UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 12, 2011
SANDRIDGE MISSISSIPPIAN TRUST I
(Exact name of registrant as specified in its charter)
Delaware | 1-35122 | 27-6990649 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
919 Congress Avenue, Suite 500 Austin, Texas |
78701 | |||
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, including Area Code: (512) 236-6599
Not Applicable.
(Former name or former address, if changed since last report)
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. below):
¨ | 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)) |
Item 1.01 Entry into a Material Definitive Agreement.
On April 12, 2011 (the Closing Date), SandRidge Mississippian Trust I (the Trust) completed its initial public offering of 17,250,000 units of beneficial interest in the Trust denominated as common units (Common Units).
In connection with the closing of the offering, on the Closing Date, the Trust and SandRidge Exploration and Production, LLC, a Delaware limited liability company (SandRidge E&P) and a wholly owned subsidiary of SandRidge Energy, Inc. (SandRidge), entered into (i) a Perpetual Overriding Royalty Interest Conveyance (PDP) and (ii) a Perpetual Overriding Royalty Interest Conveyance (PUD) (collectively, the Perpetual Conveyances), pursuant to which SandRidge E&P transferred to the Trust perpetual royalty interests in certain oil and natural gas properties in Oklahoma in which SandRidge E&P holds interests (the Oil and Gas Properties).
Also on the Closing Date, SandRidge E&P and Mistmada Oil Company, Inc., an Oklahoma corporation and a wholly owned subsidiary of SandRidge (Mistmada), entered into (i) a Term Overriding Royalty Interest Conveyance (PDP) and (ii) a Term Overriding Royalty Interest Conveyance (PUD) (collectively, the Term Conveyances), pursuant to which SandRidge E&P transferred to Mistmada 20-year term royalty interests in the Oil and Gas Properties. Also on the Closing Date, the Trust and Mistmada entered into an Assignment of Overriding Royalty Interest (the Assignment, and collectively with the Term Conveyances and the Perpetual Conveyances, the Conveyances) pursuant to which Mistmada assigned to the Trust the term overriding royalty interests conveyed to it pursuant to the Term Conveyances.
The Conveyances were delivered on April 12, 2011 to be effective as of January 1, 2011. The Oil and Gas Properties covered by the Conveyances are located in Alfalfa, Garfield, Grant, Major and Woods Counties, Oklahoma. The description of the Perpetual Conveyances, Term Conveyances and Assignment contained in the section entitled Description of the Royalty Interests of the prospectus, dated April 6, 2011 (File Nos. 333-171551 and 333-173341), related to the initial public offering and filed with the Securities and Exchange Commission on April 7, 2011 pursuant to Rule 424(b) under the Securities Act of 1933 (the Final Prospectus), is incorporated herein by reference. Copies of the Perpetual Conveyances are filed as Exhibits 10.1 and 10.2 to this Form 8-K and are incorporated herein by reference. Copies of the Assignment and the Term Conveyances are filed as Exhibits 10.3, 10.4 and 10.5 to this Form 8-K and are incorporated herein by reference.
As consideration for the royalty interests conveyed to the Trust pursuant to the Conveyances, the Trust delivered to SandRidge E&P and Mistmada 3,750,000 Common Units, 7,000,000 units of beneficial interest in the Trust denominated as subordinated units (Subordinated Units), and the net proceeds of the Trusts initial public offering, after deducting underwriting discounts and commissions.
On the Closing Date, SandRidge and the Trust entered into an Administrative Services Agreement (the Administrative Services Agreement) pursuant to which SandRidge agreed to provide the Trust with certain accounting, bookkeeping and informational services relating to the royalty interests described above. In exchange for providing these services to the Trust, SandRidge will receive an administrative services fee of $200,000 per year. The description of the Administrative Services Agreement contained in the section entitled The Trust Administrative Services Agreement of the Final Prospectus is incorporated herein by reference. A copy of the Administrative Services Agreement is filed as Exhibit 10.6 to this Form 8-K and is incorporated herein by reference.
On the Closing Date, SandRidge, SandRidge E&P and the Trust entered into a Development Agreement (the Development Agreement) pursuant to which SandRidge agreed to drill certain horizontal oil and natural gas wells on the properties covered by certain of the Conveyances, as described in the Final Prospectus. Relatedly, on the Closing Date, SandRidge, SandRidge E&P and the Trust also entered into a Mortgage (the Mortgage) pursuant to which SandRidge E&P granted to the Trust a mortgage lien on certain of its leasehold interests in the Mississippian formation, as described in the Final Prospectus, in order to secure the estimated amount of the drilling costs for the horizontal wells to be drilled under the Development Agreement. The description of the Development Agreement and the Mortgage contained in the section entitled The Trust Development Agreement and elsewhere in the Final Prospectus is incorporated herein by reference. A copy of the Development Agreement and the Mortgage are filed as Exhibits 10.7 and 10.8 to this Form 8-K and are incorporated herein by reference.
On the Closing Date, SandRidge and the Trust also entered into a Derivatives Agreement (the Derivatives Agreement) pursuant to which SandRidge agreed to provide the Trust with the benefit of certain hedging contracts entered into between SandRidge and third parties relating to a portion of the estimated oil and natural gas volumes expected to be produced from the properties in which the Trust has an interest from April 1, 2011 through December 31, 2015, all as described in the Final Prospectus. The description of the Derivatives Agreement contained in the section entitled The Trust Hedging Arrangements of the Final Prospectus is incorporated herein by reference. A copy of the Derivatives Agreement is filed as Exhibit 10.9 to this Form 8-K and is incorporated herein by reference.
On the Closing Date, SandRidge and the Trust entered into a Registration Rights Agreement (the Registration Rights Agreement) pursuant to which SandRidge, SandRidge E&P and certain of their permitted transferees holding registrable securities of the Trust (as defined in the Registration Rights Agreement) would be entitled, beginning 180 days after the date of the Registration Rights Agreement, to demand that the Trust use its reasonable best efforts to effect the registration of the registrable securities under the Securities Act of 1933. The holders of the registrable securities are entitled to demand a maximum of five such registrations. The description of the Registration Rights Agreement contained in the section entitled Trust Units Eligible for Future Sale Registration Rights Agreement of the Final Prospectus is incorporated herein by reference. A copy of the Registration Rights Agreement is filed as Exhibit 10.10 to this Form 8-K and is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities
As partial consideration for the conveyance of the interests in the Oil and Gas Properties, the Trust issued to SandRidge E&P 3,750,000 Common Units and 7,000,000 Subordinated Units. The Subordinated Units will automatically convert into Common Units on a one-for-one basis at the end of the fourth full calendar quarter following SandRidges satisfaction of its drilling obligation to the Trust under the Development Agreement. The issuance of the Common Units and Subordinated Units to SandRidge E&P was undertaken in reliance upon the exemption from the registration requirements of the Securities Act of 1933 contained in Section 4(2) thereof.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
On the Closing Date, SandRidge, The Bank of New York Mellon Trust Company, N.A., as trustee, and The Corporation Trust Company, as Delaware trustee, entered into an Amended and Restated Trust Agreement (the Amended and Restated Trust Agreement) in connection with the closing of the transactions described in the section entitled The Trust Formation Transactions of the Final Prospectus. The description of the Amended and Restated Trust Agreement contained in the section entitled Description of the Trust Agreement of the Final Prospectus is incorporated herein by reference. A copy of the Amended and Restated Trust Agreement is filed as Exhibit 3.1 to this Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. |
Description | |
3.1 | Amended and Restated Trust Agreement, dated as of April 12, 2011, by and among SandRidge, the Trust, and The Corporation Trust Company. | |
10.1 | Perpetual Overriding Royalty Interest Conveyance (PDP), by and between SandRidge E&P and the Trust. | |
10.2 | Perpetual Overriding Royalty Interest Conveyance (PUD), by and between SandRidge E&P and the Trust. | |
10.3 | Assignment of Overriding Royalty Interest, by and between Mistmada and the Trust. | |
10.4 | Term Overriding Royalty Interest Conveyance (PDP), by and between SandRidge E&P and Mistmada. | |
10.5 | Term Overriding Royalty Interest Conveyance (PUD), by and between SandRidge E&P and Mistmada. | |
10.6 | Administrative Services Agreement, by and between SandRidge and the Trust. | |
10.7 | Development Agreement, by and between SandRidge, SandRidge E&P and the Trust. | |
10.8 | Mortgage, dated as of April 12, 2011, by and between SandRidge E&P and the Trust. | |
10.9 | Derivatives Agreement, by and between SandRidge and the Trust. | |
10.10 | Registration Rights Agreement, dated as of April 12, 2011, by and between SandRidge and the Trust. |
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 thereunto duly authorized.
SandRidge Mississippian Trust I | ||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |
By: | /s/ Michael J. Ulrich | |
Name: Michael J. Ulrich | ||
Title: Vice-President |
Date: April 18, 2011
Exhibit Index
Exhibit No. |
Description | |
3.1 | Amended and Restated Trust Agreement, dated as of April 12, 2011, by and among SandRidge, the Trust, and The Corporation Trust Company. | |
10.1 | Perpetual Overriding Royalty Interest Conveyance (PDP), by and between SandRidge E&P and the Trust. | |
10.2 | Perpetual Overriding Royalty Interest Conveyance (PUD), by and between SandRidge E&P and the Trust. | |
10.3 | Assignment of Overriding Royalty Interest, by and between Mistmada and the Trust. | |
10.4 | Term Overriding Royalty Interest Conveyance (PDP), by and between SandRidge E&P and Mistmada. | |
10.5 | Term Overriding Royalty Interest Conveyance (PUD), by and between SandRidge E&P and Mistmada. | |
10.6 | Administrative Services Agreement, by and between SandRidge and the Trust. | |
10.7 | Development Agreement, by and between SandRidge, SandRidge E&P and the Trust. | |
10.8 | Mortgage, dated as of April 12, 2011, by and between SandRidge E&P and the Trust. | |
10.9 | Derivatives Agreement, by and between SandRidge and the Trust. | |
10.10 | Registration Rights Agreement, dated as of April 12, 2011, by and between SandRidge and the Trust. |
Exhibit 3.1
AMENDED AND RESTATED
TRUST AGREEMENT
OF
SANDRIDGE MISSISSIPPIAN TRUST I
Among
SANDRIDGE ENERGY, INC.
and
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
and
CORPORATION TRUST COMPANY
Dated: As of April 12, 2011
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I | DEFINITIONS | 2 | ||||||
ARTICLE II | NAME AND PURPOSE OF THE TRUST; DECLARATION OF TRUST | 9 | ||||||
Section 2.01. | Name; Certificate of Trust | 9 | ||||||
Section 2.02. | Purpose | 9 | ||||||
Section 2.03. | Transfer of Trust Property to the Trust | 10 | ||||||
Section 2.04. | Creation of the Trust | 11 | ||||||
Section 2.05. | Principal Offices | 12 | ||||||
ARTICLE III | ADMINISTRATION OF THE TRUST AND POWERS OF THE TRUSTEE AND THE DELAWARE TRUSTEE | 12 | ||||||
Section 3.01. | General Authority | 12 | ||||||
Section 3.02. | Limited Power of Disposition of the Trust | 13 | ||||||
Section 3.03. | No Power to Engage in Business or Make Investments or Issue Additional Securities | 15 | ||||||
Section 3.04. | Interest on Cash Reserves | 15 | ||||||
Section 3.05. | Power to Settle Claims | 15 | ||||||
Section 3.06. | Power to Contract for Services | 16 | ||||||
Section 3.07. | Payment of Liabilities of Trust | 16 | ||||||
Section 3.08. | Income and Principal | 17 | ||||||
Section 3.09. | Term of Contracts | 17 | ||||||
Section 3.10. | Transactions with the Trustee or the Delaware Trustee | 18 | ||||||
Section 3.11. | No Security Required | 18 | ||||||
Section 3.12. | Filing of Securities Act Registration Statement, Exchange Act Registration Statement and Other Reports, Listing of Trust Units, etc.; Certain Fees and Expenses | 18 | ||||||
Section 3.13. | Reserve Report | 19 | ||||||
Section 3.14. | No Liability for Recordation | 19 | ||||||
Section 3.15. | Quarterly Cash Distributions | 19 | ||||||
Section 3.16. | Entity-Level Taxation | 20 | ||||||
ARTICLE IV | TRUST UNITS AND BENEFICIAL INTEREST | 21 | ||||||
Section 4.01. | Creation and Distribution | 21 | ||||||
Section 4.02. | Rights of Trust Unitholders; Limitation on Personal Liability of Trust Unitholders | 21 | ||||||
Section 4.03. | Effect of Transfer | 22 | ||||||
Section 4.04. | Determination of Ownership | 22 |
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ARTICLE V |
ACCOUNTING AND DISTRIBUTIONS; REPORTS | 22 | ||||||
Section 5.01. | Fiscal Year and Accounting Method | 22 | ||||||
Section 5.02. | Quarterly Cash Distribution Amount | 22 | ||||||
Section 5.03. | Reports to Trust Unitholders and Others | 23 | ||||||
Section 5.04. | Reports from SandRidge to the Trustee | 23 | ||||||
Section 5.05. | U.S. Federal Income Tax Provisions | 24 | ||||||
ARTICLE VI | LIABILITY OF DELAWARE TRUSTEE AND TRUSTEE AND METHOD OF SUCCESSION | 24 | ||||||
Section 6.01. | Liability of Delaware Trustee, Trustee and Agents | 24 | ||||||
Section 6.02. | Indemnification of Trustee or Delaware Trustee | 25 | ||||||
Section 6.03. | Resignation of Delaware Trustee and Trustee | 27 | ||||||
Section 6.04. | Removal of Delaware Trustee and Trustee | 27 | ||||||
Section 6.05. | Appointment of Successor Delaware Trustee or Trustee | 27 | ||||||
Section 6.06. | Laws of Other Jurisdictions | 28 | ||||||
Section 6.07. | Reliance on Experts | 29 | ||||||
Section 6.08. | Force Majeure | 29 | ||||||
Section 6.09. | Failure of Action by SandRidge | 30 | ||||||
Section 6.10. | Action Upon Instructions | 30 | ||||||
Section 6.11. | Management of Trust Estate | 30 | ||||||
Section 6.12. | Validity | 30 | ||||||
Section 6.13. | Rights and Powers; Litigation | 30 | ||||||
Section 6.14. | No Duty to Act Under Certain Circumstances | 31 | ||||||
ARTICLE VII | COMPENSATION OF THE TRUSTEE AND THE DELAWARE TRUSTEE | 31 | ||||||
Section 7.01. | Compensation of Trustee and Delaware Trustee | 31 | ||||||
Section 7.02. | Reimbursement of SandRidge | 31 | ||||||
Section 7.03. | Source of Funds | 31 | ||||||
Section 7.04. | Ownership of Units by SandRidge, the Delaware Trustee and the Trustee | 32 | ||||||
ARTICLE VIII | MEETINGS OF TRUST UNITHOLDERS | 32 | ||||||
Section 8.01. | Purpose of Meetings | 32 | ||||||
Section 8.02. | Call and Notice of Meetings | 32 | ||||||
Section 8.03. | Method of Voting and Vote Required | 32 | ||||||
Section 8.04. | Conduct of Meetings | 33 | ||||||
ARTICLE IX | DURATION, REVOCATION AND TERMINATION OF TRUST | 33 | ||||||
Section 9.01. | Revocation | 33 | ||||||
Section 9.02. | Termination | 33 | ||||||
Section 9.03. | Disposition and Distribution of Assets and Properties | 33 | ||||||
Section 9.04. | Reorganization or Business Combination | 35 |
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ARTICLE X | AMENDMENTS | 36 | ||||||
Section 10.01. | Prohibited Amendments | 36 | ||||||
Section 10.02. | Permitted Amendments | 36 | ||||||
ARTICLE XI | ARBITRATION | 37 | ||||||
ARTICLE XII | MISCELLANEOUS | 39 | ||||||
Section 12.01. | Inspection of Books | 39 | ||||||
Section 12.02. | Disability of a Trust Unitholder | 40 | ||||||
Section 12.03. | Merger or Consolidation of Delaware Trustee or Trustee | 40 | ||||||
Section 12.04. | Change in Trust Name | 40 | ||||||
Section 12.05. | Filing of this Agreement | 40 | ||||||
Section 12.06. | Choice of Law | 40 | ||||||
Section 12.07. | Separability | 41 | ||||||
Section 12.08. | Notices | 41 | ||||||
Section 12.09. | Counterparts | 43 | ||||||
Section 12.10. | No Fiduciary Duty of SandRidge or its Affiliates | 43 |
Schedule 1 Subordination and Incentive Thresholds
Schedule 2 Fee Schedule of Trustee
Annex A - U.S. Federal Income Tax Provisions
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AMENDED AND RESTATED
TRUST AGREEMENT
OF
SANDRIDGE MISSISSIPPIAN TRUST I
This Amended and Restated Trust Agreement of SandRidge Mississippian Trust I (the Trust), is entered into effective as of the 12th day of April, 2011, by and among SANDRIDGE ENERGY, INC., a Delaware corporation with its principal office in Oklahoma City, Oklahoma (SandRidge) as trustor, CORPORATION TRUST COMPANY, a corporation organized under the laws of the State of Delaware with its principal office in Wilmington, Delaware (Corporation Trust), as Delaware Trustee (as hereinafter defined), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York (the Bank), as Trustee (as hereinafter defined).
WITNESSETH:
WHEREAS, SandRidge is engaged in the development, production, transportation and marketing of oil and natural gas, and owns oil and gas leasehold interests in properties located in Alfalfa, Garfield, Grant, Major and Woods counties in Oklahoma containing proved reserves of oil and natural gas; and
WHEREAS, SandRidge, SandRidge Exploration and Production, LLC, a Delaware limited liability company (SandRidge E&P), and Mistmada Oil Company, Inc., an Oklahoma corporation (SandRidge Sub), have determined to convey to the Trust the Royalty Interests (hereinafter defined) pursuant to the Conveyances (hereinafter defined) in exchange for cash, 3,750,000 Common Units (hereinafter defined), 7,000,000 Subordinated Units (hereinafter defined), and the right of SandRidge to receive Incentive Distributions (hereinafter defined) on the terms set forth herein; and
WHEREAS, SandRidge and the Trust have determined to enter into the Derivatives Agreement (hereinafter defined) to provide the Trust with the benefit of hedging contracts entered into between SandRidge and third parties; and
WHEREAS, SandRidge and the Trust have determined to enter into the Administrative Services Agreement (hereinafter defined), outlining SandRidges provision of administrative services to the Trust and its compensation therefor, and the Development Agreement (hereinafter defined), outlining SandRidges drilling obligation to the Trust; and
WHEREAS, SandRidge E&P has determined to grant the Drilling Mortgage (hereinafter defined) to the Trust to secure SandRidges drilling obligation to the Trust under the Development Agreement; and
WHEREAS, SandRidge, the Bank and Corporation Trust have previously formed the Trust pursuant to the Initial Trust Agreement (hereinafter defined) in accordance with the provisions of the Trust Act (hereinafter defined) and, in connection therewith, SandRidge has previously delivered to the Bank, on behalf of the Trust, good and valuable consideration, which the Bank has accepted, to have and to hold, in trust, such consideration, for the purposes and subject to the terms and conditions of the Initial Trust Agreement and as hereinafter provided; and
WHEREAS, SandRidge, SandRidge E&P and SandRidge Sub have agreed to deliver to the Bank, on behalf of the Trust, good and valuable consideration, which the Bank has agreed to accept, to have and to hold, in trust, such consideration and all other properties that may hereafter be acquired hereunder, for the purposes and subject to the terms and conditions hereinafter provided; and
NOW, THEREFORE, SandRidge, Corporation Trust and the Bank hereby amend and restate the Initial Trust Agreement of SandRidge Mississippian Trust I in its entirety.
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings indicated:
Administrative Services Agreement means the Administrative Services Agreement, delivered to be effective as of January 1, 2011, by and between SandRidge and the Trust.
Affiliate means, for any specified Person, another Person that, directly or through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract or otherwise.
Agent means, with respect to a Person, any agent, employee, officer, director, custodian, nominee or attorney of such Person.
Agreement means this Amended and Restated Trust Agreement of SandRidge Mississippian Trust I, as it may be further amended, supplemented or restated from time to time.
Assignment of Overriding Royalty Interest means the Assignment of Royalty Interest, delivered to be effective as of January 1, 2011, by and between SandRidge Sub and the Trust.
Bank is defined in the introductory paragraph to this Agreement.
Beneficial Interest means the aggregate beneficial interest of all Trust Unitholders in the Trust Estate, including without limitation the proceeds attributable to the Royalty Interests, which beneficial interest shall be expressed in Trust Units and shall not constitute any direct ownership interest in or to the Royalty Interests, or any part thereof, or any other part of the Trust Estate and shall be treated for all purposes as an intangible personal property interest.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by NYSE Regulation, Inc. as affecting ex dates or any other day on which national banking institutions in New York, New York are closed as authorized or required by law.
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Closing means the first closing of the initial public offering of Common Units contemplated by the Securities Act Registration Statement.
Closing Date means the date of Closing.
Commission means the U.S. Securities and Exchange Commission.
Common Unit means a security of the Trust representing a proportionate share of the Beneficial Interest having the rights and obligations specified with respect to a Common Unit in this Agreement. The term Common Unit does not refer to or include any Subordinated Unit prior to its conversion into a Common Unit pursuant to the terms hereof.
Conveyances means (a) that certain Term Overriding Royalty Interest Conveyance (PDP) effective as of January 1, 2011 between SandRidge E&P and SandRidge Sub and that certain Term Overriding Royalty Interest Conveyance (PUD) effective as of January 1, 2011 between SandRidge E&P and SandRidge Sub (collectively, the Term Royalty Conveyances), (b) that certain Perpetual Overriding Royalty Interest Conveyance (PDP) effective as of January 1, 2011 between SandRidge E&P and the Trust and that certain Perpetual Overriding Royalty Interest Conveyance (PUD) effective as of January 1, 2011 between SandRidge E&P and the Trust (collectively, the Perpetual Royalty Conveyances) and (c) the Assignment of Royalty Interest.
Corporation Trust is defined in the introductory paragraph to this Agreement.
Delaware Trustee means the Entity designated as trustee (other than the Trustee) under this Agreement and having its principal place of business in Delaware, not in its individual capacity but solely in its fiduciary capacity, and having the rights and obligations specified with respect to the Delaware Trustee in this Agreement. Furthermore, any benefit, indemnity, release or protection granted to the Delaware Trustee herein shall extend to and shall be fully applicable and effective with regard to any Delaware Trustee, including, without limitation, Corporation Trust Company.
Derivatives Agreement means the Derivatives Agreement, dated as of April 12, 2011, by and between SandRidge and the Trust.
Development Agreement means the Development Agreement, delivered to be effective as of January 1, 2011, by and among SandRidge, SandRidge E&P and the Trust.
Development Well has the meaning assigned to such term in the Development Agreement.
Drilling Obligation Completion Date has the meaning assigned to such term in the Development Agreement.
Drilling Mortgage means that certain Mortgage from SandRidge E&P, as Mortgagor, to the Trust, dated as of April 12, 2011, securing SandRidges drilling obligation under the Development Agreement.
3
Entity means a corporation, partnership, limited liability company, trust, estate or other entity, organization or association.
Environmental Laws means all laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases, treatment, storage or disposal of pollutants, contaminants, hazardous substances or industrial or hazardous wastes into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to the protection, preservation, or enhancement of endangered or threatened species, historic and archaeological resources, or wetlands and tidelands, as well as all codes, decrees, injunctions, judgments, orders, rules or regulations issued, entered, promulgated or approved thereunder pursuant to the requirements of applicable administrative procedures, acts and agency procedural rules.
Estimated Incremental Quarterly Tax Amount has the meaning assigned such term in Section 3.16.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exchange Act Registration Statement means the registration statement on Form 8-A pursuant to which the Trust Units may be registered under Section 12 of the Exchange Act.
Expenses is defined in Section 6.02(a).
Fair Value means, with respect to any portion of the Royalty Interests to be released or sold pursuant to Section 3.02(c) in connection with a sale of Underlying Properties, an amount of net proceeds that could reasonably be expected to be obtained from the sale of such portion of the Royalty Interests to a party that is not an Affiliate of either SandRidge or the Trust on an arms length negotiated basis, taking into account relevant market conditions and factors existing at the time of any such proposed sale or release, such net proceeds to be determined by deducting the Trusts proportionate share of sales costs, commissions and brokerage fees, if any (based on the ratio of (a) the fair market value of the portion of the Royalty Interest being released to (b) the fair market value of the Underlying Properties being transferred including the value of the Royalty Interests being released).
Incentive Distributions is defined in Section 3.15(a)(i)(D).
Incentive Threshold means, with respect to each Quarterly Period during the Subordination Period, the amount shown under the heading Incentive Threshold for such Quarterly Period on Schedule 1 or calculated in accordance with the formula set forth on Schedule 1.
Incremental Income Tax is defined in Section 3.16.
Indemnified Party is defined in Section 6.02(c).
Indemnifying Party is defined in Section 6.02(c).
4
Independent Reserve Engineers means Netherland Sewell & Associates, Inc., independent petroleum engineers, or any other petroleum engineering consultants employed by the Trust to provide information and reports with respect to the Royalty Interests.
Initial Common Units means the Common Units sold to the Underwriters on the Closing Date.
Initial Trust Agreement means the Trust Agreement of SandRidge Mississippian Trust I, entered into and effective as of December 30, 2010, by and among SandRidge, the Bank and Corporation Trust.
Liquidation Date means December 31, 2030.
Offer Notice is defined in Section 9.03(b).
Overallotment Option means the overallotment option granted to the Underwriters by the Trust pursuant to the Underwriting Agreement.
Overallotment Option Closing means any closing of the exercise of the Overallotment Option.
Overallotment Option Closing Date means the date on which any Overallotment Option Closing occurs.
Overallotment Option Units means the Common Units sold to the Underwriters on the Overallotment Option Closing Dates (other than the Initial Common Units).
Perpetual Royalty Interests means the royalty interests conveyed to the Trust by the Perpetual Royalty Conveyances, which term is defined above under Conveyances.
Person means a natural person or an Entity.
Promissory Note is defined in Section 2.03(a)(i).
Prospectus means the final prospectus constituting a part of the Securities Act Registration Statement, as filed pursuant to Rule 424(b) of the Commission.
Quarterly Cash Distribution Amount means, for each Quarterly Period prior to the Liquidation Date, without duplication:
(a) the sum of (i) all cash received by the Trust on or before the 45th calendar day following the end of a Quarterly Period under the Conveyances and the Derivatives Agreement, plus (ii) all other cash receipts of the Trust received during such Quarterly Period (excluding Sales Proceeds Amounts), plus (iii) any cash released on or before the 45th calendar day following the end of such Quarterly Period from any cash reserve established in a prior Quarterly Period by the Trustee for the payment of liabilities, including contingent liabilities, of the Trust, plus (iv) any interest earned on cash reserves invested pursuant to Section 3.04 that is received by the Trust on or before the 45th calendar day following the end of such Quarterly Period, less
5
(b) the sum of (i) the liabilities of the Trust paid during such Quarterly Period, plus (ii) any cash added on or before the 45th calendar day following the end of such Quarterly Period to any cash reserve for the payment of liabilities, including contingent liabilities, of the Trust.
Quarterly Payment Date means, (x) for the Quarterly Period ending March 31, 2011, the 60th day following the end of the Quarterly Period ending June 30, 2011 (or the Business Day next following such day if such day is not a Business Day), and (y) for each other Quarterly Period prior to the Liquidation Date, the 60th day following the end of such Quarterly Period (or the Business Day next following such day if such day is not a Business Day).
Quarterly Period means each of the calendar quarters ending on the last day of March, June, September and December of each year.
Quarterly Record Date means, (x) for the Quarterly Period ending March 31, 2011, the 45th day following the end of the Quarterly Period ending June 30, 2011 (or the Business Day next following such day if such day is not a Business Day), and (y) for each other Quarterly Period prior to the Liquidation Date, the close of business on the 45th day following the end of such Quarterly Period (or the Business Day next following such day if such day is not a Business Day); or such other date established by the Trustee in order to comply with applicable law or the rules of any securities exchange or quotation system on which the Common Units may be listed or admitted to trading, in which event Quarterly Record Date means such other date.
Record Date Trust Unitholders is defined in Section 8.02 hereof.
Registration Rights Agreement means the Registration Rights Agreement, dated as of April 12, 2011, by and between SandRidge and the Trust.
Responsible Officer means (a) with respect to the Delaware Trustee, any officer in the Corporate Staffing office of the Delaware Trustee having direct responsibility for the administration of this Agreement, and with respect to a particular corporate trust matter, any officer of the Delaware Trustee to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject, and (b) with respect to the Trustee, any officer in the Corporate Trust Administration office of the Trustee having direct responsibility for the administration of this Agreement, and with respect to a particular corporate trust matter, any officer of the Trustee to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject.
Royalty Interests means, collectively, the Perpetual Royalty Interests and the Term Royalty Interests.
Sales Proceeds Amounts means any cash paid to the Trust upon the sale of Royalty Interests or other assets of the Trust pursuant to Section 3.02 or Section 9.03 hereof after deduction of Trust expenses related to such sale or the establishment by the Trustee of cash reserves in such amounts as the Trustee in its discretion deems appropriate for contingent liabilities related thereto in accordance with Section 3808 of the Trust Act.
SandRidge is defined in the introductory paragraph to this Agreement.
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SandRidge E&P is defined in the recitals to this Agreement.
SandRidge Sub is defined in the recitals to this Agreement.
Sarbanes-Oxley Act means the Sarbanes-Oxley Act of 2002, as amended.
Securities Act means the Securities Act of 1933, as amended.
Securities Act Registration Statement means the Registration Statement on Form S-l and Form S-3 (Registration No. 333-171551) as it has been or as it may be amended or supplemented from time to time, filed by SandRidge and the Trust with the Commission under the Securities Act to register the offering and sale of the Common Units.
Special Reserve is defined in Section 3.07(b) of this Agreement.
Special Unit Majority means (i) a majority of the Common Units (excluding Common Units owned by SandRidge and its Affiliates) present in person or by proxy at a meeting at which a quorum is present; provided, that, at any time when SandRidge and its Affiliates collectively own less than 10% of the outstanding Trust Units, Special Unit Majority means a majority of the Trust Units present in person or by proxy at a meeting at which a quorum is present. For the purposes of calculating a Special Unit Majority, abstentions and broker non-votes shall not be deemed to be a vote cast.
Sponsor Units is defined in Section 2.03(a)(ii) of this Agreement.
Subordinated Unit means a security of the Trust representing a subordinated proportionate share of the Beneficial Interest having the rights and obligations specified with respect to a Subordinated Unit in this Agreement.
Subordination Period means the period beginning January 1, 2011 and ending on the last day of the fourth full calendar quarter following the Drilling Obligation Completion Date; provided that SandRidge has delivered to the Trustee a certificate executed by the Chief Executive Officer, President or any Vice President of SandRidge certifying that SandRidges drilling obligation under the Development Agreement was satisfied as of the Drilling Obligation Completion Date.
Subordination Threshold means, with respect to each Quarterly Period during the Subordination Period, the amount shown under the heading Subordination Threshold for such Quarterly Period on Schedule 1 or calculated in accordance with the formula set forth on Schedule 1.
Target Distribution means, with respect to each Quarterly Period during the Subordination Period, the amount shown under the heading Target Distribution for such Quarterly Period on Schedule 1.
Term Royalty Interests means the royalty interests conveyed to SandRidge Sub by the Term Royalty Conveyances, which term is defined above under Conveyances, and the Assignment of Royalty Interest.
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Transaction Documents means this Agreement, the Conveyances, the Development Agreement, the Administrative Services Agreement, the Derivatives Agreement, the Drilling Mortgage, the Registration Rights Agreement and the Underwriting Agreement.
Transferee means, as to any Trust Unitholder or former Trust Unitholder, any Person succeeding to the interest of such Trust Unitholder or former Trust Unitholder in one or more Trust Units, whether as purchaser, donee, legatee or otherwise.
Trust is defined in the recitals to this Agreement.
Trust Act means the Delaware Statutory Trust Act, Title 12, Chapter 38 of the Delaware Code, Sections 3801 et seq., as amended from time to time during the term of this Agreement.
Trust Estate means the assets held by the Trust under this Agreement, including both income and principal.
Trust Units means Subordinated Units and Common Units, collectively.
Trust Unitholder means the owner of one or more Trust Units as reflected on the books of the Trust or a transfer agent designated by the Trustee.
Trustee means the Entity serving as the trustee (other than the Delaware Trustee) under this Agreement, not in its individual capacity but solely in its fiduciary capacity. Furthermore, any benefit, indemnity, release or protection granted to the Trustee herein shall extend to and shall be fully applicable and effective with regard to any Entity serving as Trustee, including, without limitation, the Bank.
Underlying Properties means the Subject Interests, Development Wells and Wells subject to the Royalty Interests, as Subject Interests, Development Wells and Wells are defined in the Conveyances.
Underwriters means each Person named as an underwriter in Schedule I to the Underwriting Agreement who purchases Common Units pursuant thereto.
Underwriting Agreement means the Underwriting Agreement, dated as of April 6, 2011, by and among the Underwriters, the Trust and SandRidge, providing for the purchase of the Initial Common Units and the Overallotment Option Units.
Unit Majority means (i) a majority of the Common Units (excluding Common Units owned by SandRidge and its Affiliates) and (ii) a majority of the Trust Units, in each case present in person or by proxy at a meeting at which a quorum is present; provided, that, at any time when SandRidge and its Affiliates collectively own less than 10% of the outstanding Trust Units, Unit Majority means a majority of the Trust Units present in person or by proxy at a meeting at which a quorum is present. For the purposes of calculating a Unit Majority, abstentions and broker non-votes shall not be deemed to be a vote cast.
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ARTICLE II
NAME AND PURPOSE OF THE TRUST; DECLARATION OF TRUST
Section 2.01. Name; Certificate of Trust. The Trust continued by this Agreement shall remain a Delaware statutory trust under the Trust Act. The Trust shall continue to be known as the SandRidge Mississippian Trust I, and the Trustee may transact the Trusts affairs in that name. The continuation and operation of the Trust shall be in accordance with this Agreement, which shall constitute the governing instrument of the Trust within the meaning of Section 3801(f) of the Trust Act. In the event that a Responsible Officer of either the Delaware Trustee or the Trustee becomes aware that any statement contained or matter described in the Trusts Certificate of Trust has changed, making it false in any material respect, it will notify the other trustee and the Delaware Trustee shall promptly file or cause to be filed in the office of the Secretary of State of Delaware an amendment of same at the written direction of the Trustee, duly executed in accordance with Section 3811 of the Trust Act, in order to effect such change thereto, such filing to be in accordance with Section 3810(b) of the Trust Act.
Section 2.02. Purpose. The purposes of the Trust are, and the Trust shall have the power and authority and is hereby authorized:
(a) to acquire and hold in the name of the Trust, and to protect and conserve, the Trust Estate for the benefit of the Trust Unitholders;
(b) to receive and hold the Royalty Interests, and the other assets of the Trust Estate in the name of the Trust, and to enter into the Derivatives Agreement, the Development Agreement, the Administrative Services Agreement and the Drilling Mortgage;
(c) to issue the Subordinated Units, the Sponsor Units, the Initial Common Units and the Overallotment Option Units on the Closing Date, to hold the Overallotment Option Units in escrow and to deliver the Overallotment Option Units in accordance with Section 2.03 of this Agreement;
(d) to receive payments with respect to the Royalty Interests as provided in the Conveyances;
(e) to receive or make payments with respect to the Derivatives Agreement as provided in the Derivatives Agreement;
(f) to invest cash reserves as provided in Section 3.04;
(g) to pay, or provide for the payment of, any liabilities incurred in carrying out the purposes of the Trust;
(h) to distribute the Quarterly Cash Distribution Amount and any Sales Proceeds Amounts in accordance with Section 3.15;
(i) to incur indebtedness in order to pay the liabilities of the Trust as they become due, if necessary, any such indebtedness to be unsecured except as provided in Section 7:03;
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(j) to sell Royalty Interests in accordance with Sections 3.02, 9.02 and 9.03;
(k) to enter into, execute, deliver and perform its obligations and enforce its rights under the Transaction Documents to which it is a party;
(l) to cause to be prepared and file (i) reports required to be filed under the Exchange Act, (ii) any reports required by the rules of any securities exchange or quotation system on which the Trust Units are listed or admitted to trading, and (iii) any reports, forms or returns required to be filed pursuant to tax laws and other applicable laws and regulations;
(m) to establish, evaluate and maintain a system of disclosure controls and procedures and internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act;
(n) to conduct or wind up its business as described in the Securities Act Registration Statement; and
(o) to engage in such other activities as are necessary or convenient for the attainment of any of the foregoing or are incident thereto and which may be engaged in or carried on by a statutory trust under the Trust Act.
Section 2.03. Transfer of Trust Property to the Trust.
(a) Upon the formation of the Trust, SandRidge paid good and valuable consideration to the Trust, in trust, for the uses and purposes provided in the Initial Trust Agreement and in this Agreement. At (and subject to the occurrence of) the Closing the following transactions will occur:
(i) SandRidge E&P shall convey to SandRidge Sub the Term Royalty Interests in exchange for a promissory note from SandRidge Sub in the amount of $288,120,000 (the Promissory Note);
(ii) SandRidge E&P shall convey to the Trust the Perpetual Royalty Interests in exchange for 3,750,000 Common Units (the Sponsor Units) and 7,000,000 Subordinated Units to be issued to SandRidge E&P;
(iii) the Trust shall issue the Initial Common Units to the Underwriters for the cash consideration and on the terms set forth in the Underwriting Agreement;
(iv) SandRidge Sub shall convey to the Trust, pursuant to the Assignment of Royalty Interest, the Term Royalty Interests in exchange for $288,120,000 in cash;
(v) SandRidge Sub shall pay to SandRidge E&P $288,120,000 in cash, representing payment in full of the Promissory Note;
(vi) the Trust shall deliver the balance of the cash consideration received fom the Underwriters for the Initial Common Units (less the cash payment made by the Trust to SandRidge Sub under clause (iv) above) to SandRidge E&P as partial consideration for the Perpetual Royalty Interests;
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(vii) the Trust shall issue 2,250,000 Overallotment Option Units and the Trustee shall hold the Overallotment Option Units in escrow pending either the Underwriters exercise of the Overallotment Option or the expiration of the Overallotment Option, following which the Overallotment Option Units will be delivered by the Trustee in accordance with Section 2.03(b) of this Agreement;
(viii) SandRidge and the Trust shall enter into the Derivatives Agreement, Development Agreement, Administrative Services Agreement and Registration Rights Agreement; and
(ix) SandRidge E&P shall enter into the Drilling Mortgage for the benefit of the Trust.
(b) The Overallotment Option Units will be delivered as follows:
(i) If the Overallotment Option is exercised, partially or in full, in accordance with its terms by the Underwriters, on an Overallotment Option Closing Date the Trust will sell to the Underwriters such number of the Overallotment Option Units as is necessary to satisfy the Overallotment Option, and the Trust will promptly convey the proceeds received by it from the sale of the Overallotment Option Units, net of underwriting discounts and commissions and offering expenses, to SandRidge E&P, together with any remaining unsold Overallotment Option Units, as partial consideration for the Perpetual Royalty Interests conveyed by SandRidge E&P to the Trust; and
(ii) If the Overallotment Option is not exercised by the Underwriters within 30 days of the date of the Underwriting Agreement, the Trustee shall deliver the Overallotment Option Units held by the Trustee in escrow to SandRidge E&P as partial consideration for the Perpetual Royalty Interests conveyed by SandRidge E&P to the Trust, promptly following the 30th day after the date of the Underwriting Agreement.
(c) The issuance of the Initial Common Units, the Overallotment Option Units, the Sponsor Units and the Subordinated Units is hereby duly authorized and, upon issuance, such Trust Units shall be duly and validly issued and outstanding and, upon receipt by the Trust at the Closing or the Overallotment Option Closing of the consideration described above, the Trust Units will be fully paid and nonassessable without the requirement of any further consideration.
Section 2.04. Creation of the Trust. The Trustee declares that it shall hold the Trust Estate in trust for the benefit of the Trust Unitholders, upon the terms and conditions set forth in this Agreement. As set forth above and amplified herein, the Trust is intended to be a passive entity limited to the receipt of revenues attributable to the Royalty Interests and the Derivatives Agreement and the distribution of such revenues, after payment of or provision for Trust expenses and liabilities, to the Trust Unitholders. It is not the intention of the parties hereto to create, and nothing in this Agreement shall be construed as creating, for purposes other than tax purposes, a joint venture, joint stock company or similar business association, between or among Trust Unitholders, present or future, or between or among Trust Unitholders, or any of
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them, the Delaware Trustee, the Trustee, SandRidge, SandRidge E&P or SandRidge Sub. Neither the Trustee nor the Delaware Trustee, in its individual capacity, or otherwise, makes any representation as to the validity or sufficiency of this Agreement.
Section 2.05. Principal Offices. Unless and until changed by the Trustee, the address of the principal office of the Trustee is 919 Congress Avenue, Suite 500, Austin, Texas 78701. Unless and until changed by the Delaware Trustee, the principal place of business of the Delaware Trustee is 1209 Orange Street, Wilmington, Delaware 19801, Attention: Corporate Staffing. The Trust may maintain offices at such other place or places within or without the State of Delaware as the Trustee deems advisable.
ARTICLE III
ADMINISTRATION OF THE TRUST AND POWERS OF THE TRUSTEE
AND THE DELAWARE TRUSTEE
Section 3.01. General Authority.
(a) The Trustee accepts the trust hereby continued and agrees to perform its duties hereunder with respect to the same, but only upon the express terms of this Agreement. Subject to the limitations set forth in this Agreement, the Trustee, acting alone, without the approval or consent of, or notice to, the Delaware Trustee or any Trust Unitholder, is authorized to take such action as in its judgment is necessary, desirable or advisable to best achieve the purposes and powers of the Trust set forth in Section 2.02 hereof, including the execution and delivery of the Transaction Documents. The Trustee shall not (i) dispose of any part of the Trust Estate except as expressly provided herein or (ii) except as permitted by Section 10.02 of this Agreement, agree to amend or waive any provision of, give any consent or release with respect to, or terminate the Transaction Documents to which the Trust is a party without the Trust Unitholder approval, if any, required by Section 10.02.
(b) The Delaware Trustee accepts the Trust hereby continued and agrees to perform its duties hereunder with respect to the same, but only upon the express terms of this Agreement. The Delaware Trustee is authorized to take only such actions, and shall be required to perform only such duties and obligations, with respect to the Trust as are specifically set forth in this Agreement, and no implied duties, obligations or powers shall be read into this Agreement in respect to the Delaware Trustee. The Delaware Trustee shall not otherwise manage or take part in the business or affairs of the Trust in any manner.
(c) Notwithstanding any other provision of this Agreement, unless specifically authorized in writing by the Trustee and consented to by the Delaware Trustee, the Delaware Trustee shall not participate in any decisions or possess any authority with respect to the administration of the Trust, the investment of the Trusts property or the payment of distributions of income or principal to the Trust Unitholders. The Delaware Trustee shall have the power and authority to (i) execute, deliver, acknowledge and file all necessary documents and to maintain all necessary records of the Trust as required by the Trust Act and (ii) accept service of process on the Trust in the State of Delaware. The Delaware Trustee shall provide prompt written notice to the Trustee of its performance of any of the foregoing acts. The Trustee shall reasonably keep the Delaware Trustee informed of any material action taken by the Trustee with respect to the Trust.
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Section 3.02. Limited Power of Disposition of the Trust. The Trustee may sell all or part of the Royalty Interests only in the following circumstances.
(a) An election by the Trustee to sell all or part of the Trust Estate, at any time and from time to time, that is approved by the holders of a Unit Majority at a meeting duly called and held in accordance with Article VIII, subject to SandRidges right of first refusal as provided in Section 9.03 of this Agreement.
(b) After the Drilling Obligation Completion Date, SandRidge (and any of its Affiliates) may at any time, and from time to time sell, but only in accordance with the terms of the Conveyances, a divided or undivided portion of its interests in the Underlying Properties, free from and unburdened by the Royalty Interests, without the consent of the Trustee or the Trust Unitholders except as set forth below; provided the following conditions are met:
(i) the Trust receives Fair Value in the form of cash for the Royalty Interests to be released by the Trustee in connection with the sale of the Underlying Properties;
(ii) the aggregate Fair Value to be received by the Trust with respect to such Royalty Interests to be released by the Trustee and any other Royalty Interests previously released by the Trustee pursuant to this Section 3.02(b) during the most recently completed 12 calendar months would not exceed $5,000,000; and
(iii) the Trustee shall have received (A) in the event that the gross purchase price to be received by SandRidge for the sale of Underlying Properties in a single transaction or a series of related transactions is less than $5,000,000, a certificate from SandRidge, executed by the Chief Executive Officer, President or any Vice President thereof, certifying to the Trustee and the Trust that the cash proceeds to be received by the Trust in respect of the Royalty Interests to be released in connection with the sale of such Underlying Properties represents the Fair Value to the Trust for such Royalty Interests (and the Trustee is hereby authorized and directed to rely thereon) or (B) in the event that the gross purchase price to be received by SandRidge for the sale of Underlying Properties in a single transaction or a series of related transactions is more than $5,000,000, at the expense of SandRidge, an appraisal of such Underlying Properties from an independent appraiser in the business of evaluating or appraising oil and/or natural gas properties selected by mutual agreement of SandRidge and the Trustee, which appraisal confirms that the cash proceeds to be received by the Trust in respect of the Royalty Interests to be released in connection with the sale of such Underlying Properties represents the Fair Value to the Trust for the Royalty Interests to be released by the Trust in connection therewith (and the Trustee is hereby authorized and directed to rely thereon). Notwithstanding the foregoing, any sale of Underlying Properties pursuant to this Section 3.02(b), in a single transaction or a series of related transactions, where the gross purchase price to be received by SandRidge is greater than $5,000,000 shall require approval by the vote of a Unit Majority.
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(c) In the event that a portion of the Royalty Interests is to be released pursuant to Section 3.02(b) of this Agreement, upon receipt of (i) an accurate description of said portion of the Royalty Interests and (ii) sufficient information to evidence conclusively that the conditions to purchase referred to in Section 3.02(b) and in the applicable section of the Conveyances have been satisfied, then within a reasonable time thereafter, and upon advice of such experts as may be retained by the Trustee with the written consent of SandRidge, the Trustee shall execute and deliver a conveyance to SandRidge or its assignee covering said Royalty Interests and upon receipt of written notice of such a sale given by SandRidge, the Trustee shall execute and deliver at the closing of such sale a partial release and consent, and such other instruments, agreements and documents as SandRidge may reasonably request, to evidence or effect the transfer of such portion of SandRidges interests in the Underlying Properties, free from, and unburdened by, the Royalty Interests. Except as provided herein, any other sale of all or any portion of the Underlying Properties will not relieve SandRidge of its obligations with respect to the Royalty Interests.
(d) In addition to the transfers permitted by Section 3.02(c) and subject to the terms of the Conveyances, SandRidge (and any of its Affiliates) may at any time or from time to time after the Drilling Obligation Completion Date, without the consent of the Trust Unitholders, sell a divided or undivided portion of its interest in the Underlying Properties, provided, however, that such sale is subject to and burdened by the Royalty Interests that burden such portion of SandRidges (or such Affiliates) interest. Promptly after completion of any such sale, SandRidge shall so notify the Trustee in writing. Any purchaser of such Underlying Properties shall be the assignee of SandRidge (or such Affiliate) to the extent of the interest sold and shall be bound by the obligations of SandRidge (or such Affiliate) under this Agreement and the Conveyances to such extent.
(e) Subject to the terms of the Development Agreement, SandRidge may, at its option at any time prior to the Drilling Obligation Completion Date, cause the Trust to execute, acknowledge and deliver to SandRidge a recordable instrument (reasonably acceptable to SandRidge) that releases from the Royalty Interests and each Conveyance portions of the Subject Interests (as defined in the Development Agreement) in connection with SandRidges (or any of SandRidges Affiliates) exchange of such Subject Interests for certain other properties. Such other properties shall then become part of the Royalty Interests pursuant to the Conveyances. However, any such exchange of properties shall be subject to the conditions set forth in the Development Agreement. The Trustee shall accept any such certification from SandRidge and any such exchange of Subject Interests for other properties as contemplated by this subsection 3.02(e) without any duty to investigate or otherwise review or pass upon the accuracy of any such certification or reasonableness of any such exchange. The Trustee is authorized and directed to rely, and shall be fully protected in relying, on any such certification from SandRidge.
(f) Anything herein to the contrary notwithstanding, the Trustee shall not agree to any distribution of the Royalty Interests or any other asset of the Trust that would cause the interest of a Trust Unitholder to be treated as other than an intangible personal property interest. Unless required to sell pursuant to this Section 3.02, or pursuant to Section 9.03 hereof, or to distribute the Quarterly Cash Distribution Amount or Sales Proceeds Amount pursuant to Section 3.15 hereof, the Trustee is authorized to retain any part of the Trust Estate in the form in which such property was transferred to the Trustee, without regard to any requirement to diversify investments or other requirements.
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Section 3.03. No Power to Engage in Business or Make Investments or Issue Additional Securities. Neither the Trustee nor the Delaware Trustee shall cause or permit the Trust to (a) acquire any asset other than the assets conveyed or transferred to the Trust pursuant to Section 2.03 or Section 3.02(e), the rights of the Trust to enforce the terms and provisions of the Transaction Documents to which it is a party, and other amounts paid to the Trust as set forth herein, or (b) engage in any business or investment activity of any kind whatsoever, except for the activities permitted herein or issue Trust Units or other securities after the Closing Date (except that the Trustee may deliver the Overallotment Option Units in accordance with Section 2.03(b) of this Agreement). Neither the Trustee nor the Delaware Trustee shall have any responsibility or authority relating to the development or operations of the Underlying Properties or the marketing of any production therefrom or any other business decision affecting the assets of the Trust.
Section 3.04. Interest on Cash Reserves. Cash being held by the Trustee as a reserve for a payment of the Quarterly Cash Distribution Amount or Sales Proceeds Amounts or for the payment of any liabilities, other than current routine administrative costs, shall be placed by the Trustee with one or more banks or financial institutions (which, to the extent to which authorized pursuant to the Trust Act and other applicable laws, may be, or may include, any bank serving as the Trustee or the Delaware Trustee) and invested in (a) money market funds that invest only in United States government obligations, (b) interest bearing obligations issued by (or unconditionally guaranteed by) the United States of America or any agency or instrumentality thereof (provided such agency or instrumentality obligations are guaranteed by the full faith and credit of the United States of America), (c) repurchase agreements secured by obligations qualifying under (b) above or (d) certificates of deposit of any bank or banks having combined capital, surplus and undivided profits in excess of $100,000,000 that, in the case of (b), (c) and (d) above, mature prior to the date on which such Quarterly Cash Distribution Amount or any Sales Proceeds Amount is to be distributed or any such liability is to be paid. Any government obligation, repurchase agreement or certificate of deposit held by the Trustee shall be held until maturity. The interest rate on reserves placed with any bank or financial institution serving as the Trustee or the Delaware Trustee shall be the interest rate that such bank pays in the normal course of business on amounts placed with it, taking into account the amount involved, the period held and other relevant factors. Subject to Section 6.01, the Trustee shall not be liable for its selection of permitted investments or for any investment losses resulting from such investments. Notwithstanding anything herein to the contrary, the Delaware Trustee shall not be obligated to accept any such cash or other assets for investment or otherwise. To the extent that the Delaware Trustee decides in its sole and absolute discretion to accept cash for investment pursuant to this Section 3.04, the Delaware Trustee shall invest such cash pursuant to the written instructions of the Trustee, and the Delaware Trustee shall not be liable to the Trust for any losses resulting from such investments absent its own fraud or acts or omissions in bad faith or which constitute gross negligence.
Section 3.05. Power to Settle Claims. Subject to the rights and obligations of the Tax Matters Partner under Subsection 6(c) of Annex A hereto, the Trustee is authorized to prosecute or defend, and to settle by arbitration or otherwise, any claim of or against the
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Trustee, the Trust or the Trust Estate, to waive or release rights of any kind, to settle any dispute with SandRidge or any other Person, and to pay or satisfy any debt, tax or claim upon any evidence by it deemed sufficient, without the joinder or consent of any Trust Unitholder, including enforcing the rights of the Trust under the Transaction Documents to which it is a party. The Trust Unitholders shall have no power to prosecute any claim of the Trust or the Trust Estate against any Person other than to prosecute a claim to compel performance by the Trustee on behalf of the Trust or the Trust Estate.
Section 3.06. Power to Contract for Services. In the administration of the Trust, the Trustee is empowered to employ oil and natural gas consultants (which may include the Independent Reserve Engineers), accountants (with the consent of SandRidge, which consent shall not be unreasonably withheld or delayed), attorneys (who may, but need not, be counsel to SandRidge) and other professional and expert Persons, to employ or contract for clerical and other administrative assistance (including assistance from SandRidge), to delegate to Agents any matter, whether ministerial or discretionary, and to act through such Agents and to make payments of all fees for services or expenses in any manner thus incurred out of the Trust Estate.
Section 3.07. Payment of Liabilities of Trust.
(a) Except as otherwise provided herein, the Trustee may and shall use all money received by it for the payment or reimbursement of all liabilities of the Trust, including but without limiting the generality of the foregoing, all expenses, taxes, compensation to it for its services hereunder, as provided for in Article VII, and compensation to such parties as may be employed as provided for in Section 3.06 hereof. With respect to any liability that is contingent or uncertain in amount or that otherwise is not currently due and payable, the Trustee may, but is not obligated to, establish a cash reserve for the payment of such liability. Except to the extent permitted under applicable law, the Trustee shall not pay any liability of the Trust with funds set aside for the payment of a Quarterly Cash Distribution Amount or Sales Proceeds Amount.
(b) The Trustee shall be entitled to withhold up to $1.0 million from the Quarterly Cash Distribution Amount for the Quarterly Period ending March 31, 2011 to establish a cash reserve (the Special Reserve) available to the Trustee to pay or reimburse liabilities and expenses of the Trust, if and to the extent that the Trusts cash on hand is insufficient to pay such liabilities and expenses as they become due. If at any time the cash on hand (including the Special Reserve and any other cash reserves) and to be received by the Trustee and available to pay liabilities is not, or will not be, in the judgment of the Trustee, sufficient to pay liabilities of the Trust as they become due, the Trustee is authorized to cause the Trust to borrow the funds required to pay such liabilities. The Trustee may cause the Trust to borrow funds for such purpose from any Person, including, without limitation, the Bank while serving as Trustee or any other Entity serving as a fiduciary hereunder, on an unsecured basis only; provided, however, that neither the Bank nor any other Entity shall be required to make any such loan. Under no circumstances shall the Trustee or the Delaware Trustee be personally liable for any indebtedness or other liability of the Trust. If such funds are loaned to the Trust by the Trustee or any other such Entity while the Trustee or such other Entity is serving as a fiduciary hereunder, the terms of such indebtedness shall be similar to the terms which the Trustee or such other Entity would grant to a similarly situated commercial customer with whom it did not have,
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directly or indirectly, a fiduciary relationship, and the Trustee or such other Entity shall be entitled to enforce its rights with respect to any such indebtedness as if it were not, directly or indirectly, and had never been, directly or indirectly, the Trustee or a fiduciary hereunder.
(c) If at any time the Trusts cash on hand (including available cash reserves) is insufficient to pay the Trusts ordinary course administrative expenses as they become due, SandRidge will, upon written request of the Trustee, loan funds to the Trust in such amount as the Trustee certifies is necessary to pay such Trust expenses. Any funds loaned by SandRidge pursuant to this Section 3.07(c) shall be limited to the payment of the Trusts current accounts payable or other obligations to trade creditors in connection with obtaining goods or services or the payment of other Trust accrued current liabilities arising in the ordinary course of the Trusts business, and shall not be used to satisfy any indebtedness of the Trust. Any loan made by SandRidge to the Trust pursuant to this Section 3.07(c) shall: (i) be evidenced by a written promissory note executed by the Trustee on behalf of the Trust, (ii) be on an unsecured basis, (iii) have a maturity date no later than the Liquidation Date, (iv) have terms (including interest rate) that are no less favorable to SandRidge as those that would be obtained in an arms length transaction between SandRidge and an unaffiliated third party; and (v) be without recourse to the Trustee and the Bank, it being agreed that any such note shall be payable solely out of the assets of the Trust.
(d) In the event that the Trustee uses funds from the Special Reserve, or causes the Trust to borrow funds (including the borrowing of funds from SandRidge pursuant to Section 3.07(c)), in each case to pay or reimburse liabilities and expenses of the Trust, no further distributions will be made to Trust Unitholders (except in respect of any previously determined Quarterly Cash Distribution Amount or Sales Proceeds Amount) until the Special Reserve is fully replenished and any indebtedness created by such borrowings, including interest thereon, has been paid in full.
(e) No provision of this Trust Agreement shall require either the Delaware Trustee, the Trustee or any other Entity serving as a fiduciary hereunder, to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. In any event, the Trustee and the Delaware Trustee or any other Entity serving as fiduciary hereunder, shall be indemnified and held harmless by SandRidge in accordance with Section 6.02 of this Trust Agreement for any liability incurred in the performance of any of its duties hereunder. In no event shall the Trustee be responsible for the payment of any Quarterly Cash Distribution Amount or Sales Proceeds Amount or other amount except to the extent that it has sufficient cash on hand on behalf of the Trust to make such payment.
Section 3.08. Income and Principal. The Trustee shall not be required to keep separate accounts or records for income and principal. However, if the Trustee does keep such separate accounts or records, then the Trustee is authorized to treat all or any part of the receipts from the Royalty Interests or the Derivatives Agreement as income or principal, without having to maintain any reserve therefor, and in general to determine all questions as between income and principal and to credit or charge to income or principal or to apportion between them any receipt or gain and any charge, disbursement or loss as is deemed advisable under the circumstances of each case.
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Section 3.09. Term of Contracts. In exercising the rights and powers granted hereunder, the Trustee is authorized to make the term of any transaction or contract or other instrument extend beyond the term of the Trust to the extent necessary to fulfill its obligations under this Agreement.
Section 3.10. Transactions with the Trustee or the Delaware Trustee. To the extent such conduct is not prohibited by applicable law and except as otherwise provided herein, each of the Trustee and the Delaware Trustee is authorized in exercising its powers under this Agreement to make contracts and have dealings with itself or its Affiliates, directly and indirectly, in any other fiduciary or individual capacity.
Section 3.11. No Security Required. No Trustee hereunder shall be required to furnish any bond or security of any kind.
Section 3.12. Filing of Securities Act Registration Statement, Exchange Act Registration Statement and Other Reports, Listing of Trust Units, etc.; Certain Fees and Expenses.
(a) The Trustee, on behalf of the Trust and acting upon the advice of counsel, shall cause the Trust to comply with all rules, orders and regulations of the Commission and the national securities exchange on which the Common Units are listed or admitted for quotation, to which the Trust is subject as a result of the Common Units being registered under the Exchange Act and listed or admitted for quotation on such national securities exchange, and to take all such other actions necessary for the Common Units to remain registered under the Exchange Act and listed on such national securities exchange until the Trust is terminated. In addition, the Trustee is authorized to make, and the Trustee shall take, all actions to prepare and, to the extent required by this Agreement or by law, mail to Trust Unitholders any reports, press releases or statements, financial or otherwise, that the Trustee determines are required to be provided to Trust Unitholders by applicable law or governmental regulation or the requirements of any securities exchange or quotation system on which the Trust Units are listed or admitted to trading. In addition, the Trustee, on behalf of the Trust and acting upon the advice of counsel, shall cause the Trust to comply with all of the provisions of the Sarbanes-Oxley Act and the rules and regulations of the Commission related thereto, including but not limited to, establishing, evaluating and maintaining a system of disclosure controls and procedures and internal control over financial reporting and making all required certifications pursuant to the Sarbanes-Oxley Act and the rules and regulations of the Commission.
(b) The Trustee shall execute, by and on behalf of the Trust, any documents incidental or related to the objectives specified in Section 3.12(a).
(c) The Trust is hereby authorized and empowered to take all steps, make all filings and applications and pay all fees necessary, customary or appropriate to the accomplishment of the objectives set forth in Section 3.12(a).
(d) Except as otherwise provided in Article VI of this Agreement, the fees, charges, expenses, disbursements and other costs incurred by the Trustee or the Delaware Trustee in connection with the discharge of its duties pursuant to this Agreement, including, without
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limitation, trustee fees, engineering, audit, accounting and legal fees, printing and mailing costs, amounts reimbursed or paid to SandRidge pursuant to Section 3.06 or Section 7.02 hereof, and the fees and expenses of legal counsel for the Trustee, the Delaware Trustee, and the Trust (including legal fees and expenses incurred by the Trustee or the Delaware Trustee in connection with the formation of the Trust and issuance of Trust Units), shall be paid out of the Trust Estate as an administrative expense of the Trust; provided, however, that the Trustees and the Delaware Trustees acceptance fees shall, to the extent previously paid by SandRidge, be reimbursed to SandRidge. All other organizational expenses of the Trust will be paid by SandRidge, and SandRidge shall not be entitled to reimbursement thereof.
Section 3.13. Reserve Report. The Trustee shall cause a reserve report to be prepared by or for the Trust by the Independent Reserve Engineers as of December 31 of each year in accordance with criteria established by the Commission showing estimated proved oil and natural gas reserves attributable to the Royalty Interests as of December 31 of such year and other reserve information required to comply with Section 5.03 of this Agreement. SandRidge, to the extent it is the operator of the Underlying Properties, shall use commercially reasonable efforts to cooperate with the Trust and the Independent Reserve Engineers in connection with the preparation of any such reserve report, and to the extent it is not operator of the Underlying Properties and has not sold its interest in the same pursuant to Section 3.02(d), shall use commercially reasonable efforts to obtain and provide to the Trustee and the Independent Reserve Engineers such information as may be reasonably necessary in connection with the preparation of the reserve report. The Trustee and SandRidge shall use commercially reasonable efforts to cause each reserve report prepared pursuant to this Section 3.13 to be completed and delivered to them within 30 days after the effective date of the report or such shorter period as may be required to enable the Trustee to comply with the provisions of Section 5.03.
Section 3.14. No Liability for Recordation. SandRidge shall be solely responsible, and the Trustee and the Delaware Trustee shall have no responsibility, for the filing of the Conveyances, the Drilling Mortgage in the real property records of any jurisdiction in which the Underlying Properties are located. Neither the Trustee, the Delaware Trustee, the Bank nor any of their respective Agents shall be liable to the Trust Estate or any Trust Unitholder for any loss, claim or damage resulting from, or arising out of, the failure to file, or failure to properly file, the Conveyances and the Drilling Mortgage in any real property records of any jurisdiction. SandRidge shall deliver file-stamped copies of such documents showing the recording information to the Trustee reasonably promptly after recording such documents.
Section 3.15. Quarterly Cash Distributions.
(a) All payments of Quarterly Cash Distribution Amounts, regardless of the source or character of the assets to be distributed, shall be made in the following order of priority:
(i) During the Subordination Period:
(A) First, 100% to the Common Unitholders on a pro rata basis with respect to each Common Unit until there has been distributed with respect to each Common Unit for such quarterly period an amount equal to the Subordination Threshold for such Quarterly Period as set forth on Schedule 1 hereto;
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(B) Second, 100% to the Subordinated Unitholders on a pro rata basis with respect to each Subordinated Unit until there has been distributed with respect to each Subordinated Unit for such quarterly period an amount equal to the Subordination Threshold for such Quarterly Period set forth on Schedule 1 hereto;
(C) Third, 100% to the Trust Unitholders on a pro rata basis with respect to each Trust Unit until aggregate per Unit distributions to holders of Trust Units for such Quarterly Period equal the Incentive Threshold for such Quarterly Period; and
(D) Thereafter, (x) 50% to SandRidge (such amounts, Incentive Distributions) and (y) 50% to the Trust Unitholders on a pro rata basis with respect to each Trust Unit.
(ii) After the Subordination Period, 100% to the holders of Common Units (including Subordinated Units converted to Common Units) on a pro rata basis with respect to each Common Unit.
(b) At the expiration of the Subordination Period, all Subordinated Units shall automatically convert to Common Units on a one-for-one basis.
(c) All Sales Proceeds Amounts shall be distributed 100% to the holders of Trust Units on a pro rata basis on the Quarterly Payment Date following the Quarterly Period in which such sale occurred.
(d) All distributions made under this Section 3.15 to Trust Unitholders shall be made to the holders of record of the applicable Trust Units on the Quarterly Record Date and SandRidge, as applicable.
Section 3.16. Entity-Level Taxation. If legislation is enacted or the official interpretation of existing legislation is modified by a governmental authority, which after giving effect to such enactment or modification, results in the Trust becoming subject to U.S. federal, state or local or non-U.S. income or withholding taxes in excess of the amount of such taxes due from the Trust prior to such enactment or modification (including, for the avoidance of doubt, any increase in the rate of such taxation applicable to the Trust), then the Trustee may, in its sole discretion, reduce the Target Distribution by the amount of such income or withholding taxes that are payable by reason of any such new legislation or interpretation (the Incremental Income Tax), or any portion thereof selected by the Trustee, in the manner provided in this Section 3.16. If the Trustee elects to reduce the Target Distribution for any Quarterly Period with respect to all or a portion of the Incremental Income Taxes, the Trustee shall estimate for such Quarterly Period the Trusts liability (the Estimated Incremental Quarterly Tax Amount) for all (or the relevant portion of) such Incremental Income Taxes; provided that any difference between such estimate and the actual liability for Incremental Income Taxes (or the relevant portion thereof) for such Quarterly Period may, to the extent determined by the Trustee, be taken into account in determining the Estimated Incremental Quarterly Tax Amount with respect to each Quarterly Period in which any such difference can
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be determined. For each such Quarterly Period, the Target Distribution shall be the product obtained by multiplying (a) the amount therefor that is set out herein prior to the application of this Section 3.16 times (b) the quotient obtained by dividing (i) cash and cash equivalents available for distribution with respect to such Quarterly Period by (ii) the sum of cash and cash equivalents available for distribution with respect to such Quarterly Period and the Estimated Incremental Quarterly Tax Amount for such Quarterly Period, as determined by the Trustee. For purposes of the foregoing, cash and cash equivalents available for distribution with respect to a Quarterly Period will be deemed reduced by the Estimated Incremental Quarterly Tax Amount for that Quarterly Period. After reducing the Target Distribution in accordance with this Section 3.16, the Subordination Threshold shall be adjusted to 80% of the reduced Target Distribution and the Incentive Threshold shall be adjusted to 120% of the reduced Target Distribution.
ARTICLE IV
TRUST UNITS AND BENEFICIAL INTEREST
Section 4.01. Creation and Distribution. Ownership of the Beneficial Interest shall be divided into 28,000,000 Trust Units, of which 21,000,000 shall be Common Units and 7,000,000 shall be Subordinated Units. The Trust Units shall initially be uncertificated and ownership thereof evidenced by entry of a notation in an ownership ledger maintained for such purpose by the Trustee or a transfer agent designated by the Trustee. The Trust Unitholders shall be the sole beneficial owners of the Trust Estate and the Trust.
Section 4.02. Rights of Trust Unitholders; Limitation on Personal Liability of Trust Unitholders. Each Trust Unit shall represent a pro rata share of the Beneficial Interest and shall entitle its holder to participate pro rata, subject to the distinctions between Subordinated Units and Common Units provided in Section 3.15 hereof, in the rights and benefits of Trust Unitholders under this Agreement. A Trust Unitholder (whether by assignment or otherwise) shall take and hold each Trust Unit subject to all the terms and provisions of this Agreement which shall be binding upon and inure to the benefit of the successors, assigns, legatees, heirs and personal representatives of such Trust Unitholder. By an assignment or a transfer of one or more Trust Units, the assignor thereby shall, with respect to such assigned or transferred Trust Unit or Trust Units, part with, except as required by federal or state tax laws and as provided in Section 4.03 hereof in the case of a transfer after a Quarterly Record Date and prior to the corresponding Quarterly Payment Date, (a) all of its Beneficial Interest attributable to such Trust Unit or Trust Units and (b) all interests, rights and benefits of a Trust Unitholder under the Trust and this Agreement that are attributable to such Trust Unit or Trust Units as against all other Trust Unitholders, the Trust and the Trustee, including, without limiting the generality of the foregoing, any and all rights to receive cash distributions pursuant to Section 3.15 with respect to the Trust Units so assigned or transferred, for any Quarterly Period or Quarterly Periods subsequent to the Quarterly Period that relates to the last Quarterly Record Date on which the assignor owned such Trust Units. The Trust Units and the rights, benefits and interests evidenced thereby (including, without limiting the foregoing, the entire Beneficial Interest) are and, for all purposes, shall be construed, to be in all respects intangible personal property, and the Trust Units shall be bequeathed, assigned, disposed of and distributed as intangible personal property. No Trust Unitholder shall have legal title or a direct ownership interest in or to any real property interest or tangible personal
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property interest that may be considered a part of the Trust Estate, including, without limiting the foregoing, the Royalty Interests or any part thereof, or in or to any other asset of the Trust Estate, but the sole interest of each Trust Unitholder shall be his pro rata share of the Beneficial Interest. No Trust Unitholder shall have the right to call for or demand or secure any partition or distribution of the Royalty Interests or any other asset of the Trust Estate or any accounting during the continuance of the Trust or during the period of liquidation and winding up of the Trust under Section 9.03 of this Agreement. Pursuant to Section 3803(a) of the Trust Act, the Trust Unitholders shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware.
Section 4.03. Effect of Transfer. As to matters affecting the title, ownership, warranty or transfer of Trust Units, Article 8 of the Uniform Commercial Code and the Uniform Act for Simplification of Fiduciary Security Transfers, each as adopted and then in force in the State of Delaware, and other statutes and rules pertaining to the transfer of securities, each as adopted and then in force in the State of Delaware, shall govern and apply. The death of any Trust Unitholder shall not entitle the Transferee of such Trust Unitholder to an accounting or valuation for any purpose pursuant to the terms hereof.
Section 4.04. Determination of Ownership. In the event of any disagreement between Persons claiming to be Transferees of any Trust Unit, or in the event of any question on the part of the Trustee when presented with a request for transfer of a Trust Unit, that the Trustee believes is not fully resolved by opinions of counsel or other documents obtained in connection therewith, then, in addition to other rights that it may have under applicable law, the Trustee shall be entitled at its option to refuse to recognize any such claim so long as such disagreement or question shall continue. In so refusing, the Trustee may elect to refrain or refuse to act with respect to the interest represented by the Trust Unit involved, or any part thereof, or of any sum or sums of money accrued or accruing thereunder, and, in so doing, the Trustee shall not be or become liable to any Person for the failure or refusal of the Trustee to comply with such conflicting claims or requests for transfer, and shall be entitled to continue so to refrain and refuse so to act, until:
(a) the rights of the adverse claimants or the questions of the Trustee have been adjudicated by a final nonappealable judgment of a court assuming and having jurisdiction of the parties and the interest and money involved, or
(b) all differences have been resolved by valid agreement between said parties and the Trustee shall have been notified thereof in writing signed by all of the interested parties.
ARTICLE V
ACCOUNTING AND DISTRIBUTIONS; REPORTS
Section 5.01. Fiscal Year and Accounting Method. The Trust shall adopt the calendar year as its fiscal year and shall maintain its books on an appropriate basis to comply with Sections 5.03 and 5.04, except to the extent such books must be maintained on any other basis pursuant to applicable law or pursuant to Annex A.
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Section 5.02. Quarterly Cash Distribution Amount. On or prior to the Quarterly Record Date, the Trustee shall, in the manner required by the rules of any securities exchange or quotation system on which the Trust Units are listed or admitted to trading, communicate to the Trust Unitholders the amount of the Quarterly Cash Distribution Amount and the Sales Proceeds Amount, if any, for the relevant Quarterly Period.
Section 5.03. Reports to Trust Unitholders and Others.
(a) Within 45 days following the end of each of the first three Quarterly Periods of each calendar year (or such shorter period of time as may be required by the rules and regulations of the Commission adopted with respect to the Exchange Act or of any securities exchange or quotation system on which the Trust Units are listed or admitted to trading), the Trustee shall mail to each Person who was a Trust Unitholder of record on the Quarterly Record Date for such Quarterly Period a report, which may be a copy of the Trusts Quarterly Report on Form 10-Q under the Exchange Act, which shall show in reasonable detail the assets and liabilities and receipts and disbursements of the Trust for such Quarterly Period; provided, however, the obligation to mail a report to each Trust Unitholder of record shall be deemed to be satisfied if the Trustee files a copy of the Trusts Quarterly Report on Form 10-Q on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system maintained by the Commission or any successor system or otherwise makes such report publicly available on an Internet website that is generally accessible to the public.
(b) Within 90 days following the end of each fiscal year (or such shorter period of time as may be required by the rules and regulations of the Commission adopted with respect to the Exchange Act or of any securities exchange or quotation system on which the Trust Units are listed or admitted to trading), the Trustee shall mail to each Person who was a Trust Unitholder of record on a date to be selected by the Trustee an annual report, containing financial statements audited by a independent registered public accounting firm selected by the Trustee, plus such annual reserve information regarding the Royalty Interests as may be required by the rules and regulations of the Commission; provided, however, the obligation to mail a report to each Trust Unitholder of record shall be deemed to be satisfied if the Trustee files a copy of the Trusts Annual Report on Form 10-K on the EDGAR system maintained by the Commission or any successor system or otherwise makes such report publicly available on an Internet website that is generally accessible to the public.
(c) Notwithstanding any time limit imposed by Section 5.03(a) and (b), if, due to a delay in receipt by the Trustee of information necessary for preparation of a report or reports required by such sections, the Trustee shall be unable to prepare and mail such report or reports within such time limit, the Trustee shall prepare and mail such report or reports as soon thereafter as practicable.
Section 5.04. Reports from SandRidge to the Trustee. Promptly following each of the first three Quarterly Periods and following the completion of each fiscal year, SandRidge shall deliver to the Trustee a statement of the computation of the proceeds for such Quarterly Period or fiscal year, as the case may be, as well as an update on the number of Development Wells that have been drilled pursuant to the Development Agreement (identifying such Development Wells) and production information for such period.
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Section 5.05. U.S. Federal Income Tax Provisions. The U.S. federal income tax provisions set forth in Annex A (the Tax Provisions) are intended to comply with U.S. federal income tax law governing the allocation of items of income, gain, loss and deduction of the Trust (in its status as a partnership for tax purposes) and the maintenance of the capital accounts of the Trust Unitholders and are incorporated herein by reference. Any conflict between the provisions of this Agreement and the Tax Provisions shall be governed by the Tax Provisions.
ARTICLE VI
LIABILITY OF DELAWARE TRUSTEE AND TRUSTEE AND
METHOD OF SUCCESSION
Section 6.01. Liability of Delaware Trustee, Trustee and Agents.
(a) Except as expressly set forth in this Agreement, none of the Trustee or the Delaware Trustee shall have any duties or liabilities, including fiduciary duties, to the Trust or any Trust Unitholder. To the extent that, at law or in equity, the Trustee and the Delaware Trustee have duties, including fiduciary duties, and liabilities relating thereto to the Trust or any Trust Unitholder, the Trustee and the Delaware Trustee shall not be liable to the Trust or to any Trust Unitholder for its good faith reliance on the provisions of this Agreement. For the avoidance of doubt, to the fullest extent permitted by law, no person other than the Trustee and the Delaware Trustee shall have any duties (including fiduciary duties) or liabilities at law or in equity to the Trust, any Trust Unitholder or any other Person. The provisions of this Agreement, to the extent that they restrict or eliminate the duties (including fiduciary duties) and liabilities of the Trustee or the Delaware Trustee or any other Person otherwise existing at law or in equity are agreed by the parties hereto and the Trust to replace such other duties and liabilities of the Trustee, the Delaware Trustee and such other Persons.
(b) Notwithstanding any other provision of this Agreement, each of the Delaware Trustee and the Trustee, in carrying out its powers and performing its duties, may act directly or in its discretion (at the expense of the Trust) through Agents pursuant to agreements entered into with any of them, and each of the Delaware Trustee and the Trustee shall be liable only for (i) its own willful misconduct, (ii) acts or omissions in bad faith or that constitute gross negligence, and (iii) taxes, fees or other charges based on any fees, commissions or compensation received by it in connection with any of the transactions contemplated by this Agreement, and shall not otherwise be liable under any circumstances whatsoever, including but not limited to any act or omission of any Agent unless such Entity has acted with willful misconduct, in bad faith or with gross negligence in the selection, retention or supervision of such Agent. Notwithstanding any other provision of this Agreement, each Agent of the Delaware Trustee and the Trustee (including SandRidge and any of its Affiliates when acting as such), in carrying out its powers and performing its duties, may act directly or in its discretion (at the expense of the Trust) through its own agents and shall not otherwise be liable for any act or omission unless such Agent has acted with willful misconduct, in bad faith or with gross negligence. Neither the Trustee nor the Delaware Trustee shall have any liability to any Persons other than the Trust Unitholders in accordance with Section 3803 of the Trust Act and, for the avoidance of any doubt, neither shall have any liability hereunder to the Trust Unitholders absent (i) its own willful misconduct or (ii) acts or omissions in bad faith or which constitute gross negligence. No
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Trustee or Delaware Trustee shall be individually liable by reason of any act or omission of any other Trustee or Delaware Trustee. In the event of a claim brought against the Delaware Trustee or the Trustee for willful misconduct, acts or omissions in bad faith or gross negligence, their management liability insurance coverages (that is, directors & officers liability and crime insurance coverages) shall be primary to, and non-contributing with, any other insurance maintained by the Trust Unitholders.
(c) Each of the Delaware Trustee and the Trustee, and each Agent of the Delaware Trustee or the Trustee (including SandRidge and any of its Affiliates when acting as such), shall be protected in relying or reasonably acting upon any notice, certificate, opinion or advice of counsel or tax advisor; report of independent registered public accounting firm, petroleum engineer, geologist, auditor or other expert. In addition, each of the Delaware Trustee and the Trustee, and each Agent of the Delaware Trustee or the Trustee (including SandRidge and any of its Affiliates when acting as such) shall be protected in relying or reasonably acting upon any other document or instrument reasonably believed by such entity or Person to be true and accurate. Each of the Delaware Trustee and the Trustee, and each Agent of the Delaware Trustee or the Trustee (including SandRidge and any of its Affiliates when acting as such), is specifically authorized to rely upon the application of Article 8 of the Uniform Commercial Code, the application of the Uniform Act for Simplification of Fiduciary Security Transfers and the application of other statutes and rules with respect to the transfer of securities, each as adopted and then in force in the State of Delaware, as to all matters affecting title, ownership, warranty or transfer of the Trust Units, without any personal liability for such reliance, and the indemnity granted under Section 6.02 of this Agreement shall specifically extend to any matters arising as a result thereof. Further, and without limiting the foregoing, each of the Delaware Trustee and the Trustee is specifically authorized and directed to rely upon the validity of each of the Conveyances and the title held by the Trust in the Royalty Interests pursuant thereto and the validity of the Derivatives Agreement, and is further specifically authorized and directed to rely upon opinions of counsel in the State of Oklahoma where the Underlying Properties are located, and on any notice, certificate or other statement of SandRidge or information furnished by SandRidge without any liability in any capacity for such reliance.
Section 6.02. Indemnification of Trustee or Delaware Trustee.
(a) The Trustee and the Delaware Trustee, as well as each of their respective Agents (including SandRidge and any of its Affiliates when acting as such) and Affiliates, shall be indemnified and held harmless by, and receive reimbursement from, the Trust against and from any and all liabilities, obligations, actions, suits, costs, expenses, claims, damages, losses, penalties, taxes, fees and other charges (collectively, Expenses, excluding, however, any taxes and fees payable by the Trustee and the Delaware Trustee based on any fees, commissions or compensation received by the Trustee and the Delaware Trustee for their services hereunder) incurred by it individually in the administration of the Trust, or as a result of any act done or performed or omission occurring on account of its being Trustee or Delaware Trustee (or such Agent or Affiliate), as applicable, except such Expenses as to which it is liable under Section 6.01 of this Agreement. Each of the Trustee and the Delaware Trustee shall have an unsecured lien upon the Trust Estate for payment of such indemnification and reimbursement (including, without limitation, repayment of any funds borrowed from any Entity serving as a fiduciary hereunder), as well as for compensation to be paid to such Entity, in each case entitling
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such Entity to priority as to payment thereof over payment to any other Person under this Agreement. Neither the Trustee, the Delaware Trustee, nor any of their respective Agents shall be entitled to any reimbursement or indemnification from any Trust Unitholder for any Expense incurred by the Delaware Trustee, or the Trustee or any of their respective Agents, their right of reimbursement and indemnification, if any, except as provided in Section 6.02(b) below, being limited solely to the Trust Estate, whether or not the Trust Estate is exhausted without full reimbursement or indemnification of the Trustee, the Delaware Trustee or any of their respective Agents. All legal or other expenses reasonably incurred by the Trustee or the Delaware Trustee in connection with the investigation or defense of any Expenses as to which such Entity is entitled to indemnity under this Section 6.02(a) shall be paid out of the Trust Estate.
(b) SandRidge shall indemnify and hold harmless each of the Delaware Trustee and the Trustee (but not the Trust or Trust Unitholders), and any Agents and Affiliates thereof, individually and as trustee, against any Expenses to which such Entity or Agent thereof may become subject solely as a result of its position and service as trustee of the Trust under or with respect to any Environmental Law, insofar as such Expenses arise out of, are based upon or connected with the Underlying Properties, except for Expenses arising from any acts of such Entity or Agent not expressly contemplated hereunder. The obligations of SandRidge hereunder may be assigned or transferred to any Entity acquiring the Underlying Property to which each Expense relates; provided, however, such Entity unconditionally agrees in writing, reasonably satisfactory to the Trustee and the Delaware Trustee, to assume SandRidges obligations under this Section 6.02(b).
(c) If any action or proceeding shall be brought or asserted against the Trustee or the Delaware Trustee or any Agent or Affiliate thereof (each referred to as an Indemnified Party and, collectively, the Indemnified Parties) in respect of which indemnity may be sought from SandRidge (the Indemnifying Party) pursuant to Section 6.02(b) hereof, of which the Indemnified Party shall have received notice, the Indemnified Party shall promptly notify the Indemnifying Party in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all expenses. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such action or proceeding and employ counsel reasonably satisfactory (including the qualifications of such counsel) to the Indemnified Party in respect of any such action or proceeding or (iii) the named parties to any such action or proceeding include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party (in which case, if the Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action or proceeding on behalf of the Indemnified Party and the Indemnified Party may employ such counsel for the defense of such action or proceeding as is reasonably satisfactory to the Indemnifying Party; it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of
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the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys for the Indemnified Parties at any time). The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditional or delayed), but, if settled with such written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the Indemnifying Party agrees (to the extent stated above) to indemnify and hold harmless the Indemnified Party from and against any loss or liability by reason of such settlement or judgment to the extent provided for in Section 6.02(b).
(d) Any claim for indemnification pursuant to this Section 6.02 shall survive the termination of this Agreement and the resignation or removal of any Indemnified Party.
Section 6.03. Resignation of Delaware Trustee and Trustee. The Delaware Trustee or the Trustee may resign with or without cause, at any time by written notice to SandRidge or the other Trustee. Upon receiving the notice of resignation from the Delaware Trustee or the Trustee, as applicable, SandRidge shall provide notice to each of the then Trust Unitholders of record in accordance with Section 12.08 of this Agreement. Such notice shall specify a date when such resignation shall take effect, which shall be a Business Day not less than 60 days after the date such notice is mailed; provided, however, that in no event shall any resignation of the Trustee be effective until a successor Trustee (including a temporary trustee appointed pursuant to Section 6.05 of this Agreement) has accepted its appointment as Trustee pursuant to the terms hereof; and provided, further, that in no event shall any resignation of the Delaware Trustee be effective until a successor Delaware Trustee has accepted its appointment as Delaware Trustee pursuant to the terms hereof.
Section 6.04. Removal of Delaware Trustee and Trustee. The Delaware Trustee or the Trustee may be removed as trustee hereunder, with or without cause, by the vote of a Special Unit Majority at a meeting duly called and held in accordance with Article VIII; provided, however, that any removal of the Delaware Trustee shall be effective only at such time as a successor Delaware Trustee, fulfilling the requirements of Section 3807(a) of the Trust Act, has been appointed and has accepted such appointment; and provided, further, that any removal of the Trustee shall be effective only at such time as a successor Trustee has been appointed and has accepted such appointment in accordance with Section 6.05.
Section 6.05. Appointment of Successor Delaware Trustee or Trustee. In the event of the resignation or removal of the Delaware Trustee or the Trustee or if any such Entity has given notice of its intention to resign as the Delaware Trustee or the Trustee, (i) with respect to the Delaware Trustee, the Trustee may appoint a successor Delaware Trustee, or (ii) with respect to either the Delaware Trustee or the Trustee, a successor trustee may be appointed by the vote of a Special Unit Majority at a meeting duly called and held in accordance with Article VIII. Nominees for appointment may be made by (i) SandRidge, (ii) the resigned, resigning or removed trustee or (iii) any Trust Unitholder or Trust Unitholders owning of record at least 10% of the then outstanding Trust Units. Any successor Trustee shall be a bank or trust company having combined capital, surplus and undivided profits of at least $100,000,000. Any successor Delaware Trustee shall be a bank or trust company having its principal place of business in the State of Delaware and having combined capital, surplus and undivided profits of at least $20,000,000. Notwithstanding any provision herein to the contrary,
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in the event that a new trustee has not been approved within 60 days after a notice of resignation, a vote of Trust Unitholders removing a trustee or other occurrence of a vacancy, a successor trustee may be appointed by any State or Federal District Court having jurisdiction in New Castle County, Delaware, upon the application of any Trust Unitholder, SandRidge or the Entity tendering its resignation or being removed as trustee filed with such court, and in the event any such application is filed, such court may appoint a temporary trustee at any time after such application is filed, which shall, pending the final appointment of a trustee, have such powers and duties as the court appointing such temporary trustee shall provide in its order of appointment, consistent with the provisions of this Agreement. Any such temporary trustee need not meet the minimum standards of capital, surplus and undivided profits otherwise required of a successor trustee under this Section 6.05. Nothing herein shall prevent the same Entity from serving as both the Delaware Trustee and the Trustee if it meets the qualifications thereof.
Immediately upon the appointment of any successor trustee, all rights, titles, duties, powers and authority of the predecessor trustee hereunder (except to the predecessor trustees rights to amounts payable under Article VII or Section 6.02 hereof accruing through the appointment of such successor trustee) shall be vested in and undertaken by the successor trustee, which shall be entitled to receive from the predecessor trustee all of the Trust Estate held by it hereunder and all records and files of the predecessor trustee in connection therewith. Any resigning or removed trustee shall account to its successor for its administration of the Trust. All successor trustees shall be fully protected in relying upon such accounting and no successor trustee shall be obligated to examine or seek alteration of any account of any preceding trustee, nor shall any successor trustee be personally liable for failing to do so or for any act or omission of any preceding trustee. The preceding sentence shall not prevent any successor trustee or any other Person from taking any action otherwise permissible in connection with any such account.
Section 6.06. Laws of Other Jurisdictions. If, notwithstanding the other provisions of this Agreement (including, without limitation, Section 12.06 hereof), the laws of jurisdictions other than the State of Delaware (each being referred to below as such jurisdiction) apply to the administration of the Trust or the Trust Estate under this Agreement, the following provisions shall apply.
If it is necessary or advisable for a trustee to serve in such jurisdiction and if the Trustee is disqualified from serving in such jurisdiction or for any other reason fails or ceases to serve there, the ancillary trustee in such jurisdiction shall be such Entity, which need not meet the requirements set forth in the third sentence of Section 6.05 of this Agreement, as shall be designated in writing by SandRidge and the Trustee. To the extent permitted under the laws of such jurisdiction, SandRidge and the Trustee may remove the trustee in such jurisdiction, without cause and without necessity of court proceeding, and may or may not appoint a successor trustee in such jurisdiction from time to time. The trustee serving in such jurisdiction shall, to the extent not prohibited under the laws of such jurisdiction, appoint the Trustee to handle the details of administration in such jurisdiction. The trustee in such jurisdiction shall have all rights, powers, discretions, responsibilities and duties as are delegated in writing by the Trustee, subject to such limitations and directions as shall be specified by the Trustee in the instrument evidencing such appointment. Any trustee in such jurisdiction shall be responsible to the Trustee for all assets with respect to which such trustee is empowered to act.
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To the extent the provisions of this Agreement and Delaware law cannot be made applicable to the administration in such jurisdiction, the rights, powers, duties and liabilities of the trustee in such jurisdiction shall be the same (or as near the same as permitted under the laws of such jurisdiction if applicable) as if governed by Delaware law. In all events, the administration in such jurisdiction shall be as free and independent of court control and supervision as permitted under the laws of such jurisdiction. The fees and expenses of any ancillary trustee shall constitute an administrative expense of the Trust payable from the Trust Estate. Whenever the term Trustee is applied in this Agreement to the administration in such jurisdiction, it shall refer only to the trustee then serving in such jurisdiction.
Section 6.07. Reliance on Experts. The Trustee and the Delaware Trustee may, but shall not be required to, consult with counsel (which may but need not be counsel to SandRidge), accountants, tax advisors, geologists, engineers and other parties (including employees of the Trustee or Delaware Trustee, as applicable) deemed by the Trustee or the Delaware Trustee to be qualified as experts on the matters submitted to them, and, subject to Section 6.01 but notwithstanding any other provision of this Agreement, the Trustee and the Delaware Trustee shall be entitled to rely upon the opinion or advice of any such party on any such matter and shall not be held liable in respect of any action taken, omitted or suffered hereunder in good faith in reliance upon and in accordance with the opinion or advice of any such party. Each of the Trustee and the Delaware Trustee is authorized to make payments of all reasonable fees for services and expenses thus incurred out of the Trust Estate. Neither the Delaware Trustee nor the Trustee shall incur any liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by the proper party or parties. The Delaware Trustee and the Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the manner or ascertainment of which is not specifically prescribed herein, the Delaware Trustee and the Trustee may for all purposes hereof rely on a certificate, signed by the chief executive officer, president or any vice president or by the treasurer or any assistant treasurer and by the secretary or any assistant secretary of the relevant party (including without limitation SandRidge), as to such fact or matter, and shall not be held liable for any action taken or omitted to be taken by it in good faith in reliance thereon.
Section 6.08. Force Majeure. The Trustee and the Delaware Trustee shall not incur any liability to any Trust Unitholder if, by reason of any current or future law or regulation thereunder of any governmental authority, or by reason of any act of God, war or other circumstance beyond its control, the Trustee or the Delaware Trustee is prevented or forbidden from doing or performing any act or thing required by the terms hereof to be done or performed; nor shall the Trustee or the Delaware Trustee incur any liability to any Trust Unitholder by reason of any nonperformance or delay caused as aforesaid in the performance of any act or thing required by the terms hereof to be done or performed, or by reason of any exercise of, or failure to exercise, any discretion provided for herein caused as aforesaid.
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Section 6.09. Failure of Action by SandRidge. In the event that SandRidge shall fail or is unable to take any action as required under any provision of the Transaction Documents, the Trustee is empowered (but shall not be required) to take such action.
Section 6.10. Action Upon Instructions. Whenever the Delaware Trustee is unable to decide between alternative courses of action permitted or required by the terms of this Agreement, or is unsure as to the application, intent, interpretation or meaning of any provision of this Agreement, the Delaware Trustee shall promptly give notice (in such form as shall be appropriate under the circumstances) to the Trustee requesting instruction as to the course of action to be adopted, and, to the extent the Delaware Trustee acts in good faith in accordance with any such instruction received, the Delaware Trustee shall not be liable on account of such action to any Person. If the Delaware Trustee shall not have received appropriate instructions within ten calendar days of sending such notice to the Trustee (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action which is consistent, in its view, with this Agreement, and the Delaware Trustee shall have no liability to any Person for any such action or inaction.
Section 6.11. Management of Trust Estate. The Delaware Trustee shall have no duty or obligation to manage, control, prepare, file or maintain any report, license or registration, use, sell, dispose of or otherwise deal with the Trust Estate, or otherwise to take or refrain from taking any action under or in connection with this Agreement, or any other document or instrument, except as expressly required hereby.
Section 6.12. Validity. The Delaware Trustee shall not be responsible for or in respect of and makes no representations as to the validity or sufficiency of any provision of this Agreement or for the due execution hereof by the other parties hereto or for the form, character, genuineness, sufficiency, value or validity of any of the Trust Estate, and the Delaware Trustee shall in no event assume or incur any liability, duty or obligation to SandRidge, the Trustee or any Trust Unitholder, other than as expressly provided for herein. The Delaware Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any of the Trust Units.
Section 6.13. Rights and Powers; Litigation. The Delaware Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation or arbitration under this Agreement or otherwise or in relation to this Agreement, at the request, order or direction of the Trustee, any Trust Unitholder or SandRidge unless the Trustee, Trust Unitholder or SandRidge, as the case may be, has or have offered to the Delaware Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that may be incurred by the Delaware Trustee therein or thereby. The Delaware Trustee shall be under no obligation to appear in, prosecute or defend any action, or to take any other action other than the giving of notices, that in its opinion may require it to incur any out-of-pocket expense or any liability unless it shall be furnished with such security and indemnity against such expense or liability as it may reasonably require. The right of the Delaware Trustee to perform any discretionary act enumerated in this Agreement shall not be construed as a duty, and the Delaware Trustee shall not be personally liable or accountable for the performance of any such act except as specifically provided in Section 6.01.
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Section 6.14. No Duty to Act Under Certain Circumstances. Notwithstanding anything contained herein to the contrary, the Delaware Trustee will not be required to take any action in any jurisdiction other than in the State of Delaware if the taking of such action would (i) require the consent, approval, authorization or order of, the giving of notice to, the registration with or the taking of any action in respect of, any state or other governmental authority or agency of any jurisdiction other than in the State of Delaware, (ii) result in any fee, tax or governmental charge under the laws of any jurisdiction or any political subdivisions thereof other than the State of Delaware becoming payable by the Delaware Trustee or (iii) subject the Delaware Trustee to personal jurisdiction in any jurisdiction other than the State of Delaware for causes of action arising from acts unrelated to the consummation of the transactions by the Delaware Trustee contemplated hereby.
ARTICLE VII
COMPENSATION OF THE TRUSTEE AND THE DELAWARE TRUSTEE
Section 7.01. Compensation of Trustee and Delaware Trustee. The Trustee shall receive compensation for its services under this Agreement as set forth on Schedule 2. The Delaware Trustee shall receive an annual fee of $2,300 as compensation for its services under this Agreement. Each of the Trustee and the Delaware Trustee shall be reimbursed for all actual expenditures made in connection with administration of the Trust, including those made on account of any unusual duties in connection with matters pertaining to the Trust and the reasonable compensation and expenses of their counsel, accountants or other skilled persons and of all other persons not regularly in their employ. The Trustee and the Delaware Trustee shall each be entitled to reasonable additional compensation for any unusual or extraordinary services rendered by the Trustee or by the Delaware Trustee in connection with the administration of the Trust.
Section 7.02. Reimbursement of SandRidge. SandRidge shall be entitled to reimbursement from the Trust for all out-of-pocket costs and expenses paid by SandRidge, acting in its capacity as Agent of the Trust (including without limitation legal, accounting, engineering and printing costs) but excluding those costs and expenses specified in Section 3.12(d) and in Section 6.02(b) of this Agreement as costs and expenses to be paid by SandRidge and excluding any costs and expenses that have been or will be reimbursed pursuant to the Administrative Services Agreement, promptly upon submission of written evidence thereof to the Trustee.
Section 7.03. Source of Funds. Except as provided in Section 3.12 and Section 6.02(b) of this Agreement, all compensation, reimbursements and other charges owing to the Trustee or the Delaware Trustee hereunder shall constitute indebtedness hereunder, shall be payable by the Trust out of the Trust Estate and such Entity shall have a lien on the Trust Estate for payment of such compensation, reimbursements and other charges, entitling such Entity to priority as to payment thereof over payment to any other Person under this Agreement.
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Section 7.04. Ownership of Units by SandRidge, the Delaware Trustee and the Trustee. Each of the Delaware Trustee and the Trustee, in its individual or other capacity, may become the owner or pledgee of Trust Units with the same rights it would have if it were not a trustee hereunder. SandRidge and its Affiliates may become the owner of additional Trust Units, with the same rights and entitled to the same benefits as any other Trust Unitholder, except to the extent the Subordinated Unitholders have different rights than Common Unitholders.
ARTICLE VIII
MEETINGS OF TRUST UNITHOLDERS
Section 8.01. Purpose of Meetings. A meeting of the Trust Unitholders may be called at any time and from time to time pursuant to the provisions of this Article VIII to transact any business that the Trust Unitholders may be authorized to transact.
Section 8.02. Call and Notice of Meetings. Any such meeting of the Trust Unitholders may be called by the (i) Trustee or (ii) by Trust Unitholders owning of record not less than 10% in number of the then outstanding Trust Units. The Trustee may, but shall not be obligated to, call meetings of Trust Unitholders to consider amendments, waivers, consents and other changes relating to the Transaction Documents to which the Trust is a party. In addition, at the written request of the Delaware Trustee, unless the Trustee appoints a successor Delaware Trustee in accordance with Section 6.05, the Trustee shall call such a meeting but only for the purpose of appointing a successor to the Delaware Trustee upon its resignation. All such meetings shall be held at such time and at such place as the notice of any such meeting may designate. Except as may otherwise be required by any applicable law or by the rules of any securities exchange or quotation system on which the Trust Units may be listed or admitted to trading, notice of every meeting of the Trust Unitholders authorized by the Trustee or the Trust Unitholders calling the meeting, setting forth the time and place of the meeting and in general terms the matters proposed to be acted upon at such meeting, shall be given in accordance with Section 12.08 of this Agreement not more than 60 nor less than 20 days before such meeting is to be held to all of the Trust Unitholders of record at the close of business on a record date selected by the Trustee (the Record Date Trust Unitholders), which shall be not more than 60 days before the date of such notice. No matter other than that stated in the notice shall be acted upon at any meeting unless such action is approved by the Trust Unitholders. Only Record Date Trust Unitholders shall be entitled to notice of and to exercise rights at or in connection with the meeting. All costs associated with calling any meeting of the Trust Unitholders shall be borne by the Trust, except that the costs associated with the calling of a meeting of the Trust Unitholders called by Trust Unitholders owning of record not less than 10% in number of the then outstanding Trust Units shall be borne by the Trust Unitholders that called such meeting of Trust Unitholders.
Section 8.03. Method of Voting and Vote Required. Each Record Date Trust Unitholder shall be entitled to one vote for each Trust Unit owned by such Record Date Trust Unitholder on the record date, and any Record Date Trust Unitholder may vote in person or by proxy. Abstentions and broker non-votes shall not be deemed to be a vote cast. At any such meeting, the presence in person or by proxy of Record Date Trust Unitholders holding a majority of the Trust Units held by all Record Date Trust Unitholders shall constitute a quorum.
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Except as otherwise expressly provided in this Agreement, any matter shall be deemed to have been approved by the Trust Unitholders if it is approved by the affirmative vote of Record Date Trust Unitholders holding a majority of the Trust Units present in person or by proxy at a meeting at which a quorum is present.
Section 8.04. Conduct of Meetings. The Trustee may make such reasonable regulations consistent with the provisions hereof as it may deem advisable for any meeting of the Trust Unitholders, for the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, the preparation and use at the meeting of a list authenticated by or on behalf of the Trustee of the Trust Unitholders entitled to vote at the meeting and such other matters concerning the conduct of the meeting as it shall deem advisable.
ARTICLE IX
DURATION, REVOCATION AND TERMINATION OF TRUST
Section 9.01. Revocation. The Trust is and shall be irrevocable, and SandRidge, as trustor, after the Closing, retains no power to alter, amend (except as provided otherwise in this Article IX and in Section 10.02 hereof), revoke or terminate the Trust. The Trust shall be terminable only as provided in Section 9.02 of this Agreement, and shall continue until so terminated.
Section 9.02. Termination. The Trust shall dissolve and commence winding-up its business and affairs upon the first to occur of the following events or times:
(a) the disposition of all of the Royalty Interests and other assets (other than cash), tangible or intangible, including accounts receivable and claims or rights to payment, constituting the Trust Estate;
(b) an election by the Trustee to dissolve the Trust that is approved by the holders of a Unit Majority at a meeting duly called and held in accordance with Article VIII;
(c) the aggregate Quarterly Cash Distribution Amounts for any four consecutive quarters is less than $1.0 million;
(d) the entry of a decree of judicial dissolution of the Trust pursuant to the provisions of the Trust Act; and
(e) the Liquidation Date.
Section 9.03. Disposition and Distribution of Assets and Properties. Notwithstanding the dissolution of the Trust pursuant to Section 9.02, the Trustee and the Delaware Trustee shall continue to act as trustees of the Trust Estate and as such shall exercise the powers granted under this Agreement until their duties have been fully performed and the Trust Estate finally distributed so that the affairs of the Trust have been wound up.
Upon the sale of all or a portion of the Trust Estate pursuant to Section 3.02 of this Agreement or the dissolution of the Trust pursuant to Section 9.02, the Trustee shall sell for cash
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in one or more sales all of the properties other than cash then constituting the Trust Estate after any reconveyance of assets to SandRidge pursuant to the Conveyances; provided, however, SandRidge shall have a right of first refusal to acquire the subject properties being offered in each sale pursuant to the following procedures:
(a) Within 30 days of the Liquidation Date, or after the date such sale pursuant to Section 3.02 is approved, as applicable, the Trustee shall use commercially reasonable efforts to retain a third-party advisor to market the subject properties;
(b) If the Trustee receives a bona fide purchase offer from a proposed purchaser other than SandRidge and desires to sell all or part of the subject properties pursuant to this Section 9.03, then the Trustee shall give notice (the Offer Notice) to SandRidge, identifying the proposed purchaser from whom it has received a bona fide offer and setting forth the proposed sale price, payment terms and other material terms and conditions under which the Trustee is proposing to sell such subject properties to the proposed purchaser. SandRidge shall have 30 days from its receipt of the Offer Notice to elect, by written notice to the Trustee, to purchase the subject properties offered for sale on the terms and conditions set forth in the Offer Notice.
(c) If SandRidge makes such election, the notice of election shall state a closing date not later than 60 days after the date of the Offer Notice (subject only to customary closing conditions that could delay such closing date, including obtaining necessary governmental approvals). If SandRidge makes such election and actually completes the purchase the subject properties, the proposed purchaser identified in the Offer Notice shall be entitled to receive reimbursement of its reasonable and documented expenses incurred in connection with its review and analysis of the subject properties and bid preparation. SandRidge shall pay the proposed purchaser 50 percent of such reimbursement, and the Trust shall pay the proposed purchaser 50 percent of such reimbursement; provided, however, the amount of such reimbursement shall be limited to 5percent of the sales price received by the Trust for the subject properties.
(d) If SandRidge does not give notice within the 30-day period following the Offer Notice that it elects to purchase such subject properties, the Trustee may, within 60 days after the end of such 30-day period, sell such subject properties to the identified purchaser on terms and conditions that are substantially the same as those previously set forth in such Offer Notice. In the event the Trustee shall desire to offer such subject properties for sale on terms and conditions other than terms and conditions that are substantially the same as those previously set forth in an Offer Notice, the procedures set forth in this Section 9.03 must again be initiated and applied with respect to the terms and conditions as modified.
(e) If, after a reasonable marketing period, no bona fide purchase offer is received with respect to any or all of the subject properties from any party other than SandRidge, then SandRidge shall obtain, at the Trusts expense, and deliver to the Trustee, a fairness opinion from a nationally-recognized valuation firm with expertise in valuing oil and natural gas properties stating that the proposed sale price to be paid by SandRidge to the Trust for the subject properties is fair to the Trust.
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The Trustee shall not be required to obtain approval of the Trust Unitholders prior to performing any of its duties pursuant to this Section 9.03. Notwithstanding anything herein to the contrary, in no event may the Trustee distribute the Royalty Interests to the Trust Unitholders. Upon completion of the dissolution and winding up of the Trust in accordance with Sections 9.02 and 9.03 hereof and Section 3808 of the Trust Act, the Trustee shall direct the Delaware Trustee to execute and file, and the Delaware Trustee shall execute and file or cause to be filed, a certificate of cancellation of the Trusts Certificate of Trust in accordance with Section 3811 of the Trust Act. Upon the filing of such certificate of cancellation, the Trustee shall have no further duty or obligation or any further liability under this Agreement except as provided in Section 6.01.
Section 9.04. Reorganization or Business Combination.
(a) The Trust may merge or consolidate with or into, or convert into, one or more other Entities in accordance with Section 3815 of the Trust Act if such transaction (i) is agreed to by the Trustee, (ii) is approved by the vote of a Unit Majority at a meeting duly called and held in accordance with Article VIII and (iii) is permitted under the Trust Act and any other applicable law. The Trustee shall give prompt notice of such reorganization or business combination to the Delaware Trustee. Pursuant to and in accordance with the provisions of Section 3815(f) of the Trust Act, and notwithstanding anything else herein, an agreement of merger or consolidation approved in accordance with this Section 9.04 and Section 3815(a) of the Trust Act may effect any amendment to this Agreement or effect the adoption of a new trust agreement if it is the surviving or resulting trust in the merger or consolidation.
(b) Upon the effective date of a certificate of merger duly filed in accordance with the Trust Act, the following shall be deemed to occur, in addition to such effects as may be specified under the Trust Act as then in effect:
(i) all of the rights, privileges and powers of each of the business entities that have merged or consolidated, and all property, real, personal and mixed, and all debts due to any of those business entities and all other things and causes of action belonging to each of those business entities shall be vested in the surviving business entity and, after the merger or consolidation, shall be the property of the surviving business entity to the extent they were part of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any of those constituent business entities shall not revert and shall not be in any way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interest in property of any of those constituent business entities shall be preserved unimpaired;
(iv) all debts, liabilities and duties of those constituent business entities shall attach to the surviving or resulting business entity, and may be enforced against it to the same extent as if the debts, liabilities and duties had been incurred or contacted by it; and
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(v) if the Trust is the surviving or resulting entity, the governing instrument of the Trust shall be amended or a new governing instrument adopted as set forth in the certificate of merger.
(c) A merger or consolidation effected pursuant to this Section 9.04 shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another having occurred.
ARTICLE X
AMENDMENTS
Section 10.01. Prohibited Amendments. After the Closing, no amendment may be made to any provision of this Agreement that would:
(a) increase the power of the Trust, or the Delaware Trustee or the Trustee on its behalf, to engage in business or investment activities;
(b) alter the rights of the Trust Unitholders vis-a-vis each other, including by altering the Incentive Threshold (except as provided in Section 3.16), the Subordination Threshold, or the percentage of the Quarterly Cash Distribution Amount payable as Incentive Distributions;
(c) permit the Trust to distribute the Royalty Interests in kind to the Trust Unitholders; or
(d) unless consented to in writing by SandRidge, have the effect of amending Sections 3.02, 6.02, 7.02, 9.02, 9.03, 10.01 or 10.02 hereof.
Section 10.02. Permitted Amendments. After the Closing, subject to Section 10.01, the Trustee and the Delaware Trustee may amend this Agreement and the Transaction Documents to which the Trust is a party as follows:
(a) The Trustee may from time to time supplement or amend the Transaction Documents to which the Trust is a party without the approval of Trust Unitholders in order to cure any ambiguity, to correct or supplement any provision contained herein or therein that may be defective or inconsistent with any other provisions herein or therein, to grant any benefit to all of the Trust Unitholders, to add collateral to the Drilling Mortgage, to evidence or implement any changes required by applicable law or to change the name of the Trust; provided, however, that such supplement or amendment does not adversely affect the interests of the Trust Unitholders; and provided, further, that any amendment to this Agreement made to change the name of the Trust in accordance with Section 12.04 hereof or otherwise shall be conclusively deemed not to affect adversely the interests of the Trust Unitholders or result in a variance of the investment of the Trust or the Trust Unitholders.
(b) Notwithstanding Section 10.02(a), the Trustee may, from time to time supplement or amend the Administrative Services Agreement without the approval of the Trust Unitholders; provided, however, that such supplement or amendment would not increase the costs or expenses of the Trust or adversely affect the economic interests of Trust Unitholders.
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(c) All other permitted amendments to the provisions of this Agreement and the other Transaction Documents to which the Trust is a party may be made only by the vote of the holders of a Unit Majority at a meeting duly called and held in accordance with Article VIII.
(d) No amendment that increases the obligations, duties or liabilities or affects the rights of the Delaware Trustee or the Trustee shall be effective without the express written approval of such Entity.
ARTICLE XI
ARBITRATION
THE TRUST UNITHOLDERS, TRUSTEE AND SANDRIDGE AGREE THAT, EXCEPT AS PROVIDED IN PARAGRAPH (I) OF THIS ARTICLE XI, ANY DISPUTE, CONTROVERSY OR CLAIM THAT MAY ARISE BETWEEN OR AMONG SANDRIDGE (ON THE ONE HAND) AND THE TRUST OR THE TRUSTEE (ON THE OTHER HAND) IN CONNECTION WITH OR OTHERWISE RELATING TO THE TRANSACTION DOCUMENTS TO WHICH THE TRUST IS A PARTY, OR THE APPLICATION, IMPLEMENTATION, VALIDITY OR BREACH OF THE TRANSACTION DOCUMENTS TO WHICH THE TRUST IS A PARTY OR ANY PROVISION OF THE TRANSACTION DOCUMENTS TO WHICH THE TRUST IS A PARTY (INCLUDING, WITHOUT LIMITATION, CLAIMS BASED ON CONTRACT, TORT OR STATUTE), SHALL BE FINALLY, CONCLUSIVELY AND EXCLUSIVELY SETTLED BY BINDING ARBITRATION IN OKLAHOMA CITY, OKLAHOMA IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES (THE RULES) OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THERETO (AAA) THEN IN EFFECT. TO THE FULLEST EXTENT PERMITTED BY LAW, THE TRUST UNITHOLDERS, THE TRUSTEE (ON BEHALF OF ITSELF AND ON BEHALF OF THE TRUST), THE DELAWARE TRUSTEE AND SANDRIDGE HEREBY EXPRESSLY WAIVE THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING, WITHOUT LIMITATION, THE RIGHT TO TRIAL BY JURY, WITH RESPECT TO ANY MATTER SUBJECT TO ARBITRATION PURSUANT TO THIS ARTICLE XI. THE TRUST UNITHOLDERS, TRUSTEE AND SANDRIDGE MAY BRING AN ACTION, INCLUDING, WITHOUT LIMITATION, A SUMMARY OR EXPEDITED PROCEEDING, IN ANY COURT HAVING JURISDICTION, TO COMPEL ARBITRATION OF ANY DISPUTE, CONTROVERSY OR CLAIM TO WHICH THIS ARTICLE XI APPLIES. EXCEPT WITH RESPECT TO THE FOLLOWING PROVISIONS (THE SPECIAL PROVISIONS) WHICH SHALL APPLY WITH RESPECT TO ANY ARBITRATION PURSUANT TO THIS ARTICLE XI, THE INITIATION AND CONDUCT OF ARBITRATION SHALL BE AS SET FORTH IN THE RULES, WHICH RULES ARE INCORPORATED IN THIS AGREEMENT BY REFERENCE WITH THE SAME EFFECT AS IF THEY WERE SET FORTH IN THIS AGREEMENT.
(a) In the event of any inconsistency between the Rules and the Special Provisions, the Special Provisions shall control. References in the Rules to a sole arbitrator shall be deemed to refer to the tribunal of arbitrators provided for under subparagraph (c) below in this Article XI.
(b) The arbitration shall be administered by AAA.
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(c) The arbitration shall be conducted by a tribunal of three arbitrators. Within ten days after arbitration is initiated pursuant to the Rules, the initiating party or parties (the Claimant) shall send written notice to the other party or parties (the Respondent), with a copy to the Oklahoma City, Oklahoma office of AAA (if no such office exists, to the Dallas, Texas office of AAA), designating the first arbitrator (who shall not be a representative or agent of any party but may or may not be an AAA panel member and, in any case, shall be reasonably believed by the Claimant to possess the requisite experience, education and expertise in respect of the matters to which the claim relates to enable such person to completely perform arbitral duties). Within ten days after receipt of such notice, the Respondent shall send written notice to the Claimant, with a copy to the Oklahoma City, Oklahoma office of AAA (if no such office exists, to the Dallas, Texas office of AAA) and to the first arbitrator, designating the second arbitrator (who shall not be a representative or agent of any party, but may or may not be an AAA panel member and, in any case, shall be reasonably believed by the Respondent to possess the requisite experience, education and expertise in respect of the matters to which the claim relates to enable such person to competently perform arbitral duties). Within ten days after such notice from the Respondent is received by the Claimant, the Respondent and the Claimant shall cause their respective designated arbitrators to select any mutually agreeable AAA panel member as the third arbitrator. If the respective designated arbitrators of the Respondent and the Claimant cannot so agree within said ten day period, then the third arbitrator will be determined pursuant to the Rules. For purposes of this Article XI, SandRidge (on the one hand) and the Trust and the Trustee (on the other hand) shall each be entitled to the selection of one arbitrator. Prior to commencement of the arbitration proceeding, each arbitrator shall have provided the parties with a resume outlining such arbitrators background and qualifications and shall certify that such arbitrator is not a representative or agent of any of the parties. If any arbitrator shall die, fail to act, resign, become disqualified or otherwise cease to act, then the arbitration proceeding shall be delayed for 15 days and the party by or on behalf of whom such arbitrator was appointed shall be entitled to appoint a substitute arbitrator (meeting the qualifications set forth in this Article XI) within such 15-day period; provided, however, that if the party by or on behalf of whom such arbitrator was appointed shall fail to appoint a substitute arbitrator within such 15-day period, the substitute arbitrator shall be a neutral arbitrator appointed by the AAA arbitrator within 15 days thereafter.
(d) All arbitration hearings shall be commenced within 120 days after arbitration is initiated pursuant to the Rules, unless, upon a showing of good cause by a party to the arbitration, the tribunal of arbitrators permits the extension of the commencement of such hearing; provided, however, that any such extension shall not be longer than 60 days.
(e) All claims presented for arbitration shall be particularly identified and the parties to the arbitration shall each prepare a statement of their position with recommended courses of action. These statements of position and recommended courses of action shall be submitted to the tribunal of arbitrators chosen as provided hereinabove for binding decision. The tribunal of arbitrators shall not be empowered to make decisions beyond the scope of the position papers.
(f) The arbitration proceeding will be governed by the substantive laws of the State of Delaware and will be conducted in accordance with such procedures as shall be fixed for such purpose by the tribunal of arbitrators, except that (i) discovery in connection with any arbitration proceeding shall be conducted in accordance with the Federal Rules of Civil Procedure and
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applicable case law, (ii) the tribunal of arbitrators shall have the power to compel discovery and (iii) unless the parties otherwise agree and except as may be provided in this Article XI, the arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, to the exclusion of any provision of state law or other applicable law or procedure inconsistent therewith or which would produce a different result. The parties shall preserve their right to assert and to avail themselves of the attorney-client and attorney-work-product privileges, and any other privileges to which they may be entitled pursuant to applicable law. No party to the arbitration or any arbitrator may compel or require mediation and/or settlement conferences without the prior written consent of all such parties and the tribunal of arbitrators.
(g) The tribunal of arbitrators shall make an arbitration award as soon as possible after the later of the close of evidence or the submission of final briefs, and in all cases the award shall be made not later than thirty days following submission of the matter. The finding and decision of a majority of the arbitrators shall be final and shall be binding upon the parties. Judgment upon the arbitration award or decision may be entered in any court having jurisdiction thereof or application may be made to any such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The tribunal of arbitrators shall have the authority to assess liability for pre-award and post-award interest on the claims, attorneys fees, expert witness fees and all other expenses of arbitration as such arbitrators shall deem appropriate based on the outcome of the claims arbitrated. Unless otherwise agreed by the parties to the arbitration in writing, the arbitration award shall include findings of fact and conclusions of law.
(h) Nothing in this Article XI shall be deemed to (i) limit the applicability of any otherwise applicable statute of limitations or repose or any waivers contained in this Agreement, (ii) constitute a waiver by any party hereto of the protections afforded by 12 U.S.C. § 91 or any successor statute thereto or any substantially equivalent state law, (iii) restrict the right of the Trustee to make application to any state or federal district court having jurisdiction in Oklahoma City, Oklahoma, to appoint a successor Trustee or to request instructions with regard to any provision in this Agreement when the Trustee is unsure of its obligations thereunder, or (iv) apply to the Delaware Trustee.
(i) Neither the Trust nor the Trustee shall participate in any class action brought against SandRidge by any Person who is not a Trust Unitholder and the Trustee shall opt out of any such class action in which the Trust is a purported class member; provided that the Trust may participate in any such action brought by Trust Unitholders or in which such participation by the Trust is approved by the vote of a Unit Majority at a duly called and held meeting of the Trust Unitholders in accordance with Section 8.02.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Inspection of Books. Each Trust Unitholder and its duly authorized Agents shall have the right, at its own expense and during reasonable business hours upon reasonable prior notice, to examine and inspect the records (including, without limitation, the ownership ledger) of the Trust and the Trustee in reference thereto for any purpose reasonably related to the Trust Unitholders interest as a Trust Unitholder. The Trustee and its duly authorized Agents shall have the right, at the expense of the Trust and during reasonable business hours upon reasonable prior written notice, to examine and inspect the records of SandRidge relating to the Royalty Interests and the Underlying Properties.
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Section 12.02. Disability of a Trust Unitholder. Any payment or distribution to a Trust Unitholder may be made by check of the Trustee drawn to the order of the Trust Unitholder, regardless of whether or not the Trust Unitholder is a minor or under other legal disability, without the Trustee having further responsibility with respect to such payment or distribution. This Section 12.02 shall not be deemed to prevent the Trustee from making any payment or distribution by any other method that is appropriate under law.
Section 12.03. Merger or Consolidation of Delaware Trustee or Trustee. Neither a change of name of either the Delaware Trustee or the Trustee, nor any merger or consolidation of its corporate powers with another bank or with a trust company, nor the sale or transfer of all or substantially all of its institutional and corporate trust operations to a separate bank, trust company, corporation or other business entity shall adversely affect such resulting or successor partys right or capacity to act hereunder; provided, however, that the Delaware Trustee or any successor thereto shall maintain its principal place of business in the State of Delaware; and provided, further, that, in the case of any successor Trustee or Delaware Trustee, it shall continue to meet the requirements of Section 6.05 of this Agreement.
Section 12.04. Change in Trust Name. Upon the written request by SandRidge submitted to the Trustee and the Delaware Trustee, the Trustee shall, without the vote or consent of any Trust Unitholders, take all action necessary to change the name of the Trust to a name mutually agreeable to the Trustee and SandRidge and, upon effecting such name change, the Delaware Trustee, acting pursuant to the written instructions of the Trustee, shall amend the Certificate of Trust on file in the office of the Secretary of State of the state of Delaware to reflect such name change.
Section 12.05. Filing of this Agreement. There is no obligation on the part of the Trustee that this Agreement or any executed copy hereof be filed in any county in which any of the Trust Estate is located or elsewhere, but the same may be filed for record in any county by the Trustee. In order to avoid the necessity of filing this Agreement for record, each of the Delaware Trustee and the Trustee agrees that for the purpose of vesting the record title to the Trust Estate in any successor trustee, each shall execute and deliver to such successor trustee appropriate assignments or conveyances.
Section 12.06. Choice of Law. This Agreement and the Trust shall be governed by the laws of the State of Delaware (without regard to the conflict of laws principles thereof) in effect at any applicable time in all matters, including the validity, construction and administration of this Agreement and the Trust, the enforceability of the provisions of this Agreement, all rights and remedies hereunder and the services of the Delaware Trustee and Trustee hereunder. Furthermore, except as otherwise provided in this Agreement, the rights, powers, duties and liabilities of the Delaware Trustee, the Trustee and the Trust Unitholders shall be as provided under the Trust Act and other applicable laws of the State of Delaware and the United States of America in effect at any applicable time; provided, however, that there shall not be applicable to the Trustee, the Delaware Trustee, the Trust Unitholders, the Trust or this Agreement any provision of the laws (common or statutory) of the State of Delaware
40
pertaining to trusts (other than the Trust Act) that relate to or regulate, in a manner inconsistent with the terms hereof, (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets or (vii) the establishment of fiduciary or other standards of responsibility or limitations on the acts or powers of trustees that are inconsistent with the limitations or authorities and powers of the trustees hereunder as set forth or referenced in this Agreement. Section 3540 of Title 12 of the Delaware Code shall not apply to the Trust.
Section 12.07. Separability. If any provision of this Agreement or the application thereof to any Person or circumstances shall be finally determined by a court of proper jurisdiction to be illegal, invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to Persons or circumstances other than those as to which it is held illegal, invalid or unenforceable shall not be affected thereby, and every remaining provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.
Section 12.08. Notices. Any and all notices or demands permitted or required to be given under this Agreement shall be in writing (or be capable of being reproduced in paper form) and shall be validly given or made if (a) personally delivered, (b) delivered and confirmed by facsimile or like instantaneous transmission service, or by Federal Express or other overnight courier delivery service, which shall be effective as of confirmation of receipt by the courier at the address for notice hereinafter stated, (c) solely in the case of notice to any Trust Unitholder, by press release in a nationally recognized and distributed media or by means of electronic transmission or as otherwise permitted by applicable law or (d) deposited in the United States mail, first class, postage prepaid, certified or registered, return receipt requested, addressed as follows:
If to the Trustee, to:
The Bank of New York Mellon Trust Company, N.A.
Institutional Trust Services
919 Congress Avenue, Suite 500
Austin, Texas 78701
Attention: Mike J. Ulrich
Facsimile No.: (512) 479-2253
With a copy to:
Bracewell & Giuliani LLP
111 Congress Avenue
Suite 2300
41
Austin, Texas 78701
Attention: Thomas W. Adkins
Facsimile No.: (512) 479-3940
With a copy to:
Richards, Layton & Finger, P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Attention: Eric Mazie
Facsimile No.: (302) 498-7678
If to the Delaware Trustee, to:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
Attention: Corporate Staffing
Facsimile No.: (302) 658-5459
If to SandRidge, to:
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
Attention: Philip T. Warman
Facsimile No.: (405) 429-5983
With a copy to:
Covington & Burling, LLP
1201 Pennsylvania Avenue NW
Washington D.C. 20004-2401
Attention: David H. Engvall
Facsimile No.: (202) 778-5307
If to a Trust Unitholder, to:
The Trust Unitholder at its last address as shown on the ownership records maintained by the Trustee or a transfer agent designated by the Trustee.
Notice that is mailed in the manner specified shall be conclusively deemed given three days after the date postmarked or upon receipt, whichever is sooner. Any party to this Agreement may change its address for the purpose of receiving notices or demands by notice given as provided in this Section 12.08.
42
Section 12.09. Counterparts. This Agreement may be executed in a number of counterparts, each of which shall constitute an original, but such counterparts shall together constitute but one and the same instrument.
Section 12.10. No Fiduciary Duty of SandRidge or its Affiliates The parties hereto and the Trust Unitholders expressly acknowledge and agree that SandRidge and its Affiliates are entering into the Transaction Documents and may exercise their rights and discharge their obligations fully, without hindrance or regard to conflict of interest principles, duty of loyalty principles or other breach of fiduciary duties, all of which defenses, claims or assertions are hereby expressly waived by the other parties hereto and the Trust Unitholders. Neither SandRidge nor any of its Affiliates shall be a fiduciary with respect to the Trust or the Trust Unitholders. To the extent that, at law or in equity, SandRidge or its Affiliates have duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Trust Unitholders, such duties and liabilities are hereby eliminated to the fullest extent permitted by law.
[Signature page follows]
43
IN WITNESS WHEREOF, SandRidge, the Trustee and the Delaware Trustee have caused this Agreement to be duly executed the day and year first above written.
SandRidge Energy, Inc. | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
[Signature Page to Amended and Restated Trust Agreement]
The Bank of New York Mellon Trust Company, N.A., as Trustee | ||||
By: | /s/ Michael J. Ulrich | |||
Name: | Michael J. Ulrich | |||
Title: | Vice-President |
[Signature Page to Amended and Restated Trust Agreement]
The Corporation Trust Company | ||||
By: | /s/ Jennifer A. Schwartz | |||
Name: | Jennifer A. Schwartz | |||
Title: | Assistant Vice President |
[Signature Page to Amended and Restated Trust Agreement]
STATE OF OKLAHOMA | § | |
§ | ||
COUNTY OF OKLAHOMA | § |
This instrument was acknowledged before me on April 12, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 12th day of April, 2011.
Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment Page to Amended and Restated Trust Agreement]
STATE OF TEXAS | § | |
§ | ||
COUNTY OF TRAVIS | § |
This instrument was acknowledged before me on April 12, 2011, by Michael J. Ulrich as Vice-President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, the Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said national banking association and trust.
WITNESS my hand and official seal this 12th day of April, 2011.
Sarah Newell |
NOTARY PUBLIC, |
State of Texas |
Sarah Newell |
(printed name) |
My commission expires:
02-16-2014
[SEAL]
[Acknowledgment Page to Amended and Restated Trust Agreement]
STATE OF DELAWARE | § | |
§ | ||
COUNTY OF NEW CASTLE | § |
This instrument was acknowledged before me on April 15, 2011, by Jennifer A. Schwartz as Assistant Vice President of The Corporation Trust Company, a corporation organized under the laws of the State of Delaware, the Delaware Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said corporation.
WITNESS my hand and official seal this 15th day of April, 2011.
Ellen L. Kinsler |
NOTARY PUBLIC, |
State of Delaware |
Ellen L. Kinsler |
(printed name) |
My commission expires:
June 12, 2012
[SEAL]
[Acknowledgment Page to Amended and Restated Trust Agreement]
Schedule 1
Target Distributions and Subordination and Incentive Thresholds
Calculation of Target Distributions |
||||||||||||||||||
Quarters 2011-2022 |
Quarters 2021-2031 | |||||||||||||||||
Quarter Ending |
Subordination Threshold |
Target
Cash Distribution Quarterly |
Incentive Threshold(1) |
Quarter Ending |
Target
Cash Distribution Quarterly |
|||||||||||||
March 31, 2021 | $ | 0.401 | ||||||||||||||||
June 30, 2011 |
$ | 0.812 | $ | 1.014 | $ | 1.217 | June 30, 2021 | $ | 0.396 | |||||||||
September 30, 2011 |
$ | 0.534 | $ | 0.667 | $ | 0.801 | September 30, 2021 | $ | 0.391 | |||||||||
December 31, 2011 |
$ | 0.507 | $ | 0.634 | $ | 0.760 | December 31, 2021 | $ | 0.386 | |||||||||
March 31, 2012 |
$ | 0.523 | $ | 0.654 | $ | 0.785 | March 31, 2022 | $ | 0.380 | |||||||||
June 30, 2012 |
$ | 0.560 | $ | 0.700 | $ | 0.840 | June 30, 2022 | $ | 0.374 | |||||||||
September 30, 2012 |
$ | 0.590 | $ | 0.737 | $ | 0.884 | September 30, 2022 | $ | 0.369 | |||||||||
December 31, 2012 |
$ | 0.581 | $ | 0.727 | $ | 0.872 | December 31, 2022 | $ | 0.363 | |||||||||
March 31, 2013 |
$ | 0.591 | $ | 0.738 | $ | 0.886 | March 31, 2023 | $ | 0.357 | |||||||||
June 30, 2013 |
$ | 0.612 | $ | 0.764 | $ | 0.917 | June 30, 2023 | $ | 0.352 | |||||||||
September 30, 2013 |
$ | 0.613 | $ | 0.766 | $ | 0.919 | September 30, 2023 | $ | 0.346 | |||||||||
December 31, 2013 |
$ | 0.609 | $ | 0.761 | $ | 0.913 | December 31, 2023 | $ | 0.341 | |||||||||
March 31, 2014 |
$ | 0.621 | $ | 0.777 | $ | 0.932 | March 31, 2024 | $ | 0.336 | |||||||||
June 30, 2014 |
$ | 0.659 | $ | 0.823 | $ | 0.988 | June 30, 2024 | $ | 0.331 | |||||||||
September 30, 2014 |
$ | 0.695 | $ | 0.869 | $ | 1.043 | September 30, 2024 | $ | 0.327 | |||||||||
December 31, 2014 |
$ | 0.716 | $ | 0.894 | $ | 1.073 | December 31, 2024 | $ | 0.322 | |||||||||
March 31, 2015 |
$ | 0.675 | $ | 0.843 | $ | 1.012 | March 31, 2025 | $ | 0.317 | |||||||||
June 30, 2015 |
$ | 0.618 | $ | 0.773 | $ | 0.928 | June 30, 2025 | $ | 0.313 | |||||||||
September 30, 2015 |
$ | 0.575 | $ | 0.719 | $ | 0.863 | September 30, 2025 | $ | 0.309 | |||||||||
December 31, 2015 |
$ | 0.541 | $ | 0.676 | $ | 0.811 | December 31, 2025 | $ | 0.304 | |||||||||
March 31, 2016 |
$ | 0.522 | $ | 0.653 | $ | 0.783 | March 31, 2026 | $ | 0.300 | |||||||||
June 30, 2016 |
$ | 0.499 | $ | 0.623 | $ | 0.748 | June 30, 2026 | $ | 0.296 | |||||||||
September 30, 2016 |
$ | 0.478 | $ | 0.598 | $ | 0.717 | September 30, 2026 | $ | 0.292 | |||||||||
December 31, 2016 |
$ | 0.461 | $ | 0.576 | $ | 0.691 | December 31, 2026 | $ | 0.288 | |||||||||
March 31, 2017 |
$ | 0.556 | March 31, 2027 | $ | 0.284 | |||||||||||||
June 30, 2017 |
$ | 0.538 | June 30, 2027 | $ | 0.280 | |||||||||||||
September 30, 2017 |
$ | 0.522 | September 30, 2027 | $ | 0.276 | |||||||||||||
December 31, 2017 |
$ | 0.508 | December 31, 2027 | $ | 0.273 | |||||||||||||
March 31, 2018 |
$ | 0.495 | March 31, 2028 | $ | 0.269 | |||||||||||||
June 30, 2018 |
$ | 0.482 | June 30, 2028 | $ | 0.265 | |||||||||||||
September 30, 2018 |
$ | 0.470 | September 30, 2028 | $ | 0.262 | |||||||||||||
December 31, 2018 |
$ | 0.459 | December 31, 2028 | $ | 0.258 | |||||||||||||
March 31, 2019 |
$ | 0.450 | March 31, 2029 | $ | 0.255 |
Calculation of Target Distributions |
||||||||||||||||||
Quarters 2011-2022 |
Quarters 2021-2031 | |||||||||||||||||
Quarter Ending |
Subordination Threshold |
Target
Cash Distribution Quarterly |
Incentive Threshold(1) |
Quarter Ending |
Target
Cash Distribution Quarterly |
|||||||||||||
June 30, 2019 |
$ | 0.443 | June 30, 2029 | $ | 0.251 | |||||||||||||
September 30, 2019 |
$ | 0.435 | September 30, 2029 | $ | 0.248 | |||||||||||||
December 31, 2019 |
$ | 0.429 | December 31, 2029 | $ | 0.244 | |||||||||||||
March 31, 2020 |
$ | 0.423 | March 31, 2030 | $ | 0.241 | |||||||||||||
June 30, 2020 |
$ | 0.417 | June 30, 2030 | $ | 0.238 | |||||||||||||
September 30, 2020 |
$ | 0.411 | September 30, 2030 | $ | 0.235 | |||||||||||||
December 31, 2020 |
$ | 0.406 | December 31, 2030 | $ | 0.231 | |||||||||||||
March 31, 2031 | $ | 3.186 |
(1) | For each quarter, the Subordination Threshold equals 80% of the Target Distribution, and the Incentive Threshold equals 120% of the Target Distribution. |
Schedule 2
Fee Schedule of Trustee
1. The fee will be $150,000 annually until January 1, 2017.
2. The fee will be adjusted annually thereafter, up or down, by the amount of the change in the All Urban Consumers (CPI-U) US City Average for the immediately preceding calendar year, not to exceed +/- 3% in any one year.
ANNEX A
TO AMENDED AND RESTATED TRUST AGREEMENT OF
SANDRIDGE MISSISSIPPIAN TRUST I
U.S. FEDERAL INCOME TAX PROVISIONS
1. Purpose and Scope; Definitions; Use of Agents.
(a) For U.S. federal income tax purposes, SandRidge Mississippian Trust I (the Trust) will be classified and treated as a partnership and the Trust Unitholders will be treated as the partners in such partnership. A partnership is not a taxable entity and incurs no U.S. federal income tax liability. Instead, each partner is required to take into account his allocable share of items of income, gain, loss, deduction and credit of the partnership in computing his U.S. federal income tax liability. This Annex A contains provisions necessary to permit the Trust to comply with the U.S. federal income tax law applicable to the Trust, including provisions governing the allocation of items of income, gain, loss and deduction of the Trust and the maintenance of the Capital Accounts of the Trust Unitholders. Unless the context otherwise requires, references to sections in this Annex A refer to the sections in this Annex A, not sections of the Agreement.
(b) For purposes of this Annex A, the Partnership means the Trust, Partner(s) means Trust Unitholder(s), Partnership Interest means the ownership interest in the Trust held by a Trust Unitholder, and Capital Contribution means a Trust Unitholders initial investment in the Trust. Other terms used in this Annex A have the meanings set forth in Section 7 below or in the Amended and Restated Trust Agreement of which this Annex A is a part.
(c) This Annex A provides that under certain circumstances the Trustee is either required to take or has the discretion to take actions relating to the Trusts status as a partnership for U.S. federal income tax purposes. The Trustee will generally take such required actions, and where such actions are discretionary, will generally exercise its discretion to take such actions, through its Agents, including any independent registered public accounting firms and SandRidge. Pursuant to Section 3.01 of the Agreement, when exercising its discretion on any matters set forth in this Annex A, the Trustee shall take action as in its judgment is necessary, desirable or advisable to best achieve the purpose of the trust.
2. Capital Accounts.
(a) The Partnership shall maintain for each Partner (or a beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the Trustee) owning a Partnership Interest a separate capital account (Capital Account) with respect to such Partnership Interest in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Partnership with respect to such Partnership Interest and (ii) all items of Net Income and other items of Partnership income and gain (including, without limitation, Simulated Gain and income and gain exempt from tax) computed in accordance with Section 2(b) and allocated with respect to such Partnership Interest pursuant to Section 3, and
Annex A - 1
decreased by (x) the amount of cash distributions made with respect to such Partnership Interest and (y) all items of Partnership Net Loss and other items of deduction and loss (including Simulated Depletion and Simulated Loss) computed in accordance with Section 2(b) and allocated with respect to such Partnership Interest pursuant to Section 3.
(b) For purposes of computing Net Income, Net Loss and the amount of any item of income, gain, loss, deduction, Simulated Depletion, Simulated Gain or Simulated Loss which is to be allocated pursuant to Section 3 and is to be reflected in the Partners Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes; provided, however, that:
(i) All fees and other expenses incurred by the Partnership to promote the sale of (or to sell) a Partnership Interest that can neither be deducted nor amortized under Section 709 of the Code, if any, shall, for purposes of Capital Account maintenance, be treated as an item of deduction at the time such fees and other expenses are incurred and shall be allocated among the Partners pursuant to Section 3.
(ii) Except as otherwise provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss, deduction, Simulated Depletion, Simulated Gain and Simulated Loss shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership and, as to those items described in Section 705(a)(1)(B) or Section 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalized for U.S. federal income tax purposes. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment in the Capital Accounts shall be treated as an item of gain or loss.
(iii) Any income, gain, loss, Simulated Gain or Simulated Loss attributable to the taxable disposition of any Partnership property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Partnerships Carrying Value with respect to such property as of such date.
(iv) In accordance with the requirements of Section 704(b) of the Code, any deductions for depreciation, cost recovery, amortization or Simulated Depletion attributable to any Contributed Property shall be determined as if the adjusted basis of such property on the date it was acquired by the Partnership were equal to the Agreed Value of such property, and any such deductions shall reduce the Carrying Value of such Contributed Property.
(c) A transferee of a Partnership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Partnership Interest so transferred.
(d) Subject to Section 5(b), immediately prior to the transfer of a Sponsor Common Unit, the Capital Account maintained for the transferor with respect to its Sponsor Common Units will (A) first, be apportioned to the Sponsor Common Units to be transferred in an amount equal to
Annex A - 2
the product of (x) the number of such Sponsor Common Units to be transferred and (y) the Uniform Per Unit Capital Amount, and (B) second, any remaining balance in such Capital Account will be retained by the transferor and apportioned to its retained Sponsor Common Units. Following any such apportionment, the transferors Capital Account maintained with respect to the retained Sponsor Common Units will have a balance equal to the amount allocated under clause (B) herein above, the transferees Capital Account established with respect to the transferred Sponsor Common Units will have a balance equal to the amount allocated under clause (A) herein above, and the transferred Sponsor Common Units shall cease to be Sponsor Common Units.
3. Allocations for Capital Account Purposes. For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnerships items of income, gain, loss, deduction, Simulated Depletion, Simulated Gain and Simulated Loss (computed in accordance with Section 2(b)) shall be allocated among the Partners for each Allocation Year as provided herein below.
(a) Net Income and Net Loss. After giving effect to the special allocations set forth in Section 3(b) and Section 3(c), Net Income and Net Loss for each taxable year and all items of income, gain, loss and deduction taken into account in computing Net Income and Net Loss for such Allocation Year shall be allocated to the Partners in accordance with their respective Percentage Interests.
(b) Special Allocations. Notwithstanding any other provision of this Section 3, the following special allocations shall be made for such taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other provision of this Section 3, if there is a net decrease in Partnership Minimum Gain during any Partnership Allocation Year, each Partner shall be allocated items of Partnership income, gain and Simulated Gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of this Section 3(b), each Partners Adjusted Capital Account balance shall be determined, and the allocation of income, gain and Simulated Gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 3(b) with respect to such Allocation Year (other than an allocation pursuant to Sections 3(b)(vi) and 3(b)(vii)). This Section 3(b)(i) is intended to comply with the Partnership Minimum Gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain. Notwithstanding the other provisions of this Section 3(b) (other than Section 3(b)(i)), except as provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any Partnership Allocation Year, any Partner with a share of Partner Nonrecourse Debt Minimum Gain at the beginning of such Allocation Year shall be allocated items of Partnership income, gain and Simulated Gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section 3(b), each Partners Adjusted Capital Account balance shall be determined, and the allocation of income,
Annex A - 3
gain and Simulated Gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 3(b), other than Section 3(b)(i) and other than an allocation pursuant to Sections 3(b)(vi) and 3(b)(vii), with respect to such Allocation Year. This Section 3(b)(ii) is intended to comply with the chargeback of items of income and gain requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Priority Allocations. If the amount of cash distributed to any Trust Unitholder with respect to its Trust Units for any Allocation Year is greater (on a per Trust Unit basis) than the amount of cash distributed to any other Trust Unitholder with respect to its Trust Units (on a per Trust Unit basis), then there shall be allocated gross income and gain to each Trust Unitholder receiving such greater cash or property distribution until the aggregate amount of such items allocated pursuant to this Section 3(b)(iii) for the current Allocation Year to such Trust Unitholder is equal to the product of (aa) the amount by which the distribution (on a per Trust Unit basis) to such Trust Unitholder exceeds the distribution (on a per Trust Unit basis) to the Trust Unitholders receiving the smallest distribution and (bb) the number of Trust Units with respect to which such Trust Unitholder receives the greater distribution. In the event and to the extent that the allocations required by this Section 3(b)(iii), cannot be made due to an insufficiency of income or gain available for allocation hereunder, such unfulfilled allocations shall be treated as being required pursuant to this Section 3(b)(iii) in the next succeeding Allocation Year (and thereafter until made).
(iv) Qualified Income Offset. In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income, gain and Simulated Gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations promulgated under Section 704(b) of the Code, the deficit balance, if any, in its Adjusted Capital Account created by such adjustments, allocations or distributions as quickly as possible unless such deficit balance is otherwise eliminated pursuant to Section 3(b)(i) or 3(b)(ii).
(v) Gross Income Allocations. In the event any Partner has a deficit balance in its Capital Account at the end of any Partnership Allocation Year in excess of the sum of (A) the amount, if any, such Partner is required to restore pursuant to the provisions of this Annex A and (B) the amount such Partner is deemed obligated to restore pursuant to Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially allocated items of Partnership gross income, gain and Simulated Gain in the amount of such excess as quickly as possible; provided, however, that an allocation pursuant to this Section 3(b)(v) shall be made only if and to the extent that such Partner would have a deficit balance in its Capital Account as adjusted after all other allocations provided for in this Section 3 have been tentatively made as if this Section 3(b)(v) were not in this Agreement.
(vi) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year shall be allocated to the Partners in accordance with their respective Percentage Interests. If the Trustee determines that the Partnerships Nonrecourse Deductions should be allocated in a different ratio to satisfy the safe harbor requirements of the Treasury Regulations promulgated under Section 704(b) of the Code, the Trustee is authorized, upon notice to the other Partners, to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements.
Annex A - 4
(vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any Allocation Year shall be allocated 100% to the Partner that bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i). If more than one Partner bears the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall be allocated between or among such Partners in accordance with the ratios in which they share such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For purposes of Treasury Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of the Partnership in excess of the sum of (A) the amount of Partnership Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be allocated among the Partners in accordance with their respective Percentage Interests.
(ix) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain or Simulated Gain (if the adjustment increases the basis of the asset) or loss or Simulated Loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Treasury Regulations.
(x) Economic Uniformity. At the election of the Trustee with respect to any taxable period, all or a portion of the remaining items of Partnership gross income, gain or Simulated Gain for such taxable period shall be allocated 100% to each Partner holding Sponsor Common Units, until each such Partner has been allocated an amount of gross income, gain or Simulated Gain that increases the Capital Account maintained with respect to such Sponsor Common Units to an amount that, after taking into account the other allocations of income, gain, loss, deduction, Simulated Depletion, Simulated Gain and Simulated Loss to be made with respect to such Allocation Year, will equal the product of (A) the number of Sponsor Common Units held by such Partner and (B) the Uniform Per Unit Capital Amount. The purpose of this allocation is to establish uniformity between the Capital Accounts underlying Sponsor Common Units and the Capital Accounts underlying Public Common Units. This allocation method for establishing such economic uniformity will be available to the Trustee only if the method for apportioning the Capital Account maintained with respect to the Sponsor Common Units between the transferred and retained Sponsor Common Units pursuant to Section 2(d) does not otherwise provide such economic uniformity to the Sponsor Common Units.
(xi) Curative Allocation.
(A) Notwithstanding any other provision of this Section 3, other than the Required Allocations, the Required Allocations shall be taken into account in making the Agreed
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Allocations so that, to the extent possible, the net amount of items of income, gain, loss, deduction, Simulated Depletion, Simulated Gain and Simulated Loss allocated to each Partner pursuant to the Required Allocations and the Agreed Allocations, together, shall be equal to the net amount of such items that would have been allocated to each such Partner under the Agreed Allocations had the Required Allocations and the related Curative Allocation not otherwise been provided in this Section 3. Notwithstanding the preceding sentence, Required Allocations relating to (1) Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partnership Minimum Gain and (2) Partner Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partner Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section 3(b)(xi)(A) shall only be made with respect to Required Allocations to the extent the Trustee determines that such allocations will otherwise be inconsistent with the economic agreement among the Partners. Further, allocations pursuant to this Section 3(b)(xi)(A) shall be deferred with respect to allocations pursuant to clauses (1) and (2) hereof to the extent the Trustee determines that such allocations are likely to be offset by subsequent Required Allocations.
(B) The Trustee shall, with respect to each Allocation Year, (1) apply the provisions of Section 3(b)(xi)(A) in whatever order is most likely to minimize the economic distortions that might otherwise result from the Required Allocations, and (2) divide all allocations pursuant to Section 3(b)(xi)(A) among the Partners in a manner that is likely to minimize such economic distortions.
(xii) Liquidation. Notwithstanding any other provision of this Section 3, for the Allocation Year that includes the liquidation of the Trust (and any prior Allocation Year to the extent the Trustee determines it is appropriate), items of income, gain, loss, deduction and Simulated Gain (other than the Required Allocations) shall be specially allocated among the Partners in the manner determined appropriate by the Trustee so as to cause, to the maximum extent possible, the Capital Account in respect of each Unit to equal the amount such Unit will receive in liquidating distributions from the Trust.
(c) Simulated Basis, Simulated Depletion, Simulated Gain and Simulated Loss.
(i) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(k), Simulated Basis and Simulated Depletion with respect to each Depletable Property shall be determined using the simulated cost depletion method described in Treasury Regulation Section 1.704-1(b)(2)(iv)(K)(2) and shall be allocated among the Partners in accordance with their respective Percentage Interests.
(ii) Simulated Gain shall be allocated in the same manner as an item of gain in a corresponding amount would be allocated pursuant to Section 4(a).
(iii) Simulated Loss with respect to the disposition of an Depletable Property shall be allocated among the Partners in proportion to their allocable shares of total amount realized from such disposition under Section 4(c)(i)).
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4. Allocations for Tax Purposes.
(a) Except as otherwise provided in this Section 4, for U.S. federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of book income, gain, loss or deduction is allocated pursuant to Section 3.
(b) The deduction for depletion with respect to each separate Depletable Property shall be computed for U.S. federal income tax purposes separately by the Partners rather than by the Partnership in accordance with Section 613A(c)(7)(D) of the Code.
(i) Except as provided in Section 4(b)(ii), for purposes of such computation (before taking into account any adjustments resulting from an election made by the Partnership under Section 754 of the Code), the adjusted tax basis of each Depletable Property shall be allocated among the Partners in accordance with their respective Percentage Interests.
(ii) The Partners recognize that with respect to Depletable Property that is Contributed Property there may be a difference between the Carrying Value of such property at the time of contribution and the adjusted tax basis of such property at that time. In order to take into account the disparities between the Carrying Values and the adjusted tax bases with respect to such properties in accordance with the principles of Treasury Regulation Section 1.704-3(d), the adjusted tax basis of each Depletable Property shall be allocated among the Partners in such a manner that, to the maximum extent possible, each Partner (other than the Property Contributor) shall be allocated an amount of the Depletable Propertys adjusted tax basis equal to its share of the Partnerships Simulated Basis in such Depletable Property. Each Partner shall separately keep records of his share of the adjusted tax basis in each Depletable Property, allocated as provided above, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property, and use such adjusted tax basis in the computation of its cost depletion or in the computation of his gain or loss on the disposition of such property by the Partnership.
(c) For the purposes of the separate computation of gain or loss by each Partner on the sale or disposition of each separate Depletable Property, the Partnerships amount realized (as such term is defined in Section 1001(b) of the Code) from such sale or disposition shall be allocated for U.S. federal income tax purposes among the Partners as follows:
(i) first, to the extent such amount realized constitutes a recovery of the Simulated Basis of the property, to the Partners in the same proportion as the adjusted tax basis of such property was allocated to the Partners pursuant to Section 4(b);
(ii) second, to any Partner that contributed the Depletable Property to the Partnership in an amount equal (as of the time of such contribution) to the excess, if any, of the Simulated Basis of such property allocated to Partners other than the Property Contributor pursuant to Section 3(c)(i) over the sum of the amount of the adjusted basis therein allocated to such other Partners pursuant to Section 4(b)(ii) less the cumulative amount of remedial deductions, if any, allocated to such other Partners with respect to such Depletable Property pursuant to clause (ii) of Section 4(d);
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(iii) third, the remainder of such amount realized, if any, to the Partners so that, to the maximum extent possible, the amount realized allocated to each Partner under this Section 4(c)(iii) will equal such Partners share of the Simulated Gain recognized by the Partnership from such sale or disposition; and
(iv) any elections or other decisions relating to such allocations shall be made by the Trustee in any manner that reasonably reflects the purpose and intention of the Agreement.
(d) In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property (i) in the case of Contributed Property other than Depletable Property, (A) items of income, gain and loss shall be allocated for U.S. federal income tax purposes among the Partners in any manner permissible under Section 704(c) of the Code that takes into account the variation between the Agreed Value of such property and its adjusted basis at the time of contribution; and (B) any item of Residual Gain or Residual Loss attributable to such Contributed Property shall be allocated among the Partners in the same manner as its correlative item of book gain or loss is allocated pursuant to Section 3; and (ii) in the case of a Contributed Property that is a Depletable Property in which a Public Unitholders allocable share of the Simulated Basis under Section 3(c)(i) exceeds his allocated share of the adjusted tax basis immediately after formation of the Partnership under Section 4(b), the Trustee shall make allocations, to the extent possible consistent with the Treasury Regulations under Sections 613A and 704 of the Code, of tax items applying the principles of Treasury Regulation Section 1.704-3(d) as necessary to eliminate such Book-Tax Disparity.
(e) For the proper administration of the Partnership and for the preservation of uniformity of the Trust Units, the Trustee shall (i) make special allocations for U.S. federal income tax purposes of income (including, without limitation, gross income) or deductions; and (ii) amend the provisions of this Annex A as appropriate (x) to reflect the proposal or promulgation of Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of the Trust Units. The Trustee may adopt such conventions, make such allocations and make such amendments to this Annex A as provided in this Section 4(e) only if such conventions, allocations or amendments would not have a material adverse effect on the Partners or the Partnership, and if such allocations are consistent with the principles of Section 704 of the Code.
(f) All items of income, gain, loss, deduction and credit recognized by the Partnership for U.S. federal income tax purposes and allocated to the Partners in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code that may be made by the Partnership; provided, however, that such allocations, once made, shall be adjusted (in the manner determined by the Trustee) to take into account those adjustments permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction shall for U.S. federal income tax purposes, be determined and allocated on a quarterly basis (i.e., for each Quarterly Period) and all such items for each Quarterly Period shall be allocated to the Partners that are Trust Unitholders of record as of the opening of the New York Stock Exchange on the Quarterly Record Date that occurs during such Quarterly Period; provided, however, that (i) income gain, loss and deduction attributable to any Quarterly Period ending on or prior to June 30, 2011, shall
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be allocated to the Partners as of the opening of the New York Stock Exchange on first Quarterly Record Date and (ii) gain or loss on a sale or other disposition of any assets of the Partnership or any other extraordinary item of income or loss realized and recognized other than in the ordinary course of business, as determined by the Trustee, shall be allocated to the Partners as of the opening of the New York Stock Exchange on the first Quarterly Record Date that includes income from the quarter in which such gain or loss is recognized for U.S. federal income tax purposes. The Trustee may revise, alter or otherwise modify such methods of allocation to the extent permitted or required by Section 706 of the Code and the regulations or rulings promulgated thereunder
(h) Allocations that would otherwise be made to a Trust Unitholder under the provisions of this Section 4 shall instead be made to the beneficial owner of Trust Units held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method determined by the Trustee.
(i) The allocations pursuant to this Section 4 are solely for purposes of federal and state income taxes and will not affect, or in any way be taken into account in computing, a Partners Capital Account.
5. Special Provisions Relating to the Subordinated Unitholders.
(a) Immediately upon the conversion of Subordinated Units into Common Units pursuant to Section 3.15(b) of the Trust Agreement, the Trust Unitholder holding a Subordinated Unit shall possess with respect to such units all of the rights and obligations of a Trust Unitholder holding Common Units hereunder, including the right to vote as a Common Unitholder and the right to participate in allocations of income, gain, loss, deduction, Simulated Depletion, Simulated Gain and Simulated Loss and distributions made with respect to Common Units; provided, however, that such converted Subordinated Units shall be treated as Sponsor Common Units that remain subject to the provisions of Sections 2(d), 3(b)(x), and 5(b).
(b) The Trust Unitholder holding a Sponsor Common Unit shall not be permitted to transfer such Sponsor Common Unit until such time as the Trustee determines, based on advice of counsel, that each such Sponsor Common Unit should have, as a substantive matter, like intrinsic economic and U.S. federal income tax characteristics, in all material respects, to the intrinsic economic and U.S. federal income tax characteristics of a Public Common Unit. In connection with the condition imposed by this Section 5(b), the Trustee may take whatever steps are required to provide economic uniformity to such Sponsor Common Units in preparation for a transfer thereof, including the application of Sections 2(d) and 4(b)(x); provided, however, that no such steps may be taken that would have a material adverse effect on the Trust Unitholders holding Public Common Units.
6. Tax Matters.
(a) Tax Returns and Information. The Trustee shall timely file or cause to be filed all returns and reports of the Partnership that are required for federal, state and local income tax purposes on the basis of the accrual method and a taxable year ending on December 31. In the event the Partnership is required to use a taxable period other than a year ending on
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December 31, the Trustee shall use reasonable efforts to change the taxable period of the Partnership to a year ending on December 31. The tax information reasonably required by Record Holders for federal and state income tax reporting purposes with respect to each Allocation Year shall be furnished to them within 90 days of the close of the calendar year in which the Partnerships Allocation Year ends. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for U.S. federal income tax purposes.
(b) Tax Elections.
(i) The Partnership shall make the election under Section 754 of the Code in accordance with applicable regulations thereunder, subject to the reservation of the right to seek to revoke any such election upon the Trustees determination that such revocation is in the best interests of the Trust Unitholders. Notwithstanding any other provision herein contained, for the purposes of computing the adjustments under Section 743(b) of the Code, the Trustee shall be authorized (but not required) to adopt a convention whereby the price paid by a transferee of a Trust Unit will be deemed to be the lowest quoted closing price of the Trust Units on the New York Stock Exchange during the calendar month in which such transfer is deemed to occur pursuant to Section 4(f) without regard to the actual price paid by such transferee.
(ii) Except as otherwise provided herein, the Trustee shall determine whether the Partnership should make any other elections permitted by the Code.
(c) Tax Controversies. Subject to the provisions hereof, Energy Corporation of America is designated the Tax Matters Partner (as defined in the Code) and is authorized and required to represent the Partnership (at the Partnerships expense) in connection with all examinations of the Partnerships affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. Each Partner agrees to cooperate with the Trustee and to do or refrain from doing any or all things reasonably required by the Trustee to conduct such proceedings.
(d) Withholding. Notwithstanding any other provision of this Annex A, the Trustee is authorized to take any action that may be required to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required or elects to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to any Partner (including, without limitation, by reason of Section 1441 of the Code), the Trustee may treat the amount withheld as a distribution of cash in the amount of such withholding from such Partner. If the payment is made to a taxing authority on behalf of a Partner whose identity cannot be determined, the Trustee may treat the amount withheld as a distribution of cash to all current Partners.
7. Additional Definitions.
Adjusted Capital Account means the Capital Account maintained for each Partner as of the end of each Allocation Year of the Partnership, (a) increased by any amounts that such
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Partner is obligated to restore under the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses and deductions that, as of the end of such Allocation Year, are reasonably expected to be allocated to such Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end of such Allocation Year, are reasonably expected to be made to such Partner in subsequent years in accordance with the terms of this Agreement or otherwise to the extent they exceed offsetting increases to such Partners Capital Account that are reasonably expected to occur during (or prior to) the year in which such distributions are reasonably expected to be made (other than increases as a result of a minimum gain chargeback pursuant to Section 3(b)(i) or 3(b)(ii)). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Agreed Allocation means any allocation, other than a Required Allocation, of an item of income, gain, loss or deduction pursuant to the provisions of Section 3, including, without limitation, a Curative Allocation (if appropriate to the context in which the term Agreed Allocation is used).
Agreed Value of any Contributed Property means the fair market value of such property or other consideration at the time of contribution as determined by the Trustee.
Allocation Year means (i) the period commencing on the Closing Date and ending on December 31, 2011, (ii) any subsequent period commencing on the first day of January and ending on the last day of December or (iii) any portion of the period described in clause (ii) for which the Partnership is required to allocate Net Income, Net Loss, and any other items of Partnership income, gain, loss or deduction pursuant to Section 3.
Book-Tax Disparity means with respect to any item of Contributed Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property and the adjusted basis thereof for U.S. federal income tax purposes as of such date. A Partners share of the Partnerships Book-Tax Disparities in all of its Contributed Property will be reflected by the difference between such Partners Capital Account balance as maintained pursuant to Section 2 and the hypothetical balance of such Partners Capital Account computed as if it had been maintained strictly in accordance with U.S. federal income tax accounting principles.
Capital Account is defined in Section 2.
Capital Contribution means any cash, cash equivalents or the Net Agreed Value of Contributed Property that a Partner contributes to the Partnership or that is contributed or deemed contributed to the Partnership on behalf of a Partner (including, in the case of an underwritten offering of Trust Units, the amount of any underwriting discounts or commissions).
Carrying Value means (a) the Agreed Value of Contributed Property, and (b) with respect to any other Partnership property, the adjusted basis of such property for U.S. federal income tax purposes, all as of the time of determination.
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Code means the Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of any successor law.
Common Unit is defined in the Agreement.
Contributed Property means each property or other asset, in such form as may be permitted by the Trust Act, but excluding cash, contributed to the Partnership.
Curative Allocation means any allocation of an item of income, gain, deduction, loss or credit pursuant to the provisions of Section 3(b)(xi).
Depletable Property means each separate oil and gas property as defined in Section 614 of the Code, provided, however, Depletable Property shall not include any interest in an oil and gas property that is treated as a production payment within the meaning of Section 636 of the Code.
Economic Risk of Loss has the meaning set forth in Treasury Regulation Section 1.752-2(a).
Net Agreed Value means the Agreed Value of any Contributed Property reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed.
Net Income means, for any Allocation Year, the excess, if any, of the Partnerships items of income and gain for such Allocation Year over the Partnerships items of loss and deduction for such Allocation Year. The items included in the calculation of Net Income shall be determined in accordance with Section 2(b) and shall not include any items specially allocated under Section 3(b) or Section 3(c).
Net Loss means, for any Allocation Year, the excess, if any, of the Partnerships items of loss and deduction for such Allocation Year over the Partnerships items of income and gain for such Allocation Year. The items included in the calculation of Net Loss shall be determined in accordance with Section 2(b) and shall not include any items specially allocated under Section 3(b) or Section 3(c).
Nonrecourse Built-in Gain means with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Partners pursuant to Sections 4(d)(i)(A) and 4(d)(ii) if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration.
Nonrecourse Deductions means any and all items of loss, deduction or expenditure (including, without limitation, any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse Liability.
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Nonrecourse Liability has the meaning set forth in Treasury Regulation Section 1.752-2(b)(3).
Overallotment Option Closing Date means the date or dates on which any Trust Units are sold by the Partnership to the Underwriters upon exercise of the Overallotment Option.
Overallotment Option means the overallotment option granted to the Underwriters by the Partnership pursuant to the Underwriting Agreement.
Partner Nonrecourse Debt has the meaning set forth in Treasury Regulation Section 1.704-2(b)(4).
Partner Nonrecourse Debt Minimum Gain has the meaning set forth in Treasury Regulation Section 1.704-2(i)(2).
Partner Nonrecourse Deductions means any and all items of loss, deduction or expenditure (including, without limitation, any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(i), are attributable to a Partner Nonrecourse Debt.
Partnership Minimum Gain means that amount determined in accordance with the principles of Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).
Percentage Interest means as of any date of determination as to any Trust Unitholder holding Trust Units, the quotient obtained by dividing (A) the number of Trust Units held by such Trust Unitholder by (B) the total number of all outstanding Trust Units.
Property Contributor means any Person that transfers Contributed Property to the Partnership in exchange for Trust Units.
Public Common Unit means any Common Unit originally issued by the Trust solely for cash.
Record Holder means the Person in whose name a Trust Unit is registered on the books of the transfer agent as of the opening of business on a particular Business Day.
Required Allocations means any allocation of an item of income, gain, loss or deduction pursuant to Section 3(b)(i), Section 3(b)(ii), Section 3(b)(iv), Section 3(b)(v), Section 3(b)(vi), Section 3(b)(vii), Section 3(b)(viii) or Section 3(b)(ix).
Residual Gain or Residual Loss means any item of gain or loss, as the case may be, of the Partnership recognized for U.S. federal income tax purposes resulting from a sale, exchange or other disposition of a Contributed Property (other than Depletable Property), to the extent such item of gain or loss is not allocated pursuant to Section 4(d)(i)(A) to eliminate Book-Tax Disparities.
Simulated Basis means the Carrying Value of any Depletable Property.
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Simulated Depletion means, with respect to a Depletable Property, a depletion allowance computed solely for the purposes of maintaining Capital Accounts in accordance with Section 2(b)(iv) and in the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2). For purposes of computing Simulated Depletion with respect to any property, the Simulated Basis of such property shall be deemed to be the Carrying Value of such property, and in no event shall such allowance for Simulated Depletion, in the aggregate, exceed such Simulated Basis.
Simulated Gain means the excess, if any, of the amount realized from the sale or other disposition of a Depletable Property over the Carrying Value thereof.
Simulated Loss means the excess, if any, of the Carrying Value of a Depletable Property over the amount realized from the sale or other disposition of such property.
Sponsor Common Unit means any Common Unit held by a Person that (i) holds, or at any time from and after the creation of the Partnership has held, one or more Subordinated Units and (ii) has a Capital Account that differs (or prior to the end of the Subordination Period, could differ) in amount from the (i) product of the number of Subordinated Units, if any, and Common Units held by such Person times (ii) the Uniform Per Unit Capital Amount.
Subordinated Unit is defined in the Agreement.
Trust Act is defined in the Agreement.
Trust Unit is defined in the Agreement.
Uniform Per Unit Capital Amount means, as of any date of determination, the Capital Account, stated on a per Trust Unit basis, underlying any Public Common Unit.
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Exhibit 10.1
PERPETUAL OVERRIDING ROYALTY INTEREST CONVEYANCE (PDP)
This PERPETUAL OVERRIDING ROYALTY INTEREST CONVEYANCE (this Conveyance) from SandRidge Exploration and Production, LLC, a Delaware limited liability company, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (Assignor), to SandRidge Mississippian Trust I, a statutory trust formed under the laws of the State of Delaware (Assignee), is delivered to be effective as of 12:01 a.m., Central Time, January 1, 2011 (the Effective Time). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article II below.
ARTICLE I
CONVEYANCE
Section 1.01 The Grant. For and in consideration of good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby BARGAIN, SELL, GRANT, CONVEY, TRANSFER, ASSIGN, SET OVER, and DELIVER unto Assignee, subject to the terms of this Conveyance, as a perpetual overriding royalty interest (the Royalty Interest), an undivided interest in and to all Minerals in, under and that may be produced and saved from the Target Formation underlying the Subject Lands through the wellbores of the Wells, sufficient to cause Assignee to receive the Assignee Minerals.
Section 1.02 Non-Operating, Non-Expense Bearing Interest. The Royalty Interest conveyed hereby is a non-operating, non-expense-bearing overriding royalty interest in and to the Subject Interests, free of all cost, risk and expense of production, operations and marketing. In no event shall Assignee ever be liable or personally obligated for payment of any cost, expenses or liabilities attributable to the Subject Interests (or any part thereof) or incurred in connection with the production, saving or marketing of Assignee Minerals, subject, however, to Assignors right hereinafter provided to deduct Chargeable Costs in determining Assignee Proceeds, which right shall be solely a matter of deduction from the proceeds from the sale of Assignee Minerals and not a personal obligation of Assignee. This Conveyance is a conveyance of an interest in real property.
Section 1.03 Habendum Clause. TO HAVE AND TO HOLD the Royalty Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto Assignee, its successors and assigns, subject to terms and provisions of this Conveyance.
Section 1.04 Warranty.
(a) The Warranty. Assignor warrants to Assignee, its successors and assigns, that the Royalty Interest is free of all Encumbrances created by, through, or under Assignor, but not otherwise, except for the Permitted Encumbrances.
(b) Remedies. In the event of a breach of the foregoing warranty, Assignees sole remedy shall be to receive payment on each applicable Quarterly Payment Date, out of Assignors Net Share of Minerals from other Wells in excess of that subject to the Royalty Interest and the royalty interest created pursuant to the Term PDP Conveyance (the Assignor Retained Minerals), subject to offset as provided below and without interest (except such interest payable under this Conveyance on payments made after the applicable due date as described in Section 5.02 below), of an amount equal to the difference between (x) Assignee Proceeds that Assignee would have received with respect to such Well in the applicable Computation Period if such warranty had not been breached and (y) Assignee Proceeds that Assignee actually received during that Computation Period with respect to that Well, to the extent such difference is attributable to the breach of the warranty, but not to the extent that such difference is attributable to any other cause, and any such amounts of Assignor Retained Minerals shall be treated as Assignee Minerals.
(c) Right of Offset. If any Subject Interest ever proves to be larger as of the Effective Date than the Subject Interest reflected in Exhibit A and if, as a result, Assignee receives a greater amount of Assignee Minerals (or the proceeds from the sale thereof) with respect to that Subject Interest than Assignee would otherwise have received if the Subject Interest had been the size reflected on Exhibit A, then such increased amounts, whenever received by Assignee, may be treated by Assignor as a credit or offset (without interest) against any amounts payable to Assignee under Section 1.04(b).
(d) DISCLAIMER. EXCEPT FOR THE WARRANTIES OF TITLE GIVEN IN SECTION 1.04(a), ASSIGNOR MAKES THIS CONVEYANCE AND ASSIGNS THE ROYALTY INTEREST WITHOUT RECOURSE, COVENANT OR WARRANTY OF TITLE OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. ANY COVENANTS OR WARRANTIES IMPLIED BY STATUTE OR LAW BY THE USE HEREIN OF THE WORDS GRANT, CONVEY OR OTHER SIMILAR WORDS ARE HEREBY EXPRESSLY DISCLAIMED, WAIVED AND NEGATED. WITHOUT LIMITING THE GENERALITY OF THE TWO PRECEDING SENTENCES, ASSIGNEE ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (i) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF MINERALS, IF ANY, ATTRIBUTABLE TO THE SUBJECT INTERESTS, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iv) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND (v) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER ANY APPLICABLE LEGAL REQUIREMENT; IT BEING THE EXPRESS INTENTION OF BOTH ASSIGNEE AND ASSIGNOR THAT THE ROYALTY INTEREST IS HEREBY ASSIGNED TO ASSIGNEE ON AN AS IS AND WHERE IS BASIS WITH ALL FAULTS, AND THAT ASSIGNEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ASSIGNEE DEEMS APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE CONSPICUOUS DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
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(e) Substitution of Warranty. This instrument is made with full substitution and subrogation of Assignee in and to all covenants of warranty by Third Persons (other than Affiliates of Assignor) heretofore given or made with respect to the Wells, the Subject Interests or any part thereof or interest therein.
ARTICLE II
DEFINITIONS
This Article II defines certain capitalized words, terms, and phrases used in this Conveyance. Certain other capitalized words, terms, and phrases used in this Conveyance are defined elsewhere in this Conveyance.
Affiliate means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract, or otherwise.
AMI Area means that area described in Exhibit A to the Development Agreement.
Assignee is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignee.
Assignee Minerals is defined in Section 3.01.
Assignee Proceeds means proceeds received by Assignor for the account of Assignee, as Assignees marketing and payment agent and representative, from the sale of Assignee Minerals under this Conveyance less Chargeable Costs calculated in accordance with Section 3.03.
Assignor is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignor.
Assignor Conveyances means this Conveyance, the Term PDP Conveyance, the Term PUD Conveyance and the Perpetual PUD Conveyance.
Assignor Retained Minerals is defined in Section 1.04(b).
Assignors Net Revenue Interest means the interest, stated as a decimal fraction, in Subject Minerals production from a Well attributable to the Subject Interests in that Well, net of Production Burdens.
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Assignors Net Share of Minerals means the share of Subject Minerals from each Well that is attributable to Assignors Net Revenue Interest in that Well determined prior to giving effect to this Conveyance.
Bbl means one stock tank barrel, or 42 U.S. gallons liquid volume, in reference to Oil or Gas Liquids.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by the New York Stock Exchange, Inc. as affecting ex dates or any other day on which national banking institutions in New York, New York are closed as authorized or required by law.
Chargeable Costs is defined in Section 3.02(a).
Closing Time means 12:01 a.m. Central Time, on April 12, 2011.
Computation Period means each calendar quarter commencing at the Effective Time, with each calendar quarter being deemed to have begun at 12:01 a.m Central Time on the first day of such calendar quarter and to have ended at 12:00 a.m Central Time on the first day of the next calendar quarter, except for the first Computation Period, which shall be deemed to have begun at the Effective Time and to have ended at 12:00 a.m. Central Time on July 1, 2011.
Conveyance is defined in the introductory paragraph to this Conveyance.
Development Agreement means that certain Development Agreement between SandRidge, Assignor and Assignee dated as of even date herewith.
Drilling Obligation Completion Date has the meaning given to such term in the Development Agreement.
Effective Time is defined in the introductory paragraph to this Conveyance.
Encumbrance means any mortgage, lien, security interest, pledge, charge, encumbrance, limitation, preferential right to purchase, consent to assignment, irregularity, burden or defect.
Excess Costs means, in any Computation Period, the excess of Chargeable Costs associated with Assignee Minerals for that Computation Period over the amount determined by multiplying Assignors Net Share of Minerals produced during the Computation Period by the Sales Price for that Computation Period. Excess Costs shall bear interest at the Prime Interest Rate from the end of the Computation Period in which such costs were incurred to the date that Assignor recovers such amounts from Assignee Proceeds.
Excluded Assets means (a) those oil and gas wells that are the subject of the Term PUD Conveyance and the Perpetual PUD Conveyance and (b) those oil and gas wells that are described in Exhibit B.
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Fair Value means, with respect to any portion of the Royalty Interest to be released pursuant to Section 11.02 in connection with a sale or release of any Well or Subject Interests, an amount of net proceeds which could reasonably be expected to be obtained from the sale of such portion of the Royalty Interest to a party which is not an Affiliate of either the Assignor or Assignee on an arms-length negotiated basis, taking into account relevant market conditions and factors existing at the time of any such proposed sale or release, such net proceeds to be determined by deducting Assignees proportionate share of sales costs, commissions and brokerage fees, if any (based on the ratio of (i) the fair market value of the portion of the Royalty Interest being released to (ii) the fair market value of the Wells and Subject Interests being transferred (including the value of the Royalty Interest being released)).
Farmout Agreements means any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.
Force Majeure is defined in Section 12.02.
Gas means natural gas and all other gaseous hydrocarbons or minerals, including helium, but specifically excluding any Gas Liquids.
Gas Liquids means those natural gas liquids and other liquid similar hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.
Governmental Authority means the United States of America, any state, commonwealth, territory, or possession thereof, and any political subdivision of any of the foregoing, including courts, departments, commissions, boards, bureaus, agencies and other instrumentalities.
Legal Requirement means any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation of, including the terms of any license or permit issued by, any Governmental Authority.
MMBtu means one million British thermal units.
Mcf means one thousand cubic feet of Gas, and MMcf means one million cubic feet of Gas, measured and expressed in each case at the same temperature, pressure, and other conditions of measurement (a) provided in any contract for the purchase of Gas from the Subject Interests or, (b) if no such contract exists, provided by applicable state law for purposes of reporting production to Governmental Authorities.
Minerals means Oil, Gas and Gas Liquids.
Mortgage has the meaning given such term in the Development Agreement.
Non-Affiliate means, for any specified Person, any other Person that is not an Affiliate of the specified Person.
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Notice means any notice, advice, invoice, demand or other communication required or permitted by this Conveyance.
Oil means crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.
Party, when capitalized, refers to Assignor or Assignee. Parties, when capitalized, refers to Assignor and Assignee.
Permitted Encumbrances means:
(a) the Production Burdens;
(b) contractual obligations arising under operating agreements, Farmout Agreements, production sales contracts, leases, assignments and other similar agreements that may affect the Subject Interests;
(c) pooling and unitization agreements, declarations, orders or Legal Requirements to secure payment of amounts not yet delinquent;
(d) liens that arise in the normal course of operations, such as liens for unpaid taxes, statutory liens securing unpaid suppliers and contractors, and contractual liens under operating agreements, in any case, that are not yet delinquent or, if delinquent, are being contested in good faith in the normal course of business;
(e) conventional rights of reassignment that obligate Assignor to reassign all or part of any Subject Interest to a Third Person if Assignor intends to release or abandon such interest before the expiration of the primary term or other termination of such interest;
(f) easements, rights-of-way, servitudes, permits, surface leases, surface use restrictions and other surface uses and impediments on, over or in respect of the Subject Interests that are not such as to interfere materially with the operation, value or use of the Subject Interests;
(g) rights reserved to or vested in any Governmental Authority to control or regulate any Subject Interests in any manner, and all applicable Legal Requirements;
(h) the terms of the instruments creating the Subject Interests and Subject Lands; and
(i) the Mortgage;
provided that such aforementioned encumbrances are of the type and nature customary in the oil and gas industry and do not, alone or in the aggregate, materially and adversely affect the operation, value or use of any Subject Interests, and all to the extent, and for so long as, such Permitted Encumbrances are otherwise valid and enforceable against the Subject Interests, without recognizing, expressly or by implication, any rights or interests in any Third Person or Governmental Authority that such Third Person or Governmental Authority does not otherwise lawfully possess.
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Perpetual PUD Conveyance means that certain Perpetual Overriding Royalty Interest Conveyance (PUD) by and between Assignor and Assignee, dated effective as of the Effective Time.
Person means any natural person, corporation, partnership, trust, estate, or other entity, organization or association.
Post Production Cost Charge is defined in Section 3.02(b).
Prime Interest Rate is defined in Section 5.02(b).
Production Burdens means, with respect to any Subject Lands, Subject Interests or Subject Minerals, all royalty interests, overriding royalty interests, production payments, net profits interests and other similar interests that constitute a burden on, are measured by, or are payable out of the production of Minerals or the proceeds realized from the sale or other disposition thereof.
Quarterly Payment Date is defined in Section 5.01(b).
Reasonably Prudent Operator Standard means the standard of conduct of a reasonably prudent oil and gas operator in the AMI Area under the same or similar circumstances, acting with respect to its own property and disregarding the existence of the Royalty Interest as a burden on such property.
Royalty Interest is defined in Section 1.01.
Sales Price means the price received by Assignor for Assignee Minerals determined in accordance with the following provisions:
(a) sale refers to any sale, exchange or other disposition of Assignee Minerals for value, the value of such Minerals that is exchanged or otherwise disposed of for valuable consideration being the sales price that Assignor receives for any such Minerals sold pursuant to Section 4.01 for any such Minerals;
(b) amounts of money not paid to Assignor when due by any purchaser of Assignee Minerals (for example, Taxes or other amounts withheld or deducted by any such purchaser) shall not be included within the Sales Price until actually received by, or credited to the account of, Assignor;
(c) advance payments and prepayments for future deliveries of Assignee Minerals shall be included within the Sales Price, without interest, when that volume of Minerals subject to the advance payments or prepayments is actually produced;
(d) loan proceeds received by Assignor shall not be treated as a component of the applicable Sales Price; and
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(e) if a controversy or possible controversy exists, whether by reason of any statute, order, decree, rule, regulation, contract or otherwise, between Assignor and any purchaser of Assignee Minerals or any other Person, about the correct Sales Price of any Assignee Minerals, about deductions from the Sales Price, about Assignors right to receive the proceeds of any sale of Assignee Minerals, or about any other matter, then monies withheld by the purchaser or deposited by it with an escrow agent or if Assignor receives any monies and promptly deposits such monies with a Third Person escrow agent as a result of such controversy, such monies shall not be included within the Sales Price until received by or returned to Assignor, as applicable.
SandRidge means SandRidge Energy, Inc., a Delaware corporation.
Subject Interests means Assignors undivided interests in the Subject Lands as described on Exhibit A, whether as lessee under leases, as an owner of the Subject Minerals (or the right to extract such Minerals) or otherwise, by virtue of which undivided interests Assignor has the right to conduct exploration, drilling, development and Mineral production operations on the Subject Lands, or to cause such operations to be conducted, or to participate in such operations by paying and bearing all or any part of the costs, risks and liabilities of such operations, to drill, test, complete, equip, operate and produce wells to exploit the Minerals. The Subject Interests (a) may be owned by Assignor pursuant to leases, deeds, operating, pooling or unitization agreements, orders or any other instruments, agreements or documents, recorded or unrecorded, (b) include any and all extensions or renewals of leases covering the Subject Lands (or any portion thereof) obtained by Assignor, or any Affiliate thereof, within six (6) months after the expiration or termination of any such lease, and (c) are subject to the Permitted Encumbrances. For the avoidance of doubt, the Subject Interests do not include: (i) Assignors interests in the Excluded Assets; (ii) Assignors rights to substances other than Minerals; (iii) Assignors rights to Minerals (other than Assignee Minerals) under contracts for the purchase, sale, transportation, storage, processing or other handling or disposition of Minerals; (iv) Assignors interests in, or rights to Minerals (other than Assignee Minerals) held in pipelines, gathering systems, storage facilities, processing facilities or other equipment or facilities; or (v) any additional or enlarged interests in the Wells, Subject Lands or Subject Minerals acquired by Assignor after the Closing Time, except (1) as may result from the operation of the terms of the instruments creating the Subject Interests, or (2) as may be reflected in extensions and renewals covered by the preceding sentence.
Subject Lands means the lands subject to or covered by the oil and gas leases described in Exhibit A, insofar and only insofar as they cover the Target Formation, subject to the exceptions, exclusions and reservations set forth on such Exhibit A.
Subject Minerals means all Minerals in and under, and that may be produced, saved and sold from a Well, from and after the Effective Time, insofar and only insofar as such Minerals are produced from the Target Formation, subject to the following exclusions: Minerals that are (a) lost in the production, gathering or marketing of Minerals; (b) used (i) in conformity with ordinary and prudent operations on the Subject Lands, including drilling and production operations with respect to a Well or (ii) in connection with operations (whether on or off the Subject Lands) for processing or compressing the Subject Minerals; (c) taken by a Third Person to recover costs, or some multiple of costs, paid or incurred by that Third Person under any
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operating agreement, unit agreement or other agreement in connection with nonconsent operations conducted (or participated in) by that Third Person; and (d) retained by a Third Person for gathering, transportation, processing or marketing services related to the Subject Minerals in lieu of or in addition to cash payment for such services, to the extent such agreement is permitted under this Conveyance.
Target Formation means (i) with respect to Alfalfa County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 4,833 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,344 in the SandRidge Energy Dorado SWD 1-32 located in section 32, Township 29 North, Range 9 West (API No. 35003219830000), (ii) with respect to Garfield County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,475 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,100 in the Texas American Oil JC Nelson 1 located in section 27, Township 23 North, Range 8 West (API No. 35047223450000), (iii) with respect to Grant County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,395 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 6,060 in the SandRidge Energy Orion 1-22 SWD located in section 22, Township 25 North, Range 5 West (API No. 35053227710000), (iv) with respect to Major County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,474 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,094 in the Downey Oil Davis 1 located in section 24, Township 23 North, Range 9 West (API No. 35093215620000) and (v) with respect to Woods County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,204 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,704 in the SandRidge Energy Koppitz SWD 1-31 located in section 31, Township 28 North, Range 13 West (API No. 35151232750000).
Term PDP Conveyance means that certain Term Overriding Royalty Interest Conveyance (PDP) by and between Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation, dated effective as of the Effective Time.
Term PUD Conveyance means that certain Term Overriding Royalty Interest Conveyance (PUD) by and between Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation, dated effective as of the Effective Time.
Taxes is defined in Section 3.02(c).
Third Person means a Person other than Assignor, Assignee or Trustee.
Transfer including its syntactical variants, means any assignment, sale, transfer, conveyance or disposition of any property; provided, Transfer as used herein does not include the granting of a mortgage on or security interest in Assignors interest in any property, including the Wells, the Subject Interests and the Subject Lands.
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Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, as trustee, acting not in its individual capacity but solely as trustee of Assignee.
Well means the borehole of each Mineral well more particularly described in Exhibit C to this Conveyance.
ARTICLE III
CALCULATION OF ASSIGNEE MINERALS
Section 3.01 Definition. Assignee Minerals is that volume of Minerals with respect to each Well calculated in accordance with the following formula: Forty-Five Percent (45%) X (Assignors Net Share of Minerals).
Section 3.02 Chargeable Costs.
(a) Definition. For each Computation Period, Chargeable Costs means the sum of (i) the Post Production Cost Charge, plus (ii) Excess Costs from prior Computation Periods, plus (iii) Taxes incurred, accrued or paid by Assignor; provided, that such costs are actually paid by Assignor during the relevant Computation Period or paid by Assignor during a prior Computation Period and not included in any prior Computation Periods Chargeable Costs.
(b) Post Production Cost Charge. Post Production Cost Charge means those costs incurred by Assignor (including internal costs and Third Person costs) to gather, store, transport, compress, process, treat, dehydrate and market, as applicable, the Subject Minerals, including any costs as may be required to deliver such Minerals to market; provided, any costs charged by Assignor and its Affiliates as part of the Post Production Cost Charge shall not materially exceed the costs prevailing in the area where the Subject Minerals are being produced for similar services and provided, further, with respect to marketing costs, only Non-Affiliate marketing fees and costs shall be included, and marketing costs of Assignor and its Affiliates with respect to any Subject Minerals will be specifically excluded from the Post Production Cost Charge. Any costs, fees or expenses that are properly charged or allocated to Assignee Minerals pursuant to another provision of this Conveyance (including, as provided for in the definition of Subject Minerals) shall not be included as part of the Post Production Cost Charge.
(c) Taxes. Taxes means general property, ad valorem, production, severance, sales, windfall profit, excise and other taxes, except income taxes, assessed or levied on or in connection with the Subject Interests, the Royalty Interest, this Conveyance, production of Subject Minerals, Assignors Net Share of Minerals, Assignee Minerals (or the proceeds from the sale thereof) or facilities or equipment on the Subject Lands that are used for the production, dehydration, treatment, processing, gathering or transportation of Subject Minerals, or against Assignor as owner of the Subject Interests or paid by Assignor on behalf of Assignee as owner of the Royalty Interest.
(d) Operating and Drilling Costs. For the avoidance of doubt, all costs associated with or paid or incurred in connection with the drilling, testing, completing, developing and operating the Wells or otherwise incurred in connection with the ownership or operation of the Subject Interests other than Taxes and Post Production Cost Charges shall be borne solely by Assignor and shall not be included as Chargeable Costs.
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Section 3.03 Assignee Proceeds. Assignee Proceeds means, for any Computation Period, (a) the amount of proceeds actually received by Assignor during such Computation Period in respect of Assignee Minerals, with the amount of such proceeds being determined by multiplying (i) the volume of Assignee Minerals produced (expressed (A) for Gas, in Mcf or MMBtu, (B) for Gas Liquids, in Bbls and (C) for Oil, in Bbls) by (ii) the relevant Sales Price (expressed (A) for Gas, on a per Mcf or MMBtu basis, (B) for Gas Liquids, on a per Bbl basis and (C) for Oil, on a per Bbl basis), less (b) the Chargeable Costs associated with such Assignee Minerals.
ARTICLE IV
MARKETING OF ASSIGNEE MINERALS
Section 4.01 Rights and Duties Regarding Sale of Assignee Minerals. Assignor shall market or shall cause to be marketed Assignors Net Share of Minerals (including Assignee Minerals) in good faith and in accordance with the Reasonably Prudent Operator Standard and Section 4.02(d). Assignor shall use its reasonable efforts in connection with any sale of Assignors Net Share of Minerals (including Assignee Minerals) to obtain, as soon as reasonably practicable, full payment for such Minerals; provided, however, that it shall not be considered a breach of Assignors marketing duty or standard of conduct for Assignor to market such Minerals to an Affiliate of Assignor, so long as Assignor does not market such Minerals at a volume-weighted average price lower than the volume-weighted average price upon which Assignor pays royalties to the owners of the other royalty interests in the Subject Minerals, save and excepting Chargeable Costs provided for in Article III hereof.
Section 4.02 Assignees Agent and Representative.
(a) Appointment. Assignee appoints Assignor as Assignees agent and representative to market and deliver or cause to be marketed and delivered all Assignee Minerals and to collect and receive all payments therefrom under any Minerals purchase agreement or contract without deduction (except to the extent Chargeable Costs are deducted for any Computation Period). The appointment of Assignor as Assignees agent and representative for such purpose is a material item of consideration to the Parties in connection with the execution and delivery of this Conveyance. Assignee may not remove Assignor from office as Assignees agent and representative, except for cause upon a material breach by Assignor of its duties to Assignee under this Conveyance.
(b) Duties and Powers. As Assignees agent and representative, Assignor shall receive all payments for the sale of Assignee Minerals and account to Assignee, receive and make all communications with the purchaser of such Minerals, and otherwise act and speak for Assignee in connection with the sale of Assignee Minerals. Third Persons may rely conclusively on the authority of Assignor to market Assignee Minerals, and with respect to Third Persons only, Assignee shall be conclusively bound by the acts of Assignor in connection with the sale of Assignee Minerals. It shall not be necessary for Assignee to join Assignor in the execution of any division order, transfer order or other instrument, agreement or document relating to the sale
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of Assignee Minerals. Third Persons may pay all Assignee Proceeds for the sale of such Minerals directly to Assignor, without the necessity of any joinder by or consent of Assignee or any inquiry into the use or disposition of such proceeds by Assignor. In no event, however, shall the authority granted in this Section 4.02 or elsewhere in this Conveyance relieve Assignor of any liability for breach of this Conveyance.
(c) Prohibited Acts. Assignor may not act for or bind Assignee on any matter, except the marketing and delivery of Assignee Minerals under this Article IV.
(d) Standard of Conduct. In exercising its powers and performing its duties as Assignees agent and representative, Assignor shall act in good faith and in accordance with the Reasonably Prudent Operator Standard. It shall not be a violation of such standard of conduct for Assignor (i) to sell Assignors Net Share of Minerals or Assignee Minerals to an Affiliate pursuant to any purchase agreement or contract, or (ii) to delegate some or all of Assignors duties as Assignees agent and representative to its Affiliates (so long as such Affiliates perform in good faith and in accordance with the Reasonably Prudent Operator Standard), with Assignor remaining liable to Assignee for the performance of such duties.
(e) Termination of Authority. Assignor may not resign as Assignees agent and representative without the prior written consent of Assignee, except that Assignor may resign as Assignees agent and representative without such consent with respect to any Subject Interests assigned, sold, transferred or conveyed by Assignor in accordance with the terms of this Conveyance. If such sale is made subject to the Royalty Interest, Assignor must cause the purchaser to assume the duties of Assignees agent and representative with respect to the Subject Interests acquired by that purchaser and to be bound by the provisions of this Article IV.
Section 4.03 Delivery of Subject Minerals. Assignor (whether or not it is serving as Assignees agent and representative) shall deliver or cause to be delivered Assignors Net Share of Minerals (including Assignee Minerals) to the purchasers thereof.
Section 4.04 Processing. Assignor may, or may by contract cause a Third Person to, dehydrate, separate, treat, compress or otherwise process Assignors Net Share of Minerals (including Assignee Minerals) and may commit any of the Subject Interests (including the Royalty Interest attributable thereto) to an agreement for processing Minerals (pursuant to which, for example, the plant owner or operator receives a portion of the Subject Minerals or plant products therefrom or proceeds of the sale thereof as a fee for processing), so long as (a) Assignor enters into such processing arrangements in good faith and in accordance with the Reasonably Prudent Operator Standard and (b) any such processing arrangements entered into with Affiliates of Assignor contain rates and charges that are comparable to the prevailing charges for similar services in the applicable area. Assignee shall be bound by such arrangements and shall permit Assignors Net Share of Minerals (including Assignee Minerals) to be processed by Assignor or its contractor. Assignee shall not, however, be personally liable for any costs or risks associated with such processing operations, but Assignee shall indirectly suffer the energy content reduction and volume reductions associated with processing through corresponding reductions in the content and volumes of Assignee Minerals.
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ARTICLE V
PAYMENT
Section 5.01 Obligation to Pay.
(a) The Obligation. After each Computation Period and on or before the Quarterly Payment Date for that Computation Period, Assignor shall tender to Assignee the Assignee Proceeds for the applicable Computation Period, plus, to the extent applicable, (i) all of the proceeds to be paid to Assignee from the sale of Assignee Minerals produced during any prior Computation Periods, to the extent not previously paid to Assignee for such prior Computation Periods, (ii) any damages payable to Assignee under Section 1.04(b) (subject to the right of set-off in Section 1.04(c)) during the most recently completed Computation Period, and (iii) any amounts (including any interest earned thereon) that were previously deposited with a Third Person escrow agent in accordance with Section 5.01(d) and subsequently determined by Assignor to be validly owing to Assignee. All such amounts shall be transmitted to Assignee by Assignor by means of wire transfer of funds to a bank account specified by Assignee pursuant to written instructions which shall remain in effect until and unless changed by subsequent written notice to Assignor.
For purposes of determining the amount of Assignee Proceeds for any Computation Period, if, when calculating Assignee Minerals for any Computation Period, Assignor is unable to determine the precise volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals, then Assignor shall, in good faith and in accordance with the Reasonably Prudent Operator Standard, estimate the volume of such Minerals produced, sold and attributable to Assignors Net Share of Minerals. Assignor shall adjust the calculation of Assignee Proceeds upward or downward, as the case may be, in the next or subsequent Computation Periods to reflect the difference between the estimated volume of Minerals established pursuant to this Section 5.01(a) and the actual volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals in the Computation Period for which such estimate was made.
(b) Quarterly Payment Date. Quarterly Payment Date for each Computation Period means the forty-fifth (45th) day after the end of such Computation Period. If such day is not a Business Day, the Quarterly Payment Date shall be the next Business Day.
(c) No Segregated Account. Prior to the Quarterly Payment Date, all amounts received by Assignor from the sale of Assignors Net Share of Minerals and Assignee Minerals, as applicable, for any Computation Period shall be held by Assignor in one of its general bank accounts and Assignor will not be required to maintain a segregated account for such funds.
(d) Disputed Proceeds. If Assignor receives any amounts of money from the sale of Assignee Minerals that is subject to controversy or, in the reasonable opinion of Assignor,
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possible controversy, Assignor shall promptly deposit the money with a Third Person escrow agent in a segregated interest-bearing account. Such amount shall not be treated as a portion of Assignee Proceeds so long as it remains with such escrow agent, but shall be treated as a portion of Assignee Proceeds, along with the accrued interest, when received from such escrow agent and paid over to Assignee.
Section 5.02 Interest on Past Due Payments.
(a) Obligation to Pay. Any Assignee Proceeds or other amounts of money not paid by Assignor to Assignee when due shall bear, and Assignor will pay, interest at the Prime Interest Rate on the overdue amount commencing on the sixth (6th) day after such due date until such amount is paid.
(b) Definition. Prime Interest Rate means the lesser of (i) the rate of interest per annum publicly announced from time to time by The Bank of New York Mellon Trust Company, N.A. as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced), with the understanding that such banks prime rate may be one of several base rates, may serve as a basis upon which effective rates are from time to time calculated for loans making reference thereto, and may not be the lowest of such banks base rates or (ii) the maximum rate of interest permitted under applicable Legal Requirement.
Section 5.03 Overpayments and Refunds.
(a) Overpayments. If Assignor ever pays Assignee more than the amount of money then due and payable to Assignee under this Conveyance, Assignee shall not be obligated to return the overpayment, but Assignor may at any time thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to the overpayment.
(b) Refunds. If Assignor is ever legally obligated to pay any Third Person, including any Minerals purchaser or Governmental Authority, any refund, interest, penalty or other amount of money, because any payment of Assignee Proceeds received by Assignor for the account of Assignee exceeded, or allegedly exceeded, the amount due or lawful under any applicable contract, Legal Requirement, or other obligation, Assignor may thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to such payment.
Section 5.04 Protection of Assignee Proceeds. It is the intent of Assignor and Assignee that Assignee is an interest owner with an interest separate and distinct from that of Assignor within the meaning and for the purposes of the Oil and Gas Owners Lien Act of 2010, Okla. Stat. tit. 52, § 549.1, et. seq., and that Assignee is entitled to all the benefits of such Act.
ARTICLE VI
RECORDS AND REPORTS
Section 6.01 Books, Records and Accounts.
(a) Obligation to Maintain. Assignor shall maintain true and correct books, records and accounts of (i) all transactions required or permitted by this Conveyance and (ii) the financial information necessary to effect such transactions, including the financial information needed to calculate each installment of Assignee Proceeds.
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(b) Right of Inspection. Assignee or its representative, at Assignees expense, may inspect and copy such books, records and accounts in the offices of Assignor during normal business hours and upon reasonable notice.
Section 6.02 Statements.
(a) Quarterly Statements. On each Quarterly Payment Date, Assignor shall deliver to Assignee a statement showing the computation of Assignee Minerals and Assignee Proceeds for the applicable Computation Period.
(b) Annual Statements. On the first Quarterly Payment Date after the end of each calendar year, such statement shall also show the computation of Assignee Proceeds for the preceding calendar year.
(c) Contents of Statements. Without limiting the generality of the foregoing provisions in this Section 6.02, each statement delivered by Assignor to Assignee pursuant to this Section 6.02 shall state, for the relevant period, (i) the total volumes of Subject Minerals produced from the Subject Lands, (ii) the total volumes of Assignors Net Share of Minerals, (iii) the total volumes of Assignee Minerals, (iv) the applicable Sales Price, (v) the Chargeable Costs, (vi) the amount of Assignee Proceeds due and payable for the relevant period and (vii) the amounts of money, if any, due and payable by any purchaser of the Subject Minerals or Assignee Minerals, the nonpayment of which resulted in a reduction in Assignee Proceeds for the relevant period.
Section 6.03 Assignees Exceptions to Quarterly Statements. If Assignee takes exception to any item or items included in any quarterly statement required by Section 6.02, Assignee must notify Assignor in writing within sixty (60) days after Assignees receipt of such quarterly statement. Such Notice must set forth in reasonable detail the specific charges complained of and to which exception is taken. Adjustments shall be made for all complaints and exceptions that are justified. Notwithstanding anything to the contrary herein, all matters reflected in Assignors statements for the preceding calendar year (or portion thereof) that are not objected to by Assignee in the manner provided by this Section 6.03 shall be deemed correct as rendered by Assignor to Assignee.
Section 6.04 Other Information.
(a) Disclosure. At Assignees request, subject to applicable restrictions on disclosure and transfer of information, Assignor shall give Assignee and its designated representatives reasonable access in Assignors office during normal business hours to all title, geological (to the extent not prohibited by any applicable license agreement), Well, and production data in Assignors possession or Assignors Affiliates possession, relating to operations on the Subject Interests.
(b) Disclaimer of Warranties and Liability. Assignor makes no representations or warranties about the accuracy or completeness of any data, reports, studies or other information made available to Assignee and shall have no liability to Assignee or any other Person resulting from such data, studies, reports or other information.
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(c) No Attribution. Assignee shall not, in any securities filings or reports made by Assignee, attribute to Assignor or to the consulting engineers any reports or studies made available to Assignee, or the contents thereof.
(d) Confidentiality. All information furnished to Assignee and its designated representatives pursuant to this Section 6.04 is confidential and for the sole benefit of Assignee and shall not be disclosed by Assignee or its designated representatives to any other Person, except to the extent that such information (i) is required in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over Assignee or submitted to bank examiners or similar organizations or their successors, (ii) is required in response to any summons or subpoena or in connection with any litigation, (iii) is reasonably believed to be required in order to comply with any applicable Legal Requirement to Assignee, (iv) was publicly available or otherwise known to the recipient at the time of disclosure or (v) subsequently becomes publicly available other than through any act or omission of the recipient; provided, however, with respect to the disclosures with respect to items (i), (ii) and (iii) above, Assignee will notify Assignor prior to any such disclosure in order to provide Assignor an opportunity to seek to limit any such required disclosure. In connection with the marketing of the Assignees assets upon termination of Assignee, Assignee and its designated representatives may, on a confidential basis in accordance with this Section 6.04(d), provide any potential purchaser of such assets with the same information Assignee has access to pursuant to Section 6.04.
ARTICLE VII
NO LIABILITY OF ASSIGNEE
Assignee shall not be personally liable or responsible under this Conveyance for any cost, risk, liability or obligation associated in any way with the ownership or operation of the Subject Lands, the Subject Interests, the Wells or the Subject Minerals. The foregoing sentence does not restrict the right of Assignor to deduct Chargeable Costs in calculating the volumes of Assignee Minerals or Assignee Proceeds.
ARTICLE VIII
OPERATIONS
Section 8.01 Standards of Conduct. Except as otherwise specifically provided in this Conveyance, Assignor shall (a) operate and maintain the Subject Interests and (b) make elections under each applicable lease, operating agreement, unit agreement, contract for development and other similar instrument or agreement (including elections concerning abandonment of any Well or release of any Subject Interest) in good faith and in accordance with the Reasonably Prudent Operator Standard.
Section 8.02 Abandonment of Properties. Nothing in this Conveyance shall obligate Assignor to continue to operate any Well or to operate or maintain in force or attempt to maintain in force any Subject Interest when such Well or Subject Interest ceases to produce, or
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Assignor determines, in accordance with Section 8.01 above, that such Well or Subject Interest is not capable of producing Minerals in paying quantities. The expiration of a Subject Interest in accordance with the terms and conditions applicable thereto shall not be considered to be a voluntary surrender or abandonment thereof.
ARTICLE IX
POOLING AND UNITIZATION
Section 9.01 Pooling of Subject Interests. Certain Subject Interests have been, or may have been, heretofore pooled and unitized for the production of Minerals. Such Subject Interests are and shall be subject to the terms and provisions of the applicable pooling and unitization agreements and orders, and the Royalty Interest in each pooled or unitized Subject Interest shall apply to and affect only the Minerals produced from such units that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreements and orders.
Section 9.02 Pooling and Unitization.
(a) Right to Pool. Assignor has the exclusive executive right and power (as between Assignor and Assignee) to pool or unitize any Subject Interest and to alter, change, amend or terminate any pooling or unitization agreements heretofore or hereafter entered into, as to all or any part of the Subject Lands, as to any one or more of the formations or horizons, and as to any Minerals, upon such terms and provisions as Assignor shall in its sole discretion deem appropriate.
(b) Effect of Pooling. If and whenever through the exercise of such right and power, or pursuant to any Legal Requirement now existing or hereafter enacted or promulgated, any Subject Interest is pooled or unitized in any manner, the Royalty Interest shall apply to and affect only the Minerals production that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreement or order. It shall not be necessary for Assignee to agree to, consent to, ratify, confirm or adopt any exercise of pooling or unitization of any Subject Interest by Assignor.
ARTICLE X
GOVERNMENT REGULATION
Section 10.01 Legal Requirements. Except as provided in Section 10.03, all obligations of Assignor under this Conveyance are, and shall be, subject to all applicable Legal Requirements and the instruments, documents and agreements creating the Subject Interests.
Section 10.02 Filings. Assignor shall use its reasonable discretion in making filings for itself and on behalf of Assignee with any Governmental Authority having jurisdiction with respect to matters affecting the Subject Interests, the Subject Lands or the Subject Minerals.
Section 10.03 Superseding Effect. By acceptance of this Conveyance, Assignee agrees, for itself and its successors and assigns, immediate and remote, that the timing of payment, accrual of interest and reporting requirements with respect to the Royalty Interest shall be as provided by the terms of this Conveyance and not as prescribed by the Oklahoma Production Revenue Standards Act, as amended, codified at Title 52, Section 570.1, et seq. of the Oklahoma Statutes, and any similar Legal Requirement.
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ARTICLE XI
ASSIGNMENT AND SALE OF SUBJECT INTERESTS
Section 11.01 Assignment by Assignor Subject to Royalty Interest.
(a) Right to Sell. Assignor may not Transfer any interest in the Wells, the Subject Interests or any part thereof or any undivided interest therein in violation of Section 11.03. Subject to Section 11.02 and 11.03, Assignor may from time to time Transfer, mortgage or pledge its interest in the Wells, the Subject Interests, or any part thereof or undivided interest therein, if and only if (i) such Transfer, mortgage or pledge is made expressly subject to and burdened with the Royalty Interest and this Conveyance, (ii) solely in connection with a Transfer other than a Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has caused the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer, and (iii) in connection with any Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has used commercially reasonable efforts to cause the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer. Any assumption and agreement to discharge shall be by appropriate written instrument for the express benefit of and enforceable by the Assignee. For avoidance of doubt, nothing in Section 11.01(a) is intended to permit any assignee, purchaser, transferee or grantee to acquire any interest in the Wells, the Subject Interests or any part thereof or undivided interest therein without being subject to and burdened with the Royalty Interest and this Conveyance. Assignee shall not be required to recognize any purported Transfer, mortgage or pledge not made in conformance with this Section 11.01(a) and, notwithstanding any such purported Transfer, mortgage or pledge, Assignor shall remain obligated under this Conveyance just as if such Transfer, mortgage or pledge attempt had not been made and Assignee shall continue to deal with the Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, any purported Transfer not made in conformance with this Section 11.01(a) shall be void and of no effect.
(b) Effect of Sale. From and after the actual date of any such Transfer by Assignor made in full compliance with Section 11.01(a) (and only upon such full compliance), Assignor shall be relieved of all obligations, requirements and responsibilities arising under this Conveyance with respect to the Subject Interests Transferred, as the same pertain to Assignee Minerals produced from and after (but not prior to) said date of such Transfer.
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(c) Allocation of Consideration. Assignee is not entitled to receive any share of the sales proceeds received by Assignor in any transaction permitted by this Section 11.01.
(d) Separate Interest. Notwithstanding any provision to the contrary in Article IV, effective on the effective date of any Transfer of any Subject Interest made in full compliance with Section 11.01(a), Assignee Minerals and Assignee Proceeds shall thereafter be computed separately with respect to such Subject Interests, and the assignee, buyer, transferee or grantee of such Subject Interests shall thereafter serve as Assignees agent and representative under Article IV with respect to such interests and shall pay all corresponding Assignee Proceeds directly to Assignee.
Section 11.02 Sale and Release of Properties.
(a) Transfer. Subject to Section 11.03, Assignor may from time to time, Transfer the Wells, the Subject Interests, or any part thereof or undivided interest therein, free of the Royalty Interest and this Conveyance provided that the aggregate Fair Value of all Royalty Interests released with respect to the Assignor Conveyances during any twelve (12) month period shall not exceed $5,000,000.
(b) Payments. In connection with any Transfer pursuant to this Section 11.02, Assignor shall remit to Assignee an amount equal to the Fair Value of the Royalty Interest being released. Assignor shall make such payment to Assignee on the Quarterly Payment Date for the Computation Period in which Assignor receives the payment with respect to any such Transfer of the Subject Interest.
(c) Release. In connection with any Transfer provided for in Section 11.02(a), Assignee shall, on request, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases the Royalty Interest with respect to the Well and the related Subject Interests and Subject Lands being Transferred.
(d) Effect of Sale. From and after the actual date of any such Transfer by Assignor, Assignor and any assignee, purchaser, transferee or grantee of such Subject Interest shall be relieved of all obligations, requirements and responsibilities arising under the Royalty Interest or this Conveyance with respect to the Well or Subject Interests Transferred, except for those that accrued prior to such date.
Section 11.03 Transfer of Subject Lands. Assignor will not Transfer any Well or any of the Subject Interests comprising a part of the Subject Lands pursuant to Sections 11.01 and 11.02 prior to the Drilling Obligation Completion Date, and in the event of any attempted Transfer in violation of this Section 11.03, Assignor shall remain liable and a party hereto, just as if no Transfer attempt had been made, and Assignee shall continue to deal with Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, such attempted Transfer in violation of this Section 11.03 shall be void and of no force or effect. Assignor expressly states and recognizes that the restrictions on transfer imposed on Assignor in this Section 11.03 and in Section 11.01(a) are made in reasonable protection of an interest of the Assignee created hereunder.
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Section 11.04 Change in Ownership.
(a) Obligation to Give Notice. No change of ownership or of the right to receive payment of the Royalty Interest, or of any part thereof, however accomplished, shall bind Assignor until notice thereof is furnished to Assignor by the Person making the transfer and the Person claiming the benefit thereof, and then only with respect to payments made after such Notice is furnished.
(b) Notice of Sale. Notice of sale, transfer, conveyance or assignment shall consist of a certified copy of the recorded instrument accomplishing the same.
(c) Notice of Other Changes of Ownership. Notice of change of ownership or of the right to receive payment accomplished in any other manner (e.g., by dissolution of Assignee) shall consist of certified copies of recorded documents and complete proceedings legally binding and conclusive of the rights of all Persons.
(d) Effect of Lack of Notice. Until such Notice accompanied by such documentation is furnished to Assignor in the manner provided above, Assignor may, at Assignors election, either (i) continue to pay or tender all sums payable on the Royalty Interest in the same manner provided in this Conveyance, precisely as if no such change in interest or ownership or right to receive payment had occurred or (ii) suspend payment of Assignee Proceeds without interest until such documentation is furnished.
(e) Effect of Nonconforming Notices. The kinds of Notice provided by this Section 11.04 shall be exclusive, and no other kind, whether actual or constructive, shall bind Assignor.
Section 11.05 One Payee. Assignor shall never be obligated to pay Assignee Proceeds to more than one Person. If more than one Person is ever entitled to receive payment of any part of Assignee Proceeds, Assignor may suspend payments of all Assignee Proceeds until the concurrent owners or claimants of the Royalty Interest or the right to receive payment of Assignee Proceeds appoint one Person in writing to receive all payments of Assignee Proceeds on their behalf. Assignor may thereafter conclusively rely upon the authority of that Person to receive payments of Assignee Proceeds and shall be under no further duty to inquire into the authority or performance of such Person.
Section 11.06 Rights of Mortgagee. If Assignee executes a mortgage or deed of trust covering all or part of the Royalty Interest, the mortgagees or trustees therein named or the holders of any obligation secured thereby shall be entitled, to the extent that such mortgage or deed of trust so provides, to exercise the rights, remedies, powers and privileges conferred upon Assignee by this Conveyance and to give or withhold all consents required to be obtained from Assignee. This Section 11.06 shall not be deemed or construed to impose upon Assignor any obligation or liability undertaken by Assignee under such mortgage or deed of trust or under the obligation secured thereby.
Section 11.07 No Drainage. Subsequent to the Drilling Obligation Completion Date, neither Assignor nor any of its Affiliates shall drill any Mineral well that will have a perforated segment in the Target Formation that will be within six hundred sixty feet (660) of any perforated interval of any Well which produces oil or gas from the Target Formation.
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ARTICLE XII
FORCE MAJEURE
Section 12.01 Nonperformance. Assignor shall not be responsible to Assignee for any loss or damage to Assignee resulting from any delay in performing or failure to perform any obligation under this Conveyance (other than Assignors obligation to make payments of Assignee Proceeds to Assignee) to the extent such failure or delay is caused by Force Majeure.
Section 12.02 Force Majeure. Force Majeure means any of the following, to the extent they are not caused solely by the breach by Assignor of its duty to perform certain obligations under this Conveyance in accordance with the Reasonably Prudent Operator Standard:
(a) act of God, fire, lightning, landslide, earthquake, storm, hurricane, hurricane warning, flood, high water, washout, tidal wave or explosion;
(b) strike, lockout, or other similar industrial disturbance, act of the public enemy, war, military operation, blockade, insurrection, riot, epidemic, arrest or restraint of Governmental Authority or people, or national emergency;
(c) the inability of the Assignor to acquire, or the delay on the part of any Third Person (other than an Affiliate of the Assignor) in acquiring, materials, supplies, machinery, equipment, servitudes, right-of-way grants, easements, permits, licenses, approvals or authorizations necessary to enable such Party to perform hereunder;
(d) any breakage of or accident to machinery, equipment or lines of pipe, the repair, maintenance, improvement, replacement, alteration to a plant or line of pipe or related facility, the testing of machinery, equipment or line of pipe, or the freezing of a line of pipe;
(e) any Legal Requirement or the affected Partys compliance therewith; or
(f) any other cause, whether similar or dissimilar to the causes enumerated in (a) through (e) above, not reasonably within the control of Assignor.
Section 12.03 Force Majeure Notice. Assignor will give Assignee a Notice of each Force Majeure as soon as reasonably practicable after the occurrence of the Force Majeure.
Section 12.04 Remedy. Assignor will use its reasonable efforts to remedy each Force Majeure and resume full performance under this Conveyance as soon as reasonably practicable, except that the settlement of strikes, lockouts or other labor disputes shall be entirely within the discretion of Assignor.
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ARTICLE XIII
NOTICE
Section 13.01 Written Notice. Except as otherwise provided by this Conveyance, each Notice shall be in writing.
Section 13.02 Methods of Giving Notice. Notice may be given by any reasonable means, including email, telecopier, hand delivery, overnight courier or U.S. mail.
Section 13.03 Charges. All Notices shall be properly addressed to the recipient, with all postage and other charges being paid by the Party giving Notice.
Section 13.04 Effective Date. Notice shall be effective when actually received by the Party being notified; provided, however, that Notices given by email or telecopy on any day other than a Business Day, or on a Business Day but after 5:00 p.m. local time at the location of the Party being notified, shall be deemed received on the next Business Day, unless receipt is acknowledged prior to the next Business Day.
Section 13.05 Addresses. The addresses of the Parties for purposes of Notice are the addresses in the introductory paragraph to this Conveyance.
Section 13.06 Change of Address. Either Party may change its address to another address within the continental United States by giving ten (10) days Notice to the other Party.
ARTICLE XIV
OTHER PROVISIONS
Section 14.01 Successors and Assigns. The provisions and conditions contained in this Conveyance shall run with the land and the respective interests of Assignor and Assignee in the Subject Lands, and, subject to the limitation and restrictions on the assignment or delegation by the Parties of their rights and interests under this Conveyance, this Conveyance binds and inures to the benefit of Assignor, Assignee and their respective successors, assigns and legal representatives.
Section 14.02 Governing Law. THIS CONVEYANCE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
Section 14.03 Construction of Conveyance. In construing this Conveyance, the following principles shall be followed:
(a) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Conveyance and not as an aid in its construction;
(b) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Conveyance;
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(c) the word includes and its syntactical variants mean includes, but is not limited to and corresponding syntactical variant expressions;
(d) a defined term has its defined meaning throughout this Conveyance, regardless of whether it appears before or after the place in this Conveyance where it is defined;
(e) the plural shall be deemed to include the singular, and vice versa, unless the content otherwise requires; and
(f) each exhibit, attachment and schedule to this Conveyance is a part of this Conveyance, but if there is any conflict or inconsistency between the main body of this Conveyance and any exhibit, attachment or schedule, the provisions of the main body of this Conveyance shall prevail.
Section 14.04 No Waiver. Failure of either Party to require performance of any provision of this Conveyance shall not affect either Partys right to require full performance thereof at any time thereafter, and the waiver by either Party of a breach of any provision hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision.
Section 14.05 Relationship of Parties. This Conveyance does not create a partnership, mining partnership, joint venture or relationship of trust or agency (except with respect to Assignors agency relationship with respect to those matters set forth in Articles IV and V above) between the Parties.
Section 14.06 Further Assurances. Each Party shall execute, acknowledge and deliver to the other Party all additional instruments and other documents reasonably required to describe more specifically any interests subject hereto, to vest more fully in Assignee the Royalty Interest conveyed (or intended to be conveyed) by this Conveyance, or to evidence or effect any transaction contemplated by this Conveyance. Assignor shall also execute and deliver all additional instruments and other documents reasonably required to transfer interests in state, federal or Indian lease interests in compliance with applicable Legal Requirements or agreements.
Section 14.07 The 12:01 A.M. Convention. Except as otherwise provided in this Conveyance, each calendar day, month, quarter and year shall be deemed to begin at 12:01 a.m. Central Time on the stated day or on the first day of the stated month, quarter or year, and to end at 12:00 a.m. Central Time on the next day or on first day of the next month, quarter or year, respectively.
Section 14.08 Counterpart Execution. This Conveyance may be executed in any number of counterparts, all of which are identical except that to facilitate filing and recording, counterparts to be filed and recorded in the appropriate records of each county may have included in Exhibit A only those portions of Exhibit A that contain descriptions of the lands and leases located in said county. Every counterpart of this Conveyance shall be deemed to be an original for all purposes, and all such counterparts together shall constitute one and the same instrument. An executed counterpart of this Conveyance containing the full text to the entire Exhibits and Annexes is recorded in the real property records of Alfalfa County, Oklahoma. Counterparts of this
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Conveyance with all portions of Exhibit A attached thereto will be kept at the offices of Assignor and Assignee at the addresses indicated above. As between the Parties, any signature hereto delivered by a Party by facsimile transmission or email pdf. shall be deemed an original hereto.
Section 14.09 Present and Absolute Conveyance. It is the express intention of Assignor and Assignee that the Royalty Interest is, and shall be construed for all purposes as, a present, fully-vested and absolute conveyance.
Section 14.10 Limitation of Liability. It is expressly understood and agreed by the Parties hereto that (a) this Conveyance is executed and delivered by the Trustee not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall the Trustee be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Assignee under this Conveyance.
Section 14.11 Severability. In case any provision, covenant or obligation under this Conveyance is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, covenants or obligations of this Conveyance are declared to be severable and not in any way affected or impaired thereby.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, each Party has caused this Conveyance to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Conveyance, to be effective as of the Effective Time.
SandRidge Exploration and Production, LLC | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
[Signature page to the Perpetual Conveyance (PDP)]
SandRidge Mississippian Trust I | ||||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
By: | /s/ Michael J. Ulrich | |||
Name: | Michael J. Ulrich | |||
Title: | Vice-President |
[Signature page to the Perpetual Conveyance (PDP)]
STATE OF OKLAHOMA |
§ | |||||
§ | ||||||
COUNTY OF OKLAHOMA |
§ |
This instrument was acknowledged before me on March 31, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 31st day of March, 2011.
Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment page to the Perpetual Conveyance (PDP)]
STATE OF TEXAS |
§ | |||||
§ | ||||||
COUNTY OF TRAVIS |
§ |
This instrument was acknowledged before me on April 5, 2011, by Michael J. Ulrich as Vice-President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, the Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said national banking association and trust.
WITNESS my hand and official seal this 5th day of April, 2011.
Sarah Newell |
NOTARY PUBLIC, |
State of Texas |
Sarah Newell |
(printed name) |
My commission expires:
02-16-2014
[SEAL]
[Acknowledgment page to the Perpetual Conveyance (PDP)]
Exhibit A
(Subject Lands)
Exhibit B
(Excluded Assets)
Exhibit C
(Wells)
Exhibit 10.2
PERPETUAL OVERRIDING ROYALTY INTEREST CONVEYANCE (PUD)
This PERPETUAL OVERRIDING ROYALTY INTEREST CONVEYANCE (this Conveyance) from SandRidge Exploration and Production, LLC, a Delaware limited liability company, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (Assignor), to SandRidge Mississippian Trust I, a statutory trust formed under the laws of the State of Delaware (Assignee), is delivered to be effective as of 12:01 a.m., Central Time, January 1, 2011 (the Effective Time). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article II below.
ARTICLE I.
CONVEYANCE
Section 1.01 The Grant. For and in consideration of good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby BARGAIN, SELL, GRANT, CONVEY, TRANSFER, ASSIGN, SET OVER, and DELIVER unto Assignee, subject to the terms of this Conveyance, as a perpetual overriding royalty interest (the Royalty Interest), an undivided interest in and to all Minerals in, under and that may be produced and saved from the Target Formation underlying the Subject Lands through the wellbores of the Development Wells, sufficient to cause Assignee to receive the Assignee Minerals.
Section 1.02 Non-Operating, Non-Expense Bearing Interest. The Royalty Interest conveyed hereby is a non-operating, non-expense-bearing overriding royalty interest in and to the Subject Interests, free of all cost, risk and expense of production, operations and marketing. In no event shall Assignee ever be liable or personally obligated for payment of any cost, expenses or liabilities attributable to the Subject Interests (or any part thereof) or incurred in connection with the production, saving or marketing of Assignee Minerals, subject, however, to Assignors right hereinafter provided to deduct Chargeable Costs in determining Assignee Proceeds, which right shall be solely a matter of deduction from the proceeds from the sale of Assignee Minerals and not a personal obligation of Assignee. This Conveyance is a conveyance of an interest in real property.
Section 1.03 Habendum Clause. TO HAVE AND TO HOLD the Royalty Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto Assignee, its successors and assigns, subject to terms and provisions of this Conveyance.
Section 1.04 Warranty.
(a) The Warranty. Assignor warrants to Assignee, its successors and assigns, that the Royalty Interest is free of all Encumbrances created by, through, or under Assignor, but not otherwise, except for the Permitted Encumbrances.
(b) Remedies. In the event of a breach of the foregoing warranty, Assignees sole remedy shall be to receive payment on each applicable Quarterly Payment Date, out of Assignors Net Share of Minerals from other Development Wells in excess of that subject to the Royalty Interest and the royalty interest created pursuant to the Term PUD Conveyance (the Assignor Retained Minerals), subject to offset as provided below and without interest (except such interest payable under this Conveyance on payments made after the applicable due date as described in Section 5.02 below), of an amount equal to the difference between (x) Assignee Proceeds that Assignee would have received with respect to such Development Well in the applicable Computation Period if such warranty had not been breached and (y) Assignee Proceeds that Assignee actually received during that Computation Period with respect to that Development Well, to the extent such difference is attributable to the breach of the warranty, but not to the extent that such difference is attributable to any other cause, and any such amounts of Assignor Retained Minerals shall be treated as Assignee Minerals.
(c) Right of Offset. If any Subject Interest ever proves to be larger as of the Effective Date than the Subject Interest reflected in Exhibit A and if, as a result, Assignee receives a greater amount of Assignee Minerals (or the proceeds from the sale thereof) with respect to that Subject Interest than Assignee would otherwise have received if the Subject Interest had been the size reflected on Exhibit A, then such increased amounts, whenever received by Assignee, may be treated by Assignor as a credit or offset (without interest) against any amounts payable to Assignee under Section 1.04(b).
(d) DISCLAIMER. EXCEPT FOR THE WARRANTIES OF TITLE GIVEN IN SECTION 1.04(a), ASSIGNOR MAKES THIS CONVEYANCE AND ASSIGNS THE ROYALTY INTEREST WITHOUT RECOURSE, COVENANT OR WARRANTY OF TITLE OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. ANY COVENANTS OR WARRANTIES IMPLIED BY STATUTE OR LAW BY THE USE HEREIN OF THE WORDS GRANT, CONVEY OR OTHER SIMILAR WORDS ARE HEREBY EXPRESSLY DISCLAIMED, WAIVED AND NEGATED. WITHOUT LIMITING THE GENERALITY OF THE TWO PRECEDING SENTENCES, ASSIGNEE ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (i) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF MINERALS, IF ANY, ATTRIBUTABLE TO THE SUBJECT INTERESTS, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iv) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND (v) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER ANY APPLICABLE LEGAL REQUIREMENT; IT BEING THE EXPRESS INTENTION OF BOTH ASSIGNEE AND ASSIGNOR THAT THE ROYALTY INTEREST IS HEREBY ASSIGNED TO ASSIGNEE ON AN AS IS AND WHERE IS BASIS WITH ALL FAULTS, AND THAT ASSIGNEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ASSIGNEE DEEMS APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE CONSPICUOUS DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
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(e) Substitution of Warranty. This instrument is made with full substitution and subrogation of Assignee in and to all covenants of warranty by Third Persons (other than Affiliates of Assignor) heretofore given or made with respect to the Development Wells, the Subject Interests or any part thereof or interest therein.
Section 1.05 Reconveyance of Excess Acreage. After the Drilling Obligation Completion Date, Assignee shall, on request, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that reconveys to Assignor the Royalty Interest except with respect to all Subject Minerals in, under and that may be produced from any wellbore of any Development Well.
ARTICLE II.
DEFINITIONS
This Article II defines certain capitalized words, terms, and phrases used in this Conveyance. Certain other capitalized words, terms, and phrases used in this Conveyance are defined elsewhere in this Conveyance.
Affiliate means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract, or otherwise.
AMI Area means that area described in Exhibit A to the Development Agreement.
Assignee is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignee.
Assignee Minerals is defined in Section 3.01.
Assignee Proceeds means proceeds received by Assignor for the account of Assignee, as Assignees marketing and payment agent and representative, from the sale of Assignee Minerals under this Conveyance less Chargeable Costs calculated in accordance with Section 3.03.
Assignor is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignor.
Assignor Conveyances means this Conveyance, the Term PDP Conveyance, the Term PUD Conveyance and the Perpetual PDP Conveyance.
Assignor Retained Minerals is defined in Section 1.04(b).
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Assignors Net Revenue Interest means the interest, stated as a decimal fraction, in Subject Minerals production from a Development Well attributable to the Subject Interests in that Development Well, net of Production Burdens.
Assignors Net Share of Minerals means the share of Subject Minerals from each Development Well that is attributable to Assignors Net Revenue Interest in that Development Well determined prior to giving effect to this Conveyance.
Bbl means one stock tank barrel, or 42 U.S. gallons liquid volume, in reference to Oil or Gas Liquids.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by the New York Stock Exchange, Inc. as affecting ex dates or any other day on which national banking institutions in New York, New York are closed as authorized or required by law.
Chargeable Costs is defined in Section 3.02(a).
Closing Time means 12:01 a.m. Central Time, on April 12, 2011.
Computation Period means each calendar quarter commencing at the Effective Time, with each calendar quarter being deemed to have begun at 12:01 a.m. Central Time on the first day of such calendar quarter and to have ended at 12:00 a.m. Central Time on the first day of the next calendar quarter, except for the first Computation Period, which shall be deemed to have begun at the Effective Time and to have ended at 12:00 a.m. Central Time on July 1, 2011.
Conveyance is defined in the introductory paragraph to this Conveyance.
Development Agreement means that certain Development Agreement between SandRidge, Assignor and Assignee dated as of even date herewith.
Development Well has the meaning given such term in the Development Agreement.
Drilling Obligation Completion Date has the meaning given to such term in the Development Agreement.
Effective Time is defined in the introductory paragraph to this Conveyance.
Encumbrance means any mortgage, lien, security interest, pledge, charge, encumbrance, limitation, preferential right to purchase, consent to assignment, irregularity, burden or defect.
Excess Costs means, in any Computation Period, the excess of Chargeable Costs associated with Assignee Minerals for that Computation Period over the amount determined by multiplying Assignors Net Share of Minerals produced during the Computation Period by the Sales Price for that Computation Period. Excess Costs shall bear interest at the Prime Interest Rate from the end of the Computation Period in which such costs were incurred to the date that Assignor recovers such amounts from Assignee Proceeds.
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Excluded Assets means (a) those oil and gas wells that are the subject of the Term PDP Conveyance and the Perpetual PDP Conveyance and (b) those oil and gas wells that are described in Exhibit B.
Fair Value means, with respect to any portion of the Royalty Interest to be released pursuant to Section 11.02 in connection with a sale or release of any Development Well or Subject Interests, an amount of net proceeds which could reasonably be expected to be obtained from the sale of such portion of the Royalty Interest to a party which is not an Affiliate of either the Assignor or Assignee on an arms-length negotiated basis, taking into account relevant market conditions and factors existing at the time of any such proposed sale or release, such net proceeds to be determined by deducting Assignees proportionate share of sales costs, commissions and brokerage fees, if any (based on the ratio of (i) the fair market value of the portion of the Royalty Interest being released to (ii) the fair market value of the Development Wells and Subject Interests being transferred (including the value of the Royalty Interest being released)).
Farmout Agreements means any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.
Force Majeure is defined in Section 12.02.
Gas means natural gas and all other gaseous hydrocarbons or minerals, including helium, but specifically excluding any Gas Liquids.
Gas Liquids means those natural gas liquids and other liquid similar hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.
Governmental Authority means the United States of America, any state, commonwealth, territory, or possession thereof, and any political subdivision of any of the foregoing, including courts, departments, commissions, boards, bureaus, agencies and other instrumentalities.
Legal Requirement means any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation of, including the terms of any license or permit issued by, any Governmental Authority.
MMBtu means one million British thermal units.
Mcf means one thousand cubic feet of Gas, and MMcf means one million cubic feet of Gas, measured and expressed in each case at the same temperature, pressure, and other conditions of measurement (a) provided in any contract for the purchase of Gas from the Subject Interests or, (b) if no such contract exists, provided by applicable state law for purposes of reporting production to Governmental Authorities.
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Minerals means Oil, Gas and Gas Liquids.
Mortgage has the meaning given such term in the Development Agreement.
Non-Affiliate means, for any specified Person, any other Person that is not an Affiliate of the specified Person.
Notice means any notice, advice, invoice, demand or other communication required or permitted by this Conveyance.
Oil means crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.
Party, when capitalized, refers to Assignor or Assignee. Parties, when capitalized, refers to Assignor and Assignee.
Permitted Encumbrances means:
(a) the Production Burdens;
(b) contractual obligations arising under operating agreements, Farmout Agreements, production sales contracts, leases, assignments and other similar agreements that may affect the Subject Interests;
(c) pooling and unitization agreements, declarations, orders or Legal Requirements to secure payment of amounts not yet delinquent;
(d) liens that arise in the normal course of operations, such as liens for unpaid taxes, statutory liens securing unpaid suppliers and contractors, and contractual liens under operating agreements, in any case, that are not yet delinquent or, if delinquent, are being contested in good faith in the normal course of business;
(e) conventional rights of reassignment that obligate Assignor to reassign all or part of any Subject Interest to a Third Person if Assignor intends to release or abandon such interest before the expiration of the primary term or other termination of such interest;
(f) easements, rights-of-way, servitudes, permits, surface leases, surface use restrictions and other surface uses and impediments on, over or in respect of the Subject Interests that are not such as to interfere materially with the operation, value or use of the Subject Interests;
(g) rights reserved to or vested in any Governmental Authority to control or regulate any Subject Interests in any manner, and all applicable Legal Requirements;
(h) the terms of the instruments creating the Subject Interests and Subject Lands; and
(i) the Mortgage;
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provided that such aforementioned encumbrances are of the type and nature customary in the oil and gas industry and do not, alone or in the aggregate, materially and adversely affect the operation, value or use of any Subject Interests, and all to the extent, and for so long as, such Permitted Encumbrances are otherwise valid and enforceable against the Subject Interests, without recognizing, expressly or by implication, any rights or interests in any Third Person or Governmental Authority that such Third Person or Governmental Authority does not otherwise lawfully possess.
Perpetual PDP Conveyance means that certain Perpetual Overriding Royalty Interest Conveyance (PDP) by and between Assignor and Assignee, dated effective as of the Effective Time.
Person means any natural person, corporation, partnership, trust, estate, or other entity, organization or association.
Post Production Cost Charge is defined in Section 3.02(b).
Prime Interest Rate is defined in Section 5.02(b).
Production Burdens means, with respect to any Subject Lands, Subject Interests or Subject Minerals, all royalty interests, overriding royalty interests, production payments, net profits interests and other similar interests that constitute a burden on, are measured by, or are payable out of the production of Minerals or the proceeds realized from the sale or other disposition thereof.
Quarterly Payment Date is defined in Section 5.01(b).
Reasonably Prudent Operator Standard means the standard of conduct of a reasonably prudent oil and gas operator in the AMI Area under the same or similar circumstances, acting with respect to its own property and disregarding the existence of the Royalty Interest as a burden on such property.
Royalty Interest is defined in Section 1.01.
Sales Price means the price received by Assignor for Assignee Minerals determined in accordance with the following provisions:
(a) sale refers to any sale, exchange or other disposition of Assignee Minerals for value, the value of such Minerals that is exchanged or otherwise disposed of for valuable consideration being the sales price that Assignor receives for any such Minerals sold pursuant to Section 4.01 for any such Minerals;
(b) amounts of money not paid to Assignor when due by any purchaser of Assignee Minerals (for example, Taxes or other amounts withheld or deducted by any such purchaser) shall not be included within the Sales Price until actually received by, or credited to the account of, Assignor;
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(c) advance payments and prepayments for future deliveries of Assignee Minerals shall be included within the Sales Price, without interest, when that volume of Minerals subject to the advance payments or prepayments is actually produced;
(d) loan proceeds received by Assignor shall not be treated as a component of the applicable Sales Price; and
(e) if a controversy or possible controversy exists, whether by reason of any statute, order, decree, rule, regulation, contract or otherwise, between Assignor and any purchaser of Assignee Minerals or any other Person, about the correct Sales Price of any Assignee Minerals, about deductions from the Sales Price, about Assignors right to receive the proceeds of any sale of Assignee Minerals, or about any other matter, then monies withheld by the purchaser or deposited by it with an escrow agent or if Assignor receives any monies and promptly deposits such monies with a Third Person escrow agent as a result of such controversy, such monies shall not be included within the Sales Price until received by or returned to Assignor, as applicable.
SandRidge means SandRidge Energy, Inc., a Delaware corporation.
Subject Interests means Assignors undivided interests in the Subject Lands as described on Exhibit A, whether as lessee under leases, as an owner of the Subject Minerals (or the right to extract such Minerals) or otherwise, by virtue of which undivided interests Assignor has the right to conduct exploration, drilling, development and Mineral production operations on the Subject Lands, or to cause such operations to be conducted, or to participate in such operations by paying and bearing all or any part of the costs, risks and liabilities of such operations, to drill, test, complete, equip, operate and produce wells to exploit the Minerals. The Subject Interests (a) may be owned by Assignor pursuant to leases, deeds, operating, pooling or unitization agreements, orders or any other instruments, agreements or documents, recorded or unrecorded, (b) include any and all extensions or renewals of leases covering the Subject Lands (or any portion thereof) obtained by Assignor, or any Affiliate thereof, within six (6) months after the expiration or termination of any such lease, and (c) are subject to the Permitted Encumbrances. For the avoidance of doubt, the Subject Interests do not include: (i) Assignors interests in the Excluded Assets; (ii) Assignors rights to substances other than Minerals; (iii) Assignors rights to Minerals (other than Assignee Minerals) under contracts for the purchase, sale, transportation, storage, processing or other handling or disposition of Minerals; (iv) Assignors interests in, or rights to Minerals (other than Assignee Minerals) held in pipelines, gathering systems, storage facilities, processing facilities or other equipment or facilities; or (v) any additional or enlarged interests in the Development Wells, Subject Lands or Subject Minerals acquired by Assignor after the Closing Time, except (1) to the extent any such additional or enlarged interest becomes a part of the Subject Interests by amendment to this Conveyance pursuant to Section 3.01 or 3.02 of the Development Agreement, (2) as may result from the operation of the terms of the instruments creating the Subject Interests, or (3) as may be reflected in extensions and renewals covered by the preceding sentence.
Subject Lands means the lands subject to or covered by the oil and gas leases described in Exhibit A, insofar and only insofar as they cover the Target Formation, subject to the exceptions, exclusions and reservations set forth on such Exhibit A.
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Subject Minerals means all Minerals in and under, and that may be produced, saved and sold from a Development Well, from and after the Effective Time, insofar and only insofar as such Minerals are produced from the Target Formation, subject to the following exclusions: Minerals that are (a) lost in the production, gathering or marketing of Minerals; (b) used (i) in conformity with ordinary and prudent operations on the Subject Lands, including drilling and production operations with respect to a Development Well or (ii) in connection with operations (whether on or off the Subject Lands) for processing or compressing the Subject Minerals; (c) taken by a Third Person to recover costs, or some multiple of costs, paid or incurred by that Third Person under any operating agreement, unit agreement or other agreement in connection with nonconsent operations conducted (or participated in) by that Third Person; and (d) retained by a Third Person for gathering, transportation, processing or marketing services related to the Subject Minerals in lieu of or in addition to cash payment for such services, to the extent such agreement is permitted under this Conveyance.
Target Formation means (i) with respect to Alfalfa County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 4,833 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,344 in the SandRidge Energy Dorado SWD 1-32 located in section 32, Township 29 North, Range 9 West (API No. 35003219830000), (ii) with respect to Garfield County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,475 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,100 in the Texas American Oil JC Nelson 1 located in section 27, Township 23 North, Range 8 West (API No. 35047223450000), (iii) with respect to Grant County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,395 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 6,060 in the SandRidge Energy Orion 1-22 SWD located in section 22, Township 25 North, Range 5 West (API No. 35053227710000), (iv) with respect to Major County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,474 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,094 in the Downey Oil Davis 1 located in section 24, Township 23 North, Range 9 West (API No. 35093215620000) and (v) with respect to Woods County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,204 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,704 in the SandRidge Energy Koppitz SWD 1-31 located in section 31, Township 28 North, Range 13 West (API No. 35151232750000).
Term PDP Conveyance means that certain Term Overriding Royalty Interest Conveyance (PDP) by and between Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation, dated effective as of the Effective Time.
Term PUD Conveyance means that certain Term Overriding Royalty Interest Conveyance (PUD) by and between Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation, dated effective as of the Effective Time.
Taxes is defined in Section 3.02(c).
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Third Person means a Person other than Assignor, Assignee or Trustee.
Transfer including its syntactical variants, means any assignment, sale, transfer, conveyance or disposition of any property; provided, Transfer as used herein does not include the granting of a mortgage on or security interest in Assignors interest in any property, including the Development Wells, the Subject Interests and the Subject Lands.
Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, as trustee, acting not in its individual capacity but solely as trustee of Assignee.
ARTICLE III.
CALCULATION OF ASSIGNEE MINERALS
Section 3.01 Definition. Assignee Minerals is that volume of Minerals with respect to each Development Well calculated in accordance with the following formula: Twenty-Five Percent (25%) X (Assignors Net Share of Minerals).
Section 3.02 Chargeable Costs.
(a) Definition. For each Computation Period, Chargeable Costs means the sum of (i) the Post Production Cost Charge, plus (ii) Excess Costs from prior Computation Periods, plus (iii) Taxes incurred, accrued or paid by Assignor; provided, that such costs are actually paid by Assignor during the relevant Computation Period or paid by Assignor during a prior Computation Period and not included in any prior Computation Periods Chargeable Costs. For the avoidance of doubt, all costs associated with, incurred or paid in connection with the drilling, testing, completing and equipping for production of the Development Wells shall be borne solely by Assignor and shall not be included as Chargeable Costs.
(b) Post Production Cost Charge. Post Production Cost Charge means those costs incurred by Assignor (including internal costs and Third Person costs) to gather, store, transport, compress, process, treat, dehydrate and market, as applicable, the Subject Minerals, including any costs as may be required to deliver such Minerals to market; provided, any costs charged by Assignor and its Affiliates as part of the Post Production Cost Charge shall not materially exceed the costs prevailing in the area where the Subject Minerals are being produced for similar services and provided, further, with respect to marketing costs, only Non-Affiliate marketing fees and costs shall be included, and marketing costs of Assignor and its Affiliates with respect to any Subject Minerals will be specifically excluded from the Post Production Cost Charge. Any costs, fees or expenses that are properly charged or allocated to Assignee Minerals pursuant to another provision of this Conveyance (including, as provided for in the definition of Subject Minerals) shall not be included as part of the Post Production Cost Charge.
(c) Taxes. Taxes means general property, ad valorem, production, severance, sales, windfall profit, excise and other taxes, except income taxes, assessed or levied on or in connection with the Subject Interests, the Royalty Interest, this Conveyance, production of Subject Minerals, Assignors Net Share of Minerals, Assignee Minerals (or the proceeds from the sale thereof) or facilities or equipment on the Subject Lands that are used for the production,
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dehydration, treatment, processing, gathering or transportation of Subject Minerals, or against Assignor as owner of the Subject Interests or paid by Assignor on behalf of Assignee as owner of the Royalty Interest.
(d) Operating and Drilling Costs. For the avoidance of doubt, all costs associated with or paid or incurred in connection with the drilling, testing, completing, developing and operating the Development Wells or otherwise incurred in connection with the ownership or operation of the Subject Interests other than Taxes and Post Production Cost Charges shall be borne solely by Assignor and shall not be included as Chargeable Costs.
Section 3.03 Assignee Proceeds. Assignee Proceeds means, for any Computation Period, (a) the amount of proceeds actually received by Assignor during such Computation Period in respect of Assignee Minerals, with the amount of such proceeds being determined by multiplying (i) the volume of Assignee Minerals produced (expressed (A) for Gas, in Mcf or MMBtu, (B) for Gas Liquids, in Bbls and (C) for Oil, in Bbls) by (ii) the relevant Sales Price (expressed (A) for Gas, on a per Mcf or MMBtu basis, (B) for Gas Liquids, on a per Bbl basis and (C) for Oil, on a per Bbl basis), less (b) the Chargeable Costs associated with such Assignee Minerals.
ARTICLE IV.
MARKETING OF ASSIGNEE MINERALS
Section 4.01 Rights and Duties Regarding Sale of Assignee Minerals. Assignor shall market or shall cause to be marketed Assignors Net Share of Minerals (including Assignee Minerals) in good faith and in accordance with the Reasonably Prudent Operator Standard and Section 4.02(d). Assignor shall use its reasonable efforts in connection with any sale of Assignors Net Share of Minerals (including Assignee Minerals) to obtain, as soon as reasonably practicable, full payment for such Minerals; provided, however, that it shall not be considered a breach of Assignors marketing duty or standard of conduct for Assignor to market such Minerals to an Affiliate of Assignor, so long as Assignor does not market such Minerals at a volume-weighted average price lower than the volume-weighted average price upon which Assignor pays royalties to the owners of the other royalty interests in the Subject Minerals, save and excepting Chargeable Costs provided for in Article III hereof.
Section 4.02 Assignees Agent and Representative.
(a) Appointment. Assignee appoints Assignor as Assignees agent and representative to market and deliver or cause to be marketed and delivered all Assignee Minerals and to collect and receive all payments therefrom under any Minerals purchase agreement or contract without deduction (except to the extent Chargeable Costs are deducted for any Computation Period). The appointment of Assignor as Assignees agent and representative for such purpose is a material item of consideration to the Parties in connection with the execution and delivery of this Conveyance. Assignee may not remove Assignor from office as Assignees agent and representative, except for cause upon a material breach by Assignor of its duties to Assignee under this Conveyance.
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(b) Duties and Powers. As Assignees agent and representative, Assignor shall receive all payments for the sale of Assignee Minerals and account to Assignee, receive and make all communications with the purchaser of such Minerals, and otherwise act and speak for Assignee in connection with the sale of Assignee Minerals. Third Persons may rely conclusively on the authority of Assignor to market Assignee Minerals, and with respect to Third Persons only, Assignee shall be conclusively bound by the acts of Assignor in connection with the sale of Assignee Minerals. It shall not be necessary for Assignee to join Assignor in the execution of any division order, transfer order or other instrument, agreement or document relating to the sale of Assignee Minerals. Third Persons may pay all Assignee Proceeds for the sale of such Minerals directly to Assignor, without the necessity of any joinder by or consent of Assignee or any inquiry into the use or disposition of such proceeds by Assignor. In no event, however, shall the authority granted in this Section 4.02 or elsewhere in this Conveyance relieve Assignor of any liability for breach of this Conveyance.
(c) Prohibited Acts. Assignor may not act for or bind Assignee on any matter, except the marketing and delivery of Assignee Minerals under this Article IV.
(d) Standard of Conduct. In exercising its powers and performing its duties as Assignees agent and representative, Assignor shall act in good faith and in accordance with the Reasonably Prudent Operator Standard. It shall not be a violation of such standard of conduct for Assignor (i) to sell Assignors Net Share of Minerals or Assignee Minerals to an Affiliate pursuant to any purchase agreement or contract, or (ii) to delegate some or all of Assignors duties as Assignees agent and representative to its Affiliates (so long as such Affiliates perform in good faith and in accordance with the Reasonably Prudent Operator Standard), with Assignor remaining liable to Assignee for the performance of such duties.
(e) Termination of Authority. Assignor may not resign as Assignees agent and representative without the prior written consent of Assignee, except that Assignor may resign as Assignees agent and representative without such consent with respect to any Subject Interests assigned, sold, transferred or conveyed by Assignor in accordance with the terms of this Conveyance. If such sale is made subject to the Royalty Interest, Assignor must cause the purchaser to assume the duties of Assignees agent and representative with respect to the Subject Interests acquired by that purchaser and to be bound by the provisions of this Article IV.
Section 4.03 Delivery of Subject Minerals. Assignor (whether or not it is serving as Assignees agent and representative) shall deliver or cause to be delivered Assignors Net Share of Minerals (including Assignee Minerals) to the purchasers thereof.
Section 4.04 Processing. Assignor may, or may by contract cause a Third Person to, dehydrate, separate, treat, compress or otherwise process Assignors Net Share of Minerals (including Assignee Minerals) and may commit any of the Subject Interests (including the Royalty Interest attributable thereto) to an agreement for processing Minerals (pursuant to which, for example, the plant owner or operator receives a portion of the Subject Minerals or plant products therefrom or proceeds of the sale thereof as a fee for processing), so long as (a) Assignor enters into such processing arrangements in good faith and in accordance with the Reasonably Prudent Operator Standard and (b) any such processing arrangements entered into with Affiliates of Assignor contain rates and charges that are comparable to the prevailing
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charges for similar services in the applicable area. Assignee shall be bound by such arrangements and shall permit Assignors Net Share of Minerals (including Assignee Minerals) to be processed by Assignor or its contractor. Assignee shall not, however, be personally liable for any costs or risks associated with such processing operations, but Assignee shall indirectly suffer the energy content reduction and volume reductions associated with processing through corresponding reductions in the content and volumes of Assignee Minerals.
ARTICLE V.
PAYMENT
Section 5.01 Obligation to Pay.
(a) The Obligation. After each Computation Period and on or before the Quarterly Payment Date for that Computation Period, Assignor shall tender to Assignee the Assignee Proceeds for the applicable Computation Period, plus, to the extent applicable, (i) all of the proceeds to be paid to Assignee from the sale of Assignee Minerals produced during any prior Computation Periods, to the extent not previously paid to Assignee for such prior Computation Periods, (ii) any damages payable to Assignee under Section 1.04(b) (subject to the right of set-off in Section 1.04(c)) during the most recently completed Computation Period, and (iii) any amounts (including any interest earned thereon) that were previously deposited with a Third Person escrow agent in accordance with Section 5.01(d) and subsequently determined by Assignor to be validly owing to Assignee. All such amounts shall be transmitted to Assignee by Assignor by means of wire transfer of funds to a bank account specified by Assignee pursuant to written instructions which shall remain in effect until and unless changed by subsequent written notice to Assignor.
For purposes of determining the amount of Assignee Proceeds for any Computation Period, if, when calculating Assignee Minerals for any Computation Period, Assignor is unable to determine the precise volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals, then Assignor shall, in good faith and in accordance with the Reasonably Prudent Operator Standard, estimate the volume of such Minerals produced, sold and attributable to Assignors Net Share of Minerals. Assignor shall adjust the calculation of Assignee Proceeds upward or downward, as the case may be, in the next or subsequent Computation Periods to reflect the difference between the estimated volume of Minerals established pursuant to this Section 5.01(a) and the actual volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals in the Computation Period for which such estimate was made.
(b) Quarterly Payment Date. Quarterly Payment Date for each Computation Period means the forty-fifth (45th) day after the end of such Computation Period. If such day is not a Business Day, the Quarterly Payment Date shall be the next Business Day.
(c) No Segregated Account. Prior to the Quarterly Payment Date, all amounts received by Assignor from the sale of Assignors Net Share of Minerals and Assignee Minerals, as applicable, for any Computation Period shall be held by Assignor in one of its general bank accounts and Assignor will not be required to maintain a segregated account for such funds.
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(d) Disputed Proceeds. If Assignor receives any amounts of money from the sale of Assignee Minerals that is subject to controversy or, in the reasonable opinion of Assignor, possible controversy, Assignor shall promptly deposit the money with a Third Person escrow agent in a segregated interest-bearing account. Such amount shall not be treated as a portion of Assignee Proceeds so long as it remains with such escrow agent, but shall be treated as a portion of Assignee Proceeds, along with the accrued interest, when received from such escrow agent and paid over to Assignee.
Section 5.02 Interest on Past Due Payments.
(a) Obligation to Pay. Any Assignee Proceeds or other amounts of money not paid by Assignor to Assignee when due shall bear, and Assignor will pay, interest at the Prime Interest Rate on the overdue amount commencing on the sixth (6th) day after such due date until such amount is paid.
(b) Definition. Prime Interest Rate means the lesser of (i) the rate of interest per annum publicly announced from time to time by The Bank of New York Mellon Trust Company, N.A. as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced), with the understanding that such banks prime rate may be one of several base rates, may serve as a basis upon which effective rates are from time to time calculated for loans making reference thereto, and may not be the lowest of such banks base rates or (ii) the maximum rate of interest permitted under applicable Legal Requirement.
Section 5.03 Overpayments and Refunds.
(a) Overpayments. If Assignor ever pays Assignee more than the amount of money then due and payable to Assignee under this Conveyance, Assignee shall not be obligated to return the overpayment, but Assignor may at any time thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to the overpayment.
(b) Refunds. If Assignor is ever legally obligated to pay any Third Person, including any Minerals purchaser or Governmental Authority, any refund, interest, penalty or other amount of money, because any payment of Assignee Proceeds received by Assignor for the account of Assignee exceeded, or allegedly exceeded, the amount due or lawful under any applicable contract, Legal Requirement, or other obligation, Assignor may thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to such payment.
Section 5.04 Protection of Assignee Proceeds. It is the intent of Assignor and Assignee that Assignee is an interest owner with an interest separate and distinct from that of Assignor within the meaning and for the purposes of the Oil and Gas Owners Lien Act of 2010, Okla. Stat. tit. 52, § 549.1, et. seq., and that Assignee is entitled to all the benefits of such Act.
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ARTICLE VI.
RECORDS AND REPORTS
Section 6.01 Books, Records and Accounts.
(a) Obligation to Maintain. Assignor shall maintain true and correct books, records and accounts of (i) all transactions required or permitted by this Conveyance and (ii) the financial information necessary to effect such transactions, including the financial information needed to calculate each installment of Assignee Proceeds.
(b) Right of Inspection. Assignee or its representative, at Assignees expense, may inspect and copy such books, records and accounts in the offices of Assignor during normal business hours and upon reasonable notice.
Section 6.02 Statements.
(a) Quarterly Statements. On each Quarterly Payment Date, Assignor shall deliver to Assignee a statement showing the computation of Assignee Minerals and Assignee Proceeds for the applicable Computation Period.
(b) Annual Statements. On the first Quarterly Payment Date after the end of each calendar year, such statement shall also show the computation of Assignee Proceeds for the preceding calendar year.
(c) Contents of Statements. Without limiting the generality of the foregoing provisions in this Section 6.02, each statement delivered by Assignor to Assignee pursuant to this Section 6.02 shall state, for the relevant period, (i) the total volumes of Subject Minerals produced from the Subject Lands, (ii) the total volumes of Assignors Net Share of Minerals, (iii) the total volumes of Assignee Minerals, (iv) the applicable Sales Price, (v) the Chargeable Costs, (vi) the amount of Assignee Proceeds due and payable for the relevant period and (vii) the amounts of money, if any, due and payable by any purchaser of the Subject Minerals or Assignee Minerals, the nonpayment of which resulted in a reduction in Assignee Proceeds for the relevant period.
Section 6.03 Assignees Exceptions to Quarterly Statements. If Assignee takes exception to any item or items included in any quarterly statement required by Section 6.02, Assignee must notify Assignor in writing within sixty (60) days after Assignees receipt of such quarterly statement. Such Notice must set forth in reasonable detail the specific charges complained of and to which exception is taken. Adjustments shall be made for all complaints and exceptions that are justified. Notwithstanding anything to the contrary herein, all matters reflected in Assignors statements for the preceding calendar year (or portion thereof) that are not objected to by Assignee in the manner provided by this Section 6.03 shall be deemed correct as rendered by Assignor to Assignee.
Section 6.04 Other Information.
(a) Disclosure. At Assignees request, subject to applicable restrictions on disclosure and transfer of information, Assignor shall give Assignee and its designated
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representatives reasonable access in Assignors office during normal business hours to all title, geological (to the extent not prohibited by any applicable license agreement), Development Well, and production data in Assignors possession or Assignors Affiliates possession, relating to operations on the Subject Interests.
(b) Disclaimer of Warranties and Liability. Assignor makes no representations or warranties about the accuracy or completeness of any data, reports, studies or other information made available to Assignee and shall have no liability to Assignee or any other Person resulting from such data, studies, reports or other information.
(c) No Attribution. Assignee shall not, in any securities filings or reports made by Assignee, attribute to Assignor or to the consulting engineers any reports or studies made available to Assignee, or the contents thereof.
(d) Confidentiality. All information furnished to Assignee and its designated representatives pursuant to this Section 6.04 is confidential and for the sole benefit of Assignee and shall not be disclosed by Assignee or its designated representatives to any other Person, except to the extent that such information (i) is required in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over Assignee or submitted to bank examiners or similar organizations or their successors, (ii) is required in response to any summons or subpoena or in connection with any litigation, (iii) is reasonably believed to be required in order to comply with any applicable Legal Requirement to Assignee, (iv) was publicly available or otherwise known to the recipient at the time of disclosure or (v) subsequently becomes publicly available other than through any act or omission of the recipient; provided, however, with respect to the disclosures with respect to items (i), (ii) and (iii) above, Assignee will notify Assignor prior to any such disclosure in order to provide Assignor an opportunity to seek to limit any such required disclosure. In connection with the marketing of the Assignees assets upon termination of Assignee, Assignee and its designated representatives may, on a confidential basis in accordance with this Section 6.04(d), provide any potential purchaser of such assets with the same information Assignee has access to pursuant to Section 6.04.
ARTICLE VII.
NO LIABILITY OF ASSIGNEE
Assignee shall not be personally liable or responsible under this Conveyance for any cost, risk, liability or obligation associated in any way with the ownership or operation of the Subject Lands, the Subject Interests, the Development Wells or the Subject Minerals. The foregoing sentence does not restrict the right of Assignor to deduct Chargeable Costs in calculating the volumes of Assignee Minerals or Assignee Proceeds.
ARTICLE VIII.
OPERATIONS
Section 8.01 Standards of Conduct. Except as otherwise specifically provided in this Conveyance, Assignor shall (a) operate and maintain the Subject Interests and (b) make elections under each applicable lease, operating agreement, unit agreement, contract for
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development and other similar instrument or agreement (including elections concerning abandonment of any Development Well or release of any Subject Interest) in good faith and in accordance with the Reasonably Prudent Operator Standard.
Section 8.02 Abandonment of Properties. Nothing in this Conveyance shall obligate Assignor to continue to operate any Development Well or to operate or maintain in force or attempt to maintain in force any Subject Interest when such Development Well or Subject Interest ceases to produce, or Assignor determines, in accordance with Section 8.01 above, that such Development Well or Subject Interest is not capable of producing Minerals in paying quantities. The expiration of a Subject Interest in accordance with the terms and conditions applicable thereto shall not be considered to be a voluntary surrender or abandonment thereof.
ARTICLE IX.
POOLING AND UNITIZATION
Section 9.01 Pooling of Subject Interests. Certain Subject Interests have been, or may have been, heretofore pooled and unitized for the production of Minerals. Such Subject Interests are and shall be subject to the terms and provisions of the applicable pooling and unitization agreements and orders, and the Royalty Interest in each pooled or unitized Subject Interest shall apply to and affect only the Minerals produced from such units that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreements and orders.
Section 9.02 Pooling and Unitization.
(a) Right to Pool. Assignor has the exclusive executive right and power (as between Assignor and Assignee) to pool or unitize any Subject Interest and to alter, change, amend or terminate any pooling or unitization agreements heretofore or hereafter entered into, as to all or any part of the Subject Lands, as to any one or more of the formations or horizons, and as to any Minerals, upon such terms and provisions as Assignor shall in its sole discretion deem appropriate.
(b) Effect of Pooling. If and whenever through the exercise of such right and power, or pursuant to any Legal Requirement now existing or hereafter enacted or promulgated, any Subject Interest is pooled or unitized in any manner, the Royalty Interest shall apply to and affect only the Minerals production that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreement or order. It shall not be necessary for Assignee to agree to, consent to, ratify, confirm or adopt any exercise of pooling or unitization of any Subject Interest by Assignor.
ARTICLE X.
GOVERNMENT REGULATION
Section 10.01 Legal Requirements. Except as provided in Section 10.03, all obligations of Assignor under this Conveyance are, and shall be, subject to all applicable Legal Requirements and the instruments, documents and agreements creating the Subject Interests.
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Section 10.02 Filings. Assignor shall use its reasonable discretion in making filings for itself and on behalf of Assignee with any Governmental Authority having jurisdiction with respect to matters affecting the Subject Interests, the Subject Lands or the Subject Minerals.
Section 10.03 Superseding Effect. By acceptance of this Conveyance, Assignee agrees, for itself and its successors and assigns, immediate and remote, that the timing of payment, accrual of interest and reporting requirements with respect to the Royalty Interest shall be as provided by the terms of this Conveyance and not as prescribed by the Oklahoma Production Revenue Standards Act, as amended, codified at Title 52, Section 570.1, et seq. of the Oklahoma Statutes, and any similar Legal Requirement.
ARTICLE XI.
ASSIGNMENT AND SALE OF SUBJECT INTERESTS
Section 11.01 Assignment by Assignor Subject to Royalty Interest.
(a) Right to Sell. Assignor may not Transfer any interest in the Development Wells, the Subject Interests or any part thereof or any undivided interest therein in violation of Section 11.04. Subject to Section 11.02 and 11.04, Assignor may from time to time Transfer, mortgage or pledge its interest in the Development Wells, the Subject Interests, or any part thereof or undivided interest therein, if and only if (i) such Transfer, mortgage or pledge is made expressly subject to and burdened with the Royalty Interest and this Conveyance, (ii) solely in connection with a Transfer other than a Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has caused the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer, and (iii) in connection with any Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has used commercially reasonable efforts to cause the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer. Any assumption and agreement to discharge shall be by appropriate written instrument for the express benefit of and enforceable by the Assignee. For avoidance of doubt, nothing in Section 11.01(a) is intended to permit any assignee, purchaser, transferee or grantee to acquire any interest in the Development Wells, the Subject Interests or any part thereof or undivided interest therein without being subject to and burdened with the Royalty Interest and this Conveyance. Assignee shall not be required to recognize any purported Transfer, mortgage or pledge not made in conformance with this Section 11.01(a) and, notwithstanding any such purported Transfer, mortgage or pledge, Assignor shall remain obligated under this Conveyance just as if such Transfer, mortgage or pledge attempt had not been made and Assignee shall continue to deal with the Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, any purported Transfer not made in conformance with this Section 11.01(a) shall be void and of no effect.
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(b) Effect of Sale. From and after the actual date of any such Transfer by Assignor made in full compliance with Section 11.01(a) (and only upon such full compliance), Assignor shall be relieved of all obligations, requirements and responsibilities arising under this Conveyance with respect to the Subject Interests Transferred, as the same pertain to Assignee Minerals produced from and after (but not prior to) said date of such Transfer.
(c) Allocation of Consideration. Assignee is not entitled to receive any share of the sales proceeds received by Assignor in any transaction permitted by this Section 11.01.
(d) Separate Interest. Notwithstanding any provision to the contrary in Article IV, effective on the effective date of any Transfer of any Subject Interest made in full compliance with Section 11.01(a), Assignee Minerals and Assignee Proceeds shall thereafter be computed separately with respect to such Subject Interests, and the assignee, buyer, transferee or grantee of such Subject Interests shall thereafter serve as Assignees agent and representative under Article IV with respect to such interests and shall pay all corresponding Assignee Proceeds directly to Assignee.
Section 11.02 Sale and Release of Properties.
(a) Transfer. Subject to Section 11.04, Assignor may from time to time, Transfer the Development Wells, the Subject Interests, or any part thereof or undivided interest therein, free of the Royalty Interest and this Conveyance provided that the aggregate Fair Value of all Royalty Interests released with respect to the Assignor Conveyances during any twelve (12) month period shall not exceed $5,000,000.
(b) Payments. In connection with any Transfer pursuant to this Section 11.02, Assignor shall remit to Assignee an amount equal to the Fair Value of the Royalty Interest being released. Assignor shall make such payment to Assignee on the Quarterly Payment Date for the Computation Period in which Assignor receives the payment with respect to any such Transfer of the Subject Interest.
(c) Release. In connection with any Transfer provided for in Section 11.02(a), Assignee shall, on request, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases the Royalty Interest with respect to the Development Well and the related Subject Interests and Subject Lands being Transferred.
(d) Effect of Sale. From and after the actual date of any such Transfer by Assignor, Assignor and any assignee, purchaser, transferee or grantee of such Subject Interest shall be relieved of all obligations, requirements and responsibilities arising under the Royalty Interest or this Conveyance with respect to the Development Well or Subject Interests Transferred, except for those that accrued prior to such date.
Section 11.03 Farmouts.
(a) Farmout. Assignor may from time to time enter into Farmout Agreements with Third Persons with respect to the Subject Interests. In the event that Assignor enters into any Farmout Agreement with a Third Person, (i) the Royalty Interest and this Conveyance shall only burden Assignors retained interest in the Subject Interest after giving effect to any interest
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in the Subject Interest that a counterparty to the Farmout Agreement may earn under such Farmout Agreement and (ii) only the Assignors retained interest in the Subject Interest will count towards SandRidges obligation to drill Development Wells under the Development Agreement.
(b) Release. In connection with Assignor entering into any Farmout Agreement, Assignee shall, upon request of Assignor, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases the Royalty Interest and this Conveyance with respect to the Subject Interests being transferred pursuant to such Farmout Agreement; provided, the Royalty Interest shall still burden the Subject Interest retained by Assignor.
Section 11.04 Transfer of Subject Lands. Assignor will not Transfer any Development Well or any of the Subject Interests comprising a part of the Subject Lands pursuant to Sections 11.01 and 11.02 prior to the Drilling Obligation Completion Date, and in the event of any attempted Transfer in violation of this Section 11.04, Assignor shall remain liable and a party hereto, just as if no Transfer attempt had been made, and Assignee shall continue to deal with Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, such attempted Transfer in violation of this Section 11.04 shall be void and of no force or effect. Assignor expressly states and recognizes that the restrictions on transfer imposed on Assignor in this Section 11.04 and in Section 11.01(a) are made in reasonable protection of an interest of the Assignee created hereunder.
Section 11.05 Change in Ownership.
(a) Obligation to Give Notice. No change of ownership or of the right to receive payment of the Royalty Interest, or of any part thereof, however accomplished, shall bind Assignor until notice thereof is furnished to Assignor by the Person making the transfer and the Person claiming the benefit thereof, and then only with respect to payments made after such Notice is furnished.
(b) Notice of Sale. Notice of sale, transfer, conveyance or assignment shall consist of a certified copy of the recorded instrument accomplishing the same.
(c) Notice of Other Changes of Ownership. Notice of change of ownership or of the right to receive payment accomplished in any other manner (e.g., by dissolution of Assignee) shall consist of certified copies of recorded documents and complete proceedings legally binding and conclusive of the rights of all Persons.
(d) Effect of Lack of Notice. Until such Notice accompanied by such documentation is furnished to Assignor in the manner provided above, Assignor may, at Assignors election, either (i) continue to pay or tender all sums payable on the Royalty Interest in the same manner provided in this Conveyance, precisely as if no such change in interest or ownership or right to receive payment had occurred or (ii) suspend payment of Assignee Proceeds without interest until such documentation is furnished.
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(e) Effect of Nonconforming Notices. The kinds of Notice provided by this Section 11.05 shall be exclusive, and no other kind, whether actual or constructive, shall bind Assignor.
Section 11.06 One Payee. Assignor shall never be obligated to pay Assignee Proceeds to more than one Person. If more than one Person is ever entitled to receive payment of any part of Assignee Proceeds, Assignor may suspend payments of all Assignee Proceeds until the concurrent owners or claimants of the Royalty Interest or the right to receive payment of Assignee Proceeds appoint one Person in writing to receive all payments of Assignee Proceeds on their behalf. Assignor may thereafter conclusively rely upon the authority of that Person to receive payments of Assignee Proceeds and shall be under no further duty to inquire into the authority or performance of such Person.
Section 11.07 Rights of Mortgagee. If Assignee executes a mortgage or deed of trust covering all or part of the Royalty Interest, the mortgagees or trustees therein named or the holders of any obligation secured thereby shall be entitled, to the extent that such mortgage or deed of trust so provides, to exercise the rights, remedies, powers and privileges conferred upon Assignee by this Conveyance and to give or withhold all consents required to be obtained from Assignee. This Section 11.07 shall not be deemed or construed to impose upon Assignor any obligation or liability undertaken by Assignee under such mortgage or deed of trust or under the obligation secured thereby.
Section 11.08 No Drainage. Subsequent to the Drilling Obligation Completion Date, neither Assignor nor any of its Affiliates shall drill any Mineral well that will have a perforated segment in the Target Formation that will be within six hundred sixty feet (660) of any perforated interval of any Development Well which produces oil or gas from the Target Formation.
ARTICLE XII.
FORCE MAJEURE
Section 12.01 Nonperformance. Assignor shall not be responsible to Assignee for any loss or damage to Assignee resulting from any delay in performing or failure to perform any obligation under this Conveyance (other than Assignors obligation to make payments of Assignee Proceeds to Assignee) to the extent such failure or delay is caused by Force Majeure.
Section 12.02 Force Majeure. Force Majeure means any of the following, to the extent they are not caused solely by the breach by Assignor of its duty to perform certain obligations under this Conveyance in accordance with the Reasonably Prudent Operator Standard:
(a) act of God, fire, lightning, landslide, earthquake, storm, hurricane, hurricane warning, flood, high water, washout, tidal wave or explosion;
(b) strike, lockout, or other similar industrial disturbance, act of the public enemy, war, military operation, blockade, insurrection, riot, epidemic, arrest or restraint of Governmental Authority or people, or national emergency;
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(c) the inability of the Assignor to acquire, or the delay on the part of any Third Person (other than an Affiliate of the Assignor) in acquiring, materials, supplies, machinery, equipment, servitudes, right-of-way grants, easements, permits, licenses, approvals or authorizations necessary to enable such Party to perform hereunder;
(d) any breakage of or accident to machinery, equipment or lines of pipe, the repair, maintenance, improvement, replacement, alteration to a plant or line of pipe or related facility, the testing of machinery, equipment or line of pipe, or the freezing of a line of pipe;
(e) any Legal Requirement or the affected Partys compliance therewith; or
(f) any other cause, whether similar or dissimilar to the causes enumerated in (a) through (e) above, not reasonably within the control of Assignor.
Section 12.03 Force Majeure Notice. Assignor will give Assignee a Notice of each Force Majeure as soon as reasonably practicable after the occurrence of the Force Majeure.
Section 12.04 Remedy. Assignor will use its reasonable efforts to remedy each Force Majeure and resume full performance under this Conveyance as soon as reasonably practicable, except that the settlement of strikes, lockouts or other labor disputes shall be entirely within the discretion of Assignor.
ARTICLE XIII.
NOTICE
Section 13.01 Written Notice. Except as otherwise provided by this Conveyance, each Notice shall be in writing.
Section 13.02 Methods of Giving Notice. Notice may be given by any reasonable means, including email, telecopier, hand delivery, overnight courier or U.S. mail.
Section 13.03 Charges. All Notices shall be properly addressed to the recipient, with all postage and other charges being paid by the Party giving Notice.
Section 13.04 Effective Date. Notice shall be effective when actually received by the Party being notified; provided, however, that Notices given by email or telecopy on any day other than a Business Day, or on a Business Day but after 5:00 p.m. local time at the location of the Party being notified, shall be deemed received on the next Business Day, unless receipt is acknowledged prior to the next Business Day.
Section 13.05 Addresses. The addresses of the Parties for purposes of Notice are the addresses in the introductory paragraph to this Conveyance.
Section 13.06 Change of Address. Either Party may change its address to another address within the continental United States by giving ten (10) days Notice to the other Party.
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ARTICLE XIV.
OTHER PROVISIONS
Section 14.01 Successors and Assigns. The provisions and conditions contained in this Conveyance shall run with the land and the respective interests of Assignor and Assignee in the Subject Lands, and, subject to the limitation and restrictions on the assignment or delegation by the Parties of their rights and interests under this Conveyance, this Conveyance binds and inures to the benefit of Assignor, Assignee and their respective successors, assigns and legal representatives.
Section 14.02 Governing Law. THIS CONVEYANCE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
Section 14.03 Construction of Conveyance. In construing this Conveyance, the following principles shall be followed:
(a) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Conveyance and not as an aid in its construction;
(b) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Conveyance;
(c) the word includes and its syntactical variants mean includes, but is not limited to and corresponding syntactical variant expressions;
(d) a defined term has its defined meaning throughout this Conveyance, regardless of whether it appears before or after the place in this Conveyance where it is defined;
(e) the plural shall be deemed to include the singular, and vice versa, unless the content otherwise requires; and
(f) each exhibit, attachment and schedule to this Conveyance is a part of this Conveyance, but if there is any conflict or inconsistency between the main body of this Conveyance and any exhibit, attachment or schedule, the provisions of the main body of this Conveyance shall prevail.
Section 14.04 No Waiver. Failure of either Party to require performance of any provision of this Conveyance shall not affect either Partys right to require full performance thereof at any time thereafter, and the waiver by either Party of a breach of any provision hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision.
Section 14.05 Relationship of Parties. This Conveyance does not create a partnership, mining partnership, joint venture or relationship of trust or agency (except with respect to Assignors agency relationship with respect to those matters set forth in Articles IV and V above) between the Parties.
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Section 14.06 Further Assurances. Each Party shall execute, acknowledge and deliver to the other Party all additional instruments and other documents reasonably required to describe more specifically any interests subject hereto, to vest more fully in Assignee the Royalty Interest conveyed (or intended to be conveyed) by this Conveyance, or to evidence or effect any transaction contemplated by this Conveyance. Assignor shall also execute and deliver all additional instruments and other documents reasonably required to transfer interests in state, federal or Indian lease interests in compliance with applicable Legal Requirements or agreements.
Section 14.07 The 12:01 A.M. Convention. Except as otherwise provided in this Conveyance, each calendar day, month, quarter and year shall be deemed to begin at 12:01 a.m. Central Time on the stated day or on the first day of the stated month, quarter or year, and to end at 12:00 a.m. Central Time on the next day or on first day of the next month, quarter or year, respectively.
Section 14.08 Counterpart Execution. This Conveyance may be executed in any number of counterparts, all of which are identical except that to facilitate filing and recording, counterparts to be filed and recorded in the appropriate records of each county may have included in Exhibit A only those portions of Exhibit A that contain descriptions of the lands and leases located in said county. Every counterpart of this Conveyance shall be deemed to be an original for all purposes, and all such counterparts together shall constitute one and the same instrument. An executed counterpart of this Conveyance containing the full text to the entire Exhibits and Annexes is recorded in the real property records of Alfalfa County, Oklahoma. Counterparts of this Conveyance with all portions of Exhibit A attached thereto will be kept at the offices of Assignor and Assignee at the addresses indicated above. As between the Parties, any signature hereto delivered by a Party by facsimile transmission or email pdf. shall be deemed an original hereto.
Section 14.09 Present and Absolute Conveyance. It is the express intention of Assignor and Assignee that the Royalty Interest is, and shall be construed for all purposes as, a present, fully-vested and absolute conveyance.
Section 14.10 Limitation of Liability. It is expressly understood and agreed by the Parties hereto that (a) this Conveyance is executed and delivered by the Trustee not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall the Trustee be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Assignee under this Conveyance.
Section 14.11 Severability. In case any provision, covenant or obligation under this Conveyance is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, covenants or obligations of this Conveyance are declared to be severable and not in any way affected or impaired thereby.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, each Party has caused this Conveyance to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Conveyance, to be effective as of the Effective Time.
SandRidge Exploration and Production, LLC | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
[Signature page to the Perpetual Conveyance (PUD)]
SandRidge Mississippian Trust I | ||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |
By: | /s/ Michael J. Ulrich | |
Name: Michael J. Ulrich | ||
Title: Vice-President |
[Signature page to the Perpetual Conveyance (PUD)]
STATE OF OKLAHOMA | § | |
§ | ||
COUNTY OF OKLAHOMA | § |
This instrument was acknowledged before me on March 31, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 31st day of March, 2011.
Janis L. Roberts | ||
NOTARY PUBLIC, | ||
State of Oklahoma | ||
Janis L. Roberts | ||
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment page to the Perpetual Conveyance (PUD)]
STATE OF TEXAS | § | |
§ | ||
COUNTY OF TRAVIS | § |
This instrument was acknowledged before me on April 5, 2011, by Michael J. Ulrich as Vice-President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, the Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said national banking association and trust.
WITNESS my hand and official seal this 5th day of April, 2011.
Sarah Newell | ||
NOTARY PUBLIC, | ||
State of Texas | ||
Sarah Newell | ||
(printed name) |
My commission expires:
02-16-2014
[SEAL]
[Acknowledgment page to the Perpetual Conveyance (PUD)]
Exhibit A
(Subject Lands)
Exhibit B
(Excluded Assets)
Exhibit 10.3
WHEN RECORDED
PLEASE RETURN TO:
Mistmada Oil Company, Inc.
Attn: Philip T. Warman
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
ASSIGNMENT OF OVERRIDING ROYALTY INTEREST
KNOW ALL MEN BY THESE PRESENTS THAT:
This ASSIGNMENT OF OVERRIDING ROYALTY INTEREST (this Assignment) from Mistmada Oil Company, Inc., an Oklahoma corporation, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73012-6406 (Assignor), to SandRidge Mississippian Trust I (the Trust or the Assignee), a statutory trust formed under the laws of the State of Delaware, with offices at c/o The Bank of New York Mellon Trust Company, N.A., 919 Congress Avenue, Suite 500, Austin, Texas 78701, is delivered to be effective as of 12:01 a.m. Central Time, January 1, 2011 (the Effective Time). Assignor and Assignee are sometimes referred to herein individually as a Party and collectively as Parties.
RECITALS
WHEREAS, Assignor is the owner of (i) a certain term overriding royalty interest covering the lands and leases described in Exhibit A hereto assigned to Assignor by SandRidge Exploration and Production, LLC, a Delaware limited liability company (SandRidge E&P), and further described in that certain recorded instrument entitled Term Overriding Royalty Interest (PDP) (the PDP Conveyance), and (ii) a certain term overriding royalty interest covering the lands and leases described in Exhibit A hereto assigned to Assignor by SandRidge E&P and further described in that certain recorded instrument entitled Term Overriding Royalty Interest (PUD) (the PUD Conveyance and, together with the PDP Conveyance, the Conveyances); and
WHEREAS, the Conveyances were filed in the records of the County Clerks of Alfalfa, Garfield, Grant, Major and Woods Counties, Oklahoma, as described in Exhibit B hereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Conveyance. Effective as of the Effective Time, Assignor, for good and valuable consideration in hand paid by Assignee, hereby GRANTS, BARGAINS, SELLS,
ASSIGNS, TRANSFERS, CONVEYS, SETS OVER AND DELIVERS to Assignee, without recourse or warranty (except the special warranty expressly provided below) or representation of any kind, all of its right, title and interest in and to the Royalty Interest (as defined in the PDP Conveyance) and the Royalty Interest (as defined in the PUD Conveyance) (collectively, the Transferred Interests), and any and all of the other rights arising from or under the Conveyances with respect to the Transferred Interests (collectively, the Assigned Rights). All persons are referred to the Conveyances for the terms thereof and for specific descriptions of the Royalty Interest created under each Conveyance.
Assignor hereby binds itself, its successors and assigns to warrant and forever defend the title to the Transferred Interests and the Assigned Rights herein granted, conveyed, assigned and transferred unto Assignee, its successors and assigns, against the lawful claims and demands of every person whomsoever claiming or to claim the same or any part thereof, by, through or under Assignor, but not otherwise.
2. Assumption; Acceptance. Assignee hereby assumes the express obligations of the Assignee under the Conveyances with respect to the Transferred Interests and the Assigned Rights to the extent such obligations arise under the terms of the Conveyances, and agrees to accept, take subject to and be bound by the terms and conditions of the Conveyances to the same extent as if Assignee, in such capacity, were the Assignee under the Conveyances.
3. Counterparts. This Assignment may be executed in any number of counterparts, all of which are identical except that to facilitate filing and recording, counterparts to be filed and recorded in the appropriate records of each county may have included in Exhibit A only those portions of Exhibit A that contain descriptions of the lands and leases located in said county. Every counterpart of this Assignment shall be deemed to be an original for all purposes, and all such counterparts together shall constitute one and the same instrument. Counterparts of this Assignment with all portions of Exhibit A attached thereto will be kept at the offices of Assignor and Assignee at the addresses indicated above. As between the Parties, any signature hereto delivered by a Party by facsimile transmission or email pdf shall be deemed an original hereto.
4. Governing Law. WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION, THIS ASSIGNMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA.
5. Limitation of Liability. It is expressly understood and agreed by the parties hereto that (i) this Assignment is executed and delivered by The Bank of New York Mellon Trust Company, N.A. (Trustee), not individually or personally, but solely as trustee to the Trust in the exercise of the powers and authority conferred and vested in it and (ii) under no circumstances shall the Trustee be personally liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Assignee under this Assignment.
6. Further Assurances. Each of the Parties shall execute and deliver, at the reasonable request of the other Party, such additional documents, instruments, conveyances and assurances and take such further actions as such other Party may reasonably request to carry out the provisions hereof and give effect to the transactions contemplated by this Assignment.
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7. Delivery and Acceptance. Notwithstanding the date(s) of execution of this Assignment as reflected in the acknowledgments below, this Assignment has been delivered by Assignor and accepted by Assignee immediately following the delivery of the Conveyances by SandRidge E&P and the acceptance thereof by Assignor.
[Signature page follows]
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IN WITNESS WHEREOF, each Party has caused this Assignment to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Assignment, to be effective as of the Effective Time.
Mistmada Oil Company, Inc. | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
[Signature Page to Assignment]
SandRidge Mississippian Trust I | ||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |
By: | /s/ Michael J. Ulrich | |
Name: Michael J. Ulrich | ||
Title: Vice-President |
[Signature Page to Assignment]
STATE OF OKLAHOMA |
§ | |
§ | ||
COUNTY OF OKLAHOMA |
§ |
This instrument was acknowledged before me on April 1st, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of Mistmada Oil Company, Inc., an Oklahoma corporation, on behalf of said corporation.
WITNESS my hand and official seal this 1st day of April, 2011.
Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
STATE OF TEXAS |
§ | |
§ | ||
COUNTY OF TRAVIS |
§ |
This instrument was acknowledged before me on April 5, 2011, by Michael J. Ulrich as Vice-President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, the Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said national banking association and trust.
WITNESS my hand and official seal this 5th day of April, 2011.
Sarah Newell |
NOTARY PUBLIC, |
State of Texas |
Sarah Newell |
(printed name) |
My commission expires:
02-16-2014
[SEAL]
EXHIBIT A
(Lease exhibit)
EXHIBIT B
1. Term Overriding Royalty Interest (PDP), by and between SandRidge Exploration and Production, LLC, a Delaware limited liability company, as Assignor, and, Mistmada Oil Company, Inc., an Oklahoma corporation, as Assignee.
County | Book/Page | Date Recorded | ||
Alfalfa County, OK |
April , 2011 | |||
Grant County, OK |
April , 2011 | |||
Woods County, OK |
April , 2011 |
2. Term Overriding Royalty Interest (PUD), by and between SandRidge Exploration and Production, LLC, a Delaware limited liability company, as Assignor, and Mistmada Oil Company, Inc., an Oklahoma corporation, as Assignee.
County | Book/Page | Date Recorded | ||
Alfalfa County, OK |
April , 2011 | |||
Garfield County, OK |
April , 2011 | |||
Grant County, OK |
April , 2011 | |||
Major County, OK |
April , 2011 | |||
Woods County, OK |
April , 2011 |
Exhibit 10.4
TERM OVERRIDING ROYALTY INTEREST CONVEYANCE (PDP)
This TERM OVERRIDING ROYALTY INTEREST CONVEYANCE (this Conveyance) from SandRidge Exploration and Production, LLC, a Delaware limited liability company, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (Assignor) to Mistmada Oil Company, Inc., an Oklahoma corporation, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73012-6406 (Assignee), is delivered to be effective as of 12:01 a.m., Central Time, January 1, 2011 (the Effective Time). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article II below.
ARTICLE I.
CONVEYANCE
Section 1.01 The Grant. For and in consideration of good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby BARGAIN, SELL, GRANT, CONVEY, TRANSFER, ASSIGN, SET OVER, and DELIVER unto Assignee, subject to the terms of this Conveyance and for the Term, as an overriding royalty interest (the Royalty Interest), an undivided interest in and to all Minerals in, under and that may be produced and saved from the Target Formation underlying the Subject Lands through the wellbores of the Wells, sufficient to cause Assignee to receive the Assignee Minerals.
Section 1.02 Non-Operating, Non-Expense Bearing Interest. The Royalty Interest conveyed hereby is a non-operating, non-expense-bearing overriding royalty interest for a limited term in and to the Subject Interests, free of all cost, risk and expense of production, operations and marketing. In no event shall Assignee ever be liable or personally obligated for payment of any cost, expenses or liabilities attributable to the Subject Interests (or any part thereof) or incurred in connection with the production, saving or marketing of Assignee Minerals, subject, however, to Assignors right hereinafter provided to deduct Chargeable Costs in determining Assignee Proceeds, which right shall be solely a matter of deduction from the proceeds from the sale of Assignee Minerals and not a personal obligation of Assignee. This Conveyance is a conveyance of an interest in real property.
Section 1.03 Term. The term of the Royalty Interest (the Term) shall begin at the Effective Time and end at December 31, 2030 (the Termination Date). At the end of the Term, all of Assignees interest in and to the Royalty Interest shall automatically terminate and immediately revert to and revest in Assignor.
Section 1.04 Habendum Clause. TO HAVE AND TO HOLD the Royalty Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto Assignee, its successors and assigns, for the Term, subject to terms and provisions of this Conveyance.
Section 1.05 Warranty.
(a) The Warranty. Assignor warrants to Assignee, its successors and assigns, that the Royalty Interest is free of all Encumbrances created by, through, or under Assignor, but not otherwise, except for the Permitted Encumbrances.
(b) Remedies. In the event of a breach of the foregoing warranty, Assignees sole remedy shall be to receive payment on each applicable Quarterly Payment Date, out of Assignors Net Share of Minerals from other Wells in excess of that subject to the Royalty Interest and the royalty interest created pursuant to the Perpetual PDP Conveyance (the Assignor Retained Minerals), subject to offset as provided below and without interest (except such interest payable under this Conveyance on payments made after the applicable due date as described in Section 5.02 below), of an amount equal to the difference between (x) Assignee Proceeds that Assignee would have received with respect to such Well in the applicable Computation Period if such warranty had not been breached and (y) Assignee Proceeds that Assignee actually received during that Computation Period with respect to that Well, to the extent such difference is attributable to the breach of the warranty, but not to the extent that such difference is attributable to any other cause, and any such amounts of Assignor Retained Minerals shall be treated as Assignee Minerals.
(c) Right of Offset. If any Subject Interest ever proves to be larger as of the Effective Date than the Subject Interest reflected in Exhibit A and if, as a result, Assignee receives a greater amount of Assignee Minerals (or the proceeds from the sale thereof) with respect to that Subject Interest than Assignee would otherwise have received if the Subject Interest had been the size reflected on Exhibit A, then such increased amounts, whenever received by Assignee, may be treated by Assignor as a credit or offset (without interest) against any amounts payable to Assignee under Section 1.05(b).
(d) DISCLAIMER. EXCEPT FOR THE WARRANTIES OF TITLE GIVEN IN SECTION 1.05(a), ASSIGNOR MAKES THIS CONVEYANCE AND ASSIGNS THE ROYALTY INTEREST WITHOUT RECOURSE, COVENANT OR WARRANTY OF TITLE OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. ANY COVENANTS OR WARRANTIES IMPLIED BY STATUTE OR LAW BY THE USE HEREIN OF THE WORDS GRANT, CONVEY OR OTHER SIMILAR WORDS ARE HEREBY EXPRESSLY DISCLAIMED, WAIVED AND NEGATED. WITHOUT LIMITING THE GENERALITY OF THE TWO PRECEDING SENTENCES, ASSIGNEE ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (i) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF MINERALS, IF ANY, ATTRIBUTABLE TO THE SUBJECT INTERESTS, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iv) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND (v) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER ANY APPLICABLE LEGAL REQUIREMENT; IT BEING THE EXPRESS INTENTION OF BOTH
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ASSIGNEE AND ASSIGNOR THAT THE ROYALTY INTEREST IS HEREBY ASSIGNED TO ASSIGNEE ON AN AS IS AND WHERE IS BASIS WITH ALL FAULTS, AND THAT ASSIGNEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ASSIGNEE DEEMS APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE CONSPICUOUS DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
(e) Substitution of Warranty. This instrument is made with full substitution and subrogation of Assignee in and to all covenants of warranty by Third Persons (other than Affiliates of Assignor) heretofore given or made with respect to the Wells, the Subject Interests or any part thereof or interest therein.
ARTICLE II.
DEFINITIONS
This Article II defines certain capitalized words, terms, and phrases used in this Conveyance. Certain other capitalized words, terms, and phrases used in this Conveyance are defined elsewhere in this Conveyance.
Affiliate means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract, or otherwise.
AMI Area means that area described in Exhibit A to the Development Agreement.
Assignee is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignee.
Assignee Minerals is defined in Section 3.01.
Assignee Proceeds means proceeds received by Assignor for the account of Assignee, as Assignees marketing and payment agent and representative, from the sale of Assignee Minerals under this Conveyance less Chargeable Costs calculated in accordance with Section 3.03.
Assignor is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignor.
Assignor Conveyances means this Conveyance, the Term PUD Conveyance, the Perpetual PDP Conveyance and the Perpetual PUD Conveyance.
Assignor Retained Minerals is defined in Section 1.05(b).
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Assignors Net Revenue Interest means the interest, stated as a decimal fraction, in Subject Minerals production from a Well attributable to the Subject Interests in that Well, net of Production Burdens.
Assignors Net Share of Minerals means the share of Subject Minerals from each Well that is attributable to Assignors Net Revenue Interest in that Well determined prior to giving effect to this Conveyance.
Bbl means one stock tank barrel, or 42 U.S. gallons liquid volume, in reference to Oil or Gas Liquids.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by the New York Stock Exchange, Inc. as affecting ex dates or any other day on which national banking institutions in New York, New York are closed as authorized or required by law.
Chargeable Costs is defined in Section 3.02(a).
Closing Time means 12:01 a.m. Central Time, on April 12, 2011.
Computation Period means each calendar quarter commencing at the Effective Time, with each calendar quarter being deemed to have begun at 12:01 a.m. Central Time on the first day of such calendar quarter and to have ended at 12:00 a.m. Central Time on the first day of the next calendar quarter, except for (a) the first Computation Period, which shall be deemed to have begun at the Effective Time and to have ended at 12:00 a.m. Central Time on July 1, 2011, and (b) the final Computation Period, which shall be deemed to have begun at 12:01 a.m Central Time on the first day of the calendar quarter in which the Termination Date occurs and to have ended at the Termination Date.
Conveyance is defined in the introductory paragraph to this Conveyance.
Development Agreement means that certain Development Agreement between SandRidge, Assignor and the Trust dated as of even date herewith.
Drilling Obligation Completion Date has the meaning given to such term in the Development Agreement.
Effective Time is defined in the introductory paragraph to this Conveyance.
Encumbrance means any mortgage, lien, security interest, pledge, charge, encumbrance, limitation, preferential right to purchase, consent to assignment, irregularity, burden or defect.
Excess Costs means, in any Computation Period, the excess of Chargeable Costs associated with Assignee Minerals for that Computation Period over the amount determined by multiplying Assignors Net Share of Minerals produced during the Computation Period by the Sales Price for that Computation Period. Excess Costs shall bear interest at the Prime Interest Rate from the end of the Computation Period in which such costs were incurred to the date that Assignor recovers such amounts from Assignee Proceeds.
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Excluded Assets means (a) those oil and gas wells that are the subject of the Term PUD Conveyance and the Perpetual PUD Conveyance and (b) those oil and gas wells that are described in Exhibit B.
Fair Value means, with respect to any portion of the Royalty Interest to be released pursuant to Section 11.02 in connection with a sale or release of any Well or Subject Interests, an amount of net proceeds which could reasonably be expected to be obtained from the sale of such portion of the Royalty Interest to a party which is not an Affiliate of either the Assignor or Assignee on an arms-length negotiated basis, taking into account relevant market conditions and factors existing at the time of any such proposed sale or release, such net proceeds to be determined by deducting Assignees proportionate share of sales costs, commissions and brokerage fees, if any (based on the ratio of (i) the fair market value of the portion of the Royalty Interest being released to (ii) the fair market value of the Wells and Subject Interests being transferred (including the value of the Royalty Interest being released)).
Farmout Agreements means any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.
Force Majeure is defined in Section 12.02.
Gas means natural gas and all other gaseous hydrocarbons or minerals, including helium, but specifically excluding any Gas Liquids.
Gas Liquids means those natural gas liquids and other liquid similar hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.
Governmental Authority means the United States of America, any state, commonwealth, territory, or possession thereof, and any political subdivision of any of the foregoing, including courts, departments, commissions, boards, bureaus, agencies and other instrumentalities.
Legal Requirement means any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation of, including the terms of any license or permit issued by, any Governmental Authority.
MMBtu means one million British thermal units.
Mcf means one thousand cubic feet of Gas, and MMcf means one million cubic feet of Gas, measured and expressed in each case at the same temperature, pressure, and other conditions of measurement (a) provided in any contract for the purchase of Gas from the Subject Interests or, (b) if no such contract exists, provided by applicable state law for purposes of reporting production to Governmental Authorities.
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Minerals means Oil, Gas and Gas Liquids.
Mortgage has the meaning given such term in the Development Agreement.
Non-Affiliate means, for any specified Person, any other Person that is not an Affiliate of the specified Person.
Notice means any notice, advice, invoice, demand or other communication required or permitted by this Conveyance.
Oil means crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.
Party, when capitalized, refers to Assignor or Assignee. Parties, when capitalized, refers to Assignor and Assignee.
Permitted Encumbrances means:
(a) the Production Burdens;
(b) contractual obligations arising under operating agreements, Farmout Agreements, production sales contracts, leases, assignments and other similar agreements that may affect the Subject Interests;
(c) pooling and unitization agreements, declarations, orders or Legal Requirements to secure payment of amounts not yet delinquent;
(d) liens that arise in the normal course of operations, such as liens for unpaid taxes, statutory liens securing unpaid suppliers and contractors, and contractual liens under operating agreements, in any case, that are not yet delinquent or, if delinquent, are being contested in good faith in the normal course of business;
(e) conventional rights of reassignment that obligate Assignor to reassign all or part of any Subject Interest to a Third Person if Assignor intends to release or abandon such interest before the expiration of the primary term or other termination of such interest;
(f) easements, rights-of-way, servitudes, permits, surface leases, surface use restrictions and other surface uses and impediments on, over or in respect of the Subject Interests that are not such as to interfere materially with the operation, value or use of the Subject Interests;
(g) rights reserved to or vested in any Governmental Authority to control or regulate any Subject Interests in any manner, and all applicable Legal Requirements;
(h) the terms of the instruments creating the Subject Interests and Subject Lands; and
(i) the Mortgage;
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provided that such aforementioned encumbrances are of the type and nature customary in the oil and gas industry and do not, alone or in the aggregate, materially and adversely affect the operation, value or use of any Subject Interests, and all to the extent, and for so long as, such Permitted Encumbrances are otherwise valid and enforceable against the Subject Interests, without recognizing, expressly or by implication, any rights or interests in any Third Person or Governmental Authority that such Third Person or Governmental Authority does not otherwise lawfully possess.
Perpetual PDP Conveyance means that certain Perpetual Overriding Royalty Interest Conveyance (PDP) by and between Assignor and the Trust, dated effective as of the Effective Time.
Perpetual PUD Conveyance means that certain Perpetual Overriding Royalty Interest Conveyance (PUD) by and between Assignor and the Trust, dated effective as of the Effective Time.
Person means any natural person, corporation, partnership, trust, estate, or other entity, organization or association.
Post Production Cost Charge is defined in Section 3.02(b).
Prime Interest Rate is defined in Section 5.02(b).
Production Burdens means, with respect to any Subject Lands, Subject Interests or Subject Minerals, all royalty interests, overriding royalty interests, production payments, net profits interests and other similar interests that constitute a burden on, are measured by, or are payable out of the production of Minerals or the proceeds realized from the sale or other disposition thereof.
Quarterly Payment Date is defined in Section 5.01(b).
Reasonably Prudent Operator Standard means the standard of conduct of a reasonably prudent oil and gas operator in the AMI Area under the same or similar circumstances, acting with respect to its own property and disregarding the existence of the Royalty Interest as a burden on such property.
Royalty Interest is defined in Section 1.01.
Sales Price means the price received by Assignor for Assignee Minerals determined in accordance with the following provisions:
(a) sale refers to any sale, exchange or other disposition of Assignee Minerals for value, the value of such Minerals that is exchanged or otherwise disposed of for valuable consideration being the sales price that Assignor receives for any such Minerals sold pursuant to Section 4.01 for any such Minerals;
(b) amounts of money not paid to Assignor when due by any purchaser of Assignee Minerals (for example, Taxes or other amounts withheld or deducted by any such purchaser) shall not be included within the Sales Price until actually received by, or credited to the account of, Assignor;
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(c) advance payments and prepayments for future deliveries of Assignee Minerals shall be included within the Sales Price, without interest, when that volume of Minerals subject to the advance payments or prepayments is actually produced;
(d) loan proceeds received by Assignor shall not be treated as a component of the applicable Sales Price; and
(e) if a controversy or possible controversy exists, whether by reason of any statute, order, decree, rule, regulation, contract or otherwise, between Assignor and any purchaser of Assignee Minerals or any other Person, about the correct Sales Price of any Assignee Minerals, about deductions from the Sales Price, about Assignors right to receive the proceeds of any sale of Assignee Minerals, or about any other matter, then monies withheld by the purchaser or deposited by it with an escrow agent or if Assignor receives any monies and promptly deposits such monies with a Third Person escrow agent as a result of such controversy, such monies shall not be included within the Sales Price until received by or returned to Assignor, as applicable.
SandRidge means SandRidge Energy, Inc., a Delaware corporation.
Subject Interests means Assignors undivided interests in the Subject Lands as described on Exhibit A, whether as lessee under leases, as an owner of the Subject Minerals (or the right to extract such Minerals) or otherwise, by virtue of which undivided interests Assignor has the right to conduct exploration, drilling, development and Mineral production operations on the Subject Lands, or to cause such operations to be conducted, or to participate in such operations by paying and bearing all or any part of the costs, risks and liabilities of such operations, to drill, test, complete, equip, operate and produce wells to exploit the Minerals. The Subject Interests (a) may be owned by Assignor pursuant to leases, deeds, operating, pooling or unitization agreements, orders or any other instruments, agreements or documents, recorded or unrecorded, (b) include any and all extensions or renewals of leases covering the Subject Lands (or any portion thereof) obtained by Assignor, or any Affiliate thereof, within six (6) months after the expiration or termination of any such lease, and (c) are subject to the Permitted Encumbrances. For the avoidance of doubt, the Subject Interests do not include: (i) Assignors interests in the Excluded Assets; (ii) Assignors rights to substances other than Minerals; (iii) Assignors rights to Minerals (other than Assignee Minerals) under contracts for the purchase, sale, transportation, storage, processing or other handling or disposition of Minerals; (iv) Assignors interests in, or rights to Minerals (other than Assignee Minerals) held in pipelines, gathering systems, storage facilities, processing facilities or other equipment or facilities; or (v) any additional or enlarged interests in the Wells, Subject Lands or Subject Minerals acquired by Assignor after the Closing Time, except (1) as may result from the operation of the terms of the instruments creating the Subject Interests, or (2) as may be reflected in extensions and renewals covered by the preceding sentence.
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Subject Lands means (a) the lands subject to or covered by the oil and gas leases described in Exhibit A, insofar and only insofar as they cover the Target Formation, subject to the exceptions, exclusions and reservations set forth on such Exhibit A.
Subject Minerals means all Minerals in and under and that may be produced, saved and sold from a Well, from and after the Effective Time, insofar and only insofar as such Minerals are produced from the Target Formation, subject to the following exclusions: Minerals that are (a) lost in the production, gathering or marketing of Minerals; (b) used (i) in conformity with ordinary and prudent operations on the Subject Lands, including drilling and production operations with respect to a Well or (ii) in connection with operations (whether on or off the Subject Lands) for processing or compressing the Subject Minerals; (c) taken by a Third Person to recover costs, or some multiple of costs, paid or incurred by that Third Person under any operating agreement, unit agreement or other agreement in connection with nonconsent operations conducted (or participated in) by that Third Person; and (d) retained by a Third Person for gathering, transportation, processing or marketing services related to the Subject Minerals in lieu of or in addition to cash payment for such services, to the extent such agreement is permitted under this Conveyance.
Target Formation means (i) with respect to Alfalfa County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 4,833 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,344 in the SandRidge Energy Dorado SWD 1-32 located in section 32, Township 29 North, Range 9 West (API No. 35003219830000), (ii) with respect to Garfield County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,475 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,100 in the Texas American Oil JC Nelson 1 located in section 27, Township 23 North, Range 8 West (API No. 35047223450000), (iii) with respect to Grant County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,395 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 6,060 in the SandRidge Energy Orion 1-22 SWD located in section 22, Township 25 North, Range 5 West (API No. 35053227710000), (iv) with respect to Major County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,474 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,094 in the Downey Oil Davis 1 located in section 24, Township 23 North, Range 9 West (API No. 35093215620000) and (v) with respect to Woods County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,204 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,704 in the SandRidge Energy Koppitz SWD 1-31 located in section 31, Township 28 North, Range 13 West (API No. 35151232750000).
Term PUD Conveyance means that certain Term Overriding Royalty Interest Conveyance (PUD) by and between Assignor and Assignee, dated effective as of the Effective Time.
Taxes is defined in Section 3.02(c).
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Term is defined in Section 1.03.
Termination Date is defined in Section 1.03.
Third Person means a Person other than Assignor or Assignee.
Transfer including its syntactical variants, means any assignment, sale, transfer, conveyance or disposition of any property; provided, Transfer as used herein does not include the granting of a mortgage on or security interest in Assignors interest in any property, including the Wells, the Subject Interests and the Subject Lands.
Trust means SandRidge Mississippian Trust I, a Delaware statutory trust.
Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, acting not in its individual capacity but solely as trustee of the Trust.
Well means the borehole of each Mineral well more particularly described in Exhibit C to this Conveyance.
ARTICLE III.
CALCULATION OF ASSIGNEE MINERALS
Section 3.01 Definition. Assignee Minerals is that volume of Minerals with respect to each Well calculated in accordance with the following formula:
Forty-Five Percent (45%) X (Assignors Net Share of Minerals).
Section 3.02 Chargeable Costs.
(a) Definition. For each Computation Period, Chargeable Costs means the sum of (i) the Post Production Cost Charge, plus (ii) Excess Costs from prior Computation Periods, plus (iii) Taxes incurred, accrued or paid by Assignor; provided, that such costs are actually paid by Assignor during the relevant Computation Period or paid by Assignor during a prior Computation Period and not included in any prior Computation Periods Chargeable Costs.
(b) Post Production Cost Charge. Post Production Cost Charge means those costs incurred by Assignor (including internal costs and Third Person costs) to gather, store, transport, compress, process, treat, dehydrate and market, as applicable, the Subject Minerals, including any costs as may be required to deliver such Minerals to market; provided, any costs charged by Assignor and its Affiliates as part of the Post Production Cost Charge shall not materially exceed the costs prevailing in the area where the Subject Minerals are being produced for similar services and provided, further, with respect to marketing costs, only Non-Affiliate marketing fees and costs shall be included, and marketing costs of Assignor and its Affiliates with respect to any Subject Minerals will be specifically excluded from the Post Production Cost Charge. Any costs, fees or expenses that are properly charged or allocated to Assignee Minerals pursuant to another provision of this Conveyance (including, as provided for in the definition of Subject Minerals) shall not be included as part of the Post Production Cost Charge.
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(c) Taxes. Taxes means general property, ad valorem, production, severance, sales, windfall profit, excise and other taxes, except income taxes, assessed or levied on or in connection with the Subject Interests, the Royalty Interest, this Conveyance, production of Subject Minerals, Assignors Net Share of Minerals, Assignee Minerals (or the proceeds from the sale thereof) or facilities or equipment on the Subject Lands that are used for the production, dehydration, treatment, processing, gathering or transportation of Subject Minerals, or against Assignor as owner of the Subject Interests or paid by Assignor on behalf of Assignee as owner of the Royalty Interest.
(d) Operating and Drilling Costs. For the avoidance of doubt, all costs associated with or paid or incurred in connection with the drilling, testing, completing, developing and operating the Wells or otherwise incurred in connection with the ownership or operation of the Subject Interests other than Taxes and Post Production Cost Charges shall be borne solely by Assignor and shall not be included as Chargeable Costs.
Section 3.03 Assignee Proceeds. Assignee Proceeds means, for any Computation Period, (a) the amount of proceeds actually received by Assignor during such Computation Period in respect of Assignee Minerals, with the amount of such proceeds being determined by multiplying (i) the volume of Assignee Minerals produced (expressed (A) for Gas, in Mcf or MMBtu, (B) for Gas Liquids, in Bbls and (C) for Oil, in Bbls) by (ii) the relevant Sales Price (expressed (A) for Gas, on a per Mcf or MMBtu basis, (B) for Gas Liquids, on a per Bbl basis and (C) for Oil, on a per Bbl basis), less (b) the Chargeable Costs associated with such Assignee Minerals.
ARTICLE IV.
MARKETING OF ASSIGNEE MINERALS
Section 4.01 Rights and Duties Regarding Sale of Assignee Minerals. Assignor shall market or shall cause to be marketed Assignors Net Share of Minerals (including Assignee Minerals) in good faith and in accordance with the Reasonably Prudent Operator Standard and Section 4.02(d). Assignor shall use its reasonable efforts in connection with any sale of Assignors Net Share of Minerals (including Assignee Minerals) to obtain, as soon as reasonably practicable, full payment for such Minerals; provided, however, that it shall not be considered a breach of Assignors marketing duty or standard of conduct for Assignor to market such Minerals to an Affiliate of Assignor, so long as Assignor does not market such Minerals at a volume-weighted average price lower than the volume-weighted average price upon which Assignor pays royalties to the owners of the other royalty interests in the Subject Minerals, save and excepting Chargeable Costs provided for in Article III hereof.
Section 4.02 Assignees Agent and Representative.
(a) Appointment. Assignee appoints Assignor as Assignees agent and representative to market and deliver or cause to be marketed and delivered all Assignee Minerals
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and to collect and receive all payments therefrom under any Minerals purchase agreement or contract without deduction (except to the extent Chargeable Costs are deducted for any Computation Period). The appointment of Assignor as Assignees agent and representative for such purpose is a material item of consideration to the Parties in connection with the execution and delivery of this Conveyance. Assignee may not remove Assignor from office as Assignees agent and representative, except for cause upon a material breach by Assignor of its duties to Assignee under this Conveyance.
(b) Duties and Powers. As Assignees agent and representative, Assignor shall receive all payments for the sale of Assignee Minerals and account to Assignee, receive and make all communications with the purchaser of such Minerals, and otherwise act and speak for Assignee in connection with the sale of Assignee Minerals. Third Persons may rely conclusively on the authority of Assignor to market Assignee Minerals, and with respect to Third Persons only, Assignee shall be conclusively bound by the acts of Assignor in connection with the sale of Assignee Minerals. It shall not be necessary for Assignee to join Assignor in the execution of any division order, transfer order or other instrument, agreement or document relating to the sale of Assignee Minerals. Third Persons may pay all Assignee Proceeds for the sale of such Minerals directly to Assignor, without the necessity of any joinder by or consent of Assignee or any inquiry into the use or disposition of such proceeds by Assignor. In no event, however, shall the authority granted in this Section 4.02 or elsewhere in this Conveyance relieve Assignor of any liability for breach of this Conveyance.
(c) Prohibited Acts. Assignor may not act for or bind Assignee on any matter, except the marketing and delivery of Assignee Minerals under this Article IV.
(d) Standard of Conduct. In exercising its powers and performing its duties as Assignees agent and representative, Assignor shall act in good faith and in accordance with the Reasonably Prudent Operator Standard. It shall not be a violation of such standard of conduct for Assignor (i) to sell Assignors Net Share of Minerals or Assignee Minerals to an Affiliate pursuant to any purchase agreement or contract, or (ii) to delegate some or all of Assignors duties as Assignees agent and representative to its Affiliates (so long as such Affiliates perform in good faith and in accordance with the Reasonably Prudent Operator Standard), with Assignor remaining liable to Assignee for the performance of such duties.
(e) Termination of Authority. Assignor may not resign as Assignees agent and representative without the prior written consent of Assignee, except that Assignor may resign as Assignees agent and representative without such consent with respect to any Subject Interests assigned, sold, transferred or conveyed by Assignor in accordance with the terms of this Conveyance. If such sale is made subject to the Royalty Interest, Assignor must cause the purchaser to assume the duties of Assignees agent and representative with respect to the Subject Interests acquired by that purchaser and to be bound by the provisions of this Article IV.
Section 4.03 Delivery of Subject Minerals. Assignor (whether or not it is serving as Assignees agent and representative) shall deliver or cause to be delivered Assignors Net Share of Minerals (including Assignee Minerals) to the purchasers thereof.
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Section 4.04 Processing. Assignor may, or may by contract cause a Third Person to, dehydrate, separate, treat, compress or otherwise process Assignors Net Share of Minerals (including Assignee Minerals) and may commit any of the Subject Interests (including the Royalty Interest attributable thereto) to an agreement for processing Minerals (pursuant to which, for example, the plant owner or operator receives a portion of the Subject Minerals or plant products therefrom or proceeds of the sale thereof as a fee for processing), so long as (a) Assignor enters into such processing arrangements in good faith and in accordance with the Reasonably Prudent Operator Standard and (b) any such processing arrangements entered into with Affiliates of Assignor contain rates and charges that are comparable to the prevailing charges for similar services in the applicable area. Assignee shall be bound by such arrangements and shall permit Assignors Net Share of Minerals (including Assignee Minerals) to be processed by Assignor or its contractor. Assignee shall not, however, be personally liable for any costs or risks associated with such processing operations, but Assignee shall indirectly suffer the energy content reduction and volume reductions associated with processing through corresponding reductions in the content and volumes of Assignee Minerals.
ARTICLE V.
PAYMENT
Section 5.01 Obligation to Pay.
(a) The Obligation. After each Computation Period and on or before the Quarterly Payment Date for that Computation Period, Assignor shall tender to Assignee the Assignee Proceeds for the applicable Computation Period, plus, to the extent applicable, (i) all of the proceeds to be paid to Assignee from the sale of Assignee Minerals produced during any prior Computation Periods, to the extent not previously paid to Assignee for such prior Computation Periods, (ii) any damages payable to Assignee under Section 1.05(b) (subject to the right of set-off in Section 1.05(c)) during the most recently completed Computation Period, and (iii) any amounts (including any interest earned thereon) that were previously deposited with a Third Person escrow agent in accordance with Section 5.01(d) and subsequently determined by Assignor to be validly owing to Assignee. All such amounts shall be transmitted to Assignee by Assignor by means of wire transfer of funds to a bank account specified by Assignee pursuant to written instructions which shall remain in effect until and unless changed by subsequent written notice to Assignor.
For purposes of determining the amount of Assignee Proceeds for any Computation Period, if, when calculating Assignee Minerals for any Computation Period, Assignor is unable to determine the precise volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals, then Assignor shall, in good faith and in accordance with the Reasonably Prudent Operator Standard, estimate the volume of such Minerals produced, sold and attributable to Assignors Net Share of Minerals. Assignor shall adjust the calculation of Assignee Proceeds upward or downward, as the case may be, in the next or subsequent Computation Periods to reflect the difference between the estimated volume of Minerals established pursuant to this Section 5.01(a) and the actual volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals in the Computation Period for which such estimate was made.
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(b) Quarterly Payment Date. Quarterly Payment Date for each Computation Period means the forty-fifth (45th) day after the end of such Computation Period or, for the last Computation Period, the forty-fifth (45th) day after the Termination Date. If such day is not a Business Day, the Quarterly Payment Date shall be the next Business Day.
(c) No Segregated Account. Prior to the Quarterly Payment Date, all amounts received by Assignor from the sale of Assignors Net Share of Minerals and Assignee Minerals, as applicable, for any Computation Period shall be held by Assignor in one of its general bank accounts and Assignor will not be required to maintain a segregated account for such funds.
(d) Disputed Proceeds. If Assignor receives any amounts of money from the sale of Assignee Minerals that is subject to controversy or, in the reasonable opinion of Assignor, possible controversy, Assignor shall promptly deposit the money with a Third Person escrow agent in a segregated interest-bearing account. Such amount shall not be treated as a portion of Assignee Proceeds so long as it remains with such escrow agent, but shall be treated as a portion of Assignee Proceeds, along with the accrued interest, when received from such escrow agent and paid over to Assignee.
Section 5.02 Interest on Past Due Payments.
(a) Obligation to Pay. Any Assignee Proceeds or other amounts of money not paid by Assignor to Assignee when due shall bear, and Assignor will pay, interest at the Prime Interest Rate on the overdue amount commencing on the sixth (6th) day after such due date until such amount is paid.
(b) Definition. Prime Interest Rate means the lesser of (i) the rate of interest per annum publicly announced from time to time by The Bank of New York Mellon Trust Company, N.A. as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced), with the understanding that such banks prime rate may be one of several base rates, may serve as a basis upon which effective rates are from time to time calculated for loans making reference thereto, and may not be the lowest of such banks base rates or (ii) the maximum rate of interest permitted under applicable Legal Requirement.
Section 5.03 Overpayments and Refunds.
(a) Overpayments. If Assignor ever pays Assignee more than the amount of money then due and payable to Assignee under this Conveyance, Assignee shall not be obligated to return the overpayment, but Assignor may at any time thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to the overpayment.
(b) Refunds. If Assignor is ever legally obligated to pay any Third Person, including any Minerals purchaser or Governmental Authority, any refund, interest, penalty or other amount of money, because any payment of Assignee Proceeds received by Assignor for the account of Assignee exceeded, or allegedly exceeded, the amount due or lawful under any applicable contract, Legal Requirement, or other obligation, Assignor may thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to such payment.
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Section 5.04 Protection of Assignee Proceeds. It is the intent of Assignor and Assignee that Assignee is an interest owner with an interest separate and distinct from that of Assignor within the meaning and for the purposes of the Oil and Gas Owners Lien Act of 2010, Okla. Stat. tit. 52, § 549.1, et. seq., and that Assignee is entitled to all the benefits of such Act.
ARTICLE VI.
RECORDS AND REPORTS
Section 6.01 Books, Records and Accounts.
(a) Obligation to Maintain. Assignor shall maintain true and correct books, records and accounts of (i) all transactions required or permitted by this Conveyance and (ii) the financial information necessary to effect such transactions, including the financial information needed to calculate each installment of Assignee Proceeds.
(b) Right of Inspection. Assignee or its representative, at Assignees expense, may inspect and copy such books, records and accounts in the offices of Assignor during normal business hours and upon reasonable notice.
Section 6.02 Statements.
(a) Quarterly Statements. On each Quarterly Payment Date, Assignor shall deliver to Assignee a statement showing the computation of Assignee Minerals and Assignee Proceeds for the applicable Computation Period.
(b) Annual Statements. On the first Quarterly Payment Date after the end of each calendar year and on the Quarterly Payment Date after the Termination Date, such statement shall also show the computation of Assignee Proceeds for the preceding calendar year or, for the Quarterly Payment Date after the Termination Date, for the portion of the calendar year from 12:01 a.m. Central Time on January 1 of that same year through the Termination Date.
(c) Contents of Statements. Without limiting the generality of the foregoing provisions in this Section 6.02, each statement delivered by Assignor to Assignee pursuant to this Section 6.02 shall state, for the relevant period, (i) the total volumes of Subject Minerals produced from the Subject Lands, (ii) the total volumes of Assignors Net Share of Minerals, (iii) the total volumes of Assignee Minerals, (iv) the applicable Sales Price, (v) the Chargeable Costs, (vi) the amount of Assignee Proceeds due and payable for the relevant period and (vii) the amounts of money, if any, due and payable by any purchaser of the Subject Minerals or Assignee Minerals, the nonpayment of which resulted in a reduction in Assignee Proceeds for the relevant period.
Section 6.03 Assignees Exceptions to Quarterly Statements. If Assignee takes exception to any item or items included in any quarterly statement required by Section 6.02, Assignee must notify Assignor in writing within sixty (60) days after Assignees receipt of such quarterly statement. Such Notice must set forth in reasonable detail the specific charges complained of and to which exception is taken. Adjustments shall be made for all complaints and exceptions that are justified. Notwithstanding anything to the contrary herein, all matters reflected in Assignors statements for the preceding calendar year (or portion thereof) that are not objected to by Assignee in the manner provided by this Section 6.03 shall be deemed correct as rendered by Assignor to Assignee.
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Section 6.04 Other Information.
(a) Disclosure. At Assignees request, subject to applicable restrictions on disclosure and transfer of information, Assignor shall give Assignee and its designated representatives reasonable access in Assignors office during normal business hours to all title, geological (to the extent not prohibited by any applicable license agreement), Well and production data in Assignors possession or Assignors Affiliates possession, relating to operations on the Subject Interests.
(b) Disclaimer of Warranties and Liability. Assignor makes no representations or warranties about the accuracy or completeness of any data, reports, studies or other information made available to Assignee and shall have no liability to Assignee or any other Person resulting from such data, studies, reports or other information.
(c) No Attribution. Assignee shall not, in any securities filings or reports made by Assignee, attribute to Assignor or to the consulting engineers any reports or studies made available to Assignee, or the contents thereof.
(d) Confidentiality. All information furnished to Assignee and its designated representatives pursuant to this Section 6.04 is confidential and for the sole benefit of Assignee and shall not be disclosed by Assignee or its designated representatives to any other Person, except to the extent that such information (i) is required in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over Assignee or submitted to bank examiners or similar organizations or their successors, (ii) is required in response to any summons or subpoena or in connection with any litigation, (iii) is reasonably believed to be required in order to comply with any applicable Legal Requirement to Assignee, (iv) was publicly available or otherwise known to the recipient at the time of disclosure or (v) subsequently becomes publicly available other than through any act or omission of the recipient; provided, however, with respect to the disclosures with respect to items (i), (ii) and (iii) above, Assignee will notify Assignor prior to any such disclosure in order to provide Assignor an opportunity to seek to limit any such required disclosure. In connection with the marketing of the Trusts assets upon termination of the Trust, Assignee and its designated representatives may, on a confidential basis in accordance with this Section 6.04(d), provide any potential purchaser of such assets with the same information Assignee has access to pursuant to Section 6.04.
ARTICLE VII.
NO LIABILITY OF ASSIGNEE
Assignee shall not be personally liable or responsible under this Conveyance for any cost, risk, liability or obligation associated in any way with the ownership or operation of the Subject Lands, the Subject Interests, the Wells or the Subject Minerals. The foregoing sentence does not restrict the right of Assignor to deduct Chargeable Costs in calculating the volumes of Assignee Minerals or Assignee Proceeds.
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ARTICLE VIII.
OPERATIONS
Section 8.01 Standards of Conduct. Except as otherwise specifically provided in this Conveyance, Assignor shall (a) operate and maintain the Subject Interests and (b) make elections under each applicable lease, operating agreement, unit agreement, contract for development and other similar instrument or agreement (including elections concerning abandonment of any Well or release of any Subject Interest) in good faith and in accordance with the Reasonably Prudent Operator Standard.
Section 8.02 Abandonment of Properties. Nothing in this Conveyance shall obligate Assignor to continue to operate any Well or to operate or maintain in force or attempt to maintain in force any Subject Interest when such Well or Subject Interest ceases to produce, or Assignor determines, in accordance with Section 8.01 above, that such Well or Subject Interest is not capable of producing Minerals in paying quantities. The expiration of a Subject Interest in accordance with the terms and conditions applicable thereto shall not be considered to be a voluntary surrender or abandonment thereof.
ARTICLE IX.
POOLING AND UNITIZATION
Section 9.01 Pooling of Subject Interests. Certain Subject Interests have been, or may have been, heretofore pooled and unitized for the production of Minerals. Such Subject Interests are and shall be subject to the terms and provisions of the applicable pooling and unitization agreements and orders, and the Royalty Interest in each pooled or unitized Subject Interest shall apply to and affect only the Minerals produced from such units that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreements and orders.
Section 9.02 Pooling and Unitization.
(a) Right to Pool. Assignor has the exclusive executive right and power (as between Assignor and Assignee) to pool or unitize any Subject Interest and to alter, change, amend or terminate any pooling or unitization agreements heretofore or hereafter entered into, as to all or any part of the Subject Lands, as to any one or more of the formations or horizons, and as to any Minerals, upon such terms and provisions as Assignor shall in its sole discretion deem appropriate.
(b) Effect of Pooling. If and whenever through the exercise of such right and power, or pursuant to any Legal Requirement now existing or hereafter enacted or promulgated, any Subject Interest is pooled or unitized in any manner, the Royalty Interest shall apply to and affect only the Minerals production that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreement or order. It shall not be necessary for Assignee to agree to, consent to, ratify, confirm or adopt any exercise of pooling or unitization of any Subject Interest by Assignor.
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ARTICLE X.
GOVERNMENT REGULATION
Section 10.01 Legal Requirements. Except as provided in Section 10.03, all obligations of Assignor under this Conveyance are, and shall be, subject to all applicable Legal Requirements and the instruments, documents and agreements creating the Subject Interests.
Section 10.02 Filings. Assignor shall use its reasonable discretion in making filings for itself and on behalf of Assignee with any Governmental Authority having jurisdiction with respect to matters affecting the Subject Interests, the Subject Lands or the Subject Minerals.
Section 10.03 Superseding Effect. By acceptance of this Conveyance, Assignee agrees, for itself and its successors and assigns, immediate and remote, that the timing of payment, accrual of interest and reporting requirements with respect to the Royalty Interest shall be as provided by the terms of this Conveyance and not as prescribed by the Oklahoma Production Revenue Standards Act, as amended, codified at Title 52, Section 570.1, et seq. of the Oklahoma Statutes, and any similar Legal Requirement.
ARTICLE XI.
ASSIGNMENT AND SALE OF SUBJECT INTERESTS
Section 11.01 Assignment by Assignor Subject to Royalty Interest.
(a) Right to Sell. Assignor may not Transfer any interest in the Wells, the Subject Interests or any part thereof or any undivided interest therein in violation of Section 11.03. Subject to Section 11.02 and 11.03, Assignor may from time to time Transfer, mortgage or pledge its interest in the Wells, the Subject Interests, or any part thereof or undivided interest therein, if and only if (i) such Transfer, mortgage or pledge is made expressly subject to and burdened with the Royalty Interest and this Conveyance, (ii) solely in connection with a Transfer other than a Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has caused the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer, and (iii) in connection with any Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has used commercially reasonable efforts to cause the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer. Any assumption and agreement to discharge shall be by appropriate written instrument for the express benefit of and enforceable by the Assignee. For avoidance of doubt, nothing in Section 11.01(a) is intended to permit any assignee, purchaser, transferee or grantee to acquire any interest in the Wells, the Subject Interests or any part thereof or undivided interest therein without being subject to and burdened with the Royalty Interest and this Conveyance. Assignee shall not be required to recognize any purported Transfer, mortgage or pledge not made in conformance with this Section 11.01(a) and, notwithstanding any such purported Transfer,
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mortgage or pledge, Assignor shall remain obligated under this Conveyance just as if such Transfer, mortgage or pledge attempt had not been made and Assignee shall continue to deal with the Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, any purported Transfer not made in conformance with this Section 11.01(a) shall be void and of no effect.
(b) Effect of Sale. From and after the actual date of any such Transfer by Assignor made in full compliance with Section 11.01(a) (and only upon such full compliance), Assignor shall be relieved of all obligations, requirements and responsibilities arising under this Conveyance with respect to the Subject Interests Transferred, as the same pertain to Assignee Minerals produced from and after (but not prior to) said date of such Transfer.
(c) Allocation of Consideration. Assignee is not entitled to receive any share of the sales proceeds received by Assignor in any transaction permitted by this Section 11.01.
(d) Separate Interest. Notwithstanding any provision to the contrary in Article IV, effective on the effective date of any Transfer of any Subject Interest made in full compliance with Section 11.01(a), Assignee Minerals and Assignee Proceeds shall thereafter be computed separately with respect to such Subject Interests, and the assignee, buyer, transferee or grantee of such Subject Interests shall thereafter serve as Assignees agent and representative under Article IV with respect to such interests and shall pay all corresponding Assignee Proceeds directly to Assignee.
Section 11.02 Sale and Release of Properties.
(a) Transfer. Subject to Section 11.03, Assignor may from time to time, Transfer the Wells, the Subject Interests, or any part thereof or undivided interest therein, free of the Royalty Interest and this Conveyance provided that the aggregate Fair Value of all Royalty Interests released with respect to the Assignor Conveyances during any twelve (12) month period shall not exceed $5,000,000.
(b) Payments. In connection with any Transfer pursuant to this Section 11.02, Assignor shall remit to Assignee an amount equal to the Fair Value of the Royalty Interest being released. Assignor shall make such payment to Assignee on the Quarterly Payment Date for the Computation Period in which Assignor receives the payment with respect to any such Transfer of the Subject Interest.
(c) Release. In connection with any Transfer provided for in Section 11.02(a), Assignee shall, on request, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases the Royalty Interest with respect to the Well and the related Subject Interests and Subject Lands being Transferred.
(d) Effect of Sale. From and after the actual date of any such Transfer by Assignor, Assignor and any assignee, purchaser, transferee or grantee of such Subject Interest shall be relieved of all obligations, requirements and responsibilities arising under the Royalty Interest or this Conveyance with respect to the Well or Subject Interests Transferred, except for those that accrued prior to such date.
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Section 11.03 Transfer of Subject Lands. Assignor will not Transfer any Well or any of the Subject Interests comprising a part of the Subject Lands pursuant to Sections 11.01 and 11.02 prior to the Drilling Obligation Completion Date, and in the event of any attempted Transfer in violation of this Section 11.03, Assignor shall remain liable and a party hereto, just as if no Transfer attempt had been made, and Assignee shall continue to deal with Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, such attempted Transfer in violation of this Section 11.03 shall be void and of no force or effect. Assignor expressly states and recognizes that the restrictions on transfer imposed on Assignor in this Section 11.03 and in Section 11.01(a) are made in reasonable protection of an interest of the Assignee created hereunder.
Section 11.04 Change in Ownership.
(a) Obligation to Give Notice. No change of ownership or of the right to receive payment of the Royalty Interest, or of any part thereof, however accomplished, shall bind Assignor until notice thereof is furnished to Assignor by the Person making the transfer and the Person claiming the benefit thereof, and then only with respect to payments made after such Notice is furnished.
(b) Notice of Sale. Notice of sale, transfer, conveyance or assignment shall consist of a certified copy of the recorded instrument accomplishing the same.
(c) Notice of Other Changes of Ownership. Notice of change of ownership or of the right to receive payment accomplished in any other manner (e.g., by dissolution of Assignee) shall consist of certified copies of recorded documents and complete proceedings legally binding and conclusive of the rights of all Persons.
(d) Effect of Lack of Notice. Until such Notice accompanied by such documentation is furnished to Assignor in the manner provided above, Assignor may, at Assignors election, either (i) continue to pay or tender all sums payable on the Royalty Interest in the same manner provided in this Conveyance, precisely as if no such change in interest or ownership or right to receive payment had occurred or (ii) suspend payment of Assignee Proceeds without interest until such documentation is furnished.
(e) Effect of Nonconforming Notices. The kinds of Notice provided by this Section 11.04 shall be exclusive, and no other kind, whether actual or constructive, shall bind Assignor.
Section 11.05 One Payee. Assignor shall never be obligated to pay Assignee Proceeds to more than one Person. If more than one Person is ever entitled to receive payment of any part of Assignee Proceeds, Assignor may suspend payments of all Assignee Proceeds until the concurrent owners or claimants of the Royalty Interest or the right to receive payment of Assignee Proceeds appoint one Person in writing to receive all payments of Assignee Proceeds on their behalf. Assignor may thereafter conclusively rely upon the authority of that Person to receive payments of Assignee Proceeds and shall be under no further duty to inquire into the authority or performance of such Person.
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Section 11.06 Rights of Mortgagee. If Assignee executes a mortgage or deed of trust covering all or part of the Royalty Interest, the mortgagees or trustees therein named or the holders of any obligation secured thereby shall be entitled, to the extent that such mortgage or deed of trust so provides, to exercise the rights, remedies, powers and privileges conferred upon Assignee by this Conveyance and to give or withhold all consents required to be obtained from Assignee. This Section 11.06 shall not be deemed or construed to impose upon Assignor any obligation or liability undertaken by Assignee under such mortgage or deed of trust or under the obligation secured thereby.
Section 11.07 No Drainage. Subsequent to the Drilling Obligation Completion Date, neither Assignor nor any of its Affiliates shall drill any Mineral well that will have a perforated segment in the Target Formation that will be within six hundred sixty feet (660) of any perforated interval of any Well which produces oil or gas from the Target Formation.
ARTICLE XII.
FORCE MAJEURE
Section 12.01 Nonperformance. Assignor shall not be responsible to Assignee for any loss or damage to Assignee resulting from any delay in performing or failure to perform any obligation under this Conveyance (other than Assignors obligation to make payments of Assignee Proceeds to Assignee) to the extent such failure or delay is caused by Force Majeure.
Section 12.02 Force Majeure. Force Majeure means any of the following, to the extent they are not caused solely by the breach by Assignor of its duty to perform certain obligations under this Conveyance in accordance with the Reasonably Prudent Operator Standard:
(a) act of God, fire, lightning, landslide, earthquake, storm, hurricane, hurricane warning, flood, high water, washout, tidal wave or explosion;
(b) strike, lockout, or other similar industrial disturbance, act of the public enemy, war, military operation, blockade, insurrection, riot, epidemic, arrest or restraint of Governmental Authority or people, or national emergency;
(c) the inability of the Assignor to acquire, or the delay on the part of any Third Person (other than an Affiliate of the Assignor) in acquiring, materials, supplies, machinery, equipment, servitudes, right-of-way grants, easements, permits, licenses, approvals or authorizations necessary to enable such Party to perform hereunder;
(d) any breakage of or accident to machinery, equipment or lines of pipe, the repair, maintenance, improvement, replacement, alteration to a plant or line of pipe or related facility, the testing of machinery, equipment or line of pipe, or the freezing of a line of pipe;
(e) any Legal Requirement or the affected Partys compliance therewith; or
(f) any other cause, whether similar or dissimilar to the causes enumerated in (a) through (e) above, not reasonably within the control of Assignor.
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Section 12.03 Force Majeure Notice. Assignor will give Assignee a Notice of each Force Majeure as soon as reasonably practicable after the occurrence of the Force Majeure.
Section 12.04 Remedy. Assignor will use its reasonable efforts to remedy each Force Majeure and resume full performance under this Conveyance as soon as reasonably practicable, except that the settlement of strikes, lockouts or other labor disputes shall be entirely within the discretion of Assignor.
ARTICLE XIII.
NOTICE
Section 13.01 Written Notice. Except as otherwise provided by this Conveyance, each Notice shall be in writing.
Section 13.02 Methods of Giving Notice. Notice may be given by any reasonable means, including email, telecopier, hand delivery, overnight courier or U.S. mail.
Section 13.03 Charges. All Notices shall be properly addressed to the recipient, with all postage and other charges being paid by the Party giving Notice.
Section 13.04 Effective Date. Notice shall be effective when actually received by the Party being notified; provided, however, that Notices given by email or telecopy on any day other than a Business Day, or on a Business Day but after 5:00 p.m. local time at the location of the Party being notified, shall be deemed received on the next Business Day, unless receipt is acknowledged prior to the next Business Day.
Section 13.05 Addresses. The addresses of the Parties for purposes of Notice are the addresses in the introductory paragraph to this Conveyance.
Section 13.06 Change of Address. Either Party may change its address to another address within the continental United States by giving ten (10) days Notice to the other Party.
ARTICLE XIV.
OTHER PROVISIONS
Section 14.01 Successors and Assigns. The provisions and conditions contained in this Conveyance shall run with the land and the respective interests of Assignor and Assignee in the Subject Lands, and, subject to the limitation and restrictions on the assignment or delegation by the Parties of their rights and interests under this Conveyance, this Conveyance binds and inures to the benefit of Assignor, Assignee and their respective successors, assigns and legal representatives.
Section 14.02 Governing Law. THIS CONVEYANCE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
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Section 14.03 Construction of Conveyance. In construing this Conveyance, the following principles shall be followed:
(a) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Conveyance and not as an aid in its construction;
(b) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Conveyance;
(c) the word includes and its syntactical variants mean includes, but is not limited to and corresponding syntactical variant expressions;
(d) a defined term has its defined meaning throughout this Conveyance, regardless of whether it appears before or after the place in this Conveyance where it is defined;
(e) the plural shall be deemed to include the singular, and vice versa, unless the content otherwise requires; and
(f) each exhibit, attachment and schedule to this Conveyance is a part of this Conveyance, but if there is any conflict or inconsistency between the main body of this Conveyance and any exhibit, attachment or schedule, the provisions of the main body of this Conveyance shall prevail.
Section 14.04 No Waiver. Failure of either Party to require performance of any provision of this Conveyance shall not affect either Partys right to require full performance thereof at any time thereafter, and the waiver by either Party of a breach of any provision hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision.
Section 14.05 Relationship of Parties. This Conveyance does not create a partnership, mining partnership, joint venture or relationship of trust or agency (except with respect to Assignors agency relationship with respect to those matters set forth in Articles IV and V above) between the Parties.
Section 14.06 Further Assurances. Each Party shall execute, acknowledge and deliver to the other Party all additional instruments and other documents reasonably required to describe more specifically any interests subject hereto, to vest more fully in Assignee the Royalty Interest conveyed (or intended to be conveyed) by this Conveyance, or to evidence or effect any transaction contemplated by this Conveyance. Assignor shall also execute and deliver all additional instruments and other documents reasonably required to transfer interests in state, federal or Indian lease interests in compliance with applicable Legal Requirements or agreements. Upon expiration of the Term, Assignee shall, on request, execute, acknowledge and deliver to Assignor sufficient numbers of recordable instruments releasing all of the Subject Lands from this Conveyance.
Section 14.07 The 12:01 A.M. Convention. Except as otherwise provided in this Conveyance, each calendar day, month, quarter and year shall be deemed to begin at 12:01 a.m.
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Central Time on the stated day or on the first day of the stated month, quarter or year, and to end at 12:00 a.m. Central Time on the next day or on first day of the next month, quarter or year, respectively.
Section 14.08 Counterpart Execution. This Conveyance may be executed in any number of counterparts, all of which are identical except that to facilitate filing and recording, counterparts to be filed and recorded in the appropriate records of each county may have included in Exhibit A only those portions of Exhibit A that contain descriptions of the lands and leases located in said county. Every counterpart of this Conveyance shall be deemed to be an original for all purposes, and all such counterparts together shall constitute one and the same instrument. An executed counterpart of this Conveyance containing the full text to the entire Exhibits and Annexes is recorded in the real property records of Alfalfa County, Oklahoma. Counterparts of this Conveyance with all portions of Exhibit A attached thereto will be kept at the offices of Assignor and Assignee at the addresses indicated above. As between the Parties, any signature hereto delivered by a Party by facsimile transmission or email pdf. shall be deemed an original hereto.
Section 14.09 Present and Absolute Conveyance. It is the express intention of Assignor and Assignee that the Royalty Interest is, and shall be construed for all purposes as, a present, fully-vested and absolute conveyance.
Section 14.10 Tax Treatment. Notwithstanding that this Royalty Interest may be a real property interest for purposes of applicable state law, the Parties agree to treat this Royalty Interest as a mortgage loan for federal income tax purposes pursuant to Section 636(a) of the Code (and for the purposes of any similarly calculated state income or franchise taxes) but for no other purposes, and the Parties agree (a) to file all federal income tax and state income tax and franchise tax returns consistent with this Section 14.10, (b) to use a comparable yield of 10% per month for purpose of Treasury Regulation Section 1.1275-4(b) and (c) to utilize the projected payment schedule provided for in Treasury Regulation Section 1.1275-4(b) and attached hereto as Schedule 14.10 for purposes of reporting income and deductions (and adjustments thereto) in respect of the Royalty Interest. For avoidance of doubt, the parties acknowledge that Assignor (and not Assignee) is entitled to all tax credits and other applicable tax attributes attributable to this Royalty Interest and the production of Minerals attributable thereto.
Section 14.11 Severability. In case any provision, covenant or obligation under this Conveyance is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, covenants or obligations of this Conveyance are declared to be severable and not in any way affected or impaired thereby.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, each Party has caused this Conveyance to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Conveyance, to be effective as of the Effective Time.
SandRidge Exploration and Production, LLC | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
Mistmada Oil Company, Inc. | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
[Signature Page to the Term Conveyance (PDP)]
STATE OF OKLAHOMA | § | |
§ | ||
COUNTY OF OKLAHOMA | § |
This instrument was acknowledged before me on March 31, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 31st day of March, 2011.
Janis L. Roberts | ||
NOTARY PUBLIC, | ||
State of Oklahoma | ||
Janis L. Roberts | ||
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment Page to the Term Conveyance (PDP)]
STATE OF OKLAHOMA | § | |
§ | ||
COUNTY OF OKLAHOMA | § |
This instrument was acknowledged before me on March 31, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of Mistmada Oil Company, Inc., an Oklahoma corporation, on behalf of said corporation.
WITNESS my hand and official seal this 31st day of March, 2011.
Janis L. Roberts | ||
NOTARY PUBLIC, | ||
State of Oklahoma | ||
Janis L. Roberts | ||
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment Page to the Term Conveyance (PDP)]
Exhibit A
(Subject Lands)
Exhibit B
(Excluded Assets)
Exhibit C
(Wells)
Schedule 14.10
(Tax Schedule)
Exhibit 10.5
TERM OVERRIDING ROYALTY INTEREST CONVEYANCE (PUD)
This TERM OVERRIDING ROYALTY INTEREST CONVEYANCE (this Conveyance) from SandRidge Exploration and Production, LLC, a Delaware limited liability company, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (Assignor) to Mistmada Oil Company, Inc., an Oklahoma corporation, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73012-6406 (Assignee), is delivered to be effective as of 12:01 a.m., Central Time, January 1, 2011 (the Effective Time). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article II below.
ARTICLE I
CONVEYANCE
Section 1.01 The Grant. For and in consideration of good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby BARGAIN, SELL, GRANT, CONVEY, TRANSFER, ASSIGN, SET OVER, and DELIVER unto Assignee, subject to the terms of this Conveyance and for the Term, as an overriding royalty interest (the Royalty Interest), an undivided interest in and to all Minerals in, under and that may be produced and saved from the Target Formation underlying the Subject Lands through the wellbores of the Development Wells, sufficient to cause Assignee to receive the Assignee Minerals.
Section 1.02 Non-Operating, Non-Expense Bearing Interest. The Royalty Interest conveyed hereby is a non-operating, non-expense-bearing overriding royalty interest for a limited term in and to the Subject Interests, free of all cost, risk and expense of production, operations and marketing. In no event shall Assignee ever be liable or personally obligated for payment of any cost, expenses or liabilities attributable to the Subject Interests (or any part thereof) or incurred in connection with the production, saving or marketing of Assignee Minerals, subject, however, to Assignors right hereinafter provided to deduct Chargeable Costs in determining Assignee Proceeds, which right shall be solely a matter of deduction from the proceeds from the sale of Assignee Minerals and not a personal obligation of Assignee. This Conveyance is a conveyance of an interest in real property.
Section 1.03 Term. The term of the Royalty Interest (the Term) shall begin at the Effective Time and end at December 31, 2030 (the Termination Date). At the end of the Term, all of Assignees interest in and to the Royalty Interest shall automatically terminate and immediately revert to and revest in Assignor.
Section 1.04 Habendum Clause. TO HAVE AND TO HOLD the Royalty Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto Assignee, its successors and assigns, for the Term, subject to terms and provisions of this Conveyance.
Section 1.05 Warranty.
(a) The Warranty. Assignor warrants to Assignee, its successors and assigns, that the Royalty Interest is free of all Encumbrances created by, through, or under Assignor, but not otherwise, except for the Permitted Encumbrances.
(b) Remedies. In the event of a breach of the foregoing warranty, Assignees sole remedy shall be to receive payment on each applicable Quarterly Payment Date, out of Assignors Net Share of Minerals from other Development Wells in excess of that subject to the Royalty Interest and the royalty interest created pursuant to the Perpetual PUD Conveyance (the Assignor Retained Minerals), subject to offset as provided below and without interest (except such interest payable under this Conveyance on payments made after the applicable due date as described in Section 5.02 below), of an amount equal to the difference between (x) Assignee Proceeds that Assignee would have received with respect to such Development Well in the applicable Computation Period if such warranty had not been breached and (y) Assignee Proceeds that Assignee actually received during that Computation Period with respect to that Development Well, to the extent such difference is attributable to the breach of the warranty, but not to the extent that such difference is attributable to any other cause, and any such amounts of Assignor Retained Minerals shall be treated as Assignee Minerals.
(c) Right of Offset. If any Subject Interest ever proves to be larger as of the Effective Date than the Subject Interest reflected in Exhibit A and if, as a result, Assignee receives a greater amount of Assignee Minerals (or the proceeds from the sale thereof) with respect to that Subject Interest than Assignee would otherwise have received if the Subject Interest had been the size reflected on Exhibit A, then such increased amounts, whenever received by Assignee, may be treated by Assignor as a credit or offset (without interest) against any amounts payable to Assignee under Section 1.05(b).
(d) DISCLAIMER. EXCEPT FOR THE WARRANTIES OF TITLE GIVEN IN SECTION 1.05(a), ASSIGNOR MAKES THIS CONVEYANCE AND ASSIGNS THE ROYALTY INTEREST WITHOUT RECOURSE, COVENANT OR WARRANTY OF TITLE OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. ANY COVENANTS OR WARRANTIES IMPLIED BY STATUTE OR LAW BY THE USE HEREIN OF THE WORDS GRANT, CONVEY OR OTHER SIMILAR WORDS ARE HEREBY EXPRESSLY DISCLAIMED, WAIVED AND NEGATED. WITHOUT LIMITING THE GENERALITY OF THE TWO PRECEDING SENTENCES, ASSIGNEE ACKNOWLEDGES THAT ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (i) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF MINERALS, IF ANY, ATTRIBUTABLE TO THE SUBJECT INTERESTS, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iv) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND (v) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER ANY APPLICABLE LEGAL REQUIREMENT; IT BEING THE EXPRESS INTENTION OF BOTH
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ASSIGNEE AND ASSIGNOR THAT THE ROYALTY INTEREST IS HEREBY ASSIGNED TO ASSIGNEE ON AN AS IS AND WHERE IS BASIS WITH ALL FAULTS, AND THAT ASSIGNEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ASSIGNEE DEEMS APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE CONSPICUOUS DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
(e) Substitution of Warranty. This instrument is made with full substitution and subrogation of Assignee in and to all covenants of warranty by Third Persons (other than Affiliates of Assignor) heretofore given or made with respect to the Development Wells, the Subject Interests or any part thereof or interest therein.
Section 1.06 Reconveyance of Excess Acreage. After the Drilling Obligation Completion Date, Assignee shall, on request, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that reconveys to Assignor the Royalty Interest except with respect to all Subject Minerals in, under and that may be produced from any wellbore of any Development Well.
ARTICLE II
DEFINITIONS
This Article II defines certain capitalized words, terms, and phrases used in this Conveyance. Certain other capitalized words, terms, and phrases used in this Conveyance are defined elsewhere in this Conveyance.
Affiliate means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract, or otherwise.
AMI Area means that area described in Exhibit A to the Development Agreement.
Assignee is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignee.
Assignee Minerals is defined in Section 3.01.
Assignee Proceeds means proceeds received by Assignor for the account of Assignee, as Assignees marketing and payment agent and representative, from the sale of Assignee Minerals under this Conveyance less Chargeable Costs calculated in accordance with Section 3.03.
Assignor is defined in the introductory paragraph to this Conveyance and also includes all permitted successors and assigns of Assignor.
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Assignor Conveyances means this Conveyance, the Term PDP Conveyance, the Perpetual PDP Conveyance and the Perpetual PUD Conveyance.
Assignor Retained Minerals is defined in Section 1.05(b).
Assignors Net Revenue Interest means the interest, stated as a decimal fraction, in Subject Minerals production from a Development Well attributable to the Subject Interests in that Development Well, net of Production Burdens.
Assignors Net Share of Minerals means the share of Subject Minerals from each Development Well that is attributable to Assignors Net Revenue Interest in that Development Well determined prior to giving effect to this Conveyance.
Bbl means one stock tank barrel, or 42 U.S. gallons liquid volume, in reference to Oil or Gas Liquids.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by the New York Stock Exchange, Inc. as affecting ex dates or any other day on which national banking institutions in New York, New York are closed as authorized or required by law.
Chargeable Costs is defined in Section 3.02(a).
Closing Time means 12:01 a.m. Central Time, on April 12, 2011.
Computation Period means each calendar quarter commencing at the Effective Time, with each calendar quarter being deemed to have begun at 12:01 a.m. Central Time on the first day of such calendar quarter and to have ended at 12:00 a.m. Central Time on the first day of the next calendar quarter, except for (a) the first Computation Period, which shall be deemed to have begun at the Effective Time and to have ended at 12:00 a.m. Central Time on July 1, 2011, and (b) the final Computation Period, which shall be deemed to have begun at 12:01 a.m. Central Time on the first day of the calendar quarter in which the Termination Date occurs and to have ended at the Termination Date.
Conveyance is defined in the introductory paragraph to this Conveyance.
Development Agreement means that certain Development Agreement between SandRidge, Assignor and the Trust dated as of even date herewith.
Development Well has the meaning given such term in the Development Agreement.
Drilling Obligation Completion Date has the meaning given to such term in the Development Agreement.
Effective Time is defined in the introductory paragraph to this Conveyance.
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Encumbrance means any mortgage, lien, security interest, pledge, charge, encumbrance, limitation, preferential right to purchase, consent to assignment, irregularity, burden or defect.
Excess Costs means, in any Computation Period, the excess of Chargeable Costs associated with Assignee Minerals for that Computation Period over the amount determined by multiplying Assignors Net Share of Minerals produced during the Computation Period by the Sales Price for that Computation Period. Excess Costs shall bear interest at the Prime Interest Rate from the end of the Computation Period in which such costs were incurred to the date that Assignor recovers such amounts from Assignee Proceeds.
Excluded Assets means (a) those oil and gas wells that are the subject of the Term PDP Conveyance and the Perpetual PDP Conveyance and (b) those oil and gas wells that are described in Exhibit B.
Fair Value means, with respect to any portion of the Royalty Interest to be released pursuant to Section 11.02 in connection with a sale or release of any Development Well or Subject Interests, an amount of net proceeds which could reasonably be expected to be obtained from the sale of such portion of the Royalty Interest to a party which is not an Affiliate of either the Assignor or Assignee on an arms-length negotiated basis, taking into account relevant market conditions and factors existing at the time of any such proposed sale or release, such net proceeds to be determined by deducting Assignees proportionate share of sales costs, commissions and brokerage fees, if any (based on the ratio of (i) the fair market value of the portion of the Royalty Interest being released to (ii) the fair market value of the Development Wells and Subject Interests being transferred (including the value of the Royalty Interest being released)).
Farmout Agreements means any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.
Force Majeure is defined in Section 12.02.
Gas means natural gas and all other gaseous hydrocarbons or minerals, including helium, but specifically excluding any Gas Liquids.
Gas Liquids means those natural gas liquids and other liquid similar hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.
Governmental Authority means the United States of America, any state, commonwealth, territory, or possession thereof, and any political subdivision of any of the foregoing, including courts, departments, commissions, boards, bureaus, agencies and other instrumentalities.
Legal Requirement means any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation of, including the terms of any license or permit issued by, any Governmental Authority.
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MMBtu means one million British thermal units.
Mcf means one thousand cubic feet of Gas, and MMcf means one million cubic feet of Gas, measured and expressed in each case at the same temperature, pressure, and other conditions of measurement (a) provided in any contract for the purchase of Gas from the Subject Interests or, (b) if no such contract exists, provided by applicable state law for purposes of reporting production to Governmental Authorities.
Minerals means Oil, Gas and Gas Liquids.
Mortgage has the meaning given such term in the Development Agreement.
Non-Affiliate means, for any specified Person, any other Person that is not an Affiliate of the specified Person.
Notice means any notice, advice, invoice, demand or other communication required or permitted by this Conveyance.
Oil means crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.
Party, when capitalized, refers to Assignor or Assignee. Parties, when capitalized, refers to Assignor and Assignee.
Permitted Encumbrances means:
(a) the Production Burdens;
(b) contractual obligations arising under operating agreements, Farmout Agreements, production sales contracts, leases, assignments and other similar agreements that may affect the Subject Interests;
(c) pooling and unitization agreements, declarations, orders or Legal Requirements to secure payment of amounts not yet delinquent;
(d) liens that arise in the normal course of operations, such as liens for unpaid taxes, statutory liens securing unpaid suppliers and contractors, and contractual liens under operating agreements, in any case, that are not yet delinquent or, if delinquent, are being contested in good faith in the normal course of business;
(e) conventional rights of reassignment that obligate Assignor to reassign all or part of any Subject Interest to a Third Person if Assignor intends to release or abandon such interest before the expiration of the primary term or other termination of such interest;
(f) easements, rights-of-way, servitudes, permits, surface leases, surface use restrictions and other surface uses and impediments on, over or in respect of the Subject Interests that are not such as to interfere materially with the operation, value or use of the Subject Interests;
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(g) rights reserved to or vested in any Governmental Authority to control or regulate any Subject Interests in any manner, and all applicable Legal Requirements;
(h) the terms of the instruments creating the Subject Interests and Subject Lands; and
(i) the Mortgage;
provided that such aforementioned encumbrances are of the type and nature customary in the oil and gas industry and do not, alone or in the aggregate, materially and adversely affect the operation, value or use of any Subject Interests, and all to the extent, and for so long as, such Permitted Encumbrances are otherwise valid and enforceable against the Subject Interests, without recognizing, expressly or by implication, any rights or interests in any Third Person or Governmental Authority that such Third Person or Governmental Authority does not otherwise lawfully possess.
Perpetual PDP Conveyance means that certain Perpetual Overriding Royalty Interest Conveyance (PDP) by and between Assignor and the Trust, dated effective as of the Effective Time.
Perpetual PUD Conveyance means that certain Perpetual Overriding Royalty Interest Conveyance (PUD) by and between Assignor and the Trust, dated effective as of the Effective Time.
Person means any natural person, corporation, partnership, trust, estate, or other entity, organization or association.
Post Production Cost Charge is defined in Section 3.02(b).
Prime Interest Rate is defined in Section 5.02(b).
Production Burdens means, with respect to any Subject Lands, Subject Interests or Subject Minerals, all royalty interests, overriding royalty interests, production payments, net profits interests and other similar interests that constitute a burden on, are measured by, or are payable out of the production of Minerals or the proceeds realized from the sale or other disposition thereof.
Quarterly Payment Date is defined in Section 5.01(b).
Reasonably Prudent Operator Standard means the standard of conduct of a reasonably prudent oil and gas operator in the AMI Area under the same or similar circumstances, acting with respect to its own property and disregarding the existence of the Royalty Interest as a burden on such property.
Royalty Interest is defined in Section 1.01.
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Sales Price means the price received by Assignor for Assignee Minerals determined in accordance with the following provisions:
(a) sale refers to any sale, exchange or other disposition of Assignee Minerals for value, the value of such Minerals that is exchanged or otherwise disposed of for valuable consideration being the sales price that Assignor receives for any such Minerals sold pursuant to Section 4.01 for any such Minerals;
(b) amounts of money not paid to Assignor when due by any purchaser of Assignee Minerals (for example, Taxes or other amounts withheld or deducted by any such purchaser) shall not be included within the Sales Price until actually received by, or credited to the account of, Assignor;
(c) advance payments and prepayments for future deliveries of Assignee Minerals shall be included within the Sales Price, without interest, when that volume of Minerals subject to the advance payments or prepayments is actually produced;
(d) loan proceeds received by Assignor shall not be treated as a component of the applicable Sales Price; and
(e) if a controversy or possible controversy exists, whether by reason of any statute, order, decree, rule, regulation, contract or otherwise, between Assignor and any purchaser of Assignee Minerals or any other Person, about the correct Sales Price of any Assignee Minerals, about deductions from the Sales Price, about Assignors right to receive the proceeds of any sale of Assignee Minerals, or about any other matter, then monies withheld by the purchaser or deposited by it with an escrow agent or if Assignor receives any monies and promptly deposits such monies with a Third Person escrow agent as a result of such controversy, such monies shall not be included within the Sales Price until received by or returned to Assignor, as applicable.
SandRidge means SandRidge Energy, Inc., a Delaware corporation.
Subject Interests means Assignors undivided interests in the Subject Lands as described on Exhibit A, whether as lessee under leases, as an owner of the Subject Minerals (or the right to extract such Minerals) or otherwise, by virtue of which undivided interests Assignor has the right to conduct exploration, drilling, development and Mineral production operations on the Subject Lands, or to cause such operations to be conducted, or to participate in such operations by paying and bearing all or any part of the costs, risks and liabilities of such operations, to drill, test, complete, equip, operate and produce wells to exploit the Minerals. The Subject Interests (a) may be owned by Assignor pursuant to leases, deeds, operating, pooling or unitization agreements, orders or any other instruments, agreements or documents, recorded or unrecorded, (b) include any and all extensions or renewals of leases covering the Subject Lands (or any portion thereof) obtained by Assignor, or any Affiliate thereof, within six (6) months after the expiration or termination of any such lease, and (c) are subject to the Permitted Encumbrances. For the avoidance of doubt, the Subject Interests do not include: (i) Assignors interests in the Excluded Assets; (ii) Assignors rights to substances other than Minerals; (iii) Assignors rights to Minerals (other than Assignee Minerals) under contracts for the purchase, sale, transportation, storage, processing or other handling or disposition of Minerals; (iv) Assignors interests in, or rights to Minerals (other than Assignee Minerals) held in pipelines, gathering systems, storage facilities, processing facilities or other equipment or
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facilities; or (v) any additional or enlarged interests in the Development Wells, Subject Lands or Subject Minerals acquired by Assignor after the Closing Time, except (1) to the extent any such additional or enlarged interest becomes a part of the Subject Interests by amendment to this Conveyance pursuant to Section 3.01 or 3.02 of the Development Agreement, (2) as may result from the operation of the terms of the instruments creating the Subject Interests, or (3) as may be reflected in extensions and renewals covered by the preceding sentence.
Subject Lands means the lands subject to or covered by the oil and gas leases described in Exhibit A, insofar and only insofar as they cover the Target Formation, subject to the exceptions, exclusions and reservations set forth on such Exhibit A.
Subject Minerals means all Minerals in and under, and that may be produced, saved and sold from a Development Well, from and after the Effective Time, insofar and only insofar as such Minerals are produced from the Target Formation, subject to the following exclusions: Minerals that are (a) lost in the production, gathering or marketing of Minerals; (b) used (i) in conformity with ordinary and prudent operations on the Subject Lands, including drilling and production operations with respect to a Development Well or (ii) in connection with operations (whether on or off the Subject Lands) for processing or compressing the Subject Minerals; (c) taken by a Third Person to recover costs, or some multiple of costs, paid or incurred by that Third Person under any operating agreement, unit agreement or other agreement in connection with nonconsent operations conducted (or participated in) by that Third Person; and (d) retained by a Third Person for gathering, transportation, processing or marketing services related to the Subject Minerals in lieu of or in addition to cash payment for such services, to the extent such agreement is permitted under this Conveyance.
Target Formation means (i) with respect to Alfalfa County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 4,833 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,344 in the SandRidge Energy Dorado SWD 1-32 located in section 32, Township 29 North, Range 9 West (API No. 35003219830000), (ii) with respect to Garfield County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,475 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,100 in the Texas American Oil JC Nelson 1 located in section 27, Township 23 North, Range 8 West (API No. 35047223450000), (iii) with respect to Grant County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,395 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 6,060 in the SandRidge Energy Orion 1-22 SWD located in section 22, Township 25 North, Range 5 West (API No. 35053227710000), (iv) with respect to Major County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,474 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,094 in the Downey Oil Davis 1 located in section 24, Township 23 North, Range 9 West (API No. 35093215620000) and (v) with respect to Woods County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,204 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,704 in the SandRidge Energy Koppitz SWD 1-31 located in section 31, Township 28 North, Range 13 West (API No. 35151232750000).
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Term PDP Conveyance means that certain Term Overriding Royalty Interest Conveyance (PDP) by and between Assignor and Assignee, dated effective as of the Effective Time.
Taxes is defined in Section 3.02(c).
Term is defined in Section 1.03.
Termination Date is defined in Section 1.03.
Third Person means a Person other than Assignor or Assignee.
Transfer including its syntactical variants, means any assignment, sale, transfer, conveyance or disposition of any property; provided, Transfer as used herein does not include the granting of a mortgage on or security interest in Assignors interest in any property, including the Development Wells, the Subject Interests and the Subject Lands.
Trust means SandRidge Mississippian Trust I, a Delaware statutory trust.
Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, acting not in its individual capacity but solely as trustee of the Trust.
ARTICLE III
CALCULATION OF ASSIGNEE MINERALS
Section 3.01 Definition. Assignee Minerals is that volume of Minerals with respect to each Development Well calculated in accordance with the following formula: Twenty-Five Percent (25%) X (Assignors Net Share of Minerals).
Section 3.02 Chargeable Costs.
(a) Definition. For each Computation Period, Chargeable Costs means the sum of (i) the Post Production Cost Charge, plus (ii) Excess Costs from prior Computation Periods, plus (iii) Taxes incurred, accrued or paid by Assignor; provided, that such costs are actually paid by Assignor during the relevant Computation Period or paid by Assignor during a prior Computation Period and not included in any prior Computation Periods Chargeable Costs. For the avoidance of doubt, all costs associated with, incurred or paid in connection with the drilling, testing, completing and equipping for production of the Development Wells shall be borne solely by Assignor and shall not be included as Chargeable Costs.
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(b) Post Production Cost Charge. Post Production Cost Charge means those costs incurred by Assignor (including internal costs and Third Person costs) to gather, store, transport, compress, process, treat, dehydrate and market, as applicable, the Subject Minerals, including any costs as may be required to deliver such Minerals to market; provided, any costs charged by Assignor and its Affiliates as part of the Post Production Cost Charge shall not materially exceed the costs prevailing in the area where the Subject Minerals are being produced for similar services and provided, further, with respect to marketing costs, only Non-Affiliate marketing fees and costs shall be included, and marketing costs of Assignor and its Affiliates with respect to any Subject Minerals will be specifically excluded from the Post Production Cost Charge. Any costs, fees or expenses that are properly charged or allocated to Assignee Minerals pursuant to another provision of this Conveyance (including, as provided for in the definition of Subject Minerals) shall not be included as part of the Post Production Cost Charge.
(c) Taxes. Taxes means general property, ad valorem, production, severance, sales, windfall profit, excise and other taxes, except income taxes, assessed or levied on or in connection with the Subject Interests, the Royalty Interest, this Conveyance, production of Subject Minerals, Assignors Net Share of Minerals, Assignee Minerals (or the proceeds from the sale thereof) or facilities or equipment on the Subject Lands that are used for the production, dehydration, treatment, processing, gathering or transportation of Subject Minerals, or against Assignor as owner of the Subject Interests or paid by Assignor on behalf of Assignee as owner of the Royalty Interest.
(d) Operating and Drilling Costs. For the avoidance of doubt, all costs associated with or paid or incurred in connection with the drilling, testing, completing, developing and operating the Development Wells or otherwise incurred in connection with the ownership or operation of the Subject Interests other than Taxes and Post Production Cost Charges shall be borne solely by Assignor and shall not be included as Chargeable Costs.
Section 3.03 Assignee Proceeds. Assignee Proceeds means, for any Computation Period, (a) the amount of proceeds actually received by Assignor during such Computation Period in respect of Assignee Minerals, with the amount of such proceeds being determined by multiplying (i) the volume of Assignee Minerals produced (expressed (A) for Gas, in Mcf or MMBtu, (B) for Gas Liquids, in Bbls and (C) for Oil, in Bbls) by (ii) the relevant Sales Price (expressed (A) for Gas, on a per Mcf or MMBtu basis, (B) for Gas Liquids, on a per Bbl basis and (C) for Oil, on a per Bbl basis), less (b) the Chargeable Costs associated with such Assignee Minerals.
ARTICLE IV
MARKETING OF ASSIGNEE MINERALS
Section 4.01 Rights and Duties Regarding Sale of Assignee Minerals. Assignor shall market or shall cause to be marketed Assignors Net Share of Minerals (including Assignee Minerals) in good faith and in accordance with the Reasonably Prudent Operator Standard and Section 4.02(d). Assignor shall use its reasonable efforts in connection with any sale of Assignors Net Share of Minerals (including Assignee Minerals) to obtain, as soon as reasonably practicable, full payment for such Minerals; provided, however, that it shall not be considered a breach of Assignors marketing duty or standard of conduct for Assignor to market
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such Minerals to an Affiliate of Assignor, so long as Assignor does not market such Minerals at a volume-weighted average price lower than the volume-weighted average price upon which Assignor pays royalties to the owners of the other royalty interests in the Subject Minerals, save and excepting Chargeable Costs provided for in Article III hereof.
Section 4.02 Assignees Agent and Representative.
(a) Appointment. Assignee appoints Assignor as Assignees agent and representative to market and deliver or cause to be marketed and delivered all Assignee Minerals and to collect and receive all payments therefrom under any Minerals purchase agreement or contract without deduction (except to the extent Chargeable Costs are deducted for any Computation Period). The appointment of Assignor as Assignees agent and representative for such purpose is a material item of consideration to the Parties in connection with the execution and delivery of this Conveyance. Assignee may not remove Assignor from office as Assignees agent and representative, except for cause upon a material breach by Assignor of its duties to Assignee under this Conveyance.
(b) Duties and Powers. As Assignees agent and representative, Assignor shall receive all payments for the sale of Assignee Minerals and account to Assignee, receive and make all communications with the purchaser of such Minerals, and otherwise act and speak for Assignee in connection with the sale of Assignee Minerals. Third Persons may rely conclusively on the authority of Assignor to market Assignee Minerals, and with respect to Third Persons only, Assignee shall be conclusively bound by the acts of Assignor in connection with the sale of Assignee Minerals. It shall not be necessary for Assignee to join Assignor in the execution of any division order, transfer order or other instrument, agreement or document relating to the sale of Assignee Minerals. Third Persons may pay all Assignee Proceeds for the sale of such Minerals directly to Assignor, without the necessity of any joinder by or consent of Assignee or any inquiry into the use or disposition of such proceeds by Assignor. In no event, however, shall the authority granted in this Section 4.02 or elsewhere in this Conveyance relieve Assignor of any liability for breach of this Conveyance.
(c) Prohibited Acts. Assignor may not act for or bind Assignee on any matter, except the marketing and delivery of Assignee Minerals under this Article IV.
(d) Standard of Conduct. In exercising its powers and performing its duties as Assignees agent and representative, Assignor shall act in good faith and in accordance with the Reasonably Prudent Operator Standard. It shall not be a violation of such standard of conduct for Assignor (i) to sell Assignors Net Share of Minerals or Assignee Minerals to an Affiliate pursuant to any purchase agreement or contract, or (ii) to delegate some or all of Assignors duties as Assignees agent and representative to its Affiliates (so long as such Affiliates perform in good faith and in accordance with the Reasonably Prudent Operator Standard), with Assignor remaining liable to Assignee for the performance of such duties.
(e) Termination of Authority. Assignor may not resign as Assignees agent and representative without the prior written consent of Assignee, except that Assignor may resign as Assignees agent and representative without such consent with respect to any Subject Interests assigned, sold, transferred or conveyed by Assignor in accordance with the terms of this
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Conveyance. If such sale is made subject to the Royalty Interest, Assignor must cause the purchaser to assume the duties of Assignees agent and representative with respect to the Subject Interests acquired by that purchaser and to be bound by the provisions of this Article IV.
Section 4.03 Delivery of Subject Minerals. Assignor (whether or not it is serving as Assignees agent and representative) shall deliver or cause to be delivered Assignors Net Share of Minerals (including Assignee Minerals) to the purchasers thereof.
Section 4.04 Processing. Assignor may, or may by contract cause a Third Person to, dehydrate, separate, treat, compress or otherwise process Assignors Net Share of Minerals (including Assignee Minerals) and may commit any of the Subject Interests (including the Royalty Interest attributable thereto) to an agreement for processing Minerals (pursuant to which, for example, the plant owner or operator receives a portion of the Subject Minerals or plant products therefrom or proceeds of the sale thereof as a fee for processing), so long as (a) Assignor enters into such processing arrangements in good faith and in accordance with the Reasonably Prudent Operator Standard and (b) any such processing arrangements entered into with Affiliates of Assignor contain rates and charges that are comparable to the prevailing charges for similar services in the applicable area. Assignee shall be bound by such arrangements and shall permit Assignors Net Share of Minerals (including Assignee Minerals) to be processed by Assignor or its contractor. Assignee shall not, however, be personally liable for any costs or risks associated with such processing operations, but Assignee shall indirectly suffer the energy content reduction and volume reductions associated with processing through corresponding reductions in the content and volumes of Assignee Minerals.
ARTICLE V
PAYMENT
Section 5.01 Obligation to Pay.
(a) The Obligation. After each Computation Period and on or before the Quarterly Payment Date for that Computation Period, Assignor shall tender to Assignee the Assignee Proceeds for the applicable Computation Period, plus, to the extent applicable, (i) all of the proceeds to be paid to Assignee from the sale of Assignee Minerals produced during any prior Computation Periods, to the extent not previously paid to Assignee for such prior Computation Periods, (ii) any damages payable to Assignee under Section 1.05(b) (subject to the right of set-off in Section 1.05(c)) during the most recently completed Computation Period, and (iii) any amounts (including any interest earned thereon) that were previously deposited with a Third Person escrow agent in accordance with Section 5.01(d) and subsequently determined by Assignor to be validly owing to Assignee. All such amounts shall be transmitted to Assignee by Assignor by means of wire transfer of funds to a bank account specified by Assignee pursuant to written instructions which shall remain in effect until and unless changed by subsequent written notice to Assignor.
For purposes of determining the amount of Assignee Proceeds for any Computation Period, if, when calculating Assignee Minerals for any Computation Period, Assignor is unable to determine the precise volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals, then Assignor shall, in good faith and in accordance with the Reasonably
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Prudent Operator Standard, estimate the volume of such Minerals produced, sold and attributable to Assignors Net Share of Minerals. Assignor shall adjust the calculation of Assignee Proceeds upward or downward, as the case may be, in the next or subsequent Computation Periods to reflect the difference between the estimated volume of Minerals established pursuant to this Section 5.01(a) and the actual volume of Minerals produced, sold and attributable to Assignors Net Share of Minerals in the Computation Period for which such estimate was made.
(b) Quarterly Payment Date. Quarterly Payment Date for each Computation Period means the forty-fifth (45th) day after the end of such Computation Period or, for the last Computation Period, the forty-fifth (45th) day after the Termination Date. If such day is not a Business Day, the Quarterly Payment Date shall be the next Business Day.
(c) No Segregated Account. Prior to the Quarterly Payment Date, all amounts received by Assignor from the sale of Assignors Net Share of Minerals and Assignee Minerals, as applicable, for any Computation Period shall be held by Assignor in one of its general bank accounts and Assignor will not be required to maintain a segregated account for such funds.
(d) Disputed Proceeds. If Assignor receives any amounts of money from the sale of Assignee Minerals that is subject to controversy or, in the reasonable opinion of Assignor, possible controversy, Assignor shall promptly deposit the money with a Third Person escrow agent in a segregated interest-bearing account. Such amount shall not be treated as a portion of Assignee Proceeds so long as it remains with such escrow agent, but shall be treated as a portion of Assignee Proceeds, along with the accrued interest, when received from such escrow agent and paid over to Assignee.
Section 5.02 Interest on Past Due Payments.
(a) Obligation to Pay. Any Assignee Proceeds or other amounts of money not paid by Assignor to Assignee when due shall bear, and Assignor will pay, interest at the Prime Interest Rate on the overdue amount commencing on the sixth (6th) day after such due date until such amount is paid.
(b) Definition. Prime Interest Rate means the lesser of (i) the rate of interest per annum publicly announced from time to time by The Bank of New York Mellon Trust Company, N.A. as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced), with the understanding that such banks prime rate may be one of several base rates, may serve as a basis upon which effective rates are from time to time calculated for loans making reference thereto, and may not be the lowest of such banks base rates or (ii) the maximum rate of interest permitted under applicable Legal Requirement.
Section 5.03 Overpayments and Refunds.
(a) Overpayments. If Assignor ever pays Assignee more than the amount of money then due and payable to Assignee under this Conveyance, Assignee shall not be obligated to return the overpayment, but Assignor may at any time thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to the overpayment.
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(b) Refunds. If Assignor is ever legally obligated to pay any Third Person, including any Minerals purchaser or Governmental Authority, any refund, interest, penalty or other amount of money, because any payment of Assignee Proceeds received by Assignor for the account of Assignee exceeded, or allegedly exceeded, the amount due or lawful under any applicable contract, Legal Requirement, or other obligation, Assignor may thereafter deduct from Assignee Proceeds and retain for its own account an amount equal to such payment.
Section 5.04 Protection of Assignee Proceeds. It is the intent of Assignor and Assignee that Assignee is an interest owner with an interest separate and distinct from that of Assignor within the meaning and for the purposes of the Oil and Gas Owners Lien Act of 2010, Okla. Stat. tit. 52, § 549.1, et. seq., and that Assignee is entitled to all the benefits of such Act.
ARTICLE VI
RECORDS AND REPORTS
Section 6.01 Books, Records and Accounts.
(a) Obligation to Maintain. Assignor shall maintain true and correct books, records and accounts of (i) all transactions required or permitted by this Conveyance and (ii) the financial information necessary to effect such transactions, including the financial information needed to calculate each installment of Assignee Proceeds.
(b) Right of Inspection. Assignee or its representative, at Assignees expense, may inspect and copy such books, records and accounts in the offices of Assignor during normal business hours and upon reasonable notice.
Section 6.02 Statements.
(a) Quarterly Statements. On each Quarterly Payment Date, Assignor shall deliver to Assignee a statement showing the computation of Assignee Minerals and Assignee Proceeds for the applicable Computation Period.
(b) Annual Statements. On the first Quarterly Payment Date after the end of each calendar year and on the Quarterly Payment Date after the Termination Date, such statement shall also show the computation of Assignee Proceeds for the preceding calendar year or, for the Quarterly Payment Date after the Termination Date, for the portion of the calendar year from 12:01 a.m. Central Time on January 1 of that same year through the Termination Date.
(c) Contents of Statements. Without limiting the generality of the foregoing provisions in this Section 6.02, each statement delivered by Assignor to Assignee pursuant to this Section 6.02 shall state, for the relevant period, (i) the total volumes of Subject Minerals produced from the Subject Lands, (ii) the total volumes of Assignors Net Share of Minerals, (iii) the total volumes of Assignee Minerals, (iv) the applicable Sales Price, (v) the Chargeable Costs, (vi) the amount of Assignee Proceeds due and payable for the relevant period and (vii) the amounts of money, if any, due and payable by any purchaser of the Subject Minerals or Assignee Minerals, the nonpayment of which resulted in a reduction in Assignee Proceeds for the relevant period.
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Section 6.03 Assignees Exceptions to Quarterly Statements. If Assignee takes exception to any item or items included in any quarterly statement required by Section 6.02, Assignee must notify Assignor in writing within sixty (60) days after Assignees receipt of such quarterly statement. Such Notice must set forth in reasonable detail the specific charges complained of and to which exception is taken. Adjustments shall be made for all complaints and exceptions that are justified. Notwithstanding anything to the contrary herein, all matters reflected in Assignors statements for the preceding calendar year (or portion thereof) that are not objected to by Assignee in the manner provided by this Section 6.03 shall be deemed correct as rendered by Assignor to Assignee.
Section 6.04 Other Information.
(a) Disclosure. At Assignees request, subject to applicable restrictions on disclosure and transfer of information, Assignor shall give Assignee and its designated representatives reasonable access in Assignors office during normal business hours to all title, geological (to the extent not prohibited by any applicable license agreement), Development Well and production data in Assignors possession or Assignors Affiliates possession, relating to operations on the Subject Interests.
(b) Disclaimer of Warranties and Liability. Assignor makes no representations or warranties about the accuracy or completeness of any data, reports, studies or other information made available to Assignee and shall have no liability to Assignee or any other Person resulting from such data, studies, reports or other information.
(c) No Attribution. Assignee shall not, in any securities filings or reports made by Assignee, attribute to Assignor or to the consulting engineers any reports or studies made available to Assignee, or the contents thereof.
(d) Confidentiality. All information furnished to Assignee and its designated representatives pursuant to this Section 6.04 is confidential and for the sole benefit of Assignee and shall not be disclosed by Assignee or its designated representatives to any other Person, except to the extent that such information (i) is required in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over Assignee or submitted to bank examiners or similar organizations or their successors, (ii) is required in response to any summons or subpoena or in connection with any litigation, (iii) is reasonably believed to be required in order to comply with any applicable Legal Requirement to Assignee, (iv) was publicly available or otherwise known to the recipient at the time of disclosure or (v) subsequently becomes publicly available other than through any act or omission of the recipient; provided, however, with respect to the disclosures with respect to items (i), (ii) and (iii) above, Assignee will notify Assignor prior to any such disclosure in order to provide Assignor an opportunity to seek to limit any such required disclosure. In connection with the marketing of the Trusts assets upon termination of the Trust, Assignee and its designated representatives may, on a confidential basis in accordance with this Section 6.04(d), provide any potential purchaser of such assets with the same information Assignee has access to pursuant to Section 6.04.
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ARTICLE VII
NO LIABILITY OF ASSIGNEE
Assignee shall not be personally liable or responsible under this Conveyance for any cost, risk, liability or obligation associated in any way with the ownership or operation of the Subject Lands, the Subject Interests, the Development Wells or the Subject Minerals. The foregoing sentence does not restrict the right of Assignor to deduct Chargeable Costs in calculating the volumes of Assignee Minerals or Assignee Proceeds.
ARTICLE VIII
OPERATIONS
Section 8.01 Standards of Conduct. Except as otherwise specifically provided in this Conveyance, Assignor shall (a) operate and maintain the Subject Interests and (b) make elections under each applicable lease, operating agreement, unit agreement, contract for development and other similar instrument or agreement (including elections concerning abandonment of any Development Well or release of any Subject Interest) in good faith and in accordance with the Reasonably Prudent Operator Standard.
Section 8.02 Abandonment of Properties. Nothing in this Conveyance shall obligate Assignor to continue to operate any Development Well or to operate or maintain in force or attempt to maintain in force any Subject Interest when such Development Well or Subject Interest ceases to produce, or Assignor determines, in accordance with Section 8.01 above, that such Development Well or Subject Interest is not capable of producing Minerals in paying quantities. The expiration of a Subject Interest in accordance with the terms and conditions applicable thereto shall not be considered to be a voluntary surrender or abandonment thereof.
ARTICLE IX
POOLING AND UNITIZATION
Section 9.01 Pooling of Subject Interests. Certain Subject Interests have been, or may have been, heretofore pooled and unitized for the production of Minerals. Such Subject Interests are and shall be subject to the terms and provisions of the applicable pooling and unitization agreements and orders, and the Royalty Interest in each pooled or unitized Subject Interest shall apply to and affect only the Minerals produced from such units that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreements and orders.
Section 9.02 Pooling and Unitization.
(a) Right to Pool. Assignor has the exclusive executive right and power (as between Assignor and Assignee) to pool or unitize any Subject Interest and to alter, change, amend or terminate any pooling or unitization agreements heretofore or hereafter entered into, as to all or any part of the Subject Lands, as to any one or more of the formations or horizons, and as to any Minerals, upon such terms and provisions as Assignor shall in its sole discretion deem appropriate.
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(b) Effect of Pooling. If and whenever through the exercise of such right and power, or pursuant to any Legal Requirement now existing or hereafter enacted or promulgated, any Subject Interest is pooled or unitized in any manner, the Royalty Interest shall apply to and affect only the Minerals production that accrues to such Subject Interest under and by virtue of the applicable pooling and unitization agreement or order. It shall not be necessary for Assignee to agree to, consent to, ratify, confirm or adopt any exercise of pooling or unitization of any Subject Interest by Assignor.
ARTICLE X
GOVERNMENT REGULATION
Section 10.01 Legal Requirements. Except as provided in Section 10.03, all obligations of Assignor under this Conveyance are, and shall be, subject to all applicable Legal Requirements and the instruments, documents and agreements creating the Subject Interests.
Section 10.02 Filings. Assignor shall use its reasonable discretion in making filings for itself and on behalf of Assignee with any Governmental Authority having jurisdiction with respect to matters affecting the Subject Interests, the Subject Lands or the Subject Minerals.
Section 10.03 Superseding Effect. By acceptance of this Conveyance, Assignee agrees, for itself and its successors and assigns, immediate and remote, that the timing of payment, accrual of interest and reporting requirements with respect to the Royalty Interest shall be as provided by the terms of this Conveyance and not as prescribed by the Oklahoma Production Revenue Standards Act, as amended, codified at Title 52, Section 570.1, et seq. of the Oklahoma Statutes, and any similar Legal Requirement.
ARTICLE XI
ASSIGNMENT AND SALE OF SUBJECT INTERESTS
Section 11.01 Assignment by Assignor Subject to Royalty Interest.
(a) Right to Sell. Assignor may not Transfer any interest in the Development Wells, the Subject Interests or any part thereof or any undivided interest therein in violation of Section 11.04. Subject to Section 11.02 and 11.04, Assignor may from time to time Transfer, mortgage or pledge its interest in the Development Wells, the Subject Interests, or any part thereof or undivided interest therein, if and only if (i) such Transfer, mortgage or pledge is made expressly subject to and burdened with the Royalty Interest and this Conveyance, (ii) solely in connection with a Transfer other than a Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has caused the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer, and (iii) in connection with any Transfer pursuant to a foreclosure on any mortgage or security interest, Assignor has used commercially reasonable efforts to cause the assignee, purchaser, transferee or grantee of any such transaction to (A) acknowledge that the affected Subject Interests are taken subject to and burdened with the Royalty Interest and this Conveyance and (B) assume and agree to discharge Assignors
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obligations under this Conveyance with respect to such Subject Interests from and after the actual date of any such Transfer. Any assumption and agreement to discharge shall be by appropriate written instrument for the express benefit of and enforceable by the Assignee. For avoidance of doubt, nothing in Section 11.01(a) is intended to permit any assignee, purchaser, transferee or grantee to acquire any interest in the Development Wells, the Subject Interests or any part thereof or undivided interest therein without being subject to and burdened with the Royalty Interest and this Conveyance. Assignee shall not be required to recognize any purported Transfer, mortgage or pledge not made in conformance with this Section 11.01(a) and, notwithstanding any such purported Transfer, mortgage or pledge, Assignor shall remain obligated under this Conveyance just as if such Transfer, mortgage or pledge attempt had not been made and Assignee shall continue to deal with the Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, any purported Transfer not made in conformance with this Section 11.01(a) shall be void and of no effect.
(b) Effect of Sale. From and after the actual date of any such Transfer by Assignor made in full compliance with Section 11.01(a) (and only upon such full compliance), Assignor shall be relieved of all obligations, requirements and responsibilities arising under this Conveyance with respect to the Subject Interests Transferred, as the same pertain to Assignee Minerals produced from and after (but not prior to) said date of such Transfer.
(c) Allocation of Consideration. Assignee is not entitled to receive any share of the sales proceeds received by Assignor in any transaction permitted by this Section 11.01.
(d) Separate Interest. Notwithstanding any provision to the contrary in Article IV, effective on the effective date of any Transfer of any Subject Interest made in full compliance with Section 11.01(a), Assignee Minerals and Assignee Proceeds shall thereafter be computed separately with respect to such Subject Interests, and the assignee, buyer, transferee or grantee of such Subject Interests shall thereafter serve as Assignees agent and representative under Article IV with respect to such interests and shall pay all corresponding Assignee Proceeds directly to Assignee.
Section 11.02 Sale and Release of Properties.
(a) Transfer. Subject to Section 11.04, Assignor may from time to time, Transfer the Development Wells, the Subject Interests, or any part thereof or undivided interest therein, free of the Royalty Interest and this Conveyance provided that the aggregate Fair Value of all Royalty Interests released with respect to the Assignor Conveyances during any twelve (12) month period shall not exceed $5,000,000.
(b) Payments. In connection with any Transfer pursuant to this Section 11.02, Assignor shall remit to Assignee an amount equal to the Fair Value of the Royalty Interest being released. Assignor shall make such payment to Assignee on the Quarterly Payment Date for the Computation Period in which Assignor receives the payment with respect to any such Transfer of the Subject Interest.
(c) Release. In connection with any Transfer provided for in Section 11.02(a), Assignee shall, on request, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases the Royalty Interest with respect to the Development Well and the related Subject Interests and Subject Lands being Transferred.
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(d) Effect of Sale. From and after the actual date of any such Transfer by Assignor, Assignor and any assignee, purchaser, transferee or grantee of such Subject Interest shall be relieved of all obligations, requirements and responsibilities arising under the Royalty Interest or this Conveyance with respect to the Development Well or Subject Interests Transferred, except for those that accrued prior to such date.
Section 11.03 Farmouts.
(a) Farmout. Assignor may from time to time enter into Farmout Agreements with Third Persons with respect to the Subject Interests. In the event that Assignor enters into any Farmout Agreement with a Third Person, (i) the Royalty Interest and this Conveyance shall only burden Assignors retained interest in the Subject Interest after giving effect to any interest in the Subject Interest that a counterparty to the Farmout Agreement may earn under such Farmout Agreement and (ii) only the Assignors retained interest in the Subject Interest will count towards SandRidges obligation to drill Development Wells under the Development Agreement.
(b) Release. In connection with Assignor entering into any Farmout Agreement, Assignee shall, upon request of Assignor, execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases the Royalty Interest and this Conveyance with respect to the Subject Interests being transferred pursuant to such Farmout Agreement; provided, the Royalty Interest shall still burden the Subject Interest retained by Assignor.
Section 11.04 Transfer of Subject Lands. Assignor will not Transfer any Development Well or any of the Subject Interests comprising a part of the Subject Lands pursuant to Sections 11.01 and 11.02 prior to the Drilling Obligation Completion Date, and in the event of any attempted Transfer in violation of this Section 11.04, Assignor shall remain liable and a party hereto, just as if no Transfer attempt had been made, and Assignee shall continue to deal with Assignor to the exclusion of the purported transferee. Further, to the extent permitted by applicable law, such attempted Transfer in violation of this Section 11.04 shall be void and of no force or effect. Assignor expressly states and recognizes that the restrictions on transfer imposed on Assignor in this Section 11.04 and in Section 11.01(a) are made in reasonable protection of an interest of the Assignee created hereunder.
Section 11.05 Change in Ownership.
(a) Obligation to Give Notice. No change of ownership or of the right to receive payment of the Royalty Interest, or of any part thereof, however accomplished, shall bind Assignor until notice thereof is furnished to Assignor by the Person making the transfer and the Person claiming the benefit thereof, and then only with respect to payments made after such Notice is furnished.
(b) Notice of Sale. Notice of sale, transfer, conveyance or assignment shall consist of a certified copy of the recorded instrument accomplishing the same.
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(c) Notice of Other Changes of Ownership. Notice of change of ownership or of the right to receive payment accomplished in any other manner (e.g., by dissolution of Assignee) shall consist of certified copies of recorded documents and complete proceedings legally binding and conclusive of the rights of all Persons.
(d) Effect of Lack of Notice. Until such Notice accompanied by such documentation is furnished to Assignor in the manner provided above, Assignor may, at Assignors election, either (i) continue to pay or tender all sums payable on the Royalty Interest in the same manner provided in this Conveyance, precisely as if no such change in interest or ownership or right to receive payment had occurred or (ii) suspend payment of Assignee Proceeds without interest until such documentation is furnished.
(e) Effect of Nonconforming Notices. The kinds of Notice provided by this Section 11.05 shall be exclusive, and no other kind, whether actual or constructive, shall bind Assignor.
Section 11.06 One Payee. Assignor shall never be obligated to pay Assignee Proceeds to more than one Person. If more than one Person is ever entitled to receive payment of any part of Assignee Proceeds, Assignor may suspend payments of all Assignee Proceeds until the concurrent owners or claimants of the Royalty Interest or the right to receive payment of Assignee Proceeds appoint one Person in writing to receive all payments of Assignee Proceeds on their behalf. Assignor may thereafter conclusively rely upon the authority of that Person to receive payments of Assignee Proceeds and shall be under no further duty to inquire into the authority or performance of such Person.
Section 11.07 Rights of Mortgagee. If Assignee executes a mortgage or deed of trust covering all or part of the Royalty Interest, the mortgagees or trustees therein named or the holders of any obligation secured thereby shall be entitled, to the extent that such mortgage or deed of trust so provides, to exercise the rights, remedies, powers and privileges conferred upon Assignee by this Conveyance and to give or withhold all consents required to be obtained from Assignee. This Section 11.07 shall not be deemed or construed to impose upon Assignor any obligation or liability undertaken by Assignee under such mortgage or deed of trust or under the obligation secured thereby.
Section 11.08 No Drainage. Subsequent to the Drilling Obligation Completion Date, neither Assignor nor any of its Affiliates shall drill any Mineral well that will have a perforated segment in the Target Formation that will be within six hundred sixty feet (660) of any perforated interval of any Development Well which produces oil or gas from the Target Formation.
ARTICLE XII
FORCE MAJEURE
Section 12.01 Nonperformance. Assignor shall not be responsible to Assignee for any loss or damage to Assignee resulting from any delay in performing or failure to perform any obligation under this Conveyance (other than Assignors obligation to make payments of Assignee Proceeds to Assignee) to the extent such failure or delay is caused by Force Majeure.
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Section 12.02 Force Majeure. Force Majeure means any of the following, to the extent they are not caused solely by the breach by Assignor of its duty to perform certain obligations under this Conveyance in accordance with the Reasonably Prudent Operator Standard:
(a) act of God, fire, lightning, landslide, earthquake, storm, hurricane, hurricane warning, flood, high water, washout, tidal wave or explosion;
(b) strike, lockout, or other similar industrial disturbance, act of the public enemy, war, military operation, blockade, insurrection, riot, epidemic, arrest or restraint of Governmental Authority or people, or national emergency;
(c) the inability of the Assignor to acquire, or the delay on the part of any Third Person (other than an Affiliate of the Assignor) in acquiring, materials, supplies, machinery, equipment, servitudes, right-of-way grants, easements, permits, licenses, approvals or authorizations necessary to enable such Party to perform hereunder;
(d) any breakage of or accident to machinery, equipment or lines of pipe, the repair, maintenance, improvement, replacement, alteration to a plant or line of pipe or related facility, the testing of machinery, equipment or line of pipe, or the freezing of a line of pipe;
(e) any Legal Requirement or the affected Partys compliance therewith; or
(f) any other cause, whether similar or dissimilar to the causes enumerated in (a) through (e) above, not reasonably within the control of Assignor.
Section 12.03 Force Majeure Notice. Assignor will give Assignee a Notice of each Force Majeure as soon as reasonably practicable after the occurrence of the Force Majeure.
Section 12.04 Remedy. Assignor will use its reasonable efforts to remedy each Force Majeure and resume full performance under this Conveyance as soon as reasonably practicable, except that the settlement of strikes, lockouts or other labor disputes shall be entirely within the discretion of Assignor.
ARTICLE XIII
NOTICE
Section 13.01 Written Notice. Except as otherwise provided by this Conveyance, each Notice shall be in writing.
Section 13.02 Methods of Giving Notice. Notice may be given by any reasonable means, including email, telecopier, hand delivery, overnight courier or U.S. mail.
Section 13.03 Charges. All Notices shall be properly addressed to the recipient, with all postage and other charges being paid by the Party giving Notice.
Section 13.04 Effective Date. Notice shall be effective when actually received by the Party being notified; provided, however, that Notices given by email or telecopy on any day
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other than a Business Day, or on a Business Day but after 5:00 p.m. local time at the location of the Party being notified, shall be deemed received on the next Business Day, unless receipt is acknowledged prior to the next Business Day.
Section 13.05 Addresses. The addresses of the Parties for purposes of Notice are the addresses in the introductory paragraph to this Conveyance.
Section 13.06 Change of Address. Either Party may change its address to another address within the continental United States by giving ten (10) days Notice to the other Party.
ARTICLE XIV
OTHER PROVISIONS
Section 14.01 Successors and Assigns. The provisions and conditions contained in this Conveyance shall run with the land and the respective interests of Assignor and Assignee in the Subject Lands, and, subject to the limitation and restrictions on the assignment or delegation by the Parties of their rights and interests under this Conveyance, this Conveyance binds and inures to the benefit of Assignor, Assignee and their respective successors, assigns and legal representatives.
Section 14.02 Governing Law. THIS CONVEYANCE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
Section 14.03 Construction of Conveyance. In construing this Conveyance, the following principles shall be followed:
(a) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Conveyance and not as an aid in its construction;
(b) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Conveyance;
(c) the word includes and its syntactical variants mean includes, but is not limited to and corresponding syntactical variant expressions;
(d) a defined term has its defined meaning throughout this Conveyance, regardless of whether it appears before or after the place in this Conveyance where it is defined;
(e) the plural shall be deemed to include the singular, and vice versa, unless the content otherwise requires; and
(f) each exhibit, attachment and schedule to this Conveyance is a part of this Conveyance, but if there is any conflict or inconsistency between the main body of this Conveyance and any exhibit, attachment or schedule, the provisions of the main body of this Conveyance shall prevail.
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Section 14.04 No Waiver. Failure of either Party to require performance of any provision of this Conveyance shall not affect either Partys right to require full performance thereof at any time thereafter, and the waiver by either Party of a breach of any provision hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision.
Section 14.05 Relationship of Parties. This Conveyance does not create a partnership, mining partnership, joint venture or relationship of trust or agency (except with respect to Assignors agency relationship with respect to those matters set forth in Articles IV and V above) between the Parties.
Section 14.06 Further Assurances. Each Party shall execute, acknowledge and deliver to the other Party all additional instruments and other documents reasonably required to describe more specifically any interests subject hereto, to vest more fully in Assignee the Royalty Interest conveyed (or intended to be conveyed) by this Conveyance, or to evidence or effect any transaction contemplated by this Conveyance. Assignor shall also execute and deliver all additional instruments and other documents reasonably required to transfer interests in state, federal or Indian lease interests in compliance with applicable Legal Requirements or agreements. Upon expiration of the Term, Assignee shall, on request, execute, acknowledge and deliver to Assignor sufficient numbers of recordable instruments releasing all of the Subject Lands from this Conveyance.
Section 14.07 The 12:01 A.M. Convention. Except as otherwise provided in this Conveyance, each calendar day, month, quarter and year shall be deemed to begin at 12:01 a.m. Central Time on the stated day or on the first day of the stated month, quarter or year, and to end at 12:00 a.m. Central Time on the next day or on first day of the next month, quarter or year, respectively.
Section 14.08 Counterpart Execution. This Conveyance may be executed in any number of counterparts, all of which are identical except that to facilitate filing and recording, counterparts to be filed and recorded in the appropriate records of each county may have included in Exhibit A only those portions of Exhibit A that contain descriptions of the lands and leases located in said county. Every counterpart of this Conveyance shall be deemed to be an original for all purposes, and all such counterparts together shall constitute one and the same instrument. An executed counterpart of this Conveyance containing the full text to the entire Exhibits and Annexes is recorded in the real property records of Alfalfa County, Oklahoma. Counterparts of this Conveyance with all portions of Exhibit A attached thereto will be kept at the offices of Assignor and Assignee at the addresses indicated above. As between the Parties, any signature hereto delivered by a Party by facsimile transmission or email pdf. shall be deemed an original hereto.
Section 14.09 Present and Absolute Conveyance. It is the express intention of Assignor and Assignee that the Royalty Interest is, and shall be construed for all purposes as, a present, fully-vested and absolute conveyance.
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Section 14.10 Tax Treatment. Notwithstanding that this Royalty Interest may be a real property interest for purposes of applicable state law, the Parties agree to treat this Royalty Interest as a mortgage loan for federal income tax purposes pursuant to Section 636(a) of the Code (and for the purposes of any similarly calculated state income or franchise taxes) but for no other purposes, and the Parties agree (a) to file all federal income tax and state income tax and franchise tax returns consistent with this Section 14.10, (b) to use a comparable yield of 10% per month for purpose of Treasury Regulation Section 1.1275-4(b) and (c) to utilize the projected payment schedule provided for in Treasury Regulation Section 1.1275-4(b) and attached hereto as Schedule 14.10 for purposes of reporting income and deductions (and adjustments thereto) in respect of the Royalty Interest. For avoidance of doubt, the parties acknowledge that Assignor (and not Assignee) is entitled to all tax credits and other applicable tax attributes attributable to this Royalty Interest and the production of Minerals attributable thereto.
Section 14.11 Severability. In case any provision, covenant or obligation under this Conveyance is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, covenants or obligations of this Conveyance are declared to be severable and not in any way affected or impaired thereby.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, each Party has caused this Conveyance to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Conveyance, to be effective as of the Effective Time.
SandRidge Exploration and Production, LLC | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
Mistmada Oil Company, Inc. | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
[Signature Page to the Term Conveyance (PUD)]
STATE OF OKLAHOMA |
§ | |
§ | ||
COUNTY OF OKLAHOMA |
§ |
This instrument was acknowledged before me on March 31, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 31st day of March, 2011.
/s/ Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment Page to the Term Conveyance (PUD)]
STATE OF OKLAHOMA |
§ | |
§ | ||
COUNTY OF OKLAHOMA |
§ |
This instrument was acknowledged before me on March 31, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of Mistmada Oil Company, Inc., an Oklahoma corporation, on behalf of said corporation.
WITNESS my hand and official seal this 31st day of March, 2011.
Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
[Acknowledgment Page to the Term Conveyance (PUD)]
Exhibit A
(Subject Lands)
Exhibit B
(Excluded Assets)
Schedule 14.10
(Tax Schedule)
Exhibit 10.6
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (this Agreement) by and between SandRidge Energy, Inc., a Delaware corporation, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (the Company), and SandRidge Mississippian Trust I, a statutory trust formed under the laws of the State of Delaware (the Trust) is delivered to be effective as of 12:01 a.m., Central Time, January 1, 2011 (the Effective Time). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article I below.
WHEREAS, pursuant to that certain Term Overriding Royalty Interest Conveyance (PDP), that certain Term Overriding Royalty Interest Conveyance (PUD), that certain Perpetual Overriding Royalty Interest Conveyance (PDP) and that certain Perpetual Overriding Royalty Interest Conveyance (PUD), each effective as of the Effective Time (collectively, the Conveyances), SandRidge Exploration and Production, LLC has caused to be conveyed to the Trust or Mistmada Oil Company, Inc., an Oklahoma corporation (the Company Subsidiary), as applicable, overriding royalty interests in certain oil and natural gas properties located in Alfalfa, Garfield, Grant, Major and Woods Counties, Oklahoma (the Royalty Interests);
WHEREAS, the Company Subsidiary has assigned all of its Royalty Interests to the Trust, and consequently the Trust holds all of the Royalty Interests; and
WHEREAS, in connection with the Conveyances, the Company has agreed to provide certain administrative services for the Trust in exchange for an administrative services fee as described herein.
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intended to be legally bound hereby, it is agreed as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following terms have the respective meanings set forth below:
AAA has the meaning set forth in Section 2.06.
Administrative Services Fee has the meaning set forth in Section 3.01.
Affiliate means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract or otherwise.
Agreement has the meaning set forth in the introductory paragraph to this Agreement.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by the New York Stock Exchange, Inc. as affecting ex dates or any other day on which national banking institutions in New York, New York are closed as authorized or required by law.
Claimant has the meaning set forth in Section 2.06.
Company has the meaning set forth in the introductory paragraph to this Agreement.
Company Subsidiary has the meaning set forth in the recitals to this Agreement.
Conveyances has the meaning set forth in the recitals to this Agreement.
Development Agreement means that certain Development Agreement, effective as of the Effective Time, between the Company, SandRidge Exploration and Production, LLC, and the Trust, as the same may be amended from time to time.
Effective Time has the meaning set forth in the introductory paragraph to this Agreement.
External Expenses means the actual out-of-pocket fees, costs and expenses incurred by the Company in connection with the provision of the Services.
Force Majeure shall mean any cause beyond the reasonable control of the Company, including acts of God, strikes, lockouts, acts of the public enemy, wars or warlike action (whether actual or impending), arrests and other restraints of government (civil or military), blockades, embargoes, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, sabotage, tornadoes, named tropical storms and hurricanes, and floods, civil disturbances, terrorism, mechanical breakdown of machinery or equipment, explosions, confiscation or seizure by any government or other public authority, any order of any court of competent jurisdiction, regulatory agency or governmental body having jurisdiction.
Person means any natural person, corporation, partnership, trust, estate or other entity, organization, or association.
Registration Rights Agreement means that certain Registration Rights Agreement, dated as of April 12, 2011, by and between the Trust and the Company.
Respondent has the meaning set forth in Section 2.06.
Royalty Interests has the meaning set forth in the recitals to this Agreement.
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Rules has the meaning set forth in Section 2.06.
Services has the meaning set forth in Section 2.01.
Special Provision has the meaning set forth in Section 2.06.
Termination Date has the meaning set forth in Section 5.01.
Trust has the meaning set forth in the introductory paragraph to this Agreement.
Trust Agreement means the Amended and Restated Trust Agreement of the Trust, dated as of April 12, 2011 (as may be amended from time to time), among SandRidge Energy, Inc., the Trustee and Corporation Trust Company, as Delaware Trustee.
Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, as trustee, acting not in its individual capacity but solely as trustee of the Trust.
Section 1.02 Construction. Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; (c) the terms include, includes, including or words of like import shall be deemed to be followed by the words without limitation; and (d) the terms hereof, herein or hereunder refer to this Agreement as a whole and not to any particular provision of this Agreement. The headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.
ARTICLE II
SERVICES
Section 2.01 Services. Subject to the terms of this Agreement and in exchange for the payments described in Section 3.01, the Company hereby agrees to provide the Trust with such services as are necessary to fulfill the purposes of the Trust as set forth in Section 2.02 of the Trust Agreement, such other administrative services of similar character and scope to the foregoing and any other administrative services that may be required to satisfy the Trusts obligations under the Registration Rights Agreement, that the Trust may reasonably request the Company provide during the term of this Agreement, including such accounting, bookkeeping and informational services as may be necessary for the preparation of reports the Trust is or may be required to prepare and/or file in accordance with applicable tax and securities laws, exchange listing rules and other requirements, including reserve reports, tax returns and Forms K-1 (all of the foregoing being herein called the Services).
Section 2.02 Performance of Services by Others. The parties hereby agree that in discharging the Companys obligations under this Agreement, the Company may, in its sole discretion, engage any other Person, including its Affiliates, to perform the Services (or any part of the Services) on its behalf and that, subject to the Companys right to reimbursement for
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External Expenses in accordance with this Agreement, the performance of the Services (or any part of the Services) by any such Person shall be treated as if the Company performed such Services itself. Notwithstanding the foregoing, nothing contained herein shall relieve the Company of its obligations hereunder.
Section 2.03 Intellectual Property. Any (a) inventions, whether patentable or not, developed or invented, or (b) copyrightable material (and the intangible rights of copyright therein) developed, in each case by the Company, its Affiliates or its or their employees in connection with the performance of the Services shall be the property of the Company; provided, however, that the Trust shall be granted an irrevocable, royalty-free, non-exclusive and non-transferable right and license to use such inventions or material; and provided further, however, that the Trust shall only be granted such a right and license to the extent such grant does not conflict with, or result in a breach, default or violation of a right or license to use such inventions or material granted to the Company by any Person other than an Affiliate of the Company. Notwithstanding the foregoing, the Company will use all commercially reasonable efforts to grant such right and license to the Trust.
Section 2.04 Independent Status. It is expressly acknowledged by the parties hereto that each party is an independent contractor and nothing in this Agreement is intended nor shall be construed to create an employer/employee, joint venture or partnership relationship, or to allow any party to exercise control or direction over the other party. Except as required in connection with the performance of the Services, neither the Company nor any agent, employee, servant, contractor or subcontractor of the Company or any of its Affiliates shall have the authority to bind the Trust to any contract or arrangement. Neither the Trust nor the Trustee shall be liable for the salary, wages or benefits, including workers compensation insurance and unemployment insurance, of any employee, agent, servant, contractor or subcontractor of the Company or its Affiliates by virtue of this Agreement. The Company shall not be a fiduciary with respect to the Trust and shall owe no fiduciary duties or liabilities to the Trust.
Section 2.05 Warranties; Limitation of Liability. The Company will use commercially reasonable efforts to provide the Services in a good and workmanlike manner in accordance with the sound and prudent practices of providers of similar services. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, THE COMPANY MAKES NO (AND HEREBY DISCLAIMS AND NEGATES ANY AND ALL) WARRANTIES OR REPRESENTATIONS WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES. IN NO EVENT WILL THE COMPANY OR ANY OF ITS AFFILIATES BE LIABLE TO ANY OF THE PERSONS RECEIVING ANY SERVICES OR TO ANY OTHER PERSON FOR ANY EXEMPLARY, PUNITIVE, DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES RESULTING FROM ANY ERROR IN THE PERFORMANCE OF SUCH SERVICES, REGARDLESS OF WHETHER THE PERSON PROVIDING SUCH SERVICES, ITS AFFILIATES OR OTHERS MAY BE WHOLLY, CONCURRENTLY, PARTIALLY OR SOLELY NEGLIGENT OR OTHERWISE AT FAULT, EXCEPT TO THE EXTENT SUCH EXEMPLARY, PUNITIVE, DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES ARE PAID BY THE PARTY INCURRING SUCH DAMAGES TO A PERSON THAT IS NOT A PARTY TO THIS AGREEMENT. THE PROVISIONS OF THIS SECTION 2.05 WILL SURVIVE TERMINATION OF THIS AGREEMENT.
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Section 2.06 Disputes. ANY DISPUTE, CONTROVERSY OR CLAIM THAT MAY ARISE BETWEEN OR AMONG THE COMPANY (ON THE ONE HAND) AND THE TRUST (ON THE OTHER HAND) IN CONNECTION WITH OR OTHERWISE RELATING TO THIS AGREEMENT, THE NATURE OR QUALITY OF THE SERVICES, THE CALCULATION OR ALLOCATION OF THE ADMINISTRATIVE SERVICES FEE OR EXTERNAL EXPENSES OR THE APPLICATION, IMPLEMENTATION, VALIDITY OR BREACH OF THIS AGREEMENT, SHALL BE FINALLY, CONCLUSIVELY AND EXCLUSIVELY SETTLED BY BINDING ARBITRATION IN OKLAHOMA CITY, OKLAHOMA (IF NO SUCH OFFICE EXISTS, IN THE DALLAS, TEXAS OFFICE OF AAA) IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES (THE RULES) OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR THERETO (AAA) THEN IN EFFECT. THE COMPANY AND THE TRUST HEREBY EXPRESSLY WAIVE THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO TRIAL BY JURY, WITH RESPECT TO ANY MATTER SUBJECT TO ARBITRATION PURSUANT TO THIS SECTION 2.06. EITHER THE COMPANY OR THE TRUST MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, IN ANY COURT HAVING JURISDICTION, TO COMPEL ARBITRATION OF ANY DISPUTE, CONTROVERSY OR CLAIM TO WHICH THIS SECTION 2.06 APPLIES. EXCEPT WITH RESPECT TO THE FOLLOWING PROVISIONS (THE SPECIAL PROVISIONS) WHICH SHALL APPLY WITH RESPECT TO ANY ARBITRATION PURSUANT TO THIS SECTION 2.06, THE INITIATION AND CONDUCT OF ARBITRATION SHALL BE AS SET FORTH IN THE RULES, WHICH RULES ARE INCORPORATED IN THIS AGREEMENT BY REFERENCE WITH THE SAME EFFECT AS IF THEY WERE ACTUALLY PRINTED HEREIN.
(a) In the event of any inconsistency between the Rules and the Special Provisions, the Special Provisions shall control. References in the Rules to a sole arbitrator shall be deemed to refer to the tribunal of arbitrators provided for under subparagraph (c) below in this Section 2.06.
(b) The arbitration shall be administered by AAA.
(c) The arbitration shall be conducted by a tribunal of three arbitrators. Within ten days after arbitration is initiated pursuant to the Rules, the initiating party or parties (the Claimant) shall send written notice to the other party or parties (the Respondent), with a copy to the Oklahoma City, Oklahoma office of AAA (if no such office exists, to the Dallas, Texas office of AAA), designating the first arbitrator (who shall not be a representative or agent of any party but may or may not be an AAA panel member and, in any case, shall be reasonably believed by the Claimant to possess the requisite experience, education and expertise in respect of the matters to which the claim relates to enable such person to completely perform arbitral duties). Within ten days after receipt of such notice, the Respondent shall send written notice to the Claimant, with a copy to the Oklahoma City, Oklahoma office of AAA (if no such office exists, to the Dallas, Texas office of AAA) and to the first arbitrator, designating the second arbitrator (who shall not be a representative or agent of any party, but may or may not be an AAA panel member and, in any case, shall be reasonably believed by the Respondent to possess the requisite experience, education and expertise in respect of the matters to which the claim relates to enable such person to competently perform arbitral duties). Within ten days after such
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notice from the Respondent is received by the Claimant, the Respondent and the Claimant shall cause their respective designated arbitrators to select any mutually agreeable AAA panel member as the third arbitrator. If the respective designated arbitrators of the Respondent and the Claimant cannot so agree within said ten day period, then the third arbitrator will be determined pursuant to the Rules. For purposes of this Section 2.06, the Company (on the one hand) and the Trust (on the other hand) shall each be entitled to the selection of one arbitrator. Prior to commencement of the arbitration proceeding, each arbitrator shall have provided the parties with a resume outlining such arbitrators background and qualifications and shall certify that such arbitrator is not a representative or agent of any of the parties. If any arbitrator shall die, fail to act, resign, become disqualified or otherwise cease to act, then the arbitration proceeding shall be delayed for fifteen days and the party by or on behalf of whom such arbitrator was appointed shall be entitled to appoint a substitute arbitrator (meeting the qualifications set forth in this Section 2.06) within such fifteen day period; provided, however, that if the party by or on behalf of whom such arbitrator was appointed shall fail to appoint a substitute arbitrator within such fifteen day period, the substitute arbitrator shall be a neutral arbitrator appointed by the AAA arbitrator within fifteen days thereafter.
(d) All arbitration hearings shall be commenced within one hundred twenty days after arbitration is initiated pursuant to the Rules, unless, upon a showing of good cause by a party to the arbitration, the tribunal of arbitrators permits the extension of the commencement of such hearing; provided, however, that any such extension shall not be longer than sixty days.
(e) All claims presented for arbitration shall be particularly identified and the parties to the arbitration shall each prepare a statement of their position with recommended courses of action. These statements of position and recommended courses of action shall be submitted to the tribunal of arbitrators chosen as provided hereinabove for binding decision. The tribunal of arbitrators shall not be empowered to make decisions beyond the scope of the position papers.
(f) The arbitration proceeding will be governed by the substantive laws of the State of New York and will be conducted in accordance with such procedures as shall be fixed for such purpose by the tribunal of arbitrators, except that (i) discovery in connection with any arbitration proceeding shall be conducted in accordance with the Federal Rules of Civil Procedure and applicable case law, (ii) the tribunal of arbitrators shall have the power to compel discovery and (iii) unless the parties otherwise agree and except as may be provided in this Section 2.06, the arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, to the exclusion of any provision of state law or other applicable law or procedure inconsistent therewith or which would produce a different result. The parties shall preserve their right to assert and to avail themselves of the attorney-client and attorney-work-product privileges, and any other privileges to which they may be entitled pursuant to applicable law. No party to the arbitration or any arbitrator may compel or require mediation and/or settlement conferences without the prior written consent of all such parties and the tribunal of arbitrators.
(g) The tribunal of arbitrators shall make an arbitration award as soon as possible after the later of the close of evidence or the submission of final briefs, and in all cases the award shall be made not later than thirty days following submission of the matter. The finding and decision of a majority of the arbitrators shall be final and shall be binding upon the parties.
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Judgment upon the arbitration award or decision may be entered in any court having jurisdiction thereof or application may be made to any such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The tribunal of arbitrators shall have the authority to assess liability for pre-award and post-award interest on the claims, attorneys fees, expert witness fees and all other expenses of arbitration as such arbitrators shall deem appropriate based on the outcome of the claims arbitrated. Unless otherwise agreed by the parties to the arbitration in writing, the arbitration award shall include findings of fact and conclusions of law.
(h) Nothing in this Section 2.06 shall be deemed to (i) limit the applicability of any otherwise applicable statute of limitations or repose or any waivers contained in this Agreement, (ii) constitute a waiver by any party hereto of the protections afforded by 12 U.S.C. § 91 or any successor statute thereto or any substantially equivalent state law, (iii) restrict the right of the Trustee to make application to any state or federal district court having jurisdiction in Oklahoma City, Oklahoma to appoint a successor Trustee or to request instructions with regard to any provision in this Agreement when the Trustee is unsure of its obligations thereunder, or (iv) apply to the Delaware Trustee (as defined in the Trust Agreement).
The provisions of this Section 2.06 will survive termination of this Agreement.
ARTICLE III
ADMINISTRATIVE SERVICES FEE; REIMBURSEMENT OF EXPENSES
Section 3.01 Administrative Services Fee; Reimbursement of External Expenses.
(a) The Trust shall pay to the Company an annual administrative services fee of $200,000 (the Administrative Services Fee), which shall be paid in immediately available funds and in equal quarterly installments, on or before the 45th day following each calendar quarter. In the event that this Agreement is terminated during a calendar quarter pursuant to Section 5.01, the amount of the Administrative Services Fee for such calendar quarter shall be based upon the pro rata portion of the Administrative Services Fee that shall have accrued during such quarter up to and including the Termination Date.
(b) In addition to the Administrative Services Fee, the Trust shall reimburse the Company on or before the 45th day following each calendar quarter for all reasonable and necessary External Expenses associated with the provision of Services in the preceding quarter as set forth in a reasonably detailed invoice provided by the Company to the Trust on or before the 15th day following each calendar quarter.
Section 3.02 Set-Off. In the event that the Company or any of its Affiliates owes the Trust a sum certain in an uncontested amount under any other agreement, then any such amounts may, in the sole discretion of the Company, be aggregated and the Trust and the Company (and the Companys Affiliates, as the case may be) shall discharge their obligations by netting those amounts against any amounts owed by the Trust to the Company under this Agreement.
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ARTICLE IV
FORCE MAJEURE
Section 4.01 Force Majeure. The Companys obligation under this Agreement shall be excused when and to the extent its performance of that obligation is prevented due to Force Majeure. The Company shall promptly notify the Trustee that it is prevented from performing its obligations by reason of Force Majeure and shall exercise due diligence to end its inability to perform as promptly as practicable. Notwithstanding the foregoing, the Company shall not be required to settle any strike, lockout or other labor dispute in which it or any of its Affiliates may be involved.
ARTICLE V
MISCELLANEOUS
Section 5.01 Term and Termination.
(a) This Agreement shall become effective on the date of this Agreement and shall continue until the date (the Termination Date) that is the earliest of:
(i) the date the Trust shall have dissolved and commenced winding up its business and affairs in accordance with Section 9.02 of the Trust Agreement;
(ii) the date that all of the Conveyances have been terminated or are no longer held by the Trust;
(iii) the date that either the Company or the Trustee may designate by delivering a written notice no less than 90 days prior to such date, provided that the Companys drilling obligations under the Development Agreement shall have been completed by such date; provided further, however, that the Company shall not terminate this Agreement except in connection with the Companys transfer of some or all of the Subject Interests (as defined in the Conveyances) and then only with respect to the Services to be provided with respect to the Subject Interests being transferred, and only upon the delivery to the Trustee of an agreement of the transferee of such Subject Interests, reasonably satisfactory to the Trustee, in which such transferee assumes the responsibility to perform the Services relating to the Subject Interests being transferred; and
(iv) the date as mutually agreed by the parties to this Agreement.
(b) Upon termination of this Agreement in accordance with this Section 5.01(a)(i) or (ii), all rights and obligations under this Agreement shall cease except for (i) obligations that expressly survive termination of this Agreement, (ii) liabilities and obligations that have accrued prior to the Termination Date, including the obligation to pay any amounts that have become due and payable prior to such Termination Date and (iii) the obligation to pay any portion of the Administrative Services Fee that has accrued prior to such Termination Date, even if such portion has not become due and payable at such time. Upon termination of this Agreement in accordance with Section 5.01(a)(iii), the Companys obligations to provide Services shall cease only with respect to the Subject Interests transferred, and shall otherwise continue unabated. In
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the event that the Company terminates this Agreement with respect to Subject Interests transferred in accordance with Section 5.01(a)(iii), the Administrative Services Fee shall be proportionately reduced, unless the Company certifies to the Trustee that such transfer of the Subject Interests will not result in a material decrease in the Companys costs of providing the Services to the Trust with respect to the remaining Subject Interests.
Section 5.02 Notice. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by facsimile, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by facsimile, (iii) one Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows:
(a) | if to the Trust or the Trustee, to: |
SandRidge Mississippian Trust I
c/o The Bank of New York Mellon Trust Company, N.A.
Institutional Trust Services
919 Congress Avenue, Suite 500
Austin, Texas 78701
Attention: Mike J. Ulrich
Facsimile No.: (512) 479-2253
With a copy to:
Bracewell & Giuliani LLP
111 Congress Avenue
Suite 2300
Austin, Texas 78701
Attention: Thomas W. Adkins
Facsimile No.: (512) 479-3940
(b) | if to the Company, to: |
SandRidge Energy, Inc.
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
Attention: Philip T. Warman
Facsimile No.: (405) 429-5983
With a copy to:
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David H. Engvall
Facsimile No. (202) 778 5307
or to such other address as such Person may have furnished to the other Persons identified in this Section 5.02 in writing in accordance herewith.
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Section 5.03 Entire Agreement; Supersedure; Third Party Beneficiaries. This Agreement, together with all other agreements and documents contemplated to be executed and delivered in connection with the transactions contemplated hereby, constitutes the entire agreement of the parties relating to the matters contained herein, superseding all prior contracts or agreements, whether written or oral, relating to the matters contained herein. This Agreement does not confer upon any Person, other than the parties hereto, any rights or remedies.
Section 5.04 Effect of Waiver or Consent. Except as otherwise provided in this Agreement, a waiver or consent, express or implied, to or of any breach or default by any party in the performance by that party of its obligations under this Agreement is not a consent or waiver to or of any other breach or default in the performance by that party of the same or any other obligations of that party under this Agreement.
Section 5.05 Amendment or Modification. This Agreement may be amended or modified from time to time only by a written instrument executed by each of the parties to this Agreement.
Section 5.06 Assignment. Except as provided in Section 2.02, and except for any transfer of the rights of the Trustee hereunder to a successor trustee of the Trust, no party to this Agreement shall have the right to assign its rights or obligations under this Agreement without the written consent of the other party to this Agreement.
Section 5.07 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties to this Agreement had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.
Section 5.08 Severability. If any provision of this Agreement or the application thereof to any party to this Agreement or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to the other party to this Agreement or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
Section 5.09 Further Assurances. In connection with this Agreement and all transactions contemplated by this Agreement, each party hereto agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of this Agreement and all such transactions.
Section 5.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.
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Section 5.11 Limitation of Trustees Liability. It is expressly understood and agreed by the Parties hereto that (a) this Agreement is executed and delivered by the Trustee not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall the Trustee be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement.
[Remainder of page deliberately left blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
SandRidge Energy, Inc. | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
[Signature Page to Administrative Services Agreement]
SandRidge Mississippian Trust I | ||||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
By: | /s/ Michael J. Ulrich | |||
Name: | Michael J. Ulrich | |||
Title: | Vice-President |
[Signature Page to Administrative Services Agreement]
Exhibit 10.7
DEVELOPMENT AGREEMENT
This Development Agreement (the Development Agreement) by and among SandRidge Energy, Inc., a Delaware corporation, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (SandRidge Parent), SandRidge Exploration and Production, LLC, a Delaware limited liability company and wholly owned subsidiary of SandRidge Parent with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (Assignor and, together with SandRidge Parent, SandRidge) and SandRidge Mississippian Trust I, a statutory trust formed under the laws of the State of Delaware (the Trust), is delivered to be effective as of 12:01 a.m., Central Time, January 1, 2011 (the Effective Time). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article I below.
WHEREAS, Assignor and the Trust have entered into that certain Perpetual Overriding Royalty Interest Conveyance (PUD) to be effective as of the Effective Time (the Perpetual PUD Conveyance);
WHEREAS, Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation and wholly owned subsidiary of SandRidge Parent (SandRidge Sub), have entered into that certain Term Overriding Royalty Interest Conveyance (PUD) to be effective as of the Effective Time (the Term PUD Conveyance, and together with the Perpetual PUD Conveyance, collectively the Conveyances), which Term PUD Conveyance has been assigned as of the Effective Time by SandRidge Sub to the Trust; and
WHEREAS, in connection with the Conveyances, SandRidge has agreed to undertake certain obligations with respect to the drilling and completion of Development Wells.
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intended to be legally bound hereby, it is agreed as follows:
ARTICLE I
DEFINITIONS
This Article I defines certain capitalized words, terms and phrases used in this Development Agreement. Certain other capitalized words, terms and phrases used in this Development Agreement are defined elsewhere in this Development Agreement.
Additional Interest is defined in Section 3.01.
Additional Lease is defined in Section 3.01.
Adjusted Development Well Amount means the amount, for each Development Well, equal to the product of (a) the NRI Factor for such well, multiplied by (b) the Lateral Distance Factor for such well. For example, in the case of a Development Well for which the NRI Factor is 1.5 and the Lateral Distance Factor is 1.0, the Adjusted Development Well
Amount would be equal to: NRI Factor (1.5) x Lateral Distance Factor (1.0) = 1.5. Therefore, such Development Well would have a 1.5 Adjusted Development Well Amount. The Adjusted Development Well Amount shall be rounded to the nearest ten thousandth (i.e., four decimal places to the right of the decimal point).
Affiliate means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. Control, in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract or otherwise.
AMI Area means that area described in Exhibit A to this Development Agreement.
Assignee Minerals means, collectively, the Assignee Minerals as defined under each of the Conveyances.
Assignor is defined in the introductory paragraph to this Development Agreement.
Assignors Net Revenue Interest means the interest, stated as a decimal fraction, in Subject Minerals production from a Development Well attributable to Subject Interests in that Development Well, net of Production Burdens.
Assignors Net Share of Minerals means the share of Subject Minerals from each Development Well that is attributable to Assignors Net Revenue Interest in that Development Well determined prior to giving effect to the Conveyances.
Closing Time means 12:01 a.m., Central Time, on April 12, 2011.
Conveyances is defined in the recitals to this Development Agreement.
Development Agreement is defined in the introductory paragraph to this Development Agreement.
Development Well means any Mineral well located on the Subject Lands that is spud after December 31, 2010 and drilled horizontally to, and perforated for completion in, the Target Formation, on or prior to the Drilling Obligation Completion Date.
Drilling Obligation Completion Date means the date that the Total Drilling Target is reached; provided that the Drilling Obligation Completion Date shall not be deemed to have been achieved unless SandRidge Parent shall have delivered to Trustee, within a reasonable time thereafter, (a) a certificate substantially in the form of Exhibit B to this Development Agreement, executed by its Chief Executive Officer, President or any Vice President, certifying that the Total Drilling Target was achieved as of such date and identifying each Development Well and (b) such other documentation as Trustee may reasonably request to establish satisfaction of SandRidges drilling obligation hereunder.
Effective Time is defined in the introductory paragraph to this Development Agreement.
Exchange Acreage is defined in Section 3.02.
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Excluded Assets means those Minerals wells that are described in Exhibit B to each of the Conveyances.
Farmout Agreements means any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.
Gas means natural gas and all other gaseous hydrocarbons or minerals, including helium, but specifically excluding any Gas Liquids.
Gas Liquids means those natural gas liquids and other similar liquid hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.
Lateral Distance Factor means, with respect to each Development Well, the fraction (not to exceed 1.0) obtained by dividing such wells Perforated Length by 2,500 feet. For example, if the Perforated Length of a Development Well is 2,000 feet, the computation would be: 2,000 feet / 2,500 feet = 0.8. Therefore, such Development Well would have a Lateral Distance Factor of 0.8. In no event shall the Lateral Distance Factor exceed 1.0. In the event that the Perforated Length of a Development Well is greater than 2,500 feet, the Lateral Distance Factor shall nevertheless be deemed to be equal to 1.0.
Minerals means Oil, Gas and Gas Liquids.
Mortgage is defined in Section 2.05(b).
NRI Factor means, with respect to each Development Well, the fraction obtained by dividing Assignors Net Revenue Interest for such well by 56.9828%. For example, if Assignors Net Revenue Interest in a Development Well is 80%, the computation would be: 80% / 56.9828% = 1.4039. Therefore, such Development Well would have a NRI Factor of 1.4039.
Oil means crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.
Party, when capitalized, refers to SandRidge Parent, Assignor or the Trust. Parties, when capitalized, refers to SandRidge Parent, Assignor and the Trust.
Perforated Length means the length (in feet) of a Development Well measured from the first perforation along the measured depth to the last perforation along the measured depth.
Perpetual PUD Conveyance is defined in the recitals to this Development Agreement.
Person means any natural person, corporation, partnership, trust, estate or other entity, organization or association.
Production Burdens means, with respect to any Subject Lands, Subject Interests or Subject Minerals, all royalty interests, overriding royalty interests, production payments, net profits interests and other similar interests that constitute a burden on, are measured by or are payable out of the production of Minerals or the proceeds realized from the sale or other disposition thereof.
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Reasonably Prudent Operator Standard means the standard of conduct of a reasonably prudent oil and gas operator in the AMI Area under the same or similar circumstances, acting with respect to its own property and disregarding the existence of the Royalty Interests as a burden on such property.
Royalty Interests means, collectively, the royalty interests created under each of the Conveyances.
SandRidge is defined in the introductory paragraph to this Development Agreement.
SandRidge Parent is defined in the introductory paragraph to this Development Agreement.
SandRidge Sub is defined in the recitals to this Development Agreement.
Subject Interests means Assignors undivided interests in the Subject Lands as described on Exhibit A to the Conveyances, whether as lessee under leases, as an owner of the Subject Minerals (or the right to extract such Minerals) or otherwise, by virtue of which undivided interests Assignor has the right to conduct exploration, drilling, development and Mineral production operations on the Subject Lands, or to cause such operations to be conducted, or to participate in such operations by paying and bearing all or any part of the costs, risks and liabilities of such operations, to drill, test, complete, equip, operate and produce wells to exploit the Minerals. The Subject Interests (a) may be owned by Assignor pursuant to leases, deeds, operating, pooling or unitization agreements, orders or any other instruments, agreements or documents, recorded or unrecorded, (b) include any and all extensions or renewals of leases covering the Subject Lands (or any portion thereof) obtained by Assignor, or any Affiliate thereof, within six (6) months after the expiration or termination of any such lease, and (c) are subject to the Permitted Encumbrances (as defined in each of the Conveyances). For the avoidance of doubt, the Subject Interests do not include: (i) Assignors interests in the Excluded Assets; (ii) Assignors rights to substances other than Minerals; (iii) Assignors rights to Minerals (other than Assignee Minerals) under contracts for the purchase, sale, transportation, storage, processing or other handling or disposition of Minerals; (iv) Assignors interests in, or rights to Minerals (other than Assignee Minerals) held in pipelines, gathering systems, storage facilities, processing facilities or other equipment or facilities; or (v) any additional or enlarged interests in the Development Wells, Subject Lands or Subject Minerals acquired by Assignor after the Closing Time, except (1) to the extent any such additional or enlarged interest becomes a part of the Subject Interests by amendment to the Conveyances pursuant to Section 3.01 or Section 3.02, (2) as may result from the operation of the terms of the instruments creating the Subject Interests, or (3) as may be reflected in extensions and renewals covered by the preceding sentence.
Subject Lands means the lands subject to or covered by the oil and gas leases described in Exhibit A to each of the Conveyances, insofar and only insofar as they cover the Target Formation, subject to the exceptions, exclusions and reservations set forth on each such Exhibit A.
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Subject Minerals means all Minerals in and under, and that may be produced, saved and sold from a Development Well, from and after the Effective Time, insofar and only insofar as such Minerals are produced from the Target Formation, subject to the following exclusions:
Minerals that are (a) lost in the production, gathering or marketing of Minerals; (b) used (i) in conformity with ordinary and prudent operations on the Subject Lands, including drilling and production operations with respect to a Development Well or (ii) in connection with operations (whether on or off the Subject Lands) for processing or compressing the Subject Minerals; (c) taken by a Third Person to recover costs, or some multiple of costs, paid or incurred by that Third Person under any operating agreement, unit agreement or other agreement in connection with nonconsent operations conducted (or participated in) by that Third Person; and (d) retained by a Third Person for gathering, transportation, processing or marketing services related to the Subject Minerals in lieu of or in addition to cash payment for such services, to the extent such agreement is permitted under the Conveyances.
Target Formation means (i) with respect to Alfalfa County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 4,833 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,344 in the SandRidge Energy Dorado SWD 1-32 located in section 32, Township 29 North, Range 9 West (API No. 35003219830000), (ii) with respect to Garfield County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,475 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,100 in the Texas American Oil JC Nelson 1 located in section 27, Township 23 North, Range 8 West (API No. 35047223450000), (iii) with respect to Grant County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,395 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 6,060 in the SandRidge Energy Orion 1-22 SWD located in section 22, Township 25 North, Range 5 West (API No. 35053227710000), (iv) with respect to Major County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 6,474 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 7,094 in the Downey Oil Davis 1 located in section 24, Township 23 North, Range 9 West (API No. 35093215620000) and (v) with respect to Woods County, Oklahoma, the Target Formation being defined as being the interval between the base of Pennsylvanian-aged Morrow or its stratigraphic equivalent at a depth of 5,204 and the Devonian-aged Woodford Shale or its stratigraphic equivalent at a depth of 5,704 in the SandRidge Energy Koppitz SWD 1-31 located in section 31, Township 28 North, Range 13 West (API No. 35151232750000).
Term PUD Conveyance is defined in the recitals to this Development Agreement.
Third Person means a Person other than SandRidge or Trustee.
Total Drilling Target means that number of Development Wells where the cumulative sum of all the Adjusted Development Well Amounts for such Development Wells drilled or caused to be drilled by Assignor equals 123.
Trust is defined in the introductory paragraph to this Development Agreement.
Trust Agreement means the Amended and Restated Trust Agreement of the Trust, dated as of April 12, 2011 (as may be amended from time to time), among SandRidge Parent, the Trustee and Corporation Trust Company, as Delaware trustee.
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Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, as trustee, acting not in its individual capacity but solely as trustee of the Trust.
ARTICLE II
DEVELOPMENT OF THE SUBJECT LANDS
Section 2.01 Drilling Program.
(a) Obligation to Drill. SandRidge shall, subject to the terms of Section 2.01(b) and the rest of this Article II, drill or cause to be drilled such number of Development Wells that is necessary to achieve the Total Drilling Target on or prior to December 31, 2014.
(b) Extension of Obligation to Drill. If SandRidge has not reached the Total Drilling Target by December 31, 2014, SandRidge shall, subject to the terms of this Article II, drill or cause to be drilled such number of Development Wells that is necessary to achieve the Total Drilling Target on or prior to December 31, 2015.
(c) Drilling Standard. SandRidge shall drill or caused to be drilled, at SandRidges sole cost and expense, each of the Development Wells in a diligent manner in accordance with the Reasonably Prudent Operator Standard.
Section 2.02 Obligation to Complete and Equip. SandRidge shall, at SandRidges sole cost and expense, (a) attempt to complete in the Target Formation each Development Well that reasonably appears to SandRidge, acting in accordance with the Reasonably Prudent Operator Standard, to be capable of producing Minerals in quantities sufficient to pay completion, equipping and operating costs, (b) equip for production each Development Well that is successfully completed and, when it is equipped and connected to a gathering line, pipeline or other storage or marketing facility, shall commence production, and (c) plug and abandon all Development Wells that are unsuccessful to the extent required by applicable law.
Section 2.03 Costs and Expenses of Development Wells. All costs and expense associated with or paid or incurred in connection with the spudding, drilling, testing, completing and equipping for production, operating and/or plugging and abandoning of the Development Wells shall be borne solely by SandRidge, but SandRidge may use any Subject Minerals in such operations without any duty to account to Trustee or the Trust.
Section 2.04 Title Due Diligence. Prior to commencing the drilling of any Development Well, SandRidge shall perform such title due diligence and such title curative work as would be performed by an oil and gas operator drilling a well and acting in accordance with the Reasonably Prudent Operator Standard.
Section 2.05 Wells.
(a) Prior to the Drilling Obligation Completion Date, SandRidge shall not, and shall cause its Affiliates not to, drill and/or complete any well to the Target Formation in the AMI Area other than Development Wells in furtherance of its drilling obligation in Section 2.01 above.
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(b) Assignor hereby covenants and agrees to enter into a Mortgage (the Mortgage) by which Assignor will grant a mortgage lien in and to any of the undeveloped portions of the Subject Lands (including, by amendment to the Mortgage, any Additional Lease, Additional Interest or Exchange Acreage that becomes part of the Subject Lands) located in the AMI Area in order to secure the performance of SandRidges drilling obligation under Section 2.01 above.
(c) If SandRidge fails to achieve the Total Drilling Target by December 31, 2015, SandRidge shall be in default of its obligations under this Development Agreement and the Trust shall be entitled to pursue, in its sole discretion, any and all remedies available pursuant to Article III of the Mortgage.
(d) Notwithstanding the preceding, the maximum amount recoverable upon a failure by SandRidge to satisfy its obligations under Section 2.01 shall be $166,050,000, and such amount shall automatically be reduced by an amount that is equal to the product of $1,350,000 multiplied by the cumulative total of all Adjusted Development Well Amounts for all Development Wells drilled or caused to be drilled by SandRidge under this Development Agreement. In addition, upon Assignors request and at Assignors expense, the lien and security interest evidenced by the Mortgage shall be released as to each Development Well as the same is completed (including completion as a dry hole) in accordance with this Development Agreement.
ARTICLE III
AMI AREA
Section 3.01 Additional Leases and Additional Interests. In the event that, after the Closing Time and prior to the Drilling Obligation Completion Date, Assignor (a) acquires additional leases covering lands lying within the AMI Area (each, an Additional Lease) or (b) acquires through forced pooling or otherwise by operation of law or pursuant to any applicable contract any rights or interests that increase Assignors Net Revenue Interest in any Development Well, whether before or after the drilling of such well (each such increase in Assignors Net Revenue Interest, an Additional Interest), at Assignors option and subject to Section 3.03, Assignor and the Trust shall execute, acknowledge and deliver (i) an instrument that amends the Conveyances so that each such Additional Lease or Additional Interest will be subject to the Royalty Interest and be part of the Subject Interests and Subject Lands, and (ii) an instrument that amends the Mortgage so that each such Additional Lease will be subject to the Mortgage.
Section 3.02 Exchange of Subject Lands. At Assignors option and subject to Section 3.03, at any time prior to the Drilling Obligation Completion Date, Assignor may cause the Trust to execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases from the Royalty Interest undeveloped portions of the Subject Interests in connection with Assignors exchange of such Subject Interests for other undeveloped acreage within the AMI Area (the Exchange Acreage). Concurrently with such release, Assignor and the Trust shall execute, acknowledge and deliver (a) an instrument that amends the Conveyances so that such Exchange Acreage will be subject to the Royalty Interest and be part of the Subject Interests and Subject Lands, and (b) an instrument that amends the Mortgage so that such Exchange Acreage will be subject to the Mortgage. In no event shall Assignor extend any well into any Exchange Acreage unless and until the Conveyances are amended to include such Exchange Acreage as part of the Subject Interests.
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Section 3.03 Limitations. In no event may (i) any Additional Lease or Additional Interest be made subject to the Royalty Interest pursuant to Section 3.01 or (ii) any exchange involving Exchange Acreage be effected pursuant to Section 3.02, unless Assignor certifies to the Trust that:
(a) the aggregate acreage attributable to all Additional Leases, Additional Interests and Exchange Acreage will not exceed 5% of the Subject Interests as such exist as of the Closing Time;
(b) in the case of an Additional Lease only, the reserve profile of such Additional Lease is consistent with reserve profiles of other portions of the Subject Interests that would, but for the acquisition of the Additional Lease, be tapped from a Development Well having the entire length of all of its perforated laterals located within the Subject Interests;
(c) in the case of Exchange Acreage only, the reasonably projected quantity of proved undeveloped reserves attributable to the Exchange Acreage does not significantly differ from the reasonably projected quantity of proved undeveloped reserves attributable to the portion of the Subject Interests to be given in exchange therefor; and
(d) the addition of any Additional Leases, Additional interests, or Exchange Acreage, as applicable, to the Conveyance will not cause any adverse federal income tax consequence to any Unitholder of the Trust.
The Trustee is hereby authorized and directed to rely on any such certification from Assignor, and shall have no authority or responsibility to exercise any discretion in connection with any transaction authorized by this Article III.
ARTICLE IV
OTHER PROVISIONS
Section 4.01 Successors and Assigns. Subject to the limitation and restrictions on the assignment or delegation by the Parties of their rights and interests under this Development Agreement, all of the covenants and agreements of SandRidge Parent, Assignor and the Trust contained herein shall be deemed to be covenants running with the land and shall be binding upon the successors and assigns of SandRidge Parents and Assignors interests in the Subject Interests or this Development Agreement and SandRidge Subs and the Trusts interest in the Royalty Interests and shall inure to the benefit of SandRidge Sub and the Trust and their respective successors and permitted assigns. The foregoing notwithstanding, nothing herein is intended to modify or shall have the effect of modifying the restrictions on assignment set forth in the Conveyances regarding assignments, transfer or pooling of SandRidge Parents and Assignors interests in the Subject Interests; and the preceding sentence shall not be deemed to permit any assignment or other transfer of the interest of SandRidge Parent or Assignor in any of the Subject Interests that is not specifically permitted by the provisions of the Conveyances. Nothing contained in this Development Agreement or in the Conveyances shall in any way limit or restrict the right of the Trust, or the Trusts respective successors and assigns, to sell, convey, assign or mortgage the Royalty Interests in whole or in part. If the Trust, or the Trusts
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successors and assigns, at any time shall execute a mortgage, pledge or deed of trust covering all or any part of the Royalty Interests as security for any obligation, the mortgagee, the pledgee or the trustee therein named or the holder of the obligation secured thereby shall be entitled, to the extent such mortgage, pledge or deed of trust so provides and upon the occurrence or existence of the event or condition therein stated, if so conditioned, to exercise all of the rights, remedies, powers and privileges herein conferred upon the Trust, and to give or withhold all consents herein required or permitted to be obtained from the Trust.
Section 4.02 Governing Law. THIS DEVELOPMENT AGREEMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
Section 4.03 Construction of Development Agreement. In construing this Development Agreement, the following principles shall be followed:
(a) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Development Agreement and not as an aid in its construction;
(b) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Development Agreement;
(c) the word includes and its syntactical variants mean includes, but is not limited to and corresponding syntactical variant expressions;
(d) a defined term has its defined meaning throughout this Development Agreement, regardless of whether it appears before or after the place in this Development Agreement where it is defined;
(e) unless the context clearly indicates to the contrary, references to any Party shall be construed to include all permitted successors and assigns of such Party and references to Trustee shall be construed to include all successor and substitute trustees under the Trust Agreement;
(f) the plural shall be deemed to include the singular, and vice versa; and
(g) each exhibit, attachment and schedule to this Development Agreement is a part of this Development Agreement, but if there is any conflict or inconsistency between the main body of this Development Agreement and any exhibit, attachment or schedule, the provisions of the main body of this Development Agreement shall prevail.
Section 4.04 No Waiver. Failure of any Party to require performance of any provision of this Development Agreement shall not affect any Partys right to require full performance thereof at any time thereafter, and the waiver by any Party of a breach of any provision hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision.
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Section 4.05 Relationship of Parties. This Development Agreement does not create a partnership, mining partnership, joint venture or relationship of trust or agency between the Parties.
Section 4.06 Further Assurances. Each Party shall execute, acknowledge and deliver to the other Parties all additional instruments and other documents reasonably required to evidence or effect any transaction contemplated by this Development Agreement.
Section 4.07 The 12:01 A.M. Convention. Except as otherwise provided in this Development Agreement, each calendar day, month, quarter, and year shall be deemed to begin at 12:01 a.m. Central Time on the stated day or on the first day of the stated month, quarter, or year, and to end at 12:00 a.m. Central Time on the next day or on first day of the next month, quarter or year, respectively.
Section 4.08 Counterpart Execution. This Development Agreement may be executed in any number of counterparts with the same effect as if all the Parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.
Section 4.09 Notices. Any and all notices or demands permitted or required to be given under this Development Agreement shall be in writing and shall be validly given or made if (a) personally delivered, (b) delivered and confirmed by facsimile or like instantaneous transmission service, or by Federal Express or other overnight courier delivery service, which shall be effective as of confirmation of receipt by the courier at the address for notice hereinafter stated or (c) deposited in the United States mail, first class, postage prepaid, certified or registered, return receipt requested, addressed as follows:
If to the Trust, to:
SandRidge Mississippian Trust I
c/o The Bank of New York Mellon Trust Company, N.A.
Institutional Trust Services
919 Congress Avenue, Suite 500
Austin, Texas 78701
Attention: Mike J. Ulrich
Facsimile No.: (512) 479-2253
With a copy to:
Bracewell & Giuliani LLP
111 Congress Avenue
Suite 2300
Austin, Texas 78701
Attention: Thomas W. Adkins
Facsimile No.: (512) 479-3940
If to SandRidge, to:
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
Attention: Philip T. Warman
Facsimile No.: (405) 429-5983
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With a copy to:
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David H. Engvall
Facsimile No. (202) 778 5307
Section 4.10 Limitation of Liability. It is expressly understood and agreed by the Parties that (a) this Development Agreement is executed and delivered by Trustee not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall Trustee be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Development Agreement. It is further expressly understood and agreed by the Parties that neither the Trust nor Trustee, in its capacity as Trustee or individually, shall have any authority over, or responsibility or liability for, the drilling of the Development Wells or any of the other business or commercial activities contemplated by this Development Agreement, all of which are hereby agreed to be the sole responsibility of SandRidge, and SandRidge hereby agrees to and hereby does indemnify and agree to hold harmless each of the Trust and Trustee, in its capacity as Trustee and individually, from and against any and all damages, liabilities, expenses, fines, judgments, amounts paid in settlement, reasonable attorneys fees and costs of investigation, and other expenses reasonably incurred by any of them in connection with or as a result of any of the business or commercial activities contemplated by this Development Agreement or any other matter arising out of this Development Agreement or any such matter. SandRidge further agrees to advance any such attorneys fees, costs of investigation and other expenses described above as they are incurred.
Section 4.11 Severability. If any provision of this Development Agreement or the application thereof to any Party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Development Agreement and the application of such provision to the other Parties or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
Section 4.12 Termination. This Development Agreement shall terminate and be deemed null and void as of and following the Drilling Obligation Completion Date.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, each Party has caused this Development Agreement to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Development Agreement, to be effective as of the Effective Time.
SandRidge Energy, Inc. | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
Signature Page to Development Agreement
SandRidge Exploration and Production, LLC | ||
By: | /s/ James D. Bennett | |
Name: James D. Bennett | ||
Title: Executive Vice President and Chief Financial Officer |
Signature Page to Development Agreement
SandRidge Mississippian Trust I | ||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |
By: | /s/ Michael J. Ulrich | |
Name: Michael J. Ulrich | ||
Title: Vice-President |
Signature Page to Development Agreement
STATE OF OKLAHOMA |
§ | |
§ | ||
COUNTY OF OKLAHOMA |
§ |
This instrument was acknowledged before me on April 1, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Energy, Inc., a Delaware corporation, on behalf of said corporation.
WITNESS my hand and official seal this 1st day of April, 2011.
/s/ Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
Acknowledgment Page to Development Agreement
STATE OF OKLAHOMA |
§ | |
§ | ||
COUNTY OF OKLAHOMA |
§ |
This instrument was acknowledged before me on April 1, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 1st day of April, 2011.
/s/ Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
Acknowledgment Page to Development Agreement
STATE OF TEXAS |
§ | |
§ | ||
COUNTY OF TRAVIS |
§ |
This instrument was acknowledged before me on April 5, 2011, by Michael J. Ulrich as Vice-President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America as Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said national banking association and said trust.
WITNESS my hand and official seal this 5th day of April, 2011.
/s/ Sarah Newell |
NOTARY PUBLIC, |
State of Texas |
Sarah Newell |
(printed name) |
My commission expires:
02-16-2014
[SEAL]
Acknowledgment Page to Development Agreement
Exhibit A
(Description of AMI Area)
Exhibit B
[Letterhead of SandRidge Energy, Inc.]
[Date]
Reference is made to that certain Development Agreement (the Development Agreement), by and between SandRidge Energy, Inc. (SandRidge), SandRidge Exploration and Production, LLC and SandRidge Mississippian Trust I, a Delaware statutory trust, delivered to be effective as of January 1, 2011. Capitalized terms used but not defined herein have the meaning given them in the Development Agreement.
SandRidge hereby certifies to the Trust that SandRidge achieved the Total Drilling Target on [insert date] and, therefore, such date shall be, for all purposes, established as the Drilling Obligation Completion Date.
The Development Wells drilled to achieve the Total Drilling Target are listed in the attachment to this letter.
Please sign and return an executed copy of this letter to certify that you require no additional documentation to establish SandRidges satisfaction of its drilling obligation under the Development Agreement and that [insert date] shall be, for all purposes, established as the Drilling Obligation Completion Date.
SandRidge Energy, Inc. | ||
By: |
| |
Name: | ||
Title: |
Acknowledged and agreed:
SandRidge Mississippian Trust I
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
By: |
| |||
Name: | ||||
Title: |
Exhibit 10.8
WHEN RECORDED
PLEASE RETURN TO:
SandRidge Energy, Inc.
Attn: Phillip T. Warman
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
Space above for County Recorders Use |
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO A COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
MORTGAGE
FROM
SANDRIDGE EXPLORATION AND PRODUCTION, LLC,
as MORTGAGOR
TO
SANDRIDGE MISSISSIPPIAN TRUST I,
as MORTGAGEE
Dated as of April 12, 2011
THIS INSTRUMENT IS TO BE FILED AND RECORDED AS A MORTGAGE IN THE REAL ESTATE RECORDS OF EACH COUNTY IN WHICH THE LANDS DESCRIBED IN EXHIBIT A, OR ANY PORTION THEREOF, ARE LOCATED.
THIS MORTGAGE IS A MORTGAGE ON OIL AND GAS LEASES AND LEASEHOLD ESTATES, AS SUCH, NO REAL ESTATE MORTGAGE TAX IS DUE.
MORTGAGE
THIS MORTGAGE (this Mortgage) is entered into as of April 12, 2011, by SandRidge Exploration and Production, LLC, a Delaware limited liability company, as mortgagor (Mortgagor), whose address for notice is 123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma 73102-6406, and SandRidge Mississippian Trust I, a statutory trust formed under the laws of the State of Delaware, as mortgagee (Mortgagee), whose address for notice is c/o The Bank of New York Mellon Trust Company, N.A., 919 Congress Avenue, Suite 500, Austin Texas 78701.
R E C I T A L S:
A. By means of (1) a Term Overriding Royalty Interest Conveyance (PUD), effective as of January 1, 2011, from Mortgagor to Mistmada Oil Company, Inc., an Oklahoma corporation (SandRidge Sub), a true and correct copy of which is annexed hereto as Annex A-1 and made a part hereof (the Term Conveyance (PUD)), (2) an Assignment of Overriding Royalty Interest, effective as of January 1, 2011, from SandRidge Sub to Mortgagee, a true and correct copy of which is annexed hereto as Annex A-2 and made a part hereof (the Assignment), and (3) a Perpetual Overriding Royalty Interest Conveyance (PUD), effective as of January 1, 2011, from Mortgagor to Mortgagee, a true and correct copy of which is annexed hereto as Annex A-3 and made a part hereof (the Perpetual Conveyance (PUD) and, together with the Term Conveyance (PUD), collectively the Conveyances), the Royalty Interest (as defined in the Conveyances) has been conveyed and assigned to Mortgagee, as applicable, from Mortgagor and SandRidge Sub. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Conveyances.
B. SandRidge Energy, Inc. (SandRidge Parent), the sole member of Mortgagor, has undertaken certain obligations with respect to the properties described in the Conveyances under that certain Development Agreement, dated as of April 12, 2011, between SandRidge Parent, Mortgagor and Mortgagee (the Development Agreement), and Mortgagor is executing this Mortgage to secure the obligations of Mortgagor and SandRidge Parent under the Development Agreement.
C. Mortgagee has conditioned its execution and delivery of the Perpetual Conveyance (PUD), the Assignment and the Development Agreement upon the execution and delivery by Mortgagor of this Mortgage, and Mortgagor has agreed to enter into this Mortgage.
NOW, THEREFORE, in order to comply with the terms and conditions of the Development Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor hereby agrees with Mortgagee as follows:
ARTICLE I.
Granting Clauses; Secured Obligations
Section 1.1 Grant and Mortgage. Mortgagor, in order to secure the payment and performance of the secured obligations hereinafter referred to and the performance of the
obligations, covenants, agreements, warranties and undertakings of Mortgagor hereinafter described, does hereby GRANT, BARGAIN, SELL, ALIEN, CONVEY, TRANSFER, MORTGAGE, ASSIGN, WARRANT, PLEDGE, HYPOTHECATE and CONFIRM to Mortgagee, its successors and assigns, the following described rights, titles, interests, properties and estates of Mortgagor (sometimes hereinafter collectively referred to as the Mortgaged Properties): all of Mortgagors right, title, interest and estate in, to and under the oil, gas or other mineral leases described in Exhibit A attached hereto and made a part hereof (the Leases); insofar as and only insofar as such Leases cover and pertain to the Target Formation, including to such rights in and under the Leases as may be necessary to drill to, complete in and produce and market crude oil, natural gas and natural gas liquids (collectively, Hydrocarbons) from the Target Formation; but specifically excluding, however, all of Mortgagors rights, title, and interests in and to (i) any oil, gas, water supply, saltwater disposal or other well of any nature whatsoever now or hereafter located on the Subject Lands at the time of or prior to a foreclosure sale of the Mortgaged Properties, including, without limitation any Development Wells (each a Well and collectively, the Wells); and (ii) all personal property, fixtures and equipment in or on or acquired or used in connection with the ownership or operation of the Wells or the production, storage, treating, conditioning, processing, compressing, dehydrating, gathering, transporting or marketing of Hydrocarbons produced from the Wells, or the disposal of saltwater or other substances, produced therefrom.
TO HAVE AND TO HOLD the Mortgaged Properties unto Mortgagee, and Mortgagees successor and assigns, upon the terms, provisions and conditions herein set forth.
Section 1.2 Assignment of the Mortgaged Properties.
(a) This Mortgage is also an absolute and unconditional assignment to Mortgagee of the Mortgaged Properties, whether now in existence or hereafter arising, for the purpose of vesting in Mortgagee, subject to the Permitted Encumbrances (as defined in the Conveyances attached hereto as Annex A-1 and Annex A-3), a perfected mortgage lien in the Mortgaged Properties. Mortgagor hereby assigns, transfers and sets over to Mortgagee all of the Mortgaged Properties.
(b) So long as no default (as hereinafter defined) has occurred and is then continuing, Mortgagor shall have a license, revocable at the will of Mortgagee following the occurrence and continuation of a default, to enforce the terms of the Leases and exercise Mortgagors rights thereunder.
(c) Notwithstanding any legal presumption to the contrary, Mortgagee shall not be obligated by reason of its acceptance of this assignment to perform any obligation of Mortgagor as lessee under any of the Leases. The acceptance of this assignment shall not constitute a waiver of any rights of Mortgagee under the Development Agreement or the Conveyances or constitute a cure of any default by Mortgagor or SandRidge Parent thereunder.
Section 1.3 Development Agreement and Other Obligations. This Mortgage is made to secure and enforce the payment and performance of the following, obligations, indebtedness and liabilities:
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(a) The full performance of all obligations, covenants, agreements and undertakings of and by SandRidge Parent and Mortgagor from time to time owing to Mortgagee under Article II of the Development Agreement;
(b) Any sums advanced or expenses or costs incurred by the Mortgagee (or any receiver appointed hereunder) which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at a rate of interest equal to the lesser of (i) five percent (5%) per annum or (ii) the maximum rate permitted under applicable law (the Applicable Rate) or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; and
(c) Without limiting the generality of the foregoing, all post-petition interest, expenses, and other duties, damages and liabilities with respect to indebtedness or other obligations described above in this Section 1.3, which would be owed but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization, or similar proceeding.
Section 1.4 Secured Obligations. The obligations referred to in Section 1.3, and all renewals, extensions and modifications thereof, and all substitutions therefor, in whole or in part, are herein sometimes referred to as the secured obligations or the obligations secured hereby. It is contemplated and acknowledged that the secured obligations may include obligations hereafter arising and that this Mortgage shall have effect, as of the date hereof, to secure all secured obligations, regardless of whether any amounts exist on the date hereof or arise on a later date or, whether having arisen or been advanced, are later repaid in part or in whole and further obligations arise or advances are made at a later date.
Section 1.5 Limitation on Obligations. The Mortgagor and Mortgagee hereby agree and acknowledge that, as of the date hereof, the maximum amount recoverable under this Mortgage for any failure by SandRidge Parent or Mortgagor to perform the obligations described in Section 1.3(a) above is $166,050,000; provided, that such amount will be adjusted downward, from time to time, pursuant to Section 2.05(d) of the Development Agreement. Mortgagor and Mortgagee further agree and acknowledge that pursuant to Section 1.1 above, the mortgage lien created by this Mortgage does not cover or extend to any Wells. Accordingly, the mortgage lien created by this Mortgage shall automatically terminate on a wellbore only basis (as that term is commonly understood in the Oklahoma oil and gas industry) as to each Development Well drilled after the date hereof as the same is completed. Upon Mortgagors request and at Mortgagors expense, Mortgagee shall promptly execute and deliver a partial release, which will evidence the release in full of the mortgage lien created by this Mortgage with respect to any Development Well.
Section 1.6 Maturity Date. The obligations, covenants, agreements and undertakings described in Section 1.3(a) of this Mortgage are due to be performed on and before December 31, 2014, unless extended pursuant to the terms of the Development Agreement to December 31, 2015 (the Maturity Date).
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ARTICLE II.
Covenants
Section 2.1 Mortgagor warrants, represents, covenants and agrees that the Mortgaged Properties are free and clear of all liens, security interests and other Encumbrances, subject only to the Permitted Encumbrances and that, to Mortgagors knowledge, Mortgagor is lawfully seized of the estates and interests granted to Mortgagor under the Leases. This Mortgage is subject to (but in no event shall this Mortgage be an assumption of) the Permitted Encumbrances, in each case to the extent and only for so long as the same are valid and subsisting and affect title to the Mortgaged Properties; provided, that the foregoing is not intended to, and shall not, subordinate the lien created hereby.
Section 2.2 Mortgagor hereby covenants with the Mortgagee as follows:
(a) Further Assurance. Mortgagor will, on request of Mortgagee, (i) promptly correct any defect, error or omission which may be discovered in the contents of this Mortgage, or in the execution or acknowledgment of this Mortgage; (ii) execute, acknowledge, deliver and record or file such further instruments and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Mortgage; and (iii) execute, acknowledge, deliver, and file or record any document or instrument reasonably requested by Mortgagee to protect the mortgage lien hereunder against the rights or interests of third persons. Mortgagor shall pay all reasonable costs connected with any of the foregoing.
(b) Name and Place of Business. Mortgagor will not cause or permit any change to be made in its name, identity, limited liability company structure, federal employer identification number or state of organization (whether by merger or otherwise) unless Mortgagor shall have notified Mortgagee of such change at least ten (10) days prior to the effective date of such change, and shall have first taken all action required by Mortgagee for the purpose of further perfecting or protecting the mortgage lien in the Mortgaged Properties created hereby. Mortgagors exact name is the name set forth in this Mortgage. Mortgagor is a limited liability company organized under the laws of the State of Delaware.
Section 2.3 Except as permitted in Section 11.02 of the applicable Conveyance, Mortgagor will not Transfer any of the Mortgaged Properties without the prior written consent of the Mortgagee. If any Mortgaged Property is permitted to be Transferred pursuant to Section 11.02 of the applicable Conveyance, the Mortgagee will promptly execute, acknowledge and deliver a release of this Mortgage to the extent applicable to such Mortgaged Properties proposed to be Transferred pursuant to Section 11.02 of the applicable Conveyance.
ARTICLE III.
Remedies Upon Default
Section 3.1 Default. The term default as used in this Mortgage means:
(a) the failure by SandRidge Parent to perform any obligation required to be performed by it under Section 2.01 of the Development Agreement on or before the Maturity Date;
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(b) failure by SandRidge Parent, within thirty (30) days after notice thereof from the Mortgagee, to cure a breach in the due performance or observance of any other covenant or agreement contained in Article II of the Development Agreement;
(c) failure by the Mortgagor, within thirty (30) days after notice thereof from the Mortgagee, to cure a breach in the due performance or observance of any covenant or agreement contained in this Mortgage; or
(d) this Mortgage shall fail to constitute a mortgage lien on any part of the Mortgaged Properties (subject only to Permitted Encumbrances), and such failure is not cured within thirty (30) days after written notice to Mortgagor or Mortgagor otherwise obtains knowledge thereof.
Section 3.2 Remedies.
(a) After the occurrence of a default under Section 3.1(a) of this Mortgage, the lien evidenced hereby shall be subject to foreclosure, as Mortgagee may elect, in any manner provided for herein or provided for or required by law. The existence of any default under Section 3.1(a) can be determined only at the Maturity Date. Accordingly, notwithstanding any provision hereof or of law to the contrary, the secured obligations set forth in Section 2.01 of the Development Agreement are not subject to accelleration.
(b) After the occurrence of a default, Mortgagee is authorized prior or subsequent to the institution of any foreclosure proceedings to enter upon and to cause its agents to enter upon, the Mortgaged Properties, or any part thereof, and to exercise without interference from Mortgagor any and all rights which Mortgagor has with respect to the management, possession and operation of the Mortgaged Properties. All costs, expenses and liabilities of every character incurred by Mortgagee in managing such properties shall constitute demand obligations owing by Mortgagor and constitute a portion of the secured obligations.
(c) After the occurrence of a default, and if such event shall be continuing, Mortgagee shall have the right and power to sell, to the extent permitted by law, at one or more sales, as an entirety or in parcels, as Mortgagee may elect, the Mortgaged Properties, at such place or places and otherwise in such manner and upon such notice as may be required by law, or, in the absence of any such requirement, as Mortgagee may deem appropriate, and to make conveyance to the purchaser or purchasers. Mortgagee may postpone the sale of all or any portion of the Mortgaged Properties by public announcement at the time and place of such sale and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The right of sale hereunder shall not be exhausted by one or any sale, and Mortgagee may make other and successive sales until all of the Mortgaged Properties be legally sold.
(d) After occurrence of a default, Mortgagee, in lieu of or in addition to exercising the power of sale hereinabove and hereafter given, may proceed by a suit or suits in equity or at law, for a foreclosure hereunder or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Properties, or for the enforcement of any other appropriate legal or equitable remedy. In addition to all other remedies herein provided for, Mortgagor agrees that after a default has occurred,
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Mortgagee shall, as a matter of right, be entitled to the appointment of a receiver or receivers to be designated by Mortgagee for all or any part of the Mortgaged Properties whether such receivership be incident to a proposed sale of such properties (or any of them) or otherwise, and Mortgagor does hereby consent to the appointment of such receiver or receivers, and to the maximum extent permitted by law, waive any and all rights to notice and hearing regarding such appointment or appointments.
(e) Mortgagee shall have the right to become the purchaser at any sale held by Mortgagee or by any court, receiver or public officer, and shall have the right to credit upon the amount of the bid made therefor the amount payable out of the net proceeds of such sale to it.
(f) Any sale or sales of the Mortgaged Properties, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Mortgagor, Mortgagors successors or assigns, and against any and all Persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor, or Mortgagors successors or assigns.
(g) All costs and expenses (including attorneys fees) incurred by Mortgagee in protecting and enforcing the rights of Mortgagee hereunder, shall constitute a demand obligation owing by Mortgagor to Mortgagee, all of which shall constitute a portion of the secured obligations.
(h) Any sale by Mortgagee of the Mortgaged Properties may be made in any county in which any part of the Mortgaged Properties to be sold at such sale may be situated. Mortgagee may, from time to time, postpone the sale by public announcement thereof at the time and place noticed therefor. If the Mortgaged Properties consists of several parcels or interests, Mortgagee may designate the order in which the same shall be offered for sale or sold. Mortgagor waives all rights to direct the order in which any of the Mortgaged Properties will be sold in the event of any sale under this Mortgage, and also any right to have any of the Mortgaged Properties marshaled upon any sale.
(i) Notwithstanding any other provisions of this Mortgage, any lease of Minerals covered by this Mortgage which are subject to the Mineral Leasing Act of 1920 as amended, and the regulations promulgated thereunder, shall not be sold or otherwise disposed of to any party other than the citizens of the United States, or to associations of such citizens or to any corporation organized under the laws of the United States, or any state or territory thereof that are qualified to own or control interests in such leases under the provisions of such Act and regulations, or to Persons who may acquire ownership or interest in such leases under the provisions of 30 U.S.C. §184(g) if applicable, as such Act or regulations are now or may be from time to time in effect.
(j) Without limitation of any of the foregoing remedies, Mortgagor hereby grants to and confers on Mortgagee the power to sell all or any portion of the Mortgaged Properties in the manner and pursuant to the procedures set forth in the Oklahoma Power of Sale Mortgage Foreclosure Act, 46 O.S. Supp. §§ 40-49, as the same may be hereafter amended and in effect
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from time to time (the Oklahoma POS Act) or pursuant to other applicable statutory or judicial authority. If no cure is effected within the time limits set forth in the Oklahoma POS Act, Mortgagee may then proceed in the manner and subject to the conditions of the Oklahoma POS Act to send to Mortgagor and other necessary parties a notice of sale and may sell and convey the Mortgaged Properties in accordance with the Oklahoma POS Act. Mortgagee may foreclose this Mortgage by exercising said power of sale or, at Mortgagees sole option, by judicial foreclosure proceedings as provided by law. No action of Mortgagee based upon the provisions contained herein or in the Oklahoma POS Act, including, without limitation, the giving of the notice of intent to foreclose by power of sale or the notice of sale, shall constitute an election of remedies which would preclude Mortgagee from accelerating the secured obligations and pursuing judicial foreclosure before or at any time after commencement of the power of sale foreclosure procedure. Notwithstanding anything contained in this Mortgage to the contrary, any notices of sale given in accordance with the requirements of the Oklahoma POS Act shall constitute sufficient notice of sale. The conduct of a sale pursuant to a power of sale shall be sufficient hereunder if conducted in accordance with the requirements of the Oklahoma POS Act and other governmental requirements of the State of Oklahoma in effect at the time of such sale, notwithstanding any other provision contained in this Mortgage to the contrary. In the event of conflict between the provisions hereof and the Oklahoma POS Act, the Oklahoma POS Act shall control.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO A COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
Section 3.3 Proceeds of Foreclosure. The proceeds of any sale held in foreclosure of the mortgage lien evidenced hereby shall be applied as follows, except as otherwise required by applicable law:
FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including but not limited to reasonable attorneys fees, all court costs and charges of every character in the event foreclosed by suit or any judicial proceeding, if any;
SECOND, to be applied to the payment of the secured obligations; and
THIRD, the remainder, if any there shall be, shall be paid to Mortgagor, or to Mortgagors successors or assigns, or such other Persons as may be entitled thereto by law.
Section 3.4 Remedies Cumulative. All remedies herein provided for are cumulative of each other and of all other remedies existing at law or in equity and are cumulative of any and all other remedies provided for in the Development Agreement, and, in addition to the remedies herein provided, there shall continue to be available all such other remedies as may now or hereafter exist at law or in equity for the collection of the secured obligations and the enforcement of the covenants herein and the foreclosure of the mortgage lien evidenced hereby, and the resort to any remedy provided for hereunder or under the Development Agreement or provided for by applicable law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies.
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Section 3.5 Discretion as to Security. Mortgagee may resort to any security given by this Mortgage or to any guaranty of the obligations secured hereby, in whole or in part, and in such portions and in such order as may seem best to Mortgagee in its sole and uncontrolled discretion, and any such action shall not in any way be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Mortgage.
Section 3.6 Mortgagors Waiver of Certain Rights. To the full extent Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any valuation, stay, extension or redemption, and Mortgagor, for Mortgagor, Mortgagors successors and assigns, and for any and all Persons ever claiming any interest in the Mortgaged Properties, to the extent permitted by applicable law, hereby waives and releases all rights of valuation, stay of execution, redemption, notice of intention to mature or declare due the whole of the secured obligations, notice of election to mature or declare due the whole of the secured obligations and all rights to a marshaling of assets of Mortgagor, including the Mortgaged Properties, or to a sale in inverse order of alienation in the event of foreclosure of the mortgage lien hereby created; provided, however, that in the event of any foreclosure of this Mortgage with respect to the Mortgaged Properties, or any part thereof, appraisement of the Mortgaged Properties is hereby waived or not waived, at the option of Mortgagee, such option to be exercised at the time of the entry of the foreclosure judgment or any time prior thereto. Mortgagor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents or other matters whatever to defeat, reduce or affect the right under the terms of this Mortgage to a sale of the Mortgaged Properties for the collection of the secured obligations without any prior or different resort for collection, or the right under the terms of this Mortgage to the payment of the secured obligations out of the proceeds of sale of the Mortgaged Properties in preference to every other claimant whatever. If any law referred to in this section and now in force, of which Mortgagor or Mortgagors successors or assigns or any other Persons claiming any interest in the Mortgaged Properties might take advantage despite this section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this section.
Section 3.7 No Release of Obligations. Neither Mortgagor nor any other Person hereafter obligated for payment of all or any part of the secured obligations shall be relieved of such secured obligations by reason of (a) the failure of Mortgagee or any other Person so obligated to foreclose the lien of this Mortgage or to enforce any provision hereunder or under the Development Agreement; or (b) the release, regardless of consideration, of the Mortgaged Properties or any portion thereof or interest therein or the addition of any other property to the Mortgaged Properties. Mortgagee may release, regardless of consideration, any part of the Mortgaged Properties without, as to the remainder, in any way impairing, affecting, subordinating or releasing the mortgage lien created in or evidenced by this Mortgage or its stature as a first and prior lien and security interest in and to the Mortgaged Properties, and without in any way releasing or diminishing the liability of any Person liable for the repayment or performance of the secured obligations. For payment of the secured obligations, Mortgagee may resort to any other security therefor held by Mortgagee in such order and manner as Mortgagee may elect.
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Section 3.8 Discontinuance of Proceedings. In case Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted hereunder or under the Development Agreement and shall thereafter elect to discontinue or abandon same for any reason, Mortgagee shall have the unqualified right to do so and, in such an event, Mortgagor and Mortgagee shall be restored to their former positions with respect to the secured obligations, this Mortgage, the Development Agreement, the Mortgaged Properties and otherwise, and the rights, remedies, recourses and powers of Mortgagee shall continue as if same had never been invoked.
ARTICLE IV.
Miscellaneous
Section 4.1 Filing. This Mortgage is to be filed for record in the real property records (including the tract index) of each county where any part of the Mortgaged Properties is situated. The mailing address of Mortgagor is the address of Mortgagor set forth at the end of this Mortgage and the address of Mortgagee from which information concerning the mortgage lien hereunder may be obtained is the address of Mortgagee set forth at the end of this Mortgage. Nothing contained in this paragraph shall be construed to limit the scope of this Mortgage.
Section 4.2 Waivers. Mortgagee may at any time and from time to time in writing waive compliance by Mortgagor with any covenant herein made by Mortgagor to the extent and in the manner specified in such writing, or consent to Mortgagors doing any act which hereunder Mortgagor is prohibited from doing, or to Mortgagors failing to do any act which hereunder Mortgagor is required to do, to the extent and in the manner specified in such writing, or release any part of the Mortgaged Properties or any interest therein from the mortgage lien of this Mortgage. Any party liable, either directly or indirectly, for the secured obligations or for any covenant herein or in the Development Agreement may be released from all or any part of such obligations without impairing or releasing the liability of any other party. No such act shall in any way impair any rights or powers hereunder except to the extent specifically agreed to in such writing.
Section 4.3 No Impairment of Security. To the extent allowed by applicable law, the lien, privilege, security interest and other security rights hereunder shall not be impaired by any indulgence, moratorium or release which may be granted including, but not limited to, any renewal, extension or modification which may be granted with respect to any secured obligations, or any surrender, compromise, release, renewal, extension, exchange or substitution which may be granted in respect of the Mortgaged Properties, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any secured obligations.
Section 4.4 Acts Not Constituting Waiver. Any default may be waived without waiving any other prior or subsequent default. Any default may be remedied without waiving the default remedied. Neither failure to exercise, nor delay in exercising, any right, power or remedy upon any default shall be construed as a waiver of such default or as a waiver of the right to exercise any such right, power or remedy at a later date. No single or partial exercise of any right, power or remedy hereunder shall exhaust the same or shall preclude any
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other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Mortgagor therefrom shall in any event be effective unless the same shall be in writing and signed by Mortgagee and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice nor demand on Mortgagor in any case shall of itself entitle Mortgagor to any other or further notice or demand in similar or other circumstances. Acceptance of any payment in an amount less than the amount then due on any secured obligations shall be deemed an acceptance on account only and shall not in any way excuse the existence of a default hereunder.
Section 4.5 Forbearance or Extension. No forbearance and no extension of the time for the payment of the obligations secured hereby, shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Mortgagor hereunder for the payment of the obligations or performance of the obligations secured hereby, or the liability of any other Person hereunder or for the payment of the obligations secured hereby.
Section 4.6 Place of Payment. All secured obligations which may be owing hereunder at any time by Mortgagor shall be payable at the place designated in the Development Agreement (or if no such designation is made, at the address of Mortgagee indicated at the end of this Mortgage), or at such other place as Mortgagee may designate in writing.
Section 4.7 Application of Payments to Certain Obligations. If any part of the secured obligations cannot be lawfully secured by this Mortgage or if any part of the Mortgaged Properties cannot be lawfully subject to the lien, privilege and security interest hereof to the full extent of such obligations, then all payments made shall be applied on said obligations first in discharge of that portion thereof which is not secured by this Mortgage.
Section 4.8 Compliance With Usury Laws. It is the intent of Mortgagor and Mortgagee to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof, it is stipulated and agreed that none of the terms and provisions contained herein, in the Development Agreement or in the Conveyances shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be collected, charged, taken, reserved or received by applicable law from time to time in effect.
Section 4.9 Release of Mortgage. In addition to the partial releases required pursuant to Section 1.5 hereof, if Mortgagor has satisfied its obligations under Article II of the Development Agreement, the mortgage lien created by this Mortgage shall automatically terminate and upon request by Mortgagor, Mortgagee shall promptly cause satisfaction, discharge and release of this Mortgage to be entered upon the record at the expense of Mortgagor and shall execute and deliver or cause to be executed and delivered such instruments of satisfaction, reassignment and/or release as may be appropriate.
Section 4.10 Notice. All notices, requests, consents, demands and other communications required or permitted hereunder or under the Development Agreement shall be in writing and, unless otherwise specifically provided in the Development Agreement, shall be
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deemed sufficiently given or furnished if delivered by personal delivery, by telefacsimile, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, at the addresses specified at the end of this Mortgage (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address and in the manner provided herein, (b) in the case of telefacsimile, upon receipt, and (c) in the case of registered or certified United States mail, three (3) days after deposit in the mail. Notwithstanding the foregoing, or anything else in the Development Agreement which may appear to the contrary, any notice given in connection with a foreclosure of the mortgage lien created hereunder, or otherwise in connection with the exercise by Mortgagee of its rights hereunder or under the Development Agreement, which is given in a manner permitted by applicable law shall constitute proper notice; without limitation of the foregoing, notice given in a form required or permitted by statute shall (as to the portion of the Mortgaged Properties to which such statute is applicable) constitute proper notice.
Section 4.11 Invalidity of Certain Provisions. A determination that any provision of this Mortgage is unenforceable or invalid shall not affect the enforceability or validity of any other provision and the determination that the application of any provision of this Mortgage to any Person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other Persons or circumstances.
Section 4.12 Gender; Titles; Construction. All references in this Mortgage to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Mortgage unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words this Mortgage, this instrument, herein, hereof, hereunder and words of similar import refer to this Mortgage as a whole and not to any particular subdivision unless expressly so limited. Unless the context otherwise requires: including and its grammatical variations mean including without limitation; or is not exclusive; words in the singular form shall be construed to include the plural and vice versa; words in any gender include all other genders; references herein to any instrument or agreement refer to such instrument or agreement as it may be from time to time amended or supplemented; and references herein to any Person include such Persons successors and assigns. All references in this Mortgage to Exhibits and Annexes refer to Exhibits and Annexes to this Mortgage unless expressly provided otherwise, and all such Exhibits and Annexes are hereby incorporated herein by reference and made a part hereof for all purposes. This Mortgage has been drafted with the joint participation of Mortgagor and Mortgagee and shall be construed neither against nor in favor of either such party but rather in accordance with the fair meaning hereof.
Section 4.13 Recording. Mortgagor will cause this Mortgage and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and refiled in such manner and in such places as Mortgagee shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.
Section 4.14 Certain Obligations of Mortgagor. Without limiting Mortgagors
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obligations hereunder, Mortgagors liability hereunder and the obligations secured hereby shall extend to and include all post petition interest, expenses and other duties and liabilities with respect to Mortgagors obligations hereunder which would be owed but for the fact that the same may be unenforceable due to the existence of a bankruptcy, reorganization or similar proceeding.
Section 4.15 Authority of Mortgagee. All Persons shall be entitled to rely on the releases, waivers, consents, approvals, notifications and other acts of Mortgagee without the joinder of any party other than Mortgagee in such releases, waivers, consents, approvals, notifications or other acts.
Section 4.16 Counterparts. This Mortgage may be executed in several counterparts, all of which are identical, except that, to facilitate recordation, certain counterparts hereof may include only that portion of Exhibit A and the applicable Exhibit A to the Conveyances which contains descriptions of the properties located in (or otherwise subject to the recording or filing requirements or protections of the recording or filing acts or regulations of) the recording jurisdiction in which the particular counterpart is to be recorded, and other portions of Exhibit A and the applicable Exhibit A to the Conveyances shall be included in such counterparts by reference only. All of the counterparts hereof together shall constitute one and the same instrument. An executed counterpart of this Mortgage containing the full text of Exhibit A and Annexes A-1, A-2 and A-3 (although omitting the exhibits and schedules to such Annexes) is recorded in the real property records of Alfalfa County, Oklahoma.
Section 4.17 Successors and Assigns. The terms, provisions, covenants, representations, indemnifications and conditions hereof shall be binding upon Mortgagor, and the successors and assigns of Mortgagor, and shall inure to the benefit of Mortgagee and its respective successors and assigns, and shall constitute covenants running with the Mortgaged Properties. All references in this Mortgage to Mortgagor or Mortgagee shall be deemed to include all such successors and assigns.
Section 4.18 FINAL AGREEMENT OF THE PARTIES. THE WRITTEN TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 4.19 CHOICE OF LAW. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THAT MAY CAUSE THE APPLICATION OF LAWS OF ANY OTHER JURISDICTION, THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA.
Section 4.20 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS MORTGAGE; AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS MORTGAGE; THAT IT HAS IN FACT READ THIS MORTGAGE AND IS FULLY INFORMED AND HAS FULL NOTICE
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AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS MORTGAGE; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS MORTGAGE; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS MORTGAGE; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS MORTGAGE RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS MORTGAGE ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT CONSPICUOUS.
Section 4.21 Release of Trustee. It is expressly understood and agreed by the parties hereto that (a) this Mortgage is executed and delivered for SandRidge Mississipian Trust I, as Mortgagee hereunder, by The Bank of New York Mellon Trust Company, N.A. (the Trustee) not individually or personally, but solely as Trustee on behalf of SandRidge Mississipian Trust I in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall the Trustee be liable for any liability of the Trust or for any action taken or not taken by the Trust or Trustee under or in connection with this Mortgage. Mortgagor hereby unconditionally and irrevocably releases the Trustee from any and all claims of Mortgagor, whether now existing or arising in the future, arising out of, based upon, or otherwise related to, any action taken or not taken by the Trust or Trustee under or in connection with this Mortgage.
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IN WITNESS WHEREOF, this Mortgage is executed by Mortgagor on the date set forth in the acknowledgement below, to be effective immediately after the granting of the Conveyances and the Assignment and simultaneously with the execution and delivery of the Development Agreement.
SANDRIDGE EXPLORATION AND PRODUCTION, LLC | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
The address of Mortgagor is:
SandRidge Exploration and Production, LLC
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
Attention: Philip T. Warman
Facsimile No.: (405) 429-5983
With a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 N. Robinson
Oklahoma City, OK 73102
Attention: C. David Stinson, Esq.
Facsimile No.: (405) 235-0439
SIGNATURE PAGE TO MORTGAGE
SANDRIDGE MISSISSIPPIAN TRUST I | ||||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
By: | /s/ Michael J. Ulrich | |||
Name: | Michael J. Ulrich | |||
Title: | Vice-President |
I do hereby certify that the address of Mortgagee is:
The Bank of New York Mellon Trust Company, N.A.
919 Congress Avenue, Suite 500
Austin, Texas 78701
Attn: Michael J. Ulrich
SIGNATURE PAGE TO MORTGAGE
STATE OF OKLAHOMA | § | |
§ | ||
COUNTY OF OKLAHOMA | § |
This instrument was acknowledged before me on April 1, 2011, by James D. Bennett as Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.
WITNESS my hand and official seal this 1st day of April, 2011.
Janis L. Roberts |
NOTARY PUBLIC, |
State of Oklahoma |
Janis L. Roberts |
(printed name) |
My commission expires:
May 22, 2012
[SEAL]
STATE OF TEXAS | § | |
§ | ||
COUNTY OF TRAVIS | § |
This instrument was acknowledged before me on April 5, 2011, by Michael J. Ulrich as Vice-President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, the Trustee of SandRidge Mississippian Trust I, a Delaware statutory trust, on behalf of said national banking association and trust.
WITNESS my hand and official seal this 5th day of April, 2011.
Sarah Newell |
NOTARY PUBLIC, |
State of Texas |
Sarah Newell |
(printed name) |
My commission expires:
02-16-2014
[SEAL]
ANNEX A-1
COPY OF TERM ROYALTY CONVEYANCE (PUD)
ANNEX A-2
COPY OF ASSIGNMENT
ANNEX A-3
COPY OF PERPETUAL ROYALTY CONVEYANCE (PUD)
EXHIBIT A
MORTGAGED PROPERTIES
Exhibit 10.9
DERIVATIVES AGREEMENT
This DERIVATIVES AGREEMENT, delivered as of April 12, 2011, is between SandRidge Energy, Inc., a Delaware corporation (SandRidge), and SandRidge Mississippian Trust I, a Delaware statutory trust (the Trust) and is delivered to be effective as of 12:01 a.m., Central Time, April 1, 2011.
R E C I T A L S
WHEREAS, the Trust is governed by that certain Amended and Restated Trust Agreement by and among SandRidge Energy, Inc., Corporation Trust Company, as Delaware trustee, and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee);
WHEREAS, SandRidge Exploration and Production, LLC (SandRidge Sub), a Delaware limited liability company and a wholly-owned subsidiary of SandRidge, has conveyed (or caused to be conveyed) to the Trust certain royalty interests pursuant to (i) that certain Term Overriding Royalty Interest Conveyance (PDP), (ii) that certain Term Overriding Royalty Interest Conveyance (PUD), (iii) that certain Perpetual Overriding Royalty Interest Conveyance (PDP), (iv) that certain Perpetual Overriding Royalty Interest Conveyance (PUD) and (v) that certain Assignment of Overriding Royalty Interest, in each case effective as of 12:01 a.m., Central Time, January 1, 2011 (collectively, the Conveyances), pursuant to which SandRidge Sub will from time to time distribute cash proceeds to the Trust;
WHEREAS, SandRidge has entered into commodity derivatives transactions with certain counterparties;
WHEREAS, SandRidge and Trust desire to allocate among themselves certain of the economic benefits and costs associated with certain of these transactions;
NOW, THEREFORE, in consideration of the premises herein, 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; TERMS GENERALLY
Section 1.01 Definitions. As used herein, terms defined above have the meanings given such terms above and the following terms have the following meanings:
Agreement means this Derivatives Agreement, as the same may be amended, supplemented or otherwise modified from time to time.
Business Day means a day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.
CS Trade Documents means the ISDA Master Agreement dated as of January 30, 2008 between SandRidge and Credit Suisse Energy LLC, including the Schedule thereto and each Confirmation entered into thereunder, in each case as in effect on the date hereof.
Confirmations means the collective reference to each Confirmation attached hereto as Exhibit A.
Counterparties means the collective reference to Deutsche Bank AG, London Branch, Credit Suisse Energy LLC and Royal Bank of Canada.
DB Trade Documents means the ISDA Master Agreement dated as of January 8, 2010 between SandRidge and Deutsche Bank AG, London Branch, including the Schedule thereto and each Confirmation entered into thereunder, in each case as in effect on the date hereof.
Defaulting Party means, with respect to any Trade on any date of determination, any Person: (a) that is a Defaulting Party or an Affected Party with respect to such Trade on such date under the applicable Trade Documents (as such terms are defined therein) or (b) in respect of which a Potential Event of Default or an Event of Default has occurred and is continuing on such date under the applicable Trade Documents (as such terms are defined therein).
Excluded Amount means any amount payable by one party to another party pursuant to any Trade Documents on account of indemnity or reimbursement obligations (including additional amounts owing in respect of tax gross up obligations), costs, fees, expenses (including, without limitation, attorneys fees) or default interest.
Illegality has the meaning specified in the applicable Trade Documents; provided that the term Illegality when used herein in reference to any Trade will only be deemed to have occurred with respect to such Trade if either (a) the Counterparty is an Affected Party (as defined in the applicable Trade Documents) with respect to such Illegality; or (b) both (i) SandRidge is an Affected Party (as defined in the applicable Trade Documents) with respect to such Illegality and (ii) the Trust would have been an Affected Party (as defined in the applicable Trade Documents) with respect to such Illegality if it were a party to such Trade.
Illegality Termination Payment means any Termination Payment that becomes due and payable as the result of the termination of any Trade prior to the stated termination date thereof based on the occurrence of an Illegality.
Period End Date means March 31, June 30, September 30 and December 31 of each calendar year.
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.
Quarterly Payment Date means, with respect to any Quarterly Period, the date that is forty-five (45) days after the last day of such Quarterly Period.
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Quarterly Period means each period from but excluding one Period End Date to and including the next Period End Date.
RBC Trade Documents means the ISDA Master Agreement dated as of April 14, 2009 between SandRidge and Royal Bank of Canada, including the Schedule thereto and each Confirmation entered into thereunder, in each case as in effect on the date hereof.
SandRidge Gross Up Amount means, in relation to any Scheduled Payments or any Illegality Termination Payments required to be made by the Counterparties during any Quarterly Period, an amount equal to the sum of all such Scheduled Payments or Illegality Termination Payments, as the case may be, that were due and payable by the Counterparties but not paid by the Counterparties to SandRidge during such Quarterly Period (a) on account of the exercise of any right of netting or set-off against (i) obligations owed by SandRidge or its affiliates to the Counterparties or their affiliates under agreements or instruments other than the Trade Documents or (ii) any obligation of SandRidge to pay an Excluded Amount pursuant to the Trade Documents; or (b) to the extent that any Counterparty (i) set-off any such Scheduled Payments or Illegality Termination Payments, as the case may be, against any posted collateral held by SandRidge (or any obligation of SandRidge to transfer that posted collateral) or (ii) withheld payment of any such Scheduled Payments or Illegality Termination Payments, as the case may be, up to the value of any posted collateral held by SandRidge.
Scheduled Payment means, with respect to any Trade, the net payment required to be made by one party thereto to the other party thereto on a Payment Date or a Settlement Payment Date pursuant to the related Confirmation, without giving effect to the existence of any Potential Event of Default, Event of Default or the designation of an Early Termination Date (as such terms are defined in the applicable Trade Documents) or any right of setoff, counterclaim or defense, and excluding, for the avoidance of doubt: (a) any obligation to transfer cash collateral or other collateral, (b) any Termination Payment and (c) any Excluded Amount.
Termination Payment means, with respect to any Trade or group of Trades: (a) the net amount which is due and payable by one party thereto to the other party thereto in respect of the early termination of such Trade or group of Trades, as determined pursuant to the applicable Trade Documents (including, for the avoidance of doubt, any unpaid amounts), but (b) without giving effect to any right of set-off and/or right to apply any margin, collateral, guarantees or other credit support delivered or held in connection with such Trade, and (c) excluding any Scheduled Payments (other than unpaid amounts) and any Excluded Amounts.
Trades means the collective reference to each transaction evidenced by the Confirmations; provided, that for purposes of this Agreement only, (i) the Trade with respect to the Confirmation dated August 27, 2010 with Royal Bank of Canada identified as Deal # 349358 (Reference: 3884) shall be deemed to cover only the following Notional Quantities (as such term is defined in such Confirmation) of natural gas for the following Calculation Periods (as such term is defined in such Confirmation): 12,030 MMBtu per day for April 2011, 11,689 MMBtu per day for May 2011, 12,152 MMBtu per day for June 2011, 11,838 MMBtu per day for July 2011, 11,365 MMBtu per day for August 2011, 11,780 MMBtu per day for September 2011, 10,907 MMBtu per day for October 2011, 11,225 MMBtu per day for November 2011, and 10,918 MMBtu per day for December 2011; and (ii) the Trade with respect to the
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Confirmation dated October 27, 2010 with Credit Suisse Energy LLC identified as Reference ID: 3318027-1 shall be deemed to cover only the following Notional Quantities (as such term is defined in such Confirmation) of natural gas for the following Calculation Periods (as such term is defined in such Confirmation): 11,196 MMBtu per day for January 2012, 12,244 MMBtu per day for February 2012, 11,679 MMBtu per day for March 2012, 12,270 MMBtu per day for April 2012, 12,063 MMBtu per day for May 2012, and 12,788 MMBtu per day for June 2012.
Trade Documents means the collective reference to the DB Trade Documents, the CS Trade Documents and the RBC Trade Documents.
Trust Gross Up Amount means, in relation to any Scheduled Payments or any Illegality Termination Payments required to be made by SandRidge during any Quarterly Period, an amount equal to the sum of all such Scheduled Payments or Illegality Termination Payments, as the case may be, that were due and payable by SandRidge but not paid by SandRidge to the Counterparties during such Quarterly Period to the extent that SandRidge (i) set-off any such Scheduled Payments or Illegality Termination Payments, as the case may be, against any posted collateral held by the Counterparties (or any obligation of the Counterparties to transfer that posted collateral) or (ii) withheld payment of any such Scheduled Payments or Illegality Termination Payments, as the case may be, up to the value of any posted collateral held by the Counterparties.
Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise: (a) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (b) any reference herein to any Person shall be construed to include such Persons successors and assigns (subject to the restrictions contained in this Agreement); (c) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof and (d) any reference herein to Sections or Exhibits shall be construed to refer to Sections of, or Exhibits to, this Agreement.
ARTICLE II
PAYMENTS
Section 2.01 Payments. On the Quarterly Payment Date for each Quarterly Period, commencing with the Quarterly Period ending June 30, 2011:
(a) SandRidge will pay to the Trust an amount equal to the sum of the following (without duplication): (i) all Scheduled Payments received by SandRidge from the Counterparties under all Trades during such Quarterly Period plus (ii) the SandRidge Gross Up Amount, if any, related to Scheduled Payments required to be made by the Counterparties to SandRidge under all Trades during such Quarterly Period plus (iii) the amount of any Scheduled Payment required to be made by any Counterparty to SandRidge under any Trade during such Quarterly Period that was not received by SandRidge from such Counterparty, but only if SandRidge was a Defaulting Party on the date such Scheduled Payment was required to be made by such Counterparty;
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(b) the Trust will pay to SandRidge an amount equal to the sum of the following: (i) all Scheduled Payments made by SandRidge to the Counterparties under all Trades during such Quarterly Period plus (ii) the Trust Gross Up Amount, if any, related to Scheduled Payments required to be made by SandRidge to the Counterparties under all Trades during such Quarterly Period, excluding, in the case of both clauses (i) and (ii) of this subsection (b), any Scheduled Payment made by SandRidge to any Counterparty under any Trade with respect to which SandRidge (x) was a Defaulting Party on the date such Scheduled Payment was required to be made by SandRidge and (y) continues to be a Defaulting Party on the Quarterly Payment Date;
(c) SandRidge will pay to the Trust an amount equal to the sum of the following: (i) all Illegality Termination Payments received by SandRidge from the Counterparties under all Trades during such Quarterly Period plus (ii) the SandRidge Gross Up Amount, if any, related to Illegality Termination Payments required to be made by the Counterparties to SandRidge under all Trades during such Quarterly Period;
(d) the Trust will pay to SandRidge an amount equal to the sum of the following: (i) all Illegality Termination Payments made by SandRidge to the Counterparties under all Trades during such Quarterly Period plus (ii) the Trust Gross Up Amount, if any, related to Illegality Termination Payments required to be made by SandRidge to the Counterparties under all Trades during such Quarterly Period;
(e) if any Trade has been terminated prior to its stated termination date other than as the result of the occurrence of an Illegality, then notwithstanding the termination of such Trade, SandRidge will pay to the Trust an amount equal to the sum of each Scheduled Payment that would have become due and payable by the relevant Counterparty to SandRidge during such Quarterly Period if such Trade had not been so terminated; and
(f) if any Trade has been terminated prior to its stated termination date other than as the result of the occurrence of an Illegality, then notwithstanding the termination of such Trade, the Trust will pay to SandRidge an amount equal to the sum of each Scheduled Payment that would have become due and payable by SandRidge to the relevant Counterparty during such Quarterly Period if such Trade had not been so terminated.
Section 2.02 Netting of Payments.
(a) If, on any Quarterly Payment Date, identical amounts would otherwise be payable by each party to the other pursuant to Section 2.01, then, on such date, each partys obligation to make payment of any such amount will be automatically satisfied and discharged.
(b) If, on any Quarterly Payment Date, the aggregate amount that would otherwise have been payable by one party pursuant to Section 2.01 exceeds the aggregate amount that would otherwise have been payable by the other party, then the party that owes the larger aggregate amount must pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
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(c) Any amounts otherwise payable by the Trust to SandRidge under this Agreement may, at SandRidges option, be netted against and subtracted from the amount of cash proceeds otherwise payable by SandRidge Sub to the Trust under the Conveyances.
Section 2.03 General Conditions. All payments made hereunder shall be made in immediately available funds to the account or accounts from time to time specified by the relevant payee. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day. SandRidge shall determine the amounts due to (or from) the Trust under this Agreement, and all such determinations shall (in the absence of manifest error) be final and binding on each party.
Section 2.04 Certain Notices. SandRidge shall promptly notify the Trust of the designation of an Early Termination Date pursuant to any Trade Document and the termination of any Trade, and shall provide the Trust with any documentation or other information related thereto as the Trust may reasonably request from time to time.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments. Any amendment, modification or waiver in respect of this Agreement will only be effective if in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties hereto. SandRidge will not make any material amendments to the terms of the Trades without the Trusts consent.
Section 3.02 No Waiver. No failure on the part of any party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 3.03 Remedies Cumulative; Non-Exclusive; Etc. All rights, powers, privileges, remedies, and recourses granted in this Agreement or otherwise available at law or equity: (a) shall be cumulative and concurrent; (b) may be pursued separately, successively, or concurrently; (c) may be exercised as often as occasion therefor shall arise, it being agreed that the exercise or failure to exercise or the beginning, or the abandonment, or the delay of any of same, shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse and (d) are intended to be, and shall be, nonexclusive.
Section 3.04 Successors and Assigns. The provisions of this Agreement shall be binding upon each party and its successors and permitted assigns and shall inure, together with all the rights and remedies hereunder, to the benefit of such party and its respective successors and assigns; provided that no party may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the other party, and any such purported assignment, transfer or delegation shall be null and void.
Section 3.05 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the
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extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
Section 3.06 Survival; Revival; Restatement. To the extent that any payments made hereunder are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person or entity under any bankruptcy law, common law or equitable cause, then to such extent, the obligations so satisfied shall be revived and continue as if such payment had not been received and the rights, powers and remedies under this Agreement shall continue in full force and effect. In such event, this Agreement shall be automatically reinstated and each party shall take such action as may be reasonably requested by any other party to effect such reinstatement.
Section 3.07 Acknowledgments.
(a) Each party hereby acknowledges that (i) no party has any fiduciary relationship with or duty to any other party arising out of or in connection with this Agreement; (ii) no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the parties hereto; (iii) no other party is acting as a fiduciary or financial or investment advisor for it; (iv) it is not relying upon any representations (whether written or oral) of any other party; (v) no other party has given to it (directly or indirectly through any other Person) any advice, counsel, assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (either legal, regulatory, tax, financial, accounting, or otherwise) of this Agreement; (vi) it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary, and not upon any view expressed by the other party; (vii) all trading decisions have been the result of arms length negotiations between the parties; (viii) it has a duty to read the Trade Documents and agrees that it is charged with notice and knowledge of the terms of the Trade Documents; that it has in fact read the Trade Documents and is fully informed and has full notice and knowledge of the terms, conditions and effects thereof and (ix) it is entering into this Agreement with a full understanding of all of the risks hereof (economic and otherwise) and it is capable of assuming and willing to assume (financially and otherwise) those risks.
(b) Without limiting the applicability of any other provision of the U.S. Bankruptcy Code as amended (the Bankruptcy Code) (including, without limitation, Sections 362, 546, 556, and 560 thereof and the applicable definitions in Section 101 thereof), the parties intend that the transactions contemplated by this Agreement will constitute forward contracts or swap agreements as defined in Section 101 of the Bankruptcy Code, and that the parties are entitled to the rights under, and protections afforded by, Sections 362, 546, 556, and 560 of the Bankruptcy Code.
(c) Each party represents to the other party that it is an eligible contract participant within the meaning of the Commodity Exchange Act, Section 1a(12).
Section 3.08 No Agency Relationship; No Assignment of Trades. Each of the parties hereto acknowledges and agrees that no agency relationship is created hereby or
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otherwise exists by virtue of the transactions contemplated hereby among the parties hereto, it being expressly understood and agreed that SandRidge has entered into the Trades and the Trade Documents related thereto as principal on its own behalf, and SandRidge is not acting as an agent of the Trust with respect to any Trade nor is SandRidge acting in any other capacity on behalf of the Trust, fiduciary or otherwise. Nothing contained herein shall be interpreted to create or operate as an assignment, transfer or novation of any Trade, any Trading Document or any interest or obligation therein or thereunder.
Section 3.09 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
Section 3.10 Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. In making proof of this Agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.
Section 3.11 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 3.12 No Third Party Beneficiaries. This Agreement is solely for the benefit of the parties hereto and no other Person (including, without limitation, any Counterparty) shall have any rights, claims, remedies or privileges hereunder against any party hereto for any reason whatsoever. There are no third party beneficiaries.
Section 3.13 Tax Hedge Designation. Unless otherwise specifically identified, the Trust hereby identifies and designates this Agreement and the economic benefits and costs associated with the underlying commodity derivatives transactions as a hedging transaction for tax purposes under Section 1221(a)(7) of the Internal Revenue Code of 1986, as amended and Section 1.1221-2 of the Treasury regulations promulgated under the Internal Revenue Code. The transactions being hedged are as follows (in each case by SandRidge attributable to the Trust):
(i) the sale of approximately 1,308 Bbl per day of oil production during the period of April, 1 2011 through December 31, 2011, 1,240 Bbl per day of oil production during 2012, 1,337 Bbl per day of oil production during 2013, 1,483 Bbl per day of oil production during 2014 and 1,281 Bbl per day of oil production during 2015, and
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(ii) the sale of natural gas production in the volumes, and for the periods, indicated in the table below:
Volume (MMBtu per day) |
Period | |
12,030 |
April 2011 | |
11,689 |
May 2011 | |
12,152 |
June 2011 | |
11,838 |
July 2011 | |
11,365 |
August 2011 | |
11,780 |
September 2011 | |
10,907 |
October 2011 | |
11,225 |
November 2011 | |
10,918 |
December 2011 | |
11,196 |
January 2012 | |
12, 244 |
February 2012 | |
11,679 |
March 2012 | |
12, 270 |
April 2012 | |
12,063 |
May 2012 | |
12,788 |
June 2012 | |
2,185 |
July - December 2012 | |
2,350 |
2013 | |
2,567 |
2014 | |
2,767 |
2015 |
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IN WITNESS WHEREOF, intending to be legally bound, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.
SandRidge Energy, Inc. | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
[Signature Page to Derivatives Agreement]
IN WITNESS WHEREOF, intending to be legally bound, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.
SandRidge Mississippian Trust I | ||
By: |
The Bank of New York Mellon Trust Company, N.A., as Trustee |
By: | /s/ Michael J. Ulrich | |||
Name: | Michael J. Ulrich | |||
Title: | Vice-President |
[Signature Page to Derivatives Agreement]
EXHIBIT A
CONFIRMATIONS
Exhibit 10.10
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
SANDRIDGE MISSISSIPPIAN TRUST I
AND
SANDRIDGE ENERGY, INC.,
DATED AS OF APRIL 12, 2011
This Registration Rights Agreement (the Agreement) is made and entered into as of April 12, 2011, by and between SandRidge Mississippian Trust I, a statutory trust formed under the laws of the State of Delaware (the Trust), and SandRidge Energy, Inc. (SandRidge), a Delaware corporation.
WHEREAS, in connection with the initial public offering of common units of beneficial interests of the Trust, the Trust has agreed to file a registration statement or registration statements relating to the sales by SandRidge, SandRidge Exploration and Production, LLC (SandRidge E&P), a Delaware limited liability company and wholly owned subsidiary of SandRidge, and their respective Transferees of certain of the Trust Units (as each capitalized term is defined below).
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, it is agreed as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings:
Affiliate means with respect to a specified person, any person that directly or indirectly controls, is controlled by, or is under common control with, the specified person. As used in this definition, the term control (and the correlative terms controlling, controlled by, and under common control) shall mean the possession, directly or indirectly, of the right or 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.
Agreement has the meaning set forth in the introductory paragraph hereof.
Business Day means any day that is not a Saturday, Sunday, a holiday determined by the New York Stock Exchange, Inc., as affecting ex dates or any other day on which national banking institutions in New York, New York are closed.
Common Units has the meaning set forth in the Trust Agreement.
Deferral Notice has the meaning set forth in Section 3(j) hereof.
Deferral Period has the meaning set forth in Section 3(j) hereof.
Demand Notice has the meaning set forth in Section 2(a) hereof.
Demand Registration has the meaning set forth in Section 2(a) hereof.
Demanding Qualified Holder(s) shall mean, with respect to any Demand Registration, the Qualified Holder(s) delivering the relevant Demand Notice.
Effective Period means the period commencing on the 180th day after the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder.
Expenses has the meaning set forth in Section 6(a) hereof.
Indemnified Party has the meaning set forth in Section 6(d) hereof.
Indemnifying Party has the meaning set forth in Section 6(d) hereof.
Material Event has the meaning set forth in Section 3(j) hereof.
Notice has the meaning set forth in Section 2(d) hereof.
person shall mean any individual, partnership, limited liability company, corporation, trust, unincorporated association, governmental body or other entity, organization or association.
Prospectus means the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A, Rule 430B or Rule 430C promulgated under the Securities Act), as amended or supplemented by any amendment, prospectus supplement or free writing prospectus (as defined in Rule 405 promulgated under the Securities Act), including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus.
Qualified Holder shall mean SandRidge, SandRidge E&P and any Transferee of SandRidge or SandRidge E&P, to whom Registrable Securities are permitted to be transferred in accordance with the terms of this Agreement and, in each case, who continues to be entitled to the rights of a Qualified Holder hereunder.
Registrable Securities means the Trust Units held by the Qualified Holders and any securities into or for which such Trust Units have been converted or exchanged, and any security issued with respect thereto upon any dividend, split or similar event until, in the case of any such Trust Units or other security, the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Registration Statement covering it, (ii) its disposal pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, (iii) its sale in a private transaction in which the transferors rights under this Agreement are not assigned to the transferee of the securities, (iv) its being held by the Trust, (v) 10 years after a Qualified Holder of such security ceases to be an Affiliate of the Trust or (vi) if such security has been sold in a private transaction in which the transferors rights under this Agreement are assigned to the transferee and such transferee is not an Affiliate of the Trust, the time that is one year following the transfer of such security to such transferee.
Registration Statement means any registration statement of the Trust, including any Shelf Registration Statement, that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all materials incorporated by reference or deemed to be incorporated by reference in such registration statement.
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Required Information has the meaning set forth in Section 4(a) hereof.
Rule 144 means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
Rule 144A means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
SandRidge has the meaning set forth in the introductory paragraph hereof.
SandRidge E&P has the meaning set forth in the recitals hereof.
SEC means the U.S. Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.
Shelf Registration Statement means a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC) registering the resale of Registrable Securities from time to time by any Qualified Holder.
Special Counsel means Covington & Burling LLP or such other successor counsel as shall be specified in writing by Qualified Holders holding a majority of all Registrable Securities.
Subordinated Units has the meaning set forth in the Trust Agreement.
Transferee means any person or group of persons that purchases any Registrable Securities from SandRidge or SandRidge E&P or otherwise holds any Registrable Securities as a result of any sale, liquidation, dividend or distribution by SandRidge, SandRidge E&P or any of their Affiliates; provided, that such person or group (i) agrees to be designated as a transferee hereunder, (ii) is specifically designated as a transferee hereunder in writing by SandRidge to the Trust, (iii) holds Registrable Securities representing at least 100,000 of the then-outstanding Registrable Securities and (iv) in the case of a group, such group shall collectively agree to constitute a single transferee for purposes of this Agreement (including for purposes of exercising any Demand Registration right transferred to such group hereunder).
Trust has the meaning set forth in the introductory paragraph hereof.
Trust Agreement means that certain Amended and Restated Trust Agreement of the Trust, dated as of the date hereof.
Trust Units means Common Units and Subordinated Units.
Trustee means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, as trustee, acting not in its individual capacity but solely as trustee of the Trust.
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SECTION 2. Demand Registration Rights.
(a) During the Effective Period, a Qualified Holder shall have the right, by delivering a written notice to the Trust (the Demand Notice), to require the Trust to register, pursuant to the terms of this Agreement and in accordance with the provisions of the Securities Act, the number of Registrable Securities requested to be so registered (a Demand Registration). A Demand Notice must specify the number of Registrable Securities to be registered and the Qualified Holders intended method of disposition thereof.
(b) The Qualified Holders shall be entitled to up to five Demand Registrations. Notwithstanding any other provision of this Section 2, in no event shall more than one Demand Registration occur during any six-month period (measured from the effective date of the Registration Statement to the date of the next Demand Notice).
(c) No Demand Registration shall be deemed to have occurred for purposes of this Section 2 if the Registration Statement relating thereto does not become effective, or its effectiveness is not maintained, for the period required pursuant to Section 2(e), in which case the Demanding Qualified Holders shall be entitled to an additional Demand Registration in lieu thereof.
(d) Within ten (10) days after receipt by the Trust of a Demand Notice, the Trust shall give written notice (the Notice) of such Demand Notice to all other Qualified Holders and shall, subject to the provisions of Section 2(f) hereof, include in such registration all Registrable Securities held by such Qualified Holders with respect to which the Trust received written requests for inclusion therein within ten (10) days after such Notice is given by the Trust to such holders.
(e) The Trust shall be required to maintain the effectiveness of the Registration Statement with respect to any Demand Registration for a period of ninety (90) days after the effective date thereof or, in the case of a Shelf Registration Statement, until such time as all Registrable Securities covered by such Shelf Registration Statement have ceased to be Registrable Securities; provided, that such period shall be extended for a period of time equal to the period the holders of Registrable Securities refrain from selling any securities included in such registration at the request of (i) an underwriter of the Trust or (ii) the Trust pursuant to this Agreement.
(f) If any of the Registrable Securities registered pursuant to a Demand Registration are to be sold in a firm commitment underwritten offering, and the managing underwriter advises the holders of such securities in writing that in its view the total amount of securities proposed to be sold in such offering (including securities proposed to be sold by persons other than Demanding Qualified Holders pursuant to incidental or piggyback registration rights) is such as to adversely affect the success of such offering, then the amount of securities to be offered for the account of Demanding Qualified Holders and for the account of persons other than Demanding Qualified Holders shall be reduced to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter by:
(i) First, reducing, or eliminating if necessary, all securities requested to be included by persons other than Demanding Qualified Holders and
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(ii) Second, if necessary, reducing the Registrable Securities requested to be included by the Demanding Qualified Holders, pro rata among such Demanding Qualified Holders on the basis of the percentage of the total Registrable Securities requested to be included in such Registration Statement by each such holder.
In connection with any Demand Registration to which the provisions of this Section 2(f) apply, no securities other than Registrable Securities shall be covered by such Demand Registration except in accordance with this Section 2(f), and such registration shall not reduce the number of Demand Registrations available to the Qualified Holders under Section 2(b) if the Registration Statement excludes more than 25% of the aggregate number of Registrable Securities that the Demanding Qualified Holders requested be included.
(g) The Trust shall be entitled to postpone (but not more than once in any 12-month period), for a reasonable period of time not in excess of 90 days, the filing of a Registration Statement if the Trust delivers to the Demanding Qualified Holders a certificate signed by the Trust certifying that, in its good faith judgment, it would be detrimental to the Trust and its unitholders for such Registration Statement to be filed and it therefore would be beneficial to defer the filing of such Registration Statement. If the Trust shall so postpone the filing of a Registration Statement, the Demanding Qualified Holders shall have the right to withdraw the request for registration by giving written notice to the Trust within 20 days of the anticipated termination date of the postponement period, as provided in the certificate delivered by the Trust, and in the event of such withdrawal, such request shall not reduce the number of available registrations with respect to the Qualified Holders under this Section 2.
(h) Whenever the Trust shall effect a Demand Registration pursuant to this Section 2 in connection with an underwritten offering, no securities other than Registrable Securities shall be covered by such Demand Registration, unless (i) the managing underwriter of such offering shall have advised each holder of Registrable Securities requesting such registration in writing that it believes that the inclusion of such other securities would not adversely affect such offering or (ii) the inclusion of such other securities is approved by the affirmative vote of the holders of at least a majority of the Registrable Securities included in such Demand Registration by the Demanding Qualified Holders.
SECTION 3. Registration Procedures. Following receipt of a Demand Notice, the Trust shall:
(a) Use its reasonable best efforts to (i) prepare and file with the SEC, no later than 45 days after receiving the Demand Notice, a Registration Statement or Registration Statements (including, if so requested by the Qualified Holders, a Shelf Registration Statement), on any appropriate form under the Securities Act available for the sale of the Registrable Securities by the holders thereof in accordance with the intended method or methods of
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distribution thereof, and (ii) cause each such Registration Statement to become effective as promptly as practicable after filing and remain effective for the period of time provided in Section 2(e); provided, that before filing any Registration Statement or Prospectus or any amendments or supplements thereto with the SEC (but excluding reports filed with the SEC under the Exchange Act), the Trust shall furnish to the Qualified Holders, the Special Counsel and the managing underwriters, if any, copies of any such document at least three (3) Business Days prior to the filing thereof.
(b) Subject to Section 3(j), (i) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement; (ii) cause the related Prospectus to be supplemented by any required prospectus supplement or free writing prospectus, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and (iii) use reasonable best efforts to comply with the provisions of the Securities Act applicable to the Trust with respect to the disposition of all securities covered by such Registration Statement during the period provided herein with respect to the disposition of all securities covered by such Registration Statement in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented.
(c) Subject to Section 3(j), as promptly as practicable after the date a Registration Statement is declared effective and the Required Information is delivered pursuant to Section 4 hereof:
(i) if required by applicable law, file with the SEC a post-effective amendment to the Registration Statement, a supplement to the related Prospectus, a supplement or amendment to any document incorporated in the Prospectus by reference and/or any other document required to be filed so that the Qualified Holder delivering such Required Information is named as a selling securityholder in the Registration Statement and the related Prospectus in such a manner as to permit such Qualified Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Trust shall file a post-effective amendment to the Registration Statement, use reasonable best efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as practicable; and
(ii) provide such Qualified Holder copies of any documents filed pursuant to Section 3(c)(i) and notify such Qualified Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 3(c)(i); provided, that if the Required Information is delivered during a Deferral Period, the Trust shall so inform the Qualified Holder delivering such Required Information. Notwithstanding anything contained herein to the contrary, the Trust shall be under no obligation to name any Qualified Holder that has failed to deliver the Required Information in the manner set forth in Section 4 hereof as a selling securityholder in any Registration Statement or related Prospectus.
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(d) As promptly as practicable, give notice to the Qualified Holders, the Special Counsel and the managing underwriters, if any, (i) when any Prospectus, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment thereto, when the same has been declared effective, (ii) of any request, following the effectiveness of any Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Trust of 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, (v) of the occurrence of, but not the nature of or details concerning, a Material Event and (vi) of the determination by the Trust that a post-effective amendment to a Registration Statement will be filed with the SEC, which notice may, at the discretion of the Trust (or as required pursuant to Section 3(j)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(j) shall apply.
(e) Use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case as promptly as practicable, and provide prompt notice to each Qualified Holder of the withdrawal of any such order.
(f) If requested by the managing underwriters, if any, or the Qualified Holders of the Registrable Securities being sold in connection with an underwritten offering, promptly include in a prospectus supplement or post-effective amendment such information as the managing underwriters, if any, or such Qualified Holders may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Trust has received such request; provided, that the Trust shall not be required to take any actions under this Section 3(f) that are not, in the opinion of counsel for the Trust, in compliance with applicable law.
(g) As promptly as practicable, furnish to each Qualified Holder, the Special Counsel and each managing underwriter, if any, upon request, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including exhibits and, if requested, all documents incorporated or deemed to be incorporated therein by reference.
(h) Deliver to each Qualified Holder, the Special Counsel and each managing underwriter, if any, in connection with any sale of Registrable Securities pursuant to a Registration Statement as many copies of the Prospectus relating to such Registrable Securities (including each preliminary Prospectus) and any amendment or supplement thereto as such persons may reasonably request. In addition, the Trust hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked and subject to Section 3(j)(ii) hereof) to the use of such Prospectus or each such amendment or supplement
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thereto by each Qualified Holder and the underwriters, if any, in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein.
(i) Use reasonable best efforts to (i) prior to any public offering of the Registrable Securities pursuant to a Registration Statement, register or qualify or cooperate with the Qualified Holders, the Special Counsel and the underwriters, if any, in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Qualified Holder or underwriter reasonably requests in writing (which request may be included with the Required Information) and (ii) keep each such registration or qualification (or exemption therefrom) effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement in connection with such Qualified Holders offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Registration Statement and the related Prospectus; provided, that neither the Trust nor the Trustee shall be required to (i) qualify as a foreign entity or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject.
(j) Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of any Registration Statement or the initiation of proceedings with respect to any Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact as a result of which (x) any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (y) any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (each of subclauses (x) and (y) hereof, a Material Event), or (C) the occurrence or existence of any pending development of the Trust that, in the reasonable discretion of the Trust, makes it appropriate to suspend the availability of any Registration Statement and the related Prospectus:
(i) in the case of clause (B) above, subject to clause (ii) below, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement, a supplement to the related Prospectus, a supplement or amendment to any document incorporated in the Prospectus by reference and/or any other document required to be filed so that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to clause (ii) below, use reasonable best efforts to cause it to be declared effective as promptly as practicable;
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(ii) give notice to the Qualified Holders and the Special Counsel, if any, that the availability of any Registration Statement is suspended (a Deferral Notice) and, upon receipt of any Deferral Notice, each Qualified Holder agrees not to sell any Registrable Securities pursuant to the Registration Statement until such Qualified Holders receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Trust that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus, in which case such Qualified Holder will use the Prospectus as so supplemented or amended in connection with any offering and sale of Registrable Securities covered thereby; and
(iii) use reasonable best efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Trust, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Trust or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter, and (z) in the case of clause (C) above, as soon as, in the reasonable discretion of the Trust, such suspension is no longer appropriate.
The time period from the date the Trust sends the Deferral Notice to the date the Registration Statement and relevant Prospectus are no longer unavailable to make sales of the securities is known as the Deferral Period.
(k) If reasonably requested by a Qualified Holder or any underwriter participating in any disposition of Registrable Securities, if any, in writing in connection with a disposition by such Qualified Holder of Registrable Securities pursuant to a Registration Statement, make reasonably available for inspection during normal business hours by representatives of such Qualified Holders of such Registrable Securities (including any broker-dealers, underwriters, attorneys and accountants retained by such Qualified Holders, and any attorneys or other agents retained by a broker-dealer or underwriter engaged by such Qualified Holders), all relevant financial and other records and pertinent documents and properties of the Trust, and cause the appropriate employees and agents of the Trust to make reasonably available for inspection during normal business hours on reasonable notice all relevant information reasonably requested by such representatives in each case as is customary for similar due diligence examinations; provided, that (i) the Trust shall not be obligated to make available for inspection any information that, based on the reasonable advice of counsel to the Trust, could subject the Trust to the loss of privilege with respect thereto and (ii) such persons shall first agree in writing with the Trust that any information that is reasonably designated by the Trust as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (a) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (b) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any Prospectus referred to in this
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Agreement) or (c) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person; and provided, further, that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all the Qualified Holders and the other parties entitled thereto by Special Counsel, if any, or another representative selected by the Qualified Holders holding a majority of Registrable Securities being registered pursuant to such Registration Statement. Any person legally compelled or required by administrative or court order or by a regulatory authority to disclose any such confidential information made available for inspection shall provide the Trust with prompt prior written notice of such requirement so that the Trust may seek a protective order or other appropriate remedy.
(l) Use its best efforts to comply with all applicable rules and regulations of the SEC and make generally available to the Trusts unitholders earnings statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) for a 12-month period commencing on the first day of the first fiscal quarter of the Trust commencing after the effective date of a Registration Statement, which statements shall be made available no later than the next succeeding Business Day after such statements are required to be filed with the SEC.
(m) Cooperate with each Qualified Holder and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold or to be sold pursuant to a Registration Statement, which certificates shall not bear any restrictive legends stating that the Registrable Securities evidenced by the certificates are restricted securities (as defined by Rule 144), and cause such Registrable Securities to be registered in such names as such Qualified Holder or the managing underwriters, if any, may request in writing at least two (2) Business Days prior to any sale of such Registrable Securities.
(n) Provide a CUSIP number for all Registrable Securities covered by each Registration Statement not later than the effective date of such Registration Statement.
(o) Cooperate with and assist each Qualified Holder, the Special Counsel and any underwriters participating in any disposition of Registrable Securities in any filings required to be made with the Financial Industry Regulatory Authority, Inc. in connection with the filing or effectiveness of any Registration Statement, any post-effective amendment thereto or any offer or sale of Registrable Securities thereunder.
(p) In the case of a proposed sale pursuant to a Registration Statement involving an underwritten offering, enter into such customary agreements (including, if requested, an underwriting agreement in reasonably customary form) and take all such other action, if any, as Qualified Holders holding a majority of the Registrable Securities being sold or any managing underwriters reasonably shall request in order to facilitate any disposition of the Registrable Securities pursuant to such Registration Statement, including using reasonable best efforts to cause (i) its counsel to deliver an opinion or opinions in reasonably customary form, (ii) its officers to execute and deliver all customary documents and certificates on behalf of the Trust and (iii) its independent public accountants and independent reserve engineers to provide a comfort letters in reasonably customary form.
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(q) Use reasonable best efforts to support the marketing of the Registrable Securities covered by the Registration Statement.
(r) Upon either (i) the filing of any Registration Statement or (ii) the effectiveness of any Registration Statement, announce the same, in each case by press release disseminated by means of a widely used wire service or similar method.
(s) Use reasonable best efforts to cause all Registrable Securities covered by a Demand Registration to be listed on each securities exchange on which similar securities issued by the Trust are listed or traded.
SECTION 4. Qualified Holders Obligations.
(a) Each Qualified Holder agrees that if such Qualified Holder wishes to sell Registrable Securities pursuant to a Registration Statement and related Prospectus, it will do so only in accordance with this Agreement. The Trust may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Trust in writing such information required in connection with such registration regarding such seller and the distribution of such Registrable Securities as the Trust may, from time to time, reasonably request in writing (the Required Information) and the Trust may exclude from such registration the Registrable Securities of any seller who fails to furnish such information within a reasonable time after receiving such request. In addition, following the date that a Registration Statement is declared effective, each Qualified Holder wishing to sell Registrable Securities pursuant to a Registration Statement and related Prospectus agrees to deliver, promptly upon written request by the Trust, any additional information (which additional information shall be deemed part of the Required Information) the Trust may reasonably request to complete or amend the information required by any Registration Statement.
(b) Each Qualified Holder agrees, by acquisition of the Registrable Securities, that no Qualified Holder shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto unless such Qualified Holder has furnished the Trust with (i) the Required Information, (ii) any information required to be disclosed in order to make the information previously furnished to the Trust by such Qualified Holder not misleading and (iii) any other information regarding such Qualified Holder and the distribution of such Registrable Securities as the Trust may from time to time reasonably request. The sale of any Registrable Securities by any Qualified Holder shall constitute a representation and warranty by such Qualified Holder that the information relating to such Qualified Holder and its plan of distribution is as set forth in the Prospectus delivered by such Qualified Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Qualified Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Qualified Holder or its plan of distribution necessary in order to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading.
SECTION 5. Registration Expenses. The relevant Qualified Holder(s) shall bear all out-of-pocket fees and expenses incurred by the Trust in connection with the performance of its
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obligations under Sections 2 and 3 of this Agreement whether or not any Registration Statement is declared effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including fees and expenses (x) with respect to filings required to be made with the Financial Industry Regulatory Authority, Inc. and (y) of compliance with federal and state securities or Blue Sky laws (including reasonable fees and disbursements of the Special Counsel, if any, in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as Qualified Holders holding a majority of the Registrable Securities being sold pursuant to a Registration Statement may designate)), (ii) printing expenses (including expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Qualified Holders hereunder, (iv) fees and disbursements of counsel for the Trust and the Special Counsel, if any, in connection with any Registration Statement, (v) fees of accountants and reserve engineers for consents and comfort letters and (vi) fees and expenses incurred in connection with the listing by the Trust of the Registrable Securities on any securities exchange on which similar securities of the Trust are then listed. However, the Trust shall pay the internal expenses of the Trust (including all salaries and expenses of employees and agents performing legal or accounting duties), the expense of any annual audit and annual reserve report and the other fees and expenses of the accountants and independent reserve engineers for the Trust not covered by clause (v) of the preceding sentence, other than any expense that would not have otherwise been incurred but for the fact of the filing of the Registration Statement or the timing thereof, the fees and expenses of any person, including special experts, retained by the Trust and the fees and expenses of any transfer agent for the Registrable Securities. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay its own selling expenses, including any underwriting discount and commissions, all registration expenses to the extent required by applicable law and, except as otherwise provided herein, fees and expenses of counsel.
SECTION 6. Indemnification and Contribution.
(a) Indemnification by the Trust. The Trust shall indemnify and hold harmless SandRidge, each Qualified Holder and each person, if any, who controls SandRidge or any Qualified Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including any reasonable legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (Expenses) to which SandRidge, any Qualified Holder or any controlling person of SandRidge or any Qualified Holder may become subject, under or with respect to the Securities Act, the Exchange Act, any other federal or state securities law or otherwise, insofar as such Expenses are caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement at the date and time as of which such Registration Statement was declared effective by the SEC, any preliminary Prospectus or the Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein (in the case of a preliminary Prospectus or Prospectus, in light of the circumstances under which they were made), not misleading, but in each case only with respect to written information relating to the Trust furnished by or on behalf of the Trust specifically for inclusion in the documents referred to in the foregoing indemnity. Subject to Section 6(e) of this Agreement, the Trust shall reimburse SandRidge, the Qualified Holders and any controlling persons thereof for
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any legal or other expenses reasonably incurred by SandRidge, the Qualified Holders or any controlling persons thereof in connection with the investigation or defense of any Expenses with respect to which SandRidge and the Qualified Holders or any controlling persons thereof are entitled to indemnity by the Trust under this Agreement. In connection with any underwritten offering pursuant to Section 8, the Trust will also agree to indemnify the underwriters, if any, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act and the Exchange Act) on terms and conditions similar to those set forth herein with respect to the indemnification of SandRidge and the Qualified Holders, if requested in connection with any Registration Statement, such indemnification to be set forth in any underwriting agreement to be entered into by the Trust with such underwriters.
(b) Indemnification by SandRidge. SandRidge shall indemnify and hold harmless each Qualified Holder (other than SandRidge and SandRidge E&P), the Trust and the Trustee and any agents thereof, individually and as trustee, as the case may be, and each person, if any, who controls such Qualified Holder, the Trust or the Trustee within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any Expenses (excluding, however, any taxes, fees and other charges payable by the Trust on, based on or measured by any fees, commissions or compensation received by the Trust for its services under this Agreement) to which such Qualified Holder, the Trust, the Trustee or any agent thereof or any controlling person of such Qualified Holder, the Trust or the Trustee may become subject, under or with respect to the Securities Act, the Exchange Act, any other federal or state securities law or otherwise, insofar as such Expenses are caused by (i) an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state a material fact required to be stated in or necessary to make the statements therein not misleading at the date and time as of which such Registration Statement was declared effective by the SEC, (ii) an untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus or any Prospectus or an omission or alleged omission to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading as of the date of such preliminary Prospectus or Prospectus and as of the closing of the sale of Trust Units sold thereunder or (iii) any untrue statement or alleged untrue statement of a material fact contained in any other filing, report or other action taken with respect to the Securities Act, the Exchange Act or any other federal or state securities law, the listing of the Trust Units on the New York Stock Exchange or another national securities exchange or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that SandRidge shall not be liable to and shall not indemnify the Qualified Holders (other than SandRidge and SandRidge E&P), the Trust, the Trustee or any agents or controlling persons thereof, individually or as trustee, as the case may be, in any such case under the preceding clauses (i) and (ii) of this Section 6(b) to the extent that any such Expense arises out of, is based upon or is connected with information relating to (a) the Trust in its individual capacity or (b) such Qualified Holder, in either case prepared or furnished by the Trust or such Qualified Holder, as the case may be, expressly for use in any Registration Statement, any preliminary Prospectus or any Prospectus; and provided, further, that SandRidge shall not be liable to the Qualified Holders (other than SandRidge and SandRidge E&P), the Trust or any agents or controlling persons thereof, individually or as trustee, as the case may be, in any such case under the preceding clause (iii) of this Section 6(b) to the extent that any such Expense arises out of, is based upon or is connected with information relating to (a) the Trust in its
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individual capacity prepared or furnished by the Trust and the Trust is found liable or (b) such Qualified Holder prepared or furnished by such Qualified Holder and such Qualified Holder is found liable. Subject to Section 6(e) of this Agreement, SandRidge shall reimburse the Qualified Holders (other than SandRidge and SandRidge E&P), the Trust and the Trustee and any agents or controlling persons thereof for any legal or other expenses reasonably incurred by the Qualified Holders (other than SandRidge and SandRidge E&P), the Trust and the Trustee or any agent or controlling persons thereof in connection with the investigation or defense of any Expenses with respect to which the Qualified Holders (other than SandRidge and SandRidge E&P), the Trust and the Trustee or any agent or controlling persons thereof is entitled to indemnity by SandRidge under this Agreement.
(c) Indemnification by Certain of the Qualified Holders. Each Qualified Holder (other than SandRidge), severally and not jointly, shall indemnify and hold harmless SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, and any other Qualified Holder and each person, if any, who controls SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, or any other Qualified Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Expenses to which SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, any other Qualified Holder or any controlling person of SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, or any other Qualified Holder may become subject, under or with respect to the Securities Act, the Exchange Act, any other federal or state securities law or otherwise, insofar as such Expenses are caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement at the date and time as of which such Registration Statement was declared effective by the SEC, any preliminary Prospectus or the Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein (in the case of a preliminary Prospectus or Prospectus, in light of the circumstances under which they were made), not misleading, but in each case only with respect to written information relating to such Qualified Holder (other than SandRidge) furnished by or on behalf of such Qualified Holder specifically for inclusion in the documents referred to in the foregoing indemnity. Subject to Section 6(e) of this Agreement, such Qualified Holder shall reimburse SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, the other Qualified Holders and any agents or controlling persons thereof for any legal or other expenses reasonably incurred by SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, the other Qualified Holders or any agent or controlling persons thereof in connection with the investigation or defense of any Expenses with respect to which SandRidge, the Trust, the Trustee and any agents thereof, individually and as trustee, and the other Qualified Holders or any agent or controlling persons thereof is entitled to indemnity by such Qualified Holder under this Agreement.
(d) Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 6(a), 6(b) or 6(c) hereof, such person (the Indemnified Party) shall promptly notify the person against whom such indemnity may be sought (the Indemnifying Party) in writing and the Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Indemnifying Party may designate in such
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proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, other than solely by virtue of the rights and obligations of the Indemnifying Party and the Indemnified Party under this Section 6. It is understood that the Indemnifying Party shall not, in respect of the legal expenses of any Indemnified Party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by, in the case of parties indemnified pursuant to Section 6(a), the Qualified Holders holding a majority of the Registrable Securities covered by the Registration Statement held by Qualified Holders that are indemnified parties pursuant to Section 6(a) and, in the case of parties indemnified pursuant to Section 6(b) or Section 6(c), the Trust. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final, non-appealable judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any Expenses by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding.
(e) Contribution. To the extent that the indemnification provided for in Section 6(a), 6(b) or 6(c) is unavailable to an Indemnified Party or insufficient in respect of any Expenses referred to therein, then each Indemnifying Party under such paragraph, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party or Indemnifying Parties on the one hand and the Indemnified Party or Indemnified Parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party or Indemnifying Parties on the one hand and of the Indemnified Party or Indemnified Parties on the other hand in connection with the statements or omissions that resulted in such Expenses, as well as any other relevant equitable considerations. The relative fault of SandRidge and the other Qualified Holders on the one hand and the Trust on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact required to be stated or necessary in order to make the statements (in the case of a preliminary Prospectus or Prospectus, in light of the circumstances under which they were made) not misleading, relates to information supplied by SandRidge, the other Qualified Holders or by the Trust, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Qualified Holders respective obligations to contribute pursuant to this Section 6 are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint.
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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. 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.
(f) The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an Indemnified Party at law or in equity, hereunder or otherwise.
(g) The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Qualified Holder, any person controlling SandRidge or any other Qualified Holder or any Affiliate of SandRidge or any other Qualified Holder or by or on behalf of the Trust, its employees or agents or any person controlling the Trust and (iii) the sale of any Registrable Securities by any Qualified Holder.
SECTION 7. Information Requirements. The Trust covenants that, if at any time before the end of the Effective Period the Trust is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Qualified Holder and take such further reasonable action as any Qualified Holder may reasonably request in writing (including making such reasonable representations as any such Qualified Holder may reasonably request), to enable such Qualified Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 or Rule 144A under the Securities Act and customarily taken in connection with sales pursuant to such exemptions. Upon the written request of any Qualified Holder, the Trust shall deliver to such Qualified Holder a written statement as to whether the Trust has complied with such filing requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Trust to register any of the Trusts securities under any section of the Exchange Act.
SECTION 8. Underwritten Registrations. Qualified Holders of Registrable Securities covered by any Registration Statement may sell such Registrable Securities to an underwriter in an underwritten offering for reoffering to the public. If any of the Registrable Securities covered by any Registration Statement are to be sold in an underwritten offering, the underwriters that will administer the offering will be selected by the Qualified Holders holding a majority of such Registrable Securities included in such offering, subject to the consent of the Trust (which shall not be unreasonably withheld or delayed), and such Qualified Holders shall be responsible for all underwriting commissions and discounts and any transfer taxes in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such persons Registrable Securities on the basis reasonably provided in any underwriting
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arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.
SECTION 9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Trust, SandRidge and Qualified Holders holding a majority of Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Qualified Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Qualified Holders may be given by Qualified Holders of at least a majority of the Registrable Securities being sold by such Qualified Holders pursuant to such Registration Statement; provided, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, this Agreement may be amended by written agreement signed by the Trust, without the consent of the Qualified Holders of Registrable Securities, to cure any ambiguity or to correct or supplement any provision contained herein that may be defective or inconsistent with any other provision contained herein, or to make such other provisions in regard to matters or questions arising under this Agreement that shall not adversely affect the interests of the Qualified Holders of Registrable Securities. Each Qualified Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 9(a), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Qualified Holder.
(b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by facsimile, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by facsimile, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows:
(i) if to a Qualified Holder other than SandRidge or SandRidge E&P, at the most current address of such Qualified Holder on file with the Trust;
if to the Trust or the Trustee, to:
SandRidge Mississippian Trust I
c/o The Bank of New York Mellon Trust Company, N.A.
Institutional Trust Services
919 Congress Avenue, Suite 500
Austin, Texas 78701
Attention: Mike J. Ulrich
Facsimile No.: (512) 479-2253
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with a copy to:
Bracewell & Giuliani LLP
111 Congress Avenue
Suite 2300
Austin, Texas 78701
Attention: Thomas W. Adkins
Fax: (512) 479-3940
if to SandRidge or SandRidge E&P, to:
SandRidge Energy, Inc.
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102-6406
Attention: Philip T. Warman
Facsimile No.: (405) 429-5983
with a copy to:
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David H. Engvall
Facsimile No. (202) 778 5307
or to such other address as such person may have furnished to the other persons identified in this Section 9(b) in writing in accordance herewith.
(c) Approval of Qualified Holders. Whenever the consent or approval of Qualified Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by Affiliates (as such term is defined in Rule 405 under the Securities Act) of the Trust (other than SandRidge, SandRidge E&P or other Qualified Holders if such Qualified Holders are deemed to be Affiliates of the Trust solely by reason of their holding of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Qualified Holders of such required percentage.
(d) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns (including Transferees); provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms hereof. The Registrable Securities acquired by Transferees shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, each such Transferee shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof.
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(e) No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns (including Transferees) 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.
(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate 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 agreement.
(g) Construction. Unless the context requires otherwise: (i) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (ii) references to Articles and Sections refer to Articles and Sections of this Agreement; (iii) the terms include, includes, including or words of like import shall be deemed to be followed by the words without limitation; and (iv) the terms hereof, herein or hereunder refer to this Agreement as a whole and not to any particular provision of this Agreement. The headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(i) Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the registration rights granted by the Trust with respect to the Registrable Securities. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Trust with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights.
(k) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effective Period, except for any liabilities or obligations under Section 4, 5 or 6 hereof, each of which shall remain in effect in accordance with its terms.
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(l) Specific Enforcement; Venue. The parties hereto acknowledge and agree that each would be irreparably damaged if any of the provisions of this Agreement are not performed by the other in accordance with their specific terms or are otherwise breached. It is accordingly agreed that each party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement by the other and to enforce this Agreement and the terms and provisions hereof specifically against the other, in addition to any other remedy to which such aggrieved party may be entitled at law or in equity. Any action or proceeding seeking to enforce any provision of, or based on any rights arising out of, this Agreement may be brought against any of the parties in the federal and Oklahoma state courts sitting in Oklahoma City, Oklahoma and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.
(m) Limitation of Liability. It is expressly understood and agreed by the Parties hereto that (a) this Agreement is executed and delivered by the Trustee not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall the Trustee be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
SandRidge Mississippian Trust I | ||||
By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | |||
By: | /s/ Michael J. Ulrich | |||
Name: | Michael J. Ulrich | |||
Title: | Vice-President |
[Signature page to Registration Rights Agreement]
SandRidge Energy, Inc. | ||||
By: | /s/ James D. Bennett | |||
Name: | James D. Bennett | |||
Title: | Executive Vice President and Chief Financial Officer |
[Signature page to Registration Rights Agreement]