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PURCHASE AND SALE AGREEMENT
BETWEEN
VTEX ENERGY, INC.
AS ASSIGNOR
AND
ARCOA OIL & GAS, INC.,
AS ASSIGNEE
DATED: JANUARY 13, 2004
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT ("Agreement") dated as of Febuary 1, 2005,
is between VTEX Energy, Inc., a Nevada corporation with offices at 8303
Southwest Freeway, Suite 950 Houston, Texas, 77074, ("Assignor") and Arcoa Oil &
Gas, Inc., a Texas corporation, whose address is 50 Briar Hollow East, Suite
210, Houston, Texas, 77027, ("Assignee").
In consideration of the mutual covenants and agreements contained herein,
the benefits to be derived by each party hereunder, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor and Assignee agree as follows:
ARTICLE 1. TRANSFER OF NET PROFITS INTEREST
1.1 The Properties. Subject to the terms and conditions of this Agreement,
Assignor agree to transfer and convey to Assignee, and Assignee agrees to
acquire from Assignor, effective as of 7:00 a.m. Central Standard Time, on
February 1, 2005 (the "Effective Date"), at the location of the respective
properties (the "Effective Time") the Net Profits Interest as hereinafter
defined.
1.2 Net Profits Interest, Payout, Subject Hydrocarbons and Subject
Interest. As used herein the term Net Profits Interest shall mean the balance in
the Net Profit Account. Payout shall mean that point in time when the cumulative
Net Profits Interest distributed to the Assignee has reached $2.5 million or
such lesser number as Assignee has delivered to Assignor pursuant to Section 2.1
plus twelve percent (12%) per annum interest thereon.
Subject Hydrocarbons shall mean that portion of the oil, gas and other
minerals in and under and that may be produced from and after the Effective
Date, from the lands and depths covered by the Subject Interests and which are
attributable to the Subject Interests, after deducting all royalties and any
overriding royalties, production payments and other similar charges burdening
the Subject Interests which were recorded prior to the Effective Date. There
shall not be included in the Subject Hydrocarbons any oil, gas or other minerals
attributable to nonconsent operations conducted with respect to the Subject
Interests (or any portion thereof) as to which Assignor is a nonconsenting party
and dedicated to the recoupment or reimbursement of costs and expenses of the
consenting parties by the terms of the relevant agreement, provided to
Assignor's election not to participate is made in conformity with Section 1.14 .
Subject Interests shall mean all seventy percent (70%) of Assignor's undivided
interest before Payout and thirty percent (30%) of Assignor's undivided interest
after Payout in and to the following:
(a) the oil, gas and/or mineral properties which are described in
Exhibit A attached hereto;
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(b) all other rights, titles, interests and estates of Assignor of
whatever kind and character (including without limitation leasehold
interests under oil, gas and/or mineral leases (whether or not such leases
are described on Exhibit A), fee mineral interests, fee royalty interests,
overriding royalties, production payments, reversionary interests (whether
leasehold or otherwise) and other interests) in and to the lands described
in Exhibit A (or otherwise described, identified or referred to in any of
the leases or other instruments described in Exhibit A), even though such
interest of Assignor may be incorrectly described in, or omitted from,
Exhibit A; and
(c) all rights, titles and interests of Assignor in and to all
presently existing (or hereafter created) oil, gas and/or mineral
unitization, pooling, and communitization agreements, declarations and
orders (including without limitation all amendments or modifications
thereto) insofar as they relate to the properties described in subsections
(a) and (b) above, and all such rights, titles and interests in and to the
properties covered and the units created thereby (including all units
formed under orders, regulations, rules, or other official acts of any
governmental agency having jurisdiction, and including so called "working
interest units" created under operating or similar agreements) insofar as
such rights, titles and interests are derived from interests in the
properties described in subsections (a) and (b) above,
but excluding any additional undivided interests in the properties, rights,
titles and interests described in subsections (a), (b) and (c) above which have
been or are hereafter acquired by Assignor.
1.3 Net Profit Account. Assignor shall establish and maintain a net profits
account (herein called the "Net Profits Account") in accordance with sound,
accurate and comprehensive accounting practices and consistent with the various
provisions of this Agreement and at all times shall keep true and correct books
and records with respect thereto.
1.4 Credits. Except as otherwise provided herein, the Net Profits Account
shall be credited with the gross proceeds from each sale or other disposition of
Subject Hydrocarbons. Any Subject Hydrocarbons retained and/or used by Assignor
shall be credited to the Net Profits Account at the same price as the Subject
Hydrocarbons that are sold by Assignor at or near the time of such retention or
use. The amount of proceeds (herein called the "Credited Proceeds"), to be
credited to the Net Profits Account with respect to any sale or disposition of
Subject Hydrocarbons shall be subject to the following:
(i) Credited Proceeds shall include all consideration received,
directly or indirectly, for sales of Subject Hydrocarbons, including
without limitation (but subject to Section 1.14) advance payments and
payments under take-or-pay and similar provisions of Production Sales
Contracts;
(ii) If any proceeds are withheld from the Assignor by a Non-Affiliate
for any reason (other than at the request of Assignor or due to the
negligence of Assignor), such proceeds shall not be considered to be
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Credited Proceeds until such proceeds are actually received by Assignor;
provided, however, that Credited Proceeds shall not include any interest,
penalty, or other amount that is not derived from the sale of Subject
Hydrocarbons, but, instead, Assignor shall make payment directly to
Assignee of Assignee's allocable share of any such amounts paid to Assignor
by the purchaser of Subject Hydrocarbons or any escrow agent;
(iii) Credited Proceeds relating to any nonconsent operations
conducted with respect to all or any part of the Subject Interests after
the Effective Date shall be subject to Section 1.14;
(iv) Credited Proceeds shall not include any amounts for Subject
Hydrocarbons unavoidably lost in production or used by Assignor in
conformity with good oil field practices for development drilling and
production operations (including without limitation gas injection, fuel,
secondary or tertiary recovery, pressure maintenance, repressuring or
recycling operations) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such Subject
Hydrocarbons are so used;
(v) Credited Proceeds shall include all amounts which Assignor shall
receive as a result of the Subject Interests including any landowners,
overriding and other royalty interests;
1.5 Debits. Except as otherwise provided herein, the Net Profits Account
shall be debited with the following:
(a) All direct costs including capital costs which are attributable to
the Subject Interests (i) for all direct labor and other services necessary
for developing, reworking, recompleting, deepening, operating, producing,
and maintaining the Subject Interests after the Effective Date and (ii) for
all material, supplies, equipment and other personal property and fixtures
purchased for use on, or in connection with, any of the Subject Interests
after the Effective Date;
(b) All taxes (except income, transfer, inheritance, estate, franchise
and like taxes) incurred by Assignor with respect to the ownership of the
Subject Interests after the Effective Date, including without limitation
production, severance, and/or excise and other taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons, occupation taxes, sales and use taxes,
and ad valorem taxes assessed against or attributable to the Subject
Interests or any non-Processing equipment located on any of the Subject
Interests;
(c) All insurance premiums attributable to the Subject Interests paid
by Assignor for insurance actually carried for periods after the Effective
Date with respect to the Subject Interests, or any non-Processing equipment
located on any of the Subject Interests, or incident to the operation or
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maintenance of the Subject Interests after the Effective Date; it being
recognized that where the coverage is general in nature, or relates to a
group of properties (or more than one interest in the same property), only
that portion which is reasonably allocated to the Subject Interests shall
be debited hereunder;
(d) All amounts properly attributable to the Subject Interests (to the
extent attributable to periods after the Effective Date) and consisting of
(i) rent and other consideration paid for the use or damage to the surface
and (ii) rentals, shut-in gas well royalties, overriding royalties, minimum
royalties and similar payments payable pursuant to the provisions of
agreements in force and effect before the Effective Date;
(e) Amounts attributable to the Subject Interests (and attributable to
periods after the Effective Date) as overhead charges specified in
applicable operating agreements now or hereafter covering the Subject
Interests;
(f) Any Manufacturing Costs or costs of acquiring, constructing,
operating or maintaining any facility, plant, equipment or transmission
pipeline for Processing or transporting any Subject Hydrocarbons or any
other oil, gas and/or minerals;
(g) If as a result of the occurrence of the bankruptcy or insolvency
or similar occurrence of the purchaser of Subject Hydrocarbons any amounts
previously included in Credited Proceeds are reclaimed from Assignor or its
representative, then the amounts reclaimed as promptly as practicable
following Assignor's payment thereof; and
(h) If Assignor shall be a party as to any nonconsent operations
conducted with respect to all or any of the Subject Interests after the
Effective Date, all costs to be debited to the Net Profits Account with
respect thereto shall be governed by Section 1.14.
Notwithstanding the foregoing provisions of this Section or anything else
to the contrary contained in this Agreement; the amounts debited to the Net
Profits Account shall not include any of the following:
(1) Any amount which has also been used to reduce the amount of the
Subject Hydrocarbons and/or Credited Proceeds or has otherwise not been
included therein (including, by way of example and without limitation,
royalties, overriding royalties, production payments and other charges
burdening the Subject Interests at the Effective Date, production,
severance, excise, and other taxes and any other amounts deducted, withheld
or paid by any other person);
(2) Any overriding royalty, production payment or other charge
burdening the Subject Interests which was created by Assignor;
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(3) Any expenses and any penalties, interest or other similar charges
which result from the failure of Assignor to properly discharge all costs
and expenses (including taxes) of developing, operating and maintaining the
Subject Interests;
(4) Any damages, penalties, interest or other similar charges paid by
Assignor to any third party or governmental agency, commission or similar
body arising from any conduct or omission by Assignor in its capacity as
operator of any of the Subject Interests and any costs and expenses
(including attorneys' fees) in defending any such action unless such
charges, costs and expenses are properly chargeable to all working interest
owners under an operating agreement to which all or part of the Subject
Interests are subject;
(5) Any general, administrative or overhead costs paid or incurred by
the Assignor or its Affiliates; and
(6) Any amounts paid by Assignor to such Assignor's predecessor in
interest with respect to part or all of the Subject Interests (including
without limitation any purchase price or other consideration paid by
Assignor to such predecessor in interest to acquire all or part of the
Subject Interests).
1.6 Accounting. All debits to the Net Profits Account which are
attributable to costs and expenses paid by Assignor during a calendar month up
to and including the last day of such calendar month shall be debited against
the Net Profits Account as of the last day of such calendar month. All credits
to the Net Profits Account which are actually received by Assignor during a
calendar month up to and including the last day of such calendar month shall be
credited to the Net Profits Account as of the last day of such calendar month;
provided that any such credits which do not (and will not) result from credits
given by or payments from third parties shall be credited to the Net Profits
Account as of the last day of the calendar month in which they arise. The total
net profits realized from the Subject Interests (or the total net losses, as the
case may be) shall be determined after the applications and calculations
provided for above have been made by Assignor. The Net Profits Account shall
reflect a credit balance, as herein provided, only after and while all debits
properly debited against the Net Profits Account (and after reduction of such
debits by the amounts provided for in this Section 1.6) shall have been offset
by credits to the Net Profits Account and a credit balance shall exist in the
Net Profits Account.
1.7. Payments. Assignor shall pay to Assignee on each Payment Date,
commencing on April 30, 2005, the credit balance, if any, in the Net Profits
Account as of the end of the calendar month two months prior to the Payment Date
(e.g., the payment made on April 30, 2005 shall be the credit balance in the Net
Profits Account as of February 28, 2005). With each payment, Assignor shall
furnish to Assignee a detailed statement clearly reflecting the condition of the
Net Profits Account as of the close of business on the last day of the
respective month, and clearly reflecting (with sufficient description so that
Assignee can identify such items and the particular Subject Interest involved)
those items which gave rise to reductions, debits and credits to the Net Profits
Account during the month for which the payment is calculated and clearly
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reflecting for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the month covered by such statement, the volumes of
such production sold, the amounts received for such production, and the taxes
paid with respect to such sales. If the Net Profits Account reflects a deficit
as of the end of a month, such deficit shall be carried forward for the next and
succeeding months until such deficit has been wiped out and liquidated. In case
a net profit is reflected by any such statement and subject to adjustment
pursuant to Section 1.8, payment to Assignee of 50% of the amount of such credit
balance shall be tendered with the statement rendered to Assignee, and Assignor
shall be credited with the remaining percentage thereof, so as to extinguish any
credit balance.
1.8 Overpayments. If at any time Assignor inadvertently pays Assignee more
than the amount then due with respect to the Net Profits Account, Assignee shall
not be obligated to return any such overpayment, but the amount or amounts
otherwise payable for any subsequent period or periods shall be reduced by such
overpayment.
1.9 Past Due Payments. Any amount not paid by Assignor to Assignee with
respect to the Net Profits Account when due shall bear, and Assignor hereby
agrees to pay, interest at 8% per annum from the due date until such amount has
been paid.
1.10 Prudent Operator Standard. Assignor (subject to the terms and
provisions of any applicable operating agreements and subject to the other
provisions of this Agreement) shall have exclusive charge, management and
control of all operations to be conducted on the Subject Interests and may take
any and all actions which a prudent operator would deem necessary or advisable
in the management, operation and control thereof. Assignor shall promptly (and,
unless the same are being contested in good faith and by appropriate proceedings
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
exploring, developing, operating and maintaining the Subject Interests. Assignor
shall be obligated to explore, develop, operate and maintain the Subject
Interests as would a prudent operator under similar circumstances in accordance
with good oil field practices. As to those of the Subject Interests as to which
Assignor is not the operator, Assignor shall take all such action and exercise
all such rights and remedies as are reasonably available to it to cause the
operator to so explore, develop, maintain and operate such Subject Interests
(provided that Assignor shall never be obligated to pay any costs or expenses
attributable to any interest other than the Subject Interests and all royalties
related thereto). It is expressly understood that the powers given to Assignor
in the first sentence of this Section shall include the right of Assignor,
subject to Section 1.14, to elect to participate, or not participate, in
drilling, reworking, plugging back, deepening, sidetracking or completing of a
well, or in other operations (including, but not limited to, operations in
connection with secondary and/or tertiary recovery) proposed to be conducted on
the Subject Interests.
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1.11 Sales of Subject Hydrocarbons. Assignor shall have the obligation to
market or cause to be marketed the Subject Hydrocarbons in accordance with
reasonable and prudent business judgment and sound oil field practices and on
such terms and conditions as Assignor shall determine to be in the best
interests of Assignee; provided, however, that all such sales of Subject
Hydrocarbons (a) shall be upon terms and conditions which are the best terms and
conditions available as determined in good faith by Assignor taking into account
all relevant circumstances, including without limitation, price, quality of
production, access to markets, minimum purchase guarantees, identity of
purchaser and length of commitment, and (b) shall be upon terms and conditions
at least as favorable as Assignor obtains for oil, gas and/or minerals not
subject to this Agreement which are of comparable type and quality and in the
same location. Assignor will exercise its best efforts to perform all
obligations binding on it under Production Sales Contracts and to enforce the
performance of the obligations of third parties thereunder; provided, however,
that Assignor shall have no liability for the performance of the obligations of
any purchaser of Subject Hydrocarbons in the absence of any negligence or
willful misconduct on the part of Assignor. As to any third parties, all acts of
Assignor in marketing the Subject Hydrocarbons and all Production Sales
Contracts executed by Assignor shall be binding on Payee; it being understood
that the right and obligation to market the Subject Hydrocarbons is at all times
vested in Assignor and Assignee does not have any such right or obligation or
any possessory interest in all or part of the Subject Hydrocarbons. Accordingly,
it shall not be necessary for Assignee to join in any new Production Sales
Contracts or any amendments to existing Production Sales Contracts.
1.12 Insurance. Assignor shall obtain or cause to be obtained (and maintain
or cause to be maintained during the economic life of the Subject Interests)
insurance coverage in such amounts, with provisions for such deductible amounts
and for such purposes as Assignor shall determine to be necessary or advisable
with respect to the Subject Interests,
1.13 Pooling and Unitization.
(a) Certain of the Subject Interests may have been pooled or unitized
for the production of oil, gas and/or minerals prior to the Effective Date
or, after the Effective Date, may be so pooled or unitized pursuant to
Section 1.13(b). Such Subject Interests are and shall be subject to the
terms and provisions of such pooling and unitization agreements, and the
Subject Interests shall apply to (and the term "Subject Hydrocarbons" shall
include) the production from such units which is attributable to such
Subject Interest (and the Net Profits Account shall be computed giving
consideration to such production and costs, expenses, charges and credits
attributable to such Subject Interest) under and by virtue of the
applicable pooling and unitization agreements.
(b) Without the joinder of Assignee with respect to the Net Profits
Account, Assignor shall not have the right and power to unitize, pool or
combine the lands covered by the Subject Interests, or any portion or
portions thereof, as to oil and/or gas, and other substances produced in
association therewith, or any one or more of them, with any other land or
lease or leases so as to create one or more unitized areas (or, with
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respect to unitized or pooled areas theretofore created, to dissolve the
same or to amend and/or reconfigure the same to include additional acreage
or substances or to exclude acreage or substances). If pursuant to any law,
rule, regulation or order of any governmental body or official, any of the
Subject Interests are pooled or unitized in any manner, the Net Profits
Account shall apply to (and the term "Subject Hydrocarbons" shall include)
the production which accrues to such Subject Interest under and by virtue
of such pooling and unitization arrangements and the Net Profits Account
shall be computed giving consideration to such production and costs,
expenses, charges and credits attributable to such Subject Interest.
1.14 Non-consent Operations.
(a) If Assignor elects to be a non-participating party with respect to
any drilling, deepening, plugging back, reworking, sidetracking or
completion (or other) operation on any Subject Interest or elects to be an
abandoning party with respect to a well located on any Subject Interest,
the consequence of which election is that Assignor's interest in such
Subject Interest or part thereof is temporarily (i.e., during a recoupment
period) or permanently forfeited to the parties participating in such
operations, or electing not to abandon such well, then the costs and
proceeds attributable to such forfeited interest shall not, for the period
of such forfeiture (which may be a permanent period), be debited or
credited to the Net Profits Account and such forfeited interest shall not,
for the period of such forfeiture, be subject to the Net Profits Account.
(b) If Assignor elects to be a participating party to such a drilling,
deepening, plugging back, reworking, sidetracking or completing (or other)
operation, or elects to be a nonabandoning party with respect to such a
well, and any other party or parties have elected not to participate in
such operation (or have elected to abandon such well) with the result that
(pursuant to an operating agreement or other agreement or arrangement,
including without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Assignor becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or permanently,
interests belonging to such other party or parties, then the costs and
proceeds attributable to such non-participating parties' interests to which
Assignor becomes so entitled shall be paid and received by Assignor
separately for its own account and shall not be debited and credited to the
Net Profits Account.
1.15 Renewals and Extensions of Leases. The Net Profits Account shall apply
to all renewals, extensions and other similar arrangements (and/or interests
therein) of oil, gas and/or mineral leases (or other determinable interests in
oil, gas and other minerals) which are included (or interests in which are
included) in Subject Interests, whether or not such renewals, extensions or
arrangements have heretofore (whether or not described in Exhibit A) been
obtained, or are hereafter obtained, by Assignor.
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1.16 Indemnity. Notwithstanding anything to the contrary contained in this
Agreement, Assignee shall never personally be responsible for payment of any
part of the costs, expenses or liabilities incurred in connection with the
exploring, developing, operating and maintaining of the Subject Interests, and
Assignor agrees to indemnify and hold Assignee harmless from and against all
such costs, expenses and liabilities (with such indemnity to also cover all
costs and expenses of Assignee, including reasonable legal fees and expenses,
which are incurred incident to the matters indemnified against); provided,
however, all such costs and expenses shall, to the extent the same relate to
periods after the Effective Date, nevertheless be charged against the Net
Profits Account as and to the extent herein permitted.
1.17 Access to Books and Records. In addition to any reports and
information specifically required by the terms of this Agreement, Assignor
agrees to furnish to Assignee (a) within 60 days after the end of each calendar
year, financial statements for the Net Profits Account as of the end of and for
such year and (b) full information pertaining to the operation of the Subject
Interests, at all reasonable times. Subject to any restrictions on Assignor's
right to do so under applicable operating agreements or similar contracts,
Assignor will permit representatives designated by Assignee, including
independent accountants, agents, attorneys, and other persons, to visit and
inspect the Subject Interests and Assignor's books and records pertaining to the
Subject Interests and the Net Profits Account (and to make copies and
photocopies from such records and to write down and record such information as
such representatives may request), and Assignor shall permit the Assignee and
its designated representatives reasonably to investigate and verify the accuracy
of information furnished to the Assignee hereunder or in connection herewith and
to discuss all such matters with its officers, employees and representatives.
1.18 Access to Geological Data. Upon request Assignor shall, subject to the
limitations of confidentiality, undertakings with co-owners or other third
parties, furnish to Assignee copies of all electric and other logs of all wells
within the Subject Interests, and Assignee shall also have access to all cores,
cuttings, external and internal engineering studies, independent engineering
reports and other geological, well and production data secured by Assignor with
respect to the Subject Interests. Assignee shall also have the right to receive
upon request quarterly reports showing the status of exploration, development,
producing and other operations conducted by Assignor on the Subject Interests.
1.19 Assignee's Right to Convert. After June 1, 2006, Assignee shall have
the right to convert its net profit interests into common stock of Assignor. The
purchase price of the net profits interests shall be the present value of the
net profits interest computed in accordance with the formula set forth by the
Securities and Exchange Commission for reporting reserve values except that the
discount rate shall be fifteen percent (15%) and only proved producing reserves
shall be considered. The value of the net profits interest shall be determined
by an independent third party petroleum engineer selected by the Assignor and
Assignee. The Assignor shall pay for the net profits interests in shares of its
common stock issued pursuant to Rule 144 of the Securities and Exchange
Commission and valued at $1.25 per share. Assignee may exercise the rights under
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this section for all or part of its interests but no exercise shall be for less
than twenty (20%) of its original net profits interests.
ARTICLE 2. PURCHASE PRICE
2.1 Purchase Price. Upon the basis of the representations and warranties
and on the terms and subject to the conditions set forth in this Agreement, in
consideration of the transfer and conveyance of the Subject Interests from
Assignor to Assignee, Assignee hereby agrees to deliver to Assignor, and
Assignor hereby agrees to accept $2.5 million on the Closing Date (hereinafter
defined). Assignee may deliver incremental amounts to Assignor prior to the
Closing Date and each such amount delivered shall entitle the Assignee to a pro
rata share of the Subject Interests. If the Assignee fails to deliver the entire
Purchase Price, Assignee shall nevertheless be entitled to receive the pro rata
share of the Subject Interests for any amount delivered to Assignor. Closing
Date shall be March 31, 2005.
ARTICLE 3. REPRESENTATIONS OF ASSIGNOR
3.1 Existence. Assignor is a Nevada corporations duly organized, validly
existing, and in good standing under the laws of the state of its organization,
and is duly qualified to do business in the states in which the Subject
Interests are located.
3.2 Authorization. Assignor has all authority necessary to enter into this
Agreement and to perform all their obligations hereunder. This Agreement has
been duly executed and delivered on their behalf and at the Closing all
documents and instruments required hereunder will have been duly executed and
delivered. This Agreement, and all such documents and instruments shall
constitute legal, valid, and binding obligations enforceable in accordance with
their respective terms, except to the extent enforceability may be affected by
bankruptcy, reorganization, insolvency, or similar laws affecting creditors'
rights generally. Assignor is the lawful owner of the Subject Interests, and the
interests of Assignor in the Subject Interests, as set forth in Exhibit A
hereto, are true and correct in all material respects. Except as disclosed on
Exhibit 3.2 the interests of Assignor in the Subject Interests are free and
clear of all liens, mortgages, security interests, pledges, charges, oil
payments, title defects or other burdens or encumbrances; and all gross
production taxes and other taxes as to which non-payment could result in a lien
against any of the Assignor have been paid. Prior to Closing, Assignee shall
have the right to require Assignor to clear any and all liens and other
encumbrances on the Subjects Interest set forth on Exhibit 3.2.
3.3 Power. Assignor's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its certificates of organization, regulations, or
other governing documents; (ii) result in material breach of any term or
condition of, or constitute a default or cause the acceleration of any
obligation under any agreement or instrument to which they are a party or by
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which they are bound; or (iii) violate or conflict with any applicable judgment,
decree, order, permit, law, rule or regulation.
3.4 Brokers. Assignor has incurred no liability, contingent or otherwise,
for broker's or finder's fees in respect of this transaction, for which Assignee
shall have any responsibility whatsoever.
3.5 Foreign Person. Assignor is not a "foreign person" within the meaning
of the Internal Revenue Code of 1986, as amended (the "Code"), Section 1445 and
7701 (i.e. Assignor is not nonresident aliens, foreign corporations, foreign
partnerships, foreign trusts, or foreign estates as those terms are defined in
the Code and any regulations promulgated thereunder).
3.6 Gas Imbalances. Assignor has no knowledge of any gas imbalances with
co-owners of the Subject Interests.
3.7 Compliance with Laws. The execution and performance of this Agreement
by Assignor does not violate any law or regulation of any jurisdiction or
governmental body or agency.
3.8 Representations, Statements and Certificates. No representation by
Assignor, nor any statement or certificate furnished or to be furnished by
Assignor pursuant to this Agreement, or in connection with the transactions
contemplated herein, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained therein not misleading.
ARTICLE 4. REPRESENTATIONS OF ASSIGNEE
4.1 Existence. Assignee is a corporation duly organized, validly existing,
and in good standing under the laws of the state of its incorporation, and is
duly qualified to do business in the states in which the properties are located.
4.2 Authorization. Assignee has all authority necessary to enter into this
Agreement and to perform all its obligations hereunder. This Agreement has been
duly executed and delivered on its behalf, and at the Closing all documents and
instruments required hereunder will have been duly executed and delivered. This
Agreement, and all such documents and instruments shall constitute legal, valid,
and binding obligations enforceable in accordance with their respective terms,
except to the extent enforceability may be affected by bankruptcy,
reorganizations, insolvency, or similar laws affecting creditors' rights
generally.
4.3 Power. Assignee's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its certificate of incorporation, by-laws, or
other governing documents; (ii) result in the breach of any term or condition
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of, or constitute a default or cause the acceleration of any obligation under
any agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree, order, permit,
law, rule, or regulation.
4.4 Brokers. Assignee has incurred no liability, contingent or otherwise,
for broker's or finder's fees in respect of this transaction, for which Assignor
shall have any responsibility whatsoever.
4.5 Further Distribution. Assignee (i) has such knowledge and experience in
business, financial, and oil and gas matters that it is capable of evaluating
the merits and risks of entering into and of carrying out its obligations in
connection with the acquisition of the Subject Interests in the manner
contemplated herein; (ii) has received to date all information concerning the
Subject Interests and such other information relating to this Agreement which it
requested; and (iii) is able to bear the economic risk of its investment in the
Subject Interests for an indefinite period of time. Further, Assignee
acknowledges that Assignor are relying upon the representations contained in the
foregoing sentence and that absent such representations the proposed sale to
Assignee would not be entered into and this Agreement would not be executed and
delivered by Assignor.
4.6 Effective Agreement. The execution, delivery, and performance of this
Agreement by Assignee and the consummation of the transactions contemplated
hereby do not require the consent, waiver, approval, or authorization of any
person or public authority; do not result in a violation of any material breach
of any law, rule, or regulation applicable to Assignee, and do not conflict with
or result in a breach of any of the governing instruments of Assignee or, with
or without the giving of notice and/or the passage of time, any mortgage, deed
of trust, license, indenture, or other instrument or agreement, or any order,
judgment, or other restriction of any kind or character to which Assignee is a
party.
4.7 Compliance with Laws. The execution and performance of this Agreement
by Assignee does not violate any law or regulation of any jurisdiction or
governmental body or agency.
4.8 Representations, Statements and Certificates. No representation by
Assignee, nor any statement or certificate furnished or to be furnished by
Assignee pursuant to this Agreement, or in connection with the transactions
contemplated herein, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements contained therein not misleading.
ARTICLE 5. DISCLAIMER OF WARRANTIES
5.1 Information Provided. All the information, statistics, summaries, and
facsimiles furnished by or on behalf of Assignor herewith or hereunder are
furnished or will be furnished for Assignee's use at Assignee's sole risk. All
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such information has been compiled or prepared by Assignor based upon its files
and records and such information is believed to be correct, but Assignor make no
representation or warranty, express or implied, as to the accuracy, correctness,
completeness, or the adequacy of same and does not warrant or guarantee such
information in any way. Assignor have made no statements or representations
concerning the environmental condition of the properties, production rates,
recompletion opportunities, decline rates, geological or geophysical data or
interpretations, the quality, quantity, recoverability or cost of recovery of
any hydrocarbon reserves, any product pricing assumptions, the ability to sell
or market any hydrocarbons after Closing, or the present or future value of the
anticipated income, costs, or profits, if any, to be derived from the
properties. Assignee is responsible for making such independent investigation
and evaluation of the properties as Assignee shall deem appropriate, realizing
that Assignor do not assume and shall have no liability to Assignee or any other
party whatsoever for any reliance which may be placed on the information,
statistics, summaries, or facsimiles furnished herewith or hereunder or any
statements made herein. Specifically, but without limiting the generality of the
foregoing:
(i) The description of leases included in the properties, the acreage
purported to be covered thereby, depth limitations (if any), royalty and
other burdens affecting same, and quantum of interest have been derived
strictly from Assignor's records and Assignor have not undertaken any
examination of title to verify same. Assignor does not warrant title to the
Subject Interests, except as against parties claiming by, through, or under
Assignor, and Assignee should therefore undertake such independent title
examination as it deems appropriate prior to closing; and
(ii) The description of wells and equipment included in the properties
has been compiled strictly from Assignor's records rather than from an
on-the-ground inventory. Prior to Closing, Assignee should undertake such
independent inspection or inventory as it deems appropriate to determine
whether the equipment so described is in fact in place.
5.2 No Warranties. Conveyance of the properties will be made without
representations or warranties, express or implied in fact or in law, as to
merchantability, durability, use, operation, fitness for any particular purpose,
condition, safety of the properties, compliance with regulatory and
environmental requirements or otherwise.
5.3 Assignee Inspection. Assignee hereby agrees that it will inspect the
properties, including, without limitation, the leases and the contracts, wells
personal property, and equipment assigned and conveyed herein and that it will
accept the same "AS IS, WHERE IS" and "WITH ALL FAULTS". Assignee releases
Assignor from all Losses (as defined herein) with respect to the properties,
whether or not caused by or attributable to Assignor's negligence and whether or
not arising from or in connection with or during the period of Assignor's
ownership or use of the properties. Without limiting the above, Assignee waives
its right to recover from Assignor and forever releases and discharges Assignor
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from any and all losses, penalties, fines, liens, judgments, costs and expenses
whatsoever (including, without limitation, attorney's fees and costs), whether
direct or indirect, known or unknown, foreseen or unforeseen, that may arise on
account of or in any way be connected with the physical condition of the
properties or any law or regulation applicable thereto, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as Amended (42 U.S.C. 9601 Et. Seq.), the Clean Water Act (33
U.S.C. 466 Et. Seq.), the Safe Drinking Water Act (14 U.S.C. 1401-1450), the
Hazardous Materials Transportation Act (49 U.S.C. 1801 Et. Seq.), the Toxic
Substance Control Act (15 U.S.C. 2601-2629) and all applicable state or local
laws.
5.4 Prior Operations. Assignee hereby acknowledges that the properties have
been utilized for the purpose of production and development of oil and gas and
that there may have been spills of wastes, crude oil, produced water or other
materials in the past onto the Properties or in connection therewith. In
addition, some oil field production equipment may contain asbestos or naturally
occurring radioactive material (hereinafter referred to as "NORM"). In this
regard Assignee expressly understands the NORM may affix or attach itself to the
inside of wells, materials and equipment as scale, or in other forms, and that
said wells, materials and equipment located on the Subject Interests or included
therein may contain NORM and that NORM-containing material may be buried or
otherwise disposed of on the properties. Assignee also expressly understands
that special procedures may be required for the remediation, removal,
transportation and disposal of asbestos and NORM from the properties where it
may be found, and Assignee assumes all responsibility and liability for or in
connection with assessment, remediation, removal, transportation, and disposal
of any such materials and associated activities in accordance with all rules,
regulations and requirements of governmental agencies.
ARTICLE 6. ASSIGNOR'S CONDITIONS OF CLOSING
The obligation of Assignor to close this transaction shall be subject to
and conditioned upon the following, any one or more of which may be waived by
Assignor, in whole or in part:
6.1 Representations. The representations of Assignee under Article 4 of
this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the time of the
Closing and shall then be true and accurate in all material respect.
6.2 Performance. Assignee shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed or
complied with by it prior to or at Closing.
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6.3 Pending Matters. At Closing, no litigation, proceeding, investigation,
or inquiry shall be pending or threatened to enjoin or prevent the consummation
of the transactions contemplated by this Agreement.
ARTICLE 7. ASSIGNEE'S CONDITIONS OF CLOSING
The obligation of Assignee to close this transaction shall be subject to
and conditioned upon the following, any one or more of which may be waived by
Assignee, in whole or in part:
7.1 Representations. The representations of Assignor under Article 3 of
this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of Closing and
shall then be true and accurate in all material respects.
7.2 Performance. Assignor shall have performed and complied with each
material covenant, agreement, and condition required by this Agreement to be
performed or complied with by Assignor prior to or at the Closing including any
obligations imposed on Assignor by Section 3.2.
7.3 Pending Matters. At Closing, no suit or action shall have been
instituted or threatened that questions or reasonably appears to adversely
materially affect the validity or legality of this Agreement or the transactions
contemplated by this Agreement.
ARTICLE 8. CLOSING
8.1 Time and Place of Closing. As set forth is Section 2.1, the
consummation of the transactions contemplated hereby may occur in increments.
Upon any delivery of funds by Assignee to Assignor, the appropriate Assignment
in the form of Exhibit "B" hereto shall be delivered to Assignee. Each such
transaction shall be referred to as a "Closing". The last of such Closings shall
occur on March 31, 2005 (the "Closing Date"); provided, however, that if all of
the conditions to Closing set forth in Articles 6 and 7 have not been satisfied
or waived by such date or any extended date for Closing the party whose
obligations are subject to the conditions that have not been satisfied or waived
shall have the right to extend the date of Closing for successive periods of up
to seven days each until such conditions shall have been satisfied or waived.
The Closing shall be held at Assignee's offices located at 8303 Southwest
Freeway, Suite 950, Houston, Texas, 77074, or at such other location as may be
mutually agreed upon by Assignor and Assignee.
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8.2 Closing Obligations.
(a) At Closing, Assignor shall deliver to Assignee the following:
(i) Executed Assignment of Net Profits Interests, in the form
attached hereto as Exhibit "B"; and
(ii) an executed statement described in Treasury Regulation
Section 1.1445-2(b)(2) certifying that Assignor are not a "foreign
person" within the meaning of the Internal Revenue Code of 1986, as
amended;
(b) At Closing, Assignee shall:
(i) Deliver to Assignor up to $2.5 million in available funds;
and
(ii) Execute the Assignment of Net Profits Interest delivered by
Assignor to Assignee at Closing, evidencing Assignee's acceptance of
same and assumption of all obligations thereunder.
8.3 Further Assurances. The parties shall execute, acknowledge, and deliver
any other documents and shall take such other actions as may be reasonably
necessary to carry out their obligations under this Agreement.
8.4 Simultaneous Closing. The delivery of all documents and actions taken
at the Closing shall all be considered parts of a simultaneous transaction and
no delivery of documents or action taken shall be considered completed until all
documents for such Closing have been delivered and other action taken.
ARTICLE 9. ADDITIONAL AGREEMENTS
9.1 Notices. All notices hereunder shall be in writing and any
communication or delivery hereunder shall be deemed to have been duly made when
personally delivered to the individual indicated below, or if mailed, when
received by the party charged with such notice and addressed as follows:
ASSIGNOR: VTEX Energy, Inc.
- --------
8303 Southwest Freeway, Suite 950
Houston, Texas, 77074
Attn. Stephen Noser
ASSIGNEE: Arcoa Oil & Gas, Inc.
- --------
50 Briar Hollow East, Suite 210
Houston, Texas, 77027
Attn. President
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Any party may, by written notice so delivered to the other, change the address
of the individual to which or to whom delivery shall thereafter be made.
9.2 Recording Documents. Assignee shall pay all transfer, documentary,
filing, and recording fees incurred in connection with the filing and recording
of the instruments of conveyance. As soon as practicable after Closing, Assignee
shall provide Assignor with copies of all recorded documents conveying the
Subject Interests to Assignee.
9.3 Right of Termination.
(a) This Agreement and the transactions contemplated hereby may be
terminated in the following instances:
(i) By Assignor if any of the conditions set forth in Article 6
are not satisfied in all material respects or waived as of the Closing
Date;
(ii) By Assignee if any of the conditions set forth in Article 7
are not satisfied in all material respects or waived as of the Closing
Date; or
(iii) At any time by the mutual written agreement of Assignee and
Assignor.
(b) In the event of the termination of this Agreement by Assignor in
accordance with Section 9.3(a)(i), Assignor shall have no liability
hereunder of any nature whatsoever to Assignee, including any liability for
damages. If Assignee terminates this Agreement in accordance with Section
9.3(a)(ii) above, it shall have no liability hereunder of any nature
whatsoever to Assignor including any liability for damages.
(c) Except as provided above in this Section 9.3(b), nothing contained
herein shall be construed to limit Assignor's or Assignee's legal or
equitable remedies in the event of breach of this Agreement.
9.4 Indemnify Regarding Access. Assignee agrees to indemnify, defend and
hold harmless Assignor from and against any and all claims, liabilities, losses,
costs and expenses attributable to personal injuries, death, or property damage,
arising out of or relating to access to the properties and to the records and
other related information prior to the Closing by Assignee and the Assignor,
even if caused in whole or in part by the negligence (whether sole, joint or
concurrent), strict liability or other legal fault of Assignor.
ARTICLE 10. ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION
10.1 Definitions. As used in this Agreement:
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(a) "Losses" means any liabilities, losses, claims, demands, causes of
action, costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees and other costs and expenses incident to
proceedings or investigations respecting, or the prosecution or defense of,
a claim) of every kind and character.
(b) "Material Adverse Effect" means any material adverse change in the
condition (financial or otherwise), business, operations, properties,
prospects, assets or liabilities, of Assignor in the aggregate (whether or
not covered by insurance).
10.2 Assignee's Plugging Liability. Assignee shall have no liability for
the plugging and abandonment of any well or facility.
ARTICLE 11. ARBITRATION
11.1 Selection of Arbitrators. Any controversy between the parties hereto
arising under this Agreement and not resolved by agreement shall be determined
by a board of arbitration upon notice of submission given by either party to the
other, which notice shall name a qualified, independent arbitrator. Within ten
(10) days after the receipt of such notice, the other party shall name a
qualified, independent arbitrator, of failing to do so the party giving notice
shall name the second. The two arbitrators so appointed shall name the third
qualified, independent arbitrator, or failing to do so, the third arbitrator may
be appointed by the Senior Judge (in service) of the United States District
Court for the Southern District of Texas.
11.2 Determination. The arbitrators selected to act hereunder shall be
qualified by education and experience to pass on the particular question in
dispute. The arbitrators shall promptly hear and determine (after due notice of
hearing and giving the parties a reasonable opportunity to be heard) the
questions submitted, and shall render their decision within sixty days after
appointment of the third arbitrator. If within said period a decision is not
rendered by the board, or majority thereof, new arbitrators may be named and
shall act hereunder at the election of either Assignee or Assignor in like
manner as if none had been previously named.
11.3 Decision Binding. The decision of the arbitrators, or the majority
thereof, made in writing shall be final and binding upon the parties hereto as
to the questions submitted, and Assignee and Assignor will abide by and comply
with such decision. The expenses of arbitration, including reasonable
compensation to the arbitrators, shall be borne equally by the parties hereto,
except that each party shall bear the compensation and expenses of its own
counsel, witnesses, and employees.
ARTICLE 12. MISCELLANEOUS
12.1 Amendment. This Agreement may not be amended nor any rights hereunder
waived except by an instrument in writing signed by the party to be charged with
such amendment or waiver and delivered by such party to the party claiming the
benefit of such amendment or waiver.
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12.2 Gender. References made in this Agreement, including use of a pronoun,
shall be deemed to include where applicable, masculine, feminine, singular or
plural, individuals, partnerships, or corporations. As used in this Agreement,
"person" shall mean any natural person, corporation, limited liability company,
partnership, trust, estate, or other entity.
12.3 Entire Agreement. This Agreement constitutes the entire understanding
among the parties with respect to the subject matter hereof, superseding all
negotiations, prior discussions, and prior agreements and understandings
relating to such subject matter.
12.4 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of, the parties hereto and, except as otherwise prohibited,
their respective successors and assigns; and except as otherwise stated herein,
nothing contained in this Agreement, or implied herefrom, is intended to confer
upon any other person or entity any benefits, rights, or remedies. This
Agreement and any rights, obligations, responsibilities, and duties of Assignee
hereunder may be assigned by Assignee with the prior written consent of
Assignor, which consent shall not be unreasonably withheld, conditioned, or
delayed.
12.5 Survivability. Except as otherwise specifically provided in this
Agreement, all indemnifications, covenants, agreements, representations,
guaranties, and warranties shall survive the execution of the Agreement, the
Closing, and the delivery and recordation of any deeds, assignments, or bills of
sale which convey the Subject Interests from Assignor to Assignee.
12.6 Severability. If a court of competent jurisdiction determines that any
clause or provision of this Agreement is void, illegal, or unenforceable, the
other clauses and provisions of the Agreement shall remain in full force and
effect and the clauses and provisions which are determined to be void, illegal,
or unenforceable shall be limited so that they shall remain in effect to the
extent permissible by law.
12.7 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Texas (excluding any conflict of laws provision that
would require the application of the law of any other jurisdiction).
12.8 Section Headings. The section headings contained in this Agreement are
for convenience only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.9 Waiver. No waiver of any provision of or rights under this Agreement
shall be effective unless in a writing signed by the waiving party. No waiver of
any specified right or provision shall be construed as a waiver of any other
right or provision.
The parties have executed this Agreement as of the date first above
mentioned.
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ASSIGNOR:
VTEX Energy, Inc
By
Name:_____________________________________
Title:____________________________________
ASSIGNEE:
Arcoa Oil & Gas, Inc.
By:
Name:_____________________________________
Title:____________________________________
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Exhibit "A"
To Assignment of Net Profits Interests
Assignor's interest in the following wells located on State of Louisiana Lease
No. 1337 in St. Mary Parish, Louisiana:
Bateman Lake Well No. 9 Serial Number 148006.
Bateman Lake Well No. 11 Serial Number 054466
Bateman Lake Well No. 19 Serial Number 060651
In the current completion in each of these wells Assignor owns a 100%
Working Interest and a 72.88 % net revenue interest.
-21-
EXHIBIT "B"
ASSIGNMENT OF NET PROFITS INTERESTS
THE STATE OF LOUISIANA
PARISH OF ST. MARY
VTEX Energy,Inc., a Nevada corporation, whose address is 8303 Southwest Freeway,
Suite 950, Houston, Tx., 77074, (hereinafter called "Assignor"), for and in
consideration of the sum of Ten and no/100 Dollars ($10.00) and other good and
valuable consideration the receipt, adequacy and sufficiency of which are hereby
acknowledged, does hereby sell, transfer, assign and convey unto Arcoa Oil &
Gas, Inc., a Texas Corporation, whose address is 50 Briar Hollow East, Suite 210
Houston, Texas 77027 (hereinafter called "Assignee"), the Net Profit Interests
as hereinafter defined.
1.1 Effective Date. This Assignment shall be effective as of 7:00 a.m.
Central Standard Time, on February 1, 2005 (the "Effective Date"), at the
location of the respective properties (the "Effective Time").
1.2 Net Profits Interest, Payout, Subject Hydrocarbons and Subject
Interest. As used herein the term Net Profits Interest shall mean the balance in
the Net Profit Account. Payout shall mean that point in time when the cumulative
Net Profits Interest distributed to the Assignee has reached $2.5 million or
such lesser number as Assignee has delivered to Assignor pursuant to Section 2.1
plus twelve percent (12%) per annum interest thereon.
Subject Hydrocarbons shall mean that portion of the oil, gas and other
minerals in and under and that may be produced from and after the Effective
Date, from the lands and depths covered by the Subject Interests and which are
attributable to the Subject Interests, after deducting all royalties and any
overriding royalties, production payments and other similar charges burdening
the Subject Interests which were recorded prior to the Effective Date. There
shall not be included in the Subject Hydrocarbons any oil, gas or other minerals
attributable to nonconsent operations conducted with respect to the Subject
Interests (or any portion thereof) as to which Assignor is a nonconsenting party
and dedicated to the recoupment or reimbursement of costs and expenses of the
consenting parties by the terms of the relevant agreement, provided to
Assignor's election not to participate is made in conformity with Section 1.14 .
Subject Interests shall mean all seventy percent (70%) of Assignor's
undivided interest before Payout and thirty percent (30%) of Assignor's
undivided interest after Payout in and to the following:
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(a) the oil, gas and/or mineral properties which are described in
Exhibit A attached hereto;
(b) all other rights, titles, interests and estates of Assignor of
whatever kind and character (including without limitation leasehold
interests under oil, gas and/or mineral leases (whether or not such leases
are described on Exhibit A), fee mineral interests, fee royalty interests,
overriding royalties, production payments, reversionary interests (whether
leasehold or otherwise) and other interests) in and to the lands described
in Exhibit A (or otherwise described, identified or referred to in any of
the leases or other instruments described in Exhibit A), even though such
interest of Assignor may be incorrectly described in, or omitted from,
Exhibit A; and
(c) all rights, titles and interests of Assignor in and to all
presently existing (or hereafter created) oil, gas and/or mineral
unitization, pooling, and communitization agreements, declarations and
orders (including without limitation all amendments or modifications
thereto) insofar as they relate to the properties described in subsections
(a) and (b) above, and all such rights, titles and interests in and to the
properties covered and the units created thereby (including all units
formed under orders, regulations, rules, or other official acts of any
governmental agency having jurisdiction, and including so called "working
interest units" created under operating or similar agreements) insofar as
such rights, titles and interests are derived from interests in the
properties described in subsections (a) and (b) above,
but excluding any additional undivided interests in the properties, rights,
titles and interests described in subsections (a), (b) and (c) above which have
been or are hereafter acquired by Assignor.
1.3 Net Profit Account. Assignor shall establish and maintain a net profits
account (herein called the "Net Profits Account") in accordance with sound,
accurate and comprehensive accounting practices and consistent with the various
provisions of this Agreement and at all times shall keep true and correct books
and records with respect thereto.
1.4 Credits. Except as otherwise provided herein, the Net Profits Account
shall be credited with the gross proceeds from each sale or other disposition of
Subject Hydrocarbons. Any Subject Hydrocarbons retained and/or used by Assignor
shall be credited to the Net Profits Account at the same price as the Subject
Hydrocarbons that are sold by Assignor at or near the time of such retention or
use. The amount of proceeds (herein called the "Credited Proceeds"), to be
credited to the Net Profits Account with respect to any sale or disposition of
Subject Hydrocarbons shall be subject to the following:
(i) Credited Proceeds shall include all consideration received,
directly or indirectly, for sales of Subject Hydrocarbons, including
without limitation (but subject to Section 1.14) advance payments and
payments under take-or-pay and similar provisions of Production Sales
Contracts;
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<PAGE
(ii) If any proceeds are withheld from the Assignor by a Non-Affiliate
for any reason (other than at the request of Assignor or due to the
negligence of Assignor), such proceeds shall not be considered to be
Credited Proceeds until such proceeds are actually received by Assignor;
provided, however, that Credited Proceeds shall not include any interest,
penalty, or other amount that is not derived from the sale of Subject
Hydrocarbons, but, instead, Assignor shall make payment directly to
Assignee of Assignee's allocable share of any such amounts paid to Assignor
by the purchaser of Subject Hydrocarbons or any escrow agent;
(iii) Credited Proceeds relating to any nonconsent operations
conducted with respect to all or any part of the Subject Interests after
the Effective Date shall be subject to Section 1.14;
(iv) Credited Proceeds shall not include any amounts for Subject
Hydrocarbons unavoidably lost in production or used by Assignor in
conformity with good oil field practices for development drilling and
production operations (including without limitation gas injection, fuel,
secondary or tertiary recovery, pressure maintenance, repressuring or
recycling operations) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such Subject
Hydrocarbons are so used;
(v) Credited Proceeds shall include all amounts which Assignor shall
receive as a result of the Subject Interests including any landowners,
overriding and other royalty interests;
1.5 Debits. Except as otherwise provided herein, the Net Profits Account
shall be debited with the following:
(a) All direct costs including capital costs which are attributable to
the Subject Interests (i) for all direct labor and other services necessary
for developing, reworking, recompleting, deepening, operating, producing,
and maintaining the Subject Interests after the Effective Date and (ii) for
all material, supplies, equipment and other personal property and fixtures
purchased for use on, or in connection with, any of the Subject Interests
after the Effective Date;
(b) All taxes (except income, transfer, inheritance, estate, franchise
and like taxes) incurred by Assignor with respect to the ownership of the
Subject Interests after the Effective Date, including without limitation
production, severance, and/or excise and other taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons, occupation taxes, sales and use taxes,
and ad valorem taxes assessed against or attributable to the Subject
Interests or any non-Processing equipment located on any of the Subject
Interests;
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(c) All insurance premiums attributable to the Subject Interests paid
by Assignor for insurance actually carried for periods after the Effective
Date with respect to the Subject Interests, or any non-Processing equipment
located on any of the Subject Interests, or incident to the operation or
maintenance of the Subject Interests after the Effective Date; it being
recognized that where the coverage is general in nature, or relates to a
group of properties (or more than one interest in the same property), only
that portion which is reasonably allocated to the Subject Interests shall
be debited hereunder;
(d) All amounts properly attributable to the Subject Interests (to the
extent attributable to periods after the Effective Date) and consisting of
(i) rent and other consideration paid for the use or damage to the surface
and (ii) rentals, shut-in gas well royalties, overriding royalties, minimum
royalties and similar payments payable pursuant to the provisions of
agreements in force and effect before the Effective Date;
(e) Amounts attributable to the Subject Interests (and attributable to
periods after the Effective Date) as overhead charges specified in
applicable operating agreements now or hereafter covering the Subject
Interests;
(f) Any Manufacturing Costs or costs of acquiring, constructing,
operating or maintaining any facility, plant, equipment or transmission
pipeline for Processing or transporting any Subject Hydrocarbons or any
other oil, gas and/or minerals;
(g) If as a result of the occurrence of the bankruptcy or insolvency
or similar occurrence of the purchaser of Subject Hydrocarbons any amounts
previously included in Credited Proceeds are reclaimed from Assignor or its
representative, then the amounts reclaimed as promptly as practicable
following Assignor's payment thereof; and
(h) If Assignor shall be a party as to any nonconsent operations
conducted with respect to all or any of the Subject Interests after the
Effective Date, all costs to be debited to the Net Profits Account with
respect thereto shall be governed by Section 1.14.
Notwithstanding the foregoing provisions of this Section or anything else
to the contrary contained in this Agreement; the amounts debited to the Net
Profits Account shall not include any of the following:
(1) Any amount which has also been used to reduce the amount of the
Subject Hydrocarbons and/or Credited Proceeds or has otherwise not been
included therein (including, by way of example and without limitation,
royalties, overriding royalties, production payments and other charges
burdening the Subject Interests at the Effective Date, production,
severance, excise, and other taxes and any other amounts deducted, withheld
or paid by any other person);
(2) Any overriding royalty, production payment or other charge
burdening the Subject Interests which was created by Assignor;
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(3) Any expenses and any penalties, interest or other similar charges
which result from the failure of Assignor to properly discharge all costs
and expenses (including taxes) of developing, operating and maintaining the
Subject Interests;
(4) Any damages, penalties, interest or other similar charges paid by
Assignor to any third party or governmental agency, commission or similar
body arising from any conduct or omission by Assignor in its capacity as
operator of any of the Subject Interests and any costs and expenses
(including attorneys' fees) in defending any such action unless such
charges, costs and expenses are properly chargeable to all working interest
owners under an operating agreement to which all or part of the Subject
Interests are subject;
(5) Any general, administrative or overhead costs paid or incurred by
the Assignor or its Affiliates; and
(6) Any amounts paid by Assignor to such Assignor's predecessor in
interest with respect to part or all of the Subject Interests (including
without limitation any purchase price or other consideration paid by
Assignor to such predecessor in interest to acquire all or part of the
Subject Interests).
1.6 Accounting. All debits to the Net Profits Account which are
attributable to costs and expenses paid by Assignor during a calendar month up
to and including the last day of such calendar month shall be debited against
the Net Profits Account as of the last day of such calendar month. All credits
to the Net Profits Account which are actually received by Assignor during a
calendar month up to and including the last day of such calendar month shall be
credited to the Net Profits Account as of the last day of such calendar month;
provided that any such credits which do not (and will not) result from credits
given by or payments from third parties shall be credited to the Net Profits
Account as of the last day of the calendar month in which they arise. The total
net profits realized from the Subject Interests (or the total net losses, as the
case may be) shall be determined after the applications and calculations
provided for above have been made by Assignor. The Net Profits Account shall
reflect a credit balance, as herein provided, only after and while all debits
properly debited against the Net Profits Account (and after reduction of such
debits by the amounts provided for in this Section 1.6) shall have been offset
by credits to the Net Profits Account and a credit balance shall exist in the
Net Profits Account.
1.7. Payments. Assignor shall pay to Assignee on each Payment Date,
commencing on April 30, 2005, the credit balance, if any, in the Net Profits
Account as of the end of the calendar month two months prior to the Payment Date
(e.g., the payment made on April 30, 2005 shall be the credit balance in the Net
Profits Account as of February 28, 2005). With each payment, Assignor shall
furnish to Assignee a detailed statement clearly reflecting the condition of the
Net Profits Account as of the close of business on the last day of the
respective month, and clearly reflecting (with sufficient description so that
Assignee can identify such items and the particular Subject Interest involved)
those items which gave rise to reductions, debits and credits to the Net Profits
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Account during the month for which the payment is calculated and clearly
reflecting for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the month covered by such statement, the volumes of
such production sold, the amounts received for such production, and the taxes
paid with respect to such sales. If the Net Profits Account reflects a deficit
as of the end of a month, such deficit shall be carried forward for the next and
succeeding months until such deficit has been wiped out and liquidated. In case
a net profit is reflected by any such statement and subject to adjustment
pursuant to Section 1.8, payment to Assignee of 50% of the amount of such credit
balance shall be tendered with the statement rendered to Assignee, and Assignor
shall be credited with the remaining percentage thereof, so as to extinguish any
credit balance.
1.8 Overpayments. If at any time Assignor inadvertently pays Assignee more
than the amount then due with respect to the Net Profits Account, Assignee shall
not be obligated to return any such overpayment, but the amount or amounts
otherwise payable for any subsequent period or periods shall be reduced by such
overpayment.
1.9 Past Due Payments. Any amount not paid by Assignor to Assignee with
respect to the Net Profits Account when due shall bear, and Assignor hereby
agrees to pay, interest at 8% per annum from the due date until such amount has
been paid.
1.10 Prudent Operator Standard. Assignor (subject to the terms and
provisions of any applicable operating agreements and subject to the other
provisions of this Agreement) shall have exclusive charge, management and
control of all operations to be conducted on the Subject Interests and may take
any and all actions which a prudent operator would deem necessary or advisable
in the management, operation and control thereof. Assignor shall promptly (and,
unless the same are being contested in good faith and by appropriate proceedings
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
exploring, developing, operating and maintaining the Subject Interests. Assignor
shall be obligated to explore, develop, operate and maintain the Subject
Interests as would a prudent operator under similar circumstances in accordance
with good oil field practices. As to those of the Subject Interests as to which
Assignor is not the operator, Assignor shall take all such action and exercise
all such rights and remedies as are reasonably available to it to cause the
operator to so explore, develop, maintain and operate such Subject Interests
(provided that Assignor shall never be obligated to pay any costs or expenses
attributable to any interest other than the Subject Interests and all royalties
related thereto). It is expressly understood that the powers given to Assignor
in the first sentence of this Section shall include the right of Assignor,
subject to Section 1.14, to elect to participate, or not participate, in
drilling, reworking, plugging back, deepening, sidetracking or completing of a
well, or in other operations (including, but not limited to, operations in
connection with secondary and/or tertiary recovery) proposed to be conducted on
the Subject Interests.
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1.11 Sales of Subject Hydrocarbons. Assignor shall have the obligation to
market or cause to be marketed the Subject Hydrocarbons in accordance with
reasonable and prudent business judgment and sound oil field practices and on
such terms and conditions as Assignor shall determine to be in the best
interests of Assignee; provided, however, that all such sales of Subject
Hydrocarbons (a) shall be upon terms and conditions which are the best terms and
conditions available as determined in good faith by Assignor taking into account
all relevant circumstances, including without limitation, price, quality of
production, access to markets, minimum purchase guarantees, identity of
purchaser and length of commitment, and (b) shall be upon terms and conditions
at least as favorable as Assignor obtains for oil, gas and/or minerals not
subject to this Agreement which are of comparable type and quality and in the
same location. Assignor will exercise its best efforts to perform all
obligations binding on it under Production Sales Contracts and to enforce the
performance of the obligations of third parties thereunder; provided, however,
that Assignor shall have no liability for the performance of the obligations of
any purchaser of Subject Hydrocarbons in the absence of any negligence or
willful misconduct on the part of Assignor. As to any third parties, all acts of
Assignor in marketing the Subject Hydrocarbons and all Production Sales
Contracts executed by Assignor shall be binding on Payee; it being understood
that the right and obligation to market the Subject Hydrocarbons is at all times
vested in Assignor and Assignee does not have any such right or obligation or
any possessory interest in all or part of the Subject Hydrocarbons. Accordingly,
it shall not be necessary for Assignee to join in any new Production Sales
Contracts or any amendments to existing Production Sales Contracts.
1.12 Insurance. Assignor shall obtain or cause to be obtained (and maintain
or cause to be maintained during the economic life of the Subject Interests)
insurance coverage in such amounts, with provisions for such deductible amounts
and for such purposes as Assignor shall determine to be necessary or advisable
with respect to the Subject Interests,
1.13 Pooling and Unitization.
(a) Certain of the Subject Interests may have been pooled or unitized
for the production of oil, gas and/or minerals prior to the Effective Date
or, after the Effective Date, may be so pooled or unitized pursuant to
Section 1.13(b). Such Subject Interests are and shall be subject to the
terms and provisions of such pooling and unitization agreements, and the
Subject Interests shall apply to (and the term "Subject Hydrocarbons" shall
include) the production from such units which is attributable to such
Subject Interest (and the Net Profits Account shall be computed giving
consideration to such production and costs, expenses, charges and credits
attributable to such Subject Interest) under and by virtue of the
applicable pooling and unitization agreements.
(b) Without the joinder of Assignee with respect to the Net Profits
Account, Assignor shall not have the right and power to unitize, pool or
combine the lands covered by the Subject Interests, or any portion or
portions thereof, as to oil and/or gas, and other substances produced in
association therewith, or any one or more of them, with any other land or
lease or leases so as to create one or more unitized areas (or, with
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respect to unitized or pooled areas theretofore created, to dissolve the
same or to amend and/or reconfigure the same to include additional acreage
or substances or to exclude acreage or substances). If pursuant to any law,
rule, regulation or order of any governmental body or official, any of the
Subject Interests are pooled or unitized in any manner, the Net Profits
Account shall apply to (and the term "Subject Hydrocarbons" shall include)
the production which accrues to such Subject Interest under and by virtue
of such pooling and unitization arrangements and the Net Profits Account
shall be computed giving consideration to such production and costs,
expenses, charges and credits attributable to such Subject Interest.
1.14 Non-consent Operations.
(a) If Assignor elects to be a non-participating party with respect to
any drilling, deepening, plugging back, reworking, sidetracking or
completion (or other) operation on any Subject Interest or elects to be an
abandoning party with respect to a well located on any Subject Interest,
the consequence of which election is that Assignor's interest in such
Subject Interest or part thereof is temporarily (i.e., during a recoupment
period) or permanently forfeited to the parties participating in such
operations, or electing not to abandon such well, then the costs and
proceeds attributable to such forfeited interest shall not, for the period
of such forfeiture (which may be a permanent period), be debited or
credited to the Net Profits Account and such forfeited interest shall not,
for the period of such forfeiture, be subject to the Net Profits Account.
(b) If Assignor elects to be a participating party to such a drilling,
deepening, plugging back, reworking, sidetracking or completing (or other)
operation, or elects to be a nonabandoning party with respect to such a
well, and any other party or parties have elected not to participate in
such operation (or have elected to abandon such well) with the result that
(pursuant to an operating agreement or other agreement or arrangement,
including without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Assignor becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or permanently,
interests belonging to such other party or parties, then the costs and
proceeds attributable to such non-participating parties' interests to which
Assignor becomes so entitled shall be paid and received by Assignor
separately for its own account and shall not be debited and credited to the
Net Profits Account.
1.15 Renewals and Extensions of Leases. The Net Profits Account shall apply
to all renewals, extensions and other similar arrangements (and/or interests
therein) of oil, gas and/or mineral leases (or other determinable interests in
oil, gas and other minerals) which are included (or interests in which are
included) in Subject Interests, whether or not such renewals, extensions or
arrangements have heretofore (whether or not described in Exhibit A) been
obtained, or are hereafter obtained, by Assignor.
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1.16 Indemnity. Notwithstanding anything to the contrary contained in this
Agreement, Assignee shall never personally be responsible for payment of any
part of the costs, expenses or liabilities incurred in connection with the
exploring, developing, operating and maintaining of the Subject Interests, and
Assignor agrees to indemnify and hold Assignee harmless from and against all
such costs, expenses and liabilities (with such indemnity to also cover all
costs and expenses of Assignee, including reasonable legal fees and expenses,
which are incurred incident to the matters indemnified against); provided,
however, all such costs and expenses shall, to the extent the same relate to
periods after the Effective Date, nevertheless be charged against the Net
Profits Account as and to the extent herein permitted.
1.17 Access to Books and Records. In addition to any reports and
information specifically required by the terms of this Agreement, Assignor
agrees to furnish to Assignee (a) within 60 days after the end of each calendar
year, financial statements for the Net Profits Account as of the end of and for
such year and (b) full information pertaining to the operation of the Subject
Interests, at all reasonable times. Subject to any restrictions on Assignor's
right to do so under applicable operating agreements or similar contracts,
Assignor will permit representatives designated by Assignee, including
independent accountants, agents, attorneys, and other persons, to visit and
inspect the Subject Interests and Assignor's books and records pertaining to the
Subject Interests and the Net Profits Account (and to make copies and
photocopies from such records and to write down and record such information as
such representatives may request), and Assignor shall permit the Assignee and
its designated representatives reasonably to investigate and verify the accuracy
of information furnished to the Assignee hereunder or in connection herewith and
to discuss all such matters with its officers, employees and representatives.
1.18 Access to Geological Data. Upon request Assignor shall, subject to the
limitations of confidentiality, undertakings with co-owners or other third
parties, furnish to Assignee copies of all electric and other logs of all wells
within the Subject Interests, and Assignee shall also have access to all cores,
cuttings, external and internal engineering studies, independent engineering
reports and other geological, well and production data secured by Assignor with
respect to the Subject Interests. Assignee shall also have the right to receive
upon request quarterly reports showing the status of exploration, development,
producing and other operations conducted by Assignor on the Subject Interests.
1.19 Assignee's Right to Convert. After June 1, 2006, Assignee shall have
the right to convert its net profit interests into common stock of Assignor. The
purchase price of the net profits interests shall be the present value of the
net profits interest computed in accordance with the formula set forth by the
Securities and Exchange Commission for reporting reserve values except that the
discount rate shall be fifteen percent (15%) and only proved producing reserves
shall be considered. The value of the net profits interest shall be determined
by an independent third party petroleum engineer selected by the Assignor and
Assignee. The Assignor shall pay for the net profits interests in shares of its
common stock issued pursuant to Rule 144 of the Securities and Exchange
Commission and valued at the greater of $1.25 per share or eighty percent (80%)
of the average closing price of the Assignor's common stock for the twenty (20)
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days preceding Assignee's notice of its intention to exercise its rights under
this section. Assignee may exercise the rights under this section for all or
part of its interests but no exercise shall be for less than twenty (20%) of its
original net profits interests.
This Assignment shall be effective as of the Effective Time.
THIS ASSIGNMENT IS MADE WITHOUT WARRANTIES, EXPRESSED OR IMPLIED IN FACT OR
IN LAW, AS TO MERCHANTABILITY, DURABILITY, USE, OPERATION, FITNESS FOR ANY
PARTICULAR PURPOSE, CONDITION, SAFETY OF THE PROPERTY, COMPLIANCE WITH
REGULATORY AND ENVIRONMENTAL REQUIREMENTS OR OTHERWISE. ASSIGNOR DOES NOT IN ANY
WAY REPRESENT OR WARRANT THE ACCURACY OR COMPLETENESS OF ANY INFORMATION, DATA
OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO ASSIGNEE BY OR ON BEHALF OF
ASSIGNOR.
ASSIGNEE HEREBY AGREES THAT IT HAS INSPECTED OF HAS BEEN GIVEN THE
OPPORTUNITY TO INSPECT THE PROPERTY, INCLUDING THE LEASES AND ASSOCIATED
AGREEMENTS, WELLS, PERSONAL PROPERTY, AND EQUIPMENT ASSIGNED AND CONVEYED HEREIN
AND THAT IT ACCEPTS THE SAME "AS IS, WHERE IS" AND "WITH ALL FAULTS".
Assignee accepts this transfer of the Net Profits Interest subject to any
and all convents in instruments in the chain of title and to any outstanding
agreements, whether recorded or not which may include, but is not limited to,
agreements for options, leases, permits, rights-of-way, easements, water
disposal systems, licenses, operating agreements and production sales
agreements.
Assignor warrants title to the Net Profits Interests against any party
claiming title by, through, or under Assignor, but not otherwise.
This Assignment of Net Profits Interests shall be binding upon and inure to
the benefit of the heirs, successors, personal representatives and assigns of
the respective parties hereto.
EXECUTED this ___day of _______, 2005, but effective as of the Effective Time.
ASSIGNOR:
VTEX ENERGY, INC.
By: _______________________________
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ASSIGNEE:
ARCOA OIL & GAS, INC.
By: _______________________________
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THE STATE OF
COUNTY OF
This instrument was acknowledged before me on the ______day of ________,
2005, by ____________________, as of ____________________________, a Nevada
Corporation, on behalf of said Corporation.
_____________________________
Notary Public, State of Texas
My Commission Expires:
_____________________
Notary Name Printed:
_____________________________
THE STATE OF
COUNTY OF
This instrument was acknowledged before me on the ______day of ________,
2005, by ____________________, as of ____________________________, a Texas
Corporation, on behalf of said Corporation.
_____________________________
Notary Public, State of Texas
My Commission Expires:
______________________
Notary Name Printed:
_____________________________
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