gas Properties arising from such single matter and the issue shall be treated as a single Title Defect for purposes of determining whether the Title Defect Threshold has been met.
(E) Notwithstanding anything to the contrary in this Agreement, the aggregate adjustments to the Unadjusted Purchase Price attributable to the effects of all Title Defects, with respect to any Company Oil and Gas Properties, shall not exceed the Allocated Value of such affected Company Oil and Gas Properties.
26
(ii) Title Defect Disputes.
(A) Seller and Buyer shall attempt to agree on all Title Defect Values (i) on or prior to the Closing Date or (ii) with respect to disputes over the adequacy of Seller’s post-Closing Date curative work, the end of the Cure Period. If a disputed Title Defect or Title Defect Value cannot be resolved (y) on or prior to Closing or (z) with respect to disputes over the adequacy of Seller’s post-Closing Date curative work, the end of the Cure Period, then in each case, any Party may submit any such disputed Title Defects, cures and Title Defect Values to the Title Consultant in accordance with the procedures set forth in Section 2.4(d)(ii)(C) by providing notice to the other Party thereof (a “Title Dispute Notice”) no later than thirty (30) days following the Closing Date or the end of the Cure Period, as applicable (the “Title Dispute”). If a Party does not submit a Title Dispute Notice to the other Party in accordance with this Section 2.4(d)(ii)(A), such Party shall be deemed to have waived all such disputed matters, which shall be deemed conclusively resolved in accordance with the applicable Title Defect Notice or subsequent correspondence between the Parties.
(B) If a disputed Title Defect or Title Defect Value cannot be resolved prior to Closing, except as otherwise provided herein, Seller shall retain all right, title and interest in and to the Company Oil and Gas Properties affected by such Title Defect, Buyer shall pay an amount in cash equal to the alleged Title Defect Value for such Company Oil and Gas Property to the Escrow Agent in accordance with Section 2.7(c) and the adjustments to the Unadjusted Purchase Price under Section 2.2(b)(iii) shall include such Title Defect Value.
(C) If a Party validly submits a Title Dispute Notice under Section 2.4(d)(ii)(A), then the Parties shall each submit such unresolved Title Dispute to a title attorney (the “Title Consultant”), pursuant to this Section 2.4(d)(ii)(C).
(1) The Parties hereby agree that: (i) Allen D. Cummings shall serve as the Title Consultant with respect to any Title Disputes that are required to be resolved pursuant to this Section 2.4(d)(ii)(C)(1); (ii) if Allen D. Cummings is unable or unwilling to serve as the Title Consultant, then Jeff Weems shall serve as the Title Consultant with respect to any Title Disputes that are required to be resolved pursuant to this Section 2.4(d)(ii)(C)(1); provided, further, that if both Allen D. Cummings and Jeff Weems are unable or unwilling to serve as the Title Consultant, then Bradley Gibbs shall serve as the Title Consultant with respect to any Title Disputes that are required to be resolved pursuant to this Section 2.4(d)(ii)(C)(1); or (iii) if Allen D. Cummings, Jeff Weems and Bradley Gibbs are unable or unwilling to serve as the Title Consultant, then the provisions of Section 2.4(d)(ii)(C)(2) applicable to the selection of the Title Consultant shall apply mutatis mutandis to the selection of the Title Consultant.
27
(2) The Title Consultant shall be a neutral third party title attorney with at least ten (10) years’ experience in oil and gas title opinions, as selected by Section 2.4(d)(ii)(C)(1). In the event that Section 2.4(d)(ii)(C)(1)(iii) is applicable, the Parties shall each select a third party title attorney and such title attorneys together shall select such Title Consultant, and if any Party does not select a Title Consultant within ten (10) days of written demand therefor by the other Party, then the title attorney selected by the other Party shall be such Title Consultant. The Title Consultant shall not have been employed by any Party or its Affiliates within the ten (10) year period preceding the arbitration. The Title Consultant, once appointed, shall have no ex parte communications with any of the Parties concerning the determination required hereunder. All communications between any Party or its Affiliates and the Title Consultant shall be conducted in writing, with copies sent simultaneously to the other Party in the same manner, or at a meeting or conference call to which the representatives of both Seller and Buyer have been invited and of which such Parties have been provided at least five (5) days’ notice. Within ten (10) days of appointment of the Title Consultant, (x) each of Seller and Buyer shall present the Title Consultant with its claim notice or its response, as applicable, and (y) Seller shall present the Title Consultant with all other supporting information that it desires, and Buyer shall present the Title Consultant with all other supporting information that it desires that was contained in the original Title Defect Notices, with a copy to the other Party. The Title Consultant shall also be provided with a copy of this Agreement. Within thirty (30) days after receipt of such materials and after receipt of any additional information required by the Title Consultant, the Title Consultant shall make its determination, which shall be final and binding upon all Parties, without right of appeal, absent manifest error. In making his determination, the Title Consultant shall be bound by the rules set forth in this Section 2.4(d)(ii). The Title Consultant shall act as an expert for the limited purpose of determining: (1) the existence of any timely asserted Title Defect in dispute; (2) whether any disputed curative action has succeeded in curing a Title Defect; and (3) specific disputed Title Defect Values submitted by either Party. The Title Consultant may not award damages, interest or penalties to either Party with respect to any matter. Seller and Buyer shall each bear its own legal fees and other costs of presenting its case. Seller shall bear one-half (1/2), and Buyer shall bear one-half (1/2) of the costs and expenses of the Title Consultant.
28
(e) Title Benefits.
(i) If Seller discovers any Title Benefit on or before the Title Claim Date, Seller may, as soon as practicable but in any case on or prior to the Title Claim Date, deliver a notice to Buyer, which shall include: (A) a detailed description of the alleged Title Benefit; (B) the specific Company Oil and Gas Property affected; (C) the Allocated Value of the Company Oil and Gas Property subject to the alleged Title Benefit; (D) supporting documentation reasonably necessary for Buyer to verify the existence of such Title Benefit (including copies of any title opinions, title abstracts, ownership reports, run sheets, deeds, leases or other document, reports or data, to the extent used in connection with Seller’s assessment of such alleged Title Benefit); and (E) the alleged Title Benefit value of the affected Company Oil and Gas Property and the computations and information upon which Seller’s belief is based. With respect to each Company Oil and Gas Property affected by a Title Benefit reported hereunder, an amount (the “Title Benefit Value”) equal to the increase in the Allocated Value for such Company Oil and Gas Property caused by such Title Benefit (calculated in a similar manner as the determination of Title Defect Values in accordance with the terms of Section 2.4(d)(i)(D), mutatis mutandis) will be determined and agreed to by the Parties as soon as practicable. If, with respect to a Title Benefit, the Parties have not agreed on the amount of the Title Benefit or have not otherwise agreed on the validity of such Title Benefit, Buyer and Seller shall have the right to elect to have such Title Benefit Value determined by a Title Consultant pursuant to and in accordance with the provisions regarding a disputed Title Defect set forth in Section 2.4(d)(ii)(C). Notwithstanding anything to the contrary in this Section 2.4(e), the Title Benefit Value with respect to all Title Benefits shall be used solely to offset any reductions to the Unadjusted Purchase Price as a result of the aggregate of all Title Defect Values. For the avoidance of doubt, Title Benefit Value shall in no event increase the Unadjusted Purchase Price.
(ii) If Buyer discovers any Title Benefit on or before the Title Claim Date, Buyer shall, as soon as practicable but in any case on or prior to the Title Claim Date, deliver to Seller a notice meeting the requirements of Section 2.4(e)(i).
(f) In the event either Party notifies the other Party of the intention to terminate this Agreement in accordance with Section 8.1(e), Seller or Buyer may, prior to giving effect to Section 8.1(e), as applicable, elect to submit all disputed Title Defects and Title Defect Values to the Title Consultant in accordance with the procedures set forth in Section 2.4(d)(ii)(C); provided, that notwithstanding anything to the contrary in Section 2.4(d)(ii)(C), such proceeding shall be solely to determine whether the aggregate adjustments pursuant to Section 2.2(b)(iii) in respect of any disputed Title Defects and Title Defect Values asserted by Buyer in good faith would, when taken together with all other adjustments pursuant to Section 2.2(b)(iii) for finally determined Title Defect Values and all other adjustments pursuant to Section 2.2(b)(iii), trigger the termination right under Section 8.1(e). For the avoidance of doubt, if Seller or Buyer elect to submit to the Title Consultant in accordance with this Section 2.4(f), neither Party may terminate this Agreement pursuant to Section 8.1(e) until final resolution of such arbitration unless the termination right under Section 8.1(e) would otherwise apply solely by virtue of any undisputed Title Defect Values, together with the exclusion of any Company Oil and Gas Property pursuant to Section 2.4(b) or Section 2.4(d).
29
(g) Acceptance of Title Condition. Except as otherwise set forth in this Agreement, Buyer Represents and warrants that it has BEEN PROVIDED OPPORTUNITY TO CONFIRM THE ACQUIRED COMPANY’S DEFENSIBLE TITLE TO the COMPANY OIL AND GAS PROPERTIES and upon Closing, SUBJECT TO THE TERMS OF THIS AGREEMENT, Buyer will accept the COMPANY OIL AND GAS PROPERTIES at Closing in the present condition, “AS IS AND WHERE IS AND WITH ALL FAULTS.” Buyer acknowledges and agrees that, except as otherwise set forth in this Agreement, Seller has made no representations or warranties of any kind, express or implied, written, oral or otherwise, as to the accuracy or completeness of the background materials or any other information relating to the COMPANY OIL AND GAS PRoperties furnished by or on behalf of Seller or to be furnished to Buyer or its representatives, including Seller’S internal appraisals and interpretive data.
2.5 Closing Payment and Transfer of Interests.
(a) At the Closing, Seller shall deliver (or cause to be delivered) to Opco:
(i) an assignment agreement transferring all of Seller’s Acquired Interest, substantially in the form attached as Exhibit C hereto, duly and validly executed by Seller (the “Assignment Agreement”);
(ii) either (x) an IRS Form W-9 of Seller (or its regarded owner, if Seller is disregarded as separate from its owner for U.S. federal Income Tax purposes) or (y) a certificate meeting the requirements of Treasury Regulations Section 1.1445-2(b)(2) providing that Seller (or its regarded owner, if Seller is disregarded as separate from its owner for U.S. federal Income Tax purposes) is not a “foreign person” within the meaning of Section 1445 of the Code, in each case in the form and substance reasonably satisfactory to Buyer, dated as of the Closing Date and duly executed by Seller;
(iii) a certificate dated as of the Closing Date duly executed by an officer or other authorized person of Seller regarding the satisfaction of the conditions set forth in Sections 7.1(a) and 7.1(b), substantially in the form attached hereto as Exhibit D;
(iv) written resignations of the directors and officers of the Acquired Company that are identified on Schedule 2.5(a)(iv), effective prior to or concurrently with Closing;
(v) a mutual release of any and all claims between the Acquired Company, on the one hand, and Seller (on its behalf and on behalf of its Affiliates other than the Acquired Company) and each officer and director thereof, on the other hand, substantially in the form attached hereto as Exhibit B;
(vi) [Reserved];
30
(vii) to the extent any are listed, evidence of the termination of the Contracts listed on Schedule 6.13 and a release of the Acquired Company, Buyer and its and their Affiliates from any and all liabilities and continuing obligations under or with respect thereto, if any;
(viii) a Joint Instruction Letter instructing the Escrow Agent to release the Closing Escrow Amount to Seller, duly executed by Seller; and
(ix) such other documents, instruments and writings as may be reasonably required to be delivered by Seller to Buyer at Closing to effect the transactions contemplated by this Agreement;
(b) At the Closing, Opco shall:
(i) Pay to Seller, in cash by wire transfer of immediately available funds to the account or accounts designated by Seller, an amount equal to the Adjusted Purchase Price as set forth on the Closing Statement minus the Escrow Amount; provided, that the Escrow Indemnity Amount will be held for release until the Escrow Release Date pursuant to Section 9.5(c) and the Escrow Agreement.
(ii) deliver to Seller:
(A) a certificate dated as of the Closing Date duly executed by an officer of Buyer regarding the satisfaction of the conditions set forth in Sections 7.2(a) and 7.2(b), substantially in the form attached hereto as Exhibit E;
(B) [Reserved];
(C) a Joint Instruction Letter instructing the Escrow Agent to release the Closing Escrow Amount to Seller, duly executed by Buyer; and
(D) such other documents, instruments and writings as may be reasonably required to be delivered by Buyer to Seller at Closing to effect the transactions contemplated by this Agreement.
2.6 Closing. Subject to Section 8.1, the closing of the sale and transfer of the Acquired Interests to Opco as contemplated by this Agreement (the “Closing”) shall take place electronically through the exchange of facsimile electronic transmittal (PDF) copies of documents via e-mail (with hard copies of such documents to be delivered as requested by each Party) on September 13, 2023 (the “Scheduled Closing Date”), or if all conditions to the obligations of the Parties set forth in Section 7.1 and Section 7.2 to be satisfied prior to Closing have not yet been satisfied or waived on the Scheduled Closing Date, within three (3) Business Days after such conditions have been satisfied or waived, or such other date as Buyer and Seller may mutually determine (the date on which the Closing occurs is referred to herein as the “Closing Date”).
31
2.7 Escrow.
(a) Within one (1) Business Day after the execution and delivery of this Agreement, Opco will pay to the Escrow Agent in cash, by wire transfer of immediately available funds, an earnest money deposit equal to ten percent (10%) of the Unadjusted Purchase Price (together with any interest or other amounts earned on such amount, the “Escrow Amount”) to be deposited in the Escrow Account pursuant to the Escrow Agreement. At Closing, the Escrow Amount will be applied against the Unadjusted Purchase Price in accordance with Section 2.5(b)(i) and the Escrow Indemnity Amount shall remain in escrow and be distributed in accordance with Section 9.5(c). If Closing does not occur, then the Escrow Amount shall be otherwise distributed by the Escrow Agent in accordance with Section 8.3.
(b) At Closing, Opco will deposit into the Escrow Account any Title Defect Value related to Curable Properties and disputed Title Defects or disputed Title Defect Values, pursuant to the Escrow Agreement. No later than five (5) Business Days following the resolution (including by resolution of the Parties) of the cure of any Title Defects affecting the Curable Properties pursuant to Section 2.4(d)(i)(B), Buyer and Seller shall within three (3) Business Days of such resolution execute a Joint Instruction Letter instructing the Escrow Agent to release from the Escrow Amount to Seller, the Title Defect Value with respect to such Curable Properties to the extent such Title Defect is cured during the Cure Period. No later than five (5) Business Days following the resolution (including by resolution of the Parties) of any disputed Title Defect or Title Defect Value pursuant to Section 2.4(d)(ii)(C), as applicable, Buyer and Seller shall within three (3) Business Days of such resolution execute a Joint Instruction Letter instructing the Escrow Agent to release from the Escrow Amount the amounts so determined to be owed to either Party with respect to such disputed matter. Only upon final resolution of all matters for which funds were deposited into the Escrow Account as a result of Title Defects asserted by Seller, and the release to Seller of all such amounts due to Seller from the Escrow Account, then, Seller and Buyer shall execute a Joint Instruction Letter instructing the Escrow Agent to release from the Escrow Account the then-remaining Title Defect Value(s), including any attributable to a Curable Property which was not cured on or prior to the end of the Cure Period, if any, to Opco.
(c) Releases of any portion of the Escrow Amount shall be made only in accordance with (i) written instructions that are jointly signed by Seller and Buyer, which instructions shall be in a form that complies with the requirements of the Escrow Agreement (a “Joint Instruction Letter”), and (ii) requirements in the Escrow Agreement relating to a final order, and, in each case, Article 9, and shall specify the amount of the Escrow Amount to be released and the Person or Persons to whom such Escrow Amount shall be released.
(d) In the event of a conflict between the Escrow Agreement and this Agreement, this Agreement shall govern. If any Party receives a release of any portion of either the Escrow Amount to which it is not entitled pursuant to the terms of this Agreement, such Party shall (i) if another Party is entitled to such Escrow Amount at that time, transfer such Escrow Amount to such other Party, or (ii) if no other Party is entitled to such Escrow Amount at that time, deposit such Escrow Amount with the Escrow Agent.
32
2.8 Post-Closing Adjustment.
(a) Revised Closing Statement. On or before the date that is one hundred twenty (120) days after the Closing Date, Buyer shall prepare and deliver to Seller a revised Closing Statement setting forth its assessment of (i) the final amounts described in Sections 2.2(a) and 2.2(b) and the amount of Seller Transaction Expenses actually funded by Buyer, in each case as of or on the Closing Date, as applicable and (ii) the amount of all Asset Taxes allocable to Buyer pursuant to Section 6.8(a) but paid or economically borne by Seller (if any), (iii) the amount of all Asset Taxes allocable to Seller pursuant to Section 6.8(a) but paid or economically borne by Buyer (if any) and (iv) all Buyer Entitlements, Buyer Obligations, Seller Entitlements and Seller Obligations then known to Buyer. Buyer shall provide to Seller such data and information as Seller may reasonably request supporting the amounts reflected on the revised Closing Statement (and reasonable access to Buyer’s personnel, including internal accountants, during normal business hours) to permit Seller to perform or cause to be performed an audit of the revised Closing Statement, at Seller’s expense. The revised Closing Statement shall become final and binding upon the Parties on the date (the “Final Settlement Date”) that is thirty (30) days following receipt thereof by Seller unless Seller gives Notice of its disagreement (“Notice of Disagreement”) to Buyer prior to the Final Settlement Date, it being understood that the Notice of Disagreement shall not include matters contemplated by Section 2.4. Any Notice of Disagreement shall specify in reasonable detail the Dollar amount, nature, and basis of any disagreement so asserted. If a Notice of Disagreement is received by Buyer by the Final Settlement Date, then the Closing Statement (as revised in accordance with Section 2.8(b) below) shall become final and binding on the Parties on, and the Final Settlement Date shall be, the earlier of (i) the date upon which Seller and Buyer agree in writing with respect to all matters specified in the Notice of Disagreement and (ii) the date upon which the Independent Accountant’s Closing Statement (as hereinafter defined) is issued by the Independent Accountant (as hereinafter defined).
33
(b) Final Closing Statement. During the thirty (30) days following the date upon which Buyer receives a Notice of Disagreement, Seller and Buyer shall use commercially reasonable efforts to attempt to resolve in writing any differences that they may have with respect to all matters specified in the Notice of Disagreement. If at the end of such thirty (30) day period (or earlier by mutual agreement), Buyer and Seller have not reached agreement on such matters, the matters that remain in dispute (and only such matters) shall promptly be submitted to BDO USA, LLP (the “Independent Accountant”) for review and final and binding resolution. If BDO USA, LLP is unable or unwilling to serve as an arbitrator hereunder, then Seller and Buyer shall, in good faith, mutually agree upon an independent national accounting firm who has not represented either Party in any material matter at any time during the two-year period of time immediately preceding its designation hereunder, to serve as the Independent Accountant. Buyer and Seller shall, not later than seven (7) days prior to the hearing date set by the Independent Accountant, each submit a written brief to the Independent Accountant (and a copy thereof to the other Party on the same day) with proposed Dollar figures for settlement of the disputes as to the amount of the Purchase Price Adjustment (together with a proposed Closing Statement that reflects such figures) consistent with their respective calculations delivered pursuant to Section 2.8(a). The hearing shall be conducted on a confidential basis. The Independent Accountant shall consider only those items or amounts in the Closing Statement which were identified in the Notice of Disagreement and such written briefs and which remain in dispute and the Independent Accountant’s decision resolving the matters in dispute shall be based upon and be consistent with the terms and conditions in this Agreement. In deciding any matter, the Independent Accountant (i) shall be bound by the provisions of this Section 2.8(b) and the related definitions and (ii) may not assign a value to any disputed item greater than the greatest value for such item claimed by either Seller or Buyer or less than the smallest value for such item claimed by Seller or Buyer in their respective calculations delivered pursuant to Section 2.8(a). The Independent Accountant shall render a decision resolving the matters in dispute (which decision shall include a written statement of findings and conclusions) promptly after the conclusion of the hearing, unless the Parties reach agreement prior thereto and withdraw the dispute from arbitration. The Independent Accountant shall provide to the Parties explanations in writing of the reasons for its decisions regarding the Purchase Price Adjustment and shall issue the Final Closing Statement (as defined below) reflecting such decision, which shall set forth the Purchase Price Adjustment and the Adjusted Purchase Price as determined by the Independent Accountant pursuant to this Section 2.8(b). The decision of the Independent Accountant shall be (i) final and binding on the Parties and (ii) final and non-appealable for all purposes hereunder; provided, however, that such decision may be reviewed, corrected or set aside by a court of competent jurisdiction, but only if and to the extent that the Independent Accountant is found by such court of competent jurisdiction to have made mathematical errors with respect to its decision or to have manifestly violated the express terms of this Section 2.8(b) (including the related defined terms set forth in Section 1.1). The cost of any arbitration (including the fees and expenses of the Independent Accountant) under this Section 2.8(b) shall be borne entirely by the Party awarded the smaller percentage of the disputed amount by the Independent Accountant. The fees and disbursements of Buyer’s independent auditors and other costs and expenses incurred in connection with the services performed with respect to the Closing Statement shall be borne by Buyer and the fees and disbursements of Seller’s independent auditors and other costs and expenses incurred in connection with their preparation of the Notice of Disagreement shall be borne by Seller. As used in this Agreement, the term “Final Closing Statement” shall mean the revised Closing Statement described in Section 2.8(a), as prepared by Buyer and as may be subsequently adjusted to reflect any subsequent written agreement between the Parties with respect thereto, or if submitted to the Independent Accountant, the Independent Accountant’s Closing Statement (“Independent Accountant’s Closing Statement”) as described in this Section 2.8(b).
(c) Final Settlement. If the Adjusted Purchase Price set forth on the Closing Statement delivered pursuant to Section 2.3 exceeds the Adjusted Purchase Price set forth on the Final Closing Statement or the Independent Accountant’s Closing Statement, as applicable, then Seller shall pay Opco such excess amount, together with interest thereon, from the Closing Date to (but not including) the date on which such payment is paid, at the rate of three percent (3%) per annum calculated and payable in accordance with Section 2.8(d). If the Adjusted Purchase Price set forth on the Final Closing Statement or the Independent Accountant’s Closing Statement, as applicable, exceeds the Adjusted Purchase Price set forth on the Closing Statement delivered pursuant to Section 2.3, then Opco shall pay Seller such excess amount, together with interest thereon, from the Closing Date to (but not including) the date on which such payment is paid, at the rate of three percent (3%) per annum calculated and payable in accordance with Section 2.8(d). Any adjustments to the Adjusted Purchase Price made pursuant to this Section 2.8(c) shall be paid by wire transfer of immediately available funds to an account specified by the Party to whom such payment is owed within five (5) Business Days after the Final Settlement Date.
34
(d) Interest. All computations of interest with respect to any payment due to a Person under this Agreement shall be based on the applicable interest rate on the basis of a year of three hundred sixty five (365) days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest is payable. Whenever any payment under this Agreement will be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of payment of interest.
2.9 Purchase Price Allocation; Tax Treatment.
(a) The Parties acknowledge and agree that, for U.S. federal (and applicable state and local) Income Tax purposes, the Acquired Company is a disregarded entity and, accordingly, that Opco shall be treated as acquiring the Company Assets upon Opco’s acquisition of the Acquired Interests. Seller shall prepare and deliver to Buyer, within sixty (60) days after the Final Settlement Date, an allocation of the Adjusted Purchase Price, the assumed obligations and any other items that are treated as consideration for U.S. federal Income Tax purposes among the Company Assets in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder and in a manner consistent with the Allocated Values (the “Allocation”). Buyer shall have twenty (20) days from the receipt of the Allocation or any update thereto to review and comment on the Allocation. If Buyer disputes any items in the proposed Allocation, Seller and Buyer shall use commercially reasonable efforts to agree on such Allocation within twenty (20) days after receipt of any written changes proposed by Buyer. If Seller and Buyer are unable to agree upon such Allocation within such twenty-day period, then any disputed items in such Allocation shall be resolved under the procedures described in Section 2.8(b). Once Buyer and Seller agree to the Allocation or the Allocation is determined by the Independent Accountant, as applicable, Seller and Buyer shall report consistently with such Allocation (as revised to take into account subsequent adjustments to the Adjusted Purchase Price) in all Tax Returns, including IRS Form 8594, which Seller and Buyer shall timely file with the IRS, and neither Seller nor Buyer shall take any position in any return that is inconsistent with the Allocation, as adjusted, in each case, unless required to do so by a final determination as defined in Section 1313 of the Code.
2.10 Payments.
(a) Opco shall be entitled to all revenues, income, proceeds, receipts and credits attributable to production from the Company Assets from and after the Effective Time (collectively, the “Buyer Entitlements”), and shall be responsible for (and entitled to any refunds with respect to) all audit, legal, banking, reserves, payroll, land system, general and administrative and other expenses incurred by the Acquired Company from and after the Effective Time (the “Buyer Obligations”). For a period of twenty-four (24) months from and after Closing, Seller shall be entitled to all revenues, income, proceeds, receipts and credits attributable to production from the Company Assets prior to the Effective Time (collectively, the “Seller Entitlements”), and shall be responsible for (and entitled to any refunds with respect to) all audit, legal, banking, reserves, payroll, land system, general and administrative and other expenses incurred by the Acquired Company prior to the Effective Time (the “Seller Obligations”).
(b) Without duplication of any item that is accounted for in Sections 2.2, Section 2.4 or 2.8, if: (i) Seller or any of its Affiliates receives any payment with respect to the Buyer Entitlements, Seller shall, or shall cause its applicable Affiliates to, promptly (but no later than thirty (30) days after the end of the month in which Seller receives such Buyer Entitlement) remit such payment to Opco or its designated Affiliate; and (ii) Seller receives any invoices, bills or other requests for payment from any Third Party in respect of the Buyer Obligations, Seller shall send such requests for payment to Opco and Opco shall promptly remit payment for such request to such Third Party.
35
(c) For a period of twenty-four (24) months from and after Closing, and without duplication of any item that is accounted for in Sections 2.2, 2.4 or 2.8, if: (i) Opco or any of its Affiliates receives any payment with respect to the Seller Entitlements, Opco shall, or shall cause its applicable Affiliates to, promptly (but no later than thirty (30) days after the end of the month in which Opco or its Affiliate receives such Seller Entitlement) remit such payment to Seller or its designated Affiliate; and (ii) Opco receives any invoices, bills or other requests for payment from any Third Party in respect of the Seller Obligations, Opco shall send such requests for payment to Seller and Seller shall promptly remit, or cause its Affiliates to promptly remit, payment for such request to such Third Party.
ARTICLE 3
Representations and Warranties Relating to Seller
Seller hereby represents and warrants to Buyer as follows:
3.1 Organization of Seller; Legal Capacity. Seller is a limited liability company duly formed, validly existing and in good standing under the Laws of the State of Colorado. Seller has the requisite organizational power (corporate or otherwise) and authority to own, lease and otherwise hold its assets and to conduct its business as it is now being conducted.
3.2 Authorization; Enforceability. Seller has full capacity, power and authority to execute and deliver this Agreement and the other Transaction Documents to which Seller is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the other Transaction Documents to which Seller is a party, the performance of the transactions contemplated hereby and thereby and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized on the part of Seller, and no other proceeding on the part of Seller is necessary to authorize this Agreement and the other Transaction Documents to which Seller is a party or the performance of the transactions contemplated hereby or thereby. This Agreement has been duly and validly executed and delivered by Seller, and this Agreement constitutes a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. Each other Transaction Document to which Seller is a party has been or shall be duly and validly executed and delivered by Seller, and each such other Transaction Document constitutes or shall constitute a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.
36
3.3 No Conflict; Consents. Except as set forth in Schedule 3.3, the execution, delivery and performance by Seller of this Agreement and the other Transaction Documents to which Seller is a party and the consummation of the transactions contemplated hereby and thereby do not and shall not and, with respect to clauses (a), (c), (d), and (e) below, do not materially and shall not materially:
(a) violate any Law applicable to Seller or require any filing with, consent, waiver, approval, order or authorization of, or declaration, filing or registration with, or notice to, any Governmental Authority, except for Customary Post-Closing Consents;
(b) conflict with or violate any Organizational Document of Seller;
(c) require any filing with, or the giving of any notice to, any Person;
(d) require any consent or approval of any Person; or
(e) conflict with or result in any violation of, cause a breach of any provision of or constitute a default (with or without the giving of notice, the passage of time or both) under, or give rise (with or without the giving of notice or the passage of time or both) to the termination, amendment, cancellation or acceleration of any obligation (or the right of any Person to so terminate, amend, cancel or accelerate) or the loss of a benefit or in increased, additional, accelerated or guaranteed rights or entitlements of any Person, or create any obligation to make a payment to any other Person, or result in the creation of a Lien (other than Permitted Encumbrances) on the Acquired Interests, in each case under the terms, conditions or provisions of any Contract to which Seller is a party or by which Seller may be bound.
3.4 Litigation. As of the Execution Date, there are no Proceedings pending or, to the Knowledge of Seller, threatened in writing, in which Seller is or may be a party affecting the execution and delivery by Seller of this Agreement or the other Transaction Documents to which Seller is a party or the consummation of the transactions contemplated hereby or thereby.
3.5 Ownership of Acquired Interests.
(a) Seller holds of record and owns beneficially, and has good and valid title to, Seller’s Acquired Interests, free and clear of all Liens (other than restrictions on transfer arising under state and federal securities Laws or the Organizational Documents of the Acquired Company). Seller has full power and authority to sell, transfer, assign and deliver the Acquired Interests to Opco, and, at the Closing, will convey to Opco good and valid title to the Acquired Interests free and clear of any and all Liens, other than restrictions on transfer arising pursuant to federal and state securities laws and Permitted Encumbrances.
(b) Neither Seller nor any of its Affiliates is party to any option, warrant, purchase right or other Contract or commitment (other than this Agreement) that would require Seller to sell, transfer, provide notice to a Person or otherwise dispose of Seller’s Acquired Interests. Neither Seller nor any of its Affiliates is a party to any voting trust, proxy or other agreement or understanding with respect to the voting of Seller’s Acquired Interests.
37
3.6 Brokers’ Fees. Neither Seller nor any of their Affiliates has entered into any Contract with any Person regarding any obligation or liability, contingent or otherwise, for any broker’s fee, finder’s fee or other commission or similar fee in connection with the transactions contemplated by this Agreement for which Buyer or, following the Closing, the Acquired Company will have any responsibility whatsoever (except as expressly contemplated in Section 2.3(b)).
ARTICLE 4
Representations and Warranties Relating to the Acquired Company
Seller hereby represents and warrants to Buyer as follows:
4.1 Organization. The Acquired Company is a limited liability company, duly organized, validly existing and in good standing under the Laws of the State of Colorado and has the requisite organizational power and authority to own the Company Assets owned by the Acquired Company, as applicable, and to conduct its business as it is now being conducted. The Acquired Company is duly licensed or qualified in each jurisdiction in which the ownership of the Company Assets owned by the Acquired Company or the character of its activities is such as to require it to be so licensed or qualified, except where the failure to be so licensed or qualified would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect. Seller has made available to Buyer complete and correct copies of all Organizational Documents of the Acquired Company, including any amendments thereto, and such Organizational Documents are in full force and effect. The Acquired Company is in material compliance with the terms and conditions of its own Organizational Documents.
4.2 No Conflict; Consents. Except (i) as set forth in Schedule 4.2 or (ii) with respect to clauses (a), (c), (d) and (e) below, as would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect, the execution, delivery and performance by Seller of this Agreement and the other Transaction Documents to which Seller is a party and the consummation of the transactions contemplated hereby and thereby do not and shall not:
(a) Violate any Law applicable to the Acquired Company or require any filing with, consent, waiver, approval, order or authorization of, or declaration, filing or registration with, or notice to, any Governmental Authority, except for the Customary Post-Closing Consents;
(b) conflict with or violate any Organizational Document of the Acquired Company;
(c) require any filing with, or the giving of any notice to, any Person;
(d) require any consent or approval of any Person; or
(e) conflict with or result in any violation of, cause a breach of any provision of, or constitute a default (with or without the giving of notice, the passage of time or both) under, or give rise (with or without the giving of notice or the passage of time or both) to the termination, amendment, cancellation or acceleration of any obligation (or the right of any Person to so terminate, amend, cancel or accelerate) or the loss of a benefit or in increased, additional, accelerated or guaranteed rights or entitlements of any Person, or create any obligation to make a payment to any other Person, or result in the creation of a Lien (other than Permitted Encumbrances) on any assets of the Acquired Company, in each case under the terms, conditions or provisions of any Contract or oil, gas and/or other Hydrocarbon lease to which the Acquired Company is a party or by which the Acquired Company or Company Assets owned by the Acquired Company may be bound.
38
4.3 Capitalization.
(a) Schedule 4.3(a) sets forth all of the Acquired Interests of or in the Acquired Company. The Acquired Interests constitute all of the issued and outstanding equity interests of the Acquired Company. Seller is the only member of the Acquired Company. Seller’s Acquired Interests were validly issued and are fully paid (to the extent required under the Acquired Company Organizational Documents), non-assessable (except as such non-assessability may be affected by applicable Law) and free of preemptive rights. Seller’s Acquired Interests were issued in compliance with applicable Laws.
(b) There are no (i) outstanding membership interests or other equity interests of the Acquired Company, other than the Acquired Interests, (ii) outstanding securities of the Acquired Company convertible into, exchangeable or exercisable for membership interests or other equity interests of the Acquired Company, (iii) authorized or outstanding options, preemptive rights, redemption rights, repurchase rights, warrants or other rights to purchase or acquire from the Acquired Company, or obligations of the Acquired Company to issue or sell, any membership or other equity interests or other securities, including securities convertible into or exchangeable for membership or other equity interests or other securities of such entity, (iv) equity equivalents, interests in the ownership or earnings or other similar rights of or with respect to the Acquired Company, (v) authorized or outstanding bonds, debentures, notes or other indebtedness that entitles the holders to vote (or convertible or exercisable for or exchangeable into securities that entitle the holders to vote) with holders of the Acquired Interests on any matter or (vi) voting trust agreements or other Contracts restricting or otherwise relating to voting, dividend rights or disposition of the Acquired Interests. The Acquired Interests are not certificated.
(c) The Acquired Company does not own, directly or indirectly, any capital stock or equity interests (excluding ownership of marketable securities or similar investment accounts) of any other Person. The Acquired Company does not have a joint venture or other similar interests in any Person or obligations, whether contingent or otherwise, to consummate any material investment in any Person.
4.4 Litigation. Except as set forth on Schedule 4.4, as of the Execution Date neither the Acquired Company nor any Company Asset (a) is subject to any outstanding Order, (b) is subject to a Proceeding or (c) to the Knowledge of Seller, is subject to any written threat of any Proceeding.
4.5 Financial Statements.
(a) Schedule 4.5(a) sets forth true and complete copies of the audited consolidated balance sheets for Seller and the Acquired Company as of December 31, 2021 and 2022, together with the related audited consolidated statements of operations, members’ equity and cash flow for the years then-ended, in each case including all notes and schedules thereto, for the periods then ended (the “Audited Financial Statements”). Except as set forth on Schedule 4.5(a), the Audited Financial Statements have been prepared from the books and records of the Acquired Company in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except as otherwise stated in the notes thereto) and present fairly in accordance with GAAP, in all material respects, the financial position and the results of operations of Seller as of, and for the periods ended on, the applicable dates set forth therein.
39
(b) Schedule 4.5(b) sets forth a true and complete copy of the unaudited consolidated balance sheet for Seller and the Acquired Company as of March 31, 2022 and 2023, together with the related unaudited consolidated statements of operations, members’ equity and cash flow for the three (3)-month then-ended (the “Unaudited Financial Statements”). Except as set forth on Schedule 4.5(b), the Unaudited Financial Statements of Seller have been prepared from the books and records of Seller in accordance with GAAP (except that such Unaudited Financial Statements do not contain all footnotes required under GAAP) and on a basis and using principles consistent with the preparation of the Audited Financial Statements and present fairly in accordance with GAAP, in all material respects, the financial position and the results of operations of Seller as of, and for the periods ended on, the applicable dates set forth therein, except for normal year-end adjustments.
(c) Since December 31, 2022, the Acquired Company has not effected any change in any method of accounting or accounting practice, except for any such change required because of a concurrent change in GAAP.
(d) The Acquired Company does not have any liabilities of any kind, whether accrued, contingent, absolute, determined, determinable or otherwise, that would be required to be reflected on a balance sheet prepared in accordance with GAAP, other than: (i) liabilities adequately provided for, reflected or reserved on the Audited Financial Statements, (ii) liabilities that have arisen after December 31, 2022 in the Ordinary Course, (iii) liabilities that constitute Indebtedness for Borrowed Money that will be paid off at the Closing or (iv) liabilities that, individually or in the aggregate, have not had, or would not reasonably be expected to have, a Seller Material Adverse Effect.
4.6 Absence of Certain Changes.
(a) Since December 31, 2022, there has not been any circumstance, change or effect that, individually or in the aggregate, has had, or would reasonably be expected to have, a Seller Material Adverse Effect.
(b) Since December 31, 2022, except as set forth in Schedule 4.6(b), the Acquired Company has not taken or permitted to occur any of the actions referred to in Section 6.1(b), other than (i) oil, gas and/or other Hydrocarbon leases entered into in the Ordinary Course and (ii) the establishment or amendment of pools or units in the Ordinary Course.
40
4.7 Taxes.
(a) (i) All material Tax Returns required to be filed by the Acquired Company, including with respect to the Asset Taxes, prior to the date hereof have been timely filed, and all such Tax Returns are true, correct and complete in all material respects, (ii) all material Taxes, including material Asset Taxes, owed by the Acquired Company prior to the date hereof, whether or not shown or reported on any Tax Return, have been timely paid, (iii) there are no Liens (other than Permitted Encumbrances) on any of the Acquired Interests or Company Assets that arose in connection with any failure by the Acquired Company to pay any Tax and (iv) there is no material claim pending or threatened in writing by any Governmental Authority in connection with any Tax or any Tax Return described in clause (i) or (ii).
(b) There is no audit, administrative, judicial or other proceeding by any Governmental Authority with respect to Taxes with respect to the Acquired Interests or the Acquired Company, including Asset Taxes, that has been commenced or is presently pending.
(c) There is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Taxes of the Acquired Company, including any Asset Taxes.
(d) No claim has ever been made against the Acquired Company by a taxing authority in a jurisdiction where the Acquired Company does not file Tax Returns that the Acquired Company is or may be subject to Taxes assessed by such jurisdiction.
(e) No private letter ruling, technical advice memorandum, closing agreement or similar ruling, memorandum or agreement by or with any Governmental Authority is binding on or has been requested with respect to the Acquired Company or the Company Assets.
(f) The Acquired Company is not a party to, or bound by, any Tax indemnity, Tax allocation, Tax sharing or other similar agreement or arrangement that will have effect on or after the Closing, and the Acquired Company does not have any liability to another party under any such agreement (other than any agreement entered into in the ordinary course of business the primary purpose of which is not related to Taxes).
(g) The Acquired Company (i) has never been a member of an affiliated, consolidated, combined, unitary or similar group for purposes of filing Tax Returns or paying Taxes (other than any group the common parent of which was Seller) or (ii) has any liability for the Taxes of any Person as a transferee or successor, by Contract or pursuant to any Law, in each case, which Taxes relate to an event or transaction occurring before the Closing.
(h) At all times since its formation through the date hereof, the Acquired Company has been treated as an entity disregarded from its sole owner for U.S. federal Income Tax purposes and for purposes of any applicable state and local Income Taxes that follow the U.S. federal Income Tax treatment of disregarded entities.
(i) Except as set forth on Schedule 4.7, None of the Company Assets is subject to any Tax partnership agreement or is otherwise treated, or required to be treated, as held in an arrangement requiring a partnership income Tax Return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state statute, and no transfer of any part of the Company Assets pursuant to this Agreement will be treated as a transfer of an interest or interests in any partnership for U.S. federal Income Tax purposes.
41
4.8 Contracts.
(a) As of the date hereof, Schedule 4.8(a) includes a list of each of the Seller Material Contracts. “Seller Material Contract” means any of the following Contracts to which the Acquired Company is a party or by which the Acquired Interests or Company Oil and Gas Properties are bound or subject:
(i) Contracts involving obligations of, or payments to or from, the Acquired Company after the date hereof, individually or in the aggregate, in excess of one hundred thousand Dollars ($100,000);
(ii) Contracts restricting, in any material respect, the Acquired Company (or, following the Closing, any Affiliate of the Acquired Company) from freely engaging in any business or competing anywhere;
(iii) Contracts evidencing Indebtedness for Borrowed Money;
(iv) Contracts guaranteeing any obligation of another Person;
(v) Contracts between the Acquired Company, on the one hand, and any Affiliate of the Acquired Company or any officer, director, manager or employee of the Acquired Company or Affiliate of the Acquired Company or any immediate family member of any such individual, on the other hand;
(vi) Contracts containing “tag-along” or similar rights allowing a Third Party to participate in future sales of any of the Company Oil and Gas Properties or the Acquired Company;
(vii) Contracts for any Hedging Transactions that will remain outstanding after Closing;
(viii) Any agreement of indemnification, surety or guarantee by the Acquired Company on behalf of another Person or the assumption of any Tax, environmental or other liability of any Person;
(ix) Contracts to sell, exchange or otherwise dispose of all or any part of the Company Assets on or after the Effective Time; and
(x) Any production sharing agreements, farmout, farmin, development and operating agreements, to the extent in Seller’s possession or control.
(b) Each Seller Material Contract constitutes the legal, valid and binding obligation of Seller and/or the Acquired Company, on the one hand, and, to the Knowledge of Seller, the counterparties thereto, on the other hand, and is enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. Neither Seller nor the Acquired Company party thereto, as applicable, is in material breach or default of its obligations under any Seller Material Contracts. To the Knowledge of Seller, (i) no material breach or material default by any Third Party exists under any Seller Material Contract and (ii) no counterparty to any Seller Material Contract has canceled, terminated or modified, or threatened in writing to cancel, terminate or modify, any Seller Material Contract. Prior to the execution of this Agreement, true, correct and complete copies of all Seller Material Contracts and all amendments thereto have been made available to Buyer.
42
4.9 Environmental Matters.
(a) To the Knowledge of Seller, the Acquired Company’s ownership of the Company Assets is in material compliance with applicable Environmental Laws, and have been during its period of ownership, as applicable, except for where the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Seller Material Adverse Effect.
(b) To the Knowledge of Seller, there are no environmental conditions that would reasonably be expected to form the basis for the assertion of any material claim, material investigative, remedial or corrective obligations or other material liabilities against the Acquired Company or related to the Acquired Company’s ownership of the Company Assets under any Environmental Law, including OPA90, CERCLA or any similar applicable Law with respect to any on-site or off-site location, except for where the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Seller Material Adverse Effect.
(c) The Acquired Company has not received any written notice from a Governmental Authority or Third Party that remains unresolved alleging a material violation of or material non-compliance with any Environmental Law or any material permit issued pursuant to Environmental Law.
(d) The Acquired Company is not subject to any pending or, to the Knowledge of Seller, threatened in writing Proceeding under or related to any Environmental Law (including any such Proceeding related to designation as a potentially responsible party under CERCLA or any similar local or state law).
4.10 Compliance with Laws. To the Knowledge of Seller, the Acquired Company is and has been for the period of the Acquired Company’s applicable ownership of the Company Oil and Gas Properties, in compliance in all material respects with all applicable Laws. Neither Seller nor the Acquired Company have received a written notice of a material violation of any Law that is applicable to the Company Oil and Gas Properties and that has not been (or will be prior to Closing) corrected or settled. Notwithstanding any provision in this Section 4.10 (or any other provision of this Agreement) to the contrary, Section 4.7 and Section 4.9 shall be Seller’s exclusive representations and warranties with respect to Taxes and environmental matters, respectively, as well as to related matters, and Seller makes no other representations or warranties with respect to such matters, including under this Section 4.10.
4.11 Special Warranty. Except for Permitted Encumbrances, the Acquired Company represents and warrants that the Acquired Company owns Defensible Title to the Company Oil and Gas Properties solely against any Person lawfully claiming or attempting to claim the same or any part thereof, by, through or under the Acquired Company or any of its Affiliates, but not otherwise (the representation set forth in this Section 4.11, the “Special Warranty of Title”).
43
4.12 No Transfers. Except as set forth on Schedule 4.12, from and after December 31, 2022 until the Execution Date, the Acquired Company has not sold, conveyed or otherwise transferred the Company Assets nor agreed to any such sale, conveyance or transfer, except as contemplated herein; provided that neither the Acquired Company’s (i) entry into an oil, gas and/or other Hydrocarbon lease or (ii) establishment or amendment of a pool or unit in the Ordinary Course shall be a transfer for purposes of this Section 4.12.
4.13 No Cost-Bearing Interests. Except as set forth on Schedule 4.13, the Company Assets do not include any unleased mineral interest where Seller has agreed to, or Buyer will have to, bear a share of drilling or operating costs as a participating mineral owner from and after the Effective Time, other than instances where the Company Assets have been forcepooled under applicable Law and the Acquired Company’s share of drilling, operating or other costs as a participating mineral owner in such pooled unit are set off against the Acquired Company’s share of the proceeds of production attributable to such pooled unit.
4.14 No Employees or Plans. Since its inception, the Acquired Company has never had any employees. The Acquired Company does not maintain, sponsor or contribute to, nor is the Acquired Company required to contribute to, any Employee Benefit Plan. There does not exist now, nor do any circumstances exist that reasonably could be expected to result in any liability of the Acquired Company with respect to any Employee Benefit Plan now maintained or previously maintained by any ERISA Affiliate of the Acquired Company, other than reimbursements of costs as may be provided in intercompany service agreements with Seller or its Affiliates.
4.15 Bank Accounts. Schedule 4.15 sets forth a complete and accurate list of all deposit, demand, savings, passbook, lock box or similar accounts maintained by or on behalf of the Acquired Company with any bank or financial institution, the names and addresses of the banks or financial institutions maintaining each such account and the authorized signatories on each such account.
4.16 Bankruptcy. There are no bankruptcy, reorganization, receivership or arrangement proceedings pending, being contemplated by or, to the Knowledge of Seller, threatened against Seller.
ARTICLE 5
Representations and Warranties Relating to Buyer
Buyer hereby represents and warrants to Seller:
5.1 Organization of Buyer. KRP is a limited partnership and Opco is a limited liability company, in each case, duly formed, validly existing, and in good standing under the Laws of the State of Delaware and has the requisite organizational power and authority to own the Buyer Assets and to conduct its business as it is now being conducted. Buyer is duly licensed or qualified in each jurisdiction in which the ownership of the Buyer Assets or the character of its activities is such as to require it to be so licensed or qualified, except where the failure to be so licensed or qualified would not, individually or in the aggregate, reasonably be expected to have a Buyer Material Adverse Effect. Buyer has made available to Seller complete and correct copies of all Organizational Documents of Buyer, including any amendments thereto, and such Organizational Documents are in full force and effect.
44
5.2 Authorization; Enforceability. Buyer has all requisite capacity, power and authority to execute and deliver this Agreement and the other Transaction Documents to which Buyer is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents to which Buyer is a party, the performance of the transactions contemplated hereby and thereby and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized on the part of Buyer, and no other proceeding on the part of Buyer is necessary to authorize this Agreement and the other Transaction Documents to which Buyer is a party or the performance of the transactions contemplated hereby or thereby. This Agreement has been duly and validly executed and delivered by Buyer, and this Agreement constitutes a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity. Each other Transaction Document to which Buyer is a party has been or shall be duly and validly executed and delivered by Buyer, and each such other Transaction Document constitutes or shall constitute a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity.
5.3 No Conflict; Consents. Buyer is in material compliance with the terms and conditions of its Organizational Documents. Except as set forth in Schedule 5.3 or as would not reasonably be expected to prevent, impede, or materially delay the ability of Buyer to enter into and perform its obligations under this Agreement, the execution and delivery by Buyer of this Agreement and the other Transaction Documents to which Buyer is a party and the consummation of the transactions contemplated hereby and thereby by Buyer do not and shall not:
(a) violate any Law applicable to Buyer or require any filing with, consent, waiver, approval, order or authorization of, or declaration, filing or registration with, or notice to, any Governmental Authority;
(b) conflict with or violate any Organizational Document of Buyer;
(c) require any filing with, or the giving of any notice to, any Person;
(d) require any consent or approval of any Person; or
(e) conflict with or result in any violation of, cause a breach of any provision of, or constitute a default (with or without the giving of notice, the passage of time or both) under, or give rise (with or without the giving of notice, the passage of time or both) to the termination, amendment, cancellation or acceleration of any obligation (or the right of any Person to so terminate, amend, cancel or accelerate) or the loss of a benefit or in increased, additional, accelerated or guaranteed rights or entitlements of any Person, or create any obligation to make a payment to any other Person, or result in the creation of a Lien on any assets of Buyer, in each case under the terms, conditions or provisions of any Contract to which Buyer is a party or by which Buyer may be bound.
45
5.4 Brokers’ Fees. Buyer and its Affiliates have not entered into any Contract with any Person that would require the payment by Seller or their Affiliates of any brokerage fee, finders’ fee, or other commission in connection with the transactions contemplated by this Agreement.
5.5 Funds. On the Closing Date, Buyer will have, through a combination of cash on hand and availability under the Buyer’s A&R Credit Agreement, funds sufficient to fund the aggregate Dollar amount constituting the Unadjusted Purchase Price and to satisfy the related costs and expenses arising in connection with the consummation of the transactions contemplated by this Agreement.
5.6 BUYER’S INDEPENDENT INVESTIGATION; DISCLAIMER. BUYER AND ITS REPRESENTATIVES HAVE UNDERTAKEN AN INDEPENDENT INVESTIGATION AND VERIFICATION OF THE ACQUIRED Company AND THE BUSINESS, OPERATIONS AND FINANCIAL CONDITION OF THE ACQUIRED Company. BUYER IS (OR ITS ADVISORS ARE) EXPERIENCED AND KNOWLEDGEABLE IN THE OIL AND GAS BUSINESS AND AWARE OF THE RISKS OF THAT BUSINESS. IN ENTERING INTO THIS AGREEMENT, BUYER HAS RELIED UPON ITS OWN INVESTIGATION AND ANALYSIS AND THE SPECIFIC REPRESENTATIONS AND WARRANTIES OF Seller SET FORTH IN ARTICLE 3 AND ARTICLE 4 OF THIS AGREEMENT, AND BUYER:
(a) ACKNOWLEDGES AND AGREES THAT IT HAS NOT BEEN INDUCED BY AND HAS NOT RELIED UPON ANY REPRESENTATIONS, WARRANTIES OR STATEMENTS, WHETHER EXPRESS OR IMPLIED, MADE BY Seller, THE ACQUIRED COMPANY OR EITHER OF their RESPECTIVE DIRECTORS, OFFICERS, EQUITY HOLDERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, AGENTS, ADVISORS OR REPRESENTATIVES THAT ARE NOT EXPRESSLY SET FORTH IN ARTICLE 3 AND ARTICLE 4 OF THIS AGREEMENT, WHETHER OR NOT ANY SUCH REPRESENTATIONS, WARRANTIES OR STATEMENTS WERE MADE IN WRITING OR ORALLY;
(b) ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF Seller SET FORTH IN ARTICLE 3 AND ARTICLE 4 OF THIS AGREEMENT, NONE OF SELLER, the ACQUIRED COMPANY OR either of their RESPECTIVE DIRECTORS, OFFICERS, EQUITY HOLDERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, AGENTS, ADVISORS OR REPRESENTATIVES MAKES OR HAS MADE, AND EACH SUCH PERSON DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF ANY OF THE INFORMATION PROVIDED OR MADE AVAILABLE TO BUYER OR ITS DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, AGENTS OR REPRESENTATIVES, INCLUDING ANY INFORMATION, DOCUMENT OR MATERIAL PROVIDED OR MADE AVAILABLE, OR STATEMENTS MADE, TO BUYER (INCLUDING ITS DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, ADVISORS, AGENTS OR REPRESENTATIVES) IN DATA ROOMS, MANAGEMENT PRESENTATIONS OR SUPPLEMENTAL DUE DILIGENCE INFORMATION PROVIDED TO BUYER (INCLUDING ITS DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, CONTROLLING PERSONS, ADVISORS, AGENTS OR REPRESENTATIVES) IN CONNECTION WITH DISCUSSIONS OR ACCESS TO MANAGEMENT OF Seller OR ANY OF Its AFFILIATES OR IN ANY OTHER FORM IN EXPECTATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (COLLECTIVELY, “DUE DILIGENCE INFORMATION”). SOLELY TO THE EXTENT SUCH INFORMATION IS NOT THE EXPRESS SUBJECT MATTER OF THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN, BUYER HAS NOT RELIED ON SUCH INFORMATION FOR PURPOSES OF ENTERING INTO THIS AGREEMENT AND Seller and its affiliates AND REPRESENTATIVES shall HAVE NO RESPONSIBILITY FOR ANY FAILURE OF SUCH DUE DILIGENCE INFORMATION TO BE TRUE OR CORRECT; AND
46
(c) ACKNOWLEDGES AND AGREES THAT (I) THE DUE DILIGENCE INFORMATION INCLUDES CERTAIN PROJECTIONS, ESTIMATES AND OTHER FORECASTS, AND CERTAIN BUSINESS PLAN INFORMATION, (II) THERE ARE UNCERTAINTIES INHERENT IN ATTEMPTING TO MAKE SUCH PROJECTIONS, ESTIMATES AND OTHER FORECASTS AND PLANS AND BUYER IS FAMILIAR WITH SUCH UNCERTAINTIES AND (III) SUBJECT TO THE REPRESENTATIONS AND WARRANTIES OF Seller SET FORTH HEREIN, BUYER IS TAKING FULL RESPONSIBILITY FOR MAKING ITS OWN EVALUATION OF THE ADEQUACY AND ACCURACY OF ALL PROJECTIONS, ESTIMATES AND OTHER FORECASTS AND PLANS SO FURNISHED TO IT AND ANY USE OF OR RELIANCE BY BUYER ON SUCH PROJECTIONS, ESTIMATES AND OTHER FORECASTS AND PLANS SHALL BE AT ITS SOLE RISK.
ARTICLE 6
Covenants
6.1 Conduct of Seller’s Business.
(a) Operations before Closing. Except (i) as expressly provided in this Agreement, (ii) as set forth in Schedule 6.1 or (iii) for any actions required to be taken by the Acquired Company pursuant to Law, between the Execution Date and the Closing, without the prior written consent of Buyer, in each case which shall not be unreasonably withheld, conditioned, or delayed, Seller shall cause the Acquired Company to (y) operate in the Ordinary Course and (z) maintain the books of account and Records relating to the business of the Acquired Company in the usual, regular and ordinary manner and in accordance with the usual accounting practices of the Acquired Company.
47
(b) Restricted Activities. Without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed (provided, that if Buyer fails to reject in writing a request for consent from Seller within five (5) Business Days of Seller’s Notice requesting such consent, Buyer shall be deemed to have provided such consent), between the Execution Date and the Closing, Seller shall cause the Acquired Company not to:
(i) amend its Organizational Documents;
(ii) adopt, enter into, authorize, recommend, propose or announce an intention to adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;
(iii) change its accounting methods, policies or practices, except as required by applicable Law as concurred to by its independent auditors and notice of which is given in writing by Seller to Buyer;
(iv) acquire by merger, consolidation, purchase or otherwise any equity interests in any Person, purchase substantially all the assets of or otherwise acquire any business or division of any Person, or make any loan or advance to, or capital contribution or other investment in, any other Person (other than equity investments in the Acquired Company), including the formation of any joint ventures;
(v) offer, issue, deliver, grant, transfer, sell, mortgage, pledge, hypothecate, grant any security interest in or otherwise subject to any Lien, or authorize or propose to offer, issue, deliver, grant, transfer, sell, mortgage, pledge, hypothecate, grant any security interest in or otherwise subject to any Lien, any (A) Company Assets or Acquired Interest or other equity interest in the Acquired Company, (B) securities convertible into any Acquired Interest or other equity interests or (C) rights, warrants, commitments or options to acquire any Company Assets or Acquired Interest or other equity interests;
(vi) (A) declare, set aside or pay any dividends (other than cash dividends payable and actually paid prior to the Closing) on, or make any other distribution in respect of any Acquired Interests (whether in cash, stock, or property or any combination thereof, but other than cash distributions made to Seller prior to Closing), (B) adjust, split, combine or reclassify any Acquired Interests or other equity interests in the Acquired Company or (C) repurchase, redeem or otherwise acquire, or offer to repurchase, redeem or otherwise acquire, the Acquired Interests or other equity interests in the Acquired Company;
(vii) enter into any derivative, option, hedge or futures Contracts;
(viii) enter into any new line of business;
(ix) incur any Indebtedness for Borrowed Money or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Acquired Companies;
(x) hire any employees;
(xi) enter into any Contract (A) that would constitute a Seller Material Contract, (B) that restrains, limits or impedes the Acquired Company’s ability to compete with or conduct any business or line of business, including geographic limitations on the Acquired Company’s activities or (C) with Seller or an Affiliate of Seller, in each case other than Contracts with respect to Excluded Assets or Contracts that will be terminated prior to the Closing with no ongoing liability applicable to the Acquired Company;
48
(xii) terminate (other than terminations based on the expiration without any affirmative action by Seller or that do not result in any material liability to the Acquired Company), cancel, materially amend or modify any Seller Material Contract;
(xiii) terminate (other than terminations based on the expiration without any affirmative action by Seller or that do not result in any material liability to the Acquired Company), cancel, materially amend or materially modify any oil, gas and/or other Hydrocarbon lease or any instrument creating or evidencing an interest in Hydrocarbons, or voluntarily waive or release any material right with respect to the foregoing;
(xiv) commence any Proceeding or settle or compromise any Proceedings other than those that provide for a complete release of the Acquired Company from all claims subject to such dispute and do not provide for any admission of liability by the Acquired Company;
(xv) enter into, execute or extend any oil, gas and/or Hydrocarbon leases or otherwise take any action that could result in the receipt of lease bonuses, delay rentals or similar payments;
(xvi) make or change any material Tax elections with respect to the Company Assets or the Acquired Company, except as required by applicable Law; or
(xvii) agree, whether in writing or otherwise, to do any of the foregoing.
(c) Notwithstanding the above provisions of Section 6.1, prior to Closing, Seller may, and may cause its Affiliates to, (i) remove all cash and cash equivalents from the Acquired Company in such manner as Seller shall determine, provided that such removal does not impose any liability or obligation on the Acquired Company that will survive the Closing, or create any Lien on any Company Asset and (ii) take all necessary actions to wind up or otherwise terminate any and all Hedging Transactions to which the Acquired Company is a party.
(d) Requests for approval of any action restricted by this Section 6.1 shall be delivered to the following individual, who shall have full authority to grant or deny such requests for approval on behalf of Buyer:
Matt Daly
Kimbell Royalty Group
777 Taylor Street, Suite 810
Fort Worth, Texas 76102
Email: [***]
49
6.2 Access; Confidentiality.
(a) To the extent related to the Acquired Company or the Company Assets, from and after the date hereof until the Closing Date (or earlier termination of this Agreement), but subject to the other provisions of this Section 6.2 and obtaining any Required Consents of Third Parties (which consents Seller shall use commercially reasonable efforts to obtain; provided, that Seller shall not be required to make any payments therefor), Seller shall provide Buyer and Buyer’s Representatives access to the Records that are in Seller’s or its Affiliate’s possession or control at such time (the “Assessment”); provided, however, such access shall not materially interfere with the Acquired Company ownership of the Company Assets in the Ordinary Course. Any Assessment conducted by Buyer or on behalf of Buyer hereunder shall be conducted at Buyer’s sole cost, risk and expense and any conclusions resulting from any such Assessment shall be deemed to result solely from Buyer’s own independent review and judgment. Subject to the express representations and warranties contained in Article 4, Seller shall not be deemed by Buyer’s receipt of the Records in connection with any Assessment to have made any representation or warranty, express, implied or statutory, as to the Company Assets or the accuracy of such Records or the information contained therein.
(b) All information obtained by and access granted to Buyer and its representatives under this Section 6.2 shall be subject to the terms of Section 6.9.
(c) Contact with Business Relations. Prior to the Closing, Buyer and Buyer’s Representatives shall contact and communicate with the business relations of the Acquired Company and its Affiliates in connection with the transactions contemplated hereby only with the prior written consent of Seller, such consent not to be unreasonably withheld. Upon request by Buyer, to the extent such consent is granted, Seller shall use commercially reasonable efforts to facilitate communications between Buyer and the employees, customers, suppliers and other business relations of Seller.
6.3 Books and Records. No later than thirty (30) days after Closing, Seller shall deliver to Buyer all Records that are in possession of Seller, except for the Excluded Records. From and after the Closing Date, subject to Section 6.9(a), Seller may (at Seller’s sole cost and expense) retain a copy of any or all of the Due Diligence Information and all other books and records relating to the business or operations of the Acquired Company on or before the Closing Date that are required by Seller to comply with legal obligations or that relate to the Excluded Assets.
6.4 Insurance. Buyer acknowledges and agrees that, effective upon the Closing, the insurance policies of Seller and its Affiliates related to the Acquired Company shall be terminated or modified to exclude coverage of the Acquired Company, and, as a result, it shall be the obligation of Buyer to obtain at its sole cost and expense replacement insurance effective from and after the Closing. Seller shall pursue, and shall cause its Affiliates to pursue, on behalf of and for the benefit of the Acquired Company, any recovery under any such insurance policy with respect to any event or occurrence during the Interim Period; provided, that if such recovery occurs subsequent to the Closing, Seller shall pay to Buyer the amount of such recovery upon thereof by Seller or one of its Affiliates.
6.5 Further Assurances. Subject to the terms and conditions of this Agreement, each Party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable, under applicable Law or otherwise, to consummate the transactions contemplated by this Agreement. Following the Closing, the Parties agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary in order to consummate or implement expeditiously the transactions and effectuate the conveyance of the Acquired Company contemplated by this Agreement in accordance with the terms hereof.
50
6.6 Publicity. All press releases or other public communications of any nature whatsoever relating to the transactions contemplated by this Agreement, and the method of the release for publication thereof, shall be subject to the prior written consent of Buyer and Seller; provided, however, that nothing herein shall prevent a Party from publishing such press releases or other public communications as is necessary to satisfy such Party’s obligations under applicable securities or other Laws or under the rules of any stock or commodities exchange after consultation with the other Party; provided, further, that nothing in this Section 6.6 will preclude (a) any Party, their Affiliates or their Representatives from making any “tombstone” or similar advertisement that does not state the Unadjusted Purchase Price or Adjusted Purchase Price, any component thereof, or the manner of its determination with the prior written consent of Buyer or Seller, which consent will not be unreasonably conditioned, delayed, or withheld, (b) any Party from discussing (on a confidential basis) the return on any underlying investment with respect to the Acquired Company and the acquisition or disposition of the Acquired Company in connection with legitimate fundraising activities or fund performance reporting to current or prospective investors, lenders, or partners post-Closing, (c) any Party from communicating with its employees on a confidential basis.
6.7 Fees and Expenses; Transfer Taxes.
(a) Except as otherwise provided in this Agreement, all fees and expenses, including fees and expenses of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such fee or expense.
(b) Buyer shall be responsible for, and shall indemnify and hold harmless Seller against, any state or local transfer, sales (including bulk sales), use, real property transfer, controlling interest transfer, filing, value added, documentary, stamp, gross receipts, registration, conveyance, excise, recording, licensing, stock transfer stamps or other similar Taxes and fees arising out of or in connection with or attributable to the Opco’s acquisition of the Acquired Interests (the “Transfer Taxes”). All Tax Returns with respect to Transfer Taxes incurred in connection with this Agreement or otherwise in connection with the transactions contemplated hereunder shall be timely filed by the Party responsible for such filing under applicable law. Buyer and Seller shall reasonably cooperate to reduce or eliminate any Transfer Taxes to the extent permitted by applicable Law.
(c) To the extent that the transactions contemplated under this Agreement are determined to involve a transfer of tangible personal property, Buyer and the Seller acknowledge and agree that such transactions constitute a sale of an identifiable segment of a business for purposes of Section 151.304 of the Texas Tax Code.
51
6.8 Taxes.
(a) Each Party shall be responsible for and bear its own Income Taxes. Seller shall be allocated, retain responsibility for, and shall bear, all Asset Taxes for (i) any period ending prior to the Effective Time and (ii) the portion of any Straddle Period ending immediately prior to the Effective Time. All Asset Taxes arising with respect to periods on or after the Effective Time (including the portion of any Straddle Period beginning at the Effective Time) shall be allocated to and borne by Buyer. For purposes of allocation between the Parties of Asset Taxes for any Straddle Period, (A) Asset Taxes that are attributable to the severance or production of Hydrocarbons (other than Asset Taxes described in clause (C)) shall be allocated based on severance or production occurring before the Effective Time (which shall be Seller’s responsibility) and from and after the Effective Time (which shall be Buyer’s responsibility); (B) Asset Taxes that are based upon or related to sales or receipts or imposed on a transactional basis (other than such Asset Taxes described in clause (A) or (C)) shall be allocated based on transactions giving rise to such Asset Taxes occurring before the Effective Time (which shall be Seller’s responsibility) and from and after the Effective Time (which shall be Buyer’s responsibility); and (C) Asset Taxes that are ad valorem, property or other Asset Taxes imposed on a periodic basis shall be allocated pro rata per day between the portion of the Straddle Period ending on and including the day immediately prior to the day on which the Effective Time occurs (which shall be Seller’s responsibility) and the portion of the Straddle Period beginning on the day on which the Effective Time occurs (which shall be Buyer’s responsibility). For purposes of the preceding sentence, any exemption, deduction, credit or other item that is calculated on an annual basis shall be allocated pro rata per day between the portion of the Straddle Period ending on and including the day immediately prior to the day on which the Effective Time occurs and the portion of the Straddle Period beginning on the day on which the Effective Time occurs. To the extent the actual amount of any Asset Taxes described in this Section 6.8(a) is not determinable on the Closing Date or the Final Settlement Date, Buyer and Seller shall utilize the most recent information available in estimating the amount of such Asset Taxes for purposes of Section 2.8. Upon determination of the actual amount of such Asset Taxes, timely payments will be made from one Party to the other to the extent necessary to cause each Party to bear the amount of such Asset Tax that is allocable to such Party under this Section 6.8(a).
(b) Except as required by applicable Law, Seller shall prepare and file or cause to be prepared and filed all Tax Returns required to be filed with respect to Asset Taxes, and shall pay or cause to be paid all Asset Taxes with respect to such Tax Returns, for all Tax periods that end before the Effective Time (regardless of when due) and any Straddle Period (to the extent such Tax Returns are required to be filed before the Closing Date). Buyer shall prepare and file or cause to be prepared and filed all Tax Returns required to be filed with respect to Asset Taxes, and shall pay or cause to be paid all Asset Taxes with respect to such Tax Returns, for any Straddle Period (to the extent such Tax Returns are required to be filed on or after the Closing Date). Each Party shall indemnify and hold the other Parties harmless for any failure to file such Tax Returns and to make such payments. Each Party shall prepare all such Tax Returns relating to any Straddle Period on a basis consistent with past practice except to the extent otherwise required by applicable Law. Each Party shall provide the other Party with a copy of any Tax Return relating to any Straddle Period for such other Party’s review at least ten (10) days prior to the due date for the filing of such Tax Return (or within a commercially reasonable period after the end of the relevant Tax period, if such Tax Return is required to be filed less than ten (10) days after the close of such Tax period), and the filing Party shall incorporate all reasonable comments of such other Party provided to such filing Party in advance of the due date for the filing of such Tax Return. The Parties agree that (x) this Section 6.8(b) is intended to solely address the timing and manner in which certain Tax Returns relating to Asset Taxes are filed and the Asset Taxes with respect thereto are paid to the applicable Governmental Authority, and (y) nothing in this Section 6.8(b) shall be interpreted as altering the manner in which Asset Taxes (other than any penalties, interest, or additions to Tax attributable to any Party’s breach of its obligations under this Section 6.8(b) which shall be borne by the breaching Party) are allocated to and economically borne by the Parties in accordance with Section 6.8(a).
52
(c) Buyer and Seller agree to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information and assistance relating to the Acquired Company and the Company Assets, including access to books and records, as is reasonably necessary for the filing of all Tax Returns by Buyer or Seller, the making of any election relating to Taxes, the preparation for any audit by any taxing authority and the prosecution or defense of any claim, suit or proceeding relating to any Tax. The Parties agree to retain all books and records with respect to Tax matters pertinent to the Acquired Company and Company Assets relating to any Tax period beginning before the Closing Date until sixty (60) days after the expiration of the statute of limitations of the respective Tax periods (taking into account any extensions thereof) and to abide by all record retention agreements entered into with any taxing authority.
(d) Seller shall be entitled to any and all refunds of Asset Taxes allocated to Seller pursuant to Section 6.8(a), and Buyer shall be entitled to any and all refunds of Asset Taxes allocated to Buyer pursuant to Section 6.8(a). If a Party receives a refund of Asset Taxes to which another Party is entitled pursuant to this Section 6.8(d), the first Party shall promptly pay such amount to the other Party, net of any reasonable costs or expenses incurred by the first Party in procuring such refund.
(e) Seller and Buyer shall have the right at any time prior to Closing to assign all or a portion of its respective rights under this Agreement to a Qualified Intermediary (as that term is defined in Treasury Regulations Section 1.1031(k)-1(g)(4)(iii)) or an Exchange Accommodation Titleholder (as that term is defined in Rev. Proc. 2000-37, 2000-2 C.B. 308) in order to accomplish the transaction in a manner that will comply, either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Code; provided, that (i) the Closing shall not be delayed or affected by reason of such like-kind exchange or any actions taken by Seller or Buyer in connection with this Section 6.8(e), (ii) an assignment under this Section 6.8(e) shall not release any Party from its liabilities and obligations under this Agreement nor shall the consummation or accomplishment of such like-kind exchange be a condition to the Parties’ obligations under this Agreement; (iii) the non-assigning Party’s rights under this Agreement shall not be altered or diminished in any manner; (iv) the assigning Party shall indemnify, defend, and hold the non-assigning Party harmless from all claims, damages, liabilities, costs and expenses (including, but not limited to reasonable legal fees and any additional Taxes, including Transfer Taxes) in connection with such like-kind exchange; and (v) neither Party represents to the other that any particular Tax treatment will be given to either Party as a result of any such assignment. In the event either Party assigns its rights under this Agreement pursuant to this Section 6.8(e), such Party agrees to notify the other Party in writing of such assignment at or before Closing. If Seller assigns rights under this Agreement for this purpose, Buyer agrees to (A) consent to such assignment of rights in this Agreement in the form reasonably requested by the Qualified Intermediary, and (B) pay all or a portion of the Adjusted Purchase Price and any adjustments thereto into a qualified escrow or qualified trust account at Closing as directed in writing. If Buyer assigns its rights under this Agreement for this purpose, Seller agrees to (I) consent to Buyer’s assignment of rights in this Agreement in the form reasonably requested by Buyer’s Qualified Intermediary or Exchange Accommodation Titleholder (but in no event will Seller be required to transfer the Acquired Interests in any form other than through a transfer of the Acquired Interests and in no event will Seller be required to transfer the Acquired Interests to more than one transferee (i.e., all of the Acquired Interests will be transferred to a single transferee)), (II) accept all or a portion of the payments payable under this Agreement from the account designated by Buyer’s Qualified Intermediary or Exchange Accommodation Titleholder at Closing, and (III) at Closing, subject to the limitations otherwise set forth herein, convey and assign directly to Buyer’s Qualified Intermediary or Buyer’s Exchange Accommodation Titleholder (as directed in writing) the Acquired Interests which are the subject of this Agreement upon satisfaction of the other conditions to Closing and other terms and conditions hereof.
53
(f) Buyer shall use its reasonable best efforts to, after Closing, notify each operator of each Company Oil and Gas Property associated with the Company Assets of the change of the employee identification number associated with the Acquired Company.
6.9 Confidentiality.
(a) Buyer acknowledges that, pursuant to its right of access to the Records, as set forth in Section 6.2, Buyer will become privy to confidential and other information of Seller and that such confidential information shall be held confidential by Buyer and Buyer’s Representatives in accordance with the terms of this Section 6.9.
(b) Subject to Section 6.6, for a period of one (1) year from and after the Closing Date, Seller shall, and shall cause its Affiliates to, not make disclosure to Third Parties of any confidential or proprietary information relating to Buyer or the Acquired Company, except with the prior written consent of Buyer or as required by, or requested pursuant to, applicable Law, regulation or legal, judicial or administrative process (including an audit or examination by a regulatory authority or self-regulatory organization), except to the extent that such information (i) is generally available to the public through no fault of Seller or any of its Affiliates committed following Closing or (ii) is lawfully acquired by Seller or any of its Affiliates from and after the Closing from sources which are not known to Seller to be prohibited from disclosing such information by a legal, contractual or fiduciary obligation to Buyer or the Acquired Company; provided, however, that (x) nothing shall prohibit Seller or its Affiliates from using their knowledge or mental impressions of such information or their general knowledge of the industry or geographic area in the conduct of their respective businesses following the Closing, (y) Seller and its Affiliates may discuss (on a confidential basis) the underlying investment with respect to the Acquired Company and the acquisition or disposition of the Acquired Company in connection with their respective legitimate fundraising activities or fund performance reporting with current or prospective investors, lenders, or partners.
6.10 Notices to Escrow Agent. Seller and Buyer shall provide the Escrow Agent, as applicable, with such notices, directions and instructions (as are necessary for the Escrow Agent to fulfill its obligations set forth in the Escrow Agreement) in accordance with the provisions of this Agreement.
54
6.11 Company Indebtedness. In connection with, and at the time of, the Closing, as applicable, Seller shall obtain (x) a release of any Liens securing Indebtedness for Borrowed Money existing as of the Closing Date applicable to or in any way burdening the Company Assets and (y) a release of the Acquired Company as a borrower or guarantor to any credit agreement or similar financing agreement or arrangement to which the Acquired Company is subject or which would constitute Indebtedness for Borrowed Money of the Acquired Company.
6.12 No Shop. Until the earlier of the occurrence of Closing or the termination of this Agreement pursuant to Article 8:
(a) Seller shall, and shall direct its Affiliates and its and its Affiliates’ Representatives to, immediately cease any discussions or negotiations with any Persons with respect to any Third Party Acquisition or any proposal reasonably likely to lead to a Third Party Acquisition. From the Execution Date until the Closing, Seller shall not, and shall not authorize or permit any of its Affiliates or any of their respective Representatives to, and shall not resolve or propose to, directly or indirectly, encourage, solicit, participate in or initiate discussions, negotiations, inquiries, proposals or offers (including any proposal or offer to their shareholders) with or from or provide any non-public information to any Person or group of Persons concerning any Third Party Acquisition or any inquiry, proposal or offer reasonably likely to lead to a Third Party Acquisition.
(b) Seller shall not, and shall cause its subsidiaries not to, enter into any agreement, letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement constituting or directly related to, or which is reasonably likely to lead to, a Third Party Acquisition or any proposal for a Third Party Acquisition.
(c) For the purposes of this Agreement, “Third Party Acquisition” shall mean the occurrence of any acquisition, directly or indirectly, in one or a series of related transactions, whether by sale, merger or otherwise, of all or any part of the Acquired Company or any portion of the Company Assets.
6.13 Affiliate Contracts. Prior to the Closing, Seller shall cause the Acquired Companies to terminate, without liability or continuing obligation to the Acquired Companies, the Contracts listed on Schedule 6.13.
6.14 Delivery of Interim Financial Statements. As soon as reasonably practicable following the Execution Date (and in any event within thirty (30) days of the Execution Date), Seller shall deliver to Buyer unaudited consolidated balance sheets of Seller and the Acquired Company as of June 30, 2023 and 2022, together with the related consolidated unaudited statements of operations, members’ equity and cash flows for the six (6)-months then-ended.
55
ARTICLE 7
Conditions to Closing
7.1 Conditions to Obligations of Buyer to Closing. The obligation of Buyer to consummate the transactions contemplated by this Agreement at the Closing is subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived in whole or in part in writing exclusively by Buyer:
(a) Representations, Warranties, and Covenants. (i) The Seller Fundamental Representations will be true and correct in all respects (other than de minimis inaccuracies) as of the Execution Date and as of the Closing Date as if made on the Closing Date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date); and (ii) all other representations and warranties of Seller made in this Agreement (other than representations and warranties described in clause (i) above) will be true and correct (disregarding all materiality and Seller Material Adverse Effect qualifications contained herein) as of the Execution Date and as of the Closing Date as if made on the Closing Date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date), except where all such breaches or inaccuracies taken collectively (without giving effect to any limitation as to materiality and Seller Material Adverse Effect qualifications contained herein) would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect.
(b) Performance. Seller shall have performed or complied with in all material respects all of the covenants and agreements required by this Agreement to be performed or complied with by Seller on or before the Closing.
(c) No Injunction. On the Closing Date, no provision of any applicable Law and no Order will be in effect that restrains, enjoins, makes illegal or otherwise prohibits the consummation of the Closing.
(d) Closing Deliverables. Buyer shall have received the documents and certificates required under Section 2.5(a).
(e) Debt Payoff Letters. In connection with, and at the time of, the Closing, as applicable, Seller shall have obtained (x) a release of any Liens securing Indebtedness for Borrowed Money existing as of the Closing Date applicable to or in any way burdening the Company Assets and (y) a release of the Acquired Company as a borrower or guarantor to any credit agreement or similar financing agreement or arrangement to which the Acquired Company is subject or which would constitute Indebtedness for Borrowed Money of the Acquired Company.
(f) No Seller Material Adverse Effect. No Seller Material Adverse Effect shall have occurred nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Seller Material Adverse Effect.
(g) No Walk Right. Subject to Section 2.4, the Walk-Right Amounts shall not be, in the aggregate, more than the Walk-Right Threshold.
56
7.2 Conditions to the Obligations of Seller to Closing. The obligation of Seller to consummate the transactions contemplated by this Agreement at the Closing is subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived in whole or in part in writing exclusively by Seller:
(a) Representations, Warranties, and Covenants. (i) The Buyer Fundamental Representations will be true and correct in all respects (other than de minimis inaccuracies) as of the date of this Agreement and as of the Closing Date as if made on the Closing Date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date); and (ii) all other representations and warranties of Buyer made in this Agreement (other than representations and warranties described in clause (i) above) will be true and correct (disregarding all materiality and Buyer Material Adverse Effect qualifications contained herein) as of the Execution Date and as of the Closing Date as if made on the Closing Date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct as of such earlier date), except where all such breaches or inaccuracies taken collectively (without giving effect to any limitation as to materiality and Buyer Material Adverse Effect qualifications contained herein) would not, individually or in the aggregate, reasonably be expected to have a Buyer Material Adverse Effect.
(b) Performance. Buyer shall have performed or complied with in all material respects all of the covenants and agreements required by this Agreement to be performed or complied with by Buyer on or before the Closing.
(c) No Injunction. On the Closing Date, no provision of any applicable Law and no Order will be in effect that restrains, enjoins, makes illegal or otherwise prohibits the consummation of the Closing.
(d) Closing Deliverables. Seller shall have received the documents and certificates required under Section 2.5(b).
(e) No Walk Right. Subject to Section 2.4, the Walk-Right Amounts are not, in the aggregate, more than the Walk-Right Threshold.
ARTICLE 8
Termination
8.1 Termination. Subject to Section 8.2, at any time prior to the Closing, this Agreement may be terminated and the transactions contemplated hereby abandoned:
(a) by the mutual written consent of Buyer and Seller;
(b) by either Buyer or Seller, upon Notice to the other Party, if the Closing has not been consummated by October 13, 2023; provided, however, that neither Buyer nor Seller will be entitled to terminate this Agreement pursuant to this Section 8.1(b) if such Person’s breach of any representation, warranty or covenant set forth in this Agreement has been the cause of the Closing failing to occur by such date;
57
(c) by Buyer, upon Notice to Seller, if (i) there has been a breach by Seller of any representation, warranty or covenant contained in this Agreement that would prevent the satisfaction of any condition to the obligations of Buyer set forth in Sections 7.1(a) or 7.1(b) and, if such breach is of a character that is capable of being cured, such breach has not been cured by Seller within thirty (30) days after Notice thereof from Buyer, (ii) Buyer is ready, willing and able to perform all covenants to be performed by Buyer at Closing and (iii) Buyer is not in breach of any representation, warranty or covenant set forth in this Agreement that would prevent the satisfaction of any condition to the obligations of Seller set forth in Sections 7.2(a) or 7.2(b);
(d) by Seller, upon Notice to Buyer, if (i)(A) there has been a breach by Buyer of any representation, warranty or covenant contained in this Agreement that would prevent the satisfaction of any condition to the obligations of Seller set forth in Sections 7.2(a) or 7.2(b) and, if such breach is of a character that is capable of being cured, such breach has not been cured by Buyer within thirty (30) days after Notice thereof from Seller, (B) Seller is ready, willing and able to perform all covenants to be performed by Seller at Closing and (C) Seller is not in breach of any representation, warranty or covenant set forth in this Agreement that would prevent the satisfaction of any condition to the obligations of Buyer set forth in Sections 7.1(a) or 7.1(b) or (ii) (x) Buyer has failed to comply with its obligation to consummate the Closing within two (2) Business Days after the date on which it is obligated to consummate the Closing pursuant to Section 2.6, (y) all the conditions set forth in Article 7, other than the conditions to be satisfied a Closing, have been and continue to be satisfied or have been waived on the date on which Closing was to have occurred pursuant to Section 2.6 and (z) Seller stood ready, willing and able to consummate the Closing throughout such period;
(e) subject to Section 2.4, by Seller or Buyer, if the Walk-Right Amounts exceed the Walk-Right Threshold;
(f) by either Buyer or Seller, upon Notice to the other Party, if any Governmental Authority having competent jurisdiction has issued a final, non-appealable Order, decree, ruling or injunction (other than a temporary restraining order) or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such injunction or other action shall have become final and non-appealable; or
(g) by Seller, in the event that, prior to 5:00 p.m. local time in Houston, Texas on the date that is one (1) Business Day after the Execution Date, Buyer fails to fund into the Escrow Account the Escrow Amount pursuant to Section 2.7(a).
8.2 Effect of Termination. If a Party terminates this Agreement under Section 8.1, then such Party shall promptly give Notice to the other Party specifying the provision hereof pursuant to which such termination is made, and this Agreement shall become null and void and have no effect, except that the agreements contained in Article 1, this Article 8, Article 10, the provisions of Section 6.2, Section 6.6 and Section 6.7 shall survive termination hereof. No termination of this Agreement pursuant to Section 8.1 and nothing contained in this Section 8.2 shall relieve any Party to this Agreement of liability for willful breach of this Agreement occurring prior to any termination, or for willful breach of any provision of this Agreement that specifically survives termination hereunder.
58
8.3 Remedies for Termination.
(a) If Seller has the right to terminate this Agreement pursuant to Section 8.1(d), then Seller shall be entitled to either (i) terminate this Agreement (in which case, Seller shall receive the Escrow Amount from the Escrow Agent as liquidated damages, and the Parties shall cause the Escrow Agent to release the Escrow Amount to Seller), or (ii) in lieu of terminating this Agreement, seek specific performance of this Agreement. In the event Seller seeks specific performance in accordance with the preceding sentence and specific performance is not granted, Seller shall have the right to terminate this Agreement (in which case, Seller shall receive the Escrow Amount from the Escrow Agent as liquidated damages, and the Parties shall cause the Escrow Agent to release the Escrow Amount to Seller). If Seller terminates this Agreement as described in this Section 8.3(a), upon such termination, Seller shall be free immediately to enjoy all rights of ownership of the Acquired Interests and to sell, transfer, encumber or otherwise dispose of the Acquired Interests to any Person without any restriction under this Agreement. The Parties agree that the foregoing described liquidated damages in clause (i) of this Section 8.3(a) are reasonable considering all of the circumstances existing as of the date of this Agreement and constitute the Parties’ good faith estimate of the actual damages reasonably expected to result from such termination of this Agreement by Seller. Buyer waives any requirement for the posting of a bond, or showing of irreparable injury, in connection with any equitable relief hereunder in favor of Seller and Buyer agrees not to challenge any such equitable relief sought in accordance with this Section 8.3(a).
(b) If Buyer has the right to terminate this Agreement pursuant to Section 8.1(c), then Buyer shall be entitled to (i) terminate this Agreement, receive return of the Escrow Amount from the Escrow Agent, in which case the Parties shall cause the Escrow Agent to release the Escrow Amount to Buyer, and may recover the Termination Amount determined in accordance with Schedule 8.3(b), or (ii) in lieu of terminating this Agreement, seek specific performance of this Agreement (with Seller being paid the Adjusted Purchase Price as determined in accordance with this Agreement if specific performance is awarded). In the event Buyer seeks specific performance in accordance with the preceding sentence and specific performance is not granted, Buyer shall have the right to terminate this Agreement, receive return of the Escrow Amount from the Escrow Agent, in which case the Parties shall cause the Escrow Agent to release the Escrow Amount to Buyer, and may pursue a claim for actual damages against Seller in an amount up to the amount of the Escrow Amount. Seller waive any requirement for the posting of a bond, or showing of irreparable injury, in connection with any equitable relief hereunder in favor of Buyer and Seller agrees not to challenge any such equitable relief sought in accordance with this Section 8.3(b).
(c) If Seller has the right to terminate this Agreement pursuant to Section 8.1(g), Buyer shall promptly pay to Seller an amount in cash equal to ten percent (10%) of the Unadjusted Purchase Price.
(d) If this Agreement terminates for reasons other than those set forth in Sections 8.3(a), 8.3(b) or 8.3(c), then (i) the Parties shall have no liability or obligation hereunder as a result of such termination, (ii) each of the Parties shall, within five (5) Business Days of the date this Agreement is terminated, execute and deliver written instructions to the Escrow Agent instructing the Escrow Agent to return the Escrow Amount to Buyer free and clear of any claims thereon by Seller, and (iii) Seller shall be free immediately to enjoy all rights of ownership of the Acquired Interests and to sell, transfer, encumber or otherwise dispose of the Acquired Interests to any Person without any restriction under this Agreement.
59
(e) Upon termination of this Agreement, (i) each Party shall return to the other Party or destroy (at the receiving Party’s option and expense) all confidential information furnished by or on behalf of a Party in connection with its due diligence investigation of the Acquired Interests or Buyer (as applicable) and (ii) an officer of the receiving Party shall promptly certify the receiving Party’s compliance with preceding clause (i) to the disclosing Party in writing.
ARTICLE 9
Indemnification
9.1 Survival of Representations, Warranties and Covenants. All representations and warranties set forth in this Agreement (and in each case the corresponding representations and warranties given in the certificates delivered at Closing pursuant to this Agreement) shall survive the Closing until the date that is one (1) year after the Closing Date. All covenants and agreements of the Parties contained herein shall terminate (a) upon the Closing, if performance is solely required prior to or concurrently with the Closing, and (b) upon the expiration by their terms of the obligations of the applicable Party under such covenant or agreement, if performance is required in the period from and after the Closing; provided, that the covenants contained in Section 6.1 and Section 6.2 shall survive the Closing until the date that is one hundred eighty (180) days after the Closing Date. Representations, warranties, covenants and agreements shall terminate and be of no further force and effect after the respective date of their expiration, after which time no claim may be asserted thereunder by any Person, provided that notwithstanding the limitations set forth in the two preceding sentences, with respect to any specific claim for indemnification hereunder delivered to the applicable Party in accordance with the terms hereof on or before the expiration of such survival period, such claim and the applicable Party’s obligation with respect thereto shall survive until resolved pursuant to the terms hereof.
9.2 Indemnification in Favor of Buyer.
(a) Subject to the other terms of this Article 9, from and after the Closing Date, Seller agrees to and shall indemnify, defend and hold harmless Buyer, its Affiliates (including from and after the Closing the Acquired Company), and its and their respective officers, directors, employees, consultants, advisors, representatives and agents (collectively, the “Buyer Indemnified Parties”), from, against and in respect of any and all Losses suffered or incurred by any of the Buyer Indemnified Parties or to which any of the Buyer Indemnified Parties may otherwise become subject (regardless of whether or not such Losses related to any Third-Party Claim) arising out of or resulting from, without duplication:
(i) any inaccuracy or breach of any representation or warranty made by Seller in Article 3 or Article 4 or in the certificate delivered by Seller pursuant to Section 2.5(a)(iii);
(ii) any failure or breach of any covenant, agreement or undertaking made by Seller in this Agreement;
(iii) Seller Taxes;
60
(iv) The ownership, use or operation of the Excluded Assets; or
(v) the matters set forth on Schedule 9.2(a)(v).
(b) “Losses” means any and all liabilities, damages, fines, penalties, losses, Taxes, costs, expenses, claims, awards or judgments actually incurred, involving or otherwise suffered by any Indemnified Party arising out of or resulting from the indemnified matter, including reasonable out of pocket fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation of such matters, and the costs of enforcement of the indemnity.
(c) The Losses of the Buyer Indemnified Parties described in this Section 9.2 as to which the Buyer Indemnified Parties are entitled to indemnification hereunder are hereinafter collectively referred to as the “Buyer Losses.”
(d) Notwithstanding anything in this Agreement to the contrary, for purposes of this Section 9.2, (i) an inaccuracy or breach of a representation or warranty (other than Section 4.5(d) or 4.6 or any reference to “Material” in the term “Seller Material Contract”) shall be deemed to exist either if such representation or warranty is actually inaccurate or breached or would have been inaccurate or breached if such representation or warranty had not contained any limitation or qualification as to materiality or Seller Material Adverse Effect (which instead will be read as any adverse effect or change), and (ii) the amount of Losses in respect of any breach of a representation or warranty (including any deemed breach resulting from the application of clause (i) but excluding and any reference to “Material” in the term “Seller Material Contract”) shall be determined without regard to any limitation or qualification as to materiality or Seller Material Adverse Effect (which instead will be read as any adverse effect or change) set forth in such representation or warranty.
9.3 Indemnification Obligations of Buyer.
(a) Subject to the other terms of this Article 9, from and after the Closing Date, Buyer shall indemnify, defend and hold harmless Seller, their Affiliates, their direct and indirect equity holders and their controlling persons, and each of their respective officers, directors, employees, consultants, advisors, representatives and agents (collectively, the “Seller Indemnified Parties”) from, against and in respect of any and all Losses suffered or incurred by any of the Seller Indemnified Parties or to which any of the Seller Indemnified Parties may otherwise become subject (regardless of whether or not such Losses related to any Third-Party Claim) arising out of or resulting from, without duplication:
(i) any inaccuracy or breach of any representation or warranty made by Buyer in Article 5 or in the certificate delivered by Buyer pursuant to Section 2.5(b)(ii)(A);
(ii) any failure or breach of any covenant, agreement or undertaking made by Buyer in this Agreement; and
(iii) any Taxes allocable to Buyer under Section 6.8(a) (taking into account, and without duplication of, such Asset Taxes effectively borne by Seller as a result of (1) the adjustments to the Unadjusted Purchase Price made pursuant to Section 2.2 or Section 2.8, and (2) any payments from one Party to the other in respect of Asset Taxes pursuant to the last sentence of Section 6.8(a)).
61
(b) The Losses of Seller Indemnified Parties described in this Section 9.3 as to which the Seller Indemnified Parties are entitled to indemnification hereunder are hereinafter collectively referred to as “Seller Losses.”
(c) Notwithstanding anything in this Agreement to the contrary, for purposes of this Section 9.3, (i) an inaccuracy or breach of a representation or warranty shall be deemed to exist either if such representation or warranty is actually inaccurate or breached or would have been inaccurate or breached if such representation or warranty had not contained any limitation or qualification as to materiality or Buyer Material Adverse Effect (which instead will be read as any adverse effect or change), and (ii) the amount of Losses in respect of any breach of a representation or warranty (including any deemed breach resulting from the application of clause (i)) shall be determined without regard to any limitation or qualification as to materiality or Buyer Material Adverse Effect (which instead will be read as any adverse effect or change) set forth in such representation or warranty.
9.4 Indemnification Procedure.
(a) Promptly after receipt by a Buyer Indemnified Party or a Seller Indemnified Party (hereinafter collectively referred to as an “Indemnified Party”) of notice by a Third Party (including any Governmental Authority) of any claim for Losses or the commencement of a Proceeding or audit with respect to which such Indemnified Party may be entitled to receive payment hereunder for any Buyer Losses or any Seller Losses (as the case may be), such Indemnified Party will notify Buyer or Seller, as the case may be (in such capacity, Buyer or Seller is hereinafter referred to as an “Indemnifying Party”) of such claim, Proceeding or audit; provided, however, that the failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from liability under this Agreement except to the extent, and only to the extent, that such failure materially prejudices the Indemnifying Party. The Indemnifying Party will have the right, at its sole expense, upon written notice delivered to the Indemnified Party within fifteen (15) days after receiving such notice, to assume the defense of such Proceeding with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party. In the event, however, that the Indemnifying Party declines or fails to (i) assume the defense of the Proceeding on the terms provided above or to prosecute such defense in good faith or (ii) employ counsel reasonably satisfactory to the Indemnified Party, in any case within such fifteen (15) day period, then such Indemnified Party may employ counsel to represent or defend it in any such Proceeding and the Indemnifying Party will (subject to the other terms and provisions of this Agreement) pay the reasonable fees and disbursements of such counsel as incurred. In any Proceeding with respect to which indemnification is being sought hereunder, the Indemnified Party or the Indemnifying Party, whichever is not assuming the defense of such Proceeding, will have the right to participate in such matter and to retain its own counsel at such Party’s own expense. The Indemnifying Party or the Indemnified Party, as the case may be, will at all times use reasonable best efforts to (x) diligently conduct the defense of any Proceeding for which it is maintaining the defense, (y) keep the Indemnified Party or the Indemnifying Party, as the case may be, reasonably apprised of the status of the defense of any Proceeding the defense of which they are maintaining and (z) cooperate in good faith with each other with respect to the defense of any such Proceeding; provided, that the Indemnified Party shall not be required to bring counter-claims or cross-claims against any Person.
62
(b) No Indemnified Party may settle or compromise any claim or Proceeding or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of the Indemnifying Party, unless such settlement, compromise or consent (i) includes an unconditional release of the Indemnifying Party from all liability arising out of such Proceeding, (ii) does not contain any admission or statement of any wrongdoing or liability on behalf of the Indemnifying Party and (iii) does not contain any equitable order, judgment or term that in any manner affects, restrains or interferes with the business of the Indemnifying Party or any of the Indemnifying Party’s Affiliates. An Indemnifying Party may not, without the prior written consent of the Indemnified Party, settle or compromise any Proceeding or consent to the entry of any judgment with respect to which indemnification is being sought hereunder that (A) does not result in a final, non-appealable, resolution of the Indemnified Party’s liability with respect to the Proceeding (including, in the case of a settlement, an unconditional written release of the Indemnified Party from all further liability in respect of such Proceeding) or (B) may adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity), which consent shall not be unreasonably withheld, conditioned or delayed.
(c) A claim for indemnification by an Indemnified Party for any matter not involving a Proceeding by a Third Party may be asserted by Buyer (on behalf of the Buyer Indemnified Parties) or Seller (on behalf of the Seller Indemnified Parties), as applicable, by written notice to the Indemnifying Party from whom indemnification is sought. Such notice will specify with reasonable specificity the basis for such claim. The Indemnifying Party shall have thirty (30) days from its receipt of the notice to (i) cure the Losses complained of, (ii) admit its liability for such Losses or (iii) dispute the claim for such Losses. If the Indemnifying Party does not notify the Indemnified Party within such thirty (30) day period that it has cured the Losses or that it disputes the claim for such Losses, the amount of such Losses shall conclusively be deemed disputed by the Indemnifying Party hereunder. If the Indemnifying Party notifies the Indemnified Party within such thirty (30) day period that it disputes the claim for such Losses, then the Indemnified Party may continue to seek remedies available to it on the terms and subject to the provisions of this Agreement.
9.5 Calculation, Timing, Manner and Characterization of Indemnification Payments; Escrow.
(a) Payments of all amounts owing by an Indemnifying Party as a result of a Third-Party Claim shall be made as and when Losses with respect thereto are incurred by the Indemnified Party and within fifteen (15) Business Days after the Indemnified Party makes demand therefor to the Indemnifying Party. Payments of all amounts owing by an Indemnifying Party other than as a result of a Third-Party Claim shall be made within fifteen (15) Business Days after the later of (i) the date the Indemnifying Party is deemed liable therefor pursuant to this Article 9 (whether because the Indemnifying Party admits or acknowledges liability or otherwise) or (ii) if disputed, the date of a Final Determination of the Indemnifying Party’s liability to the Indemnified Party under this Agreement.
63
(b) Once a payment is owed and payable as set forth in Section 9.5(a), in circumstances where amounts are owing to any Buyer Indemnified Party from Seller in accordance with this Agreement, then Buyer and Seller shall execute a Joint Instruction Letter to instruct the Escrow Agent to pay such amount to Opco through the Escrow Account.
(c) Escrow Release. On the date that is 180 days after the Closing Date (such date, the “Escrow Release Date”), the Escrow Indemnity Amount, minus the aggregate amount, if any, which any Buyer Indemnified Party has claimed pursuant to Section 9.4(a) (to the extent such claims, if any, remain unresolved), shall be released to Seller. Seller and Buyer shall promptly (but in any event within five (5) Business Days of the Escrow Release Date) execute a Joint Instruction Letter to instruct the Escrow Agent to transfer to Seller such amount to an account or accounts designated by Seller pursuant to the Joint Instruction Letter. With respect to the balance of the Escrow Indemnity Amount (if any) held by the Escrow Agent following the Escrow Release Date, within five (5) Business Days following final resolution of all outstanding claim notices received by Seller pursuant to Section 9.4(a), Seller and Buyer shall provide a Joint Instruction Letter instructing the Escrow Agent to disburse the balance of the Escrow Indemnity Amount (or portion thereof) to the Party entitled to such amount.
9.6 Limits of Liability.
(a) Notwithstanding anything to the contrary set forth herein, Buyer Indemnified Parties shall not be entitled to recover on a claim for indemnification under Section 9.2(a)(i) for any individual Buyer Loss or series of related Buyer Losses (i) unless the amount of each such Buyer Loss or series of related Buyer Losses exceeds one hundred thousand Dollars ($100,000) and (ii) then only to the extent that all such Buyer Losses or series of related Buyer Losses that meet the requirements of the preceding clause (i) in the aggregate (x) exceed the Indemnity Deductible and (y) do not exceed Seller Cap in the aggregate; provided, however, that the foregoing limitations shall not apply to any claim for indemnification with respect to any inaccuracy or breach (or deemed inaccuracy or breach) of the Seller Fundamental Representations, the Seller Tax Representations, or the Special Warranty of Title. In no event shall Seller be liable for any Buyer Losses (when taken together with all other Buyer Losses indemnifiable in accordance with the terms of this Article 9) in excess of the Unadjusted Purchase Price.
(b) Notwithstanding anything to the contrary set forth herein, Seller Indemnified Parties shall not be entitled to recover on a claim for indemnification under Section 9.3(a)(i) for any individual Seller Loss or series of related Seller Losses (i) unless the amount of each such Seller Loss or series of related Seller Losses exceeds one hundred thousand Dollars ($100,000) and (ii) then only to the extent that all such Seller Losses or series of related Seller Losses that meet the requirements of the preceding clause (i) in the aggregate (x) exceed the Indemnity Deductible and (y) do not exceed the Buyer Cap in the aggregate; provided, however, that the foregoing limitations shall not apply to any claim for indemnification with respect to any inaccuracy or breach (or deemed inaccuracy or breach) of the Buyer Fundamental Representations. In no event shall Buyer be liable for any Seller Losses (when taken together with all other Seller Losses indemnifiable in accordance with the terms of this Article 9) in excess of the Unadjusted Purchase Price.
64
9.7 Sole and Exclusive Remedy.
(a) From and after the Closing the remedies set forth in this Article 9 shall, in the absence of Fraud, provide the sole and exclusive remedies arising out of, in connection with, relating to or arising under this Agreement, any certificate (including the certificates delivered at Closing by Buyer and Seller pursuant to Section 2.5(a)(iii) and Section 2.5(b)(ii)(A), respectively) or instrument delivered pursuant hereto, including any and all liabilities or obligations related to environmental matters or liabilities or violations of Environmental Laws or releases of any Constituents of Concern, whether based on contract, tort, strict liability, other laws or otherwise, including any breach or alleged breach of any representation, warranty, covenant or agreement made herein. The Parties acknowledge and agree that, in the absence of Fraud, from and after the Closing the remedies available in this Article 9 supersede (and each Party waives and releases) any other remedies available at Law or in equity against the other Parties including rights of rescission, rights of contribution and claims arising under applicable statutes.
(b) Buyer, on behalf of itself and all other Buyer Indemnified Parties, further acknowledges and agrees that, after the Closing, in the absence of Fraud or as otherwise contemplated in Section 9.6(a), the amount of the Seller Cap then available shall be the sole and exclusive source for satisfaction of any claims by or on behalf of any Buyer Indemnified Party arising under Section 9.2(a)(i).
9.8 Compliance with Express Negligence Rule. ALL RELEASES, LIMITATIONS ON LIABILITY AND INDEMNITIES CONTAINED IN THIS AGREEMENT, INCLUDING THOSE IN THIS ARTICLE 9, SHALL APPLY IN THE EVENT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE PARTY WHOSE LIABILITY IS RELEASED, DISCLAIMED, LIMITED OR INDEMNIFIED.
9.9 Insurance Proceeds. The Buyer Losses and Seller Losses giving rise to any claim hereunder shall be reduced by any insurance proceeds or other payments actually received by the Indemnified Party (less the amount of any deductible paid or costs incurred by such Indemnified Party in connection therewith) in satisfaction of any Losses giving rise to the claim. Buyer shall use its commercially reasonable efforts to recover under insurance policies or under other rights of recovery for Losses; provided, however, that Buyer shall be entitled to seek payment (including indemnification) under this Agreement pending resolution of any such recovery efforts.
9.10 Tax Treatment of Indemnity Payments. For U.S. federal Income Tax purposes, the Parties agree to treat (and shall cause each of their respective Affiliates to treat) any indemnity payment under this Agreement as an adjustment to the Adjusted Purchase Price unless a final and non-appealable determination by an appropriate Governmental Authority (which shall include the execution of an IRS Form 870-AD or successor form) provides otherwise.
9.11 Damages Waiver. No Indemnifying Party shall have any liability under this Article 9 to any Indemnified Party for indirect, consequential, punitive or exemplary damages or damages for lost profits, loss of revenue or diminution of value, except to the extent of reimbursement of such damages actually recovered by a Third Party from such Indemnified Party.
65
ARTICLE 10
Other Provisions
10.1 Notices. All notices, requests, demands and other communications (“Notices”) required or permitted under this Agreement shall be in writing addressed as indicated below, and any communication or delivery hereunder shall be deemed to have been duly delivered upon the earliest of: (a) actual receipt by the Party to be notified; (b) if sent by U.S. certified mail, postage prepaid, return receipt requested, then the date shown as received on the return notice; (c) if by email or facsimile transmission, then upon the earlier of (i) a reply by the intended recipient whether by email, facsimile or otherwise; provided that such intended recipient shall have an affirmative duty to reply promptly upon receipt if received during business hours; and provided further, that an automated response from the email account or server of the intended recipient shall not constitute an affirmative reply or (ii) on the first (1st) Business Day after transmission (and sender shall bear the burden of proof of delivery); or (d) if by Federal Express overnight delivery (or other reputable overnight delivery service), the date shown on the notice of delivery. Addresses for all such Notices and communication shall be as follows:
If to Buyer, to:
Kimbell Royalty Partners, LP
777 Taylor Street, Suite 810
Fort Worth, TX 76102
Email: [***]
Attention: Robert D. Ravnaas
With a copy to:
White & Case LLP
609 Main Street
Houston, TX 77002
| Email: | [***] and | |
| [***] | ||
| Attention: | Jason A. Rocha | |
| Charlie Ofner |
and
Kelly Hart & Hallman LLP
201 Main Street #2500
Fort Worth, TX 76102
| Email: | [***] | |
| Attention: | Drew Neal |
66
If to Seller, to:
LongPoint Minerals II, LLC
100 St. Paul, Ste. 400
Denver, CO 80206
Attention: Tad Herz
Emai: [***]
With a copy to:
Bracewell LLP
711 Louisiana Street, Suite 2300
Houston, Texas 77002
| Attention: | Molly Butkus and Ben Martin | |
| Telephone: | 713-221-1353 | |
| Email: | [***] | |
| [***] |
or to such other address or addresses as the Parties may from time to time designate in writing.
10.2 Assignment. Neither Party shall assign this Agreement or any part hereof without the prior written consent of the other Party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns.
10.3 Rights of Third Parties. Subject to Sections 9.2, 9.3 and 10.11 and, nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the Parties, any right or remedies under or by reason of this Agreement.
10.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any facsimile electronic transmittal (PDF) copies hereof or signature hereon shall, for all purposes, be deemed originals.
10.5 Entire Agreement. This Agreement (together with the Disclosure Schedules, the Transaction Documents and exhibits to this Agreement) constitutes the entire agreement among the Parties and supersede any other agreements, whether written or oral, that may have been made or entered into by or among any of the Parties or any of their respective Affiliates relating to the transactions contemplated hereby. In the event any provision of any other Transaction Document shall in any way conflict with the provisions of this Agreement (except where a provision therein expressly provides that it is intended to take precedence over this Agreement), this Agreement shall control.
10.6 Disclosure Schedules. Unless the context otherwise requires, all capitalized terms used in the Disclosure Schedules shall have the respective meanings assigned in this Agreement. No reference to or disclosure of any item or other matter in the Disclosure Schedules shall be construed as an admission or indication that such item or other matter is material or that such item or other matter is required to be referred to or disclosed in the Disclosure Schedules. No disclosure in the Disclosure Schedules relating to any possible breach or violation of any agreement or Law shall be construed as an admission or indication that any such breach or violation exists or has actually occurred. The inclusion of any information in the Disclosure Schedules shall not be deemed to be an admission or acknowledgment by Seller or Buyer, as applicable, in and of itself, that such information is material to or outside the Ordinary Course of any Person or required to be disclosed on the Disclosure Schedules. Each disclosure in the Disclosure Schedules shall be deemed to qualify the particular sections or subsections of the representations and warranties expressly referenced, and each other section or subsection of the representations and warranties where the relevance of such disclosure is reasonably apparent.
67
10.7 Amendments. This Agreement may be amended or modified in whole or in part, and terms and conditions may be waived, only by a duly authorized agreement in writing which makes reference to this Agreement executed by each Party.
10.8 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. The Parties further agree that if any provision contained herein is, to any extent, held invalid or unenforceable in any respect under the Laws governing this Agreement, they shall take any actions necessary to render the remaining provisions of this Agreement valid and enforceable to the fullest extent permitted by Law and, to the extent necessary, shall amend or otherwise modify this Agreement to replace any provision contained herein that is held invalid or unenforceable with a valid and enforceable provision giving effect to the intent of the Parties to the greatest extent legally permissible.
10.9 Specific Performance. The Parties acknowledge and agree (a) that each Party would be irreparably harmed by a breach by the other Party of any of such other Party’s obligations under this Agreement and that the Parties would not have any adequate remedy at law if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and (b) that the non-breaching Party shall be entitled to injunctive relief, specific performance, and other equitable remedies against the breaching Party to enforce the performance by the breaching Party of its obligations under this Agreement (this being in addition to any other remedy to which the non-breaching Party may be entitled at law or in equity), and the Parties hereby consent and agree to such injunctive relief, specific performance, and other equitable remedies. Accordingly, each Party waives (i) any defenses in any action for specific performance pursuant to this Agreement that a remedy at law would be adequate and (ii) any requirement under any Law to post a bond or other security as a prerequisite to obtaining equitable relief.
10.10 Governing Law; Jurisdiction.
(a) Law. This Agreement shall be governed and construed in accordance with the Laws of the State of Delaware, without regard to the Laws that might be applicable under conflicts of laws principles that would require the application of the Laws of another jurisdiction; provided that any matters relating to real property shall be governed by the laws of the State where such real property is located.
(b) Forum. The Parties agree that the appropriate, exclusive and convenient forum for any disputes between any of the Parties hereto arising out of this Agreement or the transactions contemplated hereby shall be in any state or federal court in New Castle County, Delaware, and each of the Parties hereto irrevocably submits to the jurisdiction of such courts in respect of any legal proceeding arising out of or related to this Agreement. The Parties further agree that the Parties shall not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby in any court or jurisdiction other than the above-specified courts. The Parties further agree, to the extent permitted by Law, that a final and non-appealable judgment against a Party in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment.
68
(c) Jurisdiction. To the extent that any Party hereto has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, each such Party hereby irrevocably (i) waives such immunity in respect of its obligations with respect to this Agreement, and (ii) submits to the personal jurisdiction of any court described in Section 10.10(b).
(d) JURY WAIVER. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, LEGAL PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT.
10.11 No Recourse. This Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as Parties hereto in their capacities as such and, except to the extent otherwise provided herein, no former, current or future equity holders, controlling Persons, directors, officers, employees, agents or Affiliates of any Party hereto or any former, current or future, direct or indirect, equity holder, controlling Person, director, officer, employee, general or limited partner, member, manager, agent or Affiliate of any of the foregoing (each, a “Non-Recourse Party”) shall have any liability for any obligations or liabilities of the Parties to this Agreement or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, the transactions contemplated hereby or in respect of any representations made or alleged to be made in connection herewith. Without limiting the rights of any Party against the other Parties hereto, in no event shall any Party or any of its Affiliates seek to enforce this Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from, any Non-Recourse Party.
10.12 Legal Representation. Following the Closing, Bracewell LLP (“Bracewell”) may serve as counsel to Seller and its Non-Recourse Parties, in connection with any litigation, claim or obligation arising out of or relating to this Agreement, notwithstanding such representation or any continued representation of any other Person, and each of the Parties (on behalf of itself and each of its Non-Recourse Parties) consents thereto and waives any conflict of interest arising therefrom. The decision to represent Seller and its Non-Recourse Parties shall be solely that of Bracewell. Any privilege attaching as a result of Bracewell representing Seller or any of its Affiliates in connection with this Agreement shall survive the Closing and shall remain in effect; provided, that such privilege from and after the Closing shall be assigned to and controlled by Seller; provided, further, that in the event that any dispute arises after the Closing between Buyer, on the one hand, and any party other than the Parties or any of their respective Non-Recourse Parties, on the other hand, then Buyer may assert such privilege to prevent the disclosure of any Privileged Communications by Bracewell to such third party. In furtherance of the foregoing, each of the Parties agrees to take the steps necessary to ensure that any privilege attaching as a result of Bracewell representing Seller in connection with this Agreement shall survive the Closing, remain in effect and be assigned to and controlled by Seller. As to any privileged attorney client communications between Bracewell and Seller prior to the Closing Date (collectively, the “Privileged Communications”), Buyer, together with any of its Affiliates, successors or assigns, agree that no such party may use or rely on any of the Privileged Communications in any action or claim against or involving any of the Parties or any of their respective Non-Recourse Parties after the Closing. Notwithstanding the foregoing, nothing herein shall be construed as a waiver by Seller of the attorney-client privilege of the obligations of confidentiality owed by Bracewell to Seller with respect to matters not regarding this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
69
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by each of the Parties as of the date first above written.
| BUYER: | ||
| Kimbell Royalty Partners, LP | ||
| By: Kimbell Royalty GP, LLC | ||
| Its: General Partner | ||
| By: | /s/ Matthew Daly | |
| Name: Matthew Daly | ||
| Title: Chief Operating Officer | ||
| Kimbell Royalty OPERATING, LLC | ||
| By: | /s/ Matthew Daly | |
| Name: Matthew Daly | ||
| Title: Chief Operating Officer | ||
[Signature Page to the Securities Purchase Agreement]
| SELLER: | ||
| LongPoint Minerals II, LLC | ||
| By: | /s/ Tad Herz | |
| Name: Tad Herz | ||
| Title: President and Chief Financial Officer | ||
[Signature Page to the Securities Purchase Agreement]
Exhibit 10.2
SERIES A PREFERRED UNIT
PURCHASE AGREEMENT
among
KIMBELL ROYALTY PARTNERS, LP,
and
THE SEVERAL PURCHASERS PARTY HERETO
August 2, 2023
TABLE OF CONTENTS
Page
| Article I DEFINITIONS | 1 | ||
| Section 1.01 | Definitions | 1 | |
| Section 1.02 | Accounting Procedures and Interpretation | 10 | |
| Article II AGREEMENT TO SELL AND PURCHASE | 11 | ||
| Section 2.01 | Sale and Purchase | 11 | |
| Section 2.02 | Closing | 11 | |
| Section 2.03 | Mutual Conditions | 12 | |
| Section 2.04 | Conditions to the Purchasers’ Obligations | 12 | |
| Section 2.05 | Conditions to the Partnership’s Obligations | 13 | |
| Section 2.06 | Deliveries at the Closing | 13 | |
| Section 2.07 | Further Assurances | 16 | |
| Article III REPRESENTATIONS AND WARRANTIES AND COVENANTS RELATED TO THE PARTNERSHIP | 16 | ||
| Section 3.01 | Organization and Power | 16 | |
| Section 3.02 | Capitalization and Valid Issuance of Units | 17 | |
| Section 3.03 | Ownership of the Subsidiaries | 18 | |
| Section 3.04 | KRP SEC Documents | 19 | |
| Section 3.05 | Financial Statements | 19 | |
| Section 3.06 | Independent Registered Public Accounting Firm | 20 | |
| Section 3.07 | No Material Adverse Effect | 20 | |
| Section 3.08 | No Registration Required | 21 | |
| Section 3.09 | No Restrictions or Registration Rights | 21 | |
| Section 3.10 | Litigation | 21 | |
| Section 3.11 | No Defaults | 21 | |
| Section 3.12 | No Conflicts | 21 | |
| Section 3.13 | Authority; Enforceability | 22 | |
| Section 3.14 | Approvals | 22 | |
| Section 3.15 | Distribution Restrictions | 23 | |
| Section 3.16 | Investment Company Status | 23 | |
| Section 3.17 | Certain Fees | 23 | |
| Section 3.18 | Labor and Employment Matters | 23 | |
| Section 3.19 | Insurance | 23 | |
| Section 3.20 | Internal Controls | 23 | |
| Section 3.21 | Disclosure Controls and Procedures | 24 | |
| Section 3.22 | Sarbanes-Oxley | 24 | |
| Section 3.23 | Listing and Maintenance Requirements | 24 | |
| Section 3.24 | Environmental Compliance | 24 | |
| Section 3.25 | ERISA Compliance | 25 | |
Page
| Section 3.26 | Tax Returns; Taxes | 25 | |
| Section 3.27 | Permits | 26 | |
| Section 3.28 | Required Disclosures and Descriptions | 26 | |
| Section 3.29 | Title to Property | 26 | |
| Section 3.30 | Rights-of-Way | 26 | |
| Section 3.31 | Form S-3 Eligibility | 27 | |
| Section 3.32 | No Unlawful Payments | 27 | |
| Section 3.33 | Compliance with Laws | 27 | |
| Section 3.34 | OFAC | 27 | |
| Section 3.35 | Related Party Transactions | 27 | |
| Section 3.36 | Reserve Engineer Independence | 27 | |
| Section 3.37 | Reserve Report Information | 28 | |
| Section 3.38 | Reserve Reports | 28 | |
| Section 3.39 | Intellectual Property | 28 | |
| Section 3.40 | No Integration | 28 | |
| Section 3.41 | Solvency | 28 | |
| Section 3.42 | LongPoint Purchase Agreement | 29 | |
| Section 3.43 | No Side Agreements | 29 | |
| Article IV REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE PURCHASERS | 29 | ||
| Section 4.01 | Existence | 29 | |
| Section 4.02 | Authorization; Enforceability | 29 | |
| Section 4.03 | No Breach | 30 | |
| Section 4.04 | Certain Fees | 30 | |
| Section 4.05 | Unregistered Securities | 30 | |
| Section 4.06 | Sufficient Funds | 32 | |
| Section 4.07 | No Prohibited Trading | 32 | |
| Article V COVENANTS | 32 | ||
| Section 5.01 | Conduct of Business | 32 | |
| Section 5.02 | Listing of Units | 32 | |
| Section 5.03 | Cooperation; Further Assurances | 33 | |
| Section 5.04 | Lock-Up Agreement | 33 | |
| Section 5.05 | Tax Estimates | 34 | |
| Section 5.06 | Use of Proceeds | 34 | |
| Section 5.07 | CUSIP Cooperation | 34 | |
| Section 5.08 | Rule 144 Reporting | 34 | |
| Section 5.09 | Exclusivity | 34 | |
| Article VI INDEMNIFICATION, COSTS AND EXPENSES | 35 | ||
| Section 6.01 | Indemnification by the Partnership | 35 | |
| Section 6.02 | Indemnification by the Purchaser | 36 | |
ii
Page
| Section 6.03 | Indemnification Procedure | 36 | |
| Section 6.04 | Tax Matters | 37 | |
| Article VII TERMINATION | 38 | ||
| Section 7.01 | Termination | 38 | |
| Section 7.02 | Certain Effects of Termination | 38 | |
| Article VIII MISCELLANEOUS | 39 | ||
| Section 8.01 | Expenses | 39 | |
| Section 8.02 | Interpretation | 39 | |
| Section 8.03 | Survival of Provisions | 40 | |
| Section 8.04 | No Waiver: Modifications in Writing | 40 | |
| Section 8.05 | Binding Effect | 41 | |
| Section 8.06 | Assignment of Rights | 41 | |
| Section 8.07 | Non-Disclosure | 41 | |
| Section 8.08 | Communications | 42 | |
| Section 8.09 | Removal of Legend | 43 | |
| Section 8.10 | Entire Agreement | 44 | |
| Section 8.11 | Governing Law; Submission to Jurisdiction | 44 | |
| Section 8.12 | Waiver of Jury Trial | 44 | |
| Section 8.13 | Remedies | 45 | |
| Section 8.14 | No Recourse Against Others | 45 | |
| Section 8.15 | No Third-Party Beneficiaries | 46 | |
| Section 8.16 | No Reliance | 46 | |
| Section 8.17 | Execution in Counterparts | 47 | |
| Section 8.18 | Purchaser Liability | 47 | |
| SCHEDULE 1.01 – Firm Purchased Units | |
| SCHEDULE 3.03 – Partnership Subsidiaries | |
| SCHEDULE 5.09 – Exclusivity | |
| EXHIBIT A – Form of Opinion | A-1 |
| EXHIBIT B – Form of Partnership Agreement Amendment | B-1 |
| EXHIBIT C – Form of Registration Rights Agreement | C-1 |
| EXHIBIT D – LongPoint Purchase Agreement | D-1 |
| EXHIBIT E – Form of VCOC Letter | E-1 |
| EXHIBIT F – Form of Board Rights Agreement | F-1 |
iii
SERIES A PREFERRED UNIT PURCHASE AGREEMENT
This Series A Preferred Unit Purchase Agreement, dated as of August 2, 2023 (this “Agreement”), is entered into by and among Kimbell Royalty Partners, LP, a Delaware limited partnership (the “Partnership”), Apollo Accord+ Aggregator A, L.P., Apollo Accord V Aggregator A, L.P., Apollo Defined Return Aggregator A, L.P., Apollo Calliope Fund, L.P., Apollo Excelsior, L.P., Apollo Credit Strategies Master Fund Ltd., Apollo Atlas Master Fund, LLC, Apollo Union Street SPV, L.P., Host Plus PTY Limited - Accord, Apollo Delphi Fund, L.P., Apollo Royalties Partners I, L.P., AHVF (AIV), L.P., AHVF Intermediate Holdings, L.P., AHVF TE/892/QFPF (AIV), L.P. and ACMP Holdings, LLC (such entities listed after the Partnership, each, a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, the Partnership desires to issue and sell to the Purchasers, and the Purchasers desire to purchase from the Partnership, the Purchased Units (as defined below), in accordance with the provisions of this Agreement; and
WHEREAS, the Partnership has agreed to provide the Purchasers with certain registration rights with respect to the Conversion Units (as defined below).
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:
Article I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following terms have the meanings indicated:
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by Contract or otherwise. For the avoidance of doubt, for purposes of this Agreement, (a) the Partnership Entities, on the one hand, and the Purchasers, on the other, shall not be considered Affiliates of one another and (b) any fund or account managed, advised or subadvised, directly or indirectly, by any Purchaser or its Affiliates, shall be considered an Affiliate of such Purchaser.
“Agreement” has the meaning set forth in the introductory paragraph of this Agreement.
“ACMP Holdings” means ACMP Holdings, LLC.
“AGS” means Apollo Global Securities, LLC.
“Arrangement Fee” has the meaning ascribed to such term in the Arrangement Fee Letter.
“Arrangement Fee Letter” means that certain letter agreement between the Partnership and AGS dated July 27, 2023.
“Board Rights Agreement” means the Board Rights Agreement, to be entered into at the Closing, among the Partnership, the General Partner, Kimbell GP Holdings and the Purchasers, substantially in the form attached hereto as Exhibit F.
“Bridge Commitment Fee” means the amount (in no event less than zero) equal to (i) 1.0% multiplied by (ii) the Bridge Purchase Price, if any.
“Bridge Commitment” means, with respect to ACMP Holdings, an amount equal to (a) the Bridge Purchase Price minus (b) ACMP Holdings’ pro rata percentage of the applicable expenses incurred prior to the Closing referred to in Section 8.01 and minus (c) the Bridge Commitment Fee.
“Bridge Funding Request” has the meaning set forth in Section 2.01(b).
“Bridge Option Fee” means an amount (in no event less than $750,000) equal to the sum of (a) $750,000 plus (b) the First Extension Fee, if any, plus (c) the Second Extension Fee, if any.
“Bridge Termination Date” means August 9, 2023, unless such date is extended to August 16, 2023 by the timely delivery to the Purchaser Representative of a First Extension Notice in accordance with the definition of the term “First Extension Amount,” which extended date may be further extended to September 19, 2023 by the timely delivery to the Purchaser Representative of a Second Extension Notice in accordance with the definition of the “Second Extension Amount.”
“Bridge Purchase Price” means an amount equal to (a) the number of Bridge Purchased Units multiplied by (b) the Series A Issue Price.
“Bridge Purchased Units” has the meaning set forth in Section 2.01(b).
“Bridge Units” has the meaning set forth in Section 2.01(b).
“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of Texas shall not be regarded as a Business Day.
“Capital Stock” means, with respect to any Person, (a) shares of stock, partnership interests, membership interests, or other equity (whether voting or non-voting) or voting interest in, such Person, (b) any securities convertible into or exchangeable for shares of any such interest described in clause (a) above in, such Person, (c) options, warrants, rights or other commitments or agreements to acquire from such Person, or that obligates such Person to issue, any such interest described in clause (a) above in, or any securities convertible into or exchangeable for shares of any such interest described in clause (a) above in, such Person, and (d) obligations of such Person to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment relating to any such interest described in clause (a) above (including any voting debt) in, such Person.
2
“Class B Units” means Class B units representing limited partner interests in the Partnership.
“Closing” has the meaning specified in Section 2.02.
“Closing Date” means the date on which the Closing occurs.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commission” means the United States Securities and Exchange Commission.
“Common Units” means common units representing limited partner interests in the Partnership.
“Confidentiality Agreement” means the confidentiality agreement entered into by the Partnership and Apollo Capital Management, L.P., dated as of July 24, 2023, as may be amended from time to time.
“Consent” has the meaning specified in Section 3.14.
“Contract” means any contract, agreement, indenture, note, bond, mortgage, deed of trust, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.
“Conversion Units” means any and all Common Units issuable upon conversion of the Purchased Units (including any Common Units issuable as a result of any accretion resulting from any accrued and unpaid distributions to the holders of the Purchased Units) as set forth in Section 8 of the Supplemental Terms Annex.
“Credit Agreement” means the Amended and Restated Credit Agreement, dated as of June 13, 2023, by and among Kimbell Royalty Partners, LP, each of the guarantors party thereto, the several lenders from time to time parties thereto and Citibank, N.A., as administrative agent, and when and after amended, as amended by that certain Credit Agreement Amendment.
“Credit Agreement Amendment” means that certain Amendment No. 1 to Credit Agreement, dated July 24, 2023, by and among Kimbell Royalty Partners, LP, as the borrower, the several lenders party thereto from time to time, and Citibank, N.A., as administrative agent.
“Customary Credit Facility” means a reserve-based revolving credit facility (including the Credit Agreement, as in effect on the date hereof) (a) with a conforming borrowing base based on the normal and customary standards and practices of, and provided solely by an administrative agent and lenders that are, commercial banks that are regulated by the U.S. Office of the Comptroller of the Currency and are in the business of valuing and re-determining the value of oil and gas properties in connection with conforming, reserve-based oil and gas loan transactions in the United States based upon, inter alia, the review by such lenders of the hydrocarbon reserves, royalty interests and assets and liabilities of the borrower and guarantors thereunder, with such valuation being determined at least semi-annually during each year and on such other occasions as may be required or provided for by the terms of the documentation therefor, (b) with respect to which all Indebtedness (as such term is defined in the Supplemental Terms Index) and other obligations under such credit facility are pari passu in right of payment, pricing, security and liquidation thereof, and (c) that does not carry any call protection (including, without limitation, any make-whole protection, prepayment premium, yield protection or similar protection or premium).
3
“Delaware LLC Act” means the Delaware Limited Liability Company Act.
“Delaware LP Act” means the Delaware Revised Uniform Limited Partnership Act.
“Drop-Dead Date” means October 13, 2023.
“Environmental Laws” has the meaning specified in Section 3.24.
“ERISA” means Employee Retirement Security Act of 1974, as amended.
“ERISA Affiliate” means, with respect to the Partnership Entities, any member of any group or organization described in Section 414(b), (c), (m) or (o) of the Code of which the Partnership Entities is a member.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.
“Extension Notices” means the First Extension Notice and the Second Extension Notice.
“FINRA” means the Financial Industry Regulatory Authority, Inc.
“Firm Funding Obligation” means, with respect to each Purchaser of Firm Purchased Units, an amount equal to (a) the Purchaser Commitment Percentage multiplied by the Firm Purchase Price minus (b) such Purchaser’s pro rata percentage of the applicable expenses incurred prior to the Closing referred to in Section 8.01 and minus (c) the Purchaser Commitment Percentage multiplied by the Upfront Fee.
“Firm Purchase Price” means $325,000,000.
“Firm Purchased Units” has the meaning set forth in Section 2.01(a).
“First Extension Amount” means an amount equal to $75,000,000 or a lesser amount, in each case specified by the Partnership in a written notice (the “First Extension Notice”) delivered to the Purchaser Representative prior to August 9, 2023, provided that (a) if the Closing does not occur prior to August 9, 2023 and no First Extension Notice is timely delivered, the First Extension Amount shall equal $0, and (b) if the Closing occurs prior to August 9, 2023, the First Extension Amount shall equal the Bridge Purchase Price, if any.
4
“First Extension Fee” means an amount (in no event less than zero) equal to: (a) 1.0% multiplied by (b) the First Extension Amount.
“First Extension Notice” has the meaning set forth in the definition of First Extension Amount.
“Funding Obligation” means, with respect to each Purchaser, an amount equal to the sum of such Purchaser’s (a) Firm Funding Obligation and (b) Bridge Commitment.
“GAAP” means generally accepted accounting principles in the United States of America as in effect on the date hereof; provided that for the financial statements of the Partnership prepared as of a certain date, GAAP referenced therein shall be GAAP as of the date of such financial statements.
“General Partner” means Kimbell Royalty GP, LLC, a Delaware limited liability company and the general partner of the Partnership.
“Governmental Authority” means, with respect to a particular Person, any country, state, county, city and political subdivision in which such Person or such Person’s Property is located or which exercises valid jurisdiction over any such Person or such Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them and any monetary authority which exercises valid jurisdiction over any such Person or such Person’s Property. Unless otherwise specified, all references to Governmental Authority herein with respect to the Partnership mean a Governmental Authority having jurisdiction over any of the Partnership Entities or any of their respective Properties.
“GP Interests” has the meaning specified in Section 3.02(b).
“Indemnified Party” has the meaning specified in Section 6.03(b).
“Indemnifying Party” has the meaning specified in Section 6.03(b).
“Intellectual Property” has the meaning specified in Section 3.39.
“Intermediate Holdings” has the meaning specified in Section 3.03(b).
“Kimbell GP Holdings” means Kimbell GP Holdings, LLC, a Delaware limited liability company.
“Kimbell Operating” has the meaning specified in Section 3.03(a).
“Knowledge” means, with respect to the Partnership, the actual knowledge of Robert D. Ravnaas, R. Davis Ravnaas or Matthew S. Daly.
“KRP SEC Documents” means the Partnership’s forms, registration statements, reports, schedules and statements filed by it since January 1, 2022 under the Exchange Act or the Securities Act, as applicable.
5
“Law” means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, statute, law (including common law), rule or regulation.
“Lien” means any mortgage, pledge, lien (statutory or otherwise), encumbrance, security interest, security agreement, conditional sale, trust receipt, charge or claim or a lease, consignment or bailment, preference or priority, assessment, deed of trust, easement, servitude or other encumbrance upon or with respect to any property of any kind.
“LongPoint Purchase Agreement” mean the Securities Purchase Agreement between LongPoint Minerals II, LLC, the Partnership and the Operating Company, dated the date hereof and in substantially the form attached hereto as Exhibit D.
“Losses” has the meaning specified in Section 6.01.
“Material Adverse Effect” means any change, event or effect that, individually or together with any other changes, events or effects, has had or would reasonably be expected to have a material adverse effect on (a) the condition (financial or otherwise), business, prospects, Properties, assets or results of operations of the Partnership Entities, taken as a whole, or (b) the ability of any of the Partnership Entities, as applicable, to perform its obligations under the Transaction Documents; provided, however, that a Material Adverse Effect shall not include any adverse effect on the foregoing to the extent such adverse effect results from, arises out of or relates to (i) a general deterioration in the economy or changes in the general state of the markets or industries in which any of the Partnership Entities operates (including, for the avoidance of doubt, adverse changes (A) in commodity prices, (B) in capital spending by energy sector participants or their customers and (C) in production profiles in oil and gas producing basins in North America), (ii) any deterioration in the condition of the capital markets or any inability on the part of the Partnership Entities to access the capital markets, (iii) the outbreak or escalation of hostilities involving the United States, the declaration by the United States of a national emergency, acts of war (whether or not declared) or the occurrence of any other calamity or crisis, including acts of terrorism, hurricane, flood, tornado, earthquake or other natural disaster, (iv) any change in accounting requirements or principles imposed upon the Partnership Entities or their respective businesses or any change in applicable Law, or the interpretation thereof, (v) any change in the credit rating and/or outlook of any of the Partnership Entities or any of their securities (except that the underlying causes of any such changes may be considered in determining whether a Material Adverse Effect has occurred), (vi) changes in the market price or trading volume of the Common Units (except that the underlying causes of any such changes may be considered in determining whether a Material Adverse Effect has occurred) or (vii) any failure of the Partnership to meet any internal or external projections, forecasts or estimates of revenue or earnings for any period (except that the underlying causes of any such failures may be considered in determining whether a Material Adverse Effect has occurred), except, with respect to clauses (i), (ii), (iii) and (iv), to the extent that such Partnership Entities, taken as a whole, are adversely affected in a disproportionate manner as compared to other industry participants.
“Mineral Interests” has the meaning specified in Section 3.29.
6
“National Securities Exchange” means an exchange registered with the Commission under Section 6(a) of the Exchange Act (or any successor to such Section).
“NYSE” means the New York Stock Exchange.
“OFAC” has the meaning specified in Section 3.34.
“Operating Company” means Kimbell Royalty Operating, LLC, a Delaware limited liability company.
“OpCo Amendment” has the meaning specified in Section 5.03.
“OpCo Units” means units representing limited liability company interests in the Operating Company.
“Organizational Documents” means, as applicable, an entity’s agreement or certificate of limited partnership, limited liability company agreement, certificate of formation, certificate or articles of incorporation, bylaws or other similar organizational documents.
“Partnership” has the meaning set forth in the introductory paragraph of this Agreement.
“Partnership Agreement” means the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of May 18, 2022, as amended and supplemented from time to time in accordance with the terms thereof (including, as the context requires, by the Partnership Agreement Amendment and the Supplemental Terms Annex).
“Partnership Agreement Amendment” has the meaning specified in Section 2.06(a)(ii).
“Partnership Entities” means, collectively, the Partnership, the General Partner and their respective Subsidiaries.
“Partnership Related Parties” has the meaning specified in Section 6.02.
“Permit” has the meaning specified in Section 3.27.
“Permitted LongPoint Modifications” means any amendment, modification or waiver of any of the terms or conditions of the LongPoint Purchase Agreement (x) for which the Purchaser Representative provides written consent or (y) that is not materially adverse to the Purchasers taken as a whole or any other holder of Series A Preferred Units, in each case, in its capacity as a holder of Series A Preferred Units, it being understood that, each of the following amendments, modifications or waivers shall be considered materially adverse to the Purchasers or any other holder of Series A Preferred Units, in each case, in its capacity as a holder of Series A Preferred Units: (a) any substantive modification, amendment, or waiver to the definition of Buyer Material Adverse Effect (as defined in the LongPoint Purchase Agreement); (b) any increase in the purchase price payable by the Partnership for the transactions contemplated under the LongPoint Purchase Agreement, except pursuant to the purchase price adjustment provisions contained therein, as such provisions are in effect on the date of this Agreement; (c) any assumption of any material liability by the Partnership or any of its Affiliates that is not contemplated by the terms of the LongPoint Purchase Agreement as in effect on the date of this Agreement and (d) any material modification, amendment or waiver to any condition of the Partnership to closing under the LongPoint Purchase Agreement.
7
“Person” means an individual or a corporation, firm, limited liability company, partnership, joint venture, trust, estate, unincorporated organization, association, government agency or political subdivision thereof or other entity.
“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible (including intellectual property rights).
“Purchase Price” means an amount equal to the sum of (a) the Firm Purchase Price plus (b) the Bridge Purchase Price, if any.
“Purchased Units” has the meaning specified in Section 2.01.
“Purchaser” and “Purchasers” each have the meaning specified in the introductory paragraph of this Agreement.
“Purchaser Commitment Percentage” means, with respect to each Purchaser of Firm Purchased Units, (a) the number of Firm Purchased Units set forth opposite such Purchaser's name on Schedule 1.01 divided by (b) 325,000.
“Purchaser Related Parties” has the meaning specified in Section 6.01.
“Purchaser Representative” has the meaning specified in Section 8.08(a)(i).
“Registration Rights Agreement” means the Registration Rights Agreement, to be entered into at the Closing, between the Partnership, the Purchasers and the other parties thereto, substantially in the form attached hereto as Exhibit C.
“Representatives” means, with respect to a specified Person, the investors, officers, directors, managers, employees, agents, advisors, counsel, accountants, investment bankers and other representatives of such Person.
“Rights-of-Way” has the meaning specified in Section 3.30.
“Ryder Scott” has the meaning specified in Section 3.36.
“Sanctioned Person” has the meaning specified in Section 3.34.
“Second Extension Amount” means (a) if a First Extension Notice was not timely delivered (or specified a First Extension Amount of $0), $0, or (b) if a First Extension Notice was timely delivered and specified a First Extension Amount greater than $0, an amount equal to the First Extension Amount or a lesser amount, in each case specified by the Partnership in a written notice (the “Second Extension Notice”) delivered to the Purchaser Representative prior to August 16, 2023, provided that (i) if the Closing does not occur before August 16, 2023 and no Second Extension Notice is timely delivered, the Second Extension Amount shall equal $0, and (ii) if the Closing occurs prior to August 16, 2023, the Second Extension Amount shall equal the Bridge Purchase Price, if any.
8
“Second Extension Fee” means an amount (in no event less than zero) equal to: (a) 1.0% multiplied by (b) the Second Extension Amount.
“Second Extension Notice” has the meaning specified in the definition of Second Extension Amount.
“Second A&R OpCo Agreement” has the meaning specified in Section 5.03.
“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.
“Series A Issue Price” means $1,000.00.
“Series A Preferred Units” means the Partnership’s Series A Cumulative Convertible Preferred Units representing limited partner interests in the Partnership having the designations, preferences, rights, powers and duties set forth in the Partnership Agreement Amendment (including the Supplemental Terms Annex).
“Series A Required Voting Percentage” has the meaning specified in the Supplemental Terms Annex.
“Solvent” means, when used with respect to any Person, as of any date of determination, that on such date: (a) the present fair saleable value of the present assets of such Person and its Subsidiaries, taken as a whole, exceeds the sum of their debts (including contingent liabilities); (b) the present fair salable value of the property of such Person and its Subsidiaries, taken as a whole, will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities (including contingent liabilities), as such debts and other liabilities become absolute and matured; (c) such Person and its Subsidiaries, taken as a whole, will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) such Person and its Subsidiaries, taken as a whole, will not have unreasonably small capital with which to conduct their business as contemplated on such date. The amount of contingent liabilities at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Subsidiary” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person or a combination thereof; (b) a partnership (whether general or limited) in which such Person or a Subsidiary of such Person is, at the date of determination, a general partner of such partnership, but only if such Person, one or more Subsidiaries of such Person, or a combination thereof, controls such partnership on the date of determination; or (c) any other Person (other than a corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person.
9
“Supplemental Terms Annex” has the meaning specified in Section 2.06(a)(ii).
“Tax Return” means any return, report or similar filing (including the attached schedules, statements and exhibits) filed or required to be filed with respect to Taxes (and any amendments thereto), including any information return, claim for refund or declaration of estimated Taxes.
“Taxes” means any and all domestic or foreign, federal, state, local or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority, including taxes on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, Capital Stock, payroll, employment, unemployment, social security, workers’ compensation or net worth, and taxes in the nature of excise, withholding, ad valorem, value added, production or severance taxes, escheat or unclaimed property obligations, and including any liability in respect of any items described above as a transferee or successor, pursuant to Section 1.1502-6 of the Treasury Regulations promulgated under the Code (or any similar provisions of state, local or foreign Law), or as an indemnitor, guarantor, surety or in a similar capacity under any Contract.
“Third-Party Claim” has the meaning specified in Section 6.03(b).
“Transaction Documents” means, collectively, this Agreement, the Registration Rights Agreement, the Partnership Agreement Amendment (including the Supplemental Terms Annex), the Board Rights Agreement, the Arrangement Fee Letter and any and all other agreements or instruments executed and delivered to the Purchasers by the Partnership or the General Partner hereunder or thereunder, as applicable.
“Upfront Fee” means an amount equal to: (a) 1.0% multiplied by (b) the Firm Purchase Price.
“VCOC Letter” means a management rights letter executed by the Partnership, substantially in the form attached hereto as Exhibit E.
Section 1.02 Accounting Procedures and Interpretation. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements of the Partnership and certificates and reports as to financial matters required to be furnished to the Purchasers hereunder shall be prepared, in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q promulgated by the Commission) and in compliance as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto.
10
Article II
AGREEMENT TO SELL AND PURCHASE
Section 2.01 Sale and Purchase.
(a) Subject to the terms and conditions hereof, at the Closing, the Purchasers hereby agree to purchase from the Partnership, and the Partnership hereby agrees to issue and sell to each Purchaser, the number of Series A Preferred Units set forth opposite such Purchaser’s name on Schedule 1.01 attached hereto, collectively, totaling 325,000 Series A Preferred Units to be purchased by all of the Purchasers (the “Firm Purchased Units”).
(b) Subject to the terms and conditions hereof, in exchange for the Bridge Option Fee, the Partnership may elect, during the period commencing on the date of this Agreement and ending on the Bridge Termination Date, to issue and sell to ACMP Holdings up to 75,000 Series A Preferred Units, as such number may be reduced after the date hereof in connection with the delivery or non-delivery of Extension Notices in accordance with the terms of this Section 2.01(b), at the Closing, to be purchased by ACMP Holdings (the “Bridge Units”). The number of Bridge Units with respect to which the Partnership is exercising the option (the “Bridge Purchased Units” and, together with the Firm Purchased Units, the “Purchased Units”) shall be specified in a written notice delivered by the Partnership to the Purchaser Representative no less than two Business Days prior to the Closing Date (the “Bridge Funding Request”). The Bridge Funding Request shall not exceed: (a) if the Closing occurs prior to August 9, 2023, 75,000 Series A Preferred Units; (b) if the Closing occurs after August 9, 2023, but prior to August 16, 2023, the number of Series A Preferred Units (rounded up to the nearest whole unit) determined by dividing the First Extension Amount, if any, specified in a timely delivered First Extension Notice (which must, for the avoidance of doubt, be delivered prior to August 9, 2023) by the Series A Issue Price; and (c) if the Closing occurs after August 16, 2023 but on or prior to September 19, 2023, the number of Series A Preferred Units (rounded up to the nearest whole unit) determined by dividing the Second Extension Amount, if any, specified in a timely delivered Second Extension Notice (which must, for the avoidance of doubt, be delivered prior to August 16, 2023) by the Series A Issue Price. For the avoidance of doubt, (A) the Partnership shall not have the right to issue and sell any Bridge Units to the Purchasers after the Closing and (B) whether or not the Closing has occurred by the Bridge Termination Date, Partnership shall not have the right to issue and sell any Bridge Units to the Purchasers after the Bridge Termination Date.
(c) The Purchased Units shall be purchased for the consideration contemplated to be delivered to the Partnership by each Purchaser at the Closing pursuant to Section 2.06(b)(iv) of this Agreement, and upon the Closing, each Purchaser, in its capacity as the holder of such Series A Preferred Units, shall be bound by the terms and provisions of the Partnership Agreement Amendment and the Supplemental Terms Annex in respect of the Purchased Units purchased by such Purchaser.
Section 2.02 Closing. The consummation of the purchase and sale of the Purchased Units hereunder (the “Closing”) shall take place (a) on the day on which the conditions set forth in Section 2.03, Section 2.04 and Section 2.05 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or due waiver of those conditions) shall be satisfied or waived in accordance with this Agreement, or (b) at such other time and place as the Partnership and the Purchaser Representative may agree in writing. The Closing shall take place at the offices of Kirkland & Ellis LLP, 609 Main Street, Houston, Texas 77002 (or such other location as agreed to by the Partnership and the Purchaser Representative).
11
Section 2.03 Mutual Conditions. The respective obligations of each party to consummate the purchase and sale of the Purchased Units at the Closing shall be subject to the satisfaction or due waiver, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by a party on behalf of itself in writing, in whole or in part, to the extent permitted by applicable Law):
(a) no statute, rule, order, decree or regulation shall have been enacted or promulgated, and no action shall have been taken, by any Governmental Authority which temporarily, preliminarily or permanently restrains, precludes, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby or makes the transactions contemplated hereby illegal;
(b) there shall not be pending any suit, action or proceeding by any Governmental Authority seeking to restrain, preclude, enjoin or prohibit the transactions contemplated by this Agreement; and
(c) the closing of the transactions contemplated by the LongPoint Purchase Agreement shall have occurred, or shall occur concurrently, with the Closing.
Section 2.04 Conditions to the Purchasers’ Obligations. The obligation of each of the Purchasers to consummate its purchase of Purchased Units at the Closing shall be subject to the satisfaction, or due waiver by the Purchasers, on or prior to the Closing Date of each of the following conditions (any or all of which may be waived by the Purchasers in writing, in whole or in part, to the extent permitted by applicable Law):
(a) the representations and warranties of the Partnership contained in this Agreement shall be true and correct in all material respects (other than (i) those representations and warranties contained in Section 3.01, Section 3.02, Section 3.03, Section 3.13 or Section 3.17 (which shall be true and correct other than de minimis inaccuracies) and (ii) representations and warranties in other Sections that are qualified by materiality or Material Adverse Effect, which, in each case, shall be true and correct in all respects) when made, and as of the Closing Date (except that representations and warranties made as of a specific date shall be required to be true and correct as of such date only);
(b) the Partnership shall have performed and complied in all material respects with all of the covenants and agreements contained in this Agreement that are required to be performed or complied with by it on or prior to the Closing Date;
(c) the NYSE shall have authorized, upon official notice of issuance, the listing of the Conversion Units;
12
(d) no notice of delisting from the NYSE shall have been received by the Partnership with respect to the Common Units;
(e) there shall not have occurred a Material Adverse Effect;
(f) the LongPoint Purchase Agreement shall not have been amended or otherwise modified in any respect, and the terms of the LongPoint Purchase Agreement shall not have been waived by the Partnership in any respect (whether any such waiver is effected by way of amendment to the LongPoint Purchase Agreement or otherwise), in each such case, other than amendments, modifications and waivers that constitute Permitted LongPoint Modifications;
(g) the Credit Agreement Amendment shall remain effective and all terms thereof (including all terms of the Credit Agreement as so amended by the Credit Agreement Amendment) shall remain in full force and effect and shall not have been modified; and
(h) the Partnership shall have delivered, or caused to be delivered, to the Purchasers and the other Persons specified in Section 2.06(a) the Partnership’s closing deliveries described in Section 2.06(a), as applicable.
Section 2.05 Conditions to the Partnership’s Obligations. The obligation of the Partnership to consummate the sale and issuance of the Purchased Units to the Purchasers at the Closing shall be subject to the satisfaction, or due waiver by the Partnership, on or prior to the Closing Date of each of the following conditions (any or all of which may be waived by the Partnership in writing, in whole or in part, to the extent permitted by applicable Law):
(a) the representations and warranties of the Purchasers contained in this Agreement shall be true and correct in all material respects (other than those representations and warranties that are qualified by materiality, which, in each case, shall be true and correct in all respects) when made and as of the Closing Date (except that representations and warranties made as of a specific date shall be required to be true and correct as of such date only);
(b) the Purchasers shall have performed and complied in all material respects with all of the covenants and agreements contained in this Agreement that are required to be performed or complied with by them on or prior to the Closing Date; and
(c) the Purchasers shall have delivered, or caused to be delivered, to the Partnership the Purchasers’ closing deliveries described in Section 2.06(b), as applicable.
Section 2.06 Deliveries at the Closing.
(a) Deliveries of the Partnership. At the Closing, the Partnership shall deliver, or cause to be delivered, to the Purchasers and the other Persons specified in this Section 2.06(a):
(i) an opinion from White & Case LLP, counsel for the Partnership, in the form attached hereto as Exhibit A, which shall be addressed to the Purchaser Representative and dated the Closing Date;
13
(ii) a fully executed copy of Amendment No. 1 to the Partnership Agreement adopting the Supplemental Terms Annex A to the Partnership Agreement, substantially in the form attached hereto as Exhibit B (the “Partnership Agreement Amendment” and such annex, the “Supplemental Terms Annex”);
(iii) an executed counterpart of the Registration Rights Agreement;
(iv) a fully executed “Supplemental Listing Application” approving the Conversion Units for listing by the NYSE;
(v) evidence, in form and substance reasonably acceptable to the Purchasers, of issuance of the Purchased Units to the applicable Purchaser credited to book-entry accounts maintained by the transfer agent of the Partnership, bearing a restrictive notation meeting the requirements of the Partnership Agreement, free and clear of any Liens, other than transfer restrictions under this Agreement, the Partnership Agreement or the Delaware LP Act and applicable federal and state securities Laws and those Liens created by the Purchasers;
(vi) a certificate of the Secretary or Assistant Secretary of the General Partner, on behalf of the Partnership, dated the Closing Date, in form and substance reasonably acceptable to the Purchasers, certifying as to and attaching (A) the certificate of limited partnership of the Partnership, (B) the Partnership Agreement, (C) board resolutions authorizing the execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby, including the issuance of the Purchased Units and the Conversion Units, and (D) the incumbency of the officers authorized to execute the Transaction Documents on behalf of the Partnership or the General Partner, as applicable, setting forth the name and title and bearing the signatures of such officers;
(vii) a certificate of the Secretary of State of each applicable state in which any Partnership Entity was formed or incorporated, dated within five Business Days prior to the Closing Date, to the effect that each of the Partnership Entities is in good standing in its jurisdiction of formation or incorporation;
(viii) a certificate of the Chief Executive Officer and the Chief Financial Officer of the General Partner, on behalf of the Partnership, dated the Closing Date, in form and substance reasonably acceptable to the Purchasers, certifying, in their applicable capacities, to the effect that the conditions set forth in Section 2.03(c), Section 2.04(a) and Section 2.04(b) have been satisfied;
(ix) a cross-receipt, in form and substance reasonably acceptable to the Purchasers, executed by the Partnership and delivered to the Purchasers certifying as to the Partnership’s receipt of the Funding Obligation from each Purchaser, and upon receipt of the Funding Obligation from each Purchaser, the Upfront Fee, the Bridge Commitment Fee and all applicable expenses referred to in Section 8.01 that are included in the calculation of each Purchaser’s Funding Obligation shall be deemed to have been paid by the Partnership;
14
(x) a counterpart of a VCOC Letter for each Purchaser who informs the Partnership that it requires the rights contemplated by such VCOC Letter, each of which shall have been duly executed by the Partnership;
(xi) a counterpart to the Board Rights Agreement, which shall have been duly executed by the Partnership, the General Partner and Kimbell GP Holdings;
(xii) payment of the Arrangement Fee to AGS in accordance with the Arrangement Fee Letter;
(xiii) payment of the Bridge Option Fee to ACMP Holdings by wire transfer of immediately available funds to an account designated by ACMP Holdings;
(xiv) a copy of the OpCo Amendment, duly executed by the Partnership, in its capacity as the managing member of the Operating Company, and each other member of the Operating Company who is required to adopt the OpCo Amendment under the terms of the Second A&R OpCo Agreement; and
(xv) such other documents relating to the transactions contemplated by this Agreement or the other Transaction Documents as the Purchasers may reasonably request.
(b) Deliveries of the Purchasers. At the Closing, the Purchasers shall deliver or cause to be delivered to the Partnership:
(i) a counterpart of the Registration Rights Agreement, which shall have been duly executed by each Purchaser;
(ii) a cross-receipt from each Purchaser, in form and substance reasonably acceptable to the Partnership, executed by such Purchaser and delivered to the Partnership certifying that such Purchaser has received from the Partnership the number of Purchased Units (the Firm Purchased Units as set forth opposite such Purchaser’s name on Schedule 1.01) to be received by such Purchaser in connection with the Closing;
(iii) a certificate from each Purchaser of an authorized officer of such Purchaser, dated the Closing Date, in his or her applicable capacity, in form and substance reasonably acceptable to the Partnership, to the effect that the conditions set forth in Section 2.05(a) and Section 2.05(b) have been satisfied;
(iv) payment of the Funding Obligation by each Purchaser to the Partnership, payable by wire transfer of immediately available funds to an account designated in advance of the Closing Date by the Partnership;
(v) a duly executed Internal Revenue Service Form W-9 or applicable Internal Revenue Service form W-8 from each Purchaser and AGS;
15
(vi) a joinder to the Confidentiality Agreement, in form and substance reasonably satisfactory to the Partnership, duly executed by each Purchaser;
(vii) a counterpart of each VCOC Letter, in each case, which shall have been duly executed by the relevant Purchaser that requires the rights contemplated by such VCOC Letter;
(viii) a counterpart to the Board Rights Agreement, which shall have been duly executed by each Purchaser; and
(ix) such other documents relating to the transactions contemplated by this Agreement as the Partnership may reasonably request.
Section 2.07 Further Assurances. From time to time after the date hereof, without further consideration, the Partnership and the Purchasers shall use their respective commercially reasonable efforts to take, or cause to be taken, all actions necessary or appropriate to consummate the transactions contemplated by this Agreement.
Article III
REPRESENTATIONS AND WARRANTIES AND
COVENANTS RELATED TO THE PARTNERSHIP
The Partnership represents and warrants to and covenants with the Purchasers as follows:
Section 3.01 Organization and Power.
(a) Each of the Partnership Entities has been duly organized and is validly existing as a limited liability company or limited partnership, as applicable, in good standing under the Laws of the jurisdiction of its formation or organization with requisite limited liability company or limited partnership power, as applicable, and authority to own, lease and operate its Properties and to conduct its business as described in the KRP SEC Documents and is duly registered and qualified to conduct its 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 where the failure to so register or qualify has not had or will not have a Material Adverse Effect.
(b) Each of the Partnership Entities has full limited partnership or limited liability company power and authority (i) to execute and deliver this Agreement and the other Transaction Documents, in each case, to which such Partnership Entity is a party and consummate the transactions contemplated hereby and thereby, (ii) in the case of the Partnership, to issue, sell and deliver the Purchased Units and (iii) in the case of the General Partner, to act as the general partner of the Partnership.
(c) The Organizational Documents of each of the Partnership Entities have been, and in the case of the Partnership Agreement Amendment and the Supplemental Terms Annex, at the Closing will be, duly authorized, executed and delivered by any Partnership Entity party thereto and are, and in the case of the Partnership Agreement Amendment and the Supplemental Terms Annex, at the Closing will be, valid and legally binding agreements of the applicable Partnership Entity, enforceable against such Partnership Entity thereto in accordance with their respective terms; provided, that, with respect to each such agreement, the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar Laws from time to time in effect affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such principles are considered in a proceeding in equity or at law).
16
Section 3.02 Capitalization and Valid Issuance of Units.
(a) As of the date hereof, the issued and outstanding limited partner interests of the Partnership consist of 65,507,635 Common Units and 20,853,618 Class B Units. As of the date hereof, there are 3,167,982 Common Units remaining available for issuance under the Partnership’s long-term incentive plan. All outstanding Common Units, Class B Units and the limited partner interests represented thereby have been duly authorized and validly issued in accordance with the Partnership Agreement and are fully paid (to the extent required under the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the Delaware LP Act). As of the date hereof, there are no, and as of the Closing Date, there will be no, limited partner interests of the Partnership that are senior to or pari passu with, in right of distribution, the Series A Preferred Units.
(b) The General Partner is the sole general partner of the Partnership, with a non-economic general partner interest in the Partnership (the “GP Interests”). The GP Interests have been duly authorized and validly issued in accordance with the Partnership Agreement, and the General Partner owns such GP Interests free and clear of all Liens, except for restrictions on transferability contained in the Partnership Agreement, the Delaware LP Act or as disclosed in the KRP SEC Documents.
(c) As of the date hereof, the Partnership is the owner of 65,507,635 OpCo Units. The Partnership is, and at the Closing Date, will be, the managing member of the Operating Company. The OpCo Units have been duly authorized and validly issued in accordance with the Organizational Documents of the Operating Company and are fully paid (to the extent required under such Organizational Documents) and nonassessable (except as such nonassessability may be affect by matters described in Sections 18-607 and 18-804 of the Delaware LLC Act); and the Partnership owns such equity interests free and clear of all Liens, other than as disclosed in the KRP SEC Documents, Liens arising under the Credit Agreement and restrictions on transfer under such Organizational Documents or applicable state or federal securities laws or the Delaware LLC Act.
(d) Upon issuance in accordance with this Agreement and the Partnership Agreement, the Conversion Units will be duly authorized, validly issued, fully paid (to the extent required by the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the Delaware LP Act) and will be free of any and all Liens and restrictions on transfer, other than (i) restrictions on transfer under the Partnership Agreement, this Agreement or applicable state and federal securities Laws, (ii) such Liens as are created by the Purchasers and (iii) such Liens as arise under the Partnership Agreement or the Delaware LP Act.
17
(e) The Purchased Units and the limited partner interests represented thereby will be duly authorized by the Partnership pursuant to the Partnership Agreement prior to the Closing and, when issued and delivered to the Purchasers against payment therefor in accordance with the terms of this Agreement, will be validly issued, fully paid (to the extent required by the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the Delaware LP Act) and will be free of any and all Liens and restrictions on transfer, other than (i) restrictions on transfer under the Partnership Agreement, this Agreement or applicable state and federal securities Laws, (ii) such Liens as are created by the Purchasers and (iii) such Liens as arise under the Partnership Agreement or the Delaware LP Act.
(f) Except (i) as contained in the Partnership Agreement, (ii) for the Purchased Units to be issued pursuant to this Agreement, (iii) for awards issued pursuant to the Partnership’s long-term incentive plans or (v) as disclosed in the KRP SEC Documents, there are no profits interests, options, warrants, preemptive rights, rights of first refusal or other rights to subscribe for, purchase or exchange or convert into, nor any restriction upon the voting or transfer of, any Capital Stock of any of the Partnership Entities, in each case, pursuant to the Organizational Documents or any other Contract to which any such Partnership Entity is a party or by which any such Partnership Entity may be bound or otherwise.
Section 3.03 Ownership of the Subsidiaries.
(a) The General Partner is the sole member of Kimbell Operating Company, LLC, a Delaware limited liability company (“Kimbell Operating”), and owns 100% of the limited liability company interests in Kimbell Operating. Such equity interests have been duly authorized and validly issued in accordance with the Organizational Documents of Kimbell Operating and are fully paid (to the extent required under such Organizational Documents) and nonassessable (except as such nonassessability may be affected by matters described in Sections 18-607 and 18-804 of the Delaware LLC Act); and the General Partner owns such membership interests free and clear of all Liens, other than as disclosed in the KRP SEC Documents, restrictions on transfer under such Organizational Documents or applicable state or federal securities laws or the Delaware LLC Act.
(b) The Operating Company is the sole member of Kimbell Intermediate Holdings, LLC, a Delaware limited liability company (“Intermediate Holdings”) and owns 100% of the limited liability company interests Intermediate Holdings. Such equity interests have been duly authorized and validly issued in accordance with the Organizational Documents of Intermediate Holdings, respectively, and are fully paid (to the extent required under such applicable Organizational Documents) and nonassessable (except as such nonassessability may be affected by matters described in Sections 18-607 and 18-804 of the Delaware LLC Act); and the Partnership owns such equity interests free and clear of all Liens, other than as disclosed in the KRP SEC Documents, Liens arising under the Credit Agreement and restrictions on transfer under such Organizational Documents or applicable state or federal securities laws or the Delaware LLC Act.
18
(c) Intermediate Holdings owns 100% of the limited liability company interests in Haymaker Holding Company, LLC, Haymaker Properties GP, LLC, Kimbell Royalty Holdings, LLC, Phillips Energy Partners II, LLC and Phillips Energy Partners III, LLC. Such equity interests have been duly authorized and validly issued in accordance with the Organizational Documents applicable thereto and have been fully paid (to the extent required under such Organizational Documents) and are nonassessable (except as such nonassessability may be affected by Sections 18.607 and 18-804 of the Delaware LLC Act); and Intermediate Holdings owns such equity interests free and clear of all Liens, other than as disclosed in the KRP SEC Documents, Liens arising under the Credit Agreement and restrictions on transfer under such Organizational Documents or applicable state or federal securities laws or the Delaware LLC Act.
(d) Intermediate Holdings owns 100.0% of the limited partner interests in Haymaker Properties, LP. Such equity interests have been duly authorized and validly issued in accordance with the Organizational Documents applicable thereto and have been fully paid (to the extent required under such Organizational Documents) and are nonassessable (except as such nonassessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the Delaware LP Act) and Intermediate Holdings owns such equity interests free and clear of all Liens, other than as disclosed in the KRP SEC Documents, Liens arising under the Credit Agreement and restrictions on transfer under such Organizational Documents or applicable state or federal securities laws or the Delaware LP Act.
(e) Other than its direct or indirect ownership of the other Partnership Entities, the General Partner does not own, directly or indirectly, any Capital Stock or long-term debt securities or other securities of any other Person. Other than the Partnership’s direct or indirect ownership of the Capital Stock set forth opposite the name of each Person under the headings “Partnership Subsidiaries” on Schedule 3.03 attached hereto, the Partnership does not own, directly or indirectly, any Capital Stock or long-term debt securities or other securities of any Person.
Section 3.04 KRP SEC Documents. Since January 1, 2022, the Partnership’s forms, registration statements, reports, schedules and statements required to be filed by it under the Exchange Act have been filed with the Commission on a timely basis. The KRP SEC Documents, at the time filed (or in the case of registration statements, solely on the dates of effectiveness), except to the extent corrected by a subsequent KRP SEC Document: (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made in the case of any such documents other than a registration statement, not misleading; and (b) complied as to form in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be.
Section 3.05 Financial Statements.
(a) The historical financial statements (including the related notes) contained or incorporated by reference in the KRP SEC Documents, (i) present fairly in all material respects the financial position, results of operations and cash flows of the entities purported to be shown thereby on the basis stated therein at the respective dates or for the respective periods and (ii) have been prepared in accordance with GAAP consistently applied throughout the periods involved, in each case except to the extent disclosed therein. The other financial information of the Partnership Entities, including non-GAAP financial measures, if any, contained or incorporated by reference in the KRP SEC Documents has been derived from the accounting records of the Partnership Entities, and fairly presents in all material respects the information purported to be shown thereby. Nothing has come to the attention of the Partnership that has caused it to believe that the statistical and market-related data included in the KRP SEC Documents is not based on or derived from sources that are reliable and accurate in all material respects as of the date on which the applicable KRP SEC Documents were filed.
19
(b) Since the date of the most recent balance sheet of the Partnership audited by the Partnership’s auditor, (i) the interactive data in eXtensible Business Reporting Language included or incorporated by reference in the KRP SEC Documents fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto in all material respects, and (ii) based on an annual evaluation of disclosure controls and procedures, the Partnership is not aware of (A) any significant deficiencies in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect the ability of the Partnership to record, process, summarize and report financial information, or any material weaknesses in internal controls over financial reporting of the Partnership or (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls over financial reporting of the Partnership.
Section 3.06 Independent Registered Public Accounting Firm. Grant Thornton LLP, the certified public accountants who have audited and certified the audited financial statements contained or incorporated by reference in the KRP SEC Documents, is an independent registered public accounting firm with respect to the Partnership and the General Partner within the meaning of the Securities Act and the applicable rules and regulations thereunder adopted by the Commission and the Public Company Accounting Oversight Board (United States). Grant Thornton LLP has not resigned or been dismissed as independent registered public accountants of the Partnership as a result of or in connection with any disagreement with the Partnership or any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
Section 3.07 No Material Adverse Effect. Since December 31, 2022, except as described in the KRP SEC Documents: (a) none of the Partnership Entities have (i) incurred any material liabilities, or obligations, indirect, direct or contingent, or entered into any transaction that is not in the ordinary course of business, (ii) sustained any material loss or interference with its business or properties from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance or (iii) paid or declared any dividends or other distributions with respect to its equity interests other than ordinary, quarterly distributions on the Common Units and Class B Units and the Partnership Entities are not in default under the terms of any outstanding obligations, (b) there has not been any change in the outstanding Capital Stock of the Partnership Entities, or any material change in the indebtedness of the Partnership Entities (in each case, other than in the ordinary course of business) and (c) there has not been any Material Adverse Effect.
20
Section 3.08 No Registration Required. Assuming the accuracy of the representations and warranties of the Purchasers contained in Article IV, the issuance and sale of the Purchased Units to the Purchasers pursuant to this Agreement is exempt from registration requirements of the Securities Act, and neither the Partnership nor, to the Partnership’s Knowledge, any Person acting on its behalf, has taken nor will take any action hereafter that would cause the loss of such exemption.
Section 3.09 No Restrictions or Registration Rights. Except as described in the Partnership Agreement or as contemplated by this Agreement, there are no restrictions upon the voting or transfer of, any equity securities of the Partnership. Except for such rights that have been waived or as expressly set forth in the Registration Rights Agreement, neither the offering nor sale of the Purchased Units as contemplated by this Agreement or the Partnership’s entry into the Registration Rights Agreement gives rise to or conflicts with any rights for or relating to the registration of any Purchased Units or other securities of the Partnership.
Section 3.10 Litigation. Except as described in the KRP SEC Documents, there are no actions, suits, claims, investigations, orders, injunctions or proceedings pending or, to the Knowledge of the Partnership, threatened or contemplated, to which any Partnership Entity or any of their respective directors or officers is or would be a party or to which any of their respective Properties is or would be subject at law or in equity, before or by any Governmental Authority, or before or by any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the NYSE), which would, individually or in the aggregate, if resolved adversely to any Partnership Entity, materially impair such Partnership Entity individually, or the Partnership Entities in the aggregate, or which challenge the validity of any of the Transaction Documents or the right of either of the Partnership or the General Partner to enter into any of the Transaction Documents or to consummate the transactions contemplated hereby or thereby.
Section 3.11 No Defaults. No Partnership Entity is in breach or violation of or in default under (nor has any event occurred which, with notice, lapse of time or both, would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (a) any of its Organizational Documents, (b) any Contract to which it is a party or by which it or any of its Properties may be bound or affected, (c) any Law, (d) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the rules and regulations of the NYSE), or (e) any decree, judgment or order applicable to it or any of its Properties, except in the case of clauses (b) through (e) for any such breaches, violations or defaults that would not, individually or in the aggregate, constitute a Material Adverse Effect.
Section 3.12 No Conflicts. The issuance and sale by the Partnership of the Purchased Units, the application of the proceeds thereof, the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not conflict with, result in any breach or violation of, constitute a default under (or constitute any event which, with notice, lapse of time or both, would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under), or result in the creation or imposition of a Lien (other than Liens arising under or in connection with the Credit Agreement) on any Property or assets of any Partnership Entity pursuant to (a) the Organizational Documents of any of the Partnership Entities, (b) any Contract to which any of the Partnership Entities is a party or by which any of the Partnership Entities or any of their respective Properties may be bound or affected, (c) any Law, (d) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the rules and regulations of the NYSE), or (e) any decree, judgment or order applicable to any of the Partnership Entities or any of their respective Properties, except in the case of clauses (b) through (e) for any such breaches, violations or defaults that would not, individually or in the aggregate, constitute a Material Adverse Effect.
21
Section 3.13 Authority; Enforceability. The Partnership has all requisite limited partnership power and authority under the Partnership Agreement and the Delaware LP Act to issue, sell and deliver the Purchased Units, in accordance with and upon the terms and conditions set forth in this Agreement and the Partnership Agreement. All limited partnership and limited liability company action, as the case may be, required to be taken by the Partnership Entities or any of their partners or members for the authorization, issuance, sale and delivery of the Purchased Units, the execution and delivery of the Transaction Documents and the LongPoint Purchase Agreement and the consummation of the transactions contemplated thereby shall have been validly taken. No approval from the holders of outstanding Common Units and Class B Units is required under the Partnership Agreement or the rules of the NYSE in connection with the Partnership’s issuance and sale of the Purchased Units to the Purchasers or the Partnership’s issuance of the Conversion Units upon conversion of the Purchased Units. Each of the Transaction Documents and the LongPoint Purchase Agreement has been duly and validly authorized and has been or, with respect to the Transaction Documents to be delivered at the Closing, will be, validly executed and delivered by the applicable Partnership Entity and, to the Knowledge of the Partnership Parties, the other parties thereto. Each of the Transaction Documents and the LongPoint Purchase Agreement constitutes, or will constitute, the legal, valid and binding obligations of the applicable Partnership Entity and, to the Knowledge of the Partnership Parties, each of the other parties thereto, in each case enforceable in accordance with its terms; provided that, with respect to each such agreement, the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws from time to time in effect affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such principles are considered in a proceeding in equity or at law). The Partnership has delivered to the Purchasers a true, correct and complete copy of the LongPoint Purchase Agreement, as in effect on the date of this Agreement.
Section 3.14 Approvals. No approval, authorization, consent, waiver, registration, qualification, written exemption from, or order of or filing with any Governmental Authority, or of or with any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, the NYSE), or approval of the security holders of any of the Partnership Entities (each, a “Consent”), is required in connection with the issuance and sale of the Purchased Units by the Partnership, the execution, delivery and performance of this Agreement or the other Transaction Documents by the Partnership Entities party hereto or thereto, and the consummation by the Partnership Entities of the transactions contemplated hereby or thereby other than Consents (a) required by the Commission in connection with the Partnership’s obligations under the Registration Rights Agreement, (b) required under the state securities or “Blue Sky” Laws, (c) that have been, or prior to the Closing Date will be, obtained and (d) Consents, the absence or omission of which would not, individually or in the aggregate, constitute a Material Adverse Effect.
22
Section 3.15 Distribution Restrictions. No Partnership Entity is prohibited, or as a result of the transactions contemplated by this Agreement, will be prohibited, directly or indirectly, from making distributions with respect to its Capital Stock, from repaying to any other Partnership Entity any loans or advances or from transferring any Property to the Partnership or any other Partnership Entity, except (a) pursuant to the Credit Agreement, (b) such prohibitions mandated by the Laws of each such Partnership Entity’s state of formation and the terms of any such Partnership Entity’s Organizational Documents or (c) where such prohibition would not constitute a Material Adverse Effect.
Section 3.16 Investment Company Status. None of the Partnership Entities is, and immediately after the sale of the Purchased Units hereunder and the application of the net proceeds from such sale none of the Partnership Entities will be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 3.17 Certain Fees. None of the Partnership Entities is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Partnership Entities or the Purchasers for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Purchased Units.
Section 3.18 Labor and Employment Matters. No labor disturbance by or with the employees of any of the Partnership Entities exists, or, to the Knowledge of the Partnership, is contemplated or threatened that could reasonably be expected to constitute, individually or in the aggregate, a Material Adverse Effect.
Section 3.19 Insurance. The Partnership Entities are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged; and none of the Partnership Entities has 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 comparable cost.
Section 3.20 Internal Controls. Except as described in the KRP SEC Documents, the Partnership Entities, taken as a whole, maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (a) transactions are executed in accordance with management’s general or specific authorization; (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (c) access to assets is permitted only in accordance with management’s general or specific authorization; and (d) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Partnership Entities’ internal controls over financial reporting are effective in all material respects to perform the functions for which they were established and none of the Partnership Entities is aware of any significant deficiency or material weakness in the accounting controls of the Partnership Entities.
23
Section 3.21 Disclosure Controls and Procedures. The Partnership has established and maintains and evaluates “disclosure controls and procedures” (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to the Partnership, including its consolidated subsidiaries, is made known to the General Partner’s Chief Executive Officer and its Chief Financial Officer by others within those entities, to allow timely decisions regarding required disclosure, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared and such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established to the extent required by Rules 13a-15 and 15d-15 of the Exchange Act.
Section 3.22 Sarbanes-Oxley. The Partnership, and to the Partnership’s Knowledge, the General Partner’s directors or officers, in their capacities as such, are in compliance in all material respects with Section 402 of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.
Section 3.23 Listing and Maintenance Requirements. The Common Units are listed on the NYSE, and the Partnership has not received any notice of delisting. The issuance and sale of the Purchased Units and the issuance of Conversion Units upon conversion of the Purchased Units do not contravene NYSE rules and regulations.
Section 3.24 Environmental Compliance. The Partnership Entities are (i) in compliance with any and all applicable federal, state, local and foreign Laws 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 or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such Permit or approval, except where such noncompliance with Environmental Laws, failure to receive required Permits or other approvals or failure to comply with the terms and conditions of such Permits or other approvals would not, individually or in the aggregate, have a Material Adverse Effect. None of the Partnership Entities has been named as a “potentially responsible party” under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended. None of the Partnership Entities owns, leases or occupies any Property that appears on any list of hazardous sites compiled by any state or local Governmental Authority. There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Permit or other approval, any related constraints on operating activities and any potential liabilities to third parties) which would, individually or in the aggregate, result in a Material Adverse Effect.
24
Section 3.25 ERISA Compliance. Except as would not reasonably be expected to result in a Material Adverse Effect, (i) the Partnership Entities and any “employee benefit plan” (as defined under ERISA) established or maintained by the Partnership Entities or their ERISA Affiliates are in compliance in all material respects with ERISA and all other applicable state and federal Laws; (ii) no “reportable event” (as defined in ERISA) has occurred or is reasonably expected to occur with respect to any “pension plan” (as defined in ERISA) established or maintained by the Partnership Entities or any of their ERISA Affiliates, excluding any reportable event for which a waiver applies, (iii) neither the Partnership Entities nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (A) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (B) Sections 412, 4971 or 4975 or 4980B of the Code, and (iv) each “employee benefit plan” established or maintained by the Partnership Entities or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which could reasonably be expected to cause the loss of such qualification.
Section 3.26 Tax Returns; Taxes. Except as could not reasonably be expected to constitute, individually or in the aggregate, a Material Adverse Effect:
(a) The Partnership Entities have duly and timely filed (taking into account any extension of time within which to file) all Tax Returns required to be filed, which returns are complete and correct in all material respects, and each of the Partnership Entities has duly and timely paid all Taxes that are due and payable (whether or not reflected on any Tax Return).
(b) Each of the Partnership Entities has duly and timely withheld and paid over to the appropriate Governmental Authority all Taxes that are required to be withheld.
(c) All deficiencies asserted as a result of any Tax audits or assessments have been paid or finally settled, and no issue has been raised in any such audit or assessment that reasonably could be expected to result in a proposed deficiency for any other period not so audited.
(d) There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Taxes or Tax Returns for any period. There are no audits, examinations, investigations, actions, suits, claims or other proceedings pending or threatened in writing with respect to the Partnership Entities.
(e) No claim has ever been made against any Partnership Entity by a Governmental Authority in a jurisdiction where such Partnership Entity does not file Tax Returns that such Partnership Entity is or may be subject to Taxes assessed by such jurisdiction.
(f) No private letter ruling, technical advice memorandum, closing agreement or similar ruling, memorandum or agreement by or with any Governmental Authority is binding on or has been requested with respect to any Partnership Entity.
25
(g) None of the Partnership Entities has participated in any “listed transaction” as defined under Section 1.6011-4(b)(2) of the Treasury Regulations promulgated under the Code.
(h) On the Closing Date, any transfer Tax or other Tax required to be paid in connection with the sale of the Purchased Units by the Partnership to the Purchasers will have been fully paid by the Partnership, and all Laws imposing such Taxes will have been complied with.
(i) The Partnership is properly classified as an association taxable as a corporation for U.S. federal (and applicable state and local) income Tax purposes, and has been so classified since September 24, 2018.
Section 3.27 Permits. Subject to any qualifications that may be set forth in the KRP SEC Documents, and excluding Permits addressed under Section 3.24, each of the Partnership Entities: (a) has all permits, licenses, franchises, approvals, consents and authorizations of Governmental Authorities (each, a “Permit”) as are necessary to own its Properties and to conduct its business as such business is currently conducted, except for any failure to comply with such Permits that would not, individually or in the aggregate, constitute a Material Adverse Effect; and (b) has operated and is operating its business in compliance with and not in violation of all of its obligations with respect to each such Permit and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination of any such Permit or result in any other impairment of the rights of any such Permit, except for any failure to comply with such Permits that would not, individually or in the aggregate, constitute a Material Adverse Effect.
Section 3.28 Required Disclosures and Descriptions. There are no legal or governmental proceedings pending or, to the Knowledge of the Partnership, threatened, against any of the Partnership Entities, or to which any of the Partnership Entities is a party, or to which any of their respective Properties is subject, that are required to be described in the KRP SEC Documents but are not described as required, and there are no Contracts that are required to be described in the KRP SEC Documents or to be filed as an exhibit to the KRP SEC Documents that are not described or filed as required by the Securities Act or the Exchange Act.
Section 3.29 Title to Property. Except as disclosed in the KRP SEC Documents, each of the Partnership Entities has (a) good and defensible title to the interests in the oil and natural gas properties underlying the estimates of proved reserves contained in KRP SEC Documents (the “Mineral Interests”) and (b) good and marketable title to all other Property reflected in the KRP SEC Documents as assets owned by it, in each case of (a) and (b) above, free and clear of all Liens and defects except such as (i) are described in the KRP SEC Documents, (ii) arise under or in connection with the Credit Agreement or (iii) do not materially affect the value of the Properties of the Partnership Entities, taken as a whole, and do not interfere in any material respect with the use made or proposed to be made of such Properties by the Partnership Entities, taken as a whole. All Property held under lease by the Partnership Entities are held by them under valid, subsisting and enforceable leases with only such exceptions as in the aggregate are not materially burdensome to the use of the Property or the conduct of the business of the Partnership Entities.
Section 3.30 Rights-of-Way. Each Partnership Entity, directly or indirectly, has such consents, easements, rights-of-way or licenses from any Person (“Rights-of-Way”) as are necessary to enable it to conduct its business in the manner described in the KRP SEC Documents, subject to such qualifications as may be set forth in the KRP SEC Documents, except where failure to have such Rights-of-Way would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.
26
Section 3.31 Form S-3 Eligibility. The Partnership is eligible to register the Conversion Units for resale by the Purchasers under Form S-3 promulgated under the Securities Act.
Section 3.32 No Unlawful Payments. No Partnership Entity, nor to the Knowledge of the Partnership, any director, officer, agent, employee or other person associated with or acting on behalf of any Partnership Entity, (i) has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) has made any direct or indirect unlawful payment from corporate funds to any foreign or domestic government official or employee, (iii) has violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder or (iv) has made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
Section 3.33 Compliance with Laws. The operations of the Partnership Entities are and have been conducted at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the “United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” or the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Authority.
Section 3.34 OFAC. No Partnership Entity nor, to the Knowledge of the Partnership, any director, officer, agent, employee, other Affiliate of the Partnership Entities or any other Person acting on behalf of the Partnership Entities is, or is transacting business directly or knowingly indirectly with a Person who is, currently the subject of any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC,” and any such Person a “Sanctioned Person”); and the Partnership Entities will not directly or indirectly use the proceeds of the transactions contemplated hereby, or lend, contribute or otherwise make available such proceeds to any other Person, to finance the activities of any Sanctioned Person.
Section 3.35 Related Party Transactions. Except as described in the KRP SEC Documents, no Partnership Entity has, directly or indirectly (a) extended credit, arranged to extend credit, or renewed any extension of credit, in the form of a personal loan or otherwise, to or for any director or executive officer of the General Partner or its Affiliates, or to or for any family member or Affiliate of any director or executive officer of the General Partner or its Affiliates or (b) made any material modification to the term of any personal loan to any director or executive officer of the General Partner or its Affiliates, or any family member or Affiliate of any director or executive officer of the General Partner or its Affiliates.
Section 3.36 Reserve Engineer Independence. Ryder Scott Company (“Ryder Scott”), a reserve engineer that prepared a reserve report on estimated net proved oil and natural gas reserves with respect to the Mineral Interests as of December 31, 2022 was, as of the date of preparation of such reserve report, and is, as of the date hereof, an independent petroleum engineer with respect to the Partnership.
27
Section 3.37 Reserve Report Information. The information contained or incorporated by reference in the KRP SEC Documents regarding estimated proved reserves is based upon the reserve report prepared by Ryder Scott as of December 31, 2022. The historical information underlying the estimates of the proved reserves of the Partnership Entities provided to Ryder Scott by the Partnership Entities for purposes of preparing such reserve report, including, without limitation, information as to production, costs of operation and development, current prices for production, agreements relating to current and future operations and sales of production, was true and correct in all material respects in accordance with customary industry practice on the date that such report was prepared.
Section 3.38 Reserve Reports. The reserve report prepared by Ryder Scott setting forth the estimated proved reserves with respect to the Mineral Interests accurately reflects in all material respects the ownership interests of the Partnership Entities in the Properties therein as of December 31, 2022. Other than normal production of reserves, intervening market commodity price fluctuations, fluctuations in demand for such products, adverse weather conditions, unavailability or increased costs of rigs, equipment, supplies or personnel, the timing of third party operations and other facts, in each case in the ordinary course of business, and except as disclosed in the KRP SEC Documents, the Partnership does not have Knowledge of any facts or circumstances that would result in a material adverse change in the aggregate estimated net proved reserves as described in the KRP SEC Documents; and estimates of such reserves as described in the KRP SEC Documents comply in all material respects with the applicable requirements of Regulation S-X and Subpart 1200 of Regulation S-K under the Securities Act.
Section 3.39 Intellectual Property. Each of the Partnership Entities owns or has full right, title and interest in and to valid licenses to use each material trade name, trademark, service mark, patent, copyright, approval, trade secret and other similar rights (collectively, “Intellectual Property”) under which the Partnership Entities conduct all or any material part of its business, except as has not and will not have a Material Adverse Effect; there is no claim pending against the Partnership Entities with respect to any Intellectual Property and the Partnership Entities have not received notice or otherwise become aware that any Intellectual Property that it uses or has used in the conduct of its business infringes upon or conflicts with the rights of any third party. None of the Partnership Entities has become aware that any material Intellectual Property that it uses or has used in the conduct of its business infringes upon or conflicts with the rights of any third party.
Section 3.40 No Integration. Neither the Partnership nor any of its Affiliates (including the Partnership Entities) have, directly or indirectly through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any “security” (as defined in the Securities Act) that is or will be integrated with the sale of the Purchased Units in a manner that would require registration under the Securities Act.
28
Section 3.41 Solvency. After giving effect to the transactions contemplated by the Transaction Documents and the LongPoint Purchase Agreement, the Partnership Entities will be Solvent.
Section 3.42 LongPoint Purchase Agreement. All of the representations and warranties made by the Partnership in the LongPoint Purchase Agreement are true and correct. To the Knowledge of the Partnership, all of the representations and warranties made by the sellers or any other parties other than the Partnership in the LongPoint Purchase Agreement are true and correct.
Section 3.43 No Side Agreements. There are no material binding agreements by, among or between the Partnership or any of its Affiliates, on the one hand, and LongPoint Minerals II, LLC or any of its Affiliates, on the other hand, other than the LongPoint Purchase Agreement and the agreements contemplated to be delivered thereunder.
Article IV
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE PURCHASERS
Each Purchaser represents and warrants and covenants to the Partnership as follows:
Section 4.01 Existence. Such Purchaser has been duly organized and is validly existing as a limited partnership or limited liability company, as applicable, in good standing under the Laws of the jurisdiction of its formation, with requisite limited partnership power or limited liability company power, as applicable, and authority to own, lease and operate its Properties and to conduct its business as presently conducted.
Section 4.02 Authorization; Enforceability. Such Purchaser has full limited partnership power or limited liability company power, as applicable, and authority to execute and deliver this Agreement and perform its obligations under the other Transaction Documents to which it is a party and consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of such Transaction Documents by such Purchaser and the consummation by it of the transactions contemplated thereby have been duly and validly authorized and has been or, with respect to the Transaction Documents to be delivered at the Closing, will be, validly executed and delivered by such Purchaser and no further consent or authorization by any other Person is required for the execution, delivery and performance of such Transaction Documents by such Purchaser and the consummation by such Purchaser of the transactions contemplated thereby. Each of the Transaction Documents to which such Purchaser is a party has been, or will be at Closing, duly executed and delivered by such Purchaser, where applicable, and constitutes, or will constitute at Closing, a legal, valid and binding obligation of such Purchaser; provided, however, that, with respect to each such agreement, the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar Laws from time to time in effect affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such principles are considered in a proceeding in equity or at law).
29
Section 4.03 No Breach. The execution, delivery and performance of the Transaction Documents to which such Purchaser is a party by such Purchaser and the consummation by such Purchaser of the transactions contemplated thereby will not (a) conflict with or result in any violation of the provisions of the Organizational Documents of such Purchaser, (b) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material agreement to which such Purchaser is a party or by which such Purchaser or any of its material Property may be bound or affected, (c) violate any Law, or (d) violate any rule or regulation of any Governmental Authority or body having jurisdiction over such Purchaser or the property or assets of such Purchaser, except in the case of clauses (a) and (c) for such conflicts, breaches, violations or defaults as would not reasonably be expected to have a material adverse effect on the ability of such Purchaser to perform its obligations under the Transaction Documents or consummate the transactions contemplated thereby.
Section 4.04 Certain Fees. No fees or commissions are or will be payable by any Purchaser to brokers, finders or investment bankers with respect to the purchase of any of the Purchased Units or the consummation of the transactions contemplated by any of the Transaction Documents except for fees or commissions for which no Partnership Entity shall be responsible. Such Purchaser agrees that it will indemnify and hold harmless the Partnership Entities from and against any and all claims, demands, or liabilities for broker’s, finder’s, placement, or other similar fees or commissions incurred by or on behalf of such Purchaser or alleged to have been incurred by or on behalf of such Purchaser in connection with the purchase of the Purchased Units or the consummation of the transactions contemplated by this Agreement.
Section 4.05 Unregistered Securities.
(a) Accredited Investor Status; Sophisticated Purchaser. Such Purchaser is an “accredited investor” within the meaning of Rule 501 under the Securities Act and is able to bear the risk of its investment in the Purchased Units and the Conversion Units, as applicable. Such Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Purchased Units and the Conversion Units, as applicable.
(b) Institutional Account. Such Purchaser is an Institutional Account as defined in FINRA Rule 4512(c) and a sophisticated investor, experienced in investing in private equity transactions and capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities, including the transactions contemplated hereby.
(c) Information. Each Purchaser and its Representatives have been furnished with all materials relating to the business, finances and operations of the Partnership that have been requested and materials relating to the offer and sale of, and investment in, the Purchased Units and Conversion Units, as applicable, that have been requested by such Purchaser. Each Purchaser and its Representatives have been afforded the opportunity to ask questions of the Partnership and its Representatives. Neither such inquiries nor any other due diligence investigations conducted at any time by such Purchaser and its Representatives shall modify, amend or affect such Purchaser’s right (i) to rely on the Partnership’s representations and warranties contained in Article III above or (ii) to indemnification or any other remedy based on, or with respect to the accuracy or inaccuracy of, or compliance with, the representations, warranties, covenants and agreements in any Transaction Document. Such Purchaser understands that the purchase of Purchased Units involves a high degree of risk. Such Purchaser has sought such accounting, legal and Tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Purchased Units set forth opposite its name on Schedule 1.01 hereto.
30
(d) Residency. Such Purchaser shall cooperate with the Partnership to provide any information reasonably necessary for any applicable securities filings.
(e) Legends. Such Purchaser understands that, until such time as the Purchased Units and the Conversion Units, as applicable, have been sold pursuant to an effective registration statement under the Securities Act, or the Purchased Units and the Conversion Units, as applicable, are eligible for resale pursuant to Rule 144 promulgated under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Purchased Units and the Conversion Units, as applicable, will bear a restrictive legend as provided in the Partnership Agreement.
(f) Purchaser Representation. Such Purchaser is purchasing the Purchased Units to be acquired by such Purchaser for its own account and not with a view to distribution in violation of any securities Laws. Such Purchaser has been advised and understands that none of the Purchased Units nor the Conversion Units have been registered under the Securities Act or under the “blue sky” Laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the Securities Act (or if eligible, pursuant to the provisions of Rule 144 promulgated under the Securities Act or pursuant to another available exemption from the registration requirements of the Securities Act). Such Purchaser has been advised and understands that the Partnership, in issuing the Purchased Units, is relying upon, among other things, the representations and warranties of such Purchaser contained in this Article IV in concluding that such issuance is a “private offering” and is exempt from the registration provisions of the Securities Act.
(g) Rule 144. Such Purchaser understands that there is no public trading market for the Series A Preferred Units, that none is expected to develop, that the Purchased Units are characterized as restricted securities under the federal securities Laws and that the Purchased Units and the Conversion Units must be held indefinitely unless and until the Purchased Units or the Conversion Units, as applicable, are registered under the Securities Act or an exemption from registration is available. Such Purchaser has been advised of and is knowledgeable with respect to the provisions of Rule 144 promulgated under the Securities Act.
(h) Reliance by the Partnership. Such Purchaser understands that the Purchased Units are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities Laws and that the Partnership is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of such Purchaser to acquire the Purchased Units and the Conversion Units issuable upon conversion thereof.
31
Section 4.06 Sufficient Funds. Each Purchaser will have available to it at the Closing sufficient funds to enable such Purchaser to pay in full at the Closing the entire amount of its Funding Obligation in immediately available cash funds.
Section 4.07 No Prohibited Trading. During the 15 day period prior to the date hereof, no Purchaser has (a) offered, sold, contracted to sell, sold any option or contract to purchase, purchased any option or contract to sell, granted any option, right or warrant to purchase, lent, or otherwise transferred or disposed of, directly or indirectly, any of the Purchased Units or (b) directly or indirectly engaged in any short sales or other derivative or hedging transactions with respect to the Purchased Units, including by means of any swap or other transaction or arrangement that transfers or that is designed to, or that might reasonably be expected to, result in the transfer to another, in whole or in part, of any of the economic consequences of ownership of any Purchased Units, regardless of whether any transaction described in this Section 4.07 is to be settled by delivery of Series A Preferred Units, Common Units or other securities, in cash or otherwise.
Article V
COVENANTS
Section 5.01 Conduct of Business. During the period commencing on the date of this Agreement and ending on the Closing Date, each of the Partnership Entities will use commercially reasonable efforts to conduct its business in the ordinary course of business (other than as contemplated by the LongPoint Purchase Agreement, or the schedules thereto), preserve intact its existence and business organization, Permits, goodwill and present business relationships with all material customers, suppliers, licensors, distributors and others having significant business relationships with the Partnership Entities (or any of them), to the extent the Partnership believes in its reasonable discretion that such relationships are and continue to be beneficial to the Partnership Entities and their businesses; provided, however, that during such period, the Partnership shall provide reasonably prompt written notice to the Purchasers regarding any material adverse developments in respect of the foregoing. Prior to the Closing, without the written consent of the Purchasers (which consent shall not be unreasonably withheld, conditioned or delayed), the Partnership shall not (a) modify, amend or waive in any material respect any provision of the Partnership Agreement, (b) modify the LongPoint Purchase Agreement in any way that would prevent the condition set forth in Section 2.04(f) from being met or (c) take any action, if, immediately after giving effect to the Closing (including the amendment of the Partnership Agreement pursuant to the Partnership Agreement Amendment), such action would require the consent of the Series A Required Voting Percentage under the Partnership Agreement.
Section 5.02 Listing of Units. The Partnership will use its commercially reasonable efforts to obtain approval for listing, subject to notice of issuance, of the Conversion Units on the NYSE.
32
Section 5.03 Cooperation; Further Assurances. Without limiting the covenants set forth in Section 2.07, each of the Partnership and the Purchasers shall use their respective commercially reasonable efforts to obtain all approvals and consents required by or necessary to consummate the transactions contemplated by this Agreement, the other Transaction Documents. Each of the Partnership and the Purchasers agree to execute and deliver all such documents or instruments, to take all commercially reasonable action and to do all other commercially reasonable things it determines to be necessary, proper or advisable under applicable Laws and regulations or as otherwise reasonably requested by the other to consummate the transactions contemplated by this Agreement. At or prior to the Closing, the Partnership shall cause the Operating Company to duly adopt an amendment to or an amendment and restatement of (the “OpCo Amendment”) the Second Amended and Restated Limited Liability Company Agreement of the Operating Company, dated May 18, 2022 (the “Second A&R OpCo Agreement”) incorporating terms that result in the Partnership owning a series of preferred equity interests in the Operating Company with generally the same terms and economic entitlements as the Series A Preferred Units and such other customary amendments as are reasonably necessary to reflect the issuance of Series A Preferred Units contemplated under this Agreement in an “Up-C” structure. The terms of the OpCo Amendment shall be substantially consistent with the terms of that certain First Amended and Restated Limited Liability Company Agreement of the Operating Company, dated September 23, 2018, relating to the “Series A Preferred Units” described therein and the transactions that resulted in the issuance of the associated “KRP Series A Preferred Units” described therein, with such modifications as are reasonably necessary to reflect differences between the terms of such “KRP Series A Preferred Units” and the terms of the Series A Preferred Units contemplated to be issued under this Agreement. The Partnership will provide the Purchasers with a reasonable opportunity to review and comment on drafts of the OpCo Amendment and shall incorporate all comments reasonably proposed by the Purchasers that are consistent with implementing the structure described above.
Section 5.04 Lock-Up Agreement. For a period commencing on the date hereof and ending on the date that is 30 days after the Closing Date, the Partnership will not, without the prior written consent of the Purchaser Representative, directly or indirectly, (a) offer for sale, sell, pledge, grant any option to purchase or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any Common Units or securities convertible into or exercisable or exchangeable for Common Units (other than (i) as specifically provided in the Transaction Documents, (ii) Common Units issued pursuant to employee benefit plans, qualified option plans or other employee compensation plans existing on the date hereof (including, without limitation, Common Units issued pursuant to the long-term incentive plan of the Partnership), (iii) the Common Units issued upon conversion of the Series A Preferred Units pursuant to the terms of the Series A Preferred Units as set forth in the Partnership Agreement, or (iv) sell or grant options, rights or warrants with respect to any Common Units or securities convertible into or exchangeable for Common Units (other than the grant of such options, rights or warrants pursuant to employee benefit plans, qualified option plans or other employee compensation plans existing on the date hereof (including, without limitation, Common Units issued pursuant to the long-term incentive plan of the Partnership))), (b) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such Common Units, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Units or other securities, in cash or otherwise, be a party to any solicitations, negotiations or discussions with regard to the foregoing or (c) publicly disclose the intention to do any of the foregoing (other than the filing of a registration statement on Form S-8 or any amendment or supplement thereto).
33
Section 5.05 Tax Estimates. The Partnership shall provide any information reasonably requested by the Purchasers to enable the Purchasers to comply with their Tax reporting obligations with respect to the Series A Preferred Units, including, but not limited to, an estimate or determination of the amount of the Partnership’s current and accumulated earnings and profits for U.S. federal income tax purposes in any taxable year. Notwithstanding anything to the contrary in this Agreement or the Partnership Agreement, the Partnership shall not deduct or withhold any amounts under Section 1445 of the Code upon any distribution on, or redemption of, the Series A Preferred Units owned by any holder to the extent that such holder provides a certification that the Series A Preferred Units owned by such holder are not a “United States real property interest” within the meaning of Section 897 of the Code.
Section 5.06 Use of Proceeds. The Partnership shall use the proceeds of the offering of the Purchased Units (a) to fund a portion of the consideration payable in connection with the transactions contemplated by the LongPoint Purchase Agreement, (b) for working capital needs of the Partnership and (c) for the payment of fees and expenses associated with the transactions set forth in the Transaction Documents and LongPoint Purchase Agreement.
Section 5.07 CUSIP Cooperation. Following the Closing, upon the written request of the Purchasers, (a) the Partnership shall use its commercially reasonable efforts to cause the Preferred Units held by the Purchasers to be (i) rendered eligible for book-entry delivery through The Depositary Trust Company in connection with such transfer, and (ii) assigned a valid CUSIP number in accordance with the applicable rules and procedures of the CUSIP Service Bureau, in each case, as soon as reasonably practicable, but in any event, within 15 days following the receipt by the Partnership of written request therefor in accordance with this Section 5.07.
Section 5.08 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission that may permit the resale of the Purchased Units without registration, for so long as any Purchased Units remain outstanding, the Partnership agrees to use its commercially reasonable efforts to: (a) make and keep public information regarding the Partnership available, as those terms are understood and defined in Rule 144 of the Securities Act (or any similar provision then in effect); (b) file with the Commission in a timely manner all reports and other documents required of the Partnership under the Securities Act and the Exchange Act; and (c) so long as any Purchaser or any of its Affiliates owns any Purchased Units, furnish (i) to the extent accurate, forthwith upon request, a written statement of the Partnership that it has complied with the reporting requirements of Rule 144 under the Securities Act (or any similar provision then in effect) and (ii) unless otherwise available via the Commission’s EDGAR filing system, to the Partnership or such other requesting Person forthwith upon request a copy of the most recent annual or quarterly report of the Partnership, and such other reports and documents so filed as such requesting Person may reasonably request in availing itself of any rule or regulation of the Commission allowing such Person to sell Purchased Units without registration.
Section 5.09 Exclusivity. Other than as set forth on Schedule 5.09, from the date hereof until the earlier of the Closing and the termination of this Agreement, the Partnership shall, and shall cause its Affiliates and each of its and their Representatives, not to directly or indirectly: (a) encourage, facilitate, solicit offers for, respond to any unsolicited offers for, enter into or conduct any discussions or negotiations with any other Person in respect of, or consummate or enter into any agreement, arrangement or understanding in respect of, any financing transaction or other transaction similar to the transactions contemplated by the Transaction Documents; (b) disclose any non-public information relating to the business operations or affairs of the Partnership to any other Person or afford any such other Person access to the books, records, information or assets of the Partnership in connection with any financing transaction or other transaction similar to the transactions contemplated by the Transaction Documents; or (c) otherwise cooperate in any way with, assist or participate in or knowingly encourage, knowingly facilitate or induce any effort or attempt to do or seek to do any of the foregoing prohibited actions described in clauses (a) and (b) above. The Partnership agrees to (and agrees to cause each of its Affiliates and its and their Representatives to) immediately cease and terminate any existing activities, discussions and negotiations with any parties other than AGS or the Purchasers with respect to any financing proposal (other than as set forth on Schedule 5.09) or other transaction similar to the transactions contemplated by the Transaction Documents.
34
Article VI
INDEMNIFICATION, COSTS AND EXPENSES
Section 6.01 Indemnification by the Partnership. The Partnership agrees to indemnify the Purchasers and AGS, their respective Affiliates and each of their respective Representatives (collectively, “Purchaser Related Parties”) from costs, losses, liabilities, damages or expenses of any kind or nature whatsoever (“Losses”), and hold each of them harmless against, any and all actions, suits, proceedings (including any investigations, litigation or inquiries), demands and causes of action, and, in connection therewith, promptly upon demand, pay or reimburse each of them for any and all Losses (including, without limitation, the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them), whether or not involving a Third-Party Claim, as a result of, arising out of, or in any way related to (a) the failure of any of the representations or warranties made by the Partnership contained herein to be true and correct in all material respects (other than (i) those representations and warranties contained in Section 3.01, Section 3.02, Section 3.03, Section 3.13 or Section 3.17 and (ii) representations and warranties in other Sections that are qualified by materiality or Material Adverse Effect, which, in each case, shall be true and correct in all respects) when made and as of the Closing Date (except for any representations and warranties made as of a specific date, which shall be required to be true and correct as of such date only) when made and as of the Closing Date (except for any representations and warranties made as of a specific date, which shall be required to be true and correct as of such date only) or (b) the breach of any covenants of the Partnership contained herein; provided that: (i) in the case of the immediately preceding clause (a), such claim for indemnification is made prior to the expiration of the survival period of such representation or warranty; (ii) for purposes of determining when an indemnification claim has been made, the date upon which the Purchaser Related Party shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to the Partnership shall constitute the date upon which such claim has been made; and (iii) the aggregate liability of the Partnership to the Purchaser Related Parties pursuant to this Section 6.01 shall not exceed the Funding Obligation. No Purchaser Related Party shall be entitled to recover (i) special, indirect, exemplary, lost profits, speculative or punitive damages under this Section 6.01; provided, however, that such limitation shall not prevent any Purchaser Related Party from recovering under this Section 6.01 for any such damages to the extent that such damages are payable to a third party in connection with any Third-Party Claims, or (ii) twice with respect to the same Loss.
35
Section 6.02 Indemnification by the Purchaser. The Purchasers agree to indemnify the Partnership, its Affiliates and each of their respective Representatives (collectively, “Partnership Related Parties”) from Losses and hold each of them harmless against, any and all actions, suits, proceedings (including any investigations, litigation or inquiries), demands, and causes of action, and, in connection therewith, promptly upon demand, pay or reimburse each of them for any and all Losses (including, without limitation, the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them), whether or not involving a Third-Party Claim, as a result of, arising out of, or in any way related to (a) the failure of any of the representations or warranties made by any Purchaser contained herein to be true and correct in all material respects (other than those representations and warranties that are qualified by materiality, which, in each case, shall be true and correct in all respects) when made and as of the Closing Date or (b) the breach of any of the covenants of the Purchasers contained herein; provided, however, that: (i) in the case of the immediately preceding clause (a), such claim for indemnification relating to a breach of any representation or warranty is made prior to the expiration of the survival period of the representation or warranty; (ii) for purposes of determining when an indemnification claim has been made, the date upon which a Partnership Related Party shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to the Purchaser Representative shall constitute the date upon which such claim has been made; and (iii) the aggregate liability of each Purchaser to the Partnership Related Parties pursuant to this Section 6.02 shall not exceed its Funding Obligation. No Partnership Related Party shall be entitled to recover (i) special, indirect, exemplary, lost profits, speculative or punitive damages under this Section 6.02; provided, however, that such limitation shall not prevent any Partnership Related Party from recovering under this Section 6.02 for any such damages to the extent that such damages are payable to a third party in connection with any Third-Party Claims, or (ii) twice with respect to the same Loss.
Section 6.03 Indemnification Procedure.
(a) A claim for indemnification for any matter not involving a Third-Party Claim may be asserted by notice to the party from whom indemnification is sought; provided, however, that failure to so notify the indemnifying party shall not preclude the indemnified party from any indemnification which it may claim in accordance with this Article VI, except as otherwise provided in Section 6.01 and Section 6.02.
36
(b) Promptly after any Partnership Related Party or Purchaser Related Party (hereinafter, the “Indemnified Party”) has received notice of any indemnifiable claim hereunder, or the commencement of any action, suit or proceeding by a third Person, which the Indemnified Party believes in good faith is an indemnifiable claim under this Agreement (each a “Third-Party Claim”), the Indemnified Party shall give the indemnitor hereunder (the “Indemnifying Party”) written notice of such Third-Party Claim, which shall state the nature and basis of such Third-Party Claim to the extent then known; provided, however, that failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability it may have to such Indemnified Party hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel who shall be reasonably acceptable to the Indemnified Party, any such matter as long as the Indemnifying Party pursues the same diligently and in good faith. If the Indemnifying Party undertakes to defend or settle, it shall promptly, and in no event later than 10 days, notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in all commercially reasonable respects in the defense thereof and the settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records and other information reasonably requested by the Indemnifying Party and in the Indemnified Party’s possession or control. Such cooperation of the Indemnified Party shall be at the cost of the Indemnifying Party. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability; provided, however, that the Indemnified Party shall be entitled (i) at its expense, to participate in the defense of such asserted liability and the negotiations of the settlement thereof and (ii) if (A) the Indemnifying Party has, within 10 Business Days of when the Indemnified Party provides written notice of a Third-Party Claim, failed (1) to assume the defense or employ counsel reasonably acceptable to the Indemnified Party or (2) to notify the Indemnified Party of such assumption or (B) if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and counsel to the Indemnified Party shall have concluded that there may be reasonable defenses available to the Indemnified Party that are different from or in addition to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, then the Indemnified Party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not settle any indemnified Third-Party Claim without the consent of the Indemnified Party, unless the settlement thereof imposes no liability or obligation on, and includes a complete release from liability of, and does not include any admission of wrongdoing or malfeasance by, any Indemnified Party.
Section 6.04 Tax Matters. All indemnification payments under this Article VI shall be deemed adjustments to the Funding Obligation except as otherwise required by applicable Law. For U.S. federal (and applicable state and local) income Tax purposes, the Upfront Fee and the Bridge Commitment Fee deemed paid pursuant to Section 2.06(a)(ix) shall be treated by the parties as a reduction in the amount paid by the Purchasers (in the case of the Upfront Fee) and ACMP Holdings (in the case of the Bridge Commitment Fee) to the Partnership in exchange for the Series A Preferred Units, and the Bridge Option Fee paid pursuant to Section 2.06(a)(xiii) shall be treated by the parties as put-option premium with respect to the Partnership’s right to issue certain Series A Preferred Units to ACMP Holdings. The parties shall file all Tax Returns in a manner consistent with the treatment described in this Section 6.04 and shall not take any position for income Tax purposes inconsistent with such treatment, unless otherwise required by a final “determination” within the meaning of Section 1313(a) of the Code.
37
Article VII
TERMINATION
Section 7.01 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written consent of the Partnership and the Purchasers;
(b) by written notice from either the Partnership or the Purchasers if any Governmental Authority with lawful jurisdiction shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the transactions contemplated by the Transaction Documents and such order, decree, ruling or other action is or shall have become final and nonappealable;
(c) by written notice from either the Partnership or the Purchasers if the LongPoint Purchase Agreement is terminated for any reason; or
(d) by written notice from the Partnership or the Purchasers if the Closing does not occur by 11:59 p.m. on the Drop-Dead Date; provided, however, that no party may terminate this Agreement pursuant to this Section 7.01(d) if such party is, at the time of providing such written notice, in breach of any of its obligations under this Agreement.
Section 7.02 Certain Effects of Termination. In the event that this Agreement is terminated pursuant to Section 7.01:
(a) except as set forth in Section 7.02(b), this Agreement shall become null and void and have no further force or effect (including any requirement for the Partnership to pay any of the Arrangement Fee, Upfront Fee or Bridge Commitment Fee, which, for the avoidance of doubt, shall not be payable if Closing does not occur), but the parties shall not be released from any liability arising from or in connection with any breach hereof occurring prior to such termination;
(b) the parties agree that a willful breach of the LongPoint Purchase Agreement by the Partnership that results in the termination of the LongPoint Purchase Agreement shall be deemed to be a willful breach of this Agreement by the Partnership that results in the failure to satisfy the condition set forth in Section 2.03(c);
(c) regardless of any purported termination of this Agreement, the provisions of Article VI and all indemnification rights and obligations of the Partnership and the Purchasers thereunder, this Section 7.02 and the provisions of Article VIII shall remain operative and in full force and effect as between the Partnership and the Purchasers, unless the Partnership and the Purchasers execute a writing that expressly (with specific references to the applicable Articles, Sections or subsections of this Agreement) terminates such rights and obligations as between the Partnership and the Purchasers; and
38
(d) the Confidentiality Agreement shall remain in effect in accordance with Section 8.07(a).
Article VIII
MISCELLANEOUS
Section 8.01 Expenses. Except as set forth below, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with the Transaction Documents and the transactions contemplated thereby shall be paid by the party incurring such costs and expenses; provided, that promptly following receipt from the Purchasers of an invoice containing reasonable supporting detail, the Partnership shall reimburse the Purchasers for all reasonable out-of-pocket fees and expenses (including reasonable (i) costs associated with any travel, (ii) costs associated with background checks, (iii) time charges and all other reasonable costs and expenses of attorneys, land, title and environmental firms, financial advisors, accountants, and other consultants, (iv) search fees, (v) filing and recording fees and (vi) financial and accounting examination and collateral appraisal fees) incurred by the Purchasers and their respective Affiliates in connection with the preparation, negotiation, execution consummation, syndication, distribution and enforcement of the Transaction Documents and the transactions contemplated thereby, including, in each case, all such fees and expenses relating to review of the LongPoint Purchase Agreement and its ancillary documents and the transactions contemplated thereby. Notwithstanding the foregoing, in no event shall the Partnership be obligated to reimburse the Purchasers for any out-of-pocket fees and disbursements of counsel that are incurred after the Closing.
Section 8.02 Interpretation. Article, Section, Schedule and Exhibit references in this Agreement are references to the corresponding Article, Section, Schedule or Exhibit to this Agreement, unless otherwise specified. All Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof as if set forth in full herein and are an integral part of this Agreement. All references to instruments, documents, Contracts and agreements are references to such instruments, documents, Contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. Whenever the Partnership has an obligation under the Transaction Documents, the expense of complying with that obligation shall be an expense of the Partnership unless otherwise specified. Any reference in this Agreement to “$” shall mean U.S. dollars. Whenever any determination, consent or approval is to be made or given by the Purchasers, such action shall be in the Purchasers’ sole discretion, unless otherwise specified in this Agreement. If any provision in the Transaction Documents is held to be illegal, invalid, not binding or unenforceable, (a) such provision shall be fully severable and the Transaction Documents shall be construed and enforced as if such illegal, invalid, not binding or unenforceable provision had never comprised a part of the Transaction Documents, and the remaining provisions shall remain in full force and effect, and (b) the parties hereto shall negotiate in good faith to modify the Transaction Documents so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to the Transaction Documents, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day. Any words imparting the singular number only shall include the plural and vice versa. The words such as “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.
39
Section 8.03 Survival of Provisions. The representations and warranties set forth in Section 3.01, Section 3.02, Section 3.03, Section 3.13, Section 3.16, Section 3.17, Section 4.01, Section 4.02, Section 4.04, Section 4.05(a), Section 4.05(c) and Section 4.05(f) hereunder shall survive the execution and delivery of this Agreement indefinitely, the representations and warranties set forth in Section 3.26 shall survive until 60 days after the applicable statute of limitations (taking into account any extensions thereof) and the other representations and warranties set forth herein shall survive for a period of 18 months following the Closing Date, regardless of any investigation made by or on behalf of the Partnership or the Purchasers. The covenants made in this Agreement or any other Transaction Document shall survive the Closing and remain operative and in full force and effect in accordance with their respective terms until fully performed. Regardless of any purported general termination of this Agreement, the provisions of Article VI and all indemnification rights and obligations of the Partnership and the Purchasers thereunder, and this Article VIII shall remain operative and in full force and effect as between the Partnership and the Purchasers, unless the Partnership and the Purchasers execute a writing that expressly (with specific references to the applicable Section or subsection of this Agreement) terminates such rights and obligations as between the Partnership and the Purchasers.
Section 8.04 No Waiver: Modifications in Writing.
(a) Delay. No failure or delay on the part of any party in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for in this Agreement are cumulative and are not exclusive of any remedies that may be available to a party at law or in equity or otherwise.
(b) Specific Waiver. Except as otherwise provided herein, no amendment, waiver, consent, modification or termination of any provision of any Transaction Document (except in the case of the Partnership Agreement for amendments adopted pursuant to Article XIII thereof) shall be effective unless signed by each of the parties thereto affected by such amendment, waiver, consent, modification or termination. Any amendment, supplement or modification of or to any provision of any Transaction Document, any waiver of any provision of any Transaction Document and any consent to any departure by the Partnership from the terms of any provision of any Transaction Document shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Partnership in any case shall entitle the Partnership to any other or further notice or demand in similar or other circumstances. Any investigation by or on behalf of any party shall not be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein.
40
Section 8.05 Binding Effect. This Agreement shall be binding upon the Partnership and the Purchasers and their respective successors and permitted assigns. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and permitted assigns.
Section 8.06 Assignment of Rights. None of the parties to this Agreement may assign its rights or obligations under this Agreement without the prior written consent of the other party; provided, that any Purchaser may assign all or any portion of its rights and obligations under this Agreement to (i) any Affiliate of such Purchaser, or (ii) with respect to its rights under Section 5.05 or Article VI, any person to whom one or more Purchasers collectively transfer at least $10 million in Purchased Units (based on the Series A Issue Price), in each case without the consent of the Partnership by delivery of an agreement to be bound by the provisions of this Agreement, but no such assignment shall relieve such Purchaser of its obligations to purchase the Purchased Units to be purchased by it without giving effect to such assignment in the event the assignee fails to purchase all or any portion of such Purchased Units; provided that in any claim by any Purchaser or any of its permitted transferees under Article VI, such claim shall be made by the Purchaser Representative for all purposes of Article VI. With respect to any assignment permitted by this Section 8.06, the assignee shall be deemed to be a Purchaser hereunder with respect to such assigned rights or obligations and shall agree to be bound by the provisions of this Agreement.
Section 8.07 Non-Disclosure.
(a) This Agreement shall not impact the terms and provisions of the Confidentiality Agreement, except as set forth in Section 2.06(b)(vi). The Confidentiality Agreement shall continue to be in full force and effect, pursuant to the terms and conditions thereof.
(b) Other than filings made by the Partnership with the Commission, the Partnership and any of its Representatives may disclose the identity of, or any other information concerning, any Purchaser or any of its Affiliates only after providing such Purchaser a reasonable opportunity to review and comment on such disclosure (with such comments being incorporated or reflected, to the extent reasonable, in any such disclosure); provided, however, that nothing in this Section 8.07 shall delay any required filing or other disclosure with the NYSE or any Governmental Authority or otherwise hinder the Partnership Entities’ or their Representatives’ ability to timely comply with all Laws or rules and regulations of the NYSE or other Governmental Authority.
41
(c) Notwithstanding anything to the contrary in this Section 8.07 or the Confidentiality Agreement, the Partnership agrees that each Purchaser may (i) publicize its ownership in the Partnership, as well as the identity of the Partnership, the size of the investment and its pricing terms with respect to the Series A Preferred Units on its internet site or in marketing materials, press releases, published “tombstone” announcements or any other print or electronic medium and (ii) display the Partnership’s corporate logo in conjunction with any such reference.
Section 8.08 Communications.
(a) All notices and demands provided for hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, facsimile, electronic mail, air courier guaranteeing overnight delivery or personal delivery to the following addresses:
(i) If to the Purchasers, the “Purchaser Representative” which shall be:
Apollo
Capital Management, L.P.
9 West 57th Street, 37th Floor
New York, New York 10019
Attention: Daniel Vogel
Email: [***]
with a copy to (which shall not constitute notice):
Kirkland &
Ellis LLP
609 Main Street, 47th Floor
Houston, TX 77002
Attention: Adam Larson
Julian Seiguer
| Email: | [***] | |
| [***] |
(ii) If to the Partnership, to:
Kimbell
Royalty Partners, LP
777 Taylor St., Suite 810
Fort Worth, Texas 76102
Attention: Davis Ravnaas
Email: [***]
42
with a copy to (which shall not constitute notice):
White &
Case LLP
609 Main Street
Houston, Texas 77002
| Attention: | Jason Rocha | |
| Laura Katherine Mann |
| Email: | [***] | |
| [***] |
or to such other address as the Partnership or the Purchaser Representative may designate in writing from time to time, upon providing such additional address to the Partnership or the Purchaser, as applicable. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified or registered mail, return receipt requested; upon actual receipt of the facsimile, if sent via facsimile; when sent, if sent by electronic mail prior to 5:00 P.M. Houston, Texas time on a Business Day, or on the next succeeding Business Day, if not; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.
(b) For purposes of making claims under Article VI, any claim by any Purchaser or any of its permitted transferees under Article VI shall be made by the Purchaser Representative. Each Purchaser, by the execution of this Agreement, expressly acknowledges and agrees that the Partnership shall be entitled to solely interact with, and rely on any and all actions taken by, Purchaser Representative acting pursuant to its authority granted under this Section 8.08(b) without any liability to, or obligation to inquire of, such appointing Purchaser.
Section 8.09 Removal of Legend. In connection with a sale of Purchased Units or Conversion Units by a Purchaser in reliance on Rule 144 promulgated under the Securities Act, such Purchaser shall deliver to the Partnership a representation letter providing to the Partnership any information the Partnership deems necessary to determine that the sale of such Purchased Units or Conversion Units is made in compliance with Rule 144 promulgated under the Securities Act, including, as may be appropriate, a certification that such Purchaser is not an affiliate (as defined in Rule 144 promulgated under the Securities Act) of the Partnership and a certification as to the length of time such units have been held. Upon receipt of such representation letter, the Partnership shall promptly direct its transfer agent to remove the notation of a restrictive legend in such Purchaser’s book-entry account maintained by the Partnership’s transfer agent, including the legend referred to in Section 4.05, and the Partnership shall bear all costs associated with the removal of such legend in the Partnership’s books. At such time as the Purchased Units or Conversion Units have been sold pursuant to an effective registration statement under the Securities Act or have been held by such Purchaser for more than one year where such Purchaser is not, and has not been in the preceding three months, an affiliate (as defined in Rule 144 promulgated under the Securities Act) of the Partnership, if the book-entry account of such Purchaser still bears the notation of the restrictive legend referred to in Section 4.05, the Partnership agrees, upon request of such Purchaser or its permitted assignee, to take all steps necessary to promptly effect the removal of the legend described in Section 4.05, and the Partnership shall bear all costs associated with the removal of such legend, regardless of whether the request is made in connection with a sale or otherwise, so long as such Purchaser or its permitted assignee provides to the Partnership any information the Partnership deems reasonably necessary to determine that the legend is no longer required under the Securities Act or applicable state Laws, including (if there is no such registration statement) a certification that the holder is not an affiliate (as defined in Rule 144 promulgated under the Securities Act) of the Partnership and a covenant to inform the Partnership if it should thereafter become an affiliate (as defined in Rule 144 promulgated under the Securities Act) and to consent to the notation of an appropriate restriction, and a certification as to the length of time such units have been held. The Partnership shall cooperate with such Purchaser to effect the removal of the legend referred to in Section 4.05 at any time such legend is no longer appropriate.
43
Section 8.10 Entire Agreement. This Agreement, the other Transaction Documents, the Confidentiality Agreement and the other agreements and documents referred to herein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to in this Agreement, the other Transaction Documents or the Confidentiality Agreement with respect to the rights granted by the Partnership or any of its Affiliates or the Purchasers or any of their Affiliates. This Agreement, the other Transaction Documents, the Confidentiality Agreement and the other agreements and documents referred to herein or therein supersede all prior agreements and understandings among the parties with respect to such subject matter.
Section 8.11 Governing Law; Submission to Jurisdiction. This Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement), will be construed in accordance with and governed by the Laws of the State of Delaware without regard to principles of conflicts of laws. Any action against any party relating to the foregoing shall be brought in any federal or state court of competent jurisdiction located within the State of Delaware, and the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of Delaware over any such action. The parties hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each of the parties hereto consents to process being served in any such action by mailing, certified mail, return receipt requested, a copy thereof to such party at the address in effect for notices hereunder, and agrees that such service shall, to the fullest extent permitted by Law, constitute good and sufficient service of process and notice thereof; provided, however, that nothing in the foregoing shall affect or limit any right to serve process in any other manner permitted by Law.
Section 8.12 Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES, AND AGREES TO CAUSE ITS AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
44
Section 8.13 Remedies.
(a) Each party hereto hereby acknowledges and agrees that the rights of each party to consummate the transactions contemplated hereby are special, unique and of extraordinary character and that, if any party violates or fails or refuses to perform any covenant or agreement made by it herein, the non-breaching party may be without an adequate remedy at law. If any party violates or fails or refuses to perform any covenant or agreement made by such party herein, the non-breaching party subject to the terms hereof and in addition to any remedy at law for damages or other relief, may (at any time prior to the valid termination of this Agreement pursuant to Article VII) institute and prosecute an action in any court of competent jurisdiction to enforce specific performance of such covenant or agreement or seek any other equitable relief.
(b) The sole and exclusive remedy for any and all claims arising under, out of, or related to this Agreement or the transactions contemplated hereby, shall be the rights of indemnification set forth in Article VI only, and no Person will have any other entitlement, remedy or recourse, whether in contract, tort or otherwise, it being agreed that all of such other remedies, entitlements and recourse are expressly waived and released by the parties hereto to the fullest extent permitted by Law. Notwithstanding anything in the foregoing to the contrary, nothing in this Agreement shall limit or otherwise restrict (i) the rights of any party to bring claims under applicable federal or state securities Laws, (ii) a fraud claim brought by any party hereto or (iii) the right to seek specific performance pursuant to Section 8.13(a).
Section 8.14 No Recourse Against Others.
(a) All claims, obligations, liabilities or causes of action (whether in contract or in tort, in law or in equity, or granted by statute) that may be based upon, in respect of, arise under, out or by reason of, be connected with or relate in any manner to this Agreement, or the negotiation, execution or performance of this Agreement (including any representation or warranty made in, in connection with, or as an inducement to, this Agreement), may be made only against (and are expressly limited to) the Partnership and the Purchasers. No Person other than the Partnership or the Purchasers, including no member, partner, stockholder, Affiliate or Representative thereof, nor any member, partner, stockholder, Affiliate or Representative of any of the foregoing, shall have any liability (whether in contract or in tort, in law or in equity, or granted by statute) for any claims, causes of action, obligations or liabilities arising under, out of, in connection with or related in any manner to this Agreement or based on, in respect of or by reason of this Agreement or its negotiation, execution, performance or breach; and, to the maximum extent permitted by Law, each of the Partnership and the Purchasers hereby waives and releases all such liabilities, claims, causes of action and obligations against any such third Person.
45
(b) Without limiting the foregoing, to the maximum extent permitted by Law, (i) each of the Partnership and the Purchasers hereby waives and releases any and all rights, claims, demands or causes of action that may otherwise be available at law or in equity, or granted by statute, to avoid or disregard the entity form of the other or otherwise impose liability of the other on any third Person in respect of the transactions contemplated hereby, whether granted by statute or based on theories of equity, agency, control, instrumentality, alter ego, domination, sham, single business enterprise, piercing the veil, unfairness, undercapitalization or otherwise; and (ii) each of the Partnership and the Purchasers disclaims any reliance upon any third Person with respect to the performance of this Agreement or any representation or warranty made in, in connection with or as an inducement to this Agreement.
Section 8.15 No Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person, other than the Partnership and the Purchasers, for purposes of Article VI only, any Purchaser Related Party and Partnership Related Party, for purposes of Section 8.07(c), Apollo Capital Management, L.P., and, for purposes of Section 8.14 only, any member, partner, stockholder, Affiliate or Representative of the Partnership or any of the Purchasers, or any member, partner, stockholder, Affiliate or Representative of any of the foregoing, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 8.16 No Reliance. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR IN ANY CERTIFICATE OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT NO OTHER PARTY OR ANY OTHER PERSON, INCLUDING ANY AFFILIATE OF ANY PARTY, HAS MADE ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO SUCH PARTIES OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND EACH PARTY EXPRESSLY DISCLAIMS ANY RELIANCE ON ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER MADE BY SUCH PARTIES OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR IN ANY CERTIFICATE OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT NO OTHER PARTY HAS MADE AND EXPRESSLY DISCLAIMS RELIANCE ON ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY PROJECTION, FORECAST, STATEMENT, OR INFORMATION MADE, COMMUNICATED, OR FURNISHED (ORALLY OR IN WRITING) TO ANY OTHER PARTY OR ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES (INCLUDING OPINION, INFORMATION, PROJECTION, OR ADVICE THAT MAY HAVE BEEN OR MAY BE PROVIDED TO ANY PARTY OR ANY DIRECTOR, OFFICER, EMPLOYEE, AGENT, CONSULTANT OR REPRESENTATIVE OF SUCH PARTY OR ANY OF ITS AFFILIATES) WITH RESPECT TO SUCH PARTY OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
46
Section 8.17 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same agreement.
Section 8.18 Purchaser Liability. Notwithstanding anything to the contrary in the Transaction Documents, all liability as among the Purchasers for any Losses arising out of or resulting from any of the Transaction Documents shall be several and not joint, and (i) in respect of the Purchasers of Firm Purchased Units, their respective obligations to purchase Purchased Units pursuant to this Agreement shall be limited to the Firm Purchased Units set forth opposite each such Purchaser’s respective name on Schedule 1.01 hereto and, in respect of ACMP Holdings, the number of Bridge Units with respect to which the Partnership may exercise its right to issue and sell Bridge Units under Section 2.01(b), and (ii) in respect of Losses arising out of, or resulting from any breach of any collective obligation of the Purchasers under the Transaction Documents (as opposed to breaches of individual obligations of any particular Purchaser) shall be allocated pro rata to each Purchaser.
[Signature Pages Follow]
47
IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first above written.
| KIMBELL ROYALTY PARTNERS, LP | ||
| By: | Kimbell Royalty GP, LLC | |
| its general partner | ||
| By: | /s/ Matthew S. Daly | |
| Name: Matthew S. Daly | ||
| Title:Chief Operating Officer | ||
[Signature page to Purchase Agreement]
| APOLLO ACCORD+ AGGREGATOR A, L.P. | ||
| By: Apollo Accord+ Advisors, L.P., its general partner | ||
| By: Apollo Accord+ Advisors GP, LLC, its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO ACCORD V AGGREGATOR A, L.P. | ||
| By: Apollo Accord Advisors V, L.P., its general partner | ||
| By: Apollo Accord Advisors GP V, LLC, its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO DEFINED RETURN AGGREGATOR A, L.P. | ||
| By: Apollo Defined Return Advisors, L.P., its general partner | ||
| By: Apollo Defined Return Advisors GP, LLC, its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO CALLIOPE FUND, L.P. | ||
| By: Apollo Calliope Management, LLC, its investment manager | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
[Signature page to Purchase Agreement]
| APOLLO EXCELSIOR, L.P. | ||
| By: Apollo Excelsior Advisors, L.P. its general partner | ||
| By: Apollo Excelsior Ultimate GP, LLC, its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO CREDIT STRATEGIES MASTER FUND LTD. | ||
| By: Apollo ST Fund Management LLC, its investment manager | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO ATLAS MASTER FUND, LLC | ||
| By: Apollo Atlas Management, LLC, its investment manager | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO UNION STREET SPV, L.P. | ||
| By: Apollo Union Street SPV Advisors, LLC, its general partner | ||
| By: APH Holdings (DC), L.P., its managing member | ||
| By: Apollo Principal Holdings IV GP, Ltd., its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
[Signature page to Purchase Agreement]
| HOST PLUS PTY LIMITED – ACCORD | ||
| By: Apollo ST Fund Management LLC, its investment manager | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO DELPHI FUND, L.P. | ||
| By: Apollo Delphi Advisors, LLC, its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| APOLLO ROYALTIES FUND I, L.P. | ||
| By: Apollo Royalties Advisors I, L.P., its general partner | ||
| By: Apollo Royalties Advisors I GP, LLC, its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| AHVF (AIV), L.P. | ||
| By: Apollo Hybrid Value Advisors (APO DC), L.P., its General Partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
[Signature page to Purchase Agreement]
| AHVF TE/892/QFPF (AIV), L.P. | ||
| By: Apollo Hybrid Value Advisors (APO DC), L.P., its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| AHVF INTERMEDIATE HOLDINGS, L.P. | ||
| By: Apollo Hybrid Value Advisors (APO DC), L.P., its general partner | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
| ACMP HOLDINGS LLC | ||
| By: | /s/ William B. Kuesel | |
| Name: William B. Kuesel | ||
| Title: Vice President | ||
[Signature page to Purchase Agreement]
Schedule 1.01
Firm Purchased Units
| Purchaser | Firm Purchased Units | |||
| Apollo Accord+ Aggregator A, L.P. | 44,000 | |||
| Apollo Accord V Aggregator A, L.P. | 31,000 | |||
| Apollo Defined Return Aggregator A, L.P. | 10,000 | |||
| Apollo Calliope Fund, L.P. | 7,000 | |||
| Apollo Excelsior, L.P. | 5,000 | |||
| Apollo Credit Strategies Master Fund Ltd. | 60,000 | |||
| Apollo Atlas Master Fund, LLC | 4,000 | |||
| Apollo Union Street SPV, L.P. | 5,000 | |||
| Host Plus PTY Limited - Accord | 4,000 | |||
| Apollo Delphi Fund, L.P. | 15,000 | |||
| Apollo Royalties Partners I, L.P. | 40,000 | |||
| AHVF (AIV), L.P. | 46,200 | |||
| AHVF TE/892/QFPF (AIV), L.P. | 37,530 | |||
| AHVF Intermediate Holdings, L.P. | 16,270 | |||
| Total | 325,000 | |||
Schedule 1.01
EXHIBIT B
Form of the Partnership Agreement Amendment
See attached.
Exhibit B
Exhibit B
AMENDMENT NO. 1 TO FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
KIMBELL ROYALTY PARTNERS, LP
[•], 2023
Exhibit B - 1
TABLE OF CONTENTS
| Page | |
| 1. Adoption of Annex | 6 |
| 2. Designation of Series A Preferred Units | 6 |
| 3. Definitions | 6 |
| 4. Distributions | 16 |
| 5. Voting; Waiver | 17 |
| 6. Issuances of Series A Senior Securities and Series A Parity Securities | 19 |
| 7. Legends | 20 |
| 8. Conversion | 20 |
| 9. Series A Change of Control | 23 |
| 10. Restrictions on Transfers of Series A Preferred Units | 24 |
| 11. Partnership Optional Redemption | 24 |
| 12. Series A Preferred Unitholder Optional Redemption | 25 |
| 13. Structuring | 26 |
| 14. Fully Paid and Non-Assessable | 27 |
| 15. Notices | 27 |
| 16. Special Provisions Relating to the Series A Preferred Units | 27 |
| 17. Right to Acquire Limited Partner Interests | 27 |
| 18. Right to Vote Units | 27 |
| 19. Additional Information | 27 |
| 20. Other Modifications to the Partnership Agreement | 27 |
| 21. Invalidity of Provisions | 28 |
| 22. Effectiveness | 28 |
| 23. Termination | 28 |
Exhibit B - 2
AMENDMENT NO. 1 TO FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
KIMBELL ROYALTY PARTNERS, LP
[•], 2023
This Amendment No. 1 to Fourth Amended and Restated Agreement of Limited Partnership of Kimbell Royalty Partners, LP (this “Amendment”) is hereby adopted effective as of [•], 2023, by Kimbell Royalty GP, LLC, a Delaware limited liability company (the “General Partner”), in accordance with Article XIII of the Partnership Agreement (as such capitalized terms are defined below).
RECITALS:
A. The General Partner is the sole general partner of Kimbell Royalty Partners, LP, a Delaware limited partnership (the “Partnership”) that is governed by the Fourth Amended and Restated Agreement of Limited Partnership dated as of May 18, 2022 (the “Partnership Agreement”). Capitalized terms used but not defined herein are used as defined in the Partnership Agreement.
B. Section 5.7(a) of the Partnership Agreement provides that the Partnership may, for any Partnership purpose, at any time and from time to time, issue additional Partnership Interests (other than the General Partner Interest) for such consideration and on such terms and conditions as the General Partner shall determine, all without the approval of any Limited Partners.
C. Section 5.7(b) of the Partnership Agreement provides that each additional Partnership Interest authorized to be issued by the Partnership pursuant to Section 5.7(a) of the Partnership Agreement may be issued in one or more classes, or one or more series of any such classes, with such designations, preferences, rights, powers and duties (which may be senior or junior to existing classes and series of Partnership Interests) as shall be fixed by the General Partner, including (i) the right to share in Partnership profits and losses or items thereof; (ii) the right to share in Partnership distributions; (iii) the rights upon dissolution and liquidation of the Partnership; (iv) whether, and the terms and conditions upon which, the Partnership may or shall be required to redeem the Partnership Interest; (v) whether such Partnership Interest is issued with the privilege of conversion or exchange and, if so, the terms and conditions of such conversion or exchange; (vi) the terms and conditions upon which each Partnership Interest shall be issued, evidenced by Certificates and assigned or transferred; (vii) the method for determining the Percentage Interest as to such Partnership Interest; and (viii) the right, if any, of each such Partnership Interest to vote on Partnership matters, including matters relating to the relative rights, preferences and privileges of such Partnership Interest.
D. Section 5.7(c) of the Partnership Agreement provides that the General Partner shall (i) take all actions that it determines to be necessary or appropriate in connection with each issuance of Partnership Interests pursuant to Section 5.7 of the Partnership Agreement, and (ii) do all things necessary to comply with the Delaware Act and is authorized and directed to do all things that it determines to be necessary or appropriate in connection with any future issuance of Partnership Interests pursuant to the terms of the Partnership Agreement, including compliance with any statute, rule, regulation or guideline of any federal, state or other governmental agency or any National Securities Exchange on which the Common Units or other Partnership Interests are listed or admitted to trading.
E. The General Partner, without the approval of any other Partner, may amend any provision of the Partnership Agreement (i) pursuant to Section 13.1(d)(i) of the Partnership Agreement to reflect a change that the General Partner determines does not adversely affect the Limited Partners considered as a whole or any particular class of Partnership Interests as compared to other classes of Partnership Interests in any material respect, and (ii) pursuant to Section 13.1(g) of the Partnership Agreement to reflect an amendment that the General Partner determines to be necessary or appropriate in connection with the authorization or issuance of any class or series of Partnership Interests pursuant to Section 5.7 of the Partnership Agreement.
Exhibit B - 3
F. The Board of Directors deems it advisable and in the best interests of the Partnership to enter into this Amendment to adopt the Supplemental Terms Annex attached as Annex A hereto, which provides for (i) (a) the authorization of a new class of Units to be designated as Series A Cumulative Convertible Preferred Units and (b) fixes the preferences and the relative participating, optional and other special rights, powers and duties pertaining to the Series A Cumulative Convertible Preferred Units, including, without limitation, the conversion of the Series A Cumulative Convertible Preferred Units into Common Units in accordance with the terms described therein, (ii) the issuance of the Series A Cumulative Convertible Preferred Units to the Series A Purchasers pursuant to the Series A Preferred Unit Purchase Agreement and (iii) such other matters as are provided therein.
G. The General Partner has, pursuant to its authority under Section 13.1(d)(i) and 13.1(g) of the Partnership Agreement, made the determinations required thereby and accordingly is adopting this Amendment and the attached Supplemental Terms Annex.
H. Acting pursuant to the power and authority granted to it under Section 13.1(d) and Section 13.1(g) of the Partnership Agreement, the General Partner has determined that this Amendment does not require the approval of any other Partner.
AGREEMENT
NOW, THEREFORE, the Partnership Agreement is hereby amended to include the Supplemental Terms Annex attached hereto as Annex A, which shall be included in the Partnership Agreement.
IN WITNESS WHEREOF, the General Partner has executed and delivered this Amendment in accordance with Section 13.1 of the Partnership Agreement, and as of the date first above written.
[Signature Page Follows]
Exhibit B - 4
| KIMBELL ROYALTY GP, LLC, | ||
| as General Partner | ||
| By: | ||
| Name: | ||
| Title: | ||
Exhibit B - 5
Annex A
SUPPLEMENTAL TERMS ANNEX — SERIES A PREFERRED UNITS
1. Adoption of Annex. This Supplemental Terms Annex, dated as of [•], 2023 (“Supplemental Terms Annex”), is adopted pursuant to Article XIII of the Fourth Amended and Restated Agreement of Limited Partnership of Kimbell Royalty Partners, LP, dated as of May 18, 2022, as amended and in effect on the date hereof and as the same may be amended from time to time (the “Partnership Agreement”). Capitalized terms used herein shall have the meanings set forth or referenced in Paragraph 3 hereof.
2. Designation of Series A Preferred Units. There is hereby created a class of Units designated as “Series A Cumulative Convertible Preferred Units” (the “Series A Preferred Units”), with the designations, preferences and relative, participating, optional or other special rights, privileges, powers, duties and obligations as are set forth in this Supplemental Terms Annex and the Partnership Agreement. Up to 400,000 Series A Preferred Units shall be issued by the Partnership on the Series A Issuance Date pursuant to the terms and conditions of the Series A Purchase Agreement. Each Series A Preferred Unit shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code (including Section 8-102(a)(15) thereof) as in effect from time to time in the State of Delaware, and (ii) the corresponding provisions of the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995.
3. Definitions.
(a) The following terms as defined in the Partnership Agreement shall be amended and restated in their entirety as follows:
(i) “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. Without limiting the foregoing, for purposes of this Agreement, (i) any Person that individually or together with its Affiliates, has the direct or indirect right to designate or cause the designation of at least one member to the Board of Directors, and any such Person’s Affiliates, shall be deemed to be Affiliates of the General Partner and (ii) any fund or account managed, advised or subadvised, directly or indirectly, by a Series A Purchaser or its Affiliates, shall be considered an Affiliate of such Series A Purchaser.
(ii) “Outstanding” means, with respect to Partnership Interests, all Partnership Interests that are issued by the Partnership and reflected as outstanding in the Partnership’s Register as of the date of determination; provided, however, that if at any time any Person or Group (other than the General Partner or its Affiliates) beneficially owns 20% or more of the Partnership Interests of any class then outstanding, none of the Partnership Interests owned by such Person or Group shall be entitled to be voted on any matter or be considered to be Outstanding when sending notices of a meeting of Limited Partners to vote on any matter (unless otherwise required by law), calculating required votes, determining the presence of a quorum or for other similar purposes under this Agreement, except that Partnership Interests so owned shall be considered to be Outstanding for purposes of Section 11.1(b) (such Partnership Interests shall not, however, be treated as a separate class of Partnership Interests for purposes of this Agreement or the Delaware Act); provided, further, that the foregoing limitation shall not apply to (a) any Person or Group who acquired 20% or more of the Partnership Interests of any class then Outstanding directly from the General Partner or its Affiliates (other than the Partnership), (b) any Person or Group who acquired 20% or more of the Partnership Interests of any class then Outstanding directly or indirectly from a Person or Group described in clause (a) provided that the General Partner shall have notified such Person or Group in writing that such limitation shall not apply, (c) any Person or Group who acquired 20% or more of any class of Partnership Interests issued by the Partnership with the prior approval of the Board of Directors, (d) any of the Contributing Parties or their respective Affiliates, (e) any holder of Series A Preferred Units in connection with any vote, consent or approval of the holders of Series A Preferred Units as a separate class, or on an as-converted basis with the holders of the Common Units, on any matter, (f) any Person or Group who owns 20% or more of the Partnership Interests of a class as the result of (A) any redemption or purchase of any other Person’s or Persons’ Partnership Interests by the Partnership or other similar action by the Partnership or (B) any conversion of Series A Preferred Units into Common Units pursuant to Paragraph 8(b) of this Supplemental Terms Annex.
Exhibit B - 6
(iii) “Unit” means a Partnership Interest that is designated by the General Partner as a “Unit” and shall include Common Units, Series A Preferred Units and Class B Units.
(iv) “Unit Majority” means, subject to the terms of any Supplemental Terms Annex, a majority of the Outstanding Common Units, the Outstanding Series A Preferred Units voting on an as-converted basis, and the Outstanding Class B Units, voting together as a single class.
(b) The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Supplemental Terms Annex. Capitalized terms used but not defined in this Supplemental Terms Annex shall have the meanings given to them in the Partnership Agreement.
(i) “Accrual Election” has the meaning assigned to such term in Paragraph 4(b).
(ii) “Accumulated Distributions” means, with respect to any Series A Preferred Unit, as of any date, the aggregate amount of accrued and unpaid distributions added to the Series A Liquidation Preference in accordance with Paragraph 4(b).
(iii) “Adjusted Leverage Ratio” means, as of any date of determination, the quotient of (a) the sum, as of such date, of (i) Total Debt, plus (ii) the aggregate liquidation preference of all Outstanding Series A Senior Securities, and (b) EBITDAX for the period of the four fiscal quarters most recently ended as of such date for which financial information has been filed with the Commission.
(iv) “Arrangement Fee” has the meaning ascribed to such term in the Series A Purchase Agreement.
(v) “Bridge Commitment” has the meaning ascribed to such term in the Series A Purchase Agreement.
(vi) “Bridge Commitment Fee” has the meaning ascribed to such term in the Series A Purchase Agreement.
(vii) “Bridge Purchased Units” has the meaning ascribed to such term in the Series A Purchase Agreement.
(viii) “Closing” has the meaning ascribed to such term in the Series A Purchase Agreement.
(ix) “Common Unitholder” means a Record Holder of Common Units.
(x) “Conversion Price” means $15.07, as may be adjusted as set forth in Paragraph 8(e) of this Supplemental Terms Annex.
(xi) “Credit Agreement” means the Amended and Restated Credit Agreement, dated as of June 13, 2023, among Kimbell Royalty Partners, LP, as the borrower, the several lenders thereto from time to time, Citibank, N.A. as administrative agent, Banc of America Securities LLC, Frost Bank, Mizuho Bank, Ltd., PNC Capital Markets LLC, and Truist Securities, Inc. as joint lead arrangers, and Bank of America, National Association, Frost Bank, Mizuho Bank, Ltd., PNC Bank, N.A, and Truist Bank as co-documentation agents, as amended by that certain Amendment No. 1, dated as of July 24, 2023, and as further amended, amended and restated, supplemented or otherwise modified from time to time (except in contravention hereof), together with any Replacement Credit Agreement. Any term defined herein by reference to the Credit Agreement (and any embedded defined terms therein) shall have the meaning set forth in the Credit Agreement as of the Series A Issuance Date, giving effect to any amendment, amendment and restatement or other modification dated as of the Series A Issuance Date. When applying U.S. GAAP to the terms of this Supplemental Terms Annex, including when referencing any calculation made under or in accordance with the Credit Agreement, U.S. GAAP will be deemed to treat leases that would have been classified as operating leases in accounting principles in the United States as in effect on December 31, 2015 in a manner consistent with the treatment of such leases under general accepted accounting principles in the United States as in effect on December 31, 2015, notwithstanding any modifications or interpretive changes thereto that may occur thereafter.
Exhibit B - 7
(xii) “Customary Credit Facility” means a reserve-based revolving credit facility (including the Credit Agreement, as in effect as of the Series A Issuance Date, giving effect to any amendment, amendment and restatement or other modification dated as of the Series A Issuance Date) (a) with a conforming borrowing base based on the normal and customary standards and practices of, and provided solely by an administrative agent and lenders that are, commercial banks that are regulated by the U.S. Office of the Comptroller of the Currency and are in the business of valuing and re-determining the value of oil and gas properties in connection with conforming, reserve-based oil and gas loan transactions in the United States based upon, inter alia, the review by such lenders of the hydrocarbon reserves, royalty interests and assets and liabilities of the borrower and guarantors thereunder, with such valuation being determined at least semi-annually during each year and on such other occasions as may be required or provided for by the terms of the documentation therefor, (b) with respect to which all Indebtedness and other obligations under such credit facility are pari passu in right of payment, pricing, security and liquidation thereof, and (c) that does not carry any call protection (including, without limitation, any make-whole protection, prepayment premium, yield protection or similar protection or premium).
(xiii) “Distribution Rate” means 6.0% per annum, as may be adjusted as set forth in Paragraph 4(b) and Paragraph 12(d) of this Supplemental Terms Annex.
(xiv) “EBITDAX” has the meaning ascribed to such term in the Credit Agreement (including any embedded defined terms therein); provided, however, for purposes of calculating EBITDAX herein, EBITDAX (a) shall be calculated without giving effect to the add-backs provided under clauses (4), (5), (7) (other than on account of extraordinary losses for such period) and (8) of the definition of “EBITDAX” as provided in the Credit Agreement and (b) shall not be calculated on a Pro Forma Basis (as such term is defined in the Credit Agreement); provided that notwithstanding any limitations in the Credit Agreement, EBITDAX shall be determined with respect to the Partnership and all of its Subsidiaries (i.e., such calculation shall not be limited to Restricted Subsidiaries (as such term is defined in the Credit Agreement)).
(xv) “Equity Securities” means, with respect to any Person, (a) any capital stock or other equity securities, (b) any securities directly or indirectly convertible into or exchangeable for any capital stock or other equity securities or containing any profit participation features, (c) any rights, options or incentive units, directly or indirectly, to subscribe for or to purchase any capital stock, other equity securities or securities containing any profit participation features or, directly or indirectly, to subscribe for or to purchase any securities, directly or indirectly, convertible into or exchangeable for any capital stock, other equity securities or securities containing any profit participation features, or (d) any stock appreciation rights, phantom stock rights or other similar rights.
(xvi) “Excluded Amounts” means the Arrangement Fee, the Upfront Fee and the Bridge Commitment Fee.
(xvii) “Final Partnership Redemption Notice” has the meaning assigned to such term in Paragraph 12(c) of this Supplemental Terms Annex.
(xviii) “Forced Redemption Date” has the meaning assigned to such term in Paragraph 12(a) of this Supplemental Terms Annex.
(xix) “Incumbent Board” has the meaning assigned to such term in Paragraph 3(b)(xlv)(7) of this Supplemental Terms Annex.
Exhibit B - 8
(xx) “Indebtedness” of any Person shall mean, if and to the extent (other than with respect to clause (e) below) the same would constitute indebtedness or a liability in accordance with U.S. GAAP, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (c) the deferred purchase price of assets or services that in accordance with U.S. GAAP would be required to be shown as a liability on the balance sheet of such Person (other than (i) any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with U.S. GAAP and (ii) obligations resulting under firm transportation contracts or take or pay contracts entered into in the ordinary course of business), (d) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (e) all Indebtedness (excluding prepaid interest thereon) described in the other clauses of this definition of any other Person secured by any lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (but if such Indebtedness has not been assumed, limited to the lesser of the amount of such Indebtedness and the fair market value of the property securing such Indebtedness), (f) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment and (g) without duplication, all guarantee obligations of such Person in respect of Indebtedness of another Person of the types described in the other clauses of this definition; provided that Indebtedness shall not include (i) trade and other ordinary-course payables and accrued expenses arising in the ordinary course of business, (ii) deferred or prepaid revenues, (iii) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the respective seller, (iv) in the case of the Partnership and its Subsidiaries, (A) all intercompany Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business and (B) intercompany liabilities in connection with the cash management, tax and accounting operations of the Partnership and its Subsidiaries, (v) production payments and reserve sales, (vi) in-kind obligations relating to net oil, natural gas liquids or natural gas balancing positions arising in the ordinary course of business and (vii) any obligation in respect of a farm-in agreement or similar arrangement whereby such Person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an oil or gas property.
(xxi) “Initial Accrual Period” means the period beginning on the Series A Issuance Date and ending on the last day of the fourth non-consecutive Quarter with respect to which an Accrual Election is made. For the avoidance of doubt, in no event shall the Accrual Election be made in consecutive Quarters.
(xxii) “IRR” means, as of any measurement date, the cumulative internal rate of return, compounded annually, with respect to a Series A Preferred Unit (i.e., the annual discount rate for which the net present value of all cash inflows from all Capital Contributions made to acquire such Series A Preferred Unit, and all cash outflows from all cash distributions in respect of such Series A Preferred Unit, are equal to $0), as calculated using the XIRR function in Microsoft Excel (or if such program is no longer available, such other software program for calculating a cumulative, annually-compounded internal rate of return approved by the Board of Directors, with the affirmative vote of the Record Holders of the Series A Required Voting Percentage, such affirmative vote not to be unreasonably withheld, conditioned or delayed) ((x) taking into account the respective dates of each such Capital Contribution and distribution, as well as the IRR measurement date, (y) treating each such Capital Contribution as a negative amount for purposes of such net present value calculation and (z) treating each such cash distribution in respect of any such Series A Preferred Unit as a positive amount for purposes of such net present value calculation). IRR shall be calculated on the basis of the actual number of days elapsed over a 365-day year. In calculating IRR for all such Series A Preferred Units as of any particular date, (a) the aggregate cash amounts distributed pursuant to Paragraph 4 of this Supplemental Terms Annex with respect to any such Series A Preferred Unit on such date, and all amounts previously distributed pursuant to Paragraph 4 of this Supplemental Terms Annex with respect to such Series A Preferred Unit, shall be taken into account, (b) Excluded Amounts shall be disregarded and not included as Capital Contributions or distributions in respect of Series A Preferred Units; provided, however, that any portion of the Upfront Fee or Bridge Commitment Fees that are satisfied by offset against the amounts required to be funded by the Series A Purchasers to purchase the Series A Preferred Units at the Closing shall be treated as if those amounts were Capital Contributions made in cash and (c) Capital Contributions and cash distributions in respect of Series A Preferred Units will be deemed to have been received or paid on the actual date of receipt or payment (or offset, in the case of amounts described in the proviso to clause (b) above).
Exhibit B - 9
(xxiii) “Management Services Agreement” means the management services agreements, originally dated as of February 8, 2017, as amended in effect as of the Series A Issuance Date, among the Partnership and/or Kimbell Operating Company, LLC and the other parties thereto.
(xxiv) “Minimum IRR” means, as of any measurement date: (a) prior to the fifth anniversary of the Series A Issuance Date, a 12.0% IRR with respect to such Series A Preferred Unit; (b) on or after the fifth anniversary of the Series A Issuance Date and prior to the sixth anniversary of the Series A Issuance Date, a 13.0% IRR with respect to such Series A Preferred Unit; and (c) on or after the sixth anniversary of the Series A Issuance Date, a 14.0% IRR with respect to such Series A Preferred Unit.
(xxv) “Minimum Return Amount” means, at the applicable time of determination:
(1) if the applicable time of determination is after the date that is 180 days following the Closing, with respect to all outstanding Series A Preferred Units, an amount in cash in the aggregate equal to the product of (A) the number of outstanding Series A Preferred Units multiplied by (B) for each such outstanding Series A Preferred Unit the greatest of (i) an amount (together with all prior distributions made in respect of such Series A Preferred Unit) necessary to achieve the Minimum IRR, (ii) an amount (together with all prior distributions made in respect of such Series A Preferred Unit) necessary to achieve a Return on Investment equal to 1.2 times with respect to such Series A Preferred Unit and (iii) the Series A Liquidation Preference with respect to such Series A Preferred Unit;
(2) if the applicable time of determination is on or before the date that is 180 days following the Closing, (x) with respect to all outstanding Series A Preferred Units that were not issued as Bridge Purchased Units, the aggregate amount calculated in accordance with clause (1) with respect to such Series A Preferred Units and (y) with respect to all outstanding Series A Preferred Units that were issued as Bridge Purchased Units, an amount in cash in the aggregate equal to the product of the number of such Bridge Purchased Units multiplied by, for each such Bridge Purchased Unit the greater of (i) an amount (together with all prior distributions made in respect of such Bridge Purchased Unit) necessary to achieve a 12.0% IRR with respect to such Bridge Purchased Unit and (ii) the Series A Liquidation Preference with respect to such Bridge Purchased Unit; and
(3) on a per Series A Preferred Unit basis (calculated separately with respect to Series A Preferred Units that are Bridge Purchase Units and Series A Preferred Units that are not Bridge Purchased Units if the applicable time of determination is on or before the date that is 180 days following the Closing), an amount in cash equal to the quotient of (x) the aggregate amount calculated in accordance with clause (1) or clause (2) above and (y) the number of applicable outstanding Series A Preferred Units.
(xxvi) “NYMEX Pricing” means, as of any date of determination with respect to any month (a) for crude oil, the closing settlement price for the Light, Sweet Crude Oil futures contract for each month, and (b) for natural gas, the closing settlement price for the Henry Hub Natural Gas futures contract for such month, in each case as published by New York Mercantile Exchange (NYMEX) on its website currently located at http://www.cmegroup.com/ or any successor thereto (as such pricing may be corrected or revised from time to time by the NYMEX in accordance with its rules and regulations).
(xxvii) “Operating Company” means Kimbell Royalty Operating, LLC, a Delaware limited liability company.
(xxviii) “OpCo Series A Preferred Unit” shall mean a limited liability company interest in the Operating Company having the rights and obligations specified with respect to “Series A Preferred Units” in the OpCo Limited Liability Company Agreement (as amended or amended and restated to give effect to the issuance of the Series A Preferred Units).
(xxix) “Partnership Agreement” has the meaning assigned to such term in Paragraph 1 of this Supplemental Terms Annex.
(xxx) “Partnership Indebtedness Documents” shall mean any agreement, document or instrument governing or evidencing any Indebtedness for borrowed money of the Partnership or its Subsidiaries.
Exhibit B - 10
(xxxi) “Partnership Redemption Date” has the meaning assigned to such term in Paragraph 12(d) of this Supplemental Terms Annex.
(xxxii) “Partnership Series A Redemption Notice” has the meaning assigned to such term in Paragraph 11(d) of this Supplemental Terms Annex.
(xxxiii) “Paying Agent” shall mean the Transfer Agent, acting in its capacity as paying agent for the Series A Preferred Units, and its successors and assigns, or any other Person appointed to serve as paying agent by the Partnership.
(xxxiv) “Percentage Interest” means, as of any date of determination, as to any Unitholder with respect to Units, the quotient obtained by dividing (a) the number of Units held by such Unitholder by (b) the total number of Outstanding Units. The Percentage Interest with respect to the General Partner Interest shall at all times be zero. For purposes of determining the Percentage Interest of any Unitholder with respect to Series A Preferred Units as of any date of determination, each Series A Preferred Unit shall be deemed to have converted into the number of Common Units into which such Series A Preferred Unit would be converted at the then applicable Series A Conversion Rate pursuant to Paragraph 8(a) (regardless of whether the Series A Preferred Units are then convertible), and such Common Units shall be deemed to be Outstanding Units and such Series A Preferred Units shall be deemed not to be Outstanding Units.
(xxxv) “Permitted Dispositions” means:
(1) sales, lease assignments, conveyances and other dispositions of oil and gas properties and related assets to which no Proved Developed Producing Reserves are attributable and farm-outs of undeveloped acreage to which no Proved Developed Producing Reserves are attributable and assignments in connection with such farm-outs; and
(2) any exchange or swap of oil and gas properties; provided, that the consideration received in respect of such exchange or swap is equal to or greater than the fair market value of the oil and gas properties subject of such exchange or swap (as determined in good faith by the Board of Directors).
(xxxvi) “Permitted Transactions” means:
(1) any transaction or series of related transactions involving aggregate payments or consideration not in excess of $2,000,000;
(2) any transaction on terms, taken as a whole, that are substantially as favorable to the Partnership or the applicable Subsidiary as it would obtain at the time in a comparable arm’s-length transaction with a Person that is not an Affiliate;
(3) employment and severance arrangements and health, disability and similar insurance or benefit plans between the Partnership and its Subsidiaries and their respective directors, officers, employees or consultants (including management and employee benefit plans or agreements, subscription agreements or similar agreements pertaining to the repurchase of Units or other Equity Securities pursuant to put/call rights or similar rights with current or former employees, officers, directors or consultants and equity option or incentive plans and other compensation arrangements), in each case, in the ordinary course of business;
(4) any issuance of Units or other equity interests or other payments, awards or grants in cash, securities, Units or other Equity Securities or otherwise pursuant to, or the funding of, employment arrangements, equity options and equity ownership plans approved by the General Partner;
(5) transactions pursuant to the Management Services Agreement and any amendments, restatements, supplements or other modifications thereto that are not, taken as a whole, materially less favorable to Partnership and its Subsidiaries than such agreements as in effect on the Series A Issuance Date;
Exhibit B - 11
(6) any transaction in respect of which the Partnership obtains an opinion from an accounting, appraisal or investment banking firm, in each case of nationally-recognized standing that is in the good faith determination of the Partnership qualified to render such opinion, which opinion states that such transaction is (i) fair, from a financial point of view, to the Partnership or the applicable Subsidiary and (ii) on terms, taken as a whole, that are no less favorable to the Partnership or the applicable Subsidiary than would be obtained in a comparable arm’s-length transaction with a Person that is not an Affiliate;
(7) any transaction with an Affiliate if such transaction has been approved by the Conflicts Committee in accordance with the terms of the Partnership Agreement;
(8) Pro Rata distributions in respect of, and Pro Rata redemptions or repurchases of, the Series A Preferred Units and other Units not prohibited by Paragraph 5(b); and
(9) amendments to the Partnership Agreement, this Supplemental Annex or the Certificate of Limited Partnership permitted by Paragraph 5(b)(14) and the other terms of the Partnership Agreement.
(xxxvii) “Pro Rata” has the meaning given such term in the Partnership Agreement; provided, however, when used with respect to Series A Preferred Units, means apportioned among such Series A Preferred Units based on the number of Outstanding Series A Preferred Units or, if used with respect to Series A Preferred Units being redeemed or converted, apportioned among such Series A Preferred Units based on the number of such Series A Preferred Units being redeemed or converted.
(xxxviii) “Proved Developed Producing Reserves” shall have the meaning assigned such term in the SPE Definitions.
(xxxix) “PV10” means, in respect of the Proved Developed Producing Reserves of the Partnership’s and its Subsidiaries’ oil and gas properties, the net present value of future cash flows (discounted at 10% per annum) as reasonably calculated in good faith by the Partnership, and, if requested by the Record Holders of the Series A Required Voting Percentage, certified in writing by an authorized officer of the Partnership to the Record Holders as true and correct, but provided that each calculation of such expected future cash flow shall be made in accordance with the then existing standards of the Society of Petroleum Engineers, provided, further, that in any event (a) appropriate deductions shall be made for severance and ad valorem taxes, and for operating, gathering, transportation and marketing costs required for the production and sale of such reserves, (b) the pricing assumptions used in determining PV10 for any particular reserves shall be based upon the Strip Price and (c) the cash-flows derived from the pricing assumptions set forth in clause (b) above shall be further adjusted to account for the historical basis differential.
(xl) “Reference Date” means August 2, 2023.
(xli) “Replacement Credit Agreement” has the meaning assigned to such term in Paragraph 5(b)(3) of this Supplemental Terms Annex.
(xlii) “required provision” has the meaning assigned to such term in Paragraph 21(b) of this Supplemental Terms Annex.
(xliii) “Reserve Report” means a Reserve Report (as such term is defined in the Credit Agreement) prepared by Netherland, Sewell & Associates, Inc. or Ryder Scott Company, L.P. (or any successor or, in the event that both have ceased to do business, any other independent petroleum engineer selected by the Board of Directors and reasonably approved by the Record Holders of the Series A Required Voting Percentage (such approval not to be unreasonably withheld, delayed or conditioned)) that is prepared in connection with the second scheduled redetermination each calendar year under the Credit Agreement or, if the Credit Agreement ceases to exist or no longer includes such a requirement, that is prepared as of on or about the last day of each fiscal year, or in each case, at the option of the Board of Directors, prepared as of a more recent date.
(xliv) “Return on Investment” means, with respect to each Series A Preferred Unit, as of any measurement date, an amount equal to the quotient of (a) the aggregate cash distributions made by the Partnership in respect of such Series A Preferred Unit and (b) the Series A Issue Price.
Exhibit B - 12
(xlv) “Series A Change of Control” means the occurrence of any of the following:
(1) the Limited Partners of the Partnership prior to any merger, consolidation or other business combination transaction (or series of related transactions) do not continue to own at least 50% of the Partnership or other surviving entity following such merger, consolidation or other business combination transaction (or series of related transactions) to which the Partnership is a party;
(2) the acquisition, directly or indirectly (including, without limitation, by any merger, consolidation or business combination), of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 50% of the voting equity interests of the General Partner (as measured by voting power rather than the number of shares, units or the like); provided, however, any such acquisition shall not constitute a Series A Change of Control if (i) the acquiring entity is an Affiliate of Rochelle Royalties, LLC, BGT Investments LLC or Double Eagle Interests, LLC as of the Series A Issuance Date and (ii) the beneficial owners of Rochelle Royalties, LLC (or their heirs or estates) as of the Reference Date beneficially own or control at least one-third of the voting equity interests (as measured by voting power rather than number of shares, units or the like) of such acquiring entity;
(3) any direct or indirect sale, lease, exchange, transfer, conveyance or other disposition by the Partnership, in one or a series of related transactions, of all or substantially all of the assets of the Partnership and its Subsidiaries, taken as a whole;
(4) the removal of the General Partner as general partner of the Partnership by the Limited Partners of the Partnership; provided, however, any such removal shall not constitute a Series A Change of Control if (i) the successor General Partner is an Affiliate of Rochelle Royalties, LLC, BGT Investments LLC or Double Eagle Interests, LLC as of the Series A Issuance Date and (ii) the beneficial owners of Rochelle Royalties, LLC (or their heirs or estates) as of the Reference Date beneficially own or control at least one-third of the voting equity interests (as measured by voting power rather than number of shares, units or the like) of the successor General Partner;
(5) the Common Units are no longer listed or admitted to trading on a National Securities Exchange;
(6) any dissolution or liquidation of the Partnership; or
(7) individuals who, as of the Series A Issuance Date, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a member of the Board of Directors subsequent to such date who was appointed by Kimbell GP Holdings, LLC, shall be considered as though such individual was a member of the Incumbent Board.
(xlvi) “Series A Conversion Date” has the meaning assigned to such term in Paragraph 8(d) of this Supplemental Terms Annex.
(xlvii) “Series A Conversion Notice” has the meaning assigned to such term in Paragraph 8(c)(i) of this Supplemental Terms Annex.
(xlviii) “Series A Conversion Notice Date” has the meaning assigned to such term in Paragraph 8(c)(i) of this Supplemental Terms Annex.
(xlix) “Series A Conversion Rate” means, (i) as of any time of determination pursuant to Paragraph 8(a), the number of Common Units issuable upon the conversion of each Series A Preferred Unit, which shall be equal to (x) the Series A Liquidation Preference (on a per Series A Preferred Unit basis) divided by (y) the Conversion Price then in effect or (ii) as of any time of determination pursuant to Paragraph 8(b), the number of Common Units issuable upon the conversion of each Series A Preferred Unit, which shall be equal to (x) the Minimum Return Amount (on a per Series A Preferred Unit basis) divided by (y) the Conversion Price then in effect.
(l) “Series A Conversion Unit” means a Common Unit issued upon conversion of a Series A Preferred Unit pursuant to Paragraph 8 of this Supplemental Terms Annex. Immediately upon such issuance, each Series A Conversion Unit shall be considered a Common Unit for all purposes hereunder.
(li) “Series A Converting Unitholder” means, a Series A Preferred Unitholder (a) who has delivered a Series A Conversion Notice to the Partnership in accordance with Paragraph 8(c)(i) of this Supplemental Terms Annex or (b) to whom the Partnership has delivered a Series A Mandatory Conversion Notice in accordance with Paragraph 8(c)(ii) of this Supplemental Terms Annex.
Exhibit B - 13
(lii) “Series A Cumulative Convertible Preferred Units” has the meaning assigned to such term in Paragraph 2 of this Supplemental Terms Annex.
(liii) “Series A Distribution Amount” means, with respect to any Quarter ending on or after September 30, 2023, an amount per Series A Preferred Unit equal to the Series A Liquidation Preference multiplied by the Distribution Rate per annum (calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed) for such Quarter; provided, however, for purposes of determining the Series A Distribution Amount for the Quarter ending September 30, 2023, such Quarter shall be deemed to commence on the Series A Issuance Date and end on, and include, September 30, 2023 but calculated on the basis of a 365- (or 366-, as the case may be) day year as set forth above.
(liv) “Series A Distribution Payment Date” has the meaning assigned to such term in Paragraph 4(a) of this Supplemental Terms Annex.
(lv) “Series A Issuance Date” means the Closing Date (as such term is defined in the Series A Purchase Agreement).
(lvi) “Series A Issue Price” means $1,000.00 per Series A Preferred Unit.
(lvii) “Series A Junior Securities” means any class or series of Partnership Interests that, with respect to distributions on such Partnership Interests and distributions in respect of such Partnership Interests upon the liquidation, dissolution and winding up of the Partnership, ranks junior to the Series A Preferred Units, and shall include the Common Units, but shall not include any Series A Parity Securities or Series A Senior Securities.
(lviii) “Series A Liquidation Preference” means, as of any date of determination, with respect to each Series A Preferred Unit an amount equal to the sum of (a) the Series A Issue Price and (b) the Accumulated Distributions.
(lix) “Series A Mandatory Conversion Notice” has the meaning assigned to such term in Paragraph 8(c)(ii) of this Supplemental Terms Annex.
(lx) “Series A Mandatory Conversion Notice Date” has the meaning assigned to such term in Paragraph 8(c)(ii) of this Supplemental Terms Annex.
(lxi) “Series A Parity Securities” means any class or series of Partnership Interests that, with respect to distributions on such Partnership Interests or distributions in respect of such Partnership Interests upon the liquidation, dissolution and winding up of the Partnership, ranks pari passu with (but not senior to) the Series A Preferred Units. For the avoidance of doubt, classes or series of Partnership Interests may qualify as Series A Parity Securities irrespective of whether or not the record date, distribution payment date, distribution rate, distribution periods or payment mechanics of such class or series of Partnership Interests match those of any other class or series of Series A Parity Securities.
(lxii) “Series A Partial Period Distributions” means, with respect to a conversion or redemption of a Series A Preferred Unit, an amount equal to the Series A Distribution Amount multiplied by a fraction, the numerator of which is the number of days elapsed in the Quarter in which such conversion or redemption occurs and the denominator of which is the actual number of days in such Quarter.
(lxiii) “Series A Preferred Unitholder” means a Record Holder of Series A Preferred Units.
(lxiv) “Series A Preferred Units” has the meaning assigned to such term in Paragraph 2 of this Supplemental Terms Annex.
(lxv) “Series A Purchase Agreement” means the Series A Preferred Unit Purchase Agreement, dated as of the Reference Date, between the Partnership and the Series A Purchasers, as amended, supplemented and restated from time to time.
(lxvi) “Series A Purchasers” means the Purchasers, as defined in the Series A Purchase Agreement.
(lxvii) “Series A Quarterly Distribution” has the meaning assigned to such term in Paragraph 4(b) of this Supplemental Terms Annex.
Exhibit B - 14
(lxviii) “Series A Redemption Date” has the meaning assigned to such term in Paragraph 11(b) of this Supplemental Terms Annex.
(lxix) “Series A Redemption Price” means an amount per Series A Preferred Unit equal to the Minimum Return Amount applicable to such Series A Preferred Unit.
(lxx) “Series A Required Voting Percentage” means at least 66 2/3% of the Outstanding Series A Preferred Units, voting separately as a single class.
(lxxi) “Series A Senior Securities” means any class or series of Partnership Interests that, with respect to distributions on such Partnership Interests or distributions in respect of such Partnership Interests upon the liquidation, dissolution and winding up of the Partnership, ranks senior to the Series A Preferred Units.
(lxxii) “Series A Unitholder Redemption Right” has the meaning assigned to such term in Paragraph 12(a) of this Supplemental Terms Annex.
(lxxiii) “Series A Unitholder Redemption Notice” has the meaning assigned to such term in Paragraph 12(b) of this Supplemental Terms Annex.
(lxxiv) “Series A Unitholder Redemption Units” has the meaning assigned to such term in Paragraph 12(b) of this Supplemental Terms Annex.
(lxxv) “SPE Definitions” means, with respect to any term, the definition thereof adopted by the Board of Directors, Society for Petroleum Engineers (SPE) Inc., March 1997.
(lxxvi) “Strip Price” means, at any time of determination, (a) for the remainder of the current calendar year, the average NYMEX Pricing for the remaining months in the current calendar year, (b) for each of the succeeding four complete calendar years, the average NYMEX Pricing for the twelve months in each such calendar year, and (c) for the succeeding fifth complete calendar year, and for each calendar year thereafter, the average NYMEX Pricing for the twelve months in such fifth calendar year.
(lxxvii) “Supplemental Terms Annex” has the meaning assigned to such term in Paragraph 1 of this Supplemental Terms Annex.
(lxxviii) “Total Debt” has the meaning ascribed to such term in the Credit Agreement (including any embedded defined terms therein); provided that notwithstanding any limitations in the Credit Agreement, Total Debt shall be determined with respect to the Partnership and all of its Subsidiaries (i.e., such calculation shall not be limited to Restricted Subsidiaries (as such term is defined in the Credit Agreement)).
(lxxix) “Upfront Fee” has the meaning ascribed to such term in the Series A Purchase Agreement.
(lxxx) “Wholly-owned Subsidiary” of a Person means any Subsidiary of such Person all of the outstanding capital stock or other ownership interests of which (other than directors’ qualifying shares) are owned, directly or indirectly, by such Person or one or more Wholly-owned Subsidiaries of such Person
Exhibit B - 15
4. Distributions. The Series A Preferred Units shall have the following rights, preferences and privileges and the Series A Preferred Unitholders shall be subject to the following duties and obligations:
(a) Commencing with the Quarter ending on September 30, 2023 and continuing through the applicable Series A Conversion Date, subject to Paragraph 4(d) of this Supplemental Terms Annex each Record Holder of Series A Preferred Units as of an applicable Record Date for each Quarter shall be entitled to receive, in respect of each Series A Preferred Unit held by such Record Holder, cumulative distributions in cash in respect of such Quarter equal to the sum of (1) the Series A Distribution Amount for such Quarter and (2) the Accumulated Distributions with respect to such Series A Preferred Unit (collectively, the “Series A Quarterly Distribution”). Each Series A Quarterly Distribution shall be payable quarterly but no later than the earlier of (i) the Distribution Date and (ii) the payment date of distributions, if any, on any Series A Parity Securities and Series A Junior Securities (each such payment date, a “Series A Distribution Payment Date”). If the General Partner establishes an earlier Record Date for any distribution to be made by the Partnership on other Partnership Interests in respect of any Quarter, then the Record Date established pursuant to this Paragraph 4(a) for a Series A Quarterly Distribution in respect of such Quarter shall be such earlier Record Date.
(b) Notwithstanding anything to the contrary in Paragraph 4(a), prior to the end of the Initial Accrual Period, the Partnership may, at the sole election of the Board of Directors, with respect to any Series A Distribution Amount in respect of any Quarter, elect in any non-consecutive Quarters (an “Accrual Election”) to have an amount equal to the quotient of (i) (A) the amount that would have been payable if such Series A Distribution Amount had been paid in cash less (B) the amount actually paid in cash divided by (ii) 0.6 added to the Series A Liquidation Preference in lieu of paying such Series A Distribution Amount in cash. If the Partnership fails to pay or declare in its entirety a Series A Distribution Amount in respect of any Quarter prior to the end of the Initial Accrual Period and does not make an Accrual Election in respect thereof, the Partnership shall be deemed to have made an Accrual Election for all purposes of this Supplemental Terms Annex if the Partnership did not make an Accrual Election with respect to the immediately preceding Quarter; provided, that if (i) the Partnership (x) fails to pay in full, in cash and when due, (1) any Series A Quarterly Distribution that is required to be paid after the Initial Accrual Period or (2) any Series A Quarterly Distribution that is required to be paid during the Initial Accrual Period if an Accrual Election was made in the immediately preceding Quarter, or (y) materially breaches any of its covenants in this Supplemental Terms Annex and such breach has not been cured by the Partnership within 30 days after notice thereof by a Record Holder of Series A Preferred Units, then the Distribution Rate during such Quarter and each of the following Quarters shall be increased to 20% per annum, until all Accumulated Distributions are paid in full in cash, and any such material breach is no longer ongoing and (ii) notwithstanding anything in this Agreement to the contrary, the Partnership shall not be permitted to, and shall not, declare or make, any distributions, redemptions or repurchases in respect of any Series A Junior Securities at any time that there are any Accumulated Distributions.
(c) Each Series A Preferred Unit will have the right to share in any special distributions by the Partnership of cash, securities or other property Pro Rata with the Common Units on an as-converted basis, provided that special distributions shall not include regular quarterly distributions paid in the normal course of business on the Common Units pursuant to Section 6.1 of the Partnership Agreement. No adjustment pursuant to Paragraph 8(e) of this Supplemental Terms Annex shall be made with respect to a special distribution referred to in this Paragraph 4(c).
(d) Notwithstanding anything in this Paragraph 4 to the contrary, with respect to any Series A Preferred Unit that is converted into a Common Unit, (1) with respect to a distribution to be made to Record Holders as of the Record Date that precedes such conversion, the Record Holder of such Series A Preferred Unit as of such Record Date shall be entitled to receive such distribution in respect of such Series A Preferred Unit on the corresponding Series A Distribution Payment Date, but shall not be entitled to receive such distribution in respect of such Record Date established for Record Holders of Common Units in respect of the Common Units into which such Series A Preferred Unit was converted after such Record Date, and (2) with respect to a distribution to be made to Record Holders as of any Record Date that follows such conversion, the Record Holder of the Series A Conversion Units into which such Series A Preferred Unit was converted as of such Record Date shall be entitled to receive such distribution in respect of such Series A Conversion Units on the payment date thereof, but shall not be entitled to receive such distribution in respect of such Series A Preferred Unit on the corresponding Series A Distribution Payment Date. For the avoidance of doubt, if a Series A Preferred Unit is converted into Series A Conversion Unit pursuant to the terms of this Supplemental Terms Annex after a Record Date but prior to the corresponding Series A Distribution Payment Date, then the Record Holder of such Series A Preferred Unit as of such Record Date shall nonetheless remain entitled to receive on the Series A Distribution Payment Date a distribution in respect of such Series A Preferred Unit pursuant to Paragraph 4(a) of this Supplemental Terms Annex and, until such distribution is received, Paragraph 4(b) of this Supplemental Terms Annex shall continue to apply.
Exhibit B - 16
5. Voting; Waiver.
(a) Except as provided in Paragraph 5(b) and Paragraph 6 of this Supplemental Terms Annex, the Outstanding Series A Preferred Units shall have voting rights that are identical to the voting rights of the Common Units into which such Series A Preferred Units would be converted at the then-applicable Series A Conversion Rate pursuant to Paragraph 8(a) (regardless of whether the Series A Preferred Units are then convertible), and shall vote as a single class with the holders of the Common Units on each matter with respect to which each Record Holder of a Common Unit is entitled to vote; provided that the Outstanding Series A Preferred Units shall not vote with the holders of Common Units on any matter requiring the approval of the Common Units pursuant to Section 13.3(c) of the Partnership Agreement. Except with respect to Section 13.3(c), each reference in the Partnership Agreement to a vote of Record Holders of Common Units shall be deemed to constitute a reference to the Record Holders of Common Units and Series A Preferred Units, voting together as a single class during any period in which any Series A Preferred Units are Outstanding.
(b) Except as provided in Paragraph 5(c) of this Supplemental Terms Annex, notwithstanding any other provision of the Partnership Agreement or this Supplemental Terms Annex, in addition to all other requirements imposed by Delaware law, and all other voting rights granted under the Partnership Agreement or this Supplemental Terms Annex, the affirmative vote of the Record Holders of the Series A Required Voting Percentage shall be required for the Partnership to, or to permit any of its Subsidiaries to (in each case, directly or indirectly, including by way of amendment to the Partnership Agreement or this Supplemental Terms Annex, by merger, consolidation, reclassification or otherwise):
(1) incur any Indebtedness for borrowed money (including under any Customary Credit Facility) that would be included in the definition of Total Debt (but assuming for such purposes that any undrawn letters of credit or bank guarantees constitute Total Debt), if (i) either clause of the proviso in Paragraph 4(b) of this Supplemental Terms Annex is applicable or (ii) pro forma for such incurrence and the application of any proceeds thereof, the Adjusted Leverage Ratio would exceed 2.5;
(2) borrow under the Credit Agreement, at any time, an amount exceeding 95% of the Partnership’s and its Subsidiaries’ PV10 calculated based on the most recent Reserve Report;
(3) enter into any credit facility in replacement of or to refinance the Credit Agreement (a “Replacement Credit Agreement”) that is not a Customary Credit Facility or amend, restate, supplement or otherwise modify the Credit Agreement in any manner if the result thereof is that the Credit Agreement as so amended, restated, supplemented or otherwise modified fails to satisfy the definition of Customary Credit Facility;
(4) incur any Indebtedness for borrowed money except for Indebtedness under the Customary Credit Facility, except for:
(a) Indebtedness among the Partnership and its Subsidiaries;
(b) Indebtedness which, in the aggregate, together with all other Indebtedness permitted by this Paragraph 5(b)(4)(b), does not exceed $5,000,000 in principal amount outstanding;
(c) Indebtedness in respect of Capital Leases (as defined in the Credit Agreement) or purchase money financings in an aggregate principal amount outstanding at any time not to exceed $5,000,000;
(d) Indebtedness consisting of the financing of insurance premiums in the ordinary course of business; and
(e) any renewals, refinancings or extensions of any of the foregoing;
Exhibit B - 17
(5) enter into, adopt or agree to any “restricted payment” provisions (or other similar provisions that restrict or limit the payment of distributions on, or the redemption of, the Series A Preferred Units) under any Partnership Indebtedness Document that would be more materially restrictive, taken as a whole, on the payment of dividends on, or redemption of, the Series A Preferred Units than those existing in the Partnership Indebtedness Documents as of the Series A Issuance Date (provided that, for the avoidance of doubt, any decrease in the amount available to make restricted payments under any such provisions that are the result of the Partnership utilizing capacity under such provisions or any decrease in capacity as a result of the operation of such provisions as set forth in the Partnership Indebtedness Documents as of the Series A Issuance Date, shall not require the consent of the Record Holders of the Series A Required Voting Percentage);
(6) declare, or pay, any distribution on or repurchase or redeem any Series A Junior Securities (including, for the avoidance of doubt, the Common Units) if (i) the pro forma Adjusted Leverage Ratio exceeds 3.0, immediately after giving effect thereto or (ii) either clause of the proviso in Paragraph 4(b) of this Supplemental Terms Annex is applicable;
(7) declare, or pay, any special or one-time distribution with respect to any class of Series A Junior Securities, including any distribution that is not out of Available Cash, unless such special or one-time distribution is made on a pro rata basis to the Series A Preferred Units and any class of Series A Parity Securities;
(8) form or create any Subsidiaries of the Partnership, other than Wholly-owned Subsidiaries of the Partnership, issue, or permit to be issued, any Equity Securities of any Subsidiaries of the Partnership, other than to Wholly-owned Subsidiaries of the Partnership, and the Partnership is permitted to own each of the Operating Company, OGM Partners I, RCPTX, Ltd. and Oakwood Minerals I, L.P. as non-Wholly-owned Subsidiaries, in the proportions owned as of the date hereof;
(9) to the fullest extent permitted by law: (1) make a general assignment for the benefit of creditors; (2) file a voluntary bankruptcy petition for relief under Chapter 7 of the United States Bankruptcy Code; (3) file a petition or answer seeking for itself a liquidation, dissolution or similar relief (but not a reorganization) under any law; (4) file an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in a proceeding of the type described in the preceding clauses (1)-(3); or (5) seek, consent to or acquiesce in the appointment of a trustee (but not a debtor-in-possession), receiver or liquidator of the Partnership or any of its Subsidiaries or of all or any substantial part of their properties; provided that the foregoing shall not apply to any of the Subsidiaries of the Partnership, if (a) the Partnership shall determine that the existence thereof is no longer desirable in the conduct of the business of the Partnership and its Subsidiaries, taken as a whole, and that the bankruptcy or liquidation thereof is not adverse in any material respect to the Series A Preferred Unitholders or (b) if a Subsidiary is to be liquidated, such Subsidiary has no material assets;
(10) make, change or revoke any entity classification election in respect of the Partnership or any of its Subsidiaries for U.S. federal income tax purposes or relevant state or local income tax purposes;
(11) except for Permitted Transactions, enter into, or modify, any agreement or transaction between or among the Partnership and/or its Subsidiaries, on the one hand, and the General Partner, its officers or employees or members of the Board of Directors and/or their respective Affiliates (other than the Partnership and its Wholly-owned Subsidiaries) on the other hand;
(12) except for Permitted Dispositions, sell, lease, assign, convey or otherwise dispose of (including by farmout or similar transaction) any oil and gas properties of the Partnership or any of its Subsidiaries having a fair market value in excess of $50 million in any fiscal year and $125 million in the aggregate while any Series A Preferred Units are outstanding;
(13) enter into a Series A Change of Control unless in connection therewith the Partnership redeems in full for cash all of the Outstanding Series A Preferred Units in accordance with Paragraph 9 of this Supplemental Terms Annex; or
Exhibit B - 18
(14) amend or amend and restate the Partnership Agreement, this Supplemental Terms Annex, the Certificate of Limited Partnership (including by merger or otherwise or any amendment contemplated by and made in accordance with Paragraph 6 of this Supplemental Terms Annex), or the organizational documents of the Partnership’s Subsidiaries if such amendment is materially adverse to any of the rights, preferences and privileges of the Series A Preferred Units. Without limiting the generality of the preceding sentence, any amendment shall be deemed to have such a materially adverse impact if such amendment would:
(a) reduce the Series A Distribution Amount or the Series A Quarterly Distribution, change the form of payment of distributions on the Series A Preferred Units, defer the date from which distributions on the Series A Preferred Units will accrue, cancel any accrued and unpaid distributions on the Series A Preferred Units or any interest accrued thereon (including any Accumulated Distributions or Series A Partial Period Distributions), or change the seniority rights of the Series A Preferred Unitholders as to the payment of distributions in relation to the holders of any other class or series of Partnership Interests;
(b) reduce the amount payable or change the form of payment to the Record Holders of the Series A Preferred Units upon the voluntary or involuntary liquidation, dissolution or winding up, or sale of all or substantially all of the assets, of the Partnership, or change the seniority of the liquidation preferences of the Record Holders of the Series A Preferred Units in relation to the rights of the holders of any other class or series of Partnership Interests upon the liquidation, dissolution and winding up of the Partnership; or
(c) make the Series A Preferred Units redeemable or convertible at the option of the Partnership other than as set forth in this Supplemental Terms Annex.
(c) Notwithstanding anything to the contrary in this Paragraph 5, in no event shall the consent of the Series A Preferred Unitholders, as a separate class, be required in connection with any Series A Change of Control; provided, that, in connection with any Series A Change of Control, the Partnership shall be required to redeem in full for cash all of the Outstanding Series A Preferred Units in accordance with Paragraph 9 of this Supplemental Terms Annex; provided, further, that nothing in the foregoing shall limit the voting rights of any Series A Preferred Unitholder in connection with any vote of Record Holders of Common Units and Series A Preferred Units together as a single class that may be required to approve such transaction.
(d) Notwithstanding anything to the contrary in this Paragraph 5, in no event shall the consent of the Series A Preferred Unitholders, as a separate class, be required in connection with any exchange made pursuant to the Exchange Agreement (as such term is defined in the Partnership Agreement).
6. Issuances of Series A Senior Securities and Series A Parity Securities. The Partnership shall not, without the affirmative vote of the Record Holders of the Series A Required Voting Percentage, issue, authorize or create any (a) Series A Senior Securities or any obligation or security convertible into, exchangeable for or evidencing the right to purchase any Series A Senior Securities (or amend the provisions of any class of Partnership Interests to convert, reclassify or otherwise make such class of Partnership Interests a class of Series A Senior Securities), (b) Series A Parity Securities or any obligation or security convertible into, exchangeable for or evidencing the right to purchase any Series A Parity Securities (or amend the provisions of any class of Partnership Interests to convert, reclassify or otherwise make such class of Partnership Interests a class of Series A Parity Securities) or (c) additional Series A Preferred Units.
Notwithstanding anything in the foregoing to the contrary, subject to Paragraph 8(e) of this Supplemental Terms Annex, the Partnership may, without any vote of the holders of Outstanding Series A Preferred Units voting as a separate class (but without prejudice to their rights to vote on an as-converted basis to the extent that the Common Units are entitled to vote on any such matter), create (by reclassification or otherwise) and issue Series A Junior Securities in an unlimited amount.
Exhibit B - 19
7. Legends. Unless otherwise directed by the General Partner, each book entry or Certificate evidencing a Series A Preferred Unit shall bear a restrictive notation in substantially the following form:
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF KIMBELL ROYALTY PARTNERS, LP THAT THIS SECURITY MAY NOT BE SOLD, OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE U.S. FEDERAL OR STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION OVER SUCH TRANSFER, OR (B) TERMINATE THE EXISTENCE OR QUALIFICATION OF KIMBELL ROYALTY PARTNERS, LP UNDER THE LAWS OF THE STATE OF DELAWARE. THIS SECURITY IS SUBJECT TO ADDITIONAL RESTRICTIONS ON ITS TRANSFER PROVIDED IN THE FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF KIMBELL ROYALTY PARTNERS, LP, AS AMENDED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS SECURITY TO THE SECRETARY OF THE GENERAL PARTNER AT THE PRINCIPAL EXECUTIVE OFFICES OF THE PARTNERSHIP. THE RESTRICTIONS SET FORTH ABOVE SHALL NOT PRECLUDE THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS SECURITY ENTERED INTO THROUGH THE FACILITIES OF ANY NATIONAL SECURITIES EXCHANGE ON WHICH THIS SECURITY IS LISTED OR ADMITTED TO TRADING.
8. Conversion.
(a) At the Option of the Series A Preferred Unitholders. Beginning with the earlier of (1) the second anniversary of the Series A Issuance Date and (2) immediately prior to the liquidation of the Partnership under Section 12.4 of the Partnership Agreement, the Series A Preferred Units owned by any Series A Preferred Unitholder shall be convertible, in whole or in part, at any time and from time to time upon the request of such Series A Preferred Unitholder, but not more than once per Quarter by such Series A Preferred Unitholder (inclusive of any conversion by such Series A Preferred Unitholder’s Affiliates, with each Series A Preferred Unitholder and its Affiliates being entitled to a single conversion right per Quarter), into a number of Common Units determined by multiplying the number of Series A Preferred Units to be converted by the Series A Conversion Rate at such time; provided, however, that the Partnership shall not be obligated to honor any such conversion request unless (i) such conversion will involve an aggregate number of Series A Preferred Units with an underlying value of Common Units equal to or greater than $10 million (taking into account and including any concurrent conversion requests by any other Series A Preferred Unitholders) based on the Closing Price of Common Units on the Trading Day immediately preceding the Series A Conversion Notice Date (or such lesser amount to the extent such exercise covers all of the Series A Preferred Units of such Series A Preferred Unitholder and its Affiliates) and (ii) the Closing Price of the Common Units on the principal National Securities Exchange on which the Common Units are then listed for, or admitted to, trading exceeded 130% of the Conversion Price for any 20 Trading Days during the 30-Trading Day period immediately preceding the Series A Conversion Notice Date. Immediately upon the issuance of Series A Conversion Units as a result of any conversion of Series A Preferred Units hereunder, subject to Paragraph 4(d) of this Supplemental Terms Annex, all rights of the Series A Converting Unitholder with respect to such Series A Preferred Units shall cease, including any further accrual of distributions, and such Series A Converting Unitholder thereafter shall be treated for all purposes as the owner of Common Units. Fractional Common Units shall not be issued to any Person pursuant to this Paragraph 8(a) of this Supplemental Terms Annex; provided, however, that instead of issuing any fractional Common Unit, the Partnership shall round down the number of Common Units issued to such Series A Preferred Unitholder to the nearest whole number and pay cash to such Person in lieu of issuing such fractional Common Unit (with the amount of such cash payment being equal to the such fractional interest multiplied by the Conversion Price).
(b) At the Option of the Partnership. At any time on or after the second anniversary of the Series A Issuance Date, the Partnership shall have the option, at any time, to convert all or any portion of the Series A Preferred Units then Outstanding into a number of Common Units determined by multiplying the number of Series A Preferred Units to be converted by the Series A Conversion Rate at such time. Fractional Common Units shall not be issued to any Person pursuant to this Paragraph 8(b) of this Supplemental Terms Annex; provided, however, that instead of issuing any fractional Common Unit, the Partnership shall round down the number of Common Units issued to any applicable Series A Preferred Unitholder to the nearest whole number and pay cash to such Person in lieu of issuing such fractional Common Unit (with the amount of such cash payment being equal to the such fractional interest multiplied by the Conversion Price). Notwithstanding the foregoing, in order for the Partnership to exercise such option:
(i) such conversion must involve an aggregate number of Series A Preferred Units with an underlying value of Common Units equal to or greater than $10 million based on the Closing Price of Common Units on the Trading Day immediately preceding the Series A Mandatory Conversion Notice Date (or such lesser amount to the extent such exercise covers all of the Series A Preferred Units of such Series A Preferred Unitholder and its Affiliates);
Exhibit B - 20
(ii) the Common Units must be listed for, or admitted to, trading on a National Securities Exchange;
(iii) the Closing Price of the Common Units on the principal National Securities Exchange on which the Common Units are then listed for, or admitted to, trading must exceed 160% of the Conversion Price for any 20 Trading Days during the 30-Trading Day period immediately preceding the Series A Mandatory Conversion Notice Date;
(iv) the average daily trading volume of the Common Units on the principal National Securities Exchange on which the Common Units are then listed for, or admitted to, trading must exceed 100,000 Common Units (as such amount may be adjusted to reflect any Unit split, combination or similar event) for the 60 Trading Days immediately preceding the Series A Mandatory Conversion Notice Date;
(v) the Partnership shall not have repurchased on any day in the 30-Trading Day period immediately preceding the Series A Mandatory Conversion Notice Date more than 10% of the 30-day trailing average trading volume of the Common Units on the principal National Securities Exchange on which the Common Units are then listed for, or admitted to, trading (calculated as of the Series A Mandatory Conversion Notice Date); and
(vi) the Partnership must have an effective registration statement on file with the Commission covering resales of the underlying Common Units to be received by the applicable Series A Preferred Unitholders upon any such conversion.
Nothing in this Paragraph 8(b) of this Supplemental Terms Annex, however, is intended to limit or prevent a Series A Preferred Unitholder from electing to convert its Series A Preferred Units into Common Units in accordance with Paragraph 8(a) of this Supplemental Terms Annex, and the Partnership shall not have any right to convert Series A Preferred Units from a Series A Preferred Unitholder to the extent such Series A Preferred Unitholder validly delivers to the Partnership a valid Series A Conversion Notice covering all of the Series A Preferred Units that are the subject of the applicable Series A Mandatory Conversion Notice prior to the Series A Conversion Date in respect of the applicable Series A Mandatory Conversion Notice.
(c) Conversion Notice.
(i) To convert Series A Preferred Units into Common Units pursuant to Paragraph 8(a) of this Supplemental Terms Annex, a Series A Converting Unitholder shall give written notice (a “Series A Conversion Notice,” and the date such notice is received, a “Series A Conversion Notice Date”) to the Partnership stating that such Series A Preferred Unitholder elects to so convert Series A Preferred Units pursuant to Paragraph 8(a) of this Supplemental Terms Annex, the number of Series A Preferred Units to be converted. The applicable Series A Conversion Units shall be issued in the name of the Record Holder of such Series A Preferred Units.
(ii) To convert Series A Preferred Units into Common Units pursuant to Paragraph 8(b) of this Supplemental Terms Annex, the Partnership shall give written notice (a “Series A Mandatory Conversion Notice,” and the date such notice is sent by the Partnership, a “Series A Mandatory Conversion Notice Date”) to each Record Holder of Series A Preferred Units stating that the Partnership elects to so convert Series A Preferred Units pursuant to Paragraph 8(b) of this Supplemental Terms Annex, that the conditions for electing conversion have been satisfied and the number of Series A Preferred Units to be so converted. The applicable Series A Conversion Units shall be issued in the name of the Record Holder of such Series A Preferred Units.
(d) Timing. If a Series A Conversion Notice is delivered by a Series A Preferred Unitholder to the Partnership or a Series A Mandatory Conversion Notice is delivered by the Partnership to a Series A Preferred Unitholder, each in accordance with Paragraph 8(c) of this Supplemental Terms Annex, the Partnership shall issue the applicable Series A Conversion Units (i) no later than five Business Days after the Series A Conversion Notice Date or (ii) on the Series A Mandatory Conversion Notice Date, as the case may be (any date of issuance of Common Units upon conversion of Series A Preferred Units pursuant to this Paragraph 8 or Paragraph 9 of this Supplemental Terms Annex, a “Series A Conversion Date”). On any Series A Conversion Date, the Partnership shall instruct, and shall use its commercially reasonable efforts to cause, its Transfer Agent to electronically transmit the Series A Conversion Units issuable upon conversion to such Series A Preferred Unitholder, by crediting the account of the Series A Preferred Unitholder through its Deposit Withdrawal Agent Commission system. The parties agree to coordinate with the Transfer Agent to accomplish this objective. Subject to Paragraph 4(d) of this Supplemental Terms Annex, upon issuance of Series A Conversion Units to the Series A Converting Unitholder (or its designated recipient(s)), all rights of such Series A Converting Unitholder with respect to the converted Series A Preferred Units shall cease, and such Series A Converting Unitholder shall be treated for all purposes as the Record Holder of such Series A Conversion Units.
Exhibit B - 21
(e) Distributions, Combinations, Subdivisions and Reclassifications by the Partnership. If, after the Series A Issuance Date, the Partnership (1) makes a distribution on the Common Units payable in Common Units or other Partnership Interests, (2) subdivides or splits its Outstanding Common Units into a greater number of Common Units, (3) combines or reclassifies the Common Units into a lesser number of Common Units, (4) issues by reclassification of its Common Units any Partnership Interests (including any reclassification in connection with a merger, consolidation or business combination in which the Partnership is the surviving Person), (5) effects a Pro Rata repurchase of Common Units, in each case other than in connection with a Series A Change of Control (which shall be governed by Paragraph 9 of this Supplemental Terms Annex), (6) issues to holders of Common Units, in their capacity as holders of Common Units, rights, options or warrants entitling them to subscribe for or purchase Common Units at less than the market value thereof, (7) distributes to holders of Common Units evidences of indebtedness, Partnership Interests (other than Common Units) or other assets (including securities, but excluding any distribution referred to in clause (1) above, any rights or warrants referred to in clause (6) above, any consideration payable in connection with a tender or exchange offer made by the Partnership or any of its Subsidiaries and any distribution of Units or any class or series, or similar Partnership Interest, of or relating to a Subsidiary or other business unit of the Partnership in the case of certain spin-off transactions described below), or (8) consummates a spin-off, where the Partnership makes a distribution to all holders of Common Units consisting of Units of any class or series, or similar equity interests of, or relating to, a Subsidiary or other business unit of the Partnership, then the Series A Conversion Rate, the Series A Redemption Price and, solely for purposes of Paragraph 8(b)(iii) of this Supplemental Terms Annex, the Conversion Price, in each case, in effect at the time of the Record Date for such distribution or the effective date of any such other transaction shall be proportionately adjusted: (A) in respect of clauses (1) through (4) above, so that the conversion of the Series A Preferred Units after such time shall entitle each Series A Preferred Unitholder to receive the aggregate number of Common Units (or any Partnership Interests into which such Common Units would have been combined, consolidated, merged or reclassified, as applicable) that such Series A Preferred Unitholder would have been entitled to receive if the Series A Preferred Units had been converted into Common Units immediately prior to such Record Date or effective date, as the case may be, (B) in respect of clauses (5) through (8) above, in the reasonable discretion of the General Partner, to appropriately ensure that the Series A Preferred Units are convertible into an economically equivalent number of Common Units after taking into account the event described in clauses (5) through (8) above, and (C) in addition to the foregoing, in the case of a merger, consolidation or business combination in which the Partnership is the surviving Person, the Partnership shall provide effective provisions to ensure that the provisions in this Paragraph 8(e) of this Supplemental Terms Annex relating to the Series A Preferred Units shall not be abridged or amended and that the Series A Preferred Units shall thereafter retain the same powers, economic rights, preferences and relative participating, optional and other special rights, and the qualifications, limitations and restrictions thereon, that the Series A Preferred Units had immediately prior to such transaction or event. Notwithstanding the above, if any other terms of the Series A Preferred Units require adjustment to achieve the economic equivalence described above, such terms shall be proportionately adjusted in the manner determined in the General Partner’s reasonable discretion, to take into account any such subdivision, split, combination or reclassification. An adjustment made pursuant to this Paragraph 8(e) shall become effective immediately after the Record Date, in the case of a distribution, and shall become effective immediately after the applicable effective date, in the case of a subdivision, combination, reclassification (including any reclassification in connection with a merger, consolidation or business combination in which the Partnership is the surviving Person) or split. Such adjustment shall be made successively whenever any event described above shall occur.
(f) No Adjustments for Certain Items. Notwithstanding any of the other provisions of this Paragraph 8, no adjustment shall be made to the Series A Conversion Rate, the Series A Redemption Price or the Series A Issue Price pursuant to Paragraph 8(e) of this Supplemental Terms Annex as a result of any of the following:
(i) any cash distributions made to holders of the Common Units (unless made in breach of Paragraph 4(b) of this Supplemental Terms Annex);
(ii) any issuance of Partnership Interests in exchange for cash;
(iii) any grant of Common Units or options, warrants or rights to purchase or receive Common Units or the issuance of Common Units upon the exercise or vesting of any such options, warrants or rights in respect of services provided to or for the benefit of the Partnership or its Subsidiaries, under compensation plans and agreements approved by the General Partner (including any long-term incentive plan);
Exhibit B - 22
(iv) any issuance of Common Units as all or part of the consideration to effect (A) the closing of any acquisition by the Partnership or any of its Subsidiaries of assets or equity interests of a third party in an arm’s-length transaction or from the Contributing Parties in a transaction approved by the Conflicts Committee in accordance with the Partnership Agreement or (B) the consummation of a merger, consolidation or other business combination of the Partnership with another entity in which the Partnership survives and the Common Units remain Outstanding, provided that any such transaction set forth in clause (A) or (B) of this Paragraph 8(f)(iv) is approved by the General Partner;
(v) the issuance of Common Units upon conversion of Series A Preferred Units; or
(vi) the issuance of Series A Parity Securities.
Notwithstanding anything in this Agreement to the contrary, (x) whenever the issuance of a Partnership Interest or other event would require an adjustment to the Series A Conversion Rate under one or more provisions of this Agreement, only one adjustment shall be made to the Series A Conversion Rate in respect of such issuance or event and (y) unless otherwise determined by the General Partner, no adjustment to the Series A Conversion Rate or the Series A Issue Price shall be made with respect to any distribution or other transaction described in Paragraph 8(e) of this Supplemental Terms Annex if the Series A Preferred Unitholders are entitled to participate in such distribution or transaction as if they held a number of Common Units issuable upon conversion of the Series A Preferred Units immediately prior to such event at the then applicable Series A Conversion Rate, without having to convert their Series A Preferred Units.
(g) Conversion of Series A Preferred Units.
(i) The Partnership shall keep free from preemptive rights a sufficient number of Common Units to permit the conversion of all outstanding Series A Preferred Units into Common Units to the extent provided in, and in accordance with, this Paragraph 8.
(ii) All Common Units delivered upon conversion of the Series A Preferred Units in accordance with this Paragraph 8 shall be (1) newly issued, (2) duly authorized, validly issued fully paid and non-assessable Limited Partner Interests in the Partnership, except as such non-assessability may be affected by Section 17-303, 17-607 or 17-804 of the Delaware Act, and shall be free from preemptive rights and free of any lien, claim, rights or encumbrances, other than those arising under the Delaware Act or the Partnership Agreement, as amended by this Amendment and (3) with respect to Common Units delivered upon a conversion in accordance with Paragraph 8(b), registered for public resale under the Securities Act of 1933, as amended, pursuant to an effective registration statement that is then-available for the resale of such Common Units.
(iii) The Partnership shall comply with all applicable securities laws regulating the offer and delivery of any Common Units upon conversion of Series A Preferred Units and, if the Common Units are then listed or quoted on the New York Stock Exchange or any other National Securities Exchange or other market shall list or cause to have quoted and keep listed and quoted the Common Units issuable upon conversion of the Series A Preferred Units to the extent permitted or required by the rules of such exchange or market.
9. Series A Change of Control. In the event of a Series A Change of Control, the Partnership shall redeem all (and not less than all) of the Series A Preferred Units for a cash amount per Series A Preferred Unit equal to the Series A Redemption Price. Any redemption pursuant to this Paragraph 9 shall be paid in cash. No later than five Trading Days prior to the consummation of such Series A Change of Control, the Partnership shall deliver a written notice to the Record Holders of the Series A Preferred Units stating the date on which the Series A Preferred Units will be redeemed and the Partnership’s computation of the amount of cash to be received by the Record Holder upon redemption of such Series A Preferred Units. The Partnership shall remit all such cash consideration to such Record Holders immediately prior to the consummation of such Series A Change of Control. The Record Holders shall deliver to the Partnership Certificates representing the Series A Preferred Units, if any, as soon as practicable following such redemption. Record Holders of the Series A Preferred Units shall retain all of the rights and privileges thereof unless and until the consideration due to such Record Holders as a result of such redemption is paid in full. After any such redemption and the payment in full of the consideration due as a result of such redemption, any such redeemed Series A Preferred Unit shall no longer constitute an issued and Outstanding Limited Partner Interest.
Exhibit B - 23
10. Restrictions on Transfers of Series A Preferred Units.
(a) Notwithstanding any other provision of this Paragraph 10, and subject to Section 4.7 of the Partnership Agreement, each Series A Preferred Unitholder shall be permitted to transfer any Series A Preferred Units owned by such Series A Preferred Unitholder to any of its respective Affiliates. For the avoidance of doubt, the restrictions set forth in this Paragraph 10 are in addition to such other restrictions set forth in Section 4.7 of the Partnership Agreement.
(b) Without the prior written consent of the General Partner, except as specifically provided in this Supplemental Terms Annex, each Series A Preferred Unitholder shall not: (1) prior to the first anniversary of the Series A Issuance Date, offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Series A Preferred Units; or (2) prior to the first anniversary of the Series A Issuance Date, directly or indirectly engage in any short sales or other derivative or hedging transactions with respect to any class or series of Partnership Interests; provided, however, that any Series A Preferred Unitholder may at any time on and after the Series A Issuance Date, pledge all or any portion of its Series A Preferred Units to any holders of obligations owed by such Series A Preferred Unitholder, including to the trustee for, or agent or representative of, such Series A Preferred Unitholder, and, in each case, as applicable, subject to clause (3) above, any such pledge and any foreclosure, sale or other remedy exercised pursuant to the pledge thereon and/or subsequent transfer by any such pledgee on any such pledged Series A Preferred Units shall not be considered a violation or breach of this Paragraph 10(b)) of this Supplemental Terms Annex; provided, further that any Series A Preferred Unitholder may (subject to complying with Paragraph 10(a) of this Supplemental Terms Annex) transfer any Partnership Interests to one or more of its Affiliates. Notwithstanding the foregoing, any transferee (which, for the avoidance of doubt, shall not include any pledgee of Series A Preferred Units) receiving any Series A Preferred Units pursuant to this Paragraph 10(b)) of this Supplemental Terms Annex (including upon any foreclosure upon pledged Series A Preferred Units) shall be obligated to agree to the restrictions set forth in this Paragraph 10(b)) of this Supplemental Terms Annex as a condition to such transfer. For the avoidance of doubt, in no way shall this Paragraph 10(b)) of this Supplemental Terms Annex or any other provision of this Supplemental Terms Annex or the Partnership Agreement (i) prohibit changes in the composition of any Series A Preferred Unitholder or its direct or indirect owners, partners or members so long as such changes in composition only relate to changes in direct or indirect ownership of such Series A Preferred Unitholder, (ii) prohibit any direct or indirect owners, partners or members of the general partner of any Series A Preferred Unitholder from changing over time, (iii) prohibit limited partners or members of any ultimate fund that indirectly owns any Series A Preferred Unitholder from transferring interests to other Persons in the secondary market or (iv) prohibit any Series A Preferred Unitholder from exercising any rights set forth in Paragraph 13.
(c) Subject to Section 4.7 of the Partnership Agreement and compliance with any applicable securities laws or other provisions of this Supplemental Terms Annex, at any time after the first anniversary of the Series A Issuance Date, the Series A Preferred Unitholders may freely transfer their Series A Preferred Units; provided, however, that this Paragraph 10(c) of this Supplemental Terms Annex shall not eliminate, modify or reduce the obligations set forth in clause (2) of Paragraph 10(b) of this Supplemental Terms Annex.
11. Partnership Optional Redemption.
(a) Upon not less than 20 Business Days prior written notice (each, a “Partnership Series A Redemption Notice”), the Partnership may redeem all of the Series A Preferred Units, or less than all so long as any such redemption includes an aggregate number of Series A Preferred Units with an aggregate Minimum Return Amount that is equal to or greater than $20 million, at any time for a cash amount per Series A Preferred Unit equal to the Series A Redemption Price. Notwithstanding the foregoing or anything to the contrary in this Supplemental Terms Annex or the Partnership Agreement, (x) the Partnership shall not redeem any portion of the Series A Preferred Units which are not Bridge Purchased Units unless it redeems more than 20% of the aggregate number of Series A Preferred Units which are not Bridge Purchased Units then outstanding, (y) the Partnership shall not redeem any portion of the Bridge Purchased Units unless it redeems more than 20% of the aggregate number of Bridge Purchased Units then outstanding, and (z) so long as the Series A Preferred Unitholder being redeemed in such redemption certifies in writing to the Partnership, in a form reasonably satisfactory to the Partnership, that to the knowledge of the Series A Preferred Unitholder, it does not hold for U.S. federal income tax purposes, and is not deemed to hold by application of Section 302(c) of the Code, any Partnership Interests other than Series A Preferred Units (and disregarding any Series A Conversion Units to which such Series A Preferred Units are convertible), the Partnership shall report such redemption made pursuant to this sentence with respect to such Series A Preferred Unitholder as a payment of cash in exchange for the Series A Preferred Units of such Series A Preferred Unitholder, in each case, within the meaning of Section 302(a) of the Code; provided, however, that the Partnership’s reporting obligations in clause (z) shall apply (i) to a redemption solely of Bridge Purchased Units, solely in the event that the Bridge Purchased Units are owned by a Series A Preferred Unitholder that does not own Series A Preferred Units which are not Bridge Purchased Units and (ii) to a redemption solely of Series A Preferred Units which are not Bridge Purchased Units, solely in the event that the Series A Preferred Units which are not Bridge Purchased Units are owned by a Series A Preferred Unitholder that does not own Bridge Purchased Units.
Exhibit B - 24
(b) On and after any date fixed for redemption (each a “Series A Redemption Date”), provided that the Partnership has made available at the office of the Transfer Agent a sufficient amount of funds to effect the redemption, distributions will cease to accrue on the Series A Preferred Units called for redemption, such Series A Preferred Units shall no longer be deemed to be outstanding and all rights of the holders of such units as holders of Series A Preferred Units shall cease except the right to receive the cash deliverable upon such redemption, without interest from the Series A Redemption Date. Notice of any redemption will be irrevocable and will be provided by the Partnership not less than 20 Business Days prior to the Series A Redemption Date, addressed to the respective Record Holders of the Series A Preferred Units to be redeemed at their respective addresses as they appear on the books and records of the Partnership. No failure to give such notice or any defect therein shall affect the validity of the proceedings for the redemption of any Series A Preferred Units except as to any Series A Preferred Unitholder to whom the Partnership has failed to give notice or except as to any Series A Preferred Unitholder to whom notice was defective. In addition to any information required by applicable law, such notice shall state: (1) the Series A Redemption Date; (2) the Series A Redemption Price; and (3) whether all or less than all of the Outstanding Series A Preferred Units are to be redeemed, the aggregate amount of Series A Preferred Units to be redeemed and, if less than all Series A Preferred Units held by such Series A Preferred Unitholder are to be redeemed, the number of Series A Preferred Units that will be redeemed. The notice may also require delivery of Certificates representing the Series A Preferred Units to be redeemed, if any, together with certification as to the ownership of such Series A Preferred Units. Upon the redemption of Series A Preferred Units pursuant to this Paragraph 11 and the payment in full of the consideration due as a result of such redemption, all rights of a Series A Preferred Unitholder with respect to the redeemed Series A Preferred Units shall cease, and such redeemed Series A Preferred Units shall cease to be Outstanding for all purposes of this Agreement.
(c) If the Partnership defaults in the payment of the redemption price by failing to pay such price by the date specified in the notice of redemption, then the Series A Preferred Units that were called for redemption shall remain outstanding and continue to accumulate the Series A Distribution Amount and have all other rights, preferences and privileges of Series A Preferred Units.
(d) Upon any redemption of Series A Preferred Units pursuant to this Paragraph 11, the Partnership shall pay the Series A Redemption Price to the applicable Series A Preferred Unitholders by wire transfer of immediately available funds to an account specified by each such Series A Preferred Unitholder in writing to the General Partner as requested in the notice of redemption.
(e) Except as provided in Paragraph 12 of this Supplemental Terms Annex, no Series A Preferred Unitholder shall have the right to require the Partnership to redeem any Series A Preferred Units. Except as provided in this Paragraph 11, the Partnership shall not have the right under any provision of this Supplemental Terms Annex or the Partnership Agreement at its option to redeem Series A Preferred Units.
12. Series A Preferred Unitholder Optional Redemption.
(a) Commencing on the seventh anniversary of the Series A Issuance Date (the “Forced Redemption Date”) the Series A Preferred Unitholders shall have the right to cause the Partnership to redeem the Outstanding Series A Preferred Units (in whole or in part so long as any such redemption includes an aggregate number of Series A Preferred Units with an aggregate Minimum Return Amount that is equal to or greater than $20 million) (the “Series A Unitholder Redemption Right”) for cash in an aggregate amount equal to the number of Series A Preferred Units so redeemed multiplied by the Series A Redemption Price.
(b) The Series A Preferred Unitholders may exercise the Series A Unitholder Redemption Right at any time after the Forced Redemption Date (but not more than once per Quarter by such Series A Preferred Unitholder (inclusive of any conversion by such Series A Preferred Unitholder’s Affiliates, with each Series A Preferred Unitholder and its Affiliates being entitled to a single redemption right per Quarter)) by delivering to the Partnership a notice of redemption (the “Series A Unitholder Redemption Notice”); provided, however, that no Series A Unitholder Redemption Notice will be valid if delivered less than ten Business Days before the date set for distributions pursuant to Section 6.1 of the Partnership Agreement. Such Series A Unitholder Redemption Notice shall be in writing and include the number of Units to be redeemed from the applicable Series A Preferred Unitholders (the “Series A Unitholder Redemption Units”).
Exhibit B - 25
(c) Within five Business Days of a receipt of a Series A Unitholder Redemption Notice, the Partnership shall deliver a notice (the “Final Partnership Redemption Notice”) that states (i) the Series A Redemption Date, (ii) the number of Series A Preferred Units to be redeemed (as set forth in the Series A Unitholder Redemption Notice) and (iii) the place where any Series A Preferred Units to be redeemed that are in certificated form are to be redeemed and shall be presented and surrendered for payment in cash therefor. Notwithstanding anything in this Agreement to the contrary, from and after delivery of any Series A Unitholder Redemption Notice, the Partnership shall not be permitted to, and shall not, declare or make, any distributions, redemptions or repurchases in respect of any Series A Junior Securities or Series A Parity Securities until the Partnership has paid and delivered in full an amount of cash sufficient to redeem each of the Series A Preferred Units included in the Series A Unitholder Redemption Notice.
(d) The Partnership shall deposit with the Paying Agent cash sufficient to redeem each of the Series A Preferred Units as to which the Partnership has delivered a Final Partnership Redemption Notice in accordance with Paragraph 12(c) no later than the open of business on the fifth Business Day following the delivery of the Final Partnership Redemption Notice (such date, the “Partnership Redemption Date”), and the Partnership shall, at the time of such deposit, give the Paying Agent irrevocable instructions and authority to deliver the cash consideration to the Series A Preferred Unitholders for each of their Series A Preferred Units to be redeemed as set forth in the Final Partnership Redemption Notice. If a Final Partnership Redemption Notice shall have been given, then from and after the Series A Redemption Date, unless the Partnership defaults in providing to the Series A Preferred Unitholders cash for each of the Series A Preferred Units to be redeemed sufficient for such redemption at the time and place specified for payment pursuant to the Final Partnership Redemption Notice, (i) all dividends on such Series A Preferred Units to be redeemed shall cease to accrue, (ii) Series A Preferred Units to be redeemed shall be deemed no longer outstanding and (iii) all other rights with respect to the Series A Preferred Units to be redeemed, including the rights, if any, to receive notices, will terminate, except only the rights of Series A Preferred Unitholders thereof to receive the cash consideration for each of their Series A Preferred Units to be redeemed. If the Partnership defaults in providing to the Series A Preferred Unitholders cash for each of the Series A Preferred Units to be redeemed as set forth in the Final Partnership Redemption Notice, then the Series A Preferred Units included in the Series A Unitholder Redemption Notice that were called for redemption shall remain outstanding and continue to accumulate the Series A Distribution Amount and have all other rights, preferences and privileges of Series A Preferred Units; provided that (x) the Distribution Rate shall be 20% for the Quarter in which such default occurs and in all Quarters after such default with respect to such Series A Preferred Units and (y) the Partnership shall not be permitted to, and shall not, declare or make, any distributions, redemptions or repurchases in respect of any Series A Junior Securities or Series A Parity Securities (including, for the avoidance of doubt, with respect to the Quarter in respect of which the Partnership first failed to pay in full the Series A Redemption Price in respect of the Series A Preferred Unitholder Redemption Units in cash when due). The Partnership shall be entitled to receive from the Paying Agent the interest income, if any, earned on such funds deposited with the Paying Agent (to the extent that such interest income is not required to pay the cash consideration for each of the Series A Preferred Units to be redeemed), and the holders of any Series A Preferred Units so redeemed shall have no claim to any such interest income. Any funds deposited with the Paying Agent hereunder by the Partnership for any reason, including redemption of Series A Preferred Units, that remain unclaimed or unpaid after two years after the Series A Redemption Date, shall be, to the extent permitted by applicable law, repaid to the Partnership upon its written request, after which repayment the Series A Preferred Unitholders entitled to such redemption shall have recourse only to the Partnership. Notwithstanding any Final Partnership Redemption Notice, there shall be no redemption of any Series A Preferred Units called for redemption until funds sufficient to pay the full Redemption Consideration with respect to each such share shall have been deposited by the Partnership with the Paying Agent.
13. Structuring.
(a) Liquidation Following Conversion. Notwithstanding anything to the contrary in this Supplemental Terms Annex, in the event of any liquidation, dissolution and winding up of the Partnership, either voluntary or involuntary, the Series A Preferred Unitholders shall be entitled to receive, out of the assets of the Partnership available for distribution, prior to any distribution of any assets of the Partnership to the Common Unitholders or to the holders of any other class or series of Equity Securities of the Partnership, an amount per Series A Preferred Unit equal to Series A Redemption Price.
Exhibit B - 26
14. Fully Paid and Non-Assessable. Any Series A Conversion Unit(s) delivered pursuant to this Supplemental Terms Annex shall be validly issued, fully paid and non-assessable (except as such non-assessability may be affected by Sections 17-303, 17-607 and 17-804 of the Delaware Act), and shall be free and clear of any liens, claims, rights or encumbrances other than those arising under the Delaware Act, the Partnership Agreement or this Supplemental Terms Annex or created by the holders thereof.
15. Notices. For the avoidance of doubt, the Partnership shall distribute to the Record Holders of Series A Preferred Units copies of all notices, materials, annual and quarterly reports, proxy statements, information statements and any other documents distributed generally to the Record Holders of Common Units of the Partnership, at such times and by such method as such documents are distributed to such Record Holders of such Common Units.
16. Special Provisions Relating to the Series A Preferred Units.
(a) Subject to any applicable transfer restrictions in Section 4.7 of the Partnership Agreement or Paragraph 10 of this Supplemental Terms Annex, the holder of a Series A Preferred Unit or a Series A Conversion Unit shall provide notice to the Partnership of the transfer of any such Series A Preferred Unit or Series A Conversion Unit, as applicable, by the earlier of (i) 30 days following such transfer and (ii) the last Business Day of the calendar year during which such transfer occurred.
(b) Notwithstanding anything to the contrary set forth in this Supplemental Terms Annex, the holders of the Series A Preferred Units (i) shall possess the rights and obligations provided in this Agreement with respect to a Limited Partner pursuant to Article III and Article VII of the Partnership Agreement and (ii) shall not (A) be entitled to vote on any matters requiring the approval or vote of the holders of Outstanding Units, except as provided in this Supplemental Terms Annex or (B) be entitled to any distributions other than as provided in this Supplemental Terms Annex and Article VI of the Partnership Agreement.
(c) None of the provisions of Section 4.8 or Section 4.9 of the Partnership Agreement apply with respect to the Series A Preferred Units and the Series A Conversion Units.
17. Right to Acquire Limited Partner Interests. Notwithstanding anything herein or in the Partnership Agreement to the contrary, the terms of Article XV of the Partnership Agreement shall not apply while this Supplemental Terms Annex remains in effect.
18. Right to Vote Units. Notwithstanding anything to the contrary in the Partnership Agreement, the restrictions in the definition of “Outstanding” that apply to Persons that beneficially own 20% or more of any class of Partnership Interests shall not restrict a Series A Preferred Unitholder from voting all, and being deemed present with respect to all, of his, her or its Series A Preferred Units on any matter, including, as applicable, on an as-converted basis with the holders of Common Units.
19. Additional Information. Upon the affirmative vote of the Series A Required Voting Percentage and no more than once a quarter, the General Partner agrees to make available its chief executive officer, president or chief financial officer to discuss with the Series A Preferred Unitholders the Partnership’s financial condition and operations.
20. Other Modifications to the Partnership Agreement.
(a) For purposes of determining the Percentage Interest of any Unitholder with respect to Series A Preferred Units as of any date of determination, each Series A Preferred Unit shall be deemed to have converted into the number of Common Units into which such Series A Preferred Unit would be converted at the then-applicable Series A Conversion Rate pursuant to Paragraph 8(a) (regardless of whether the Series A Preferred Units are then convertible), and such Common Units shall be deemed to be Outstanding Units and such Series A Preferred Units shall be deemed not to be Outstanding Units.
Exhibit B - 27
(b) Section 5.7(a) of the Partnership Agreement shall be amended and restated in its entirety as follows:
The Partnership may issue additional Partnership Interests (other than the General Partner Interest) and Derivative Partnership Interests for any Partnership purpose at any time and from time to time to such Persons for such consideration and on such terms and conditions as the General Partner shall determine, all without the approval of any Limited Partners provided, however, that the Partnership shall not issue any Common Units or Series A Preferred Units unless the Partnership contributes the net cash proceeds or other consideration received from the issuance of such Common Units or Series A Preferred Units, as applicable, to the Operating Company in exchange for an equivalent number of OpCo Common Units or OpCo Series A Preferred Units, as applicable. Notwithstanding the foregoing, the Partnership may issue Common Units (a) pursuant to the Exchange Agreement, (b) pursuant to employee benefit plans, (c) pursuant to a distribution (including any split or combination) of Common Units or OpCo Series A Preferred Units to all of the holders of Common Units or OpCo Series A Preferred Units, as applicable, pursuant to Section 5.9 or (d) as is necessary to permit the conversion of outstanding Series A Preferred Units into Common Units to the extent provided in, and in accordance with, the Partnership Agreement.
(c) Section 7.4(b) of the Partnership Agreement shall be amended and restated in its entirety as follows:
Notwithstanding any other provision of this Agreement, whenever any action is taken by the Partnership under the OpCo Limited Liability Company Agreement as a holder of OpCo Common Units and/or OpCo Series A Preferred Units (and not as managing member of the Operating Company), including approving amendments of the OpCo Limited Liability Company Agreement that require approval by holders of a “Unit Majority” (as defined therein) or a specified percentage of the OpCo Common Units and/or the OpCo Series A Preferred Units, whether voting on an as-converted basis with the holders of the OpCo Common Units or otherwise, as applicable, the General Partner shall call an annual or special meeting or solicit proxies from the holders of Common Units and/or Series A Preferred Units, as applicable, in each case in accordance with Article XIII, for the purpose of submitting such action to a vote of the holders of Common Units and/or Series A Preferred Units, as applicable, and cause the Partnership to vote (or refrain from voting) the OpCo Common Units and/or OpCo Series A Preferred Units it holds in the same manner as the holders of Common Units and/or Series A Preferred Units have voted (or refrained from voting) their Common Units and/or Series A Preferred Units, as applicable, on the matter.
21. Invalidity of Provisions.
(a) If any provision or part of a provision of this Supplemental Terms Annex is or becomes, for any reason, invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions and part/or parts thereof contained herein shall not be affected thereby, and this Supplemental Terms Annex shall, to the fullest extent permitted by law, be reformed and construed as if such invalid, illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provisions and/or parts shall be reformed so that it would be valid, legal and enforceable to the maximum extent possible.
(b) If this Supplemental Terms Annex, when read together with the Partnership Agreement, fails to include any provision, or part of a provision, from the Partnership Agreement that was required to be included herein (a “required provision”) by virtue of any provision of the Partnership Agreement, this Supplemental Terms Annex shall, to the fullest extent permitted by law, be reformed and construed as if such provision, or part of a provision, had been included herein (it being understood that any required provision that relates solely to the rights or preferences of the Series A Preferred Units or Unitholders shall be included in this Supplemental Terms Annex and any other required provision shall be included in the Partnership Agreement). Any provision or part of a provision of this Supplemental Terms Annex that conflicts with any such required provision shall be reformed and construed as if such conflicting provision had never been contained herein. The terms of this Supplemental Terms Annex shall only be modified by this Paragraph 21(b) to the extent necessary to give effect to such required provision.
22. Effectiveness. This Supplemental Terms Annex shall be deemed to be effective upon execution by the General Partner of the Amendment to which this Supplemental Terms Annex is attached as Annex A.
23. Termination. Except for the right of a holder of Series A Preferred Units to receive Common Units and certain payments as expressly set forth in Paragraph 8 of this Supplemental Terms Annex, in the case of conversion of Series A Preferred Units, or Paragraph 9, Paragraph 11 or Paragraph 12 of this Supplemental Terms Annex, in the case of redemption of Series A Preferred Units, this Supplemental Terms Annex shall automatically terminate and be of no further force and effect at such time as no Series A Preferred Units remain Outstanding.
Exhibit B - 28
EXHIBIT C
Form of Registration Rights Agreement
See attached.
Exhibit C
Exhibit C
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of [●], 2023 (this “Agreement”), is by and among Kimbell Royalty Partners, LP, a Delaware limited partnership (the “Partnership”), and the parties listed on the signature page hereof.
RECITALS
WHEREAS, the Partnership is party to that certain Securities Purchase Agreement (the “Purchase and Sale Agreement”), dated as of August 2, 2023, among LongPoint Minerals II, LLC, a Colorado limited liability company, as Seller (“LongPoint”), the Partnership, Kimbell Royalty Operating, LLC, a Delaware limited liability company (“OpCo”), as Buyers, and the other parties thereto, pursuant to which LongPoint would contribute certain of its assets to the Partnership and OpCo in exchange for consideration in the form of cash; and
WHEREAS, as of August 2, 2023, the Partnership entered into a Series A Preferred Unit Purchase Agreement (the “Purchase Agreement” and, together with the Purchase and Sale Agreement, the “Purchase Agreements”) with Apollo Accord+ Aggregator A, L.P., Apollo Accord V Aggregator A, L.P., Apollo Defined Return Aggregator A, L.P., Apollo Calliope Fund, L.P., Apollo Excelsior, L.P., Apollo Credit Strategies Master Fund Ltd., Apollo Atlas Master Fund, LLC, Apollo Union Street SPV, L.P., Host Plus PTY Limited - Accord, Apollo Delphi Fund, L.P., Apollo Royalties Partners I, L.P., AHVF (AIV), L.P., AHVF Intermediate Holdings, L.P., AHVF TE/892/QFPF (AIV), L.P. and ACMP Holdings, LLC (collectively, “Apollo”), providing for the issuance and sale of Series A Cumulative Convertible Preferred Units (the “Preferred Units”) of the Partnership convertible into Common Units; and
WHEREAS, upon the closing of the transactions contemplated by the Purchase Agreement, the Partnership and Apollo intend to enter into this Agreement to provide for, among other things, certain registration rights with respect to the Common Units issuable to Apollo upon conversion of the Preferred Units pursuant to the terms of the Purchase Agreement; and
WHEREAS, the Partnership, Kimbell Intermediate Holdings, LLC, and Kimbell Royalty Holdings, LLC entered into that certain Contribution, Conveyance, Assignment and Assumption Agreement, dated as of December 20, 2016, together with each of the other parties listed on the Exhibit A thereto (the “Pre-IPO Registration Rights Agreement” and each Person entitled to registration rights thereunder, a “Pre-IPO Holder”), providing certain registration rights with respect to the Common Units issued in connection with the transactions contemplated by the Pre-IPO Registration Rights Agreement; and
WHEREAS, the Partnership, EIGF Aggregator III LLC, TE Drilling Aggregator LLC, Haymaker Management, LLC, Haymaker Minerals & Royalties, LLC, AP KRP Holdings, L.P., ATCF SPV, L.P., Zeus Investments, L.P., Apollo Kings Alley Credit SPV, L.P., Apollo Thunder Partners, L.P., AIE III Investments, L.P., Apollo Union Street SPV, L.P., Apollo Lincoln Private Credit Fund, L.P., Apollo SPN Investments I (Credit), LLC, AA Direct, L.P., PEP I Holdings, LLC, PEP II Holdings, LLC, PEP III Holdings, LLC, Cupola Royalty Direct, LLC, Kimbell Art Foundation and Rivercrest Capital Partners LP previously entered into an Amended and Restated Registration Rights Agreement, dated as of March 25, 2019 (the “2019 Registration Rights Agreement”), providing certain registration rights with respect to the Common Units issued or issuable upon the exchange of the Opco Common Units and a corresponding number of Class B Common Units issued in connection various acquisitions; and
WHEREAS, Affiliates of Cupola Royalty Direct, LLC, Kimbell Art Foundation and Rivercrest Capital Partners LP (the “2019 Registration Rights Holders”) continue to hold “Registrable Securities” under the 2019 Registration Rights Agreement; and
WHEREAS, the Partnership and Hatch Royalty, LLC (“Hatch”) previously entered into a Registration Rights Agreement, dated as of December 15, 2022 (the “2022 Registration Rights Agreement”), providing certain registration rights with respect to the Common Units issued or issuable upon the exchange of the Opco Common Units and a corresponding number of Class B Common Units issued in connection with such related acquisition; and
WHEREAS, Affiliates of Hatch and other distributees (the “2022 Registration Rights Holders”) continue to hold “Registrable Securities” under the 2022 Registration Rights Agreement; and
WHEREAS, the Partnership and MB Minerals, L.P. (“MB Minerals”) previously entered into a Registration Rights Agreement, dated as of May 17, 2023 (the “2023 Registration Rights Agreement”), providing certain registration rights with respect to the Common Units issued or issuable upon the exchange of the Opco Common Units and a corresponding number of Class B Common Units issued in connection with such related acquisition; and
WHEREAS, Affiliates of MB Minerals and other distributees (the “2023 Registration Rights Holders”) continue to hold “Registrable Securities” under the 2023 Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Article I
DEFINITIONS
1.1 Definitions For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1.
“2019 Registrable Securities” means “Registrable Securities” as defined in the 2019 Registration Rights Agreement.
“2022 Registrable Securities” means “Registrable Securities” as defined in the 2022 Registration Rights Agreement.
“2023 Registrable Securities” means “Registrable Securities” as defined in the 2023 Registration Rights Agreement.
Exhibit C - 2
“Affiliate” means, with respect to any Person, any Person who, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with any Person.
“Automatic Shelf Registration Statement” means an “Automatic Shelf Registration Statement,” as defined in Rule 405 under the Securities Act.
“Beneficial Ownership” and terms of similar import shall be as defined under and determined pursuant to Rule 13d-3 promulgated under the Exchange Act.
“Business Day” means any day on which the NYSE is open for trading.
“Class B Common Units” means Class B units representing limited partner interests in the Partnership having the rights and obligations specified with respect to “Class B Units” in the Partnership Agreement.
“Common Unit Price” means the arithmetic average of the daily VWAP of the Common Units for the 15 consecutive trading days prior to the determination date.
“Common Units” means common units representing limited partner interests in the Partnership.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations promulgated by the SEC thereunder.
“Excluded Registration” means a registration under the Securities Act of (i) securities registered on Form S-8 or any similar successor form and (ii) securities registered to effect the acquisition of or combination with another Person.
“Existing Holders” means 2019 Registration Rights Holders, 2022 Registration Rights Holders and 2023 Registration Rights Holders.
“Existing Registrable Securities” means “Registrable Securities” as defined in the 2019 Registration Rights Agreement, the 2022 Registration Rights Agreement and the 2023 Registration Rights Agreement.
“General Partner” means Kimbell Royalty GP, LLC, a Delaware limited liability company and the general partner of the Partnership.
“Holder” means (i) a securityholder listed on the signature pages to this Agreement and (ii) any direct or indirect transferee of any such securityholder, in each case of clause (i) and (ii), that holds Registrable Securities, including any securityholder that receives Registrable Securities upon a distribution or liquidation of a Holder, who has been assigned the rights of the transferor Holder under this Agreement in accordance with Section 2.8.
“Liquidated Damages Multiplier” means the product of the Common Unit Price and the number of Registrable Securities (including Common Units issuable upon conversion of the Preferred Units at the date of determination) held by such applicable Holder as provided in Section 2.1(b) and Section 2.5(b).
Exhibit C - 3
“NYSE” means the New York Stock Exchange.
“OpCo Common Units” means common units representing limited liability company interests in OpCo having the rights and obligations specified with respect to “Common Units” in the Second Amended and Restated Limited Liability Company Agreement of OpCo, dated as of May 18, 2022 (as may be amended from time to time, the “OpCo LLC Agreement”).
“Overnight Underwritten Offering” means an underwritten offering that is launched after the close of trading on one trading day and priced before the open of trading on the next succeeding trading day.
“Partnership Agreement” means the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of May 18, 2022, as amended by that Amendment No. 1 to the Partnership Agreement dated as of the date hereof, and as further amended or restated from time to time.
“Partnership Securities” means any class or series of equity interest in the Partnership, which shall include any limited partner interests and the non-economic partner interest.
“Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.
“Pre-IPO Registrable Securities” means “Registrable Securities” as defined in the Pre-IPO Registration Rights Agreement.
“Prospectus” means the prospectus (including any preliminary, final or summary prospectus) included in any Registration Statement, all amendments and supplements to such prospectus and all other material incorporated by reference in such prospectus.
“register,” “registered” and “registration” refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such Registration Statement.
“Registrable Securities” means, at any time, unless otherwise indicated, the Common Units issuable to the Holders upon the conversion of the Preferred Units issued pursuant to the Purchase Agreement, including any other securities of the Partnership or any successor of the Partnership issued or issuable with respect to such Common Units by way of a unit dividend or unit split or in connection with a combination of units, recapitalization, merger, consolidation or reorganization or similar event involving a change in the capital structure of the Partnership; provided, however, that Registrable Securities shall cease to be Registrable Securities when (i) they have been distributed pursuant to an offering registered under the Securities Act, (ii) they have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act (which shall not include distributions to any affiliates of the distributing holder) or (iii) they have been transferred or sold to any Person to whom the rights under this Agreement are not assigned in accordance with this Agreement.
Exhibit C - 4
“Registration Expenses” means all expenses (other than Selling Expenses) arising from or incident to the Partnership’s performance of or compliance with this Agreement, including, without limitation: (i) SEC, stock exchange, Financial Industry Regulatory Authority, Inc. and other registration and filing fees; (ii) all fees and expenses incurred in connection with complying with any securities or blue sky laws (including, without limitation, fees, charges and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (iii) all printing, duplicating, word processing, messenger, telephone and delivery expenses (including expenses of printing Prospectuses); (iv) the fees, charges and disbursements of counsel to the Partnership and of its independent public accountants, reserve engineers and any other accounting and legal fees, charges and expenses incurred by the Partnership (including, without limitation, any expenses arising from any special audits or “comfort” letters required in connection with or incident to any registration); (v) the fees and expenses incurred in connection with the listing of the Registrable Securities on the NYSE (or NASDAQ or any other national securities exchange on which the Common Units may then be listed) or the quotation of Registrable Securities on any inter-dealer quotation system; (vi) the fees, disbursements and expenses incurred by the Partnership in connection with any road show for underwritten offerings; and (vii) reasonable fees, disbursements and expenses of counsel to the Holders in connection with the filing or amendment of any Registration Statement or Prospectus hereunder; provided that, with respect to any offering, Registration Expenses shall only include such fees and expenses of one counsel to the Holders.
“Registration Statement” means any registration statement of the Partnership that covers the resale of any Registrable Securities pursuant to the provisions of this Agreement filed with, or to be filed with, the SEC under the rules and regulations promulgated under the Securities Act, including the related Prospectus, amendments and supplements to such registration statement, including pre- and post-effective amendments, and all exhibits, financial information and all other material incorporated by reference in such registration statement or Prospectus.
“Required Holders” means Holders who then have Beneficial Ownership of more than 50% of the Registrable Securities.
“Rule 144” means Rule 144 promulgated by the SEC pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such rule.
“Same-Day Offering” means an underwritten offering that is launched before the open of trading on one trading day and priced before the open of trading or after the close of trading on such same trading day.
“SEC” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
“Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations promulgated by the SEC thereunder.
Exhibit C - 5
“Selling Expenses” means the underwriting fees, discounts and commissions, placement fees of underwriters, broker commissions and any transfer taxes, in each case, applicable to all Registrable Securities registered by the Holders.
“Shelf Registration Statement” means a “shelf” registration statement of the Partnership that covers all the Registrable Securities (and may cover other securities of the Partnership) on Form S-3 and under Rule 415 under the Securities Act or, if the Partnership is not then eligible to file on Form S-3, on Form S-1 or any other appropriate form under the Securities Act, or any successor rule that may be adopted by the SEC, including without limitation any such registration statement filed pursuant to Section 2.1 hereunder, and all amendments and supplements to such “shelf” registration statement, including post-effective amendments, in each case, including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein.
“Target Effective Date” means the earliest date that the Preferred Units may convert into Common Units pursuant to the Partnership Agreement.
“Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
“VWAP” per Common Unit on any trading day shall mean the per share volume-weighted average price as displayed on Bloomberg page “VWAP” (or its equivalent if such a page is not available) in respect of the period from 9:30 a.m. to 4:00 p.m., New York City time, on such trading day; or if such price is not available, “VWAP” shall mean the market value per share of Common Units on such trading day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by the applicable Holder for this purpose.
“Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
(b) For purposes of this Agreement, the following terms have the meanings set forth in the sections indicated:
| Term | Section | |
| 2019 Registration Rights Agreement | Recitals | |
| 2019 Registration Rights Holder | Recital | |
| 2022 Registration Rights Agreement | Recitals | |
| 2022 Registration Rights Holder | Recital | |
| 2023 Registration Rights Agreement | Recitals | |
| 2023 Registration Rights Holder | Recitals | |
| Advice | 2.5(a) | |
| Agreement | Introductory Paragraph |
Exhibit C - 6
| Apollo | Recitals | |
| Blackout Period | 2.4(s) | |
| Common Units | Introductory Paragraph | |
| Demand Request | 2.1(d) | |
| Existing Holders | Recitals | |
| Hatch | Recitals | |
| LD Period | 2.1(b) | |
| LD Termination Date | 2.1(b) | |
| Liquidated Damages | 2.1(b) | |
| Material Adverse Effect | 2.1(f) | |
| OpCo | Recitals | |
| Opt-Out Notice | 2.2(c) | |
| Participating Majority | 2.1(e) | |
| Partnership | Introductory Paragraph | |
| Partnership Notice | 2.1(d) | |
| Partnership Underwritten Offering | 2.3 | |
| Piggyback Registration Notice | 2.2(a) | |
| Pre-IPO Holders | Recitals | |
| Pre-IPO Registration Rights Agreement | Recitals | |
| Records | 2.4(l) | |
| Requesting Holder | 2.1(d) | |
| Seller Affiliates | 2.7(a) | |
| Suspension Notice | 2.1(g) | |
| Suspension Period | 2.1(g) | |
| Target Effective Date | 2.1(b) | |
| Underwritten Shelf Takedown | 2.1(c) | |
1.2 Other Definitional and Interpretive Matters Unless otherwise expressly provided or the context otherwise requires, for purposes of this Agreement the following rules of interpretation apply.
(a) When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded. If the last day of such period is a non-Business Day, the period in question ends on the next succeeding Business Day.
(b) Any reference in this Agreement to $ means U.S. dollars.
(c) Any reference in this Agreement to gender includes all genders, and words imparting the singular number also include the plural and vice versa.
(d) The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and do not affect, and should not be utilized in, the construction or interpretation of this Agreement.
Exhibit C - 7
(e) All references in this Agreement to any “Article” or “Section” are to the corresponding Article or Section of this Agreement.
(f) The words “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.
(g) The word “including” or any variation thereof means “including, but not limited to,” and does not limit any general statement that it follows to the specific or similar items or matters immediately following it.
(h) Any reference to Common Units shall apply to any other securities of the Partnership or any successor of the Partnership issued or issuable with respect to such Common Units by way of a unit dividend or unit split or in connection with a combination of units, recapitalization, merger, consolidation or reorganization or similar event involving a change in the capital structure of the Partnership.
Article II
REGISTRATION RIGHTS
2.1 Shelf Registration The Partnership will (i) within 14 days following the date of this Agreement, prepare and file (to the extent not previously filed) a Shelf Registration Statement (which Shelf Registration Statement shall be an Automatic Shelf Registration Statement if the Partnership is then eligible to file an Automatic Shelf Registration Statement with respect to such registration), registering for resale the Registrable Securities under the Securities Act, and (ii) use its reasonable best efforts to cause such Shelf Registration Statement to become effective as soon as reasonably practicable following such filing, but in any event no later than the earlier of (A) the 120th day following the date of this Agreement and (B) the 7th day after (1) the day on which the SEC staff advises the Partnership that the SEC staff will not review the Shelf Registration Statement or (2) if the SEC staff reviews the Shelf Registration Statement, the day on which the SEC staff advises the Partnership that the SEC staff has no further comments on the Shelf Registration Statement. The plan of distribution indicated in the Shelf Registration Statement will include all such methods of sale as any Holder may reasonably request in writing at least five Business Days prior to the filing of the Shelf Registration Statement and that can be included in the Shelf Registration Statement under the rules and regulations of the SEC. Until all Registrable Securities cease to be Registrable Securities, the Partnership shall use its reasonable best efforts to keep current and effective for the maximum period permitted by the rules and regulations of the SEC, such Shelf Registration Statement and file such supplements or amendments to such Shelf Registration Statement (or file a new Shelf Registration Statement (which Shelf Registration Statement shall be an Automatic Shelf Registration Statement if the Partnership is then eligible to file an Automatic Shelf Registration Statement) when or before such preceding Shelf Registration Statement expires pursuant to the rules of the SEC) as may be necessary or appropriate in order to keep such Shelf Registration Statement continuously effective and useable for the resale of all Registrable Securities under the Securities Act. Any Shelf Registration Statement when declared effective (including the documents incorporated therein by reference) will comply in all material respects as to form with all applicable requirements of the Securities Act and the Exchange Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Shelf Registration Statement shall contain all language reasonably requested by any Holder to allow a distribution of Registrable Securities to its direct or indirect limited partners, members or other equityholders. At the reasonable request of any such Holder the Partnership shall file any prospectus supplement or post-effective amendments necessary to effect any such distribution and to include the recipients of any such distribution in the Shelf Registration Statement, if such recipient is properly transferred the rights under this Agreement pursuant to Section 2.8 hereof.
Exhibit C - 8
(b) With respect to any Shelf Registration Statement covering Registrable Securities that has not been declared effective prior to the date of this Agreement, if such Shelf Registration Statement required by Section 2.1(a) is not declared effective prior to the Target Effective Date, then each applicable Holder shall be entitled to a payment (with respect to the Registrable Securities held by such applicable Holder), as liquidated damages and not as a penalty, of 0.25% of the Liquidated Damages Multiplier per 30-day period, that shall accrue daily, for the first 60 days following the Target Effective Date, increasing by an additional 0.25% of the Liquidated Damages Multiplier per 30-day period, that shall accrue daily, for each subsequent 60 days (i.e., 0.5% for 61-120 days, 0.75% for 121-180 days and 1.0% thereafter), up to a maximum of 1.00% of the Liquidated Damages Multiplier per 30-day period (the “Liquidated Damages”). The Liquidated Damages payable pursuant to the immediately preceding sentence shall be payable within 10 Business Days after the end of each such 30-day period. Any Liquidated Damages shall be paid to each such applicable Holder in immediately available funds. The accrual of Liquidated Damages shall cease (a “LD Termination Date” and, each such period beginning on the Target Effective Date, and ending on a LD Termination Date being, a “LD Period”) at the earlier of (i) such Shelf Registration Statement becoming effective and (ii) when such Holder no longer holds Registrable Securities. Any amount of Liquidated Damages shall be prorated for any period of less than 30 calendar days accruing during a LD Period. If the Partnership is unable to cause such Shelf Registration Statement to go effective by the Target Effective Date, as a result of an acquisition, merger, reorganization, disposition or other similar transaction, then the Partnership may request a waiver of the Liquidated Damages, and the applicable Holders may grant or withhold their consent to such request in their discretion. For the avoidance of doubt, nothing in this Section 2.1(b) shall relieve the Partnership from its obligations under Section 2.1(a).
(c) Any one or more Holders may request to sell all or any portion of their Registrable Securities in an underwritten offering that is registered pursuant to a Shelf Registration Statement (each, an “Underwritten Shelf Takedown”); provided, however, that in the case of each such Underwritten Shelf Takedown, such Holder or Holders will be entitled to make such demand only if the gross proceeds from the sale of Registrable Securities in the Underwritten Shelf Takedown (before the deduction of underwriting expenses and discounts), when taken together with the gross proceeds from the sale of any Existing Registrable Securities and Pre-IPO Registrable Securities proposed to be included in such Underwritten Shelf Takedown, is reasonably expected to exceed, in the aggregate, $50 million. At the request of such Holders, the plan of distribution for an Underwritten Shelf Takedown may include a customary “road show” (including an “electronic road show”) or other substantial marketing effort by the Partnership and the underwriters. Subject to the other limitations contained in this Agreement, the Partnership will not be obligated hereunder to effect an Underwritten Shelf Takedown within 90 days after the closing of an Underwritten Shelf Takedown and the Holders shall be entitled to demand no more than an aggregate of three Underwritten Shelf Takedowns per calendar year.
Exhibit C - 9
(d) All requests for Underwritten Shelf Takedowns (a “Demand Request”) shall be made by the Holder(s) making such request (each, a “Requesting Holder”) by giving written notice to the Partnership. Each Demand Request shall specify the approximate number of Registrable Securities to be sold in the Underwritten Shelf Takedown and the expected price range of securities to be sold in such Underwritten Shelf Takedown. Within five Business Days after receipt of any Demand Request, the Partnership shall send written notice of such requested Underwritten Shelf Takedown to all other Holders, the Existing Holders and the Pre-IPO Holders (the “Partnership Notice”) and shall include in such Underwritten Shelf Takedown all Registrable Securities (as defined herein and as defined in the 2019 Registration Rights Agreement, the 2022 Registration Rights Agreement, the 2023 Registration Rights Agreement and the Pre-IPO Registration Rights Agreement, as applicable) with respect to which the Partnership has received written requests for inclusion therein within five Business Days after sending the Partnership Notice (or within three Business Days after sending the Partnership Notice in the case of an Overnight Underwritten Offering, Same-Day Offering or similar “bought deal”). Any Holder shall have the right to withdraw such Holder’s request for inclusion of such Holder’s Registrable Securities in the Underwritten Shelf Takedown pursuant to this Section 2.1(d) by giving written notice to the Partnership of such withdrawal at any time prior to the execution of an underwriting agreement with respect thereto.
(e) The Participating Majority shall select one or more nationally prominent firms of investment bankers reasonably acceptable to the Partnership to act as the managing underwriter or underwriters in connection with such Underwritten Shelf Takedown. The “Participating Majority” shall mean, with respect to any particular Underwritten Shelf Takedown, such Holders and Existing Holders (excluding any 2019 Registration Rights Holder that is a Dropdown Holder (as defined in the 2019 Registration Rights Agreement)) holding a majority of the Registrable Securities and Existing Registrable Securities, as applicable, requested to be included in such Underwritten Shelf Takedown. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement with such underwriter or underwriters in accordance with Section 2.1(h). The Partnership will use its reasonable best efforts to cause members of senior management to cooperate with the underwriter(s) in connection with the Underwritten Shelf Takedown and make themselves reasonably available to participate in the marketing process in connection with the Underwritten Shelf Takedown as required by the managing underwriter(s) and providing such additional information reasonably requested by the managing underwriter(s) (in addition to the minimum information required by law, rule or regulation) in any prospectus relating to the Underwritten Shelf Takedown.
(f) If the managing underwriter(s) for such Underwritten Shelf Takedown advises the Partnership, the participating Holders, the participating Existing Holders and the participating Pre-IPO Holders that the inclusion of the amount of securities (including Registrable Securities) requested to be included in the Underwritten Shelf Takedown will materially and adversely affect the pricing of the offering (a “Material Adverse Effect”), then the Partnership shall so advise the participating Holders, the participating Existing Holders and the participating Pre-IPO Holders of Registrable Securities, Existing Registrable Securities and Pre-IPO Registrable Securities, as applicable, which would otherwise be underwritten pursuant hereto, and the amount of securities that may be included in the underwriting shall be allocated among such participating Holders, participating Existing Holders and participating Pre-IPO Holders, (i) first, among the participating 2019 Registration Rights Holders and the participating Pre-IPO Holders according to the priority set forth in the 2019 Registration Rights Agreement; (ii) second, to the extent all 2019 Registrable Securities and Pre-IPO Registrable Securities requested to be included in such underwriting by the participating 2019 Registration Rights Holders and the participating Pre-IPO Holders have been included, among the participating 2022 Registration Rights Holders according to the priority set forth in the 2022 Registration Rights Agreement; (iii) third, to the extent all 2022 Registrable Securities requested to be included in such underwriting by the participating 2022 Registration Rights Holders have been included, among the participating 2023 Registration Rights Holders according to the priority set forth in the 2023 Registration Rights Agreement; (iv) fourth, to the extent all 2023 Registrable Securities requested to be included in such underwriting by the participating 2023 Registration Rights Holders have been included, among the participating Holders, as nearly as possible, on a pro rata basis based on the total amount of Registrable Securities requested by such Holders to be included in such underwriting; and (v) fifth, to the extent all Registrable Securities requested to be included in such underwriting by the participating Holders have been included, to other Persons pursuant to contractual registration rights, as nearly as possible, on a pro rata basis based on the total amount of Registrable Securities (as defined in the other contractual registration rights) requested by such other Persons to be included in such underwriting.
Exhibit C - 10
The Partnership shall prepare preliminary and final prospectus supplements for use in connection with the Underwritten Shelf Takedown, containing such additional information as may be reasonably requested by the underwriter(s).
(g) Upon written notice to the Holders and the Existing Holders (a “Suspension Notice”), the Partnership shall be entitled to suspend, for a period of time not to exceed the periods specified in Section 2.4(s) (each, a “Suspension Period”), the use of any Registration Statement or Prospectus and shall not be required to amend or supplement the Registration Statement, any related Prospectus or any document incorporated therein by reference if (i) the Partnership receives any request by the SEC or any other federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information that pertains to such Holders or the Existing Holders as sellers of Registrable Securities and Existing Registrable Securities, as applicable; (ii) the SEC issues any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iii) the Partnership receives any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; or (iv) the board of directors, chief executive officer or chief financial officer of the General Partner determines in its or his or her reasonable good faith judgment that the Registration Statement or any Prospectus may contain an untrue statement of a material fact or may omit any fact necessary to make the statements in the Registration Statement or Prospectus not misleading; provided, that the Partnership shall use its good faith efforts to amend the Registration Statement or Prospectus to correct such untrue statement or omission as promptly as reasonably practicable, unless the Partnership determines in good faith that such amendment would reasonably be expected to have a materially detrimental effect on the Partnership.
Exhibit C - 11
(h) If requested by the managing underwriter(s) for an Underwritten Shelf Takedown, the Partnership shall enter into an underwriting agreement with the underwriters for such offering, such agreement to be in form and substance (including with respect to representations and warranties by the Partnership) as is customarily given by the Partnership to underwriters in an underwritten public offering, and to contain indemnities generally to the effect and to the extent provided in Section 2.7. No Holders of Registrable Securities may participate in the Underwritten Shelf Takedown unless such Holder (i) agrees to sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Partnership and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents, each in customary form, reasonably required under the terms of such underwriting arrangements; provided, however, that no such Holder shall be required to (A) make any representations or warranties in connection with any such registration other than representations and warranties as to (1) such Holder’s ownership of his or its Registrable Securities to be sold or transferred free and clear of all liens, claims and encumbrances, (2) such Holder’s power and authority to effect such transfer and (3) such matters pertaining to compliance with securities laws as may be reasonably requested or (B) undertake any indemnification obligations to the Partnership or the underwriters with respect thereto except as otherwise provided in Section 2.7. Holders of Registrable Securities participating in an offering of Registrable Securities, at their option, may require that the representations, warranties and covenants of the Company in any underwriting agreement that are made to or for the benefit of any underwriters, to the extent applicable, also be made to and for the benefit of such Holders, participating Existing Holders and participating Pre-IPO Holders.
(i) Each of the Holders hereby agrees (i) to cooperate with the Partnership and to furnish to the Partnership all such information regarding such Holder, its ownership of Registrable Securities and the disposition of such securities in connection with the preparation of the Registration Statement and any filings with any state securities commission as the Partnership may reasonably request, (ii) to the extent required by the Securities Act, to deliver or cause delivery of the Prospectus contained in the Registration Statement, any amendment or supplement thereto, to any purchaser of Registrable Securities covered by the Registration Statement from the Holder and (iii) if requested by the Partnership, to notify the Partnership of any sale of Registrable Securities by such Holder.
2.2 Piggyback Registrations Each time the Partnership proposes to register any of its equity securities (other than pursuant to an Excluded Registration) under the Securities Act for sale to the public (whether for the account of the Partnership or the account of any Existing Holder, Pre-IPO Holder or other securityholder (other than a Holder pursuant to this Agreement) of the Partnership pursuant to contractual registration rights) and the form of registration statement to be used (including a Shelf Registration Statement) permits the registration of Registrable Securities, the Partnership shall give prompt written notice (a “Piggyback Registration Notice”) to each Holder and the Existing Holders (which notice shall be given not less than (i) five Business Days prior to the anticipated filing date or (ii) three Business Days prior to the anticipated filing date in the case of an Overnight Underwritten Offering, Same-Day Offering or similar “bought deal”), which notice shall offer each such Holder and each Existing Holder the opportunity to include any or all of its or his Registrable Securities and Existing Registrable Securities, as applicable, in such registration statement, subject to the limitations contained in Section 2.2(b) hereof. Each such Holder who desires to have its or his Registrable Securities included in such registration statement shall so advise the Partnership in writing (stating the number of Registrable Securities desired to be registered) within three Business Days (or one Business Day in the case of an Overnight Underwritten Offering, Same-Day Offering or similar “bought deal”) after the date it receives such notice from the Partnership. Any Holder shall have the right to withdraw such Holder’s request for inclusion of all or a portion of such Holder’s Registrable Securities in any registration statement pursuant to this Section 2.2(a) by giving written notice to the Partnership of such withdrawal. Subject to Section 2.2(b) below, the Partnership shall include in such registration statement all such Registrable Securities so requested to be included therein; provided, however, that the Partnership may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. For the avoidance of doubt, any registration or offering pursuant to this Section 2.2 shall not be considered an Underwritten Shelf Takedown for purposes of Section 2.1 of this Agreement.
Exhibit C - 12
(b) With respect to any registration pursuant to Section 2.2(a), if the managing underwriter(s) advise the Partnership that the inclusion of the amount of securities (including Registrable Securities) requested to be included in the Registration Statement will have a Material Adverse Effect, the Partnership shall so advise all Holders, the Pre-IPO Holders and the Existing Holders of Registrable Securities, Pre-IPO Registrable Securities and Existing Registrable Securities, as applicable, that would otherwise be underwritten pursuant hereto, and the amount of securities that may be included in the underwriting shall be allocated,
(i) in the case of a registration for the account of the Partnership, (A) first, to include the securities the Partnership proposes to register, (B) second, among the participating 2019 Registration Rights Holders and the participating Pre-IPO Holders according to the priority set forth in the 2019 Registration Rights Agreement, (C) third, among the participating 2022 Registration Rights Holders according to the priority set forth in the 2022 Registration Rights Agreement, (D) fourth, among the participating 2023 Registration Rights Holders according to the priority set forth in the 2023 Registration Rights Agreement (E), fifth, among the participating Holders, as nearly as possible, on a pro rata basis based on the total amount of Registrable Securities requested by such Holders to be included in such underwriting and (F) sixth, among any other Persons pursuant to contractual registration rights, as nearly as possible, on a pro rata basis; and
(ii) in the case of a registration for the account of the Existing Holders, the Pre-IPO Holders or any other Persons pursuant to contractual registration rights, (A) first, among the participating Existing Holders and the participating Pre-IPO Holders according to the priority set forth in the 2019 Registration Rights Agreement, 2022 Registration Rights Agreement or 2023 Registration Rights Agreement, as applicable, (B) second, among the participating Holders, as nearly as possible, on a pro rata basis based on the total amount of Registrable Securities requested by such Holders to be included in such underwriting, (C) third, to include the securities the Partnership proposes to register, if any, and (D) fourth, among any such other Persons pursuant to contractual registration rights, as nearly as possible, on a pro rata basis.
Exhibit C - 13
If, as a result of the provisions of this Section 2.2(b), any Holder shall not be entitled to include all Registrable Securities in a registration that such Holder has requested to be so included, such Holder may withdraw such Holder’s request to include Registrable Securities in such Registration Statement. No Person may participate in any Registration Statement pursuant to Section 2.2(a) unless such Person (x) agrees to sell such person’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Partnership and (y) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents, each in customary form, reasonably required under the terms of such underwriting arrangements; provided, however, that no such Person shall be required to (i) make any representations or warranties in connection with any such registration other than representations and warranties as to (A) such Person’s ownership of his or its Registrable Securities to be sold or transferred free and clear of all liens, claims and encumbrances, (B) such Person’s power and authority to effect such transfer and (C) such matters pertaining to compliance with securities laws as may be reasonably requested or (ii) undertake any indemnification obligations to the Partnership or the underwriters with respect thereto except as otherwise provided in Section 2.7.
(c) Any Holder may deliver written notice (an “Opt-Out Notice”) to the Partnership requesting that such Holder not receive from the Partnership any Piggyback Registration Notice; provided, however, that such Holder may later revoke any such Opt-Out Notice in writing. Following receipt of an Opt-Out Notice from a Holder (unless subsequently revoked), the Partnership shall not deliver any notice to such Holder pursuant to Section 2.2(a) and such Holder shall no longer be entitled to participate in any registration or offering pursuant to Section 2.2(a).
2.3 Holdback Agreement Upon the request of the Partnership, by electing to include Registrable Securities in a Registration Statement pursuant to Section 2.1 or Section 2.2, each Holder shall agree not to effect any sale or distribution of securities of the Partnership of the same or similar class or classes of the securities included in the Registration Statement or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144, during such periods as reasonably requested (but in no event for a period longer than 45 days following the date of the applicable Prospectus; provided that each of the executive officers and directors of the Partnership that hold Common Units or securities convertible into or exchangeable or exercisable for Common Units are subject to the same restriction for the entire time period required of the Holders hereunder) by the representatives of the underwriters, if an underwritten offering by the Partnership (a “Partnership Underwritten Offering”); provided further, for the avoidance of doubt, that such restrictions shall only apply to a Holder if such Holder has elected to sell and actually sells Registrable Securities in such a Partnership Underwritten Offering. The provisions of this Section 2.3 will no longer apply to a Holder once such Holder ceases to hold at least 1% of the Registrable Securities acquired as a result of the transactions contemplated in the Purchase Agreement. The provisions of this Section 2.3 shall not apply to (a) any transfer of Registrable Securities by a Holder to (i) any stockholder, member, managing member, general or limited partner of any Holder, (ii) any investment fund managed by any of such persons or (iii) any other Affiliate of any Holder, so long as such transfer is not for value and any such person agrees to and remains to be bound hereby, (b) the entry by any Holder of a bona fide pledge of any Registrable Securities (and any foreclosure on any such pledge) and (c) any hedging transaction with respect to an index or basket of securities where the equity securities of the Partnership constitute a de minimis amount.
Exhibit C - 14
2.4 Registration Procedures In connection with the registration and sale of Registrable Securities pursuant to this Agreement, the Partnership will use its reasonable best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Partnership will:
(a) if the Registration Statement is not automatically effective upon filing, use reasonable best efforts to cause such Registration Statement to become effective as promptly as reasonably practicable;
(b) promptly notify each selling Holder, promptly after the Partnership receives notice thereof, of the time when such Registration Statement has been declared effective or a supplement to any prospectus forming a part of such Registration Statement has been filed;
(c) after the Registration Statement becomes effective, promptly notify each selling Holder of any request by the SEC that the Partnership amend or supplement such Registration Statement or Prospectus;
(d) prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be reasonably necessary to keep the Registration Statement effective during the period set forth in, and subject to the terms and conditions of, this Agreement, and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement for the period required to effect the distribution of the Registrable Securities as set forth in Section 2 hereof;
(e) furnish to the selling Holders such numbers of copies of such Registration Statement, each amendment and supplement thereto, each Prospectus (including each preliminary Prospectus and Prospectus supplement) and such other documents as the selling Holders and any underwriter(s) may reasonably request in order to facilitate the disposition of the Registrable Securities;
(f) use its reasonable best efforts to register and qualify the Registrable Securities under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders and any underwriter(s) and do any and all other acts and things that may be reasonably necessary or advisable to enable the selling Holders or any underwriter(s) to consummate the disposition of the Registrable Securities in such jurisdictions; provided, however, that the Partnership shall not be required in connection therewith or as a condition thereto to qualify to do business in or to file a general consent to service of process in any jurisdiction, unless the Partnership is already subject to service in such jurisdiction and except as may be required by the Securities Act, or subject itself to taxation in any such jurisdiction, unless the Partnership is already subject to taxation in such jurisdiction;
Exhibit C - 15
(g) use its reasonable best efforts to cause all such Registrable Securities to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar equity securities issued by the Partnership are then listed;
(h) provide a transfer agent and registrar for the Registrable Securities and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of the Registration Statement;
(i) use its reasonable best efforts to furnish to the underwriter(s) of such offering, with copies furnished to the participating Holders and the participating Existing Holders, on the date that Registrable Securities are delivered to the underwriter(s) for sale, if such securities are being sold through an underwriter(s), (i) an opinion, dated as of such date, of the counsel representing the Partnership for the purposes of such registration, in form and substance as is customarily given by counsel for the Partnership to underwriters in an underwritten public offering, addressed to the underwriter(s), (ii) a letter dated as of such date, from the independent public accountants of the Partnership, in form and substance as is customarily given by independent public accountants to underwriters in an underwritten public offering, addressed to the underwriter(s), and (iii) an engineers’ reserve report letter as of such date, from the independent petroleum engineers of the Partnership, in form and substance as is customarily given by independent petroleum engineers to underwriters in an underwritten public offering, addressed to the underwriter(s);
(j) if requested by the selling Holders, cooperate with the Holders and the managing underwriter(s) (if any) to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing securities sold under the Registration Statement, and enable such securities to be in such denominations and registered in such names as such selling Holders or the managing underwriter(s) (if any) may request and keep available and make available to the Partnership’s transfer agent prior to the effectiveness of such Registration Statement a supply of such certificates;
(k) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in form and substance as is customarily given by the Partnership to underwriters in an underwritten public offering, with the underwriter(s) of such offering;
(l) upon execution of confidentiality agreements in form and substance reasonably satisfactory to the Partnership, promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such Registration Statement and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents and properties of the Partnership reasonably requested (collectively, “Records”), and use reasonable best efforts to cause the Partnership’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent, in each case, as necessary or advisable to verify the accuracy of the information in such Registration Statement and to conduct appropriate due diligence in connection therewith; provided, that Records that the Partnership determines, in good faith, to be confidential and that it notifies the selling Holders are confidential shall not be disclosed by the selling Holders unless the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or is otherwise required by applicable law. Each Holder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it or its affiliates (other than with respect to such Holders’ due diligence) unless and until such information is made generally available to the public, and further agrees that, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, to the extent permitted and to the extent practicable, it shall give notice to the Partnership and allow the Partnership to undertake appropriate action to prevent disclosure of the Records deemed confidential;
Exhibit C - 16
(m) promptly notify the selling Holders and any underwriter(s) of the notification to the Partnership by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement, and in the event of the issuance of any stop order suspending the effectiveness of such Registration Statement, or of any order suspending or preventing the use of any related Prospectus or suspending the qualification of any Registrable Securities included in such Registration Statement for sale in any jurisdiction, use its reasonable best efforts to obtain promptly the withdrawal of such order;
(n) promptly notify the selling Holders and any underwriter(s) at any time when a Prospectus relating thereto is required to be delivered under the Securities Act of the occurrence of any event as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and at the request of any selling Holder promptly prepare and furnish to such selling Holder a reasonable number of copies of a supplement to or an amendment of such Prospectus, or a revised Prospectus, as may be necessary so that, as thereafter delivered to the purchasers of such securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made (following receipt of any supplement or amendment to any Prospectus, the selling Holders shall deliver such amended, supplemental or revised Prospectus in connection with any offers or sales of Registrable Securities, and shall not deliver or use any Prospectus not so supplemented, amended or revised);
(o) promptly notify the selling Holders and any underwriter(s) of the receipt by the Partnership of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction;
(p) make available to each selling Holder (i) promptly after the same is prepared and publicly distributed, filed with the SEC or received by the Partnership, one copy of each Registration Statement and any amendment thereto, each preliminary Prospectus and Prospectus and each amendment or supplement thereto, each letter written by or on behalf of the Partnership to the SEC or the staff of the SEC (or other governmental agency or self-regulatory body or other body having jurisdiction, including any domestic or foreign securities exchange) and each item of correspondence from the SEC or the staff of the SEC (or other governmental agency or self-regulatory body or other body having jurisdiction, including any domestic or foreign securities exchange), in each case, relating to such Registration Statement and (ii) such number of copies of each Prospectus, including a preliminary Prospectus, and all amendments and supplements thereto and such other documents as any Holder or any underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities. The Partnership will promptly notify the selling Holders of the effectiveness of each Registration Statement or any post-effective amendment or the filing of any supplement or amendment to such Registration Statement or of any Prospectus supplement. The Partnership will promptly respond to any and all comments received from the SEC, with a view towards causing each Registration Statement or any amendment thereto to be declared effective by the SEC as soon as practicable and shall file an acceleration request, if necessary, as soon as practicable following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review;
Exhibit C - 17
(q) take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, that, to the extent that any prohibition is applicable to the Partnership, the Partnership will take all reasonable action to make any such prohibition inapplicable;
(r) take such other actions as are reasonably necessary in order to facilitate the disposition of such Registrable Securities; and
(s) notwithstanding any other provision of this Agreement, the Partnership shall not be required to file a Registration Statement (or any amendment thereto) or request effectiveness of such Registration Statement or effect a requested Underwritten Shelf Takedown (or, if the Partnership has filed a Shelf Registration Statement and has included Registrable Securities therein, the Partnership shall be entitled to suspend the offer and sale of Registrable Securities pursuant to such Registration Statement) for a period of up to 60 days if (i) the board of directors of the General Partner determines that a postponement is in the best interest of the Partnership and its unitholders generally due to a proposed transaction involving the Partnership and determines in good faith that the Partnership’s ability to pursue or consummate such a transaction would be materially and adversely affected by any required disclosure of such transaction in the Registration Statement or the Shelf Registration Statement, (ii) the board of directors of the General Partner determines such registration would render the Partnership unable to comply with applicable securities laws or (iii) the board of directors of the General Partner determines such registration would require disclosure of material information that the Partnership has a bona fide business purpose for preserving as confidential (any such period, a “Blackout Period”); provided, however, that (A) in no event shall any Blackout Period and/or Suspension Period collectively exceed an aggregate of 90 days in any 12-month period and (B) the Partnership shall not be entitled pursuant to this Section 2.4(s) to delay the filing or effectiveness of the Shelf Registration Statement required to be filed pursuant to Section 2.1(a).
2.5 Suspension of Dispositions Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of a Suspension Notice from the Partnership of the occurrence of any event of the kind described in Section 2.1(g), Section 2.4(n) or Section 2.4(s), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus, or until it is advised in writing (the “Advice”) by the Partnership that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus. The Partnership shall extend the period of time during which the Partnership is required to maintain the Registration Statement effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such Suspension Notice to and including the date such Holder either receives the supplemented or amended Prospectus or receives the Advice. If so directed by the Partnership, such Holder will deliver to the Partnership all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. The Partnership shall use its reasonable best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. Any Underwritten Shelf Takedown which is suspended because of a Suspension Notice shall not be deemed to be a Demand Request for purposes of Section 2.1(c) unless and until a suspension pursuant to this Section 2.5 is concluded and such Underwritten Shelf Takedown is completed.
Exhibit C - 18
(b) If (i) any of the Holders shall be prohibited from selling their Registrable Securities under a Shelf Registration Statement or other registration statement contemplated by this Agreement as a result of a suspension pursuant to the immediately preceding paragraph in excess of the periods permitted therein or (ii) a Shelf Registration Statement or other registration statement contemplated by this Agreement is filed and declared effective but, during the period from which such Shelf Registration Statement is first declared or becomes effective until all Registrable Securities cease to be Registrable Securities, shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within 10 Business Days by a post-effective amendment thereto, a supplement to the prospectus or a report filed with the SEC pursuant to Section 13(a), 13(c), 14 or l5(d) of the Exchange Act, then, until the suspension is lifted or a post-effective amendment, supplement or report is filed with the SEC, but not including any day on which a suspension is lifted or such amendment, supplement or report is filed and declared effective, if applicable, the Partnership shall pay each such Holder an amount equal to the Liquidated Damages, following the earlier of (x) the date on which the Suspension Period exceeded the permitted period and (y) the 11th Business Day after such Shelf Registration Statement or other registration statement contemplated by this Agreement ceased to be effective or failed to be useable for its intended purposes, as liquidated damages and not as a penalty (for purposes of calculating Liquidated Damages, the date in (x) or (y) above shall be deemed the Target Effective Date, as used in the definition of Liquidated Damages). For purposes of this paragraph, a suspension shall be deemed lifted with respect to each such Holder on the date that notice that the suspension has been terminated is delivered to such Holder. Liquidated Damages shall cease to accrue pursuant to this paragraph upon the earlier of (i) a suspension being deemed lifted and (ii) when such Holder no longer holds Registrable Securities included in such Shelf Registration Statement.
2.6 Registration Expenses All Registration Expenses shall be borne by the Partnership. In addition, for the avoidance of doubt, the Partnership shall pay its internal expenses in connection with the performance of or compliance with this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which they are to be listed. All Selling Expenses relating to Registrable Securities registered shall be borne by the Holders of such Registrable Securities pro rata on the basis of the number of Registrable Securities sold.
Exhibit C - 19
2.7 Indemnification The Partnership agrees to indemnify and reimburse, to the fullest extent permitted by law, each Holder that is a seller of Registrable Securities, and each of its employees, advisors, agents, representatives, partners, officers and directors and each Person who controls such Holder (within the meaning of the Securities Act or the Exchange Act) (collectively, the “Seller Affiliates”) (i) against any and all losses, claims, damages, liabilities and expenses, joint or several (including, without limitation, attorneys’ fees and disbursements except as limited by Section 2.7(c)), based upon, arising out of, related to or resulting from any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, any Written Testing-the-Waters Communication, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) against any and all losses, liabilities, claims, damages and expenses whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission and (iii) against any and all costs and expenses (including reasonable fees, charges and disbursements of counsel) as may be reasonably incurred in investigating, preparing or defending against any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon, arising out of, related to or resulting from any such untrue statement or omission or alleged untrue statement or omission, or such violation of the Securities Act or Exchange Act, to the extent that any such expense or cost is not paid under subparagraph (i) or (ii) above; except insofar as any such statements are made in reliance upon information furnished to the Partnership in writing by such seller or any Seller Affiliate expressly for use therein. The reimbursements required by this Section 2.7(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred.
(b) In connection with any Registration Statement in which a Holder that is a seller of Registrable Securities is participating, each such Holder will furnish to the Partnership such information and affidavits as the Partnership reasonably requests for use in connection with any such Registration Statement or Prospectus or any Written Testing-the-Waters Communication and, to the fullest extent permitted by law, each such seller will indemnify the Partnership and its directors and officers and each Person who controls the Partnership (within the meaning of the Securities Act or the Exchange Act) against any and all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable attorneys’ fees and disbursements except as limited by Section 2.7(c)) resulting from any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is contained in any information or affidavit so furnished by such seller or any of its Seller Affiliates in writing specifically for inclusion in the Registration Statement; provided that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Securities, and the liability of each such seller of Registrable Securities will be in proportion to the amount of Registrable Securities sold by them, and, provided, further, that such liability will be limited to the net amount received by such seller from the applicable sale of Registrable Securities.
Exhibit C - 20
(c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person) and (ii) unless, in such indemnified party’s reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (A) the indemnifying party has agreed to pay such fees or expenses or (B) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld, conditioned or delayed). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (x) such settlement or compromise contains a full and unconditional release of the indemnified party or (y) the indemnified party otherwise consents in writing (which consent will not be unreasonably withheld, conditioned or delayed). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified (which, in the event the indemnified parties are Holders, shall be chosen by a majority of the Holders so indemnified on the basis of the number of Registrable Securities related to or otherwise involved in such claim) by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels.
(d) Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 2.7(a) or Section 2.7(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, liabilities or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.7(d) were determined by pro rata allocation (even if the Holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 2.7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 2.7(c), defending any such action or claim. Notwithstanding the provisions of this Section 2.7(d), no Holder shall be required to contribute an amount greater than the dollar amount by which the net proceeds received by such Holder with respect to the sale of any Registrable Securities exceeds the amount of damages which such Holder has otherwise been required to pay by reason of any and all untrue or alleged untrue statements of material fact or omissions or alleged omissions of material fact made in any Registration Statement or Prospectus or any amendment thereof or supplement thereto related to such sale of Registrable Securities. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations in this Section 2.7(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint.
Exhibit C - 21
If indemnification is available under this Section 2.7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 2.7(a) and Section 2.7(b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 2.7(d) subject, in the case of the Holders, to the limited dollar amounts set forth in Section 2.7(b).
(e) No indemnifying party shall be liable for any settlement effected without its written consent (which consent may not be unreasonably delayed or withheld). Each indemnifying party agrees that it will not, without the indemnified party’s prior written consent, consent to entry of any judgment or settle or compromise any pending or threatened claim, action or proceeding in respect to which indemnification or contribution may be sought hereunder unless the foregoing contains and unconditional release, in form and substance reasonably satisfactory to the indemnified parties, of the indemnified parties from all liability and obligation arising therefrom.
(f) The indemnification and contribution provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the transfer of securities.
2.8 Transfer of Registration Rights The registration rights of a Holder under this Agreement with respect to any Registrable Securities may be transferred or assigned to any purchaser or transferee of Registrable Securities; provided, however, that (i) such Holder shall give the Partnership written notice prior to the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which the rights under this Agreement are being transferred; (ii) such transferee shall agree in writing, in form and substance reasonably satisfactory to the Partnership, to be bound as a Holder by the provisions of this Agreement; and (iii) immediately following such transfer, the further disposition of such securities by such transferee shall be restricted to the extent set forth under applicable law.
Exhibit C - 22
2.9 Current Public Information With a view to making available to the Holders of Registrable Securities the benefits of Rule 144 and Rule 144A promulgated under the Securities Act and other rules and regulations of the SEC that may at any time permit a Holder to sell securities of the Partnership to the public without registration, the Partnership covenants that it will (a) for as long as the Common Units are registered pursuant to Section 12(b), Section 12(g) or Section 15(d) of the Exchange Act, use its reasonable best efforts to file in a timely manner all reports and other documents required, if any, to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted thereunder, (b) if it is not required to file such reports, make available information necessary to comply with Rule 144 and Rule 144A, if available with respect to resales of the Registrable Securities under the Securities Act, at all times, and (c) take such further action as any holder or holders of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 and Rule 144A promulgated under the Securities Act (if available with respect to resales of the Registrable Securities), as such rules may be amended from time to time, or (ii) any other rules or regulations now existing or hereafter adopted by the SEC.
2.10 Partnership Obligations Regarding Transfers; Requirements as to Legend Removal In connection with any sale or transfer of Registrable Securities by any Holder, including any sale or transfer pursuant to Rule 144 and Rule 144A promulgated under the Securities Act and other rules and regulations of the SEC that may at any time permit a Holder to sell securities of the Partnership to the public without registration, the Partnership shall, to the extent allowed by law, take any and all action necessary or reasonably requested by such Holder in order to permit or facilitate such sale or transfer, including, without limitation, at the sole expense of the Partnership, by (a) issuing such directions to any transfer agent, registrar or depositary, as applicable, (b) delivering such opinions to the transfer agent, registrar or depositary as are customary for a transaction of this type and are reasonably requested by the same and (c) taking or causing to be taken such other actions as are reasonably necessary (in each case, on a timely basis) in order to cause any legends, notations or similar designations restricting transferability of the Registrable Securities held by such Holder to be removed and to rescind any transfer restrictions (other than as may apply pursuant to Section 2.3) with respect to such Registrable Securities; provided, however, that such Holder shall deliver to the Partnership, in form and substance reasonably satisfactory to the Partnership, representation letters regarding such Holder’s compliance with Rule 144 or Rule 144A, as may be applicable. Additionally, six months after the date of this Agreement the Partnership shall take all actions reasonably necessary, upon receipt of any representation letters or documentation from the Holders as reasonably requested by the Partnership, to cause any legends, notations or similar designations restricting transferability of the Registrable Securities held by any such Holder that is not an affiliate of the Partnership to be removed and to rescind any transfer restrictions.
2.11 No Conflict of Rights The Partnership represents and warrants that except for the 2019 Registration Rights Agreement, 2022 Registration Rights Agreement, 2023 Registration Rights Agreement and the Pre-IPO Registration Rights Agreement, it has not granted, and is not subject to, any registration rights that are superior to, inconsistent with or that in any way violate or subordinate the rights granted to the Holders hereby. The Partnership shall not, prior to the termination of this Agreement, (a) grant any registration rights that are superior to, inconsistent with or that in any way violate or subordinate the rights granted to the Holders hereby, including any registration or other right that is directly or indirectly intended to violate or subordinate the rights granted to the Holders hereby or (b) issue any Partnership Securities to any Pre-IPO Holder unless such Pre-IPO Holder has irrevocably waived all rights under the Pre-IPO Registration Rights Agreement with respect to such Partnership Securities.
Exhibit C - 23
2.12 Free Writing Prospectuses The Partnership shall not permit any officer, director, underwriter, broker or any other person acting on behalf of the Partnership to use any free writing prospectus (as defined in Rule 405 under the Securities Act) in connection with any Registration Statement covering Registrable Securities, without the prior written consent of each participating Holder and any underwriter. No Holder shall, or permit any officer, manager, underwriter, broker or any other person acting on behalf of such Holder to, use any free-writing prospectus in connection with any Registration Statement covering Registrable Securities, without the prior written consent of the Partnership.
2.13 Section 2(a)(11) Underwriter The Partnership will not name a Holder as an underwriter as defined in Section 2(a)(11) of the Securities Act in any Shelf Registration Statement without such Holder’s consent. If the staff of the SEC requires the Partnership to name any Holder as an underwriter as defined in Section 2(a)(11) of the Securities Act, and such Holder does not consent thereto, then such Holder’s Registrable Securities shall not be included on such Shelf Registration Statement, such Holder shall no longer be entitled to receive Liquidated Damages under this Agreement with respect to such Holder’s Registrable Securities and the Partnership shall have no further obligations hereunder with respect to Registrable Securities held by such Holder, unless such Holder has not had an opportunity to conduct customary underwriter’s due diligence (including receipt of comfort letters and opinions of counsel) with respect to the Partnership at the time such Holder’s consent is sought.
Article III
TERMINATION
3.1 Termination The provisions of this Agreement shall terminate and be of no further force and effect upon the date when there shall no longer be any Registrable Securities outstanding.
Article IV
MISCELLANEOUS
4.1 Notices Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered by hand, by facsimile transmission or electronic mail transmission, or by certified or registered mail, postage prepaid and return receipt requested. Notices shall be deemed to have been given upon delivery, if delivered by hand, three days after mailing, if mailed, and upon receipt of an appropriate electronic confirmation, if delivered by facsimile or electronic mail transmission. Notices shall be delivered to the parties at the addresses set forth below:
Exhibit C - 24
If to the Partnership:
Kimbell
Royalty Partners, LP
777 Taylor Street, Suite 810
Fort Worth, Texas 76102
Email: [***]
Attention: R. Davis Ravnaas
With copies to (which shall not constitute notice):
White &
Case LLP
609 Main Street
Houston, TX 77002
Email: [***]
[***]
Attention: Jason A. Rocha and Laura Katherine Mann
If to Apollo:
c/o Apollo Capital Management, L.P.
9 West 57th Street, 37th Floor
New York, New York 10019
Email: [***]
Attention: Daniel Vogel
With copies to (which shall not constitute notice):
Kirkland & Ellis LLP
609 Main Street #4700
Houston, TX 77002
Name: Adam Larson
Julian Seiguer
Email: [***]
[***]
Attention: Adam Larson and Julian Seiguer
4.2 Choice of Law; Exclusive Jurisdiction; Waiver of Jury Trial This Agreement shall be constructed, interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the State of Delaware without regard to principles of conflicts of law that would require the application of the laws of another jurisdiction.
(b) All actions and proceedings for the enforcement of or based on, arising out of or relating to this Agreement shall be heard and determined exclusively in any state or federal court in Harris County, Texas, and each of the parties hereto hereby (i) irrevocably submits to the exclusive jurisdiction of such courts (and, in the case of appeals, appropriate appellate courts therefrom) in any such action or proceeding, (ii) irrevocably waives the defense of an inconvenient forum to the maintenance of any such action or proceeding, (iii) agrees that it shall not bring any such action in any court other than the above-specified courts and (iv) irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which the Partnership or Holder, as the case may be, is to receive notice in accordance with Section 4.1. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law.
Exhibit C - 25
(c) Each of the parties hereto hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or related to this Agreement.
4.3 No Third-Party Beneficiaries This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement; provided, however, the parties hereto hereby acknowledge that the Persons set forth in Section 2.7 are express third-party beneficiaries of the obligations of the parties hereto set forth in Section 2.7.
4.4 Successors and Assigns Except as otherwise expressly provided herein, this Agreement shall be binding upon and benefit the Partnership, each Holder and their respective successors and assigns. The Partnership shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Partnership shall not be the surviving entity unless the surviving entity shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Partnership under this Agreement, and for that purpose references hereunder to “Registrable Securities” shall be deemed to include the common equity interests or other securities, if any, which the Holders would be entitled to receive in exchange for Registrable Securities under any such merger, consolidation or reorganization, provided that, to the extent the Holders receive securities that are by their terms convertible into common equity interests of the issuer thereof, then any such common equity interests as are issued or issuable upon conversion of said convertible securities shall be included within the definition of “Registrable Securities.”
4.5 Counterparts This Agreement may be executed by the parties in separate counterparts (including by means of executed counterparts delivered via facsimile or other electronic means), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
4.6 Severability In case any provision in this Agreement shall be held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and the remaining provisions shall not in any way be affected or impaired thereby.
4.7 No Waivers; Amendments No failure or delay on the part of the Partnership or any Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Partnership or any Holder at law or in equity or otherwise.
Exhibit C - 26
(b) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Partnership and the Required Holders.
4.8 Entire Agreement This Agreement and the other writings referred to herein or therein or delivered pursuant hereto or thereto, contain the entire agreement between the Holders and the Partnership with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto.
4.9 Remedies; Specific Performance Each Holder shall have all rights and remedies reserved for such Holder pursuant to this Agreement and all rights and remedies which such Holder has been granted at any time under any other agreement or contract and all of the rights which such Holder has under any law or equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law or equity.
(b) The parties hereto recognize and agree that money damages may be insufficient to compensate the Holders of any Registrable Securities for breaches by the Partnership of the terms hereof and, consequently, that the equitable remedies of injunctive relief and of specific performance of the terms hereof will be available in the event of any such breach, without the necessity of posting bonds or other security. If any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.
4.10 Negotiated Agreement This Agreement was negotiated by the parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any party shall not apply to the construction or interpretation hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
Exhibit C - 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first written above.
| KIMBELL ROYALTY PARTNERS, LP | ||
| By: | Kimbell Royalty GP, LLC, its general partner | |
| By: | ||
| Name: | R. Davis Ravnaas | |
| Title: | President and Chief Financial Officer | |
| Address: | ||
| Kimbell Royalty Partners, LP | ||
| 777 Taylor Street, Suite 810 | ||
| Fort Worth, Texas 76102 | ||
| Email: [***] | ||
| Attention: R. Davis Ravnaas | ||
| With a copy to: | ||
| White & Case LLP | ||
| 609 Main Street | ||
| Houston, TX 77002 | ||
| Email: [***] | ||
| Attention: Jason A. Rocha | ||
| [APOLLO] | ||
| By: | ||
| Name: | [●] | |
| Title: | [●] | |
| Address: | ||
| c/o Apollo Capital Management, L.P. | ||
| 9 West 57th Street, 37th Floor | ||
| New York, New York 10019 | ||
| Email: [***] | ||
| Attention: Daniel Vogel | ||
| With a copy to: | ||
| [●] | ||
| [●] | ||
| [●] | ||
[Signature Page to Registration Rights Agreement]
| Email: | [●] | |
| [●] | ||
| Attention: [●] | ||
| and | ||
| Kirkland & Ellis LLP | ||
| 609 Main Street #4700 | ||
| Houston, TX 77002 | ||
| Name: | Adam Larson | |
| Julian Seiguer | ||
| Email: | [***] | |
| [***] | ||
| Attention: Adam Larson and Julian Seiguer | ||
[Signature Page to Registration Rights Agreement]
EXHIBIT E
Form of VCOC Letter
See attached.
Exhibit E
Exhibit E
VCOC Management Rights Letter
KIMBELL ROYALTY PARTNERS, LP
777 Taylor St., Suite 810
Fort Worth, Texas 76102
[●], 2023
[_______________]
9 West 57th Street, 37th Floor
New York, New York 10019
Dear Sir/Madam:
Reference is made to the Fourth Amended and Restated Agreement of Limited Partnership of Kimbell Royalty Partners, LP (the “Partnership”), dated as of May 18, 2022, as amended on [●], 2023 (the “Partnership Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Partnership Agreement.
The Partnership hereby agrees that for so long as [_______________]1 (the “VCOC Investor”), directly or through one or more subsidiaries, continues to hold Partnership Interests, without limitation or prejudice of any the rights provided to the VCOC Investor under the Partnership Agreement, the Partnership shall:
| · | provide the VCOC Investor or its designated representative with: |
| (i) | the right to visit and inspect any of the offices and properties of the Partnership and its subsidiaries and inspect and copy the books and records of the Partnership and its subsidiaries, all upon reasonable notice and at such reasonable times during normal business hours as the VCOC Investor shall reasonably request; and |
| (ii) | to the extent consistent with applicable law (and with respect to events which require public disclosure, only following the Partnership’s public disclosure thereof through applicable securities law filings or otherwise) and if requested, copies of all materials provided to the Partnership’s Board of Directors and copies of all materials provided to the board of directors of the Partnership’s subsidiaries; |
| · | make appropriate officers and directors of the Partnership, and its subsidiaries, available periodically and at such times during normal business hours as reasonably requested by the VCOC Investor for consultation with the VCOC Investor or its designated representative with respect to matters relating to the business and affairs of the Partnership and its subsidiaries, including, without limitation, significant changes in management personnel and compensation of employees, introduction of new products or new lines of business, important acquisitions or dispositions of plants and equipment, significant research and development programs, the purchasing or selling of important trademarks, licenses or concessions or the proposed commencement or compromise of significant litigation; and |
1 Apollo VCOC professionals will provide names of relevant VCOC fund or funds which will require VCOC letters prior to Closing.
Exhibit E - 1
Exhibit E
| · | provide the VCOC Investor or its designated representative with such other rights of consultation which the VCOC Investor’s counsel may determine in good faith consultation with the Partnership’s counsel, and the VCOC Investor and the Partnership may agree (as described below), to be reasonably necessary under applicable legal authorities promulgated after the date hereof to qualify its investment in the Partnership as a “venture capital investment” for purposes of the United States Department of Labor Regulation published at 29 C.F.R. Section 2510.3-101 (the “Plan Asset Regulation”). Notwithstanding any provision herein, in no event shall the Partnership be required to provide copies of, or access to, any materials or information if the Partnership determines, upon advice of counsel, that doing so could create a conflict of interest, have an adverse effect on the attorney-client privilege, result in a breach of confidentiality obligations to third parties or otherwise have a detrimental effect on the Partnership or any of its affiliates. |
The Partnership agrees to consider, in good faith, the recommendations of the VCOC Investor or its designated representative in connection with the matters on which it is consulted as described above, recognizing that the ultimate discretion with respect to all such matters shall be retained by the Partnership.
The VCOC Investor agrees, and will require each designated representative of the VCOC Investor to agree, to (i) hold in confidence and not use or disclose to any third party (other than its legal counsel and accountants; provided that such VCOC Investor shall be responsible for assuring such legal counsel’s or accountants’ compliance with the terms hereof) any confidential information provided to or learned by such party in connection with the VCOC Investor’s rights under this letter agreement except as may otherwise be required by law or legal, judicial or regulatory process, provided that the VCOC Investor takes reasonable steps to minimize the extent of any such required disclosure and (ii) comply with the restrictions of any trading blackout periods instituted by the Partnership with respect to its officers and directors that, in the reasonable judgement of the Partnership, relate to any confidential information provided to or learned by such party in connection with the VCOC Investor’s rights under this letter agreement.
In the event the VCOC Investor transfers all or any portion of its investment in the Partnership to an affiliated entity (or to a direct or indirect wholly-owned conduit subsidiary of any such affiliated entity) that is intended to qualify as a venture capital operating company under the Plan Asset Regulation, such affiliated entity shall be afforded the opportunity to enter into an agreement with the Partnership providing such affiliated entity, while it is an affiliated entity, the same rights and subject to the same obligations with respect to the Partnership afforded to and required of the VCOC Investor hereunder if and to the extent necessary for such affiliated entity to qualify its investment in the Partnership as a “venture capital investment” for purposes of the Plan Asset Regulation.
Exhibit E - 2
Exhibit E
In the event the VCOC Investor reasonably determines that the above-mentioned rights do not satisfy the requirement of the management rights for the purpose of qualifying the VCOC Investor’s ownership of an interest in the Partnership as a venture capital investment for the purposes of the Plan Asset Regulation, the Partnership and the VCOC Investor shall reasonably cooperate in good faith to agree upon mutually satisfactory consultation rights that satisfy such regulation. The VCOC Investor acknowledges and agrees that it has made (and shall make) its own determination as to the satisfaction of requirements related to the Plan Asset Regulations and that it is not (and will not be) relying on the Partnership or any of its affiliates in making such determination.
The VCOC Investor’s rights under this letter agreement will expire upon such time as the VCOC Investor ceases to hold directly or indirectly any Outstanding Series A Preferred Units or Series A Conversion Units.
This letter agreement and the rights and the duties of the parties hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware and may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.
[Signature pages follow]
Exhibit E - 3
| KIMBELL ROYALTY PARTNERS, LP | ||
| By: | Kimbell Royalty GP, LLC | |
| its general partner | ||
| By: | ||
| Name: | ||
| Title: | ||
[Signature page to VCOC Management Rights Letter]
Agreed and acknowledged as of the date first above written:
| [_______________] | ||
| By: | ||
| Name: | ||
| Title: | ||
[Signature page to VCOC Management Rights Letter]
EXHIBIT F
Form of Board Rights Agreement
See attached.
Exhibit F
Exhibit F
BOARD REPRESENTATION AND OBSERVATION AGREEMENT
[●], 2023
This Board Representation and Observation Agreement (this “Agreement”) dated as of [●], 2023, by and among Kimbell Royalty Partners, LP, a Delaware limited partnership (the “Partnership”), Kimbell Royalty GP, LLC, a Delaware limited liability company (the “General Partner”), Kimbell GP Holdings, LLC a Delaware limited liability company (“Kimbell Holdings” and, together with the Partnership and the General Partner, the “Kimbell Entities”), and Apollo Accord+ Aggregator A, L.P., Apollo Accord V Aggregator A, L.P., Apollo Defined Return Aggregator A, L.P., Apollo Calliope Fund, L.P., Apollo Excelsior, L.P., Apollo Credit Strategies Master Fund Ltd., Apollo Atlas Master Fund, LLC, Apollo Union Street SPV, L.P., Host Plus PTY Limited - Accord, Apollo Delphi Fund, L.P., Apollo Royalties Partners I, L.P., AHVF (AIV), L.P., AHVF Intermediate Holdings, L.P., AHVF TE/892/QFPF (AIV), L.P. and ACMP Holdings, LLC (such entities listed after the Kimbell Entities, each, a “Purchaser” and collectively, the “Purchasers”). The Kimbell Entities and the Purchasers are herein referred to as the “Parties” or, individually, as a “Party.” Capitalized terms used but not defined herein shall have the meaning assigned to such term in the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of May 18, 2022, as amended by that certain Amendment No. 1, dated as of the date hereof (as further amended, supplemented and restated from time to time, the “Partnership Agreement”).
RECITALS:
A. Pursuant to, and subject to the terms and conditions of, the Series A Preferred Unit Purchase Agreement, dated as of August 2, 2023, by and among the Partnership and the Purchasers (the “Purchase Agreement”), the Partnership has agreed to issue and sell Series A Cumulative Convertible Preferred Units representing limited partner interests in the Partnership (the “Preferred Units”) to the Purchasers;
B. As part of the inducement for the Purchasers and Partnership to enter into the transactions contemplated by the Purchase Agreement, the Purchasers are required to deliver a copy of this Agreement, duly executed by the Purchasers, contemporaneously with the closing of the transactions contemplated by the Purchase Agreement (the “Closing”), and the Partnership is required to deliver a copy of this Agreement, duly executed by the Kimbell Entities, contemporaneously with the Closing; and
C. Each Kimbell Entity has determined it to be in its own best interest, and the best interests of the Partnership, to enter into this Agreement to provide for the appointment by the holder(s) of Preferred Units of observers and directors to the Board of Directors of the General Partner (the “Board”), subject to the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the Parties hereto agree as follows.
| 1. | Board Observation Rights. |
(a) Beginning on the fifth anniversary of the date on which the Closing occurs (the “Closing Date”), and for so long as any Preferred Units remain Outstanding (the “Observation Period”), the Kimbell Entities hereby grant the holder(s) of the Outstanding Preferred Units the option and right to appoint (the “Observer Appointment Right”) a representative to attend all meetings of the Board (both regular and special) and any committee thereof (other than the Conflicts Committee), and, except as set forth herein, receive all deliverables provided to the Board and any committee thereof (such representative, the “Board Observer”). The Board Observer shall not constitute a member of the Board and shall not be entitled to vote on, or consent to, any matters presented to the Board.
(b) To exercise the Observer Appointment Right, the Preferred Unitholder Representative (defined below) shall deliver written notice to the General Partner affirmatively appointing a representative to be the Board Observer. Upon delivery by the Preferred Unitholder Representative, and until the earliest of (i) the resignation or death of such individual serving as the Board Observer, (ii) the removal of such individual serving as the Board Observer by the Preferred Unitholders, as evidenced by a written notice delivered by the Preferred Unitholder Representative to the General Partner or (iii) the end of the Observation Period, such representative shall be the Board Observer. The Purchasers agree to use commercially reasonable efforts to appoint and maintain Mr. Daniel Vogel as the Board Observer so long as he is employed by any of the Purchasers or their respective Affiliates in a capacity substantially similar to his position as of the date of this Agreement; provided that (i) the foregoing shall not apply at any time that Mr. Vogel is a Preferred Director and (ii) the Preferred Unitholder Representative may, from time to time, appoint a temporary representative to attend any Board or Committee meeting in place of Mr. Vogel as a Board Observer if he is not reasonably able to attend any such meeting. Subject to the preceding sentence, the holder(s) of Outstanding Preferred Units may remove or change the individual serving as the Board Observer for any reason, with or without cause. If for any reason, the individual serving as the Board Representative is removed or otherwise ceases to serve as the Board Representative, the holder(s) of the Outstanding Preferred Units may, by written notice from the Preferred Unitholder Representative in accordance with this Section 1(b), appoint a new Board Observer during the Observation Period.
(c) The General Partner shall (i) provide the Board Observer written notice of each meeting of the Board (both regular and special) and each meeting of any committee thereof (other than the Conflicts Committee), at the same time and in the same manner as notice is given to the members of the Board or members of the applicable committee, (ii) provide the Board Observer with copies of all written materials and other information (including, without limitation, copies of minutes of meetings or written consents of the full Board) given to the members of the Board or members of the applicable committee thereof (other than the Conflicts Committee) in connection with such meetings, or in connection with actions taken by written consent, in each case, at the same time such materials and information are furnished to such members of the Board or committee thereof, as applicable, whether or not the Board Observer is attending such meeting, and (iii) provide the Board Observer with all rights to attend (whether in person or by telephone or other means of electronic communication as provided to each other member of the Board or committee thereof (other than the Conflicts Committee), as applicable) such meetings of the Board and any committee thereof. Notwithstanding any rights to be granted or provided to the Board Observer hereunder, the Kimbell Entities reserve the right to exclude the Board Observer from access to any material or meeting or portion thereof if the Board reasonably determines, in good faith after consultation with outside counsel, that such access would (i) prevent the members of the Board from engaging in attorney-client privileged communication or (ii) result in a conflict of interest with the Partnership (other than a conflict of interest with respect to the Purchasers’ or any other holder of Preferred Unit’s ownership interest in the Partnership or rights under the Partnership Agreement or this Agreement); provided, that such exclusion shall be limited to the portion of the material or meeting that is the basis for such exclusion and shall not extend to any portion of the material or meeting that does not involve or pertain to such exclusion.
Exhibit F - 2
(d) The Board Observer shall agree to maintain the confidentiality of all non-public information and proceedings of the Board and any committee of the Board and to enter into, comply with, and be bound by, in all respects, the terms and conditions of a confidentiality agreement, substantially in the form attached hereto as Annex A (the “Confidentiality Agreement”). The Purchasers shall be responsible for any breach by the Board Observer of the Confidentiality Agreement and for the breach by any Permitted Recipient (as defined in the Confidentiality Agreement) of their confidentiality obligations.
| 2. | Board Appointment Rights. |
(a) At any point in time at which an Event of Default (as defined below) is occurring and for so long as it continues, or otherwise beginning on the sixth anniversary of the Closing Date for so long as any of the Preferred Units remain Outstanding (the “Initial Designation Period”), the Kimbell Entities hereby grant the holder(s) of the Outstanding Preferred Units the option and right to appoint (the “Initial Director Appointment Right”) one director to the Board (such person, the “Initial Director”), subject to Section 2(d). Beginning on the seventh anniversary of the Closing Date and for so long as any of the Preferred Units remain Outstanding (together with the Initial Designation Period, the “Designation Periods”) the Kimbell Entities hereby grant the holder(s) of all Outstanding Preferred Units, the option and right to appoint (the “Additional Director Appointment Right” and together with the Initial Director Appointment Right, the “Director Appointment Rights” and each individually, a “Director Appointment Right”) two additional directors to the Board (i.e., three directors to the Board in total) (such persons, the “Additional Directors” and together with the Initial Director, the “Preferred Directors” and each individually, a “Preferred Director”), subject to Section 2(d).
(b) For purposes of this Agreement, an “Event of Default” shall occur at any time, and from time to time, when the Partnership (i) fails to pay in full, in cash and when due, any Series A Quarterly Distribution that is required to be paid after the Initial Accrual Period, or (ii) materially breaches any of its covenants in the Partnership Agreement, subject to the cure period set forth therein, and the Distribution Rate is increased to 20% pursuant to the Partnership Agreement, and shall continue until any accrued and unpaid distributions are paid in full and such breach is no longer ongoing.
(c) To exercise a Director Appointment Right, the Preferred Unitholder Representative shall deliver written notice (a “Designation Notice”) to the General Partner affirmatively appointing one or more, as applicable in accordance with such Director Appointment Right, Preferred Directors. Subject to Section 2(d), upon delivery by the Preferred Unitholder Representative of a Designation Notice, and until the earliest of (i) the resignation or death of any such individual serving as a Preferred Director, (ii) the removal of any such individual serving as the Preferred Directors by the Preferred Unitholders, as evidenced by a written notice delivered by the Preferred Unitholder Representative to the General Partner or (iii) the end of the applicable Designation Period, such representative shall be a Preferred Director. The Purchasers agree to use commercially reasonable efforts to appoint and maintain Mr. Vogel as the Initial Director so long as he is employed by any of the Purchasers or their respective Affiliates in a capacity substantially similar to his position as of the date of this Agreement; provided that the Preferred Unitholder Representative may, from time to time, appoint a temporary representative to attend any Board or Committee meeting in place of Mr. Vogel as the Initial Director if he is not reasonably able to attend any such meeting. Subject to the preceding sentence, the holder(s) of Outstanding Preferred Units may remove or change any individual serving as a Preferred Director for any reason, with or without cause. If for any reason, an individual serving as a Preferred Director is removed or otherwise ceases to serve as a Preferred Director, the holder(s) of the Outstanding Preferred Units may, by written notice from the Preferred Unitholder Representative in accordance with this Section 2(c), appoint a new Preferred Director, or Preferred Directors, as applicable, during the relevant Designation Period.
Exhibit F - 3
(d) If, upon the General Partner’s receipt of a Designation Notice, the General Partner determines in its reasonable judgment that any such individual nominated to be a Preferred Director (i) is prohibited from serving as a director on the Board pursuant to any rule or regulation of the Commission or any national securities exchange on which the Partnership’s Common Units are then listed or admitted to trading or (ii) is an employee or director of any Competitor (as defined below), the General Partner may reject the appointment of such individual as a Preferred Director and shall promptly deliver to the Preferred Unitholder Representative a written statement describing the circumstances pursuant to which such individual is prohibited from serving as a director on the Board (a “Qualification Statement”). If a Qualification Statement in respect of an individual nominated to be a Preferred Director is not delivered to the Preferred Unitholder Representative by the General Partner within five Business Days after the date the applicable Designation Notice is delivered to the General Partner, then the Kimbell Entities shall take all actions necessary or advisable to cause such nominated individual to be added to the Board as a Preferred Director. For the avoidance of doubt, upon exercising the Initial Director Appointment Right, the size of the Board will be increased by one person and upon exercising the Additional Director Appointment Right for both additional Preferred Directors, the size of the Board will be increased by two additional persons, and in total, there will be three Preferred Directors. For purposes of this Agreement, the term “Competitor” shall mean any person or entity that owns and acquires mineral and royalty interests as its primary business or otherwise engages in a similar business as the Partnership, but does not include (i) private equity funds or similar investment funds such as Apollo Capital Management, L.P. and its Affiliates, or (ii) any person or entity who engages in the upstream oil and gas exploration and production business as its primary business.
(e) While serving on the Board, each Preferred Director shall be entitled to the same number of votes on any matter as each other member of the Board and shall be entitled to vote on all matters, including any matter on which independent members of the Board are entitled to vote (unless prohibited by the rules and regulations of the Commission or any national securities exchange on which the Partnership’s Common Units are listed or admitted to trading and except for matters submitted to the Conflicts Committee). Notwithstanding any rights to be granted or provided to a Preferred Director hereunder or in the Partnership Agreement or the First Amended and Restated Limited Liability Company Agreement of the General Partner, dated February 8, 2017, as amended from time to time (the “GP LLC Agreement”), the General Partner may exclude any Preferred Director from access to any Board or committee meeting, materials or information (including materials with respect to any written consent), or any portion thereof, if the Conflicts Committee (as defined in the GP LLC Agreement) determines, in good faith, that including such Preferred Director in such meeting or distribution of materials and other information would reasonably be expected to result in a conflict of interest with the Partnership (other than a conflict of interest with respect to any Purchaser’s or any other holder of Preferred Unit’s ownership interest in the Partnership or rights under the Partnership Agreement or this Agreement); provided, that such exclusion shall be limited to the portion of the Board or committee meeting, material or information that is the basis for such exclusion and shall not extend to any portion of the Board or committee meeting, material or information that does not involve or pertain to such exclusion. Subject to the preceding sentence, for the avoidance of doubt, the Preferred Directors will receive the same information provided to other members of the Board, at the same time as such information is provided to other similarly situated members of the Board and including monthly information packages, as well as being provided with reasonable access to management and shall be entitled to all other rights and benefits provided to the other similarly situated members of the Board pursuant to the GP LLC Agreement and the General Partner’s policies applicable to other directors on the Board.
Exhibit F - 4
3. Preferred Unitholder Representative. The holders of the Outstanding Preferred Units, acting with the affirmative vote of the holders of Outstanding Preferred Units holding the Series A Required Voting Percentage, shall appoint a Person to serve as a representative for purposes of delivering and receiving notices under this Agreement (such Person, the “Preferred Unitholder Representative”). The initial Preferred Unitholder Representative, effective as of the date of this Agreement, shall be [_____________]. Upon written notice to the Partnership, the holders of the Outstanding Preferred Units may change the Preferred Unitholder Representative.
4. Limitation of Liability; Indemnification; Business Opportunities.
(a) The Board Observer shall have (i) no fiduciary duty to any Kimbell Entity or any owner thereof (including any limited partner, general partner or member) (collectively, the “Kimbell Owners”) and (ii) no obligations to any Kimbell Entity or Kimbell Owner under this Agreement.
(b) At all times while the Preferred Directors are serving as members of the Board, and following any such Preferred Director’s death, resignation, removal or other cessation as a director in such former Preferred Director’s capacity as a former director, the Preferred Directors shall be entitled to (i) the same modifications, restrictions and waivers of traditional fiduciary duties, (ii) the same safe harbors for resolving conflicts of interest transactions and (iii) all rights to indemnification and exculpation, in each case, as are made available to any other member of the Board as at the date hereof, together with any and all incremental rights added to any of (i), (ii) or (iii) above as are subsequently made available to any other members of the Board in their capacity as Board members.
Exhibit F - 5
(c) At all times while the Board Observer and/or Preferred Directors are appointed, the Board Observer and/or Preferred Directors, as applicable, and the Purchasers and their respective Affiliates may engage in, possess an interest in, or trade in the securities of, other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Kimbell Entities, and the Kimbell Entities, the Board and their respective Affiliates shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Kimbell Entities, shall not be deemed wrongful or improper. None of any of the Board Observer or Preferred Directors or the Purchasers or their respective Affiliates shall be obligated to present any investment opportunity to the Kimbell Entities even if such opportunity is of a character that the Kimbell Entities or any of their respective subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and the Board Observer or Preferred Directors or the Purchasers or their respective Affiliates shall have the right to take for such person’s own account (individually or as a partner or fiduciary) or to recommend to others any such investment opportunity. Notwithstanding the foregoing, the Board Observer and Preferred Directors shall be subject to, and comply with, the requirement to maintain confidential information.
(d) The Kimbell Entities shall use their best efforts to make any updates to director and officer insurance available to cover members of the Board that may be necessary to ensure the Preferred Directors are covered by such insurance.
(e) For the avoidance of doubt, each Designated Director shall constitute an “Indemnitee” under each of the Partnership Agreement and the GP LLC Agreement.
| 5. | Miscellaneous. |
(a) Entire Agreement. This Agreement is intended by the Parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the Parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings other than those set forth or referred to herein with respect to the rights and obligations of the Parties herein. This Agreement supersedes all prior agreements and understandings between the Parties with respect to the subject matter hereof.
(b) Notices. All notices, demands, requests, consents, approvals or other communications (collectively, the “Notices”) required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally served, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, facsimile or electronic mail, addressed as set forth below, or to such other address as such Party shall have specified most recently by written Notice. Notice shall be deemed given one Business Day after mailed, if mailed with return receipt requested, one Business Day after sent if sent by a reputable courier service with overnight delivery, upon receipt if otherwise mailed, upon receipt of confirmation if sent with facsimile, or upon sending if sent via electronic mail; provided that if such electronic mail is sent on a non-Business Day or after 5:00 pm New York time on a Business Day, or if such receipt of confirmation (if sent with facsimile) is received on a non-Business Day or after 5:00 pm New York time on a Business Day, then delivery shall be deemed to have occurred on the next Business Day.
Exhibit F - 6
If to the Purchasers, to:
c/o
Apollo Capital Management, L.P.
9 West 57th Street, 37th Floor
New York, New York 10019
Attention: Daniel Vogel
Email: [***]
If to the Partnership, to:
Kimbell
Royalty Partners, LP
777 Taylor St., Suite 810
Fort Worth, Texas 76102
Attention: Davis Ravnaas
Email: [***]
If to the Partnership, to:
Kimbell
Royalty GP, LLC
777 Taylor St., Suite 810
Fort Worth, Texas 76102
Attention: Davis Ravnaas
Email: [***]
and
If to Kimbell Holdings, to:
Kimbell
GP Holdings, LLC
777 Taylor St., Suite 810
Fort Worth, Texas 76102
Attention: Davis Ravnaas
Email: [***]
(c) Interpretation. Section references in this Agreement are references to the corresponding Section to this Agreement, unless otherwise specified. All references to instruments, documents, contracts and agreements are references to such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. The word “or” shall not be exclusive. Whenever any determination, consent or approval is to be made or given by a Party, such action shall be in such Party’s sole discretion, unless otherwise specified in this Agreement. If any provision in this Agreement is held to be illegal, invalid, not binding or unenforceable, (i) such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, not binding or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions shall remain in full force and effect and (ii) the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded, and if the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day. Any words imparting the singular number only shall include the plural and vice versa. The words such as “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The division of this Agreement into Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.
Exhibit F - 7
(d) Governing Law; Submission to Jurisdiction. This Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement), will be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflicts of laws. Any action against any party relating to the foregoing shall be brought in any federal or state court of competent jurisdiction located within the State of Delaware, and the parties hereto hereby irrevocably submit to the exclusive jurisdiction of any federal or state court located within the State of Delaware over any such action. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the Parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(e) Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES, AND AGREES TO CAUSE ITS AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Exhibit F - 8
(f) No Waiver; Modifications in Writing.
(i) Delay. No failure or delay on the part of any Party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a Party at law or in equity or otherwise.
(ii) Specific Waiver. Except as otherwise provided herein, no amendment, waiver, consent, modification or termination of any provision of this Agreement shall be effective unless signed by each of the Parties hereto affected by such amendment, waiver, consent, modification or termination. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement and any consent to any departure by a Party from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on a Party in any case shall entitle such Party to any other or further notice or demand in similar or other circumstances. Any investigation by or on behalf of any Party shall not be deemed to constitute a waiver by the Party taking such action of compliance with any representation, warranty, covenant or agreement contained herein.
(g) Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different Parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same agreement.
(h) Binding Effect; Assignment. The Board Observer Right and the Director Appointment Right may be assigned by a Purchaser in whole or in part to (i) its Affiliates and (ii) any subsequent holder of Preferred Units, provided that such transfer was not in violation of the Partnership Agreement or the Purchase Agreement. Except as set forth in the preceding sentence, neither this Agreement, nor the rights and obligations of the Parties under this Agreement may be transferred or assigned, directly or indirectly whether by contract, merger, operation of law or otherwise, without the prior written consent of the other Parties. This Agreement will be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns to the extent assigned in accordance with the terms of this Section 5(h). Any attempt to assign this Agreement or to assign or delegate any rights and obligations under this Agreement other than in accordance with the terms of this Section 5(h) shall be null and void and of no effect.
(i) Third Party Beneficiary. The Kimbell Entities acknowledge and agree that the holders of the Outstanding Preferred Units are third-party beneficiaries to this Agreement and the rights and benefits created hereby, and have the right to enforce the obligations created herein.
(j) Independent Counsel. Each of the Parties acknowledges that it has been represented by independent counsel of its choice throughout all negotiations that have preceded the execution of this Agreement and that it has executed the same with consent and upon the advice of said independent counsel. Each Party and its counsel cooperated in the drafting and preparation of this Agreement and the documents referred to herein, and any and all drafts relating thereto will be deemed the work product of the Parties and may not be construed against any Party by reason of its preparation. Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the Party that drafted it is of no application and is hereby expressly waived.
Exhibit F - 9
(k) Specific Enforcement. Each of the Parties acknowledges and agrees that monetary damages would not adequately compensate an injured Party for the breach of this Agreement by any Party, that this Agreement shall be specifically enforceable and that any breach or threatened breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order without a requirement of posting bond. Further, each Party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.
(l) Remedies. The remedies provided in this Agreement are cumulative and are not exclusive of any remedies that may be available to a Party at law or in equity, including the remedy of specific performance pursuant to Section 5(k).
(m) Further Assurances. Each of the Parties hereto shall, from time to time and without further consideration, execute such further instruments and take such other actions as any other Party hereto shall reasonably request in order to fulfill its obligations under this Agreement to effectuate the purposes of this Agreement.
[Signature pages follow]
Exhibit F - 10
| KIMBELL ENTITIES: | ||
| KIMBELL GP HOLDINGS, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| KIMBELL ROYALTY GP, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| KIMBELL ROYALTY PARTNERS, LP | ||
| By: | Kimbell Royalty GP, LLC | |
| its general partner | ||
| By: | ||
| Name: | ||
| Title: | ||
[Signature page to Board Representation and Observation Agreement]
| PURCHASERS: | ||
| [●] | ||
| By: | ||
| Name: | ||
| Title: | ||
[Signature page to Board Representation and Observation Agreement]
Annex A
FORM OF CONFIDENTIALITY AGREEMENT
[●], 20[●]
Kimbell Royalty GP, LLC
Kimbell Energy Partners LP
777 Taylor Street, Suite 810
Fort Worth, Texas 76102
| Attn:_________________ |
Dear Ladies and Gentlemen:
Pursuant to Section 2(c) of that certain Board Representation and Observation Agreement, dated as of [●], 2023 (the “Board Representation and Observation Agreement”), by and among Kimbell Royalty Partners, LP, a Delaware limited partnership (the “Partnership”), Kimbell Royalty GP, LLC, a Delaware limited liability company (the “General Partner”), Kimbell GP Holdings, LLC a Delaware limited liability company (“Kimbell Holdings” and, together with the Partnership and the General Partner, the “Kimbell Entities”), and Apollo Accord+ Aggregator A, L.P., Apollo Accord V Aggregator A, L.P., Apollo Defined Return Aggregator A, L.P., Apollo Calliope Fund, L.P., Apollo Excelsior, L.P., Apollo Credit Strategies Master Fund Ltd., Apollo Atlas Master Fund, LLC, Apollo Union Street SPV, L.P., Host Plus PTY Limited - Accord, Apollo Delphi Fund, L.P., Apollo Royalties Partners I, L.P., AHVF (AIV), L.P., AHVF Intermediate Holdings, L.P., AHVF TE/892/QFPF (AIV), L.P. and ACMP Holdings, LLC (such entities listed after the Kimbell Entities, each, a “Purchaser” and collectively, the “Purchasers”), the Purchasers have exercised their right to appoint the undersigned as an observer (the “Board Observer”) to the board of directors of the General Partner (the “Board”), although the individual serving as the Board Observer may be changed from time to time pursuant to the terms of the Board Representation and Observation Agreement and upon such other new individual’s signing a confidentiality agreement in substantially the form hereof. The Board Observer acknowledges that at the meetings of the Board and its committees and at other times, the Board Observer may be provided with and otherwise have access to non-public information concerning the Kimbell Entities and their Affiliates. Capitalized terms used but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Board Representation and Observation Agreement. In consideration for and as a condition to the Kimbell Entities furnishing access to such information, the Board Observer hereby agrees to the terms and conditions set forth in this letter agreement (the “Agreement”):
1. As used in this Agreement, subject to Paragraph 3 below, “Confidential Information” means any and all non-public financial or other non-public information concerning the Kimbell Entities and their Affiliates that may hereafter be disclosed to the Board Observer by the Kimbell Entities, their Affiliates or by any of their directors, officers, employees, agents, consultants, advisors or other representatives (including financial advisors, accountants or legal counsel) (the “Representatives”) of the Kimbell Entities, including all notices, minutes, consents, materials, ideas or other information (to the extent constituting information concerning the Kimbell Entities and their Affiliates that is non-public financial or other non-public information) provided to the Board Observer.
Annex A - 1
2. Except to the extent permitted by this Paragraph 2 or by Paragraph 3 or Paragraph 4 below, the Board Observer shall keep such Confidential Information strictly confidential; provided, that the Board Observer may share Confidential Information with the Purchasers or the Purchasers’ respective Affiliates and such Affiliates’ directors, officers, employees, advisory committee members, investment committee members, limited partners, investors and legal counsel (the “Permitted Recipients”) (it being understood that the Persons to whom such disclosure is made shall be subject to the terms of that certain Confidentiality Agreement between the Partnership and Apollo Capital Management, L.P., dated July 24, 2023, to the extent such terms are applicable to such disclosure). The Board Observer may not record the proceedings of any meeting of the Board by means of an electronic recording device.
3. The term “Confidential Information” does not include information that (i) is or becomes generally available to the public other than (a) as a result of a disclosure by the Board Observer in violation of this Agreement or (b) in violation of a confidentiality obligation to the Kimbell Entities by a Permitted Recipient, (ii) is or becomes available to the Board Observer or any of the Purchasers on a non-confidential basis from a source not known to have an obligation of confidentiality to the Kimbell Entities, (iii) was already known to the Board Observer or the Permitted Recipient at the time of disclosure, or (iv) is independently developed by the Board Observer or the Permitted Recipient without reference to any Confidential Information disclosed to the Board Observer.
4. In the event that the Board Observer is required or compelled by statute, rule, regulation, arbitral or judicial process or otherwise requested by any governmental authority to disclose the Confidential Information, the Board Observer shall use commercially reasonable efforts, to the extent permitted and practicable, to provide the Kimbell Entities with prompt prior written notice of such requirement so that the Kimbell Entities may seek, at such entities sole expense and cost, an appropriate protective order. If in the absence of a protective order, the Board Observer is nonetheless legally required or compelled to disclose Confidential Information, the Board Observer may disclose only the portion of the Confidential Information or other information that it is so legally required or compelled or requested to disclose.
5. All Confidential Information disclosed by the Kimbell Entities or their Representatives to the Board Observer is and will remain the property of the Kimbell Entities, so long as such information remains Confidential Information.
6. It is understood and acknowledged that neither the Kimbell Entities nor any Representative makes any representation or warranty as to the accuracy or completeness of the Confidential Information or any component thereof.
7. It is further understood and agreed that money damages would not be a sufficient remedy for any breach of this Agreement by the Board Observer and that the Kimbell Entities shall be entitled to seek specific performance or any other appropriate form of equitable relief as a remedy for any such breach in addition to the remedies available to the Kimbell Entities at law.
Annex A - 2
8. This Agreement is personal to the Board Observer, is not assignable by the Board Observer and may be modified or waived only in writing. This Agreement is binding upon the parties hereto and their respective successors and assigns and inures to the benefit of the parties hereto and their respective successors and assigns.
9. If any provision of this Agreement is not enforceable in whole or in part, the remaining provisions of this Agreement will not be affected thereby. No failure or delay in exercising any right, power or privilege hereunder operates as a waiver thereof, nor does any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.
10. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. Each of the Parties agrees (i) that this Agreement involves at least $100,000.00, and (ii) that this Agreement has been entered into by the Parties in express reliance upon 6 Del. C. §2708. Each of the Parties hereby irrevocably and unconditionally agrees (1) that it is and shall continue to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware, and (2)(A) to the extent that such Party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such Party’s agent for acceptance of legal processes and notify the other Parties of the name and address of such agent, and (B) to the fullest extent permitted by law, that service of process may also be made on such Party by prepaid certified mail with a proof of mailing receipt validated by the U.S. Postal Service constituting evidence of valid service, and that, to the fullest extent permitted by applicable law, service made pursuant to (2)(A) or (B) above shall have the same legal force and effect as if served upon such Party personally within the State of Delaware.
11. This Agreement and all obligations herein will automatically expire two (2) years after the date the Board Observer ceases to act as Board Observer.
12. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement, and all of which, when taken together, will constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile or electronic transmission constitutes effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement. Signatures of the parties transmitted by facsimile or electronic transmission will be deemed to be their original signatures for any purpose whatsoever.
[Signature Page Follows]
Annex A - 3
| Very truly yours, | |
| [ ] |
Agreed to and Accepted, effective as of the
day of , 20 :
| [NAME OF OBSERVER/ALTERNATE] |
Annex A - 4
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos. 333-226425, 333-229417, 333-230986, 333-236341, 333-238330, 333-269264 and 333-272307 on Form S-3 and Registration Statement Nos. 333-217986, 333-228678 and 333-265288 on Form S-8 of Kimbell Royalty Partners, LP of our report dated March 21, 2023, relating to the financial statements of LongPoint Minerals II, LLC, appearing in this Current Report on Form 8-K of Kimbell Royalty Partners, LP dated August 2, 2023.
/s/ Deloitte & Touche LLP
Denver, Colorado
August 2, 2023
Exhibit 99.1
NEWS RELEASE
Kimbell Royalty Partners, LP Announces $455 Million Accretive Acquisition
HIGHLIGHTS
| · | Expected to be immediately accretive to distributable cash flow per unit, with estimated acceleration of accretion in 2024 and 2025 |
| · | Targeted oil and gas mineral and royalty interests located in core positions of the Permian and Mid-Con basins, with over 4,000 gross producing wells on over 1 million gross acres |
| · | Permian represents approximately 64% of reserve value, with approximately 36% in Mid-Continent1 |
| · | Anticipated NTM average production of approximately 4,765 Boe per day (33% oil, 41% natural gas, 26% NGL), generating an estimated $64.3 million of cash flow at strip pricing as of July 26, 2023 (reflects transaction multiple of approximately 7.1x)2 |
| · | Expected to increase daily production by over 26% and expected to decrease cash G&A per Boe by approximately 20%3 |
| · | Following the transaction, Kimbell expects to maintain a peer-leading five-year decline rate of approximately 14% |
| · | Expected to add 2.56 net DUCs and net permitted locations (“net wells”), an approximate 37% increase in Kimbell’s current major net well line of site inventory |
| · | Following the transaction, Kimbell expects net wells needed to maintain flat production to modestly increase from 4.9 net wells to 5.8 net wells |
| · | In addition to net wells, the Seller portfolio is expected to add an estimated 16.63 net upside locations, increasing Kimbell’s major undrilled inventory by approximately 25% |
| · | Builds upon existing Permian Basin position, which remains Kimbell’s leading basin in terms of production, active rig count, DUCs, permits and undrilled inventory |
| · | Maintains conservative balance sheet metrics with expected pro forma net leverage4 of approximately 1.0x following transaction close |
FORT WORTH, Texas, August 2, 2023 – Kimbell Royalty Partners, LP (NYSE: KRP) (“Kimbell” or the “Company”), a leading owner of oil and gas mineral and royalty interests in approximately 16 million gross acres in 28 states, today announced that it has agreed to acquire mineral and royalty interests (the “acquired assets”) held by a private seller (“Seller”) in a cash transaction valued at approximately $455 million, subject to purchase price adjustments and other customary closing adjustments (the “Acquisition”). Kimbell intends to fund the purchase price through a private placement of 6.00% Series A Cumulative Convertible Preferred Units (“Preferred Units”) to fund managed by affiliates of Apollo (NYSE: APO) (“Apollo”) and borrowings under the Company’s $400 million revolving credit facility. The final mix of funding will be determined at closing.
1 Reflects total proved reserves as of June 1, 2023.
2 Illustrative cash flow multiple based on expected Q3’23 through Q2’24 acquired assets production and average realized cash margin of $36.86 / Boe. Net realized crude oil, natural gas and NGL prices to calculate cash margin $76.61, $2.89 and $28.40, respectively.
3 Based on estimated 2024 average run-rate daily production of acquired assets of 5,049 Boe/d, and mid-point of Kimbell management’s 2023 run-rate average daily production and cash G&A per boe guidance (released on 5/18/23).
4 Net leverage defined as net debt / LTM EBITDA.
Kimbell Royalty
Partners, LP – News Release
Page 2
Kimbell estimates that, as of June 1, 2023, the acquired assets produce approximately 4,840 Boe/d (1,619 Bbl/d of oil, 1,227 Bbl/d of NGLs, and 11,964 Mcf/d of natural gas) (6:1).5 For the full year 2024, Kimbell estimates that the acquired assets will produce approximately 5,049 Boe/d (1,682 Bbl/d of oil, 1,312 Bbl/d of NGLs, and 12,327 Mcf/d of natural gas) (6:1). The Seller’s acreage is located in the Permian Basin and Mid-Continent, with high interest locations concentrated in the Delaware Basin (49%), Midland Basin (10%) and Mid-Continent (41%). The Board of Directors of Kimbell’s general partner and the governing body of the Seller have each approved the Acquisition, which is expected to close in the third quarter of 2023, subject to customary closing conditions. The effective date of the Acquisition is expected to be June 1, 2023.
Bob Ravnaas, Chairman and Chief Executive Officer of Kimbell’s general partner, said, “the Acquisition represents the largest transaction in company history, and is expected to significantly enhance Kimbell’s positions in the best-performing, highest-growth oil and gas basins in the Lower 48. The targeted portfolio of mineral and royalty interests complements our disciplined approach to M&A, combining excellent reservoir quality, near-term cash flow and long-term production growth. We expect the Acquisition to be immediately accretive to distributable cash flow per unit, with accelerated accretion anticipated in future years, and look forward to continuing our role as a major consolidator in the oil and natural gas royalty sector. Thanks to the Kimbell team, and our advisors, for their remarkable work on this transaction.”
Asset Highlights: Large scale mineral footprint is located in core Delaware, Midland and Mid-Continent and features attractive current production, significant drilling activity amongst top producers and high quality drilling inventory
| · | Compelling growth profile of the acquired assets is supported by strong rig activity and healthy total inventory of 279 gross / 1.18 net DUCs and 166 gross / 1.38 net permitted locations |
| ü | 24 rigs actively drilling on Seller acreage as of June 30, 2023 |
| ü | Expected to increase Kimbell’s total net DUC / net permitted location inventory by 37% to a total of 9.41 net wells |
| ü | Estimated 2,567 gross / 16.63 net upside locations expected to increase Kimbell’s major drilling inventory by 25% |
| ü | Expected to balance Kimbell’s commodity mix, with estimated combined NTM production composed of approximately 50% from liquids (6:1) (33% from oil and 17% from NGLs) and 50% from natural gas |
5 Shown on 6:1 basis. Based on estimated Q3 2023 run-rate average daily production for the acquired assets as of June 1, 2023, the effective date of the transaction.
Kimbell Royalty
Partners, LP – News Release
Page 3
| · | Permian acreage: 13,477 Net Royalty Acres (normalized to 1/8th) is headlined by premier Northern Delaware acreage concentrated in Loving County and overlaying premium stacked-pay reservoir quality |
| ü | 1,613 gross producing wells in Delaware and Midland basins with current net production of 2,362 Boe/d (72% liquids, 28% gas)6 |
| ü | Largely undeveloped Delaware asset (57% undeveloped) in the basin’s core area, featuring 497 identified remaining inventory locations with an attractive 1.4% Net Revenue Interest that enables potential for prominent growth profile for production and cash flow |
| ü | Core Midland position includes 920 remaining inventory locations, with over 40% of Net Royalty Acres in the high quality and the most active Midland Basin counties: Martin and Midland |
| ü | 300 gross / 1.44 net DUCs and net permitted locations reflects an approximate 39% increase in Kimbell’s net well inventory in the Permian Basin |
| ü | 11 rigs actively drilling on Seller’s Permian acreage as of June 30, 2023, offering exposure to well-capitalized, experienced operators including EOG, Oxy, ConocoPhillips in the Delaware basin, and Pioneer, Endeavor and SM Energy in the Midland basin |
| · | Midcontinent acreage: Expansive 36,181 Net Royalty Acre footprint dovetails with existing Kimbell acreage to create significant scale in the SCOOP/STACK |
| ü | 2,434 gross producing wells in SCOOP/STACK with current net production of 2,478 Boe/d (46% liquids, 54% gas)7 |
| ü | 145 gross / 1.11 net DUCs and net permitted locations reflects an approximate 450% increase in Kimbell’s net Permit and DUC inventory in the Mid-Continent |
| ü | 13 rigs actively drilling on Mid-Continent acreage reflects approximately 40% market share of entire SCOOP/STACK rig fleet as of June 30, 2023 |
| ü | 1,150 gross / 6.85 net undrilled inventory increases Kimbell’s Mid-Continent upside locations by approximately 110% |
| ü | Limited concentration risk with ownership in over 650 DSUs and exposure to top-tier SCOOP/STACK operators such as Continental, Devon, Marathon, Citizen and others |
Kimbell Continues Its Role as a Leading Consolidator in the U.S. Oil and Gas Royalty Sector
Assuming the Acquisition is consummated as described in this news release, Kimbell is expected to have over 17 million gross acres, 129,000 gross wells and a total of 100 active rigs on its properties, which represents approximately 15%8 of the total active land rigs drilling in the continental United States. In addition, over 97% of all rigs in the continental United States are located in counties where Kimbell is expected to hold mineral interest positions following the consummation of the Acquisition.
6 Shown on 6:1 basis. Based on estimated Q3 2023 run-rate production for the Permian acquired assets as of June 1, 2023.
7 Shown on 6:1 basis. Based on estimated Q3 2023 run-rate production for the Mid-Continent acquired assets as of June 1, 2023.
8 Based on Kimbell rig count of 90, Longpoint rig count of 24 (14 of which overlap with existing rigs on Kimbell’s acreage) and Baker Hughes U.S. land rig count of 653 as of June 30, 2023.
Kimbell Royalty
Partners, LP – News Release
Page 4
Advisors
Citigroup and Truist Securities served as co-financial advisors and White & Case LLP and Kelly Hart & Hallman LLP acted as legal counsel to Kimbell. RBC Capital Markets served as exclusive financial advisor and Bracewell LLP served as legal advisor to Seller.
About Kimbell Royalty Partners
Kimbell (NYSE: KRP) is a leading oil and gas mineral and royalty company based in Fort Worth, Texas. Kimbell owns mineral and royalty interests in over 16 million gross acres in 28 states and in every major onshore basin in the continental United States, including ownership in more than 125,000 gross wells with over 48,000 wells in the Permian Basin. To learn more, visit http://www.kimbellrp.com.
Forward-Looking Statements
This news release includes forward-looking statements. These forward-looking statements, which include statements regarding the anticipated benefits of the Acquisition, the expected timing of the closing of the Acquisition, and reserves, production and other operational data with respect to the Acquisition, involve risks and uncertainties, including risks that the anticipated benefits of the Acquisition are not realized; risks relating to Kimbell’s integration of the Acquisition assets; risks relating to the possibility that the Acquisition does not close when expected or at all because any conditions to the closing are not satisfied on a timely basis or at all; and risks relating to Kimbell’s business and prospects for growth and acquisitions. Except as required by law, Kimbell undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this news release. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Kimbell’s filings with the Securities and Exchange Commission (“SEC”). These include risks inherent in oil and natural gas drilling and production activities, including risks with respect to low or declining prices for oil and natural gas that could result in downward revisions to the value of proved reserves or otherwise cause operators to delay or suspend planned drilling and completion operations or reduce production levels, which would adversely impact cash flow; risks relating to the impairment of oil and natural gas properties; risks relating to the availability of capital to fund drilling operations that can be adversely affected by adverse drilling results, production declines and declines in oil and natural gas prices; risks relating to Kimbell’s ability to meet financial covenants under its credit agreement or its ability to obtain amendments or waivers to effect such compliance; risks relating to Kimbell’s hedging activities; risks of fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpected formation pressures, environmental hazards, and other operating and production risks, which may temporarily or permanently reduce production or cause initial production or test results to not be indicative of future well performance or delay the timing of sales or completion of drilling operations; risks relating to delays in receipt of drilling permits; risks relating to unexpected adverse developments in the status of properties; risks relating to borrowing base redeterminations by Kimbell’s lenders; risks relating to the absence or delay in receipt of government approvals or third-party consents; risks relating to acquisitions, dispositions and drop downs of assets; risks relating to Kimbell’s ability to realize the anticipated benefits from and to integrate acquired assets, including the assets acquired in the Acquisition; and other risks described in Kimbell’s Annual Report on Form 10-K and other filings with the SEC, available at the SEC’s website at www.sec.gov. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this news release.
Kimbell Royalty
Partners, LP – News Release
Page 5
Contact:
Rick
Black
Dennard Lascar Investor Relations
krp@dennardlascar.com
(713) 529-6600
Exhibit 99.2
LongPoint Minerals II, LLC, and Subsidiary
Consolidated
Financial Statements
December 31, 2022 and 2021
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
| Independent Auditor’s Report | 2 | |
| Consolidated Balance Sheets – December 31, 2022 and 2021 | 4 | |
| Consolidated Statements of Operations – For the Years Ended December 31, 2022 and 2021 | 5 | |
| Consolidated Statements of Members’ Equity – For the Years Ended December 31, 2022 and 2021 | 6 | |
| Consolidated Statements of Cash Flows – For the Years Ended December 31, 2022 and 2021 | 7 | |
| Notes to Consolidated Financial Statements | 8 |
-1-
INDEPENDENT AUDITOR'S REPORT
LongPoint Minerals II, LLC Denver, Colorado |
Deloitte & Touche LLP |
| 1601 Wewatta St. | |
| Suite 400 | |
| Denver, CO 80202 | |
| USA | |
| Tel: 303-292-5400 | |
| Fax: 303-312-4000 | |
| www.deloitte.com |
Opinion
We have audited the consolidated financial statements of LongPoint Minerals II, LLC and subsidiary (the "Company"), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of operations, members' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
-2-
In performing an audit in accordance with GAAS, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
March 21, 2023
-3-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 16,453 | $ | 13,790 | ||||
| Accrued oil and gas sales and other | 11,516 | 8,721 | ||||||
| Prepaid expenses and other current assets | 30 | 27 | ||||||
| Total current assets | 27,999 | 22,538 | ||||||
| Property and Equipment, at cost: | ||||||||
| Oil and gas, on the basis of full cost method of accounting: | ||||||||
| Proved properties | 297,164 | 278,485 | ||||||
| Unproved properties | 336,217 | 354,896 | ||||||
| Accumulated depletion | (34,500 | ) | (25,157 | ) | ||||
| Total oil and gas properties, net | 598,881 | 608,224 | ||||||
| Total Assets | $ | 626,880 | $ | 630,762 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,664 | $ | 937 | ||||
| Commitments and Contingencies (Note 3) | ||||||||
| Members’ Equity: | ||||||||
| Members’ equity, net of placement fees of $13,893 for both periods | 625,216 | 629,825 | ||||||
| Total Liabilities and Members’ Equity | $ | 626,880 | $ | 630,762 | ||||
See accompanying notes to these consolidated financial statements.
-4-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Oil and gas sales | $ | 87,154 | $ | 61,638 | ||||
| Lease bonuses | 16,560 | 892 | ||||||
| Total revenues | 103,714 | 62,530 | ||||||
| Operating Expenses: | ||||||||
| Transportation and transmission | 2,779 | 2,741 | ||||||
| Severance and other taxes | 5,143 | 3,234 | ||||||
| Depletion | 9,343 | 9,021 | ||||||
| General and administrative | 4,413 | 5,008 | ||||||
| Total operating expenses | 21,678 | 20,004 | ||||||
| Operating income | 82,036 | 42,526 | ||||||
| Other Income (Expense): | ||||||||
| Financing costs | (1,067 | ) | - | |||||
| Other income, net | 1,147 | 1,540 | ||||||
| Total other income, net | 80 | 1,540 | ||||||
Income Before texas margin tax | 82,116 | 44,066 | ||||||
Texas margin tax expense | 322 | 152 | ||||||
Net income | $ | 81,794 | $ | 43,914 | ||||
See accompanying notes to these consolidated financial statements.
-5-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(in thousands)
| CLASS A | CLASS B | Total | ||||||||||
| Balances, JANUARY 1, 2021 | $ | 2,442 | $ | 671,417 | $ | 673,859 | ||||||
| Net income | 154 | 43,760 | 43,914 | |||||||||
| Members’ distributions | (308 | ) | (87,640 | ) | (87,948 | ) | ||||||
Balances, December 31, 2021 | $ | 2,288 | $ | 627,537 | $ | 629,825 | ||||||
| Net income | 286 | 81,508 | 81,794 | |||||||||
| Members’ distributions | (302 | ) | (86,101 | ) | (86,403 | ) | ||||||
Balances, December 31, 2022 | $ | 2,272 | $ | 622,944 | $ | 625,216 | ||||||
See accompanying notes to these consolidated financial statements.
-6-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 81,794 | $ | 43,914 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depletion | 9,343 | 9,021 | ||||||
| Effect of changes in current assets and liabilities: | ||||||||
| Accrued oil and gas sales, and other | (2,795 | ) | (3,695 | ) | ||||
| Prepaid expenses and other current assets | (3 | ) | (27 | ) | ||||
| Accounts payable and accrued expenses | 727 | (556 | ) | |||||
| Net cash provided by operating activities | 89,066 | 48,657 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Acquisition of proved properties | - | (3,037 | ) | |||||
| Acquisition of unproved properties | - | (7,079 | ) | |||||
| Net cash used in investing activities | - | (10,116 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Member distributions | (86,403 | ) | (87,948 | ) | ||||
| Net cash used in financing activities | (86,403 | ) | (87,948 | ) | ||||
| Net Increase (Decrease) In Cash and Cash Equivalents | 2,663 | (49,407 | ) | |||||
| Cash and Cash Equivalents, beginning of year | 13,790 | 63,197 | ||||||
| Cash and Cash Equivalents, end of year | $ | 16,453 | $ | 13,790 | ||||
| Supplemental Cash Flow Disclosure: | ||||||||
| Cash paid for income taxes | $ | 154 | $ | 73 | ||||
See accompanying notes to these consolidated financial statements.
-7-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Business and Summary of Significant Accounting Policies: |
Business – LongPoint Minerals II, LLC and its wholly owned subsidiary, Cherry Creek Minerals, LLC (collectively, the “Company” or “LongPoint II”) is a Colorado Limited Liability Company focused on acquiring mineral and royalty interests primarily in the Mid-Continent and Permian Basins.
LongPoint II does not have employees but rather entered into a “Services Agreement” with LongPoint Operating, LLC (“LongPoint Operating”) to provide all requisite management, technical and administrative support services. LongPoint Operating is a holding company which is owned by the Chief Executive Officer of LongPoint II. LongPoint Operating has entered into a Services Agreement with FourPoint Energy, LLC (“FourPoint”) to provide the services required under the LongPoint II/ LongPoint Operating Services Agreement. FourPoint employs the necessary people to perform the services required under the Services Agreement. During 2022 and 2021, LongPoint II was assessed an agreed upon balance of General and Administrative costs by FourPoint as payment for the services provided.
Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The impact of oil and gas prices has a significant impact on estimates made by management. Changes in oil and gas prices directly affect the economic limits of estimated oil and gas reserves. These economic limits have significant effects upon predicted reserve quantities. These estimates are the basis for the calculation of depletion for the oil and gas properties and the assessment as to whether an impairment of such properties is required. Further, these estimates and other factors, including those outside of the Company’s control, such as the impact of sustained lower commodity prices and decreased demand for oil and gas, can potentially impact operators’ current and future development plans (including the impact to undeveloped oil & gas properties), which could have a significant adverse impact to the Company’s financial condition, results of operations and cash flows.
Oil and Gas Reserves – Oil, natural gas and natural gas liquids (collectively, “oil and gas”) reserves represent theoretical, estimated quantities of oil and gas which, using geological and engineering data, are estimated with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. There are numerous uncertainties inherent in estimating oil and gas reserves and their values including many factors beyond the Company’s control. Accordingly, reserve estimates are different from the future quantities of oil and gas that are ultimately recovered.
-8-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation – The accompanying financial statements are consolidated and include the accounts of the Company and its subsidiary. All intercompany amounts have been eliminated in consolidation.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and other investments with original maturities of less than three months. At December 31, 2022 and 2021, the Company held no cash equivalents.
Revenue from Contracts with Customers
Oil and gas sales
Oil and gas sales revenues are generally recognized when control of the product is transferred to the purchaser, which is the point where performance obligations are satisfied. All of the Company’s oil and gas sales are made under contracts between the operators of the properties in which the Company holds interests and their respective customers. The Company’s contract is with the operator of the oil and gas properties; however, we have concluded that the substance of the transactions between the Company and the end customer results in the Company being the principal within the context of Accounting Standards Codification 606, Revenue from Contracts with Customers, “ASC 606”. The Company’s performance obligations are satisfied at the point in time the product is delivered by the operator to the purchaser of the hydrocarbons. Accordingly, the Company’s contracts do not give rise to contract assets or liabilities. The Company typically receives payment for oil and gas sales within 60 days, unless the product being sold is related to a newly drilled well, in which case, payment may be received up to six months beyond the date of first production. Contracts for the sale of oil and gas are industry standard contracts that include variable consideration based upon a monthly index and may include provisions related to gravity, price differentials, discounts and other adjustments and deductions. As each unit of production represents a separate performance obligation and the consideration is variable as it relates to oil and gas prices, and as the variability is resolved each month as the oil and gas is delivered to the purchaser, variable consideration does not need to be estimated. Additionally, the Company’s right to royalties does not originate until production occurs and, therefore, is not considered to exist beyond each day’s production. Therefore, there are no unsatisfied performance obligations at the end of the period.
Lease bonus revenue
The Company earns revenue from lease bonuses. Lease bonus revenue is generated by leasing the Company’s mineral interests to exploration and production companies. A lease agreement represents a contract with a customer (in this case the operator of oil and gas properties) and generally transfers the rights to any oil and gas discovered, grants the Company a right to a specified royalty interest and requires that drilling and completion operations commence within a specified time frame. The Company recognizes lease bonus revenue when the lease agreement has been executed, payment has been received, and the Company has no obligation to refund the payment. At the time the Company executes the lease agreement, the Company expects to receive payment of the lease bonus within a short time frame, but in no case more than one year, as such, the Company has not adjusted the expected amount of revenue for the effects of any significant financing component per the practical expedient in ASC 606.
-9-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior-period performance obligations
The Company derives revenue from the sale of oil and gas produced from properties in which it owns a royalty or overriding royalty interest, which is recognized on the basis of the Company's pro-rata interest. Revenue is recorded and receivables are accrued in the month production is delivered to the purchaser, at which time ownership of the oil and gas is transferred to the purchaser. The Company accrues for oil and gas sales based on estimated production dates of the wells associated with the Company’s mineral and overriding royalty interests, along with estimates of pricing for the production. In certain instances statements are received from operators which provide information with respect to actual revenues to be received subsequent to year end, which are incorporated into the accrued revenue analysis. The difference between the Company’s estimates and the actual amounts received for oil and gas sales is recorded in the month that payment is received. For the years ended December 31, 2022 and 2021, revenue recognized in the reporting periods related to performance obligations satisfied in prior periods were immaterial.
The Company’s oil and gas receivables are related to revenues due from operators of properties in which the Company owns mineral or overriding royalty interests. Although diversified amongst several producers, collectability of receivables is largely dependent upon the general economic conditions of the industry. All receivables are reviewed periodically, and balances are written off when, in the judgement of management, the receivable becomes uncollectable. Historically, the Company has not experienced significant issues with collectability and has determined no allowance for uncollectible accounts is necessary.
Disaggregation of Income
The following table disaggregates the Company’s total oil and gas sales by product type:
For the Years Ended December 31, | ||||||
| 2022 | 2021 | |||||
| Gas sales | $ | 25,530 | $ | 18,015 | ||
| Oil sales | 46,747 | 33,458 | ||||
| Natural gas liquids sales | 14,877 | 10,165 | ||||
| Oil and gas sales | 87,154 | 61,638 | ||||
-10-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk – The Company regularly has cash in a single financial institution which exceeds federal depository insurance limits. The Company places such deposits with high credit quality institutions and has not experienced any credit losses. The Company is subject to credit risk related to oil and gas receivables due from operators related to sale of hydrocarbons produced from properties in which LongPoint II owns a mineral or overriding royalty interest. For the year ended December 31, 2022, 12%, 11% and 11% of LongPoint II’s oil and gas revenues related to the operations of CP Exploration III Operating LLC, Continental Resources, Inc., Inc. and EOG Resources, respectively. No other operators provided more than 10% of the Company’s revenues in 2022. For the year ended December 31, 2021, 15%, 12% and 11% of LongPoint II’s oil and gas revenues related to the operations of Continental Resources, Inc., EOG Resources, Inc. and Shell Western E&P, respectively. No other operators provided more than 10% of the Company’s revenues in 2021.
Fair Value of Financial Instruments – The Company’s financial instruments consist of cash equivalents and trade payables. The carrying value of these financial instruments are considered to be representative of their fair market value, due to the short term maturity of these instruments.
Accounting for Oil and Gas Operations – The Company uses the full cost method of accounting for its oil and gas properties. Under this method, all costs related to acquisition, exploration and development of oil and gas properties are capitalized to the full cost pool. The Company’s oil and gas properties are comprised of only mineral and overriding royalty interests, as such, the Company has not incurred any exploration or development costs. Proceeds from the disposition of oil and gas properties are accounted for as adjustments to the full cost pool, with no gain or loss recognized unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves.
Depletion of capitalized costs of oil and gas properties is provided for using the units of production method based upon estimates of proved oil and gas reserves. In calculating depletion, the volume of proved oil and gas reserves and production is converted into a common unit of measure at the energy equivalent conversion rate of six thousand cubic feet of natural gas to one barrel of oil. Depletion expense for the years ended December 31, 2022 and 2021 was $9.3 million ($6.00 per barrel of oil equivalent) and $9.0 million ($6.25 per barrel of oil equivalent), respectively.
Unproved property costs not subject to depletion consist of minerals and lands associated with royalty and overriding royalty interests on which no proven reserves have been recorded. The Company transfers costs from unproved to the full cost pool on a straight-line basis over a period that represents the anticipated development timeline of unevaluated properties. This estimated term is evaluated each year to account for changes in current market conditions, subject to a maximum of 20 years. The transfer period for 2022 was 19 years and 2021 was 20 years. Additionally, subsequent to the transfer from unproved to the full cost pool, the Company reviews the proportion of proved reserves to total reserves, including probable and possible reserves by basin and transfers costs from unproved property costs to proved property costs to align property costs with the proportion of proved reserves to total reserves. In the event the proportion of proved property costs to total property costs is higher than the proportion of proved reserves to total reserves, no costs are transferred from proved property costs to unproved property costs.
-11-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the full cost method of accounting, the net capitalized costs of oil and gas properties are subject to a ceiling. The cost center ceiling is defined as the sum of (a) estimated future net revenues, discounted at 10% per annum, from proved reserves, based on the simple average of the commodity prices posted on the first day of each month in the respective year, adjusted for existing contracts, (b) the cost of properties not being amortized, and (c) the lower of cost or fair market value of unproved properties included in the cost being amortized. If the net book value exceeds the ceiling, the book balance of the properties are written down to the ceiling via an impairment charge. Unproved properties are evaluated on an annual basis to determine whether an impairment has occurred. No impairment was recorded for the years ended December 31, 2022 and 2021.
Income Taxes – Income/Loss, various income tax deductions and other tax information necessary to complete the Company’s members’ tax returns are passed through to them each year upon completion of the Company’s tax returns.
The Company’s operations in Texas are subject to the Texas Margin Tax which is calculated based on gross receipts less a statutory deduction at 30%. As this tax is based on gross receipts and a statutory deduction, there are no associated deferred tax attributes.
The Company had no significant uncertain tax positions as of any date in 2022 and 2021. The Company policy is to recognize accrued interest related to unrecognized tax positions in interest expense, and to recognize tax penalties in operating expense. For the years ended December 31, 2022 and 2021, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns for U.S. federal, Colorado, Oklahoma, Texas and New Mexico. There are currently no federal or state income tax examinations underway for these jurisdictions.
The Company is a pass-through entity for income tax purposes, which is not subject to U.S. federal income taxes. Rather, the Company’s taxable income flows through to the members, who are responsible for paying the applicable income taxes on the income allocated to them. For tax years beginning on or after January 1, 2018, the Company is subject to partnership audit rules enacted as part of the Bipartisan Budget Act of 2015 (the “Centralized Partnership Audit Regime”). Under the Centralized Partnership Audit Regime, any IRS audit of the Company would be conducted at the Company level, and if the IRS determines an adjustment, the default rule is that the Company would pay an “imputed underpayment” including interest and penalties, if applicable. The Company may instead elect to make a “push-out” election, in which case the members for the year that is under audit would be required to take into account the adjustments on their own personal income tax returns.
-12-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s operating agreement includes a provision with respect to the manner in which tax distributions are to be allocated to its investor members, however, the operating agreement does not stipulate how the Company will address imputed underpayments. If the Company receives an imputed underpayment, a determination will be made based on the relevant facts and circumstances that exist at that time. Any payments that the Company ultimately makes on behalf of its current members will be reflected as a distribution, rather than tax expense, at the time that such distribution is declared.
Recently Issued Accounting Standards - In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases. The FASB issued the guidance to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This will be required for all leases that have a term longer than one year. For nonpublic entities, ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company adopted ASU 2016-02, effective December 31, 2022. As the Company currently is not associated with any leases, this standard does not affect the consolidated financial statements of LongPoint II. In the event the Company becomes subject to any leases in the future, the Company will evaluate the impact of this guidance to its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. In May 2019, ASU 2016-13 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses and ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. ASU 2016-13, as amended, applies to trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. This ASU will replace the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost and is effective for financial statements issued for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years. Management is currently evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements and disclosures and does not anticipate any material changes to the consolidated financial statements as represented.
There are no other accounting standards applicable to the Company that would have a material effect on the Company’s financial statements and disclosures that have been issued but not yet adopted by the Company as of December 31, 2022, and through the filing date of this report.
-13-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Acquisitions of Assets: |
2022 and 2021 Acquisitions
During the first quarter of 2021, the Company acquired mineral and overriding royalty interests in multiple transactions for an aggregate acquisition cost of $10.1 million. The acquisitions were focused primarily in the Permian and Eastern Anadarko Basins. The acquisitions were funded through capital contributions from members. The Company concluded the acquisition phase of its life cycle in 2021 and management does not currently anticipate any further material acquisitions of minerals or overriding royalty interests.
| 3. | Commitments and Contingencies: |
Legal Proceedings - The Company may from time to time be involved in various legal actions arising in the normal course of business or from activities associated with properties prior to their acquisition by the Company. In the opinion of management, the Company’s liability, if any, in these pending actions would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Lease Commitments – The Company is not subject to any lease commitments. As of December 31, 2022, all leases incurred in the ordinary course of business were held by FourPoint and LongPoint II receives the benefit of such leases under the “Services Agreement” with LongPoint Operating.
| 4. | Members’ Capital: |
Capitalization and Distributions – LongPoint II is a Colorado limited liability company with membership interests owned by a group of investor members (the “Investor Members”) and LongPoint Holdings, LLC, a Colorado limited liability company (“Holdings”). On March 6, 2018, membership interests in LongPoint II were purchased by a certain group of Investor Members. Additional Investor Members were admitted to the Company subsequently throughout 2018, increasing the total outstanding members’ equity on that date. Holdings is currently owned by certain executive employees of FourPoint and officers of LongPoint II.
The limited liability company equity interests in the Company are expressed as units, with each unit comprising a member’s membership interest in the Company. As of December 31, 2022 there are three classes of units authorized, issued and outstanding; Class A Units, Class B Units, and Class C Units. The Company is authorized to issue 100 Class C units, each of which is entitled to a vote to elect, replace or remove the Managers of the Company (which requires a majority vote). Other than this voting right the Class C members have no other voting rights and they hold no economic rights in the Company. The majority of the Class C Units are controlled by one of the Investor Members. The number of Class A Units and Class B Units that the Company is authorized to issue is unlimited. The Class A Units and Class B Units share the same voting rights as provided for in the Amended and Restated Operating Agreement of LongPoint Minerals II, LLC (the “Operating Agreement”), which does not include voting rights with respect to matters involving the Committee of Managers of the Company. The Class A Units are held by Holdings and the Class B Units are held by the Investor Members.
-14-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initially, distributions of cash or property are made as determined by the Committee of Managers which are allocated in proportion to the respective distributable shares of each of the Class A and Class B members. Upon the receipt of distributions by the Investor Members (Class B Units) in an amount equivalent to the repayment of their capital contributions plus a set rate of return as specified in the Operating Agreement, distributions will then be made 80% to the Investor Members in proportion to their holdings of Class B Units and 20% to Holdings (Class A Units). This distribution pattern will continue until distributions have been made to a certain class of Investor Members equal to a certain multiple of that Investor Member’s aggregate capital contributions (as defined in the Operating Agreement) after which distributions will then be made 77% to the Investor Members in proportion to their holdings of Class B Units and 23% to Holdings. The total equity commitment provided by Holdings and the Investor Members related to the Class A and Class B Units was $846.5 million. As of December 31, 2021, LongPoint II had called $677.2 million of the total equity commitment. The remaining equity commitment expired in mid-2021.
The Company paid priority distributions of 1% to 2% on June 29, 2018 and July 31, 2018 for investors who committed capital prior to May 31, 2018. The total balance of the priority distribution was $15.5 million.
In 2022 and 2021, the Company made distributions to the Investor Members and Holdings of $84.8 million and $86.7 million, respectively. As of December 31, 2022, no other distributions had been paid or declared by the Committee of Managers.
The state of Oklahoma requires operators to withhold 5% of all production revenues associated with royalty interests held by non-residents of Oklahoma to be offset against state income taxes. Similarly, the state of New Mexico requires operators to withhold 4.9% of all production revenues associated with all interests held by non-residents. As LongPoint II is not subject to income taxes as a limited liability company, the tax liability associated with the operations of LongPoint II is the responsibility of the Investor Members and Holdings. As such, the balance of the state withholdings has been reflected as an equity distribution. The total distribution attributable to state withholdings in 2022 and 2021 was $1.6 million and $1.3 million, respectively.
Placement Fees – In 2018, the Company incurred certain costs associated with the issuance of the membership interests to the Investor Members of $13.9 million, which was offset against members’ equity in the Balance Sheets.
-15-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Membership Interests – The Investor Members have the right to purchase Holdings’ interest in LongPoint II upon the occurrence of specified events. The purchase price is the appraised value of Holdings’ interest as if LongPoint II was being liquidated at that time, as opposed to being valued as a going concern. Payment of the purchase price may be made over time but must be made no later than the final distribution in liquidation of LongPoint II. In certain circumstances, although Holdings may no longer have an active interest in LongPoint II, Holdings may continue to hold its membership interest in LongPoint II. In this event, Holdings’ interest in LongPoint II would be distributed to Holdings upon liquidation of LongPoint II.
Dissolution, Liquidation, and Terminations – Under the operating agreement of LongPoint II, the Company shall be dissolved and its affairs wound up upon the first of the following to occur:
| · | The election of the Committee of Managers to dissolve the Company; |
| · | The entry of a decree of judicial dissolution of the Company under Section 7-80-813 of the Colorado Limited Liability Company Act; or |
| · | The transfer of all or substantially all of the assets of the Company and the receipt and distribution of all proceeds therefrom. |
Management Incentive – Certain economic interests in Holdings have been granted by Holdings to prior employees of FourPoint Energy. A portion of the interests being assigned are subject to forfeiture if certain events occur or if the grantee is no longer employed by FourPoint Energy. The economic interests granted by Holdings have no voting rights with respect to Holdings. Distributions to holders of these economic interests will be funded out of the membership interests of Holdings.
| 5. | Related Party Transactions: |
LongPoint II incurred total fees of $3.4 million and $4.1 million related to the Services Agreement with LongPoint Operating (see Note 1) during 2022 and 2021, respectively. These fees are reflected in “General and administrative” line in the Statements of Operations. At December 31, 2022 and 2021, $0.3 million was due to LongPoint Operating, at each period and is reflected in “Accounts payable and accrued expenses” in the accompanying balance sheet.
NorthPoint, an entity owned by an officer of the Company, owns or has certain rights to (i) third party software, (ii) propriety information and data and (iii) furniture, fixtures and equipment and other personal property located at the current office space utilized by FourPoint Energy. The Company has entered into a Usage Agreement with NorthPoint for the use of these assets. LongPoint incurred $0.4 million, in both 2022 and 2021, of fees related to the Usage Agreement. No balance was due to NorthPoint at December 31, 2022 and 2021.
-16-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 6. | Subsequent Events: |
Subsequent events have been evaluated through March 21, 2023, the date the consolidated financial statements were issued. In March 2023, the Company issued a distribution of $16.5 million to Investor Members and Holdings. No additional subsequent events of a material nature have been identified that require recognition or disclosure.
-17-
Exhibit 99.3
LongPoint Minerals II, LLC and Subsidiary
Unaudited Consolidated
Financial Statements
as of March 31, 2023
and for the three months ended March 31, 2023 and 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| PAGE | |
| Consolidated Balance Sheets – March 31, 2023 and December 31, 2022 | 2 |
| Consolidated Statements of Operations – For the Three Months Ended March 31, 2023 and 2022 | 3 |
| Consolidated Statements of Members’ Equity – For the Three Months Ended March 31, 2023 and 2022 | 4 |
| Consolidated Statements of Cash Flows – For the Three Months Ended March 31, 2023 and 2022 | 5 |
| Notes to Consolidated Financial Statements | 6 |
-1-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 34,668 | $ | 16,453 | ||||
| Accrued oil and gas sales and other | 8,107 | 11,516 | ||||||
| Prepaid expenses and other current assets | 15 | 30 | ||||||
| Total current assets | 42,790 | 27,999 | ||||||
| Property and Equipment, at cost: | ||||||||
| Oil and gas, on the basis of full cost method of accounting: | ||||||||
| Proved properties | 301,833 | 297,164 | ||||||
| Unproved properties | 331,548 | 336,217 | ||||||
| Accumulated depletion | (37,121 | ) | (34,500 | ) | ||||
| Total oil and gas properties, net | 596,260 | 598,881 | ||||||
| Total Assets | $ | 639,050 | $ | 626,880 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,574 | $ | 1,664 | ||||
| Commitments and Contingencies (Note 2) | ||||||||
| Members’ Equity: | ||||||||
| Members’ equity, net of placement fees of $13,893 for both periods | 637,476 | 625,216 | ||||||
| Total Liabilities and Members’ Equity | $ | 639,050 | $ | 626,880 | ||||
See accompanying notes to these consolidated financial statements.
-2-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues: | ||||||||
| Oil and gas sales | $ | 17,852 | $ | 20,772 | ||||
| Lease bonuses | 16,825 | 31 | ||||||
| Total revenues | 34,677 | 20,803 | ||||||
| Operating Expenses: | ||||||||
| Transportation and transmission | 713 | 687 | ||||||
| Severance and other taxes | 1,060 | 1,165 | ||||||
| Depletion | 2,621 | 2,422 | ||||||
| General and administrative | 1,103 | 1,103 | ||||||
| Total operating expenses | 5,497 | 5,377 | ||||||
| Operating income | 29,180 | 15,426 | ||||||
| Other Income (Expense): | ||||||||
| Financing costs | (65 | ) | - | |||||
| Other income, net | 135 | 307 | ||||||
| Total other income, net | 70 | 307 | ||||||
| Income Before texas margin tax | 29,250 | 15,733 | ||||||
| Texas margin tax expense | 121 | 53 | ||||||
| Net income | $ | 29,129 | $ | 15,680 | ||||
See accompanying notes to these consolidated financial statements.
-3-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(unaudited, in thousands)
| CLASS A | CLASS B | Total | ||||||||||
| Balances, January 1, 2022 | $ | 2,288 | $ | 627,537 | $ | 629,825 | ||||||
| Net income | 55 | 15,625 | 15,680 | |||||||||
| Members’ distributions | (50 | ) | (14,120 | ) | (14,170 | ) | ||||||
| Balances, March 31, 2022 | $ | 2,293 | $ | 629,042 | $ | 631,335 | ||||||
| Balances, January 1, 2023 | $ | 2,272 | $ | 622,944 | $ | 625,216 | ||||||
| Net income | 102 | 29,027 | 29,129 | |||||||||
| Members’ distributions | (59 | ) | (16,810 | ) | (16,869 | ) | ||||||
| Balances, March 31, 2023 | $ | 2,315 | $ | 635,161 | $ | 637,476 | ||||||
See accompanying notes to these consolidated financial statements.
-4-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 29,129 | $ | 15,680 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depletion | 2,621 | 2,422 | ||||||
| Effect of changes in current assets and liabilities: | ||||||||
| Accrued oil and gas sales, and other | 3,409 | (2,381 | ) | |||||
| Prepaid expenses and other current assets | 15 | 13 | ||||||
| Accounts payable and accrued expenses | (90 | ) | 230 | |||||
| Net cash provided by operating activities | 35,084 | 15,964 | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Member distributions | (16,869 | ) | (14,170 | ) | ||||
| Net cash used in financing activities | (16,869 | ) | (14,170 | ) | ||||
| Net Increase In Cash and Cash Equivalents | 18,215 | 1,794 | ||||||
| Cash and Cash Equivalents, beginning of period | 16,453 | 13,790 | ||||||
| Cash and Cash Equivalents, end of period | $ | 34,668 | $ | 15,584 | ||||
See accompanying notes to these consolidated financial statements.
-5-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Business and Summary of Significant Accounting Policies: |
Business – LongPoint Minerals II, LLC and its wholly owned subsidiary, Cherry Creek Minerals, LLC (collectively, the “Company” or “LongPoint II”) is a Colorado Limited Liability Company focused on acquiring mineral and royalty interests primarily in the Mid-Continent and Permian Basins.
LongPoint II does not have employees but rather entered into a “Services Agreement” with LongPoint Operating, LLC (“LongPoint Operating”) to provide all requisite management, technical and administrative support services. LongPoint Operating is a holding company which is owned by the Chief Executive Officer of LongPoint II. LongPoint Operating has entered into a Services Agreement with FourPoint Energy, LLC (“FourPoint”) to provide the services required under the LongPoint II/ LongPoint Operating Services Agreement. FourPoint employs the necessary people to perform the services required under the Services Agreement. During the three months ended March 31, 2023 and 2022, LongPoint II was assessed an agreed upon balance of General and Administrative costs by FourPoint as payment for the services provided.
Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These consolidated interim financial statements (the “financial statements)” reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective interim periods. Certain information and note disclosures normally included in the Company's annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted from these financial statements, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended December 31, 2022. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated annual financial statements for the year ended December 31, 2022.
Significant Accounting Policies – For a description of LongPoint II’s significant accounting policies, see Note 1 of the consolidated financial statements included in the Company’s 2022 audited financial statements. There have been no changes to the policies or the application of such policies during the three months ended March 31, 2023.
-6-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation – The accompanying financial statements are consolidated and include the accounts of the Company and its subsidiary. All intercompany amounts have been eliminated in consolidation.
Disaggregation of Income
The following table disaggregates the Company’s total oil and gas sales by product type:
| For the Three Months Ended March 31, | |||||||||
| 2023 | 2022 | ||||||||
| Gas sales | $ | 3,720 | $ | 5,371 | |||||
| Oil sales | 10,642 | 11,188 | |||||||
| Natural gas liquids sales | 3,490 | 4,213 | |||||||
| Oil and gas sales | 17,852 | 20,772 | |||||||
Concentrations of Credit Risk – The Company regularly has cash in a single financial institution which exceeds federal depository insurance limits. The Company places such deposits with high credit quality institutions and has not experienced any credit losses. The Company is subject to credit risk related to oil and gas receivables due from operators related to sale of hydrocarbons produced from properties in which LongPoint II owns a mineral or overriding royalty interest. For the three-month period ended March 31, 2023, 14%, 13% and 13% of LongPoint II’s oil and gas revenues related to the operations of ConocoPhillips Company, Apache Corporation and CP Exploration III Operating LLC, respectively. No other operators provided more than 10% of the Company’s revenues during the period. For the three months ended March 31, 2022, 13%, 11% and 11% of LongPoint II’s oil and gas revenues related to the operations of CP Exploration III Operating LLC, Continental Resources, Inc. and EOG Resources, Inc., respectively. No other operators provided more than 10% of the Company’s revenues during the period.
Fair Value of Financial Instruments – The Company’s financial instruments consist of cash equivalents and trade payables. The carrying value of these financial instruments are considered to be representative of their fair market value, due to the short-term maturity of these instruments.
Accounting for Oil and Gas Operations – The Company uses the full cost method of accounting for its oil and gas properties. Under this method, all costs related to acquisition, exploration and development of oil and gas properties are capitalized to the full cost pool. The Company’s oil and gas properties are comprised of only mineral and overriding royalty interests, as such, the Company has not incurred any exploration or development costs. Proceeds from the disposition of oil and gas properties are accounted for as adjustments to the full cost pool, with no gain or loss recognized unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves.
-7-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depletion of capitalized costs of oil and gas properties is provided for using the units of production method based upon estimates of proved oil and gas reserves. In calculating depletion, the volume of proved oil and gas reserves and production is converted into a common unit of measure at the energy equivalent conversion rate of six thousand cubic feet of natural gas to one barrel of oil. Depletion expense for the three-month periods ended March 31, 2023 and 2022 was $2.6 million ($5.84 per barrel of oil equivalent) and $2.4 million ($6.10 per barrel of oil equivalent), respectively
Recently Adopted Accounting Standards - In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. In May 2019, ASU 2016-13 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses and ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. ASU 2016-13, as amended, applies to trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The Company adopted this update effective January 1, 2023. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity since it does not have a history of, or material exposure to, credit losses.
| 2. | Commitments and Contingencies: |
Legal Proceedings - The Company may from time to time be involved in various legal actions arising in the normal course of business or from activities associated with properties prior to their acquisition by the Company. In the opinion of management, the Company’s liability, if any, in these pending actions would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Lease Commitments – The Company is not subject to any lease commitments. As of March 31, 2023, all leases incurred in the ordinary course of business were held by FourPoint and LongPoint II receives the benefit of such leases under the “Services Agreement” with LongPoint Operating.
| 3. | Members’ Capital: |
Capitalization and Distributions – LongPoint II is a Colorado limited liability company with membership interests owned by a group of investor members (the “Investor Members”) and LongPoint Holdings, LLC, a Colorado limited liability company (“Holdings”).
During the three months ended March 31, 2023 and 2022, the Company made distributions to the Investor Members and Holdings of $16.5 million and $13.8 million, respectively.
-8-
LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The state of Oklahoma requires operators to withhold 5% of all production revenues associated with royalty interests held by non-residents of Oklahoma to be offset against state income taxes. Similarly, the state of New Mexico requires operators to withhold 4.9% of all production revenues associated with all interests held by non-residents. As LongPoint II is not subject to income taxes as a limited liability company, the tax liability associated with the operations of LongPoint II is the responsibility of the Investor Members and Holdings. As such, the balance of the state withholdings has been reflected as an equity distribution. The total distributions attributable to state withholdings in the three months ended March 31, 2023 and 2022 were $0.4 million for both periods.
| 4. | Related Party Transactions: |
LongPoint II incurred total fees of $0.9 million related to the Services Agreement with LongPoint Operating during both three-month periods ended March 31, 2023 and 2022. These fees are reflected in “General and administrative” line in the statements of operations. At March 31, 2023 and December 31, 2022, $0.3 million was due to LongPoint Operating, at each period and is reflected in “Accounts payable and accrued expenses” in the accompanying balance sheets.
NorthPoint, an entity owned by an officer of the Company, owns or has certain rights to (i) third party software, (ii) propriety information and data and (iii) furniture, fixtures and equipment and other personal property located at the current office space utilized by FourPoint Energy. The Company has entered into a Usage Agreement with NorthPoint for the use of these assets. LongPoint incurred $0.1 million of fees related to the Usage Agreement in both of the three-month periods ended March 31, 2023 and 2022. No balance was due to NorthPoint at March 31, 2023 and December 31, 2022.
| 5. | Subsequent Events: |
The Company has evaluated events through August 1, 2023, the date these financial statements were issued. In April and May 2023, the Company issued distributions of $16.8 million and $17.9 million, respectively, to the Investor Members and Holdings.
In May 2023, the Committee of Managers launched a process to market the mineral and royalty assets of LongPoint II for sale. As a result of the marketing process, in July 2023 the Committee of Managers informed management that it had selected an offer from a bidder for total cash consideration of $455.0 million for all of the issued and outstanding membership interests of Cherry Creek Minerals, LLC. Cherry Creek Minerals, LLC holds all of the mineral and royalty interests of the Company. The purchase agreement with respect to the transaction is anticipated to be executed in early August 2023.
-9-
Exhibit 99.4
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 15, 2022 (the “Closing Date”), Kimbell Royalty Partners, LP, a Delaware limited partnership (“Kimbell” or the “Partnership”) and Kimbell Royalty Operating, LLC, a Delaware limited liability company (“OpCo” and, together with Kimbell, the “Buyer Parties”), completed the previously announced acquisition (the “Hatch Acquisition”) of mineral and royalty interests pursuant to a purchase and sale agreement (the “PSA”), dated November 3, 2022, by and among the Buyer Parties and Hatch Royalty LLC, a Delaware limited liability company (“Hatch”). The aggregate consideration paid to Hatch for the acquired assets consisted of (i) approximately $150.4 million in cash, subject to purchase price adjustments and other customary closing adjustments and (ii) the issuance of 7,272,821 common units representing limited liability company interests in Opco (“Opco units”) and an equal number of Class B units representing limited partner interests in Kimbell (“Class B units”). The Opco units, together with the Class B units, are exchangeable for an equal number of common units representing limited partner interests in Kimbell (“Common Units”). The total valuation of 7,272,821 Common Units for approximately $120.3 million is based on a closing price of $16.54. The cash consideration of the purchase price was funded from the issuance of 6,900,000 Common Units on November 8, 2022 for $116.9 million and increased borrowings under Kimbell’s existing revolving credit facility on December 13, 2022.
Additionally, on August 2, 2023, Kimbell entered into a securities purchase agreement (the “ Purchase Agreement”) with LongPoint Minerals II, LLC (“LongPoint”) to acquire all of the issued and outstanding membership interests of Cherry Creek Minerals, LLC, a Colorado limited liability company (the “Acquired Company”) and a wholly owned subsidiary of LongPoint for a total purchase price of $455.0 million in cash, subject to customary adjustments (the “Acquisition” and together with the Hatch Acquisition, the “Acquisitions”). The aggregate consideration to be paid to LongPoint for the acquired assets consists of (i) approximately $55.0 million in cash funded through borrowings under our revolving credit facility, and subject to purchase price adjustments and other customary closing adjustments and (ii) the private placement of 400,000 Series A Convertible Preferred Units (the “Preferred Units”) to Apollo Global Securities, LLC (“Apollo”) for gross proceeds of $400.0 million, pursuant to the Preferred Unit purchase agreement, dated as of August 2, 2023, by and among Kimbell and Apollo. The Operating Company will use the net proceeds of this offering for the repayment of outstanding borrowings under our revolving credit facility
The following unaudited pro forma condensed combined financial statements (the “pro forma financial statements”) present (i) our unaudited pro forma balance sheet as of March 31, 2023, (ii) our unaudited pro forma statement of operations for the three months ended March 31, 2023, and (iii) our unaudited pro forma statement of operations for the year ended December 31, 2022. The pro forma balance sheet as of March 31, 2023 assumes that the Acquisition occurred on March 31, 2023. There were no pro forma adjustments for the Hatch Acquisition as of March 31, 2023 as the financial position is included in the consolidated balance sheet of Kimbell as of December 31, 2022. The pro forma statement of operations for the three months ended March 31, 2023 and for the year ended December 31, 2022 give pro forma effect to the Acquisitions, as if they had occurred on January 1, 2022, the beginning of the earliest period presented.
The pro forma adjustments related to the Acquisitions and the related financing for the LongPoint transaction are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable and are subject to change. Accordingly, these pro forma adjustments are preliminary and have been made solely for the purpose of providing these pro forma financial statements, and do not include the effects of synergies as a result of the Acquisitions. Differences between these preliminary estimates and the final fair value of assets acquired may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying pro forma financial statements and our future results of operations. The pro forma financial statements have been derived from and should be read together with:
| • | the accompanying notes to the unaudited pro forma financial statements; |
| • | our historical audited consolidated financial statements and the related notes contained in the Partnership’s Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed on February 23, 2023; |
| • | our historical unaudited consolidated financial statements and related notes contained in the Partnership’s Quarterly Report on Form 10-Q as of and for the three months ended March 31, 2023, filed on May 3, 2023; |
| • | the statement of revenues and direct operating expenses of Hatch Royalty LLC and related notes for the period ended December 15, 2022; |
| • | the historical unaudited consolidated financial statements and related notes of LongPoint as of and for the three months ended March 31, 2023; |
| 1 |
| • | the historical audited consolidated financial statements and related notes of LongPoint as of and for the year ended December 31, 2022;and |
The pro forma financial statements also include the pro forma effects of the redemption of Kimbell Tiger Acquisition Corporation ("TGR"), a special purpose acquisition company incorporated in Delaware on April 9, 2021 that was a previously consolidated subsidiary of Kimbell. On May 22, 2023, TGR redeemed all of its outstanding shares of Class A common stock (the “TGR Redemption”), which were issued in connection with its initial public offering. A total of 23,002,500 shares were redeemed at a price of $10.57 per share, resulting in a cash payment of approximately $243.2 million to the holders of Class A common stock. As TGR was a consolidated subsidiary of Kimbell, the shares of Class A common stock issued by TGR were classified within redeemable non-controlling interest on the consolidated balance sheet of Kimbell.
The pro forma balance sheet as of March 31, 2023 assumes that the TGR Redemption occurred on March 31, 2023. The pro forma statement of operations for the three months ended March 31, 2023 and for the year ended December 31, 2022 give pro forma effect to the TGR Redemption, as if it occurred on January 1, 2022, the beginning of the earliest period presented. Management of Kimbell believes that TGR was not material to the financial position or results of operations of Kimbell because, among other things, TGR accounted for 0% of Kimbell’s consolidated total revenues and the proceeds from TGR’s initial public offering were held in trust for the benefit of TGR’s public stockholders and not available to Kimbell. Nevertheless, Kimbell is including the effects of the redemption of TGR’s shares in these pro forma financial statements to provide a more complete presentation of Kimbell’s financial position and results of operations as of the dates shown herein.
These pro forma financial statements are for information purposes only and do not purport to represent what the Partnership’s financial position and results of operations would have been had the Acquisitions occurred on the dates indicated. These pro forma financial statements should not be used to project the Partnership’s financial performance for any future period. A number of factors may affect the results.
| 2 |
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
| As of March 31, 2023 | ||||||||||||||||||||||||||||
| Historical
Kimbell | Historical
LongPoint | Transaction
Accounting Adjustment - Removal of LongPoint to effectuate the Asset Acquisition |
Transaction Accounting Adjustments Long Point | TGR
Redemption | Pro Forma Combined | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 19,077,381 | $ | 34,668,000 | $ | (34,668,000 | ) | 3 | $ | (17,500,000 | ) | 4a,b,c | $ | - | $ | 1,577,381 | ||||||||||||
| Oil, natural gas and NGL receivables | 35,935,697 | 8,107,000 | (8,107,000 | ) | 3 | - | - | 35,935,697 | ||||||||||||||||||||
| Accounts receivable and other current assets | 3,049,100 | 15,000 | (15,000 | ) | 3 | - | - | 3,049,100 | ||||||||||||||||||||
Total current assets | 58,062,178 | 42,790,000 | (42,790,000 | ) | (17,500,000 | ) | - | 40,562,178 | ||||||||||||||||||||
| Property and equipment, net | 865,878 | - | - | - | - | 865,878 | ||||||||||||||||||||||
| Oil and natural gas properties | ||||||||||||||||||||||||||||
| Oil and natural gas properties, using full cost method of accounting ($100,758,383 excluded from depletion at March 31, 2023) | 1,466,267,562 | 633,381,000 | (633,381,000 | ) | 3 | 462,000,000 | 4c | - | 1,928,267,562 | |||||||||||||||||||
| Less: accumulated depreciation, depletion and impairment | (730,184,148 | ) | (37,121,000 | ) | 37,121,000 | 3 | - | - | (730,184,148 | ) | ||||||||||||||||||
| Total oil and natural gas properties, net | 736,083,414 | 596,260,000 | (596,260,000 | ) | 462,000,000 | - | 1,198,083,414 | |||||||||||||||||||||
| Right-of-use assets, net | 2,442,166 | - | - | - | - | 2,442,166 | ||||||||||||||||||||||
| Derivative assets | 2,455,737 | - | - | - | - | 2,455,737 | ||||||||||||||||||||||
| Loan origination costs, net | 2,488,006 | - | - | - | - | 2,488,006 | ||||||||||||||||||||||
| Assets of consolidated variable interest entities: | ||||||||||||||||||||||||||||
| Cash | 100,930 | - | - | - | (100,930 | ) | 7 | - | ||||||||||||||||||||
| Investments held in trust | 243,059,983 | - | - | - | (243,059,983 | ) | 7 | - | ||||||||||||||||||||
| Prepaid expenses | 79,932 | - | - | - | (79,932 | ) | 7 | - | ||||||||||||||||||||
| Total assets | $ | 1,045,638,224 | $ | 639,050,000 | $ | (639,050,000 | ) | $ | 444,500,000 | $ | (243,240,845 | ) | $ | 1,246,897,379 | ||||||||||||||
Liabilities, mezzanine equity and unitholders' equity | ||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||
| Accounts payable | $ | 919,816 | $ | 1,574,000 | $ | (1,574,000 | ) | 3 | $ | - | $ | (75,265 | ) | 7 | $ | 844,551.00 | ||||||||||||
| Other current liabilities | 5,165,036 | - | - | - | - | 5,165,036 | ||||||||||||||||||||||
| Derivative liabilities | 2,056,242 | - | - | - | - | 2,056,242 | ||||||||||||||||||||||
| Total current liabilities | 8,141,094 | 1,574,000 | (1,574,000 | ) | - | (75,265 | ) | 8,065,829 | ||||||||||||||||||||
| Operating lease liabilities, excluding current portion | 2,151,343 | - | - | - | - | 2,151,343 | ||||||||||||||||||||||
| Derivative liabilities | 223,970 | - | - | - | - | 223,970 | ||||||||||||||||||||||
| Long-term debt | 223,915,911 | - | - | 55,000,000 | 4b | - | 278,915,911 | |||||||||||||||||||||
| Other liabilities | 291,667 | - | - | - | - | 291,667 | ||||||||||||||||||||||
| Liabilities of consolidated variable interest entities: | ||||||||||||||||||||||||||||
| Other current liabilities | 865,246 | - | - | - | (865,246 | ) | 7 | - | ||||||||||||||||||||
| Deferred underwriting commissions | 8,050,000 | - | - | - | (8,050,000 | ) | 7 | - | ||||||||||||||||||||
| Total liabilities | 243,639,231 | 1,574,000 | (1,574,000 | ) | 55,000,000 | (8,990,511 | ) | 289,648,720 | ||||||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||||||||
| Mezzanine equity: | ||||||||||||||||||||||||||||
| Redeemable noncontrolling interest in Kimbell Tiger Acquisition Corporation | 236,900,000 | - | - | - | (236,900,000 | ) | - | |||||||||||||||||||||
| Series A preferred Units (0 units issued and outstanding as of March 31, 2023) | - | - | - | 389,500,000 | 4a | - | 389,500,000 | |||||||||||||||||||||
| Kimbell Royalty Partners, LP unitholders' equity: | ||||||||||||||||||||||||||||
| Common units (64,950,333 units issued and outstanding as of March 31, 2023) | 592,304,290 | - | - | - | 2,649,666 | 7 | 594,953,956 | |||||||||||||||||||||
| Class B units (15,484,400 units issued and outstanding as of March 31, 2023) | 774,220 | - | - | - | - | 774,220 | ||||||||||||||||||||||
| Total Kimbell Royalty Partners, LP unitholders' equity | 593,078,510 | - | - | - | 2,649,666 | 595,728,176 | ||||||||||||||||||||||
| Members Equity | - | 637,476,000 | (637,476,000 | ) | 3 | - | - | - | ||||||||||||||||||||
| Non-controlling deficit in OpCo | (27,979,517 | ) | - | - | - | - | (27,979,517 | ) | ||||||||||||||||||||
| Total equity | 565,098,993 | 637,476,000 | (637,476,000 | ) | - | 2,649,666 | 567,748,659 | |||||||||||||||||||||
| Total liabilities, mezzanine equity and unitholders' equity | $ | 1,045,638,224 | $ | 639,050,000 | $ | (639,050,000 | ) | $ | 444,500,000 | $ | (243,240,845 | ) | $ | 1,246,897,379 | ||||||||||||||
See accompanying notes to the unaudited pro forma financial statements
| 3 |
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||
| Historical
Kimbell | Historical
LongPoint | Transaction LongPoint to effectuate the Asset Acquisition | Transaction Accounting Adjustments LongPoint | TGR Redemption | Pro
Forma Combined | |||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||
| Oil, natural gas and NGL revenues | $ | 57,416,759 | $ | 17,852,000 | $ | (17,852,000 | ) | 3 | $ | 17,852,000 | 6a | $ | - | $ | 75,268,759 | |||||||||||||||
| Lease bonus and other income | 437,337 | 16,825,000 | (16,825,000 | ) | 3 | 16,825,000 | 6a | - | 17,262,337 | |||||||||||||||||||||
| Loss on commodity derivative instruments, net | 9,062,376 | - | - | - | - | 9,062,376 | ||||||||||||||||||||||||
| Total revenues | 66,916,472 | 34,677,000 | (34,677,000 | ) | 34,677,000 | - | 101,593,472 | |||||||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||||||
| Production and ad valorem taxes | 4,277,204 | 1,773,000 | (1,773,000 | ) | 3 | 1,773,000 | 6a | - | 6,050,204 | |||||||||||||||||||||
| Depreciation and depletion expense | 17,563,648 | 2,621,000 | (2,621,000 | ) | 3 | 5,502,624 | 6b | - | 23,066,272 | |||||||||||||||||||||
| Marketing and other deductions | 2,762,039 | (1,103,000 | ) | 3 | 457,781 | 6a | - | 3,219,820 | ||||||||||||||||||||||
| General and administrative expense | 8,278,267 | 1,103,000 | - | - | - | 8,278,267 | ||||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||
| General and administrative expense | 708,226 | - | - | - | (708,226 | ) | 7 | - | ||||||||||||||||||||||
| Total costs and expenses | 33,589,384 | 5,497,000 | (5,497,000 | ) | 7,733,405 | (708,226 | ) | 40,614,563 | ||||||||||||||||||||||
| Operating Income | 33,327,088 | 29,180,000 | (29,180,000 | ) | 26,943,595 | 708,226 | 60,978,909 | |||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||
| Equity income in affiliate | - | - | - | - | - | - | ||||||||||||||||||||||||
| Interest expense | (5,463,404 | ) | (65,000 | ) | 65,000 | 3 | (1,120,192 | ) | 6c | - | (6,583,596 | ) | ||||||||||||||||||
| Other Income | - | 135,000 | (135,000 | ) | 3 | - | - | - | ||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||
| Interest earned on marketable securities in trust account | 2,438,837 | - | - | - | (2,438,837 | ) | 7 | - | ||||||||||||||||||||||
| Net income before income taxes | 30,302,521 | 29,250,000 | (29,250,000 | ) | 3 | 25,823,403 | (1,730,611 | ) | 54,395,313 | |||||||||||||||||||||
| Income tax expense | 1,402,983 | 121,000 | (121,000 | ) | 3 | 1,195,603 | 6d | (80,126 | ) | 7 | 2,518,460 | |||||||||||||||||||
| Net Income | 28,899,538 | 29,129,000 | (29,129,000 | ) | 24,627,800 | (1,650,485 | ) | 51,876,853 | ||||||||||||||||||||||
| Net income and distributions and accretion on Series A preferred units attributable to noncontrolling interests in OpCo | (5,563,418 | ) | - | - | - | - | (5,563,418 | ) | ||||||||||||||||||||||
| Distribution on Class B units | (15,484 | ) | - | - | - | - | (15,484 | ) | ||||||||||||||||||||||
| Net income attributable to common units of Kimbell Royalty Partners, LP | $ | 23,320,636 | $ | 29,129,000 | $ | (29,129,000 | ) | $ | 24,627,800 | $ | (1,650,485 | ) | $ | 46,297,951 | ||||||||||||||||
| Net Income per unit attributable to common units of Kimbell Royalty Partners LP | ||||||||||||||||||||||||||||||
| Basic | $ | 0.37 | $ | 0.84 | ||||||||||||||||||||||||||
| Diluted | $ | 0.36 | $ | 0.73 | ||||||||||||||||||||||||||
| Weighted average number of common units outstanding | ||||||||||||||||||||||||||||||
| Basic | 62,541,565 | 62,541,565 | ||||||||||||||||||||||||||||
| Diluted | 79,757,979 | 80,157,979 | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma financial statements
| 4 |
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Historical Kimbell | Historical 1/1/22
- | Transaction
Accounting Adjustments Hatch for the period from 10/1/2022 – 12/15/2022 | Pro
Forma (excluding LongPoint) | Historical LongPoint | Transaction
Accounting Adjustment - Removal of LongPoint to effectuate the Asset Acquisition | Transaction Accounting Adjustments LongPoint | TGR Redemption | Pro
Forma Combined | ||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||
| Oil, natural gas and NGL revenues | $ | 281,964,126 | $ | 27,418,110 | $ | 10,007,022 | 5a | $ | 319,389,258 | $ | 87,154,000 | $ | (87,154,000 | ) | 3 | $ | 87,154,000 | 6a | $ | - | $ | 406,543,258 | ||||||||||||||
| Lease bonus and other income | 3,073,609 | 553,100 | - | 3,626,709 | 16,560,000 | (16,560,000 | ) | 3 | 16,560,000 | 6a | - | 20,186,709 | ||||||||||||||||||||||||
| Loss on commodity derivative instruments, net | (36,978,550 | ) | (1,282,926 | ) | 1,282,926 | 5f | (36,978,550 | ) | - | - | - | - | (36,978,550 | ) | ||||||||||||||||||||||
| Total revenues | 248,059,185 | 26,688,284 | 11,289,948 | 286,037,417 | 103,714,000 | (103,714,000 | ) | 103,714,000 | - | 389,751,417 | ||||||||||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||||||||||||
| Production and ad valorem taxes | 16,238,814 | 1,313,756 | - | 17,552,570 | 7,922,000 | (7,922,000 | ) | 3 | 7,922,000 | 6a | - | 25,474,570 | ||||||||||||||||||||||||
| Depreciation and depletion expense | 50,086,414 | 4,521,809 | 4,395,024 | 5b | 59,003,247 | 9,343,000 | (9,343,000 | ) | 3 | 21,649,236 | 6b | - | 80,652,483 | |||||||||||||||||||||||
| Marketing and other deductions | 13,383,074 | 3,612,012 | (2,656,309 | ) | 5f | 14,338,777 | (4,413,000 | ) | 3 | 2,747,197 | 6a | - | 17,085,974 | |||||||||||||||||||||||
| General and administrative expense | 29,128,659 | - | - | 29,128,659 | 4,413,000 | - | - | - | 29,128,659 | |||||||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||||||||
| General and administrative expense | 2,304,445 | - | - | 2,304,445 | - | - | - | (2,304,445 | ) | 7 | - | |||||||||||||||||||||||||
| Total costs and expenses | 111,141,406 | 9,447,577 | 1,738,715 | 122,327,698 | 21,678,000 | (21,678,000 | ) | 32,318,433 | (2,304,445 | ) | 152,341,686 | |||||||||||||||||||||||||
| Operating income | 136,917,779 | 17,240,707 | 9,551,233 | 163,709,719 | 82,036,000 | (82,036,000 | ) | 71,395,567 | 2,304,445 | 237,409,731 | ||||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||||||||
| Equity income in affiliate | 2,668,844 | - | - | 2,668,844 | - | - | - | - | 2,668,844 | |||||||||||||||||||||||||||
| Interest expense | (13,818,310 | ) | (1,604,315 | ) | (409,318 | ) | 5c | (15,831,943 | ) | (1,067,000 | ) | 1,067,000 | 3 | (2,904,000 | ) | 6c | - | (18,735,943 | ) | |||||||||||||||||
| Other income | 4,043,530 | - | - | 4,043,530 | 1,147,000 | (1,147,000 | ) | 3 | - | - | 4,043,530 | |||||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||||||||
| Interest
earned on marketable securities in trust account | 3,721,145 | - | - | 3,721,145 | - | - | - | (3,721,145 | ) | 7 | - | |||||||||||||||||||||||||
| Net income before income taxes | 133,532,988 | 15,636,392 | 9,141,915 | 158,311,295 | 82,116,000 | (82,116,000 | ) | 68,491,567 | (1,416,700 | ) | 225,386,162 | |||||||||||||||||||||||||
| Income tax expense | 2,738,702 | - | 508,192 | 5d | 3,246,894 | 322,000 | (322,000 | ) | 3 | 1,404,731 | 6d | (29,056 | ) | 7 | 4,622,569 | |||||||||||||||||||||
| Net income | 130,794,286 | 15,636,392 | 8,633,723 | 155,064,401 | 81,794,000 | (81,794,000 | ) | 67,086,836 | (1,387,644 | ) | 220,763,593 | |||||||||||||||||||||||||
| Net income and distributions and accretion on Series A preferred units attributable to noncontrolling interests in OpCo | (18,822,552 | ) | - | (4,714,324 | ) | 5e | (23,536,876 | ) | - | - | - | - | (23,536,876 | ) | ||||||||||||||||||||||
| Distribution on Class B units | (42,243 | ) | - | - | (42,243 | ) | - | - | - | - | (42,243 | ) | ||||||||||||||||||||||||
| Net income attributable to common units | $ | 111,929,491 | $ | 15,636,392 | $ | 3,919,399 | $ | 131,485,282 | $ | 81,794,000 | $ | (81,794,000 | ) | $ | 67,086,836 | $ | (1,387,644 | ) | $ | 197,184,474 | ||||||||||||||||
| Net Income per unit attributable to common units of Kimbell Royalty Partners LP | ||||||||||||||||||||||||||||||||||||
| Basic | $ | 1.75 | $ | 2.43 | $ | 3.64 | ||||||||||||||||||||||||||||||
| Diluted | $ | 1.72 | $ | 2.02 | $ | 3.38 | ||||||||||||||||||||||||||||||
| Weighted average number of common units outstanding | ||||||||||||||||||||||||||||||||||||
| Basic | 54,112,595 | 54,112,595 | 54,112,595 | |||||||||||||||||||||||||||||||||
| Diluted | 65,837,017 | 65,837,017 | 66,237,017 | |||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma financial statements
| 5 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 1) | Basis of Presentation |
The pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria which simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management Adjustments”). As such, only Transaction Accounting Adjustments are presented in the pro forma financial information and notes thereto, without the effect of estimable synergies. The adjustments presented in the pro forma financial statements have been identified and presented to provide relevant information necessary for an understanding of the Acquisitions.
The pro forma balance sheet as of March 31, 2023 assumes that the Acquisition and TGR Redemption occurred on March 31, 2023. The pro forma statement of operations for the three months ended March 31, 2023 gives pro forma effect to the Acquisition and the TGR Redemption as if they occurred on January 1, 2022, the beginning of the earliest period presented. The pro forma statement of operations for the year ended December 31, 2022 gives pro forma effect to the Acquisitions and the TGR Redemption as if they had occurred on January 1, 2022.
The pro forma financial statements are not necessarily indicative of what the actual results of operations and financial position would have been had the transaction taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of Kimbell following the transaction.
The pro forma basic and diluted earnings per units amounts presented in the unaudited pro forma statement of operations are based on the weighted average number of the Partnerships’ units outstanding, assuming the Acquisitions and the TGR Redemption occurred at the beginning of the earliest period presented.
The pro forma adjustments related to the purchase price allocation of the Acquisition are preliminary and are subject to revisions as additional information becomes available. Revisions to the preliminary purchase price allocation of the assets acquired may have a significant impact on the pro forma amounts. The pro forma adjustments related to the Acquisition reflect the fair values of the assets acquired as of the date indicated. The pro forma adjustments do not necessarily reflect the fair values that would have been recorded if the acquisition had occurred on March 31, 2023.
The pro forma adjustments related to the TGR Redemption are preliminary and are subject to revisions as additional information becomes available. Revisions to the TGR Redemption may have a significant impact on the pro forma amounts. The pro forma adjustments related to the TGR Redemption reflect the fair values of the consolidated variable interest entities as of the date indicated. The pro forma adjustments do not necessarily reflect the fair values that would have been recorded if the redemption occurred on March 31, 2023.
| 6 |
| 2) | Estimated Consideration and Preliminary Purchase Price Allocation |
The Partnership has performed a preliminary valuation analysis of the fair value of the oil and natural gas properties acquired. Using the total consideration for the Acquisition, the Partnership has estimated the allocation to such assets. The Partnership is accounting for the Acquisition as an asset acquisition thus, all transaction costs associated with the Acquisition were capitalized. The following table summarizes the allocation of the preliminary purchase price as of the date indicated:
| Estimated Consideration | ||||
| Cash purchase consideration | 455,000,000 | |||
| Add (less): Purchase price adjustment | - | |||
| Add: Transaction cost s | 7,000,000 | |||
| Total estimated purchase price | $ | 462,000,000 | ||
| Purchase Price Allocation | ||||
| Oil and natural gas properties | $ | 462,000,000 | ||
| Net assets acquired | $ | 462,000,000 | ||
This preliminary purchase price allocation of the assets acquired has been used to prepare the transaction accounting adjustments in the pro forma balance sheet and statements of operations. The final purchase price allocation is expected to be completed as soon as is practical, subsequent to the closing date of the Acquisition and could differ materially from the preliminary allocation used in the transaction accounting adjustment.
| 3) | Removal of Historical LongPoint to Effectuate the Asset Acquisition |
As the Partnership determined the Acquisition will be accounted for as an asset acquisition in accordance with U.S. GAAP, the historical account balances of LongPoint have been eliminated. Incremental activity related to the transaction, including the acquisition of the oil and natural gas properties and the incremental revenues, direct operating costs and interest expense, have been reflected as accounting transaction adjustments within the pro forma financial statements.
| 4) | Transaction Accounting Adjustments – Balance Sheet |
The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the assets acquired from the Acquisition and has been prepared for informational purposes only.
| (a) | Represents the proceeds from Kimbell’s issuance of 400,000 Preferred Units to Apollo, net of equity issuance costs, to fund the acquisition. |
| (b) | Represents the increase of $55.0 million of borrowings under the Partnership’s revolving credit facility to fund the Acquisition. |
| (c) | Reflects the consideration transferred and preliminary purchase price allocation for the Acquisition consisting of: |
| ● | the total consideration paid to LongPoint of $455.0 million funded by (i) the $400 million of 400,000 Preferred Units which were issued net of equity issuance costs of $10.5 million; and (ii) borrowings under the Partnership’s revolving credit facility of $55 million; | |
| ● | the estimated $462.0 million fair value of the proved oil and natural gas properties acquired based on the preliminary purchase price allocation; | |
| ● | the estimated $7.0 million of transaction costs, and |
7
| 5) | Hatch Transaction Accounting Adjustments – Statement of Operations |
The unaudited pro forma statement of operations has been adjusted to reflect the assets acquired from the Hatch Acquisition for the year ended December 31, 2022 and has been prepared for informational purposes only. The results of operations and financial position of Hatch are included in the consolidated financial statements of Kimbell after December 15, 2023, the Closing Date of the Hatch Acquisition.
| (a) | Represents the historical royalty income derived from the acquired mineral and royalty interests for the period October 1, 2022 through December 15, 2022, totaling $10.0 million: |
| (b) | Represents the increase in depletion expense computed on a unit of production basis following the preliminary purchase price allocation to proved oil and natural gas properties, as if the Hatch Acquisition was consummated on January 1, 2022. Of the $261.1 million estimated fair value of proved oil and natural gas properties acquired, only $56.4 million were subject to depletion in the period presented. |
| (c) | Represents the increase to interest expense resulting from the interest on the additional borrowings under the Partnership’s existing credit facility that was used to finance the acquisition. The Partnership’s credit facility bears interest at SOFR plus a margin of 3.5% or the ABR plus a margin of 2.50%. The unaudited pro forma condensed combined statement of operations for the period ended December 15, 2022 used the weighted average interest of 5.28% on the net outstanding borrowings of $40 million. A 1/8 of a percent point increase or decrease in the benchmark rate would not have a material impact on the pro forma interest expense in the period presented. |
| (d) | Reflects estimated incremental income tax provision associated with the Partnership’s historical statement of operations, using an effective tax rate of approximately 2.05% on net earnings from the Hatch Acquisition. |
| (e) | Reflects the impact of the net income attributable to the non-controlling interests in OpCo as a result of Kimbell’s public offering of Common Units and the Hatch Acquisition. The net income attributable to the non-controlling interests in OpCo was 19% for the period ended December 15, 2022. |
| (f) | Reflects the removal of certain historical activity related to Hatch that is unrelated to the acquired oil and gas properties, including: |
| ● | approximately $1.3 million loss on commodity derivatives; and | |
| ● | approximately $2.7 million of marketing and other deductions. |
| 6) | LongPoint Transaction Accounting Adjustments – Statement of Operations |
The unaudited pro forma statement of operations has been adjusted to reflect the assets acquired from the Acquisition and has been prepared for informational purposes only.
| (a) | Represents the historical royalty income, lease bonus and extension income derived from the acquired mineral and royalty interests, and operating expenses including: |
| ● | approximately $17.9 million of oil and natural gas revenues and $16.3 million of lease bonus and other income for the three months ended March 31, 2023; | |
| ● | approximately $87.1 million of oil and natural gas revenues and $16.6 million of lease bonus and other income for the year ended December 31, 2022; | |
| ● | approximately $1.8 million and $7.9 million of production related expenses and taxes for the three months ended March 31, 2023 and year ended December 31, 2022; and | |
| ● | approximately $0.5 million and $2.7 million of direct marketing expenses for the three months ended March 31, 2023 and year ended December 31, 2022. |
| (b) | Represents the increase in depletion expense computed on a unit of production basis following the preliminary purchase price allocation to proved oil and natural gas properties, as if the Acquisition was consummated on January 1, 2022. Of the $462.0 million estimated fair value of proved oil and natural gas properties acquired, only $198.4 million were subject to depletion in the periods presented. |
| (c) | Represents the increase to interest expense resulting from the interest on the additional borrowings under the Partnership’s existing credit facility that were used to finance the acquisition. The Partnership’s credit facility bears interest at SOFR plus a margin of 3.5% or the ABR plus a margin of 2.50%. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 and for the year ended December 31, 2022 each used the weighted average interest of 8.26% and 5.28% respectively on the net outstanding borrowings of $55.0 million. A 1/8 of a percent point increase or decrease in the benchmark rate would not have a material impact on the pro forma interest expense in each period presented. |
| (d) | For the year ended December 31, 2022, reflects estimated incremental income tax provision associated with the Partnership’s historical statement of operations, using an effective tax rate of approximately 2.05% on net earnings from the Acquisition. For the three months ended March 31, 2023, the Partnership’s effective tax rate is approximately 4.63% and it is applied to the Partnership’s net earnings from the Acquisition for calculating the incremental income tax provision. |
8
| 7) | Redemption of Kimbell Tiger Acquisition Corporation |
The unaudited pro forma condensed combined balance sheet reflects the redemption of TGR’s outstanding shares of Class A common stock as if the redemption occurred on March 31, 2023. The unaudited pro forma condensed combined statement of operations reflects TGR redemption as if it occurred on January 1, 2022. The pro forma adjustment include:
| ● | The redemption of 23,002,500 shares of Class A common stock at a price of $10.57 per share, resulting in a cash payment of approximately $243.2 million to holders of Class A common stock of TGR (which amounts were held in trust by TGR for the benefit of TGR’s public stockholders and not available to Kimbell at any time); | |
| ● | The write-off of $8.9 million of deferred underwriting commissions through equity and other costs; and | |
| ● | The close out of $2.6 million of net income and retained earnings, including the settlement of $0.9 million of other current liabilities. |
| 8) | Pro Forma Net Income per Common Unit |
Pro forma net income per Common Unit is determined by dividing the pro forma net income attributable to common unitholders by the number of Common Units reflected in the unaudited condensed pro forma financial statements. All Common Units were assumed to have been outstanding since the beginning of the periods presented. The calculation of diluted net income per Common Unit for the three months ended March 31, 2023 and year ended December 31, 2022 includes Preferred Units on Series A, Common Units issuable upon the exchange of the outstanding Class B Units, and the unvested restricted units issuable upon vesting.
| 9) | Supplemental Pro Forma Oil and Natural Gas Reserve Information |
The following unaudited supplemental pro forma oil and natural gas reserve tables present how the combined oil and natural gas reserves and standardized measure information of the Company and Acquisition may have appeared had the Acquisition occurred on January 1, 2022. The supplemental pro forma combined oil and natural gas reserves and standardized measure information are for illustrative purposes only. Numerous uncertainties are inherent in estimating quantities and values of proved reserves including future rates of production, exploration and development expenditures, commodity prices, and service costs which may affect the reserve volumes attributable to the Properties and the standardized measure of discounted future net cash flows.
The following tables provide a summary of the changes in estimated proved reserves for the year ended December 31, 2022, as well as pro forma proved developed as of the beginning and end of the year, giving effect to the Acquisition as if it had occurred on January 1, 2022.
Estimated Pro Forma Combined Quantities of Proved Reserves
| Crude Oil and Condensate (MBbls) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 12,511 | 2,314 | 14,825 | |||||||||
| Revisions of previous estimates | (58 | ) | 449 | 391 | ||||||||
| Purchase of minerals in place | 1,328 | - | 1,328 | |||||||||
| Production | (1,426 | ) | (469 | ) | (1,895 | ) | ||||||
| Net proved reserves at December 31, 2022 | 12,355 | 2,294 | 14,649 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 12,511 | 2,314 | 14,825 | |||||||||
| December 31, 2022 | 12,355 | 2,294 | 14,649 | |||||||||
| Natural Gas (MMcf) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 157,764 | 23,714 | 181,478 | |||||||||
| Revisions of previous estimates | 17,119 | 6,782 | 23,901 | |||||||||
| Purchase of minerals in place | 5,726 | - | 5,726 | |||||||||
| Production | (20,311 | ) | (3,875 | ) | (24,186 | ) | ||||||
| Net proved reserves at December 31, 2022 | 160,298 | 26,621 | 186,919 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 157,764 | 23,714 | 181,478 | |||||||||
| December 31, 2022 | 160,298 | 26,621 | 186,919 | |||||||||
9
| Natural Gas Liquids (MBbls) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 6,669 | 2,240 | 8,909 | |||||||||
| Revisions of previous estimates | 759 | 785 | 1,544 | |||||||||
| Purchase of minerals in place | 707 | - | 707 | |||||||||
| Production | (747 | ) | (386 | ) | (1,133 | ) | ||||||
| Net proved reserves at December 31, 2022 | 7,388 | 2,639 | 10,027 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 6,669 | 2,240 | 8,909 | |||||||||
| December 31, 2022 | 7,388 | 2,639 | 10,027 | |||||||||
| Total (Mboe) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 45,474 | 8,506 | 53,980 | |||||||||
| Revisions of previous estimates | 3,554 | 2,365 | 5,919 | |||||||||
| Purchase of minerals in place | 2,989 | - | 2,989 | |||||||||
| Production | (5,558 | ) | (1,502 | ) | (7,060 | ) | ||||||
| Net proved reserves at December 31, 2022 | 46,459 | 9,369 | 55,828 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 45,474 | 8,506 | 53,980 | |||||||||
| December 31, 2022 | 46,459 | 9,369 | 55,828 | |||||||||
Pro Forma Combined Standardized Measure of Discounted Future Net Cash Flows
| (in thousands) | Kimbell | LongPoint | Pro Forma | |||||||||
| Future cash inflows | $ | 2,253,273 | $ | 469,705 | $ | 2,722,978 | ||||||
| Future production costs | (161,676 | ) | (35,733 | ) | (197,409 | ) | ||||||
| Future state margin taxes | (76,322 | ) | (15,853 | ) | (92,175 | ) | ||||||
| Future net cash flows | 2,015,275 | 418,119 | 2,433,394 | |||||||||
| Less 10% annual discount to reflect estimated timing of cash flows | (1,110,980 | ) | (201,647 | ) | (1,263,425 | ) | ||||||
| Standard measure of discounted future net cash flows | $ | 904,295 | $ | 216,472 | $ | 1,169,969 | ||||||
Pro Forma Combined Changes in the Standardized Measure of Discounted Future Net Cash Flows
| (in thousands) | Kimbell | LongPoint | Pro Forma | |||||||||
| Standardized measure, beginning of year | $ | 526,615 | $ | 138,265 | $ | 664,880 | ||||||
| Sales, net of production costs | (252,597 | ) | (76,814 | ) | (329,411 | ) | ||||||
| Net changes of prices and production costs related to future production | 365,427 | 64,584 | 430,011 | |||||||||
| Revisions or previous quantity estimates, net of related costs | 71,776 | 54,646 | 126,421 | |||||||||
| Net changes in state margin taxes | (15,266 | ) | (3,035 | ) | (18,301 | ) | ||||||
| Accretion of discount | 44,280 | 13,826 | 58,106 | |||||||||
| Purchases of reserves in place, less related costs | 77,719 | - | 77,719 | |||||||||
| Timing differences and other | 86,341 | 25,000 | 129,349 | |||||||||
| Standardized measure – end of year | $ | 904,295 | $ | 216,472 | $ | 1,120,767 | ||||||
10