Exhibit 10.1

Execution Version

OPTION AGREEMENT

BY AND AMONG

NEW SOURCE ENERGY PARTNERS L.P.

(“HOLDER”)

AND

KRISTIAN B. KOS

DIKRAN TOURIAN

SIGNATURE INVESTMENTS, LLC

TORUS ENERGY SERVICES, LLC

(“TORUS PARTIES”)

November 12, 2013

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TABLE OF CONTENTS

 

ARTICLE I

  

DEFINITIONS AND INTERPRETATIONS

  

1.1

  Definitions      2   

1.2

  Interpretations      2   

ARTICLE II

  

THE OPTION

  

2.1

  The Option      2   

2.2

  Option Exercise; Termination      2   

2.3

  Consideration for MidCentral Services Interest      3   

2.4

  Total Consideration Determination      3   

ARTICLE III

  

REPRESENTATIONS AND WARRANTIES OF TORUS

  

3.1

  Organization and Qualification      4   

3.2

  Absence of Conflicts; Consents      4   

3.3

  Authority; Enforceability      5   

ARTICLE IV

  

REPRESENTATIONS AND WARRANTIES OF THE HOLDER

  

4.1

  Organization; Qualification      5   

4.2

  Authority; Enforceability      5   

4.3

  Non-Contravention      6   

ARTICLE V

  

ADDITIONAL AGREEMENTS

  

5.1

  Activities of MidCentral Services      6   

ARTICLE VI

  

GOVERNING LAW AND CONSENT TO JURISDICTION

  

6.1

  Governing Law      7   

6.2

  Submission to Jurisdiction      7   

6.3

  Waiver Of Jury Trial      7   

ARTICLE VII

  

GENERAL PROVISIONS

  

7.1

  Amendment      8   

7.2

  Waiver; Remedies Cumulative      8   

7.3

  Notices      8   

7.4

  Assignment      9   

7.5

  Third Party Beneficiaries      9   

7.6

  Entire Agreement      9   

7.7

  Severability      9   

 

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7.8

  Disclaimer      9   

7.9

  Representation by Counsel      9   

7.10

  Counterparts      10   

 

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OPTION AGREEMENT

This OPTION AGREEMENT (this “Agreement”), dated as of November 12, 2013 (the
“Execution Date”), is made and entered into by and among New Source Energy
Partners L.P., a Delaware limited partnership (the “Partnership” or “Holder”),
and Kristian B. Kos, an individual residing in Oklahoma City, Oklahoma
(“Mr. Kos”), Dikran Tourian, an individual residing in Edmond, Oklahoma (“Mr.
Tourian”), Signature Investments, LLC, an Oklahoma limited liability company
(“Signature”, and collectively with Mr. Kos and Mr. Tourian, the “Torus
Owners”), and Torus Energy Services, LLC, an Oklahoma limited liability company
(“Torus” and, collectively with the Torus Owners, the “Torus Parties” and each
individually a “Torus Party”).

Each of the parties to this Agreement is sometimes referred to individually in
this Agreement as a “Party” and all of the parties to this Agreement are
sometimes collectively referred to in this Agreement as the “Parties.”

R E C I T A L S

WHEREAS, reference is hereby made to that certain Contribution Agreement, dated
as of November 12, 2013, by and among the Partnership and Mr. Kos, Mr. Tourian,
Danny R. Pickelsimer, an individual residing in Yukon, Oklahoma, Antranik
Armoudian, an individual residing in Tulsa, Oklahoma, Deylau, LLC, a Delaware
limited liability company, Signature and MCE, LLC, a Delaware limited liability
company (the “MCE Contribution Agreement”);

WHEREAS, Mr. Tourian is the sole member of Signature;

WHEREAS, Signature and Mr. Kos are all of the members of Torus;

WHEREAS, Torus owns all of the outstanding limited liability company membership
interests in MidCentral Completion Services, LLC, an Oklahoma limited liability
company (“MidCentral Services”);

WHEREAS, subject to the terms and conditions set forth herein, Torus desires to
grant the Holder the right to require Torus to cause all of the outstanding
limited liability company interests in MidCentral Services (the “MidCentral
Services Interest”) to be contributed to the Holder and, assigned, transferred
and delivered to MCE, LP, a Delaware limited partnership (“MCE”), in exchange
for the consideration set forth herein;

A G R E E M E N T S

NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, agreements and covenants contained in this
Agreement, and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the Parties undertake and agree as
follows:

 

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ARTICLE I

DEFINITIONS AND INTERPRETATIONS

1.1 Definitions. Capitalized terms used in this Agreement but not defined in the
body of this Agreement shall have the meanings ascribed to them in Exhibit A.
Capitalized terms defined in the body of this Agreement are listed in Exhibit A
with reference to the location of the definitions of such terms in the body of
this Agreement.

1.2 Interpretations. In this Agreement, unless a clear contrary intention
appears: (a) the singular includes the plural and vice versa; (b) reference to a
Person includes such Person’s successors and assigns but, in the case of a
Party, only if such successors and assigns are permitted by this Agreement, and
reference to a Person in a particular capacity excludes such Person in any other
capacity; (c) reference to any gender includes each other gender; (d) references
to any Exhibit, Schedule, Section, Article, Annex, subsection and other
subdivision refer to the corresponding Exhibits, Schedules, Sections, Articles,
Annexes, subsections and other subdivisions of this Agreement unless expressly
provided otherwise; (e) references in any Section or Article or definition to
any clause means such clause of such Section, Article or definition;
(f) “hereunder,” “hereof,” “hereto” and words of similar import are references
to this Agreement as a whole and not to any particular provision hereof; (g) the
word “or” is not exclusive, and the word “including” (in its various forms)
means including without limitation; (h) each accounting term not otherwise
defined in this Agreement has the meaning commonly applied to it in accordance
with GAAP; (i) references to “days” are to calendar days; and (j) all references
to money refer to the lawful currency of the United States. Article and Section
titles and headings in this Agreement are inserted for convenience of reference
only and are not intended to be a part of, or to affect the meaning or
interpretation of, this Agreement.

ARTICLE II

THE OPTION

2.1 The Option. Torus hereby grants to the Holder the right and option to cause
Torus (and the Torus Owners shall cause Torus) to contribute to the Holder and
assign, transfer and deliver to MCE, on the terms and conditions hereinafter set
forth, all, but not less than all, of the MidCentral Services Interest (the
“Option”). If the Option is exercised in accordance with Section 2.2, Torus
shall (and the Torus Owners shall cause Torus to), in accordance with the terms
of this Agreement, assign, transfer and deliver the MidCentral Services Interest
to MCE. The Holder acknowledges and agrees that it shall have the right to
acquire the MidCentral Services Interest exclusively through MCE.

2.2 Option Exercise; Termination.

(a) Subject to Section 2.2(b) below, the Holder shall have the right to exercise
the Option any time within 60 days of the occurrence of a Tax Event (the
“Exercise Period”). In order to exercise the Option, the Holder must provide
written notice (the “Exercise Notice”) of its intent to exercise the Option to
Torus during the Exercise Period. At any time prior to the expiration of the
Exercise Period the Holder may, by providing written notice to Torus, withdraw
its Exercise Notice.

 

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(b) If not properly exercised pursuant to Section 2.2(a), the Option and this
Agreement shall automatically terminate on the earlier of (i) the day following
the expiration of the Exercise Period and (ii) May 31, 2015, in either such case
without any action by any Person.

2.3 Consideration for MidCentral Services Interest. The consideration to be
delivered by the Holder to Torus in exchange for the contribution, assignment,
transfer and delivery of the MidCentral Services Interest to the Holder shall
consist of (a) a number of Common Units issued to Torus (or to the Torus Owners
if requested by Torus) equal to the Initial Consideration as set forth in, and
paid in accordance with, Section 2.4 below, plus (b) an additional number of
Common Units issued to Torus (or to the Torus Owners if requested by Torus)
equal to the Earn-out Consideration as set forth in, and paid in accordance
with, Section 2.4 below (collectively, the “Total Consideration”).

2.4 Total Consideration Determination.

(a) If the Holder elects to exercise the Option by delivering the Exercise
Notice in accordance with Section 2.2(a), then, not later than five (5) Business
Days following the date on which the Exercise Notice is provided (the “Exercise
Date”), Torus shall deliver to the Holder its calculation of the “Initial
Consideration,” determined in good faith, calculated as the amount equal to: 5.0
times the EBITDA attributed to MidCentral Services for the quarter ended
March 31, 2014, on an annualized basis, less the Net Debt of MidCentral
Services.

(b) Following the Holder’s receipt of Torus’s calculation of the Initial
Consideration, the Holder and the Torus Parties shall negotiate in good faith a
contribution or similar agreement related to the conveyance of the MidCentral
Services Interest (the “MidCentral Services Contribution Agreement”), with terms
and provisions substantially similar to those contained in the MCE Contribution
Agreement. In addition to the payment of the Initial Consideration, the
Contribution Agreement shall provide for a contingent earn-out payment to be
made to Torus (or to the Torus Owners if requested by Torus) equal to: 5.0 times
the EBITDA attributed to MidCentral Services for the nine months ended March 31,
2015, on an annualized basis, less (i) the Initial Consideration and (ii) any
Partnership Investments for the period from the Closing Date through March 31,
2015 (the “Earn-out Consideration”). The MidCentral Services Contribution
Agreement shall also include customary provisions regarding consummation of the
conveyance of the MidCentral Services Interest.

(c) On the Closing Date, the Holder shall issue to Torus (or to the Torus Owners
if requested by Torus, in accordance with such allocation as Torus shall
specify) a number of Common Units equal to the Initial Consideration divided by
the Volume Weighted Average Price of the Common Units for the twenty
(20) Trading Days ending one Trading Day prior to the Closing Date (the “Initial
Common Unit Consideration”).

(d) On or before May 1, 2015, the Holder shall issue to Torus (or to the Torus
Owners if requested by Torus, in accordance with such allocation as Torus shall
specify) a number of Common Units equal to the Earn-out Consideration divided by
the Volume Weighted Average Price of the Common Units for the twenty
(20) Trading Days ending three Trading Days prior to the date of such payment
(the “Earn-out Common Unit Consideration” and, collectively with the Initial
Common Unit Consideration, the “Common Unit Consideration”).

 

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(e) Notwithstanding the foregoing, if between the date of this Agreement and the
date of payment of any portion of the Common Unit Consideration pursuant to
Sections 2.4(c) and 2.4(d) above, the Common Units shall have been changed into
a different number of shares or units or a different class or an equity interest
in another Person, by reason of any distribution (but excluding any quarterly
cash distribution paid by the Holder to its unitholders), subdivision,
reclassification, recapitalization, split, combination, exchange of shares or
units, merger, consolidation or similar transaction (a “Fundamental
Transaction”), the Common Unit Consideration shall be appropriately adjusted in
the reasonable discretion of the Holder to reflect such event. Notwithstanding
the foregoing, if in a Fundamental Transaction the Common Units are changed into
cash, property or securities that are not listed for trading on a U.S. national
or regional securities exchange, the Common Unit Consideration shall be deemed
to be the Total Consideration and shall be payable entirely in cash.

(f) The Common Units to be issued under this Section 2.4 will, when issued, be
validly issued, fully paid and nonassessable and will be issued by the Holder
free of any Liens and restrictions on transfer other than restrictions on
transfer under the Securities Act.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF TORUS

Each Torus Party hereby severally, and not jointly, represents and warrants to
the Holder, as follows:

3.1 Organization and Qualification. MidCentral Services is a legal entity duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its organization, has all requisite organizational power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business as a foreign entity in each jurisdiction in which the nature of the
business conducted by it or the ownership, leasing or operating of its
properties makes such qualification necessary, other than any failure to be so
qualified in any such foreign jurisdiction as would not have a Torus Material
Adverse Effect.

3.2 Absence of Conflicts; Consents.

(a) The execution and delivery by such Torus Party of this Agreement does not,
and the consummation of the transactions contemplated hereby and the compliance
by such Torus Party with any of the provisions hereof does not and will not,
(i) constitute a default (or an event that, with notice or lapse of time or
both, would give rise to a default) under, give rise to any right of
termination, cancellation, amendment or acceleration of, require payments under,
or create in any party additional or greater rights or benefits under, or result
in the creation of a Lien on any of the properties or assets of such Torus
Party, with respect to any Contract or other obligation to which such Torus
Party is party or by which such Torus Party or any of its assets or properties
is bound or subject, except for such defaults, rights of termination,
cancellation, amendment or acceleration, or Liens that would not reasonably be
expected to have a material adverse effect on the ability of such Torus Party to
perform its obligations under this Agreement or (ii) conflict with or violate in
any material respect any Law applicable to or binding on such Torus Party or by
which any of such Torus Party’s assets or properties is bound or subject.

 

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(b) The execution and delivery by the Torus Parties of this Agreement does not,
and consummation of the transactions contemplated hereby and the compliance by
such Torus Party with any of the provisions hereof does not and will not,
require such Torus Party to obtain any consent, license, permit, approval,
waiver, authorization or order of, or to make any filing with or notification
to, any Governmental Authority or third Person.

3.3 Authority; Enforceability.

(a) Such Torus Party has the legal capacity and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby.

(b) This Agreement has been duly executed and delivered by such Torus Party,
and, assuming the due authorization, execution and delivery hereof by each party
hereto other than such Torus Party that is a party hereto, this Agreement
constitutes the legal, valid and binding obligation of such Torus Party,
enforceable against such Torus Party in accordance with its respective terms,
except as enforcement of this Agreement may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
Laws relating to or affecting the enforcement of creditors’ rights generally and
subject, as to enforceability, to legal principles of general applicability
governing the availability of equitable remedies (whether enforcement is sought
in a proceeding in equity or at law) (collectively, “Creditors’ Rights”).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE HOLDER

The Holder hereby represents and warrants to the Torus Parties as follows:

4.1 Organization; Qualification. The Holder is a legal entity duly organized,
validly existing and in good standing under the Laws of the state of Delaware,
has all requisite organizational power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business as a foreign entity in each
jurisdiction in which the nature of the business conducted by it or the
ownership, leasing or operating of its properties makes such qualification
necessary, other than any failure to be so qualified in any such foreign
jurisdiction as would not result in a Holder Material Adverse Effect.

4.2 Authority; Enforceability.

(a) The Holder has all requisite power, capacity and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by the Holder of this Agreement and the consummation by the Holder
of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Holder and no other proceedings on the part
of the Holder are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.

 

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(b) This Agreement has been duly executed and delivered by the Holder, and,
assuming the due authorization, execution and delivery hereof by each party
hereto other than the Holder, this Agreement constitutes the legal, valid and
binding obligation of the Holder, enforceable against the Holder in accordance
with its terms, except as enforcement of this Agreement may be limited by
Creditors’ Rights.

4.3 Non-Contravention.

(a) The execution and delivery by the Holder of this Agreement does not, and the
consummation of the transactions contemplated hereby and the compliance by the
Holder with any of the provisions hereof does not and will not (i) conflict with
or violate the Organizational Documents of the Holder, (ii) constitute a default
(or an event that, with notice or lapse of time or both, would give rise to a
default) under, give rise to any right of termination, cancellation, amendment
or acceleration of, require payments under, or create in any party additional or
greater rights or benefits under, or result in the creation of a Lien on any of
the properties or assets of the Holder, with respect to any Contract or other
obligation to which the Holder is a party or by which the Holder or any of its
assets or properties is bound or subject, except for any such defaults, rights
of termination, cancellation, amendment, or acceleration, payments, rights or
Liens that would not reasonably be expected to have an adverse effect on the
ability of the Holder to perform its obligations under this Agreement or
(iii) conflict with or violate in any material respect any Law applicable to or
binding on the Holder or by which the Holder’s assets or properties are bound or
subject, except for any such violations that would not reasonably be expected to
have an adverse effect on the ability of the Holder to perform its obligations
under this Agreement.

(b) None of (i) the execution and delivery by the Holder of this Agreement,
(ii) the consummation of the transactions contemplated by this Agreement or
(iii) compliance by the Holder with the provisions of this Agreement will
require the Holder to obtain any consent, license, permit, approval, waiver,
authorization or order of, or to make any filing with or notification to, any
Governmental Authority or third Person.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Activities of MidCentral Services. Except with the prior written consent of
the Holder, for the period from the date hereof through the earlier of the
Closing Date and May 31, 2015, Torus shall not:

(a) permit MidCentral Services to merge or consolidate with or into any other
Person;

(b) permit MidCentral Services to sell, exchange or otherwise dispose of all, or
substantially all, of MidCentral Services’ assets in one transaction or a series
of related transactions, unless in either case the purchaser thereof expressly
agrees in writing to assume all of the Torus Parties’ obligations under Article
II; or

(c) sell, exchange or otherwise dispose of all, or substantially all, of the
MidCentral Services Interest other than to an Affiliate of the Holder, unless in
either case the purchaser thereof expressly agrees in writing to assume all of
the Torus Parties’ obligations under Article II.

 

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ARTICLE VI

GOVERNING LAW AND CONSENT TO JURISDICTION

6.1 Governing Law. THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS OR PRINCIPLES THAT MIGHT REFER THE GOVERNANCE OR
CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION.

6.2 Submission to Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY
PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE BROUGHT EXCLUSIVELY
IN THE COURTS OF THE STATE OF OKLAHOMA SITTING IN THE CITY OF OKLAHOMA CITY,
OKLAHOMA AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF
OKLAHOMA SITTING IN THE CITY OF OKLAHOMA CITY, OKLAHOMA, AND THE APPROPRIATE
APPEALS COURTS THEREFROM. SUBJECT TO THE PROVISO IN THE IMMEDIATELY PRECEDING
SENTENCE, BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY HERETO, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY
AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; AND (C) AGREES THAT SERVICE OF
ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY NOTICE TO
THE APPLICABLE PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 7.3, IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE PARTY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. NOTHING CONTAINED IN THIS SECTION 6.2 SHALL PREVENT
ANY PARTY FROM SEEKING INJUNCTIVE RELIEF FOR ANY BREACH OF THIS AGREEMENT IN ANY
OTHER COURT THAT HAS JURISDICTION OVER THE MATTER THAT IS REASONABLY NECESSARY
TO OBTAIN SUCH RELIEF.

6.3 Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 6.3.

 

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ARTICLE VII

GENERAL PROVISIONS

7.1 Amendment. This Agreement may not be amended, modified or supplemented
except by an instrument in writing signed by all of the Parties.

7.2 Waiver; Remedies Cumulative. No waiver or consent by any Party to or of any
breach by any other Party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach by such other
Party of the same or any other obligations of such other Party hereunder.
Failure on the part of a Party to complain of any breach by any other Party,
irrespective of how long such failure continues, shall not constitute a waiver
by such Party of its rights hereunder until the applicable statute of
limitations period has run. Any such waiver or consent shall be valid only if
set forth in an instrument in writing signed by the Party or Parties to be bound
thereby. No waiver by any of the Parties of any of the provisions hereof shall
be effective unless explicitly set forth in writing and executed by the Party
sought to be charged with such waiver. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive to, and not exclusive of,
any rights or remedies otherwise available.

7.3 Notices. Any notice, demand or communication required or permitted under
this Agreement shall be in writing and delivered personally, by reputable
overnight delivery service or other courier or by certified mail, postage
prepaid, return receipt requested, and shall be deemed to have been duly given
(a) as of the date of delivery if delivered personally or by overnight delivery
service or other courier or (b) on the date receipt is acknowledged if delivered
by certified mail, addressed as follows:

(a) If to the Holder, to:

New Source Energy Partners L.P.

914 N. Broadway Avenue, Suite 230

Oklahoma City, Oklahoma 73101

Phone: (405) 272-3028

Fax: (405) 272-3034

Attention: Richard D. Finley

with copies to:

New Source Energy GP, LLC

c/o New Source Energy Partners L.P.

914 N. Broadway Avenue, Suite 230

Oklahoma City, Oklahoma 73101

Phone: (405) 272-3028

Fax: (405) 272-3034

Attention: Richard D. Finley

(b) If to any Torus Party, to such Torus Party at the address set forth under
such Torus Party’s name on Schedule 2.4.

 

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7.4 Assignment. This Agreement shall not be transferred or assigned by the
Holder without the consent of Mr. Tourian and Mr. Kos or by any of the Torus
Parties without the consent of the Holder, except that the Holder may transfer
or assign in whole or from time to time in part, to one or more of its
respective Affiliates, its rights or obligations under this Agreement, but no
such transfer or assignment will relieve the Holder of its obligations under
this Agreement.

7.5 Third Party Beneficiaries. This Agreement is solely for the benefit of the
Parties and their successors and assigns permitted under this Agreement, and no
provision of this Agreement shall be deemed to confer upon any other Person any
remedy, Claim, liability, reimbursement, cause of action or other right except
as expressly provided herein.

7.6 Entire Agreement. This Agreement constitutes the entire agreement of the
Parties with respect to the subject matter hereof and supersedes all prior
agreements, expressions of interest and undertakings, both written and oral,
among the Parties or between any of them, with respect to the subject matter
hereof.

7.7 Severability. If any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be declared by any court of
competent jurisdiction to be invalid, illegal, void or unenforceable in any
respect, all other provisions of this Agreement, or the application of such
provision to Persons or circumstances other than those as to which it has been
held invalid, illegal, void or unenforceable, shall nevertheless remain in full
force and effect and will in no way be affected, impaired or invalidated
thereby. Upon such determination that any provision, or the application of any
such provision, is invalid, illegal, void or unenforceable, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible to the fullest extent permitted by
applicable Law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the greatest extent possible.

7.8 Disclaimer. The representations and warranties set forth in Article III
constitute the sole and exclusive representations and warranties of the Torus
Parties under this Agreement. The representations and warranties set forth in
Article IV constitute the sole and exclusive representations and warranties of
the Holder under this Agreement. Notwithstanding anything to the contrary,
except for such representations and warranties (in each case as modified by the
disclosure schedules hereto) no Party or any other Person makes any other
representation or warranty, express or implied, at law or in equity under this
Agreement and each Party disclaims any other representations or warranties,
whether made by such Party or any of its Affiliates or counsel, accountants,
advisors or other representatives, and each Party disclaims all liability and
responsibility for any such representation or warranty, or for any projections,
forecasts, estimates or budgets heretofore communicated, delivered to, made
available or furnished to (orally or in writing) any other Party or its
Affiliates or counsel, accountants, advisors or other representatives. Each
Party hereby acknowledges and agrees to the foregoing disclaimer.

7.9 Representation by Counsel. Each of the Parties agrees that it has been
represented by independent counsel of its choice during the negotiation and
execution of this Agreement and the documents referred to herein, and that it
has executed the same upon the advice of such independent counsel. Each Party
and its counsel cooperated in the drafting and

 

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preparation of this Agreement and the documents referred to herein, and any and
all drafts relating thereto shall be deemed the work product of the Parties and
may not be construed against any Party by reason of its preparation. Therefore,
the Parties waive the application of any Law providing that ambiguities in an
agreement or other document will be construed against the Party drafting such
agreement or document.

7.10 Counterparts. This Agreement may be executed in any number of counterparts
with the same effect as if all Parties had signed the same document. All
counterparts shall be construed together and shall constitute one and the same
instrument. Execution and delivery of this Agreement by exchange of facsimile or
other electronically transmitted counterparts bearing the signature of a Party
shall be equally as effective as delivery of a manually executed counterpart by
such Party.

[Signature page follows]

 

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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
by its respective duly authorized officers as of the date first above written.

 

HOLDER: New Source Energy Partners L.P. By:   New Source Energy GP, LLC,   its
general partner By:  

/s/ Richard Finley

Name:   Richard Finley Title:   Chief Financial Officer

 

SIGNATURE PAGE 1 of 2 TO

OPTION AGREEMENT

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TORUS PARTIES:

/s/ Kristian B. Kos

KRISTIAN B. KOS

/s/ Dikran Tourian

DIKRAN TOURIAN SIGNATURE INVESTMENTS, LLC By:  

/s/ Dikran Tourian

Name:   Dikran Tourian Title:   Manager TORUS ENERGY SERVICES, LLC By:  

/s/ Dikran Tourian

Name:   Dikran Tourian Title:   Manager

 

SIGNATURE PAGE 2 of 2 TO

OPTION AGREEMENT

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EXHIBIT A

“Affiliate” means a Person that directly, or indirectly through one or more
intermediaries, Controls, or is Controlled by, or is under Common control with,
a specified Person.

“Agreement” is defined in the preamble to this Agreement.

“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in the State of Texas are authorized or obligated to be
closed by applicable Laws.

“Closing Date” means the date of closing pursuant to the MidCentral Services
Contribution Agreement.

“Code” is defined as the Internal Revenue Code of 1986, as amended.

“Contract” means any written agreement, lease, license, note, evidence of
indebtedness, mortgage, security agreement, understanding, instrument or other
legally binding arrangement.

“Control” means, where used with respect to any Person, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through ownership of Voting Interests, by
contract or otherwise, and the terms “Controlling” and “Controlled” have
correlative meanings.

“Creditors’ Rights” is defined in Section 3.3(b).

“Earn-out Common Unit Consideration” is defined in Section 2.4(d).

“Earn-out Consideration” is defined in Section 2.4(b).

“EBITDA” is defined as earnings before interest expense, income taxes and
depreciation, depletion and amortization.

“Execution Date” is defined in the preamble to this Agreement.

“Exercise Date” is defined in Section 2.4(a).

“Exercise Notice” is defined in Section 2.2(a).

“Exercise Period” is defined in Section 2.2(a)

“Fundamental Transaction” is defined in Section 2.4(e).

“GAAP” means generally accepted accounting principles in the United States of
America.

“Governmental Authority” means any executive, legislative, judicial, regulatory
or administrative agency, body, commission, department, board, court, tribunal,
arbitrating body or authority of the United States or any foreign country, or
any state, local or other governmental subdivision thereof.

 

Exhibit A - 1

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“Holder” is defined in the preamble to this Agreement.

“Holder Material Adverse Effect” means any change, effect, event or occurrence
that, individually or in the aggregate with all other changes, effects, events
or occurrences, is or would reasonably be expected to become materially adverse
to the financial condition, results of operations, business, properties or
assets of the Holder and its Subsidiaries, taken as a whole; provided that in
determining whether any such change, effect, event or occurrence has occurred,
changes, effects, events or occurrences relating to, resulting from or arising
out of (a) the announcement of the transactions contemplated by this Agreement,
(b) general economic or industry conditions (including any change in the prices
of electricity, oil, natural gas, natural gas liquids or other hydrocarbon
products) but only to the extent such change or changes has not had, and could
not reasonably be expected to have, a disproportionate effect on the Holder and
its Subsidiaries, taken as a whole, (c) national or international political or
social conditions, including the engagement of the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack upon the United States, or
any of its territories, possessions or diplomatic or consular offices or upon
any military installation, equipment or personnel of the United States or
(d) any actions by the Holder required or permitted pursuant to this Agreement
or the taking or not taking of any actions at the request of, or the consent of,
Torus, shall be excluded from such determination

“Initial Common Unit Consideration” is defined in Section 2.4(c).

“Initial Consideration” is defined in Section 2.4(a).

“Law” means any law, statute, code, ordinance, order, rule, rule of common law,
regulation, judgment, decree, injunction, franchise, permit, certificate,
license or authorization of any Governmental Authority.

“Lien” means, with respect to any property or asset, (a) any mortgage, pledge,
security interest, lien or other similar property interest or encumbrance in
respect of such property or asset, and (b) any easements, rights-of-way,
restrictions, restrictive covenants, rights, leases and other encumbrances on
title to real or personal property (whether or not of record).

“MCE” is defined in the recitals to this Agreement.

“MCE Contribution Agreement” is defined in the recitals to this Agreement.

“MidCentral Services” is defined in the recitals to this Agreement.

“MidCentral Services Interest” is defined in the recitals to this Agreement.

“Mr. Kos” is defined in the preamble to this Agreement.

“Mr. Tourian” is defined in the preamble to this Agreement.

 

Exhibit A - 2

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“Net Debt” means all of the borrowings under MidCentral Services’ working
capital facilities and any equipment loans outstanding, less MidCentral
Services’ net working capital on the Exercise Date.

“NYSE” means the New York Stock Exchange.

“Option” is defined in Section 2.1.

“Organizational Documents” means, with respect to any Person, the articles of
incorporation, certificate of incorporation, certificate of formation,
certificate of limited partnership, bylaws, limited liability company agreement,
operating agreement, partnership agreement, stockholders’ agreement and all
other similar documents, instruments or certificates executed, adopted or filed
in connection with the creation, formation or organization of such Person,
including any amendments thereto.

“Partnership Investments” means, any amount (a) contributed by the Holder to
MidCentral Services or (b) paid by the Holder, on behalf of or with respect to
MidCentral Services, including but not limited to any liabilities of MidCentral
Services or its Subsidiaries paid by the Holder on behalf of MidCentral Services
or its Subsidiaries (excluding the Initial Consideration), which for these
purposes shall be deemed contributed to MidCentral Services.

“Party” and “Parties” are defined in the preamble of this Agreement.

“Person” means any natural person, corporation, limited partnership, general
partnership, limited liability company, joint stock company, joint venture,
association, company, estate, trust, bank trust company, land trust, business
trust, or other organization, whether or not a legal entity, custodian,
trustee-executor, administrator, nominee or entity in a representative capacity
and any Governmental Authority.

“Proceeding” means any civil, criminal or administrative actions, suits,
investigations or other proceedings.

“Qualifying Income Exception” means that a publicly-traded limited liability
company or partnership may be treated as a partnership, instead of a
corporation, for federal income tax purposes pursuant to Section 7704 of the
Code. Qualifying income includes (1) income and gains derived from the
exploration, development, mining or production, processing, refining,
transportation, and marketing of any mineral or natural resource (such as the
exploration and production of oil and natural gas), (2) interest (other than
from a financial business), (3) dividends, (4) gains from the sale of real
property and (5) gains from the sale or other disposition of capital assets held
for the production of qualifying income.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Signature” is defined in the preamble to this Agreement.

“Subsidiary” means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which a
majority of the Voting Interests are at the time owned or Controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof.

 

Exhibit A - 3

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“Tax Event” means the receipt of a favorable Private Letter Ruling from the
United States Internal Revenue Service finding that the gross income generated
by MidCentral Services falls within the Qualifying Income Exception of the Code,
provided that, such favorability shall be determined in the sole discretion of
the Holder.

“Torus” is defined in the preamble to this Agreement.

“Torus Material Adverse Effect” means any change, effect, event or occurrence
that, individually or in the aggregate with all other changes, effects, events
or occurrences, is or would reasonably be expected to become materially adverse
to the financial condition, results of operations, business, properties or
assets of MidCentral Services; provided that in determining whether a Material
Adverse Effect has occurred, changes, effects, events or occurrences relating
to, resulting from or arising out of (a) the announcement of the transactions
contemplated by this Agreement, (b) general economic or industry conditions
(including any change in the prices of electricity, oil, natural gas, natural
gas liquids or other hydrocarbon products) but only to the extent such change or
changes has not had, and could not reasonably be expected to have, a
disproportionate effect MidCentral Services, (c) national or international
political or social conditions, including the engagement of the United States in
hostilities, whether or not pursuant to the declaration of a national emergency
or war, or the occurrence of any military or terrorist attack upon the United
States, or any of its territories, possessions or diplomatic or consular offices
or upon any military installation, equipment or personnel of the United States
or (d) any actions by any of the Torus Parties or MidCentral Services required
or permitted pursuant to this Agreement or the taking or not taking of any
actions at the request of, or the consent of, the Holder, shall be excluded from
such determination.

“Torus Owner” is defined in the preamble to this Agreement.

“Torus Party” is defined in the preamble to this Agreement.

“Total Consideration” is defined in Section 2.3.

“Trading Day” means any day on which Common Units are traded on the NYSE (or the
principal securities exchange on which Common Units are then traded).

“Volume Weighted Average Price” with respect to the Common Units on any Trading
Day means the per unit volume weighted average price as displayed under the
heading “Bloomberg VWAP” on Bloomberg Page NSLP<equity>AQR (or its equivalent
successor if such page is not available) in respect of the period from 9:30 a.m.
to 4:00 p.m., New York City time, on such Trading Day or, if such Volume
Weighted Average Price is unavailable or such page or its equivalent is
unavailable, the volume weighted average price of each trade in the Common Units
during such Trading Day between 9:30 a.m. and 4:00 p.m., New York City time, on
the NYSE or, if the Volume Weighted Average Price is unavailable from the
above-referenced sources, as calculated by a nationally recognized independent
investment banking firm retained for this purpose by Acquirer, such calculation
to be made in a manner consistent with the manner in which “Volume Weighted
Average Price” would have been determined by Bloomberg.

 

Exhibit A - 4

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“Voting Interests” of any Person as of any date means the equity interests of
such Person pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers, general partners or trustees of such Person (regardless of
whether, at the time, equity interests of any other class or classes shall have,
or might have, voting power by reason of the occurrence of any contingency) or,
with respect to a partnership (whether general or limited), any general partner
interest in such partnership.

 

Exhibit A - 5