Exhibit 10.1


 


SPP TRANSACTION SUMMARY


 


	
  Cano =

  	
   

  	
  Cano Petroleum, Inc.

  
	
   

  	
   

  	
   

  
	
  Haddock =

  	
   

  	
  Haddock Enterprises, LLC

  
	
   

  	
   

  	
   

  
	
  Carlile =

  	
   

  	
  Carlile Management, LLC

  
	
   

  	
   

  	
   

  
	
  Dr. Carlile =

  	
   

  	
  Kenneth Q. Carlile, an
  individual

  
	
   

  	
   

  	
   

  
	
  SBR =

  	
   

  	
  Sabine Royalty Trust

  
	
   

  	
   

  	
   

  
	
  SPP =

  	
   

  	
  Sabine Production
  Partners, LP (the new limited partnership)

  
	
   

  	
   

  	
   

  
	
  GP =

  	
   

  	
  Sabine Production
  Management, LLC (the general partner of SPP) whose sole member is Sabine
  Production Operating, LLC comprised of Cano, Haddock and Carlile

  
	
   

  	
   

  	
   

  
	
  SPO =

  	
   

  	
  Sabine Production Operating,
  LLC

  



 


I.                                         S-4 conversion
from SBR to SPP transaction stays as proposed.


 


II.                                     GP serves as
general partner with a 1.25% ownership interest in SPP and an initial 1.25%
share in cash distributions of SPP, subject to the incentive distribution
rights described in the S-4 and the Partnership Agreement (stays the same as
proposed).


 


III.                                 SPO stays as
proposed with the following provisions:


 


A.                                   For any matter
which involves a transaction involving SPP and Cano, Haddock or Carlile or any
of their affiliates (a “Related Party Transaction”), the procedure set forth in
IX. below shall be applied; for all other matters not involving a Related Party
Transaction, all votes by the SPO members must be by majority except for the
following items which require unanimous approval: (i) amendments to the SPP
Partnership Agreement, GP Limited Liability Company Agreement or SPO Limited
Liability Company Agreement, (ii) dissolution of SPP, GP or SPO, (iii) sale of
all or substantially all assets of SPP, GP or SPO or (iv) the incurrence of
debt by SPP, GP or SPO which is recourse to 
Cano, Haddock or Carlile.


B.                                     No assignment
or transfer of direct or indirect interests in SPO or GP by any member
(including a change of control of such member) for two years (excludes pledging
of any interest subject to the right of the other members to repurchase the
pledged interest upon foreclosure).


C.                                     Beginning in
year three, members generally will work together toward a separate public
offering for units of the GP at the end of year three and so


 


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long as the public offering
attempt has not been abandoned a member may sell its interest subject to a
right of first refusal on the part of the other members during years three and
four; any member may sell its interest without rights of first refusal on the
part of other members at the end of year four or the abandonment of the public
offering attempt, whichever is earlier.


D.                                    Members will be
reimbursed for costs incurred in support of SPP, so long as such costs are
approved in advance in accordance with the procedure set forth in IX. below; in
addition, Cano shall be reimbursed up to $110k and $85k per annum for Johnson
and Cochrane, respectively, for time spent on SPP matters, if any, as described
in the Compensation Reimbursement Agreement.


 


IV.                                 With respect to
operating agreements, the following terms apply:


 


A.                                   On all
non-royalty properties owned or to be acquired by SPP, in which neither Cano,
Haddock, nor Carlile has an interest, then SPP shall enter into an operating
agreement with a contract operator on commercially reasonable industry terms


B.                                     On all
non-royalty properties owned or to be acquired by SPP, in which Cano, Haddock,
or Carlile has an interest, such member shall have a right of first offer to be
the operator, subject at all times to SPP’s right to negotiate a contract with
a third party on more favorable terms


 


V.                                     Members agree
that as rapidly as possible upon consummation of the transaction (as defined in
the S-4), the members will use their reasonable best efforts to obtain
operating personnel and management to be employed by GP, SPO or SPP, as the
case may require


 


VI.                                 Subject to the
following proviso, SPP and Cano and its affiliates (each, a “Cano Entity” and
collectively, the “Cano Entities”), Haddock and its affiliates (the each, a “Haddock
Entity” and collectively, the “Haddock Entities”) and Carlile will enter into
the following two-year agreement; provided that, such agreement shall
specifically exempt and be inapplicable to Dr. Carlile in his individual
capacity and in the capacities in which he serves his affiliate entities:


 


A.                                   SPP shall have
a right of first participation on each deal which is consistent with the
business model for SPP currently described in the S-4, which any Cano Entity,
any Haddock Entity or Carlile source after the date of the agreement, with such
participation by the proposing party(ies) to be on the following basis:


 


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  Purchase Price

  	
   

  	
  Cano Entity, Haddock Entity or Carlile Participation Level

  	
   

  
	
  From

  	
   

  	
  To

  	
   

  	
  Up to Percentage

  	
   

  	
  Participation

  	
   

  	
  Aggregate

  	
   

  
	
  $

  	
  —

  	
   

  	
  $

  	
  25,000,000

  	
   

  	
  70.00

  	
  %

  	
  $

  	
  17,500,000

  	
   

  	
  $

  	
  17,500,000

  	
   

  
	
  25,000,001

  	
   

  	
  50,000,000

  	
   

  	
  7.33

  	
  %

  	
  1,833,333

  	
   

  	
  19,333,333

  	
   

  
	
  50,000,001

  	
   

  	
  75,000,000

  	
   

  	
  7.33

  	
  %

  	
  1,833,333

  	
   

  	
  21,166,666

  	
   

  
	
  $

  	
  75,000,001

  	
   

  	
  $

  	
  100,000,000

  	
   

  	
  7.33

  	
  %

  	
  $

  	
  1,833,333

  	
   

  	
  $

  	
  23,000,000

  	
   

  
	
  100,000,001

  	
  +

  	
   

  	
   

  	
  23

  	
  %

  	
   

  	
   

  	
   

  	
   

  



 


B.                                     If any Cano
Entity, Haddock Entity or Carlile sources a deal and SPP opts not to
participate, then such party shall have no further obligation under the
agreement with respect to such deal.


C.                                     If any Cano
Entity, Haddock Entity or Carlile independently develops or jointly develops a
deal with SPP and SPP elects to participate, then such party shall be entitled
to receive from SPP, proportionate reimbursement of the costs incurred by such
party, so long as such costs are approved in accordance with the procedure set
forth in IX. below; if SPP independently develops or jointly develops a deal
(or incurs expenses in reviewing, underwriting, or evaluating a deal or
prospect) with any Cano Entity, Haddock Entity, or Carlile, in which it does
not elect to participate and offers such deal to any Cano Entity, Haddock
Entity, or Carlile, and such party elects to participate, then SPP shall be
entitled to receive from such party, proportionate reimbursement of the costs
incurred by SPP, so long as such costs are approved in advance by the conflicts
committee as set forth in the S-4.


D.                                    Cano, Haddock
and Carlile shall have no right to participate in deals sourced from the other
or from SPP.


E.                                      Any deals that
are sourced by any personnel of Cano Entities in any capacity, including, but
not limited to, Johnson and Cochrane, shall be classified as sourced by Cano
Entities and not by SPP.


 


VII.                             Subject to the
following proviso, SPP and Cano, Haddock and Carlile will enter into the
following two-year agreement; provided that, such agreement shall specifically
exempt and be inapplicable to Dr. Carlile in his individual capacity and in the
capacities in which he serves his affiliate entities:


 


A.                                   Cano Entities,
Haddock Entities and Carlile shall keep strictly confidential any and all
information of SPP relating to the acquisition of potential properties; SPP
shall keep strictly confidential any and all information of Cano Entities,
Haddock Entities, or Carlile with respect to deals presented to SPP and in
which SPP elects not to participate.


B.                                     SPP, Cano
Entities, Haddock Entities, and Carlile shall be prohibited from competing with
each other on the acquisition of identified properties sourced from any of them
(consensual transactions by the parties after their obligations have been
fulfilled will not be considered to be competing).


 


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VIII.                         SPP and Dr.
Carlile enter into the following two-year agreement, which specifically
identifies the counties and parishes in which his Other Entities (as defined in
Exhibit A (each an “Other Entity” and collectively, the “Other Entities”) and
includes any entities formed during the two-year period) are currently doing
business and which provides that his services to his Other Entities shall not
constitute a breach of the agreement:


 


A.                                   Dr. Carlile, as
an individual, shall keep strictly confidential any and all information of SPP,
Cano Entities, Haddock Entities and Carlile relating to the acquisition of
potential properties.


B.                                     Dr. Carlile, as
an individual and as a member of various other entities, will be required to
give written notice to SPP and SPO upon his awareness that any Other Entity (i)
is likely to compete directly or indirectly in the same property as SPP or (ii)
alters its business strategy to match that of SPP as defined in the S-4.


C.                                     In the case of
(VIII)(B)(i), Dr. Carlile will keep confidential all information obtained from
SPP, Cano Entities, Haddock Entities or Carlile relating to the property, will
not receive further information from SPP, Cano Entities, Haddock Entities or
Carlile relating to the property and will recuse himself from involvement in
the SPP deal related to the property.


D.                                    In the case of
(VIII)(B)(ii), Haddock and Cano (by unanimous vote) will have the right to ask
for Dr. Carlile’s resignation as a board member and officer, and Dr. Carlile
shall have the option to either (i) resign such posts and relinquish Carlile’s
voting power as a member of SPO such that Haddock and Cano are the members in
control of SPO, or (ii) agree to bind himself and the Other Entity to the same
agreement described in Paragraphs VI and VII above.


 


IX.                                The following
procedures are set forth regarding Related Party Transactions:


 


A.                                   The managers of
SPO may propose a Related Party Transaction to the Conflicts Committee (as
established as set forth in the S-4) with the related party abstaining from any
such proposal.  If the managers of SPO
elect not to propose a particular Related Party Transaction to the Conflicts
Committee, SPP shall be deemed to have rejected the Related Party Transaction.


B.                                     The Conflicts
Committee will review and evaluate the proposed Related Party Transaction and
either vote to recommend the transaction to the managers of SPO or to deny
approval of the Related Party Transaction. 
If approval is denied, SPP shall have rejected the transaction and no
further action is required.


C.                                     If the
Conflicts Committee recommends the Related Party Transaction to the managers of
SPO, then the Related Party Transaction may only be approved by a majority vote
of the managers of SPO with the related party abstaining from the vote.


 


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X.                                    This SPP
Transaction Summary is being entered into in connection with the filing of a
preliminary Form S-4, both of which taken together set forth the principles of
the conversion of SBR to SPP and the relative rights and obligations of the
parties hereto in connection therewith.  
The drafting, submittal for review and approval by the parties of the
definitive documentation (including any necessary amendments to the S-4)
effectuating the principles set forth in this SPP Transaction Summary and the
Form S-4 are anticipated to occur shortly after the filing of the S-4.  To the extent that such definitive
documentation departs from the principles established by the parties herein and
in the S-4, Cano, Haddock and Carlile specifically reserve the right to withdraw
from participation in the transaction contemplated hereunder and under the S-4,
subject only to the payment of their proportionate share of the expenses
incurred to the date of withdrawl.  In
the event of such withdrawl, there shall not be any legally binding obligation
on the part of the withdrawing party to the other parties hereto (except for
the payment of expenses above) and no past or future action, agreements (oral
or written), course of conduct or failure to act relating to the SPP Transaction
Summary, the Form S-4 or any of the transactions relating thereto will give
rise to or serve as a basis for any obligation or other liability on the part
of the withdrawing party to the other parties hereto.  Upon the withdrawl of a party, the other parties
shall be free to proceed with the transaction on their own and without any
encumbrances from the withdrawing party.


 


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Agreed to and accepted this 4th day of August,
2005.


 


	
   

  	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HADDOCK ENTERPRISES, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CARLILE MANAGEMENT, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kenneth Q. Carlile Phd

  	
   

  
	
   

  	
  Name:

  	
  Kenneth Q. Carlile

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  



 


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EXHIBIT
A


 


Dr. Carlile has the following affiliations (“Other
Capacities”) with the following other entities (“Other Entities”) which engage
in oil and gas activities:


 


(a)                                  Limited Partner
in Camterra Resources Partners, Ltd., a Texas Limited Partnership.


 


(b)                                 Co-Chairman of
the Board of Directors, a Shareholder and the Chief Executive Officer of
Camterra Resources, Inc., a Texas Corporation, which is the Managing General
Partner of Camterra Resources Partners, Ltd.


 


(c)                                  Limited
Liability Partner and a Managing Partner of Martex Drilling Company, LLP, a
Texas Registered Limited Liability Partnership.


 


(d)                                 Limited
Liability Partner and a Managing Partner in Martex Well Services, LLP, a Texas
Registered Limited Liability Partnership.


 


(e)                                  Limited Partner
of Fowler Transportation, Ltd., a Texas Limited Partnership.


 


(f)                                    Member of
Fowler Management, LLC, a Texas Limited Liability Company.  Fowler Management, LLC is the General Partner
of Fowler Transportation, Ltd.


 


(g)                                 Limited Partner
in KCZC Oil & Gas, Ltd., a Texas Limited Partnership.


 


(h)                                 Member and the
Managing Member of KCZC Operating, LLC, a Texas Limited Liability Company which
serves as the Managing Partner of KCZC Oil & Gas, Ltd.


 


(i)                                     Limited
Liability Partner and a Managing Partner in Unitex Properties, LLP, a Texas
Registered Limited Liability Partnership.


 


(j)                                     Member in
Leonard Road Farms, LLC, a Louisiana Limited Liability Company.  Chief Executive Officer of Camterra
Resources, Inc., which is the Manager of Leonard Road Farms, LLC.


 


(k)                                  Member of
Robson Farms, LLC, a Louisiana Limited Liability Company.


 


(l)                                     Owns various
oil and gas working interests, overriding royalty interests, royalty interests
and mineral interests in his own name, Kenneth Q. Carlile.


 


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