THIRD AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
BETWEEN
VTEX ENERGY, INC. (ASSIGNOR)
AND
ARCOA ENERGY PARTNERS I, L.P. (ASSIGNEE)
DATED: December 29, 2005
THIRD AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
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This THIRD AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT ("Agreement")
dated as of December 29, 2005, is entered by and between VTEX Energy, Inc., a
Nevada corporation with offices at 8303 Southwest Freeway, Suite 950 Houston,
Texas, 77074, ("Assignor") and ARCOA Energy Partners I, L.P., a Texas limited
partnership, ("Assignee"), acting through its general partner, Arcoa Oil & Gas,
Inc., a Texas corporation, ("ARCOA") both having an address at 50 Briar Hollow
East, Suite 210, Houston, Texas, 77027. This Agreement supersedes and replaces
in all respects that certain PURCHASE AND SALE AGREEMENT, dated as of February
1, 2005, between Assignor and ARCOA, as further amended as of March 1, 2005
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 Conveyance. Subject to the terms and conditions of this Agreement,
Assignor agrees to transfer and convey to Assignee, and Assignee agrees to
acquire from Assignor, effective as of 7:00 a.m. Central Standard Time, on
December 29, 2005 (the "Effective Date"), at the location of the hereinafter
defined Subject Interests (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" (hereinafter defined), as calculated in accordance
with Sections 1.4 and 1.5 herein. "Payout" shall mean that point in time when
the cumulative Net Profits Interest distributed to the Assignee in accordance
with the further terms of this Section 1.2 has reached $1,800,000 or such
greater or lesser number as ARCOA or 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
Time, from the lands and depths covered by the Subject Interests (hereinafter
defined) 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 Assignor's election not to participate is made in conformity
with Section 1.14.
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"Subject Interests" shall mean Assignor's undivided interestin and to the
following:
(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.
Assignee's Net Profits Interest will be initially payable out of 75% of the
monthly net cash flow (i.e., revenues net of royalties, severance taxes, lease
operating expenses and capital costs incurred after the expenditure of the
initial costs of completing, equipping and installing of an artificial gas lift
system for the three wells described in Exhibit A hereto (hereafter, the
"Wells") or recompleting one or more of said Wells in a different geological
zone as more fully set forth hereinafter in Section 1.20) attributable to
Assignor's interest in the Wells at the time of Assignee's acquisition of the
Net Profits Interest until Payout, as defined above. Upon Payout, Assignee's Net
Profits Interest will be reduced to 65% of the monthly net cash flow (i.e.,
revenues net of royalties, severance taxes, lease operating expenses and capital
costs incurred after the expenditure of the initial costs of completing,
equipping and installing of an artificial gas lift system for the Wells or
recompleting one or more of said Wells in a different geological zone as more
fully set forth hereinafter in Section 1.20) attributable to Assignor's interest
in the Wells at the time of Assignee's acquisition of the Net Profits Interest
until such time as the cumulative net cash flow (as described above) from the
Wells attributable to the combined interests of Assignor and Assignee equals
$7,000,000. At such time as cummulative net cash flow equals the aforementioned
$7,000,000, Assignee's Net Profits Interest will be reduced to 60% of the
monthly net cash flow (i.e., revenues net of royalties, severance taxes, lease
operating expenses and capital costs incurred after the expenditure of the
initial costs of completing, equipping and installing of an artificial gas lift
system for the Wells or recompleting one or more of said Wells in a different
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geological zone as more fully set forth hereinafter in Section 1.20)
attributable to Assignor's interest in the Wells at the time of Assignee's
acquisition of the Net Profits Interest until such time as the cumulative net
cash flow (as described above) from the Wells attributable to the combined
interests of Assignor and Assignee equals $9,000,000. Should the payment amount
be either greater or lesser than $1,800,000 as set forth in Section 1.2, the
aforementioned 65% and $7,000,000 shall be respectively adjusted on a pro rata
basis. Should the payment amount be either greater or lesser than $1,800,000 set
forth in Section 1.2, the aforementioned 60% and $9,000,000 shall be
respectively adjusted on a pro rata basis. Thereafter, Assignee's Net Profits
Interest will be reduced to 50% of the monthly net cash flow (i.e., revenues net
of royalties, severance taxes, lease operating expenses and capital costs
incurred after the expenditure of the initial costs of completing, equipping and
installing of an artificial gas lift system for the Wells or recompleting one or
more of said Wells in a different geological zone as more fully set forth
hereinafter in Section 1.20) attributable to Assignor's interest in the Wells at
the time of Assignee's acquisition of the Net Profits Interest.
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 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;
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(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 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 Time) and
consisting of (i) rent and other consideration paid for the use or
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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 Time) 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;
(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
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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.
(a) Commencing two months after the initial month in which there
is a credit balance, if any, in the Net Profits Account, Assignor
shall pay to Assignee on the 30th day of each month ("Payment Date")
the amount of the Net Profits Interest as of the 30th day of the
Thirdmonth, as determined on the accrual basis of accounting,
preceding such Payment Date (e.g., the payment made on June 30, 2005
shall be the credit balance, as determined on the accrual basis of
accounting, in the Net Profits Account as of April 30, 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 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
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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.
(b) Notwithstanding the foregoing, Assignee shall have the right
at any time to submit the requisite forms and documentation (e.g.,
division of interest agreements) to the purchaser of Subject
Hydrocarbons attributable to the Subject Interests for purposes of
remittance directly to Assignee of the proceeds of its Net Profits
Interest. Assignor shall use its best efforts to assist Assignee in
this request and in obtaining such purchaser's agreement to pay
Assignee directly.
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 then 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
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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.
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.
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(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 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
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<PAGe>
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.
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,
or at Assignee's election the individual partners of Assignee shall have, the
right to convert its Net Profits Interest into common stock of Assignor. The
purchase price of the Net Profits Interest 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
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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 Interest 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)
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 Interest.
1.20 Final Completing, Equipping and Installing of Artificial Gas Lift
System for Wells. ARCOA, on behalf of Assignee, will coordinate with Assignor
the project administration and funding of an estimated $600,000 in capital
expenditures budgeted by Assignor for the final completing, equipping and
installing of a gas lift system for the Wells. Such funding shall be paid from
the proceeds received by Assignor from Assignee pursuant to Section 2.1 of this
Agreement or from other capital resources available to Assignor and capital
costs shall not be charged as an expense against the Wells for purposes of
determination of the Net Profits Interest.
1.21 Release of Liens. Prior to Closing, Assignee shall have the right to
require Assignor to obtain full and final releases of any and all liens and
other encumbrances on the Subject Interests, including, but not limited to,
those identified at Exhibit 3.2 hereto. In the event Assignor does not timely
comply, Assignee shall have the right, but not the obligation, to pay any or all
lienholders such amounts as are necessary (principal and applicable interest
thereon) to obtain full and final releases of their respective liens or
encumbrances, and, in such event, any amounts paid will be deemed as a credit
against the Purchase Price (hereinafter defined) to be deducted from the amount
otherwise due Assignor at Closing.
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, and
in consideration of the transfer and conveyance of the Net Profits Interest from
Assignor to Assignee, Assignee hereby agrees to deliver to Assignor, and
Assignor hereby agrees to accept $ 1,800,000 ("Purchase Price"), subject to
adjustment as provided herein, of consideration in the form of cash and offsets
against indebtedness of Assignor 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 Net Profits Interest. If the Assignee fails to deliver the entire Purchase
Price, Assignee shall nevertheless be entitled to receive the pro rata share of
the Net Profits Interest for any amount delivered to Assignor, without further
liability to Assignor. Initial Closing Date shall be December 29, 2005 with the
provision for a 45 day period in which to finalize the accounting for aggregate
consideration comprising the Purchase Price. Determination of such consideration
shall be evidenced by a receipt and acknowledgement of consideration signed by
Assignor and Assignee.
11
ARTICLE 3. REPRESENTATIONS AND WARRANTIES 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 Subject Interests have been paid.
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
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.
12
<PAGe>
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.
3.9 No Reduction in Interest, Encumbrances. Assignor agrees to
indemnifyAssignee against any transfer, or encumbrance of any portion of its
working interest or net revenue interest in the Subject Interests occurring
after Febuary 28,2005, EXCEPT for liens arising under operating agreements,
pooling orders, unitization agreements, or by application of law and for which
the underlying obligations are not yet due.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES 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 Subject Interests 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
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
13
acknowledges that Assignor is 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
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 makes
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 has made no statements or
representations concerning the environmental condition of the Subject Interests,
nor to 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 Subject Interests as Assignee shall deem
appropriate, realizing that Assignor does not assume and shall have no liability
to Assignee or any other party whatsoever for any reliance which may be placed
14
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 Subject Interests,
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 has not undertaken any examination of title to verify same.
Subject to Assignor's representation at Section 3.2 herein that the
Subject Interests are free and clear of liens and encumbrances, except
those set forth at Exhibit 3.2 herein, 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
Subject Interests 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 Net Profits Interest 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 related properties, compliance with regulatory
and environmental requirements or otherwise.
5.3 Assignee Inspection. Assignee hereby agrees that it will inspect the
properties related to the Subject Interests, including, without limitation, the
related leases and the contracts, wells, personal property, and equipment.
Assignee releases Assignor from all Losses (as defined herein) with respect to
such 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 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 Subject
Interests 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
15
water or other materials in the past onto such 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
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 and Warranties. The representations and warranties 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 prior to or at Closing.
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 and Warranties. The representations and warranties 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
16
covenants, agreements or conditions imposed on Assignor by Section 3.2. Without
limitation of the foregoing, in its discretion, Assignee may elect not to close
this transaction if Assignor does not obtain full and final releases of any lien
or encumbrance in accordance with Section 1.21; further, Assignee may elect not
to close this transaction if it is unable to be named as a payee (or obtain
assurances that it will be named as a payee subsequent to Closing) according to
any applicable division of interest of a purchaser of production obtained in
accordance with Section 1.7(b).
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 in 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 November 11, 2005 (the "Closing Date") with the provision for a 45 day
period in which to finalize the accounting for Purchase Price; 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 the offices of Thompson &
Knight LLP located at 333 Clay St., Suite 3300, Houston, Texas, 77002, or at
such other location as may be mutually agreed upon by Assignor and Assignee.
8.2 Closing Obligations.
(a) At Closing, Assignor shall deliver to Assignee the following:
(i) Executed Assignment of Net Profits Interest, 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 is not a "foreign
person" within the meaning of the Internal Revenue Code of 1986,
as amended;
(b) At Closing, Assignee shall:
(i) Subject to Section 2.1 herein, deliver to Assignor up to
$1,800,000 in available funds LESS an amount equal to the sum of (A)
all cash advance deposits paid to Assignor by ARCOA on behalf of
17
Assignee, as acknowledged by Assignor in that certain letter agreement
dated February 23, 2005, as further modified by letter agreements
dated July 29, 2005, and September 21, 2005, (B) indebtedness of
Assignee to be offset, and (C) any amounts paid by Assignee to
lienholders in accordance with Section 1.21; 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 Energy Partners I, L.P.
- -------- C/o Arcoa Oil & Gas, Inc., General Partner
50 Briar Hollow East, Suite 210
Houston, Texas, 77027
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 Net
Profits Interest to Assignee.
18
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 Indemnity Regarding Access. Assignee agrees to indemnify, defend and
hold harmless Assignor from and against any and all Losses (hereinafter defined)
attributable to personal injuries, death, or property damage, arising out of or
relating to access to the Subject Interests and to the records and other related
information prior to the Closing by Assignee and the Assignor, EXCEPT to the
extent caused by the negligence (whether sole, joint or concurrent), strict
liability or other legal fault of Assignor.
9.5 Definition of "Losses". As used in this Article 9 and in Section 5.3 of
this Agreement, "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.
9.6 Assignee's Liability. Without limitation of any other provision herein,
Assignee shall have no liability for any costs or expenses related in any manner
whatsoever to the operation of the Wells, or any facility or property related
thereto, including, but not limited to, the plugging and abandonment of any well
or facility.
ARTICLE 10. ARBITRATION
19
10.1 Selection of Arbitrators. Any controversy between the parties hereto
arising under this Agreement and not resolved by agreement shall be determined
by a 3-person board of arbitrators 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, or 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 sitting in Houston,
Texas.
10.2 Determination; Venue. 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. The arbitration proceeding shall be
held in Houston, Texas and shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, to the extent such
rules do not conflict with the terms of this Section.
10.3 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, to the extent applicable, each party shall bear the compensation
and expenses of its own counsel, witnesses, and employees.
ARTICLE 11. MISCELLANEOUS
11.1 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.
11.2 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.
20
11.3 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.
11.4 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.
11.5 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 Net Profits Interest from Assignor to Assignee.
11.6 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.
11.7 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).
11.8 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.
11.9 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
21
The parties have executed this Agreement as of the date first above
mentioned.
ASSIGNOR:
VTEX Energy, Inc
By: /S/ Stephen Noser
--------------------------------------------------
Name: Stephen Noser
------------------------------------------------
Title: Executive Vice President
-----------------------------------------------
ASSIGNEE:
ARCOA Energy Partners I, L.P.
By: Arcoa Oil & Gas, Inc., General Partner
By: /S/ Thomas L. Easley
--------------------------------------------------
Name: Thomas L. Easley
------------------------------------------------
Title: Vice President
-----------------------------------------------
22
EXHIBIT "A"
To Assignment of Net Profits Interests
Assignor's interest (as to all depths, formations, zones and units; whether
unitized or not) in the following lease:
State of Louisiana Lease No. 1337, dated December 8, 1947, granted to Sun Oil
Company, recorded at COB 7-B, Entry 76800, amendment at COB 10-S, Entry 104,605,
and subject to Partial Release recorded at COB 21-T, Entry 178247, all in
Records of St. Mary Parish, Louisiana, BUT ONLY TO THE EXTENT OF ASSIGNOR'S
INTEREST in all oil, gas and other hydrocarbons produced and saved from the
wellbores of the following wells located on said lease:
Bateman Lake Well No. 9 (Serial Number 148006);
Bateman Lake Well No. 11 (Serial Number 054466); and
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.
23
EXHIBIT "B"
ASSIGNMENT OF NET PROFITS INTEREST
THE STATE OF LOUISIANA
PARISH OF ST. MARY
VTEX Energy,Inc. (formerly known as Vector Energy Corporation), 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 Energy Partners I, L.P., a Texas
limited Partnership. ("Assignee"), acting through its General Partner, Arcoa Oil
& Gas, Inc., a Texas Corporation, ("ARCOA"), both having an address at 50 Briar
Hollow East, Suite 210 Houston, Texas 77027 , the Net Profit Interest as
hereinafter defined.
1.1 Effective Date. This Assignment shall be effective as of 7:00 a.m.
Central Standard Tim9e, on December 29, 2005 (the "Effective Date"), at the
location of the hereinafter defined Subject Interests (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 P9rofit Account" (hereinafter defined), as calculated in accordance
with Sections 1.4 and 1.5 herein. "Payout" shall mean that point in time when
the cumulative Net Profits Interest distributed to the Assignee in accordance
with the further terms of this Section 1.2 has reached $1,800,000 or such
greater or lesser number as ARCOA or 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
Time, from the lands and depths covered by the Subject Interests (hereinafter
defined) 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 Assignor's election not to participate is made in conformity
with Section 1.14 .
"Subject Interests" shall mean Assignor's undivided interest in and to the
following:
24
(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.
Assignee's Net Profits Interest will be initially payable out of 75% of the
monthly net cash flow (i.e., revenues net of royalties, severance taxes, lease
operating expenses and capital costs incurred after the expenditure of the
initial costs of completing, equipping and installing of an artificial gas lift
system for the three wells described in Exhibit A hereto (hereafter, the
"Wells") or recompleting one or more of said Wells in a different geological
zone as more fully set forth hereinafter in Section 1.20) attributable to
Assignor's interest in the Wells at the time of Assignee's acquisition of the
Net Profits Interest until Payout, as defined above. Upon Payout, Assignee's Net
Profits Interest will be reduced to 65% of the monthly net cash flow (i.e.,
revenues net of royalties, severance taxes, lease operating expenses and capital
costs incurred after the expenditure of the initial costs of completing,
equipping and installing of an artificial gas lift system for the Wells or
recompleting one or more of said Wells in a different geological zone as more
fully set forth hereinafter in Section 1.20) attributable to Assignor's interest
in the Wells at the time of Assignee's acquisition of the Net Profits Interest
until such time as the cumulative net cash flow (as described above) from the
Wells attributable to the combined interests of Assignor and Assignee equals
$7,000,000. At such time as cumulative net cash flow equals, $7,000,000,
Assignee's Net Profits Interest will be reduced to 60% of the monthly net cash
flow (i.e., revenues net of royalties, severance taxes, lease operating expenses
and capital costs incurred after the expenditure of the initial costs of
completing, equipping and installing of an artificial gas lift system for the
Wells or recompleting one or more of said Wells in a different geological zone
as more fully set forth hereinafter in Section 1.20) attributable to Assignor's
25
interest in the Wells at the time of Assignee's acquisition of the Net Profits
Interest until such time as the cumulative net cash flow (as described above)
from the Wells attributable to the combined interests of Assignor and Assignee
equals $9.000,000. Should the payment amount be either greater or lesser than
1,150,000 as set forth in Section 1.2, the aforementioned 65% and $7,000,000
shall be respectively adjusted on a pro rata basis. Should the payment amount be
either greater or lesser than $1,150,000 set forth in Section 1.2, the
aforementioned 60% and $9,000,000 shall be respectively djusted on a pro rata
basis. Thereafter, Assignee's Net Profits Interest will be reduced to 50% of the
monthly net cash flow (i.e., revenues net of royalties, severance taxes, lease
operating expenses and capital costs incurred after the expenditure of the
initial costs of completing, equipping and installing of an artificial gas lift
system for the Wells or recompleting one or more of said Wells in a different
geological zone as more fully set forth hereinafter in Section 1.20)
attributable to Assignor's interest in the Wells at the time of Assignee's
acquisition of the Net Profits Interest.
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 Assignment 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
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;
26
(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
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;
27
(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 Assignment; 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;
(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;
28
(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.
(a) Commencing two months after the initial month in which there is a
credit balance, if any, in the Net Profits Account, Assignor shall pay to
Assignee on the 30th day of each month ("Payment Date") the amount of the
Net Profits Interest, as determined on the accrual basis of accounting, as
of the 30th day of the Thirdmonth preceding such Payment Date (e.g., the
payment made on June 30, 2005 shall be the credit balance , as determined
on the accrual basis of accounting, in the Net Profits Account as of April
30, 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 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
29
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.
(b) Notwithstanding the foregoing, Assignee shall have the right at
any time to submit the requisite forms and documentation (e.g., division of
interest agreements) to the purchaser of Subject Hydrocarbons attributable
to the Subject Interests for purposes of remittance directly to Assignee of
the proceeds of its Net Profits Interest. Assignor shall use its best
efforts to assist Assignee in this request and in obtaining such
purchaser's agreement to pay Assignee directly.
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 Assignment) 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.
30
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 Assignment 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
31
lease or leases so as to create one or more unitized areas (or, with
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.
32
1.16 Indemnity. Notwithstanding anything to the contrary contained in this
Assignment, 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 Assignment, 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,
or at Assignee's election the individual partners of Assignee shall have, the
right to convert the Net Profits Interest into common stock of Assignor. The
purchase price of the Net Profits Interest 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 Interest 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%)
33
of the average closing price of the Assignor's common stock for the twenty (20)
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 the Net Profits Interest but no exercise shall be for less than twenty
(20%) of the original Net Profits Interest.
1.20 Final Completing, Equipping and Installing of Artificial Gas Lift
System for Wells. ARCOA, on behalf of Assignee, will coordinate with Assignor
the project administration and funding of an estimated $600,000 in capital
expenditures budgeted by Assignor for the final completing, equipping and
installing of a gas lift system for the Wells. Such funding shall be paid from
the proceeds received by Assignor from Assignee pursuant to Section 2.1 of this
Assignment or from other capital resources then available to Assignor and
capital costs shall not be charged as an expense against the Wells for purposes
of determination of the Net Profits Interest.
This Assignment shall be effective as of the Effective Time.
EXCEPT AS OTHERWISE PROVIDED HEREIN, 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 RELATED TO THE SUBJECT INTERESTS, COMPLIANCE WITH
REGULATORY AND ENVIRONMENTAL REQUIREMENTS OR OTHERWISE. IN PARTICULAR, 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 RELATED TO THE SUBJECT
INTERESTS.
This Assignment is made free and clear of all liens, mortgages, security
interests, pledges, charges, oil payments, title defects and other burdens and
encumbrances whatsoever EXCEPT those liens and encumbrances expressly identified
at Exhibit ___ hereto; provided, however, Assignee accepts the transfer of Net
Profits Interest subject to any and all covenants in instruments in the record
chain of title and to any outstanding agreements affecting operations of the
Subject Interests, whether recorded or not, surface leases, permits,
rights-of-way, easements, water disposal systems, licenses, operating agreements
and production sales agreements. Without limitation of any of the foregoing,
Assignor warrants and represents that all gross production taxes and other taxes
as to which non-payment could result in a lien against the Subject Interests
have been paid.
Assignor warrants title to the Net Profits Interest against any party
claiming title by, through, or under Assignor, but not otherwise.
34
This Assignment is made subject to that certain Amended and Restated
Purchase and Sale Agreement, dated March 24, 2005, between Assignor and Assignee
("Purchase and Sale Agreement"). All terms and conditions of said Purchase and
Sale Agreement are incorporated herein by reference to the same extent and with
the same effect as if copied in full herein. To the extent of any conflict
between the terms and conditions of this Assignment and those set forth in the
Purchase and Sale Agreement, the terms and provisions of the Purchase and Sale
Agreement shall control. FOR PURPOSES OF NOTICE TO THIRD PARTIES, HOWEVER,
ASSIGNOR AND ASSIGNEE EXPRESSLY REPRESENT AND ACKNOWLEDGE THAT A THIRD PARTY MAY
RELY ON THE DESCRIPTIONS OF THE PROPERTIES CONTAINED HEREIN (INCLUDING, BUT NOT
LIMITED TO, THE SUBJECT INTERESTS AND ALL INTERESTS RELATED THERETO) FOR
PURPOSES OF DETERMINING TITLE THERETO.
TO HAVE AND TO HOLD the Net Profits Interest unto Assignee, its successors
and assigns, forever. The provisions of this Assignment shall be covenants
running with the land and shall be binding upon and inure to the benefit of the
successors, personal representatives and assigns of the respective parties
hereto.
EXECUTED this ___day of _______, 2005, but effective as of the Effective
Time.
ASSIGNOR:
WITNESSES:
VTEX Energy, Inc.
- -------------------------------------
Printed Name: By:
------------------------ -----------------------------------
Printed Name:
-------------------------
Title:
- ------------------------------------- --------------------------------
Printed Name: Last 4 digits of TIN:
------------------------ -----------------
ASSIGNEE:
ARCOA Energy Partners I, L.P.
By: Arcoa Oil & Gas, Inc.,
General Partner
- -------------------------------------
Printed Name: By:
------------------------ -----------------------------------
Printed Name:
-------------------------
Title:
- ------------------------------------- --------------------------------
Printed Name: Last 4 digits of TIN:
------------------------ -----------------
35
STATE OF _____________
COUNTY/PARISH OF ___________________
THUS DONE AND PASSED before me, the undersigned authority, on this the ___ day
of ______, 2005, and before me personally known and known to me to be the person
whose genuine signature is affixed to the foregoing document as the
_____________________of VTEX Energy, Inc., a Nevada corporation, who signed said
document before me in the presence of the two witnesses whose names are thereto
subscribed as such, being competent witnesses, and who acknowledged, in my
presence and in the presence of said witnesses, that he/she signed the above and
foregoing document as the free act and deed of such corporation, by authority of
its Board of Directors, for the uses and purposes therein set forth and
apparent.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the City of
__________________, _________________County/Parish, ___________________, on the
day and year first above written.
---------------------------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF ______________
Notary's Full Name and Identification No.:
STATE OF _____________
COUNTY/PARISH OF ___________________
THUS DONE AND PASSED before me, the undersigned authority, on this the ___ day
of ______, 2005, and before me personally known and known to me to be the person
whose genuine signature is affixed to the foregoing document as the
_____________________of Arcoa Oil & Gas, Inc., a Texas corporation, acting in
its capacity as general partner of ARCO Energy Partners I, L.P., a Texas limited
partnership, who signed said document before me in the presence of the two
witnesses whose names are thereto subscribed as such, being competent witnesses,
and who acknowledged, in my presence and in the presence of said witnesses, that
he/she signed the above and foregoing document as the free act and deed of such
corporation, in its capacity as general partner of the above-stated limited
partnership, by authority of its Board of Directors, for the uses and purposes
therein set forth and apparent.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the City of
__________________, _________________County/Parish, ___________________, on the
day and year first above written.
------------------------------------------------------
NOTARY PUBLIC IN AND FOR
THE STATE OF ______________
Notary's Full Name and Identification No.:
36
EXHIBIT "3.2"
Schedule of Liens and Judgments on Subject Interest
1. The following liens and encumbrances are outstanding on the Bateman Lake No.
9, 11 and 19 Wells and are filed for record in St. Mary Parish Louisiana. VTEX
Energy, Inc. believes and represents such liens and encumbrances are not
enforceable due to requisite lapse of time.
Filed against Texas Energy & Environmental, Inc.:
Claimant Date Amount Recordation Reference
- --------- ---- ------ ---------------------
Xpert Xpeditors 10/29/97 $ 6,006.97 MOB 769/2
Seaboard Equipment Co. 11/13/97 1,081.79 MOB 770/162
Petroleum Professionals 11/22/97 23,158.19 MOB 771/73
Hartfield Technical Svcs. 11/26/97 6,380.00 MOB 771/239
Berry Bros. Gen. Cont. 01/12/98 14,144.80 MOB 774/40
Filed against Vector Energy Corporation, now known as VTEX Energy, Inc.
Claimant Date Amount Recordation Reference
- --------- ---- ------ ---------------------
BWS Towing 02/05/99 $ 5,450.00 MOB 805/136
Perf-O-Log 06/02/99 10,982.20 MOB 815/66
Cardinal Services 06/24/99 60,011.69 MOB 817/1
Hanover Compression 05/22/00 77,054.77 MOB 843/407
Schlumberger 05/24/01 25,156.65 MOB 873/31
Schlumberger 08/03/01 17,125.37 MOB 880/579
Stic-Lan Companies 08/05/02 25,301.18 MOB 920/164
Hot Energy Services 09/30/02 32,147.50 MOB 925/713
Cajun Wireline 10/15/02 30,639.62 MOB 927/253
Petro Construction Co. 12/12/02 8,638.00 MOB 934/389
37
EXHIBIT "3.2"
Schedule of Liens and Judgments on Subject Interest
2. The following liens and judgments are outstanding on the Bateman Lake No. 9,
11 and 19 Wells and are filed for record in St. Mary Parish Louisiana.
Filed against Texas Energy & Environmental, Inc.:
Claimant Date Amount Recordation Reference
- --------- ---- ------ ---------------------
Byron Talbert Contractor 07/23/99 $ 9,980.00 MOB 820/230
Traco Production Services 03/15/00 16,418.29 MOB 838/6
State of Louisiana Tax Lien 04/09/02 1,961.14 MOB 916/491
State of Louisiana Tax Lien 07/01/02 1,124.47 MOB 916/510
Filed or effective against Vector Energy Corporation, now known as VTEX Energy,
Inc., or VTEX Energy, Inc.
Claimant Date Amount Recordation Reference
- --------- ---- ------ ---------------------
Diamond Services Corp. 10/17/02 $ 18,849.31 MOB 927/511
A & T Well Services 03/02/05 $ 6,562.00 MOB 1029/140
Packers Service ____, Inc. 03/02/05 $ 76,988.88 MOB 1029/637
Hub City Industries, Inc. $ 8,368.18 MOB 1035/599
*Plus interest and attorney fees.
*On July 27, 2005 a lawsuit styled Thomas Brussard vs. VTEX Energy, Inc. was
filed in the 16th Judicial District Court at Docket No. 114334 "D". This suit
involves unspecified damages to a hunting camp alledged to have resulted
fromVTEX's actions in moving in a drilling barge.
38