|
|
|
|
|
Total Purchase Price
|
|
$
|
50,413,933
|
|
Less: Estimated Transaction Expenses(1)
|
|
|
(1,000,000
|
)
|
|
|
|
|
|
Estimated Net Proceeds After Transaction Expenses
|
|
$
|
49,413,933
|
|
Less: Estimated Amount Allocable to Enduro's 20% Interest
|
|
|
(9,882,787
|
)
|
|
|
|
|
|
Estimated Amount Allocable to Trust's 80% Interest(2)
|
|
$
|
39,531,146
|
|
Less: Estimated Holdback Amount(3)
|
|
|
(750,000
|
)
|
|
|
|
|
|
Estimated Net Proceeds to be Distributed to Unitholders (80%)
|
|
$
|
38,781,146
|
|
Anticipated Distribution per Trust Unit(4)
|
|
$
|
1.18
|
|
-
(1)
-
Includes
estimated expenses to be incurred relating to the transactions.
-
(2)
-
Based
upon the Net Profits Interest representing the right to receive 80% of the net profits. If Proposals 1, 2 and 3 are approved by the Unitholders but Proposal 4
is not also approved, then 80% of the estimated Proxy/Meeting Expenses, or $560,000, will be added to the amount of net proceeds to be distributed to Unitholders.
-
(3)
-
Estimated
amount to cover possible indemnification obligations under the purchase and sale agreements being retained by Enduro pursuant to the Holdback Agreement.
This amount will be released no later than 25 months after the closing of the transactions.
-
(4)
-
Estimate
of special distribution resulting from the transactions to the 33,000,000 Trust Units outstanding.
Unitholders should be aware that the estimates in the table above are preliminary and subject to change based on numerous factors, most of which are beyond the
control of the Trust and Enduro. The actual amount of proceeds distributed from the sale of the Divestiture Properties could vary materially.
Rationale for the Release of the Net Profits Interest
Enduro believes the release of the Net Profits Interest on the Divestiture Properties is advantageous to Unitholders due to the
capital-intensive nature of any future development, for which capital would be deducted from the net proceeds allocable to the Trust; the potential risk profile of any development; the minimal
production currently associated with the Divestiture Properties; and the limited proved reserves. As further described in the Proposals below, the purchase of the Divestiture Properties by the
purchasers listed in the table above is subject to receipt of the requisite Unitholder approval of each of Proposals 1, 2 and 3 in this Proxy Statement.
Enduro
believes that the following considerations, and characteristics of the Divestiture Properties, provide the rationale for the release of the Net Profits
Interest:
-
-
The total sales price of $50.4 million is above the midpoint of ranges that Enduro obtained from independent parties, and the current
competitive nature of the Permian Basin makes this an advantageous market in which to sell the Divestiture Properties.
-
-
The Divestiture Properties historically have contributed an immaterial amount to the distributions paid to Unitholders. Net profits allocable
to the Trust from the Divestiture Properties were only approximately $0.003 per unit for distributions paid during 2016, compared to total distributions paid during 2016 of approximately $0.26 per
unit.
-
-
The Divestiture Properties comprise a small amount of the proved reserves of the Underlying Properties. Total proved developed producing
reserves for the Divestiture Properties from the
7
Table of Contents
December 31,
2016 SEC reserve report were 254 MBOE of the 10,152 MBOE total proved reserves of the Underlying Properties, or 2.5%.
-
-
The Divestiture Properties produce a relatively small amount of the oil and gas volumes in comparison to the total Underlying Properties. Sales
volumes related to the Divestiture Properties totaled 14,303 Bbls of oil (39 Bbls/D) and 137,932 Mcf of natural gas (377 Mcf/D) for periods related to distributions paid in the year ended
December 31, 2016. This amounts to 37,292 BOE (102 BOE/D) compared to 1,545,954 BOE (4,224 BOE/D) for all the Underlying Properties; therefore, the sales volumes represented approximately 2% of
the sales volumes of the Underlying Properties for such period.
-
-
Upside potential related to the Divestiture Properties is capital-intensive and uncertain and is not reflected in the Trust reserve report. The
anticipated capital necessary to develop the Divestiture Properties is significant, and fluctuations in oil and natural gas prices could significantly alter the anticipated payout of the projects and
estimated profitability.
-
-
The Divestiture Properties are non-operated and Enduro has limited control over the timing of capital investments and development of the
Underlying Properties. Significant capital investments by operators could reduce the distribution to Unitholders substantially or create a deficit. On the other hand, the projects may never be
implemented or the timing could be many years away, thereby delaying, reducing or eliminating any realization of the anticipated present value of the projects.
Amendments to Trust Agreement and Conveyance
In order to permit the release of the Net Profits Interest as necessary to effect the transactions described under
Proposals 1(a) through 1(h) below and to permit, with Unitholder approval, similar transactions in the future, the Unitholders must vote to approve the amendments to both the Trust Agreement and the
Conveyance set forth in Proposals 2 and 3 below. If the Unitholders fail to approve the amendments to both the Trust Agreement and the Conveyance set forth in Proposals 2 and 3 below, then none of the
transactions contemplated by Proposals 1(a) through 1(h) below will occur even if Proposals 1(a) through 1(h) are individually approved by the Unitholders. It is not necessary for the Unitholders to
approve Proposal 4 in order to approve Proposals 1, 2 and 3.
8
Table of Contents
PROPOSAL 1(a)
APPROVAL OF SALE OF THE CHISHOLM PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 5, 2017, Enduro Operating LLC, a Delaware limited liability company and wholly owned subsidiary of Enduro
("
Enduro Operating
"), entered into a purchase and sale agreement (the "
Chisholm PSA
") with Chisholm Energy Holdings, LLC, a Delaware
limited liability company,
located at 801 Cherry Street, Suite 1200, Unit 20, Fort Worth, Texas 76102 ("
Chisholm
"). The Chisholm PSA covers 2,842.73 net acres located in Eddy and Lea
Counties, New Mexico, of which 1,858 net acres are prospective for various zones including the Delaware, Bone Spring and Wolfcamp formations, as well as 34 wells (the "
Chisholm
Properties
").
The
Chisholm Properties generated $118,589 and $92,165 net to the Trust for the years ended December 31, 2016 and 2015, respectively, compared to total Trust income from Net
Profits Interest of $9,216,320 and $14,478,775, respectively, for the same periods. The Chisholm PSA provides for the sale of the Chisholm Properties by Enduro Operating to Chisholm for a purchase
price equal to $28,000,000, subject to (1) customary accounting adjustments and (2) customary adjustments for title defects.
Subject
to the satisfaction of customary conditions to closing, the receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits
Interest requested by this Proposal, the closing date of the transactions contemplated by the Chisholm PSA is expected to occur on or about September 1, 2017. The Chisholm PSA may be
terminated, among other reasons, by either Enduro Operating or Chisholm if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has
not occurred on or before October 31, 2017. The Chisholm PSA provides that neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the
Chisholm Properties free from and unburdened by the Net Profits Interest created by the Conveyance.
The
Chisholm PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the
following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the Chisholm PSA, or any breach or failure to perform any
covenant or obligation of Enduro Operating contained in the Chisholm PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments or other payments
directly relating to the production of hydrocarbons from the Chisholm Properties or the proper accounting or payment to parties for their interests, to the extent (a) not attributable to any
suspense funds and (b) relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
any disposal or transportation of any hazardous materials or hazardous substances attributable to Enduro Operating's ownership or operation of
the Chisholm Properties to any location that is not a part or portion of the Chisholm Properties;
-
-
personal injury (including death) claims relating to the ownership or operation of the Chisholm Properties during the period which Enduro
Operating owned the Chisholm Properties;
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the Chisholm Properties to the extent
attributable to periods of time prior to the effective time; and
9
Table of Contents
-
-
assets excluded from the Chisholm PSA.
Holdback Amount
The Holdback Agreement provides that Enduro will retain an aggregate of $750,000 from the sales proceeds of the Divestiture Properties to
provide a procedure for the Trust to bear its share of any losses resulting from any such indemnities contained in the purchase and sale agreements. The amount of the holdback is allocated among the
respective Divestiture Properties based upon the sales price of each Divestiture Property. Pursuant to the Holdback Agreement, Enduro intends to retain $425,000 of the net proceeds from the sale of
the Chisholm Properties in a segregated account (the "
Chisholm Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining
in such account would be distributed with the next regularly scheduled monthly distribution to Unitholders.
No Material Relationships
Enduro and Enduro Operating, on the one hand, and Chisholm, on the other hand, do not have any material relationship other than the purchase and
sale transaction contemplated by the Chisholm PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the Chisholm PSA is expected to be: (1) $22,400,000 (80% of $28,000,000)
less
(2) eighty percent (80%) of the legal,
accounting and other fees and expenses associated with the transaction contemplated by the Chisholm PSA
less
(3) the applicable portion of the
Proxy/Meeting Expenses payable by the Trust,
less
(4) the Chisholm Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to:
(1) $5,600,000 (20% of $28,000,000)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the
transaction contemplated by the Chisholm PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(a). Accordingly, abstentions and broker non-votes on Proposal 1(a) will have the effect of a vote "AGAINST" Proposal 1(a).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(a), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(a).
Enduro intends to vote its Trust Units "FOR" Proposal 1(a). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(a).
10
Table of Contents
PROPOSAL 1(b)
APPROVAL OF SALE OF THE OXY PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 5, 2017, Enduro Operating entered into a purchase and sale agreement (the "
OXY PSA
") with OXY
USA, Inc., a Delaware corporation, located at 5 Greenway Plaza, Houston, Texas 77046 ("
OXY
"). The OXY PSA covers 1,528.35 net acres located in Eddy County, New
Mexico, of which 1,259 net acres are prospective for various zones, including the Bone Spring and Wolfcamp formations (the "
OXY Properties
").
The
OXY Properties do not include any producing wells and therefore did not generate any proceeds to the Trust for the years ended December 31, 2016 and 2015. The OXY PSA provides
for the sale of the OXY Properties by Enduro Operating to OXY for a purchase price equal to $10,073,355 subject to customary accounting adjustments.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest
requested by this Proposal, the closing date of the transactions contemplated by the OXY PSA is expected to occur on or about September 1, 2017. The OXY PSA may be terminated, among other
reasons, by either Enduro Operating or OXY if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before
October 31, 2017, or such later date as the parties may agree. Oxy will not be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the OXY Properties free
from and unburdened by the Net Profits Interest created by the Conveyance.
The
OXY PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the OXY PSA, or any breach or failure to perform any covenant
or obligation of Enduro Operating contained in the OXY PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments or other payments
directly relating to the production of hydrocarbons from the OXY Properties or the proper accounting or payment to parties for their interests relating to the period of time prior to the effective
time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
to the extent applicable to any period prior to the effective time, any obligations to pay the applicable governmental body any amounts subject
to escheat obligations;
-
-
any expenses incurred by Enduro Operating during the periods prior to the effective time relating to the OXY Properties;
-
-
any proceeding relating to the OXY Properties existing on or prior to the closing date;
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the OXY Properties to the extent
attributable to periods of time prior to the effective time; and
-
-
assets excluded from the OXY PSA.
11
Table of Contents
Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to holdback $150,000 of the net proceeds from the sale of the OXY Properties in a segregated
account (the "
OXY Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be distributed with the
next regularly scheduled monthly distribution to Unitholders.
No Material Relationships
Enduro and Enduro Operating, on the one hand, and OXY, on the other hand, do not have any material relationship other than the purchase and sale
transaction contemplated by the OXY PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the OXY PSA is expected to be: (1) $8,058,684 (80% of $10,073,355)
less
(2) eighty percent (80%) of the legal, accounting
and other fees and expenses associated with the transaction contemplated by the OXY PSA
less
(3) the applicable portion of the Proxy/Meeting
Expenses payable by the Trust,
less
(4) the OXY Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to:
(1) $2,014,671 (20% of $10,073,355)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the
transaction contemplated by the OXY PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(b). Accordingly, abstentions and broker non-votes on Proposal 1(b) will have the effect of a vote "AGAINST" Proposal 1(b).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(b), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(b).
Enduro intends to vote its Trust Units "FOR" Proposal 1(b). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(b).
12
Table of Contents
PROPOSAL 1(c)
APPROVAL OF SALE OF THE FORGE PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 5, 2017, Enduro Operating entered into a purchase and sale agreement (the "
Forge PSA
") with Forge
Energy, LLC, a Delaware limited liability company, located at 10999 IH-10 West, Suite 900, San Antonio, Texas 78230 ("
Forge
"). The Forge PSA covers 214.93
net acres located in Ward County, Texas that are prospective for the Bone Spring and Wolfcamp formations, as well as seven (7) wells (the "
Forge Properties
").
The
Forge Properties generated $2,991 and $21,290 net to the Trust for the year ended December 31, 2016 and 2015, respectively, compared to total Trust income from Net Profits
Interest of $9,216,320 and $14,478,775, respectively, for the same periods. The Forge PSA provides for the sale of the Forge Properties by Enduro Operating to Forge for a purchase price equal to
$5,000,000, subject to (1) customary accounting adjustments and (2) customary adjustments for title defects.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest
request by this Proposal, the closing date of the transactions contemplated by the Forge PSA is expected to occur on or about September 1, 2017. The Forge PSA may be terminated, among other
reasons, by either Enduro Operating or Forge if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before
October 31, 2017. The Forge PSA provides that neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the Forge Properties free from and
unburdened by the Net Profits Interest created by the Conveyance.
The
Forge PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the
following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the Forge PSA, or any breach or failure to perform any
covenant or obligation of Enduro Operating contained in the Forge PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments or other payments
directly relating to the production of hydrocarbons from the Forge Properties or the proper accounting or payment to parties for their interests, to the extent not attributable to any suspense funds
and relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the Forge Properties to the extent
attributable to periods of time prior to the effective time; and
-
-
assets excluded from the Forge PSA.
Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to retain $75,000 of the net proceeds from the sale of the Forge Properties in a segregated
account (the "
Forge Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be distributed with
the next regularly scheduled monthly distribution to Unitholders.
13
Table of Contents
No Material Relationships
Enduro and Enduro Operating, on the one hand, and Forge, on the other hand, do not have any material relationship other than the purchase and
sale transaction contemplated by the Forge PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the Forge PSA is expected to be: (1) $4,000,000 (80% of $5,000,000)
less
(2) eighty percent (80%) of the legal, accounting
and other fees and expenses associated with the transaction contemplated by the Forge PSA
less
(3) the applicable portion of the Proxy/Meeting
Expenses payable by the Trust,
less
(4) the Forge Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to:
(1) $1,000,000 (20% of $5,000,000)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the
transaction contemplated by the Forge PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(c). Accordingly, abstentions and broker non-votes on Proposal 1(c) will have the effect of a vote "AGAINST" Proposal 1(c).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(c), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(c).
Enduro intends to vote its Trust Units "FOR" Proposal 1(c). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(c).
14
Table of Contents
PROPOSAL 1(d)
APPROVAL OF SALE OF THE SUMMIT PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 6, 2017, Enduro Operating entered into a purchase and sale agreement (the "
Summit PSA
") with Summit
West Resources LP, a Texas limited partnership, located at 550 W. Texas Avenue #700, Midland, Texas 79701 ("
Summit
"). The Summit PSA covers 65.25 net acres
located in Upton County, Texas that are prospective for the Spraberry and Wolfcamp formations, as well as 26 wells (the "
Summit Properties
").
The
Summit Properties generated $32,968 and $85,934 net to the Trust for the year ended December 31, 2016 and 2015, respectively, compared to total Trust income from Net Profits
Interest of $9,216,320 and $14,478,775, respectively, for the same periods. The Summit PSA provides for the sale of the Summit Properties by Enduro Operating to Summit for a purchase price equal to
$2,300,000, subject to (1) customary accounting adjustments and (2) customary adjustments for title defects.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest
requested by this
Proposal, the closing date of the transactions contemplated by the Summit PSA is expected to occur on or about September 1, 2017. The Summit PSA may be terminated, among other reasons, by
either Enduro Operating or Summit if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before
October 31, 2017. The Summit PSA provides that neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the Summit Properties free from and
unburdened by the Net Profits Interest created by the Conveyance.
The
Summit PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the
following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the Summit PSA, or any breach or failure to perform any
covenant or obligation of Enduro Operating contained in the Summit PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments or other payments
directly relating to the production of hydrocarbons from the Summit Properties or the proper accounting or payment to parties for their interests, to the extent not attributable to any suspense funds
and relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the Summit Properties to the extent
attributable to periods of time prior to the effective time; and
-
-
assets excluded from the Summit PSA.
Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to retain $35,000 of the net proceeds from the sale of the Summit Properties in a segregated
account (the "
Summit Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be distributed with
the next regularly scheduled monthly distribution to Unitholders.
15
Table of Contents
No Material Relationships
Enduro and Enduro Operating, on the one hand, and Summit, on the other hand, do not have any material relationship other than the purchase and
sale transaction contemplated by the Summit PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the Summit PSA is expected to be: (1) $1,840,000 (80% of $2,300,000)
less
(2) eighty percent (80%) of the legal,
accounting and other fees and expenses associated with the transaction contemplated by the Summit PSA,
less
(3) the applicable portion of the
Proxy/Meeting Expenses payable by the Trust,
less
(4) the Summit Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to: (1) $460,000
(20% of $2,300,000)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the transaction
contemplated by the Summit PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(d). Accordingly, abstentions and broker non-votes on Proposal 1(d) will have the effect of a vote "AGAINST" Proposal 1(d).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(d), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(d).
Enduro intends to vote its Trust Units "FOR" Proposal 1(d). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(d).
16
Table of Contents
PROPOSAL 1(e)
APPROVAL OF SALE OF THE DE MIDLAND PROPERTIES, RELEASE OF RELATED NET
PROFITS INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 6, 2017, Enduro Operating entered into a purchase and sale agreement (the "
DE Midland PSA
")
with DE Midland III LLC, a Delaware limited liability company, located at 1401 Ballinger Street, Suite 200, Fort Worth, Texas 76102 ("
DE Midland
").
The DE Midland PSA covers
156.18 net acres located in Glasscock County, Texas that are prospective for the Spraberry and Wolfcamp formations, as well as nine (9) wells (the "
DE Midland
Properties
").
The
DE Midland Properties caused net profits allocable to the Trust to be reduced by $11,532 for the year ended December 31, 2016 and generated $47,045 net to the Trust for the
year ended December 31, 2015, compared to total Trust income from Net Profits Interest of $9,216,320 and $14,478,775, for the years ended December 31, 2016 and 2015, respectively. The DE
Midland PSA provides for the sale of the DE Midland Properties by Enduro Operating to DE Midland for a purchase price equal to $1,600,000, subject to (1) customary accounting adjustments and
(2) customary adjustments for title defects.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest,
the closing date of the transactions contemplated by the DE Midland PSA is expected to occur on or about September 1, 2017. The DE Midland PSA may be terminated, among other reasons, by either
Enduro Operating or DE Midland if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before
October 31, 2017. The DE Midland PSA provides that neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the DE Midland Properties free
from and unburdened by the Net Profits Interest created by the Conveyance.
The
DE Midland PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the
following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the DE Midland PSA, or any breach or failure to perform any
covenant or obligation of Enduro Operating contained in the DE Midland PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments, delay rentals or other
payments directly relating to the production of hydrocarbons from the DE Midland Properties or the proper accounting or payment to parties for their interests, to the extent not attributable to any
suspense funds and relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
offsite disposal at a facility that is not located on or a part of the DE Midland Properties of any substance defined or regulated as a
"pollutant," "hazardous waste," or "hazardous substance" under any environmental law that was generated or used on the DE Midland Properties, to the extent that such disposal occurred prior to the
closing date;
-
-
personal injury, death of any person, or property damage attributable to Enduro Operating's ownership or operation of the DE Midland Properties
arising prior to the closing date;
-
-
liabilities related to the employment relationship between Enduro Operating and any of Enduro Operating's present or former employees or the
termination of any such employment relationship;
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-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the DE Midland Properties to the
extent attributable to periods of time prior to the effective time; and
-
-
assets excluded from the DE Midland PSA.
Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to retain $25,000 of the net proceeds from the sale of the DE Midland Properties in a
segregated account (the "
DE Midland Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be
distributed with the next regularly scheduled monthly distribution to Unitholders.
No Material Relationships
Enduro and Enduro Operating, on the one hand, and DE Midland, on the other hand, do not have any material relationship other than the purchase
and sale transaction contemplated by the DE Midland PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the DE Midland PSA is expected to be: (1) $1,280,000 (80% of $1,600,000)
less
(2) eighty percent (80%) of the legal,
accounting and other fees and expenses associated with the transaction contemplated by the DE Midland PSA
less
(3) the applicable portion of the
Proxy/Meeting Expenses payable by the Trust,
less
(4) the DE Midland Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to: (1) $320,000
(20% of $1,600,000)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the transaction
contemplated by the DE Midland PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(e). Accordingly, abstentions and broker non-votes on Proposal 1(e) will have the effect of a vote "AGAINST" Proposal 1(e).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(e), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(e).
Enduro intends to vote its Trust Units "FOR" Proposal 1(e). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(e).
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PROPOSAL 1(f)
APPROVAL OF SALE OF THE PARSLEY PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 6, 2017, Enduro Operating entered into a purchase and sale agreement (the "
Parsley PSA
") with
Parsley Energy, LP, a Texas limited partnership, located at 303 Colorado Street, Suite 3000, Austin, Texas 78701 ("
Parsley
"). The Parsley PSA covers 50.96
net acres located in Howard County, Texas that are prospective for the Spraberry and Wolfcamp formations, as well as one (1) well (the "
Parsley Properties
").
The
Parsley Properties caused net profits allocable to the Trust to be reduced by $31,069 and $20,016 for the years ended December 31, 2016 and 2015, respectively, compared to
total Trust income from Net Profits Interest of $9,216,320 and $14,478,775, respectively, for the same periods. The Parsley PSA provides for the sale of the Parsley Properties by Enduro Operating to
Parsley for a purchase price equal to $1,273,935, subject to (1) customary accounting adjustments and (2) customary adjustments for title defects.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest,
the closing date of the transactions contemplated by the Parsley PSA is expected to occur on or about September 1, 2017. The Parsley PSA may be terminated, among other reasons, by either Enduro
Operating or Parsley if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before October 31, 2017.
The Parsley PSA provides that neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the Parsley Properties free from and unburdened by the Net
Profits Interest created by the Conveyance.
The
Parsley PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the
following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the Parsley PSA, or any breach or failure to perform any
covenant or obligation of Enduro Operating contained in the Parsley PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments, delay rentals or other
payments directly relating to the production of hydrocarbons from the Parsley Properties or the proper accounting or payment to parties for their interests, to the extent not attributable to any
suspense funds and relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
offsite disposal at a facility that is not located on or a part of the Parsley Properties of any substance defined or regulated as a
"pollutant," "hazardous waste," or "hazardous substance" under any environmental law that was generated or used on the Parsley Properties, to the extent that such disposal occurred prior to the
closing date;
-
-
personal injury, death of any person, or property damage attributable to Enduro Operating's ownership or operation of the Parsley Properties
arising prior to the closing date;
-
-
liabilities related to the employment relationship between Enduro Operating and any of Enduro Operating's present or former employees or the
termination of any such employment relationship;
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the Parsley Properties to the extent
attributable to periods of time prior to the effective time; and
-
-
assets excluded from the Parsley PSA.
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Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to retain $20,000 of the net proceeds from the sale of the Parsley Properties in a segregated
account (the "
Parsley Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be distributed with
the next regularly scheduled monthly distribution to Unitholders.
No Material Relationships
Enduro and Enduro Operating, on the one hand, and Parsley, on the other hand, do not have any material relationship other than the purchase and
sale transaction contemplated by the Parsley PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the Parsley PSA is expected to be: (1) $1,019,148 (80% of $1,273,935)
less
(2) eighty percent (80%) of the legal,
accounting and other fees and expenses associated with the transaction contemplated by the Parsley PSA,
less
(3) the applicable portion of the
Proxy/Meeting Expenses payable by the Trust,
less
(4) the Parsley Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to: (1) $254,787
(20% of $1,273,935)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the transaction
contemplated by the Parsley PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(f). Accordingly, abstentions and broker non-votes on Proposal 1(f) will have the effect of a vote "AGAINST" Proposal 1(f).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(f), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(f).
Enduro intends to vote its Trust Units "FOR" Proposal 1(f). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(f).
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PROPOSAL 1(g)
APPROVAL OF SALE OF THE TRACKER PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 5, 2017, Enduro Operating entered into a purchase and sale agreement (the "
Tracker PSA
") with
Tracker Resource Development III LLC, a Delaware limited liability company, located at 1050 17th Street, Suite 2200, Denver, Colorado 80265
("
Tracker
"). The Tracker PSA covers
201.13 net acres located in Irion County, Texas that are prospective for the Wolfcamp formation, as well as six (6) wells (the "
Tracker Properties
").
The
Tracker Properties caused net profits allocable to the Trust to be reduced by $17,671 and $11,460 for the years ended December 31, 2016 and 2015, respectively, compared to
total Trust income from Net Profits Interest of $9,216,320 and $14,478,775, respectively, for the same periods. The Tracker PSA provides for the sale of the Tracker Properties by Enduro Operating to
Tracker for a purchase price equal to $1,206,750, subject to customary accounting adjustments.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest,
the closing date of the transactions contemplated by the Tracker PSA is expected to occur on or about September 1, 2017. The Tracker PSA may be terminated, among other reasons, by either Enduro
Operating or Tracker if the Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before September 30, 2017.
The Tracker PSA provides that neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the Tracker Properties free from and unburdened by the Net
Profits Interest created by the Conveyance.
The
Tracker PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the
following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the Tracker PSA, or any breach or failure to perform any
covenant or obligation of Enduro Operating contained in the Tracker PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments or other payments
directly relating to the production of hydrocarbons from the Tracker Properties or the proper accounting or payment to parties for their interests, to the extent (a) not attributable to any
suspense funds and (b) relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
any personal injury, casualty, or death occurring on or attributable to the Tracker Properties prior to the closing date;
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the Tracker Properties to the extent
attributable to periods of time prior to the effective time;
-
-
any contamination or condition that is the result of any off-site transport or disposal of any hazardous substances from the Tracker Properties
to a commercial disposal facility prior to the closing date;
-
-
the gross negligence or willful misconduct of Enduro Operating or its affiliates with respect to Enduro Operating's ownership or operation of
the Tracker Properties; and
-
-
assets excluded from the Tracker PSA.
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Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to retain $10,000 of the net proceeds from the sale of the Tracker Properties in a segregated
account (the "
Tracker Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be distributed with
the next regularly scheduled monthly distribution to Unitholders.
No Material Relationships
Enduro and Enduro Operating, on the one hand, and Tracker, on the other hand, do not have any material relationship other than the purchase and
sale transaction contemplated by the Tracker PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the Tracker PSA is expected to be: (1) $965,400 (80% of $1,206,750)
less
(2) eighty percent (80%) of the legal, accounting
and other fees and expenses associated with the transaction contemplated by the Tracker PSA
less
(3) the applicable portion of the Proxy/Meeting
Expenses payable by the Trust,
less
(4) the Tracker Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to: (1) $241,350
(20% of $1,206,750)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the transaction
contemplated by the Tracker PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(g). Accordingly, abstentions and broker non-votes on Proposal 1(g) will have the effect of a vote "AGAINST" Proposal 1(g).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(g), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(g).
Enduro intends to vote its Trust Units "FOR" Proposal 1(g). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(g).
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PROPOSAL 1(h)
APPROVAL OF SALE OF THE QEP PROPERTIES, RELEASE OF RELATED NET PROFITS
INTEREST AND DISTRIBUTION OF NET PROCEEDS FROM SUCH SALE
General
On June 6, 2017, Enduro Operating entered into a purchase and sale agreement (the "
QEP PSA
") with QEP Energy
Company, a Texas corporation, located at 1050 17th Street, Suite 800, Denver, Colorado 80265 ("
QEP
"). The QEP PSA covers 19.20 net acres located in Martin
County, Texas that are prospective for the Spraberry and Wolfcamp formations, as well as one (1) well (the "
QEP Properties
").
The
QEP Properties generated $8,572 and $17,824 net to the Trust for the years ended December 31, 2016 and 2015, respectively, compared to total Trust income from Net Profits
Interest of $9,216,320 and $14,478,775, respectively, for the same periods. The QEP PSA provides for the sale of the QEP Properties by Enduro Operating to QEP for a purchase price equal to
$959,893.40, subject to (1) customary accounting adjustments and (2) customary adjustments for title defects.
Subject
to the satisfaction of customary conditions to closing, receipt of the requisite Unitholder approval with respect to the transaction and the release of the Net Profits Interest,
the closing date of
the transactions contemplated by the QEP PSA is expected to occur on or about September 1, 2017. The QEP PSA may be terminated, among other reasons, by either Enduro Operating or QEP if the
Special Meeting has concluded and the requisite Unitholder approval shall not have been obtained or if the closing has not occurred on or before October 31, 2017. The QEP PSA provides that
neither party will be obligated to close if the Trustee and the Unitholders fail to approve the disposition of the QEP Properties free from and unburdened by the Net Profits Interest created by the
Conveyance.
The
QEP PSA contains customary indemnities from Enduro Operating for transactions of this nature, including, without limitation, the following:
-
-
any breach of the representations and warranties of Enduro Operating contained in the QEP PSA, or any breach or failure to perform any covenant
or obligation of Enduro Operating contained in the QEP PSA;
-
-
the payment, underpayment or nonpayment of royalties, overriding royalties, production payments, net profits payments or other payments
directly relating to the production of hydrocarbons from the QEP Properties or the proper accounting or payment to parties for their interests, to the extent not attributable to any suspense funds and
relating to the period of time prior to the effective time (which is May 1, 2017 at 7:00 am Central Daylight Time);
-
-
the payment, underpayment or nonpayment by Enduro Operating of property taxes and excise taxes related to the QEP Properties to the extent
attributable to periods of time prior to the effective time; and
-
-
assets excluded from the QEP PSA.
Holdback Amount
Pursuant to the Holdback Agreement, Enduro intends to retain $10,000 of the net proceeds from the sale of the QEP Properties in a segregated
account (the "
QEP Holdback Amount
") for a period of two years after the closing of such sale, after which any funds remaining in such account would be distributed with the
next regularly scheduled monthly distribution to Unitholders.
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No Material Relationships
Enduro and Enduro Operating, on the one hand, and QEP, on the other hand, do not have any material relationship other than the purchase and sale
transaction contemplated by the QEP PSA.
Amounts Distributed
If this Proposal is approved, the amount to be distributed to Unitholders within 45 days after the closing of the transaction
contemplated by the QEP PSA is expected to be: (1) $767,914 (80% of $959,893)
less
(2) eighty percent (80%) of the legal, accounting and
other fees and expenses associated with the transaction contemplated by the QEP PSA
less
(3) the applicable portion of the Proxy/Meeting Expenses
payable by the Trust,
less
(4) the QEP Holdback Amount.
If
this Proposal is approved, Enduro is expected to receive, in addition to any distribution it receives with respect to the Trust Units it holds, an amount equal to: (1) $191,979
(20% of $959,893)
less
(2) twenty percent (20%) of the legal, accounting and other fees and expenses associated with the transaction contemplated
by the QEP PSA,
less
(3) the applicable portion of the Proxy/Meeting Expenses payable by Enduro.
Required Vote
The affirmative vote of Unitholders, who as of the Record Date, held at least 75% of the Trust Units represented in person or by proxy at the
Special Meeting is required to approve Proposal 1(h). Accordingly, abstentions and broker non-votes on Proposal 1(h) will have the effect of a vote "AGAINST" Proposal 1(h).
If
the enclosed Proxy is returned and you have indicated how you wish to vote, the Proxy will be voted in accordance with your instructions. If the enclosed Proxy is returned without
instructions on how you wish to vote on Proposal 1(h), your Proxy will be deemed to grant such authority and will be voted "FOR" Proposal 1(h).
Enduro intends to vote its Trust Units "FOR" Proposal 1(h). The Trustee is not making a recommendation to Unitholders as to how to vote on Proposal
1(h).
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