Document:

Exhibit 4.1

 

REGISTRATION RIGHTS AGREEMENT

 

BY AND BETWEEN

 

VOC PARTNERS, LLC

 

AND

 

VOC ENERGY TRUST

 

DATED AS OF MAY 10, 2011

 

 

REGISTRATION RIGHTS AGREEMENT (the “Agreement”) dated as of May 10, 2011 by and between VOC Partners, LLC, a limited liability company formed under the laws of the State of Kansas (the “Company”), and VOC Energy Trust, a statutory trust formed under the laws of the State of Delaware (the “Trust”).  Unless expressly stated otherwise in this Agreement, as used in this Agreement, references to the “Trustee” mean The Bank of New York Mellon Trust Company, N.A., in its capacity as trustee or any successor trustee of the Trust and not in its individual capacity.

 

RECITALS:

 

WHEREAS, the Trust, VOC Brazos Energy Partners, L.P., a limited partnership formed under the laws of the State of Texas (the “Partnership”), and VOC Kansas Energy Partners, L.L.C., a limited liability company formed under the laws of the State of Kansas, have entered into a Conveyance of Net Profits Interest of even date herewith (the “Conveyance Agreement”);

 

WHEREAS, in connection with the execution and delivery of the Conveyance Agreement, the Trust has issued to the Partnership 17,000,000 units of beneficial interest of the Trust (“Trust Units”);

 

WHEREAS, in connection with the Initial Public Offering, the Partnership is selling 11,085,000 Trust Units and may sell up to 12,747,750 Trust Units if the underwriters of the Initial Public Offering exercise their over-allotment option (the “Over-Allotment Option”);

 

WHEREAS, 45 days after the closing of the Initial Public Offering, the Partnership will sell all remaining Trust Units that it holds to the Company at the initial public offering price; and

 

WHEREAS, the Trust has agreed to file a registration statement or registration statements relating to the sale by the Company and its Transferees (as defined below) of certain of the 5,915,000 Trust Units held by the Company (or such number of Trust Units held by the Company after giving effect to the Over-Allotment Option, if applicable) (the “Subject Units”).

 

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, it is agreed as follows:

 

SECTION 1.           Definitions.  As used in this Agreement, the following terms shall have the following meanings:

 

“Affiliate” means with respect to a specified Person, any Person that directly or indirectly controls, is controlled by, or is under common control with, the specified Person.  As used in this definition, the term “control” (and the correlative terms “controlling,” “controlled by,” and “under common control”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another Person, whether through ownership of voting securities, by contract or otherwise.

 

“Agreement” has the meaning set forth in the preamble hereof.

 

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“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close.

 

“Company” has the meaning set forth in the preamble hereof.

 

“Conveyance Agreement” has the meaning set forth in the recitals hereof.

 

“Deferral Notice” has the meaning set forth in Section 3(j) hereof.

 

“Deferral Period” has the meaning set forth in Section 3(j) hereof.

 

“Demand Notice” has the meaning set forth in Section 2(a) hereof.

 

“Demand Registration” has the meaning set forth in Section 2(a) hereof.

 

“Effective Period” means the period commencing on the 180th day after the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder.

 

“Expenses” has the meaning set forth in Section 6(a) hereof.

 

“Holder” shall mean the Company, its Affiliates that from time to time hold Registrable Securities and any Transferee of the Company to whom Registrable Securities are transferred in accordance with the terms of this Agreement, and, in each case, who continues to be entitled to the rights of a Holder hereunder.

 

“Indemnified Party” has the meaning set forth in Section 6(d) hereof.

 

“Indemnifying Party” has the meaning set forth in Section 6(d) hereof.

 

“Initial Public Offering” means the initial public offering of Trust Units registered with the SEC by a registration statement on Form S-1 (Registration No. 333-171474).

 

“Material Event” has the meaning set forth in Section 3(j) hereof.

 

“Over-Allotment Option” has the meaning set forth in the recitals hereof.

 

“Partnership” has the meaning set forth in the recitals hereof.

 

“Person” shall mean any individual, partnership, limited liability company, corporation, trust, unincorporated association, governmental agency, subdivision, or instrumentality, or other entity or association.

 

“Piggyback Registration” has the meaning set forth in Section 2(b) hereof.

 

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“Prospectus” means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A, Rule 430B or Rule 430C promulgated under the Securities Act), as amended or supplemented by any amendment, prospectus supplement or free writing prospectus (as defined in Rule 405 promulgated under the Securities Act), including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means the Subject Units and any securities into or for which such Subject Units have been converted or exchanged, and any security issued with respect thereto upon any dividend, split or similar event until, in the case of any such security, the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Registration Statement covering it, (ii) its disposal pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A) under the Securities Act, (iii) its sale in a private transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of the securities, (iv) its being held by the Trust, (v) 10 years after the Company ceases to be an Affiliate of the Trust, (vi) if such security has been sold in a private transaction in which the tranferor’s rights under this Agreement are assigned to the Transferee and such Transferee is not an Affiliate of the Trust, two years following the transfer of such security to such Transferee, or (vii) such time when such Subject Units may be freely transferred without restriction under Rule 144 (or any similar provision then in force).

 

“Registration Statement” means any registration statement of the Trust, including any Shelf Registration Statement, that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement.

 

“Required Information” has the meaning set forth in Section 4(a) hereof.

 

“Rule 144” means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 144A” means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“SEC” means the Securities and Exchange Commission.

 

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

 

“Shelf Registration Statement” means a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act registering the resale of Registrable Securities from time to time by Holders thereof.

 

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“Special Counsel” means Vinson & Elkins L.L.P. or such other successor counsel as shall be specified in writing by the Holders of a majority of all Registrable Securities.

 

“Subject Units” has the meaning set forth in the recitals hereof.

 

“Transferee” has the meaning set forth in Section 9(d) hereof.

 

“Trust” has the meaning set forth in the preamble hereof.

 

“Trust Units” has the meaning set forth in the recitals hereof.

 

“Trustee” has the meaning set forth in the preamble hereof.

 

SECTION 2.           Demand Registration Rights.

 

(a)           During the Effective Period, the Holders representing a majority of the then outstanding Registrable Securities may request, by written notice to the Trust (the “Demand Notice”), that the Trust effect the registration under the Securities Act of the number of Registrable Securities requested to be so registered pursuant to the terms and conditions set forth in this Agreement (each a “Demand Registration”).  Following receipt of a Demand Notice for a Demand Registration, the Trust shall use its reasonable best efforts to file a Registration Statement as promptly as practicable and shall use its reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof.  All Demand Notices made pursuant to this Section 2 will specify the number of Registrable Securities to be registered, whether or not such Registration Statement should be a Shelf Registration Statement, and the intended methods of disposition thereof.

 

The Holders shall be entitled to a maximum of three (3) Demand Registrations, which shall include (i) any Demand Registrations for registration pursuant to a Shelf Registration Statement and (ii) any Demand Registrations that are transferred to a Transferee in accordance with Section 9(d) hereof.  No Demand Registration shall be deemed to have occurred for purposes of this Section 2(a) if the Registration Statement relating thereto does not become effective or is not maintained effective for the period required pursuant to Section 2(d).

 

(b)           In the event that any Demand Registration is transferred to a Transferee in accordance with Section 9(d) hereof, and such Transferee sends a Demand Notice to the Trust, the Trust will give notice to the other Holders of such Demand Registration.  Such notice shall describe such securities and specify the form, manner and other relevant aspects of such proposed registration.  Each Holder may, by written response delivered to the Trust within twenty (20) days after the receipt by such Holder of any such notice, request that all or a specified part of the Registrable Securities held by such Holder be included in such Demand Registration (a “Piggyback Registration”).  Such response shall also specify the intended method of disposition of such Registrable Securities.  The Trust thereupon will use commercially reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Trust has been so requested to register by the Holders to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities to be so registered.  No registration of Registrable Securities of the Holders effected

 

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by Piggyback Registration under this Section 2(b) shall relieve the Trust of any of its obligations to effect registrations of Registrable Securities of the Holders pursuant to, or reduce the total number of Demand Registrations to which the Holders continue to remain entitled under, Section 2(a) hereof.

 

(c)           If any of the Registrable Securities registered pursuant to a Demand Registration are to be sold in a firm commitment underwritten offering, and the managing underwriter or underwriters advise the Holders of such securities in writing that in its view the total number or dollar amount of Registrable Securities proposed to be sold in such offering is such as to adversely affect the success of such offering (including, without limitation, securities proposed to be included by other Holders of Registrable Securities entitled to include securities in such Registration Statement pursuant to incidental or piggyback registration rights), then there shall be included in such firm commitment underwritten offering the number or dollar amount of Registrable Securities that in the opinion of such managing underwriter can be sold without adversely affecting such offering, and such number of Registrable Securities shall be allocated as follows:

 

(i)            first, the securities for which inclusion in such Demand Registration for which the Demand Notice was submitted; and

 

(ii)           second, the securities for which inclusion in any Piggyback Registration for which a notice was submitted in accordance with this Agreement pro rata among the Registrable Securities requested to be included in such Piggyback Registration.

 

(d)           The Trust shall use commercially reasonable efforts to maintain the effectiveness of the Registration Statement with respect to any Demand Registration for a period of at least ninety (90) days (or three years if a Shelf Registration Statement is requested) after the effective date thereof or such shorter period in which all Registrable Securities included in such Registration Statement have actually been sold or all Registrable Securities have ceased to be Registrable Securities; provided, however, that such period shall be extended for a period of time equal to the period the holder of Registrable Securities refrains from selling any securities included in such registration at the request of the Trust pursuant to this Agreement, except that with respect to a Shelf Registration Statement on Form S-3 that becomes effective automatically pursuant to Rule 462(e) under the Securities Act, such period may not be extended beyond three years after the effective date thereof or such shorter or longer period as may be subsequently permitted by the SEC.

 

(e)           Notwithstanding the foregoing, if the Trust shall furnish to the Holders requesting a registration pursuant to this Section 2 within 30 days of receiving such request a certificate signed by the Trustee stating that in the good faith judgment of the Trustee it would be detrimental to the Trust and its unitholders for such Registration Statement to be filed and it is therefore beneficial to defer the filing of such Registration Statement, the Trust shall have the right to defer such filing for up to two periods of not more than 30 days each after receipt of each request of the Holders; provided, however, that the Trust may not use this right more than once (for a total of up to 60 days) in any 12-month period.

 

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SECTION 3.           Registration Procedures.  In connection with the registration obligations of the Trust under Section 2 hereof, during the Effective Period, the Trust shall:

 

(a)           Prepare and file with the SEC a Registration Statement or Registration Statements, including, if so requested by the applicable Holders, a Shelf Registration Statement, on any appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use commercially reasonable efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that before filing any Registration Statement or Prospectus or any amendments or supplements thereto with the SEC (but excluding reports filed with the SEC under the Exchange Act), furnish to the Holders, the Special Counsel and the managing underwriter or underwriters, if any, copies of all such documents proposed to be filed at least three (3) Business Days prior to the filing of such Registration Statement or amendment thereto or Prospectus or supplement thereto.

 

(b)           Subject to Section 3(j), prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement; cause the related Prospectus to be supplemented by any required prospectus supplement or free writing prospectus, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use commercially reasonable efforts to comply with the provisions of the Securities Act applicable to the Trust with respect to the disposition of all securities covered by such Registration Statement during the period provided herein with respect to the disposition of all securities covered by such Registration Statement in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented.

 

(c)           Subject to Section 3(j), from and after the date a Registration Statement is declared effective, the Trust shall, as promptly as practicable after the date the Required Information is delivered pursuant to Section 4 hereof and in accordance with this Section 3(c):

 

(i)            if required by applicable law, file with the SEC a post-effective amendment to the Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Required Information is named as a selling securityholder in the Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Trust shall file a post-effective amendment to the Registration Statement, use commercially reasonable efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable; and

 

(ii)           provide such Holder copies of any documents filed pursuant to Section 3(c)(i);

 

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provided, that, if the Required Information is delivered during a Deferral Period, the Trust shall so inform the Holder delivering such Required Information.  The Trust shall notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 3(c)(i).  Notwithstanding anything contained herein to the contrary, the Trust shall be under no obligation to name any Holder that has failed to deliver the Required Information in the manner set forth in Section 4 hereof as a selling securityholder in any Registration Statement or related Prospectus.

 

(d)           As promptly as practicable, give notice to the Holders, the Special Counsel and the managing underwriter or underwriters, if any, (i) when any Prospectus, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment thereto, when the same has been declared effective, (ii) of any request, following the effectiveness of any Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Trust of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the occurrence of, but not the nature of or details concerning, a Material Event and (vi) of the determination by the Trust that a post-effective amendment to a Registration Statement will be filed with the SEC, which notice may, at the discretion of the Trust (or as required pursuant to Section 3(j)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(j) shall apply.

 

(e)           Use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case as promptly as practicable, and provide prompt notice to each Holder of the withdrawal of any such order.

 

(f)            If requested by the managing underwriters, if any, or the Holders of the Registrable Securities being sold in connection with an underwritten offering, promptly include in a prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such Holders may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Trust has received such request; provided, however, that the Trust shall not be required to take any actions under this Section 3(f) that are not, in the opinion of counsel for the Trustee, in compliance with applicable law.

 

(g)           As promptly as practicable furnish to each Holder, the Special Counsel and each managing underwriter, if any, upon request, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including exhibits and, if requested, all documents incorporated or deemed to be incorporated therein by reference.

 

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(h)           Deliver to each Holder, the Special Counsel and each managing underwriter, if any, in connection with any sale of Registrable Securities pursuant to a Registration Statement as many copies of the Prospectus relating to such Registrable Securities (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons may reasonably request; and the Trust hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked and subject to Section 3(j)(ii) hereof) to the use of such Prospectus or each amendment or supplement thereto by each Holder and the underwriters, if any, in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein.

 

(i)            Prior to any public offering of the Registrable Securities pursuant to a Registration Statement, use commercially reasonable efforts to register or qualify or cooperate with the Holders, the Special Counsel and the underwriters, if any, in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing (which request may be included with the Required Information); prior to any public offering of the Registrable Securities pursuant to the Registration Statement, use commercially reasonable efforts to keep each such registration or qualification (or exemption therefrom) effective during the period provided herein with respect to the disposition of all securities covered by such Registration Statement in connection with such Holder’s offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Registration Statement and the related Prospectus; provided that neither the Trust nor the Trustee will be required to (i) qualify as a foreign entity or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject.

 

(j)            Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of any Registration Statement or the initiation of proceedings with respect to any Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact as a result of which (x) any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (y) any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (a “Material Event”), or (C) the occurrence or existence of any pending corporate development of the Trust that, in the reasonable discretion of the Trustee, makes it appropriate to suspend the availability of any Registration Statement and the related Prospectus, the Trust shall:

 

(i)            in the case of clause (B) above, subject to clause (ii) below, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and Prospectus so

 

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that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to clause (ii) below, use commercially reasonable efforts to cause it to be declared effective as promptly as practicable; and

 

(ii)           give notice to the Holders and the Special Counsel, if any, that the availability of any Registration Statement is suspended (a “Deferral Notice”) and, upon receipt of any Deferral Notice, each Holder agrees not to sell any Registrable Securities pursuant to the Registration Statement until such Holder’s receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Trust that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus, in which case such Holder will use the Prospectus as so supplemented or amended in connection with any offering and sale of Registrable Securities covered thereby.

 

The Trust shall use commercially reasonable efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Trust, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Trust or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter, and (z) in the case of clause (C) above, as soon as, in the reasonable discretion of the Trust, such suspension is no longer appropriate.  The Trust shall be entitled to exercise its right under this Section 3(j) to suspend the availability of any Registration Statement or any Prospectus (the “Deferral Period”) for use by any Holder.

 

(k)           If reasonably requested by a Holder or any underwriter participating in any disposition of Registrable Securities, if any, in writing in connection with a disposition by such Holder of Registrable Securities pursuant to a Registration Statement, make reasonably available for inspection during normal business hours by a representative for such Holder(s) of such Registrable Securities, any broker-dealers, underwriters, attorneys and accountants retained by such Holder(s), and any attorneys or other agents retained by a broker-dealer or underwriter engaged by such Holder(s), all relevant financial and other records and pertinent corporate documents and properties of the Trust, and cause the appropriate officers, directors and employees of the Trustee to make reasonably available for inspection during normal business hours on reasonable notice all relevant information reasonably requested by such representative for the Holder(s), or any such broker-dealers, underwriters, attorneys or accountants in connection with such disposition, in each case as is customary for similar “due diligence” examinations; provided that (i) the Trust shall not be obligated to make available for inspection any information that, based on the reasonable advice of counsel to the Trustee, could subject the Trust to the loss of privilege with respect thereto and (ii) such Persons shall first agree in writing with the Trust that all information shall be kept confidential by such Persons and shall be used

 

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solely for the purposes of exercising rights under this Agreement, unless (a) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (b) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any Prospectus referred to in this Agreement) or (c) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such Person; and provided further that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all the Holders and the other parties entitled thereto by Special Counsel, if any, or another representative selected by the Holders of a majority of Registrable Securities being registered pursuant to such Registration Statement.  Any Person legally compelled or required by administrative or court order or by a regulatory authority to disclose any such confidential information made available for inspection shall provide the Trust with prompt prior written notice of such requirement so that the Trust may seek a protective order or other appropriate remedy.

 

(l)            Use its best efforts to comply with all applicable rules and regulations of the SEC and make generally available to the Trust’s securityholders earnings statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) for a 12-month period commencing on the first day of the first fiscal quarter of the Trust commencing after the effective date of a Registration Statement, which statements shall be made available no later than the next succeeding Business Day after such statements are required to be filed with the SEC.

 

(m)          Cooperate with each Holder and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold or to be sold pursuant to a Registration Statement, which certificates shall not bear any restrictive legends stating that the Registrable Securities evidenced by the certificates are “restricted securities” (as defined by Rule 144), and cause such Registrable Securities to be registered in such names as such Holder or the managing underwriters, if any, may request in writing at least two (2) Business Days prior to any sale of such Registrable Securities.

 

(n)           Provide a CUSIP number for all Registrable Securities covered by each Registration Statement not later than the effective date of such Registration Statement.

 

(o)           Cooperate with and assist each Holder, the Special Counsel and any underwriters participating in any disposition of Registrable Securities in any filings required to be made with the Financial Industry Regulatory Authority (“FINRA”) in connection with the filing or effectiveness of any Registration Statement, any post-effective amendment thereto or any offer or sale of Trust Units thereunder.

 

(p)           In the case of a proposed sale pursuant to a Registration Statement involving an underwritten offering, the Trustee shall enter into such customary agreements on behalf of he Trust (including, if requested, an underwriting agreement in reasonably customary form containing standard representations and warranties, covenants and indemnities of the Trust similar to those representations and warranties, covenants and indemnities given by issuers of securities in underwritten offerings of securities) and take all such other action, if any, as Holders

 

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of a majority of the Registrable Securities being sold or any managing underwriters reasonably shall request in order to facilitate any disposition of the Registrable Securities pursuant to such Registration Statement, including, without limitation, (i) using commercially reasonable efforts to cause its counsel to deliver an opinion or opinions in reasonably customary form, (ii) using its reasonable best efforts to cause its officers to execute and deliver all customary documents and certificates on behalf of the Trust and (iii) using its reasonable best efforts to cause the Trust’s independent public accountants to provide a comfort letter or letters in reasonably customary form.

 

(q)           Upon (i) the filing of any Registration Statement and (ii) the effectiveness of any Registration Statement, announce the same, in each case by press release to Reuters Economic Services and Bloomberg Business News.

 

(r)            Use commercially reasonable efforts to cause all such Registrable Securities to be listed on each securities exchange or quotation system on which similar securities issued by the Trust are listed or traded.

 

SECTION 4.           Holder’s Obligations.

 

(a)           Each Holder agrees that if such Holder wishes to sell Registrable Securities pursuant to a Registration Statement and related Prospectus, it will do so only in accordance with this Section 4 and Section 3(j) hereof.  The Trust may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Trust in writing such information required in connection with such registration regarding such seller and the distribution of such Registrable Securities as the Trust may, from time to time, reasonably request in writing (the “Required Information”) and the Trust may exclude from such registration the Registrable Securities of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request.  In addition, following the date that a Registration Statement is declared effective, each Holder wishing to sell Registrable Securities pursuant to a Registration Statement and related Prospectus agrees to deliver, at least seven (7) Business Days prior to any intended distribution of Registrable Securities under the Registration Statement, to the Trust any additional Required Information as the Trust may reasonably request so that the Trust may complete or amend the information required by any Registration Statement.

 

(b)           Each Holder agrees, by acquisition of the Registrable Securities, that no Holder shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto unless such Holder has furnished the Trust with the Required Information as required pursuant to this Section 4 and the information set forth in the next sentence.  Each Holder agrees promptly to furnish to the Trust all information required to be disclosed in order to make the information previously furnished to the Trust by such Holder not misleading and any other information regarding such Holder and the distribution of such Registrable Securities as the Trust may from time to time reasonably request.  Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact

 

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relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary in order to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading.

 

SECTION 5.           Registration Expenses.  Subject to the last sentence of this Section 5, the Company shall bear all out-of-pocket fees and expenses incurred in connection with the performance by the Trust of its obligations under this Agreement whether or not any Registration Statement is declared effective.  Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with FINRA and (y) of compliance with federal and state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of the Special Counsel, if any, in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as Holders of a majority of the Registrable Securities being sold pursuant to a Registration Statement may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Holders hereunder, (iv) fees and disbursements of counsel for the Trustee and the Special Counsel, if any, in connection with any Registration Statement, (v) fees of accountants for consents and cold comfort and (vi) the fees and expenses incurred in connection with the listing by the Trust of the Registrable Securities on any securities exchange on which similar securities of the Trust are then listed.  However, the Trust shall pay the internal expenses of the Trustee (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit and the other fees and expenses of the accountants for the Trust not covered by clause (v) of the preceding sentence, the fees and expenses of any Person, including special experts, retained by the Trust and the fees and expenses of any transfer agent for the Registrable Securities.  Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay its own selling expenses, including any underwriting discount and commissions, all registration expenses to the extent required by applicable law and, except as otherwise provided herein, fees and expenses of counsel.

 

SECTION 6.           Indemnification and Contribution.

 

(a)           Indemnification by the Trust.  The Trust shall indemnify and hold harmless the Company, each Holder and each Person, if any, who controls the Company or any Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any reasonable legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (“Expenses”) to which the Company, any Holder or any controlling Person of the Company or any Holder may become subject, under or with respect to the Securities Act, the Exchange Act, any other federal or state securities law or otherwise, insofar as such Expenses are caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement at the date and time as of which such Registration Statement was declared effective by the SEC, any preliminary Prospectus or the Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein (in the case of a

 

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preliminary Prospectus or Prospectus, in light of the circumstances under which they were made), not misleading, but in each case only with respect to written information relating to the Trust furnished by or on behalf of the Trustee specifically for inclusion in the documents referred to in the foregoing indemnity.  Subject to Section 6(e) of this Agreement, the Trust shall reimburse the Company, the Holders and any controlling Persons thereof for any legal or other expenses reasonably incurred by the Company, the Holders or any controlling Persons thereof in connection with the investigation or defense of any Expenses with respect to which the Company and the Holders or any controlling Persons thereof is entitled to indemnity by the Trust under this Agreement.  The Trustee shall have no indemnification obligations under this Agreement, or any liability for failure of the Trust to satisfy its obligations under this Agreement.

 

(b)           Indemnification by the Company.  The Company shall indemnify and hold harmless each Holder (other than the Company), the Trust and the Trustee and any agents thereof, individually and as trustee, as the case may be, and each Person, if any, who controls such Holder, the Trust or the Trustee within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any Expenses to which such Holder, the Trust, the Trustee or any agent thereof or any controlling Person of such Holder, the Trust or the Trustee may become subject, under or with respect to the Securities Act, the Exchange Act, any other federal or state securities law or otherwise, insofar as such Expenses are caused by (i) an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state a material fact required to be stated in or necessary to make the statements therein not misleading at the date and time as of which such Registration Statement was declared effective by the SEC, (ii) an untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus or any Prospectus or an omission or alleged omission to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading as of the date of such preliminary Prospectus or Prospectus and as of the closing of the sale of Trust Units sold thereunder or (iii) any untrue statement or alleged untrue statement of a material fact contained in any other filing, report or other action taken with respect to the Securities Act, the Exchange Act or any other Federal or state securities law, the listing of the Trust Units on the New York Stock Exchange or another national securities exchange or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company shall not be liable to and shall not indemnify the Holders (other than the Company), the Trustee or any agents or controlling Persons thereof, individually or as trustee, as the case may be, in any such case under the preceding clauses (i) and (ii) of this Section 6(b) to the extent that any such Expense arises out of, is based upon or is connected with information relating to (a) the Trustee in its individual capacity or (b) such Holder, in either case prepared or furnished by the Trustee or such Holder, as the case may be, expressly for use in any Registration Statement, any preliminary Prospectus or any Prospectus; and provided, further, that the Company shall not be liable to the Holders (other than the Company), the Trustee or any agents or controlling Persons thereof, individually or as trustee, as the case may be, in any such case under the preceding clause (iii) of this Section 6(b) to the extent that any such Expense arises out of, is based upon or is connected with information relating to (a) the Trustee in its individual capacity prepared or furnished by the Trustee and the Trustee is found liable or (b) such Holder prepared or furnished by such Holder and such Holder is found liable.  Subject to Section 6(e) of this Agreement, the Company shall reimburse the Holders (other than the Company), the Trust and the Trustee and any agents or

 

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controlling Persons thereof for any legal or other expenses reasonably incurred by the Holders (other than the Company), the Trust and the Trustee or any agent or controlling Persons thereof in connection with the investigation or defense of any Expenses with respect to which the Holders (other than the Company), the Trust and the Trustee or any agent or controlling Persons thereof is entitled to indemnity by the Company under this Agreement.

 

(c)           Indemnification by Certain of the Holders.  Each Holder (other than the Company), severally and not jointly, shall indemnify and hold harmless the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, and any other Holder and each Person, if any, who controls the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, or any other Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Expenses to which the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, any other Holder or any controlling Person of the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, or any other Holder may become subject, under or with respect to the Securities Act, the Exchange Act, any other federal or state securities law or otherwise, insofar as such Expenses are caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement at the date and time as of which such Registration Statement was declared effective by the SEC, any preliminary Prospectus or the Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein (in the case of a preliminary Prospectus or Prospectus, in light of the circumstances under which they were made), not misleading, but in each case only with respect to written information relating to such Holder (other than the Company) furnished by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity.  Subject to Section 6(e) of this Agreement, such Holder shall reimburse the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, the other Holders and any agents or controlling Persons thereof for any legal or other expenses reasonably incurred by the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, the other Holders or any agent or controlling Persons thereof in connection with the investigation or defense of any Expenses with respect to which the Company, the Trust, the Trustee and any agents thereof, individually and as trustee, and the other Holders or any agent or controlling Persons thereof is entitled to indemnity by such Holder under this Agreement.

 

(d)           Conduct of Indemnification Proceedings.  In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to Section 6(a), 6(b) or 6(c) hereof, such Person (the “Indemnified Party”) shall promptly notify the Person against whom such indemnity may be sought (the “Indemnifying Party”) in writing and the Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party and shall pay the reasonable fees and disbursements of such counsel related to such proceeding.  In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between

 

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them, other than solely by virtue of the rights and obligations of the Indemnifying Party and the Indemnified Party under this Section 6.  It is understood that the Indemnifying Party shall not, in respect of the legal expenses of any Indemnified Party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred.  Such firm shall be designated in writing by, in the case of parties indemnified pursuant to Section 6(a), the Holders of a majority of the Registrable Securities covered by the Registration Statement held by Holders that are indemnified parties pursuant to Section 6(a) and, in the case of parties indemnified pursuant to Section 6(b) or Section 6(c), the Trustee.  The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final, non-appealable judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any Expenses by reason of such settlement or judgment.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding.

 

(e)           Contribution.  To the extent that the indemnification provided for in Section 6(a),   6(b) or 6(c) is unavailable to an Indemnified Party or insufficient in respect of any Expenses referred to therein, then each Indemnifying Party under such paragraph, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party or Indemnifying Parties on the one hand and the Indemnified Party or Indemnified Parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party or Indemnifying Parties on the one hand and of the Indemnified Party or Indemnified Parties on the other hand in connection with the statements or omissions that resulted in such Expenses, as well as any other relevant equitable considerations.  The relative fault of the Company and the other Holders on the one hand and the Trust on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact required to be stated or necessary in order to make the statements (in the case of a preliminary Prospectus or Prospectus, in light of the circumstances under which they were made) not misleading, relates to information supplied by the Company, the other Holders or by the Trust, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Holders’ respective obligations to contribute pursuant to this Section 6 are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint.

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  The amount paid or payable by an Indemnified Party as a result of the Expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the

 

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limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

(f)            The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an Indemnified Party at law or in equity, hereunder or otherwise.

 

(g)           The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder, any Person controlling the Company or any other Holder or any Affiliate of the Company or any other Holder or by or on behalf of the Trustee, its officers or directors or any Person controlling the Trustee and (iii) the sale of any Registrable Securities by any Holder.

 

SECTION 7.           Information Requirements.  The Trust covenants that, if at any time before the end of the Effective Period the Trust is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Holder and take such further reasonable action as any Holder may reasonably request in writing (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 or Rule 144A under the Securities Act and customarily taken in connection with sales pursuant to such exemptions.  Upon the written request of any Holder, the Trust shall deliver to such Holder a written statement as to whether the Trust has complied with such filing requirements.  Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Trust to register any of the Trust’s securities under any section of the Exchange Act.

 

SECTION 8.           Underwritten Registrations.  The Holders of Registrable Securities covered by any Registration Statement who desire to do so may sell such Registrable Securities to an underwriter in an underwritten offering for reoffering to the public.  If any of the Registrable Securities covered by any Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority of such Registrable Securities included in such offering, subject to the consent of the Trust (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts and any transfer taxes in connection therewith.  No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell such Person’s Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.

 

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SECTION 9.                                Miscellaneous.

 

(a)                                  Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Trust, the Company and the Holders of a majority of Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence.  Notwithstanding the foregoing, this Agreement may be amended by written agreement signed by the Trust, without the consent of the Holders of Registrable Securities, to cure any ambiguity or to correct or supplement any provision contained herein that may be defective or inconsistent with any other provision contained herein, or to make such other provisions in regard to matters or questions arising under this Agreement that shall not adversely affect the interests of the Holders of Registrable Securities.  Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 9(a), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder.

 

(b)                                 Notices.  All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by facsimile, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by facsimile, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows:

 

(i)                                     if to a Holder, at the most current address given by such Holder to the Trustee;

 

(ii)                                  if to the Trust or the Trustee, to:

 

VOC Energy Trust

c/o The Bank of New York Mellon Trust Company, N.A.
 919 Congress Avenue, Suite 500
 Austin, Texas 78701
 Attention:  Michael J. Ulrich
 Fax: (512) 479-2553

 

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with a copy to:

 

Andrews Kurth LLP
 600 Travis, Suite 4200
 Houston, Texas 77002
 Attention:  W. Lance Schuler
 Fax: (713) 238-7193

 

(iii)                               if to the Company, to:

 

VOC Partners, LLC
 1700 Waterfront Parkway, Building 500
 Wichita, Kansas 67206
 Attention: J Michael Vess
 (316) 682-1537

 

with a copy to:

 

Vinson & Elkins L.L.P.
 1001 Fannin, Suite 2500
 Houston, Texas 77002
 Attention: David P. Oelman
 Fax: (713) 615-5861

 

or to such other address as such Person may have furnished to the other Persons identified in this Section 9(b) in writing in accordance herewith.

 

(c)                                  Approval of Holders.  Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Trust or its Affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Company or subsequent Holders if such Holders are deemed to be such Affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

 

(d)                                 Successors and Transferees.  Any Person or group of Persons who purchases any Registrable Securities from the Company or otherwise holds any Registrable Securities as a result of any sale, liquidation, dividend or distribution by the Company or any of its Affiliates shall be deemed, for purposes of this Agreement, to be a transferee of the Company, but if and only if such Person or group (i) agrees to be designated as a transferee, (ii) is specifically designated as a transferee in writing by the Company to the Trust and (iii) in the case of a group, such group shall collectively constitute a Transferee for purposes of this Agreement (including without limitation, for purposes of exercising any Demand Registration right transferred by the Company to such group) (a “Transferee”).  This Agreement shall inure to the benefit of and be binding upon such Transferees and shall inure to the benefit of and be binding upon each such Transferees, provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms thereof.  If the Company designates any Person as a Transferee in accordance with this Section 9(d), then the Registrable Securities acquired by such Transferee shall be held subject to all of the terms of this Agreement, 

 

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and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof.

 

(e)                                  Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

(f)                                    Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

(g)                                 Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.

 

(h)                                 Severability.  If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

 

(i)                                     Entire Agreement.  This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Trust with respect to the Registrable Securities.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Trust with respect to the Registrable Securities.  This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights.  No party hereto shall have any rights, duties or obligations other than those specifically set forth in this Agreement.

 

(j)                                     Termination.  This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effective Period, except for any liabilities or obligations under Section 4, 5 or 6 hereof, each of which shall remain in effect in accordance with its terms.

 

(k)                                  Specific Enforcement; Venue.  The parties hereto acknowledge and agree that each would be irreparably damaged if any of the provisions of this Agreement are not performed by the other in accordance with their specific terms or are otherwise breached.  It is accordingly agreed that each party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement by the other and to enforce this Agreement and the terms and provisions hereof specifically against the other, in addition to any other remedy to which such aggrieved party may be entitled at law or in equity.  Any action or proceeding seeking to enforce any provision of, or based on any rights arising out of, this Agreement may be brought against any of the parties in the FEDERAL AND KANSAS STATE COURTS SITTING IN WICHITA, SEDGWICK 

 

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COUNTY, KANSAS and the FEDERAL AND TEXAS STATE COURTS SITTING IN AUSTIN, TRAVIS COUNTY, TEXAS and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein.  Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

	
 
    	
VOC   PARTNERS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
Vess   Texas Partners, LLC
    
	
 
    	
 
    	
 
    	
its   Manager
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
Vess   Holding Corporation
    
	
 
    	
 
    	
 
    	
its   Manager
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   J. Michael Vess
    
	
 
    	
 
    	
Name:
    	
J.   Michael Vess
    
	
 
    	
 
    	
Title:
    	
Designated   Representative
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
VOC   ENERGY TRUST
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
The   Bank of New York Mellon
    
	
 
    	
 
    	
 
    	
Trust   Company, N.A., as Trustee
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/   Michael J. Ulrich
    
	
 
    	
 
    	
Name:
    	
Michael   J. Ulrich
    
	
 
    	
 
    	
Title:
    	
Vice   President
    

 

Signature Page to Registration Rights AgreementExhibit 10.1

 

CONVEYANCE OF TERM NET PROFITS INTEREST AND ASSIGNMENT OF PRE-EFFECTIVE TIME PAYMENT

 

This Conveyance of Term Net Profits Interest and Assignment of Pre-Effective Time Payment (this “Conveyance”) is made, as of the latest date set forth in the acknowledgments of the parties set forth below, from VOC Brazos Energy Partners, L.P., a Texas limited partnership and VOC Kansas Energy Partners, LLC, a Kansas limited liability company (collectively, “Grantor”) to The Bank of New York Mellon Trust Company, N.A., with offices at 919 Congress Avenue, Suite 500, Austin, Texas 78701, Attention: Michael J. Ulrich, as trustee (the “Trustee”), acting not in its individual capacity but solely as trustee of the VOC Energy Trust (the “Trust”), a statutory trust created under the Delaware Statutory Trust Act as of November 3, 2010 (such Trustee acting as trustee of the Trust, “Grantee”).  Capitalized terms shall have the meaning set forth in Article II below.

 

ARTICLE I
 GRANT OF NET PROFITS INTEREST

 

For and in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable consideration (including the issuance by Grantee to VOC Brazos Energy Partners, L.P. of 17,000,000 Trust Units) to Grantor paid by Grantee, the receipt and sufficiency of which are hereby acknowledged by Grantor, Grantor hereby GRANTS, BARGAINS, SELLS, CONVEYS, TRANSFERS, ASSIGNS, SETS OVER AND DELIVERS unto Grantee subject to the terms and conditions set forth hereinafter, effective as of the Effective Time, a net profits interest (the “Net Profits Interest”) in and to the Subject Leases and the Subject Minerals if, as, and when produced, saved and marketed, equal to the product of the Proceeds Percentage times the Net Profits attributable to the Subject Interests, calculated in accordance with the provisions of Article III below and payable solely out of gross proceeds attributable to the sale of the Subject Minerals produced and saved through the Subject Wells, during the Net Profits Period, all as more fully provided herein below.

 

TO HAVE AND TO HOLD the Net Profits Interest, together with all and singular the rights and appurtenances thereto in anywise belonging, unto Grantee, its successors and assigns, subject, however, to the following terms and provisions, to-wit:

 

ARTICLE II
 DEFINITIONS

 

As used herein, the following terms shall have the meaning ascribed to them below:

 

“Administrative Hedge Costs” shall mean those costs paid by Grantor to counterparties under the Existing Hedges or to Persons that provide credit to maintain any Existing Hedge, (in each case) after the Effective Time but excluding any Hedge Settlement Costs.

 

“Affiliate” shall mean with respect to a specified Person, any Person that directly or indirectly controls, is controlled by, or is under common control with, the specified Person, and, with respect to Grantor, includes any Person that is directly or indirectly a beneficial owner of a 10% or greater interest in Grantor.  As used in this definition, the term “control” (and the

 

1

 

correlative terms “controlling,” “controlled by,” and “under common control”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise, and the term “beneficial owner” shall have the meaning set forth in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Average Annual Capital Expenditure Amount” shall mean the quotient of (a) the sum of (i) the capital expenditures to be debited to the Net Profits Account and (ii) the amounts debited to the Net Profits Account pursuant to Section 3.1(b)(xvii) for capital expenditure projects, in each case attributable to the three twelve-month periods ending on the Capital Expenditure Limitation Date, divided by (b) three.  Commencing on the Capital Expenditure Limitation Date, and each anniversary of the Capital Expenditure Limitation Date thereafter, the Average Annual Capital Expenditure Amount will be increased by 2.5% to account for expected increased costs due to inflation.

 

“BOE” shall mean (a) for Oil included in the Subject Minerals, one barrel, (b) for Gas Liquids included in the Subject Minerals, one barrel and (c) for Gas included in the Subject Minerals, the amount of such hydrocarbons equal to one barrel, determined using the ratio of six Mcf of Gas to one barrel of Oil.

 

“Business Day” shall mean any day that is not a Saturday, Sunday or any other day on which national banking institutions in New York, New York or Wilmington, Delaware are closed as authorized or required by law.

 

“Capital Expenditure Limitation Date” shall mean the later to occur of (a) December 31, 2027 and (b) the last day of the Payment Period during which the total volumes of the Subject Minerals produced, saved and sold from and after January 1, 2011 equals the volume of 9.8 MMBOE (which is the equivalent of 7.8 MMBOE in respect of the Net Profits Interest).

 

“Contingent Debt Regulations” shall have the meaning given such term in Section 9.9(b).

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Conveyance” shall mean this Conveyance of Net Profits Interest and Assignment of Pre-Effective Time Payment, as the same may be amended or modified from time to time by one or more instruments executed by both Grantor and Grantee.

 

“Debit Balance” shall have the meaning given such term in Section 3.2(c).

 

“Effective Time” shall mean 12:01 a.m., local time in effect where the Subject Interests are located, on the date of this Conveyance.

 

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“Eligible Materials” shall mean Materials for which amounts in respect of the cost of such Materials were properly debited to the Net Profits Account in accordance with Section 3.1(b).

 

“Existing Hedges” shall mean the Hedges entered into by Grantor with respect to the Subject Minerals prior to the date hereof.

 

“Fair Value” shall mean, with respect to any portion of the Net Profits Interest to be released pursuant to Section 5.2 in connection with a sale or release of any Subject Interest, an amount equal to the excess of (i) the proceeds which could reasonably be expected to be obtained from the sale of such portion of the Net Profits Interest to a party which is not an Affiliate or a Related Party of either Grantor or the Trust on an arms’-length negotiated basis, taking into account relevant market conditions and factors existing at the time of any such proposed sale or release, over (ii) Grantee’s proportionate share of any sales costs, commissions and brokerage fees.

 

“Farmout Agreement” shall mean any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.

 

“Gas” shall mean natural gas and other gaseous hydrocarbons or minerals, including helium, but excluding any Gas Liquids.

 

“Gas Liquids” shall mean those natural gas liquids and other liquid hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a Gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.

 

“Grantee” shall mean Grantee as defined in the first paragraph of this Conveyance, and its successors and permitted assigns; and, unless the context in which used shall otherwise require, such term shall include any successor owner at the time in question of any or all of the Net Profits Interest.

 

“Grantor” shall mean VOC Brazos Energy Partners, L.P. and VOC Kansas Energy Partners, LLC, individually and collectively, and their successors and permitted assigns; and, unless the context in which used shall otherwise require, such term shall also include any successor owner at the time in question of any or all of the Subject Interests.

 

“Hedge” shall mean any commodity hedging transaction pertaining to Minerals, whether in the form of (i) forward sales and options to acquire or dispose of a futures contract solely on an organized commodities exchange, (ii) derivative agreements for a swap, cap, collar or floor of the commodity price, or (iii) similar types of financial transactions classified as “notional principal contracts” pursuant to Treasury Regulation Section 1.988-1(a)(2).

 

“Hedge Settlement Costs” shall mean any and all payments required to be made by Grantor to the counterparties in connection with the settlement or mark-to-market of trades made under any Existing Hedge.

 

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“Hedge Settlement Revenues” shall mean any and all payments received by Grantor from the counterparties in connection with the settlement or mark-to-market of trades made under any Existing Hedge and all payments received by Grantor for any early termination of any Existing Hedge.

 

“Lease” shall mean (i) a lease of one or more Minerals described in Exhibit A attached hereto as to all lands and depths described in such lease (or the applicable part or portion thereof if limited in depth and/or areal extent in Exhibit A) and any interest therein and any leasehold interest in any other lease of Minerals derived from the pooling or unitization of such lease (or portion thereof, if limited in depth or areal extent in Exhibit A) with other leases, together with any interest acquired or maintained by Grantor in any and all extensions of such lease, (ii)  any replacement lease taken upon or in anticipation of termination of such lease (if executed and delivered during the term of or within one year after the expiration of the predecessor lease), as to all lands and depths described in the predecessor lease (unless the extended or predecessor lease is specifically limited in depth or areal extent in Exhibit A, in which event only the corresponding portion of such lease shall be considered a renewal or extension or a replacement lease subject to this Conveyance), and (iii) any other Mineral leasehold, royalty, overriding royalty or Mineral fee interest described in Exhibit A attached hereto (or the applicable part or portion thereof if limited in depth and/or areal extent in Exhibit A); and “Leases” shall mean all such leases and all such renewal and extensions and replacement leases.

 

“Manufacturing Costs” shall mean the costs of Processing that generate Manufacturing Proceeds received by Grantor.

 

“Manufacturing Proceeds” shall mean the excess, if any, of (i) proceeds received by Grantor from the sale of Subject Minerals that are the result of any Processing over (ii) the part of such proceeds that represents the Market Value of such Subject Minerals before any Processing.

 

“Market Value” of any Subject Minerals shall mean:

 

(a)           With respect to Oil and Gas Liquids, (i) the highest price available to Grantor for such Oil and Gas Liquids at the Lease on the date of delivery pursuant to a bona fide offer, posted price or other generally available marketing arrangement from or with a non-Affiliate or non-Related Party purchaser, or (ii) if no such offer, posted price or arrangement is available, the fair market value of such Oil and/or Gas Liquids, on the date of delivery at the Lease, being a price which could reasonably be expected to be obtained from the sale on an arm’s-length negotiated basis, taking into account relevant market conditions and factors existing at the time of sale; and

 

(b)           With respect to Gas, (i) the price specified in any Production Sales Contract for the sale of such Gas or (ii) if such Gas cannot be sold pursuant to a Production Sales Contract, (A) the average of the three highest prices (adjusted for all material differences in quality) being paid at the time of production for Gas produced from the same field in sales between non-affiliated Persons (or, if there are not three such prices within such field, within a

 

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50-mile radius of such field) but, for any Gas subject to price restrictions established, prescribed or otherwise imposed by any governmental authority having jurisdiction over the sale of such Gas, no more than the highest price permitted for such category or type of Gas after all applicable adjustments (including without limitation tax reimbursement, dehydration, compression and gathering allowances, inflation and other permitted escalations), or (B) if subsection (b)(ii)(A) above is not applicable, the fair market value of such Gas, on the date of delivery, at the Lease, being a price which could reasonably be expected to be obtained from the sale on an arm’s-length negotiated basis, taking into account relevant market conditions and factors existing at the time of sale.

 

“Materials” shall mean materials, supplies, equipment and other personal property or fixtures located on or used in connection with the Subject Interests.

 

“Mcf” shall mean one thousand cubic feet.

 

“Minerals” shall mean Oil, Gas and Gas Liquids.

 

“MMBOE” shall mean one million BOE.

 

“Net Profits” shall have the meaning given such term in Section 3.2(b).

 

“Net Profits Account” shall mean the account maintained in accordance with the provisions of Section 3.1.

 

“Net Profits Interest” shall have the meaning given such term in Article I.

 

“Net Profits Period” shall mean the period from and after the Effective Time until and including the Termination Date.

 

“Oil” shall mean crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.

 

“Payment Period” shall mean a calendar quarter, provided that for purposes of the Net Profits Interest the first Payment Period shall mean the period from and after the Effective Time until June 30, 2011, and the last Payment Period shall mean any portion of the calendar quarter during which the Termination Date occurs from the beginning of such calendar quarter until and including the Termination Date, and provided  further that for purposes of the Pre-Effective Time Payment the first Payment Period shall mean the period from and after January 1, 2011 until March 31, 2011 and the second Payment Period shall mean the period from and after April 1, 2011 through, but excluding, the Effective Time.

 

“Permitted Encumbrances” shall mean the following whether now existing or hereinafter created but only insofar as they cover, describe or relate to the Subject Interests or the lands described in any Lease:

 

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(a)           the terms, conditions, restrictions, exceptions, reservations, limitations and other matters contained in the agreements, instruments and documents that create or reserve to Grantor its interests in any of the Leases, including any Prior Reversionary Interest; provided, however, that none of the foregoing shall operate to reduce Grantor’s “Net Revenue Interest” for any Subject Well or Subject Lease to below the “Net Revenue Interest” set forth on Exhibit B for such Subject Well or Subject Lease or increase the “Working Interest” of Grantor for any Subject Well or Subject Lease above that “Working Interest” set forth on Exhibit B for such Subject Well or Subject Lease (unless there is a proportionate increase in Grantor’s corresponding “Net Revenue Interest” for such Subject Well or Subject Lease);

 

(b)           any (i) undetermined or inchoate liens or charges constituting or securing the payment of expenses that were incurred incidental to maintenance, development, production or operation of the Leases or for the purpose of developing, producing or processing Minerals therefrom or therein, and (ii) materialman’s, mechanics’, repairman’s, employees’, contractors’, operators’ or other similar liens or charges for liquidated amounts, in each case arising in the ordinary course of business that Grantor has agreed to pay or is contesting in good faith in the ordinary course of business;

 

(c)           any liens for taxes and assessments not yet delinquent or, if delinquent, that are being contested in good faith by Grantor in the ordinary course of business;

 

(d)           any liens or security interests created by law or reserved in any Lease for the payment of royalty, bonus or rental, or created to secure compliance with the terms of the agreements, instruments and documents that create or reserve to Grantor its interests in the Leases;

 

(e)           any obligations or duties affecting the Leases to any municipality or public authority with respect to any franchise, grant, license or permit, and all applicable laws, rules, regulations and orders of any governmental authority;

 

(f)            any (i) easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, pipelines, grazing, hunting, lodging, canals, ditches, reservoirs or the like, and (ii) easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways and other similar rights-of-way, on, over or in respect of the lands described in the Leases, provided that, in the case of clauses (i) and (ii), such easements, rights-of-way, servitudes, permits, surface leases and other rights do not materially impair the value of the Net Profits Interest;

 

(g)           all lessors’ royalties, overriding royalties, net profits interests, carried interests, production payments, reversionary interests and other burdens on or deductions from the proceeds of production created or in existence as of the Effective Time; provided, however, that none of the foregoing shall operate to reduce Grantor’s “Net Revenue Interest” for any Subject Well or Subject Lease to below the “Net Revenue Interest” set forth on Exhibit B for such Subject Well or Subject Lease or increase the “Working Interest” of Grantor for any Subject Well or Subject Lease above that “Working Interest” set forth on Exhibit B for such Subject Well or Subject Lease (unless there is a proportionate increase in Grantor’s corresponding “Net Revenue Interest” for such Subject Well or Subject Lease);

 

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(h)           preferential rights to purchase or similar agreements and required third party consents to assignments or similar agreements;

 

(i)            all rights to consent by, required notices to, filings with, or other actions by any governmental authority in connection with the sale or conveyance of the Leases or interests therein;

 

(j)            production sales contracts; division orders; contracts for sale, purchase, exchange, refining or processing of Minerals; unitization and pooling designations, declarations, orders and agreements; operating agreements; agreements for development; area of mutual interest agreements; gas balancing or deferred production agreements; processing agreements; plant agreements; pipeline, gathering and transportation agreements; injection, repressuring and recycling agreements; salt water or other disposal agreements; seismic or geophysical permits or agreements; and any and all other agreements entered into by Grantor or its Affiliates in connection with the exploration or development of the Leases or the extraction, processing or marketing of production therefrom or to which any of the Leases were subject when acquired by Grantor or its Affiliates; provided, however, that none of the foregoing shall operate to reduce Grantor’s “Net Revenue Interest” for any Subject Well or Subject Lease to below the “Net Revenue Interest” set forth on Exhibit B for such Subject Well or Subject Lease or increase the “Working Interest” of Grantor for any Subject Well or Subject Lease above that “Working Interest” set forth on Exhibit B for such Subject Well or Subject Lease (unless there is a proportionate increase in Grantor’s corresponding “Net Revenue Interest” for such Subject Well or Subject Lease); and

 

(k)           conventional rights of reassignment that obligate Grantor to reassign all or part of a property to a third party if Grantor intends to release or abandon such property.

 

“Person” shall mean any individual, partnership, limited liability company, corporation, trust, unincorporated association, governmental agency, subdivision, or instrumentality, or other entity or association.

 

“Possible Refundable Amounts” shall have the meaning set forth in Section 3.1(a)(v).

 

“Pre-Effective Time Payment” shall have the meaning set forth in Section 8.1.

 

“Prime Interest Rate” shall mean the lesser of (a) the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its “prime rate” in effect at its principal office in New York City (each change in the prime rate to be effective on the date such change is publicly announced), with the understanding that such bank’s “prime rate” may be one of several base rates, may serve as a basis upon which effective rates are from time to time calculated for loans making reference thereto, and may not be the lowest of such bank’s base rates or (b) the maximum rate of interest permitted under applicable law.

 

“Prior Reversionary Interest” shall mean any contract, agreement, Farmout Agreement, lease, deed, conveyance or operating agreement that exists as of the Effective Time or that

 

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burdened the Subject Interests at the time such Subject Interests were acquired by Grantor, that by the terms thereof requires a Person to convey a part of the Subject Interests to another Person or to permanently cease production of any Subject Well, including obligations arising pursuant to any operating agreements, Leases, coal leases, and other similar agreements or instruments affecting the Subject Interests.

 

“Proceeds Percentage” shall mean eighty percent (80%).

 

“Processing” or “Processed” shall mean to manufacture, fractionate or refine Subject Minerals, but such terms do not mean or include activities involving the use of normal lease or well equipment (such as dehydrators, gas treating facilities, simple gravity or mechanical separators, heater-treaters, lease compression facilities, injection or recycling equipment, tank batteries, field gathering systems, pipelines and equipment and so forth) to treat or condition Minerals or other normal operations on any of the Subject Interests.

 

“Production Period Prior to Effective Time” shall mean the period commencing on and including January 1, 2011 through, but excluding, the day of the Effective Time.

 

“Production Sales Contracts” shall mean all contracts, agreements and arrangements for the sale or disposition of Minerals.

 

“Quarterly Record Date” shall mean the 30th day (or the next Business Day, if the 30th day is not a Business Day) of the first month following the close of each Payment Period; provided, however that the first Quarterly Record Date shall be August 1, 2011.

 

“Related Party” shall mean Vess Oil Corporation, Vess Texas Partners, LLC, LD Drilling Inc. and Davis Petroleum, Inc. and their successors and permitted assigns.

 

“Release” shall mean any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping or disposing into the environment.

 

“Reserve Account” shall mean an account to be maintained by Grantor pursuant to Section 3.1; provided that the balance in such account at the Effective Time shall be zero and at any time shall not exceed $1,000,000, and provided  further that amounts held in such account shall be expended by Grantor only with respect to the development, maintenance or operation of the Subject Interests and related activities.

 

“Subject Interests” shall mean each kind and character of right, title, claim, or interest (collectively the “rights”) that Grantor has or owns in the Subject Leases and the Subject Wells whether such right be under or by virtue of a lease, a unitization or pooling order or agreement, an operating agreement, a division order, or a transfer order or be under or by virtue of any other type of claim or title, legal or equitable, recorded or unrecorded, all as such rights shall be (a) enlarged or diminished by virtue of the provisions of Section 4.2, and (b) enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances to which any of such rights are subject at the Effective Time (provided that such removal is

 

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pursuant to the express terms of the instrument that created such charge or encumbrance) and any and all renewals and extensions of the right occurring within one year after the expiration of such rights.

 

“Subject Leases” shall mean each kind and character of right, title, claim or interest (collectively the “rights”) that Grantor has or owns in the Leases whether such right be under or by virtue of a lease, a unitization or pooling order or agreement, an operating agreement, a division order, or a transfer order or be under or by virtue of any other type of claim or title, legal or equitable, recorded or unrecorded, all as such rights shall be (a) enlarged or diminished by virtue of the provisions of Section 4.2, and (b) enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances to which any of such rights are subject at the Effective Time (provided that such removal is pursuant to the express terms of the instrument that created such charge or encumbrance) and any and all renewals and extensions of the right occurring within one year after the expiration of such rights.

 

“Subject Minerals” shall mean all Minerals in and under and that may be produced, saved, and sold from, and are attributable to, the Subject Interests from and after the Effective Time, after deducting the appropriate share of all royalties and any overriding royalties, production payments and other similar charges (except the Net Profits Interest) burdening the Subject Interests at the Effective Time, provided that, (a) there shall not be included in the Subject Minerals (i) any Minerals attributable to non-consent operations conducted with respect to the Subject Interests (or any portion thereof) as to which Grantor shall be a non-consenting party as of the Effective Time that are dedicated to the recoupment or reimbursement of costs and expenses of the consenting party or parties by the terms of the relevant operating agreement, unit agreement, contract for development, or other instrument providing for such non-consent operations (including any interest, penalty or other amounts related thereto), or (ii) any Minerals unavoidably lost in production or used by Grantor for production operations (including without limitation, fuel, secondary or tertiary recovery) conducted solely for the purpose of producing Subject Minerals from the Subject Interests, and (b) there shall be included in the Subject Minerals any Minerals attributable to non-consent operations conducted with respect to the Subject Interests (or any portion thereof) as to which Grantor shall be a non-consenting party as of the Effective Time that are produced, saved, and sold from, and are attributable to the Subject Interests after the Effective Time from and after the recoupment or reimbursement of costs and expenses (including any interest, penalty or other amounts related thereto) of the consenting party or parties by the terms of the relevant operating agreement, unit agreement, contract agreement, contract development, or other instruments providing for such non-consent operations.

 

“Subject Well” shall mean each well (whether now existing or hereinafter drilled) on the Subject Leases in respect of which Grantor owns any interest or is entitled to any of the Minerals production or the proceeds therefrom (whether directly or indirectly by virtue of the effect of any farmout or farmin provisions or other provisions).

 

“Termination Date” shall mean the later of (a) December 31, 2030 and (b) the day on which the total volume of the Subject Minerals (including any Subject Minerals produced from the Subject Interests Transferred by Grantor pursuant to Section 5.1 hereof) produced, saved and

 

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sold from and after January 1, 2011 equals a volume of (i) 10.6 MMBOE (which is the equivalent of 8.5 MMBOE in respect of the Net Profits Interest) less (ii) the aggregate volume of proved reserves attributable to the Subject Interests that are Transferred by Grantor pursuant to Section 5.2 hereof (with the volume of proved reserves attributable to any individual Subject Interest so Transferred determined solely by reference to the quantity of reserves attributable to such Subject Interest that are expected to be produced during the then applicable remainder of the term of the Net Profits Interest in the most recent reserve report prepared by an independent reserve engineer in accordance with the methodology specified in the rules and regulations of the Securities and Exchange Commission, provided that, in the event an independent reserve engineer has not prepared a reserve report satisfying the foregoing requirements within 12 months prior to the date of the Transfer of such Subject Interest, no volume of proved reserves for such Subject Interest shall be included in such aggregate volume pursuant to this clause (ii)).

 

“Transfer” including its syntactical variants, shall mean any assignment, sale, transfer, conveyance, or disposition of any property; provided, however, “Transfer” as used herein does not include the granting of a security interest, pledge or mortgage in Grantor’s interest in any property, including Grantor’s interest in the Subject Interests or the Subject Minerals.

 

“Trust Agreement” means the Amended and Restated Trust Agreement of VOC Energy Trust, dated of even date herewith, by and among VOC Brazos Energy Partners, L.P., Grantee and Wilmington Trust Company, a banking corporation organized under the laws of the State of Delaware.

 

“Trust Units” shall have the meaning ascribed to such term in the Trust Agreement.

 

ARTICLE III
 ESTABLISHMENT OF NET PROFITS ACCOUNT

 

3.1           Net Profits Account and Reserve Account.  Grantor shall establish and maintain true and correct books and records in order to determine the credits and debits to the Net Profits Account and the Reserve Account to be maintained by Grantor at all times during the Net Profits Period, in accordance with the terms of this Conveyance and prudent and accepted accounting practices. For purposes of this Section 3.1:

 

(a)           The Net Profits Account shall be credited with an amount equal to the sum, from and after the Effective Time with respect to each Payment Period, of the gross proceeds (determined before calculating the Net Profits) received by Grantor from the sale of all Subject Minerals; provided, however, that:

 

(i)                                          Subject to the following provisions of this Section 3.1(a), gross proceeds shall include all consideration received, directly or indirectly, for Transfers of Subject Minerals as, if and when produced, including without limitation advance payments and payments under take-or-pay and similar provisions of Production Sales Contracts when actually received by Grantor during such preceding Payment Period;

 

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(ii)             if any proceeds are withheld from Grantor for any reason (other than at the request of Grantor), such proceeds shall not be considered to be gross proceeds until such proceeds are actually received by Grantor;

 

(iii)            if Grantor becomes an underproduced party under any Gas balancing or similar arrangement affecting the Subject Interests, then the Net Profits Account shall not be credited with any amounts for any Gas attributable to the Subject Interests that is deemed to be stored for Grantor’s account under the terms of such Gas balancing arrangement, and if Grantor becomes an overproduced party under any Gas balancing or similar arrangement affecting the Subject Interests, then the Net Profits Account shall not be credited with any amount for any Gas taken by an underproduced party as “make-up” Gas that would otherwise be attributable to the Subject Interests.  The Net Profits Account shall be credited with amounts received by Grantor (1) for any “make up” Gas taken by Grantor as a result of its position as an underproduced party under any Gas balancing or similar arrangement affecting the Subject Interests, (2) as a balancing of accounts under a Gas balancing or other similar arrangement affecting the Subject Interests either as an interim balancing or at the depletion of the reservoir, and (3) for any Gas taken by Grantor attributable to the Subject Interests in excess of its entitlement share of such Gas;

 

(iv)            if Grantor shall be a party as to any non-consent operations conducted with respect to all or any of the Subject Interests from and after the Effective Time, all gross proceeds to be credited to the Net Profits Account with respect thereto shall be governed by Section 4.3;

 

(v)             if a controversy or possible controversy exists (whether by reason of any statute, order, decree, rule, regulation, contract, or otherwise) as to the correct or lawful sales price of any Subject Minerals, or if any amounts received or to be received by Grantor as “take-or-pay” or “ratable take” payments are subject to refund to any purchasers of Subject Minerals (in each case, such amounts together with any other gross proceeds withheld from, or repayable by, Grantor, “Possible Refundable Amounts”), then:

 

(A)            amounts withheld by such purchaser or deposited by it with an escrow agent shall not be considered to have been received by Grantor and shall not be credited to the Net Profits Account until actually collected by Grantor; provided, however, that the Net Profits Account shall not be credited with any interest, penalty, or other amount that is not derived from the sale of Subject Minerals; and

 

(B)            amounts received or to be received by Grantor and promptly deposited or to be deposited by it with a non-Affiliate and non-Related Party escrow agent, to be placed in interest bearing accounts under usual and customary terms, shall not be considered to have been received by Grantor and shall not be credited to the Net Profits Account until actually disbursed to Grantor by such escrow agent; provided, however, that the Net Profits 

 

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Account shall not be credited with any interest, penalty, or other amount that is not derived from the sale of Subject Minerals;

 

(vi)            gross proceeds shall not include any amount received by Grantor in respect of any production of Subject Minerals prior to the Effective Time;

 

(vii)           the Net Profits Account shall not be credited with any amount that Grantor shall receive for any sale or other disposition of any of the Subject Interests or in connection with any adjustment of any well or leasehold equipment upon unitization of any of the Subject Interests;

 

(viii)          gross proceeds shall not include any Manufacturing Proceeds or other amounts that are reductions of debits to the Net Profits Account under the proviso of Section 3.1(b);

 

(ix)            in the event that Subject Minerals are Processed prior to sale, gross proceeds shall include only the Market Value of such Subject Minerals before any such Processing;

 

(x)             the amount of gross proceeds credited to the Net Profits Account during any Payment Period shall be reduced by (1) the aggregate Hedge Settlement Costs paid by Grantor with respect to such Payment Period and (2) overpayments pursuant to Section 3.4(a);

 

(xi)            gross proceeds shall not include any amount to which Grantor is entitled by virtue of a judgment of a court of competent jurisdiction resolving a dispute hereunder between Grantee and Grantor in favor of Grantor, or any amount paid to Grantor in settlement of such dispute; and

 

(xii)           gross proceeds shall not include any additional proceeds from the sale of Minerals related to any Subject Well with respect to which Grantor elects to be a participating party (whether pursuant to an operating agreement or other agreement or arrangement, including without limitation, non-consent rights and obligations imposed by statute or regulatory agency) with respect to any operation with respect to such Subject Well where another party or parties have elected not to participate in such operation (or have elected to abandon such Subject Well) and Grantor elects to pay the costs of such nonparticipating or abandoning party and as a result of which Grantor becomes entitled to receive, either temporarily (i.e., through a period of recoupment) or permanently any additional proceeds from the sale of Minerals related to such Subject Well.

 

(b)           The Net Profits Account shall be debited with an amount equal to the sum of the following (excluding in all events Manufacturing Costs and Hedge Settlement Costs), to the extent that the same relate to the Existing Hedges or are properly allocable to the Subject Interests (and any related equipment or property used in connection therewith) and the production and (subject to Section 4.4) marketing of Subject Minerals therefrom and have been incurred or accrued (as described below) by Grantor from and after the Effective Time and 

 

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attributable to periods from and after the Effective Time and ending on or before the Termination Date:

 

(i)              all direct costs (including capital costs) paid by Grantor (A) for all direct labor (including fringe benefits) and other services necessary for developing, operating, producing, reworking and maintaining the Subject Interests, (B) for dehydration, compression, separation and transportation of the Subject Minerals, and (C) for all Materials purchased for use on, or in connection with, any of the Subject Interests (including without limitation (1) all amounts charged Grantor for conformance of investment if the Subject Interests or any part or parts thereof are hereafter from time to time unitized or if any participating area in a federal divided-type unit is changed, (2) the costs of any seismic (including 3-D seismic surveys), geological or geophysical operations to the extent relating to the search for Subject Minerals, (3) the costs of drilling, completing, testing, equipping, plugging back, reworking, recompleting and plugging and abandoning any Subject Well on the Subject Interests, whether or not such Subject Well is a producer or is abandoned as a dry hole or junked, (4) the cost of constructing gathering facilities, tanks and other production and delivery facilities on the Subject Interests, and (5) the cost of secondary recovery, pressure maintenance, repressuring, recycling and other operations conducted for the purpose of enhancing production); provided, however, that the debits made to the Net Profits Account pursuant to this subsection (and, to the extent applicable, pursuant to the other applicable provisions of this Conveyance) with respect to any Subject Interest shall be made on the same basis as such costs are charged under the operating agreement (if any) applicable to such Subject Interest at the time the transaction giving rise to such debit occurred, except that (I) in the case where Grantor, a Related Party or one of Grantor’s Affiliates acts as operator of any Subject Interest, the costs (including any producing overhead) debited to the Net Profits Account with respect to such Subject Interest shall not exceed the costs charged pursuant to operating agreements applicable to similar properties operated by third parties that are not Related Parties or Affiliates of Grantor; and (II) in the event a Subject Interest is operated at such time by a third party that is not a Related Party or an Affiliate of Grantor but is not subject to an operating agreement, such debit shall be made on the same basis as Grantor is charged by such third party; provided, further, if Grantor elects to pay the costs of a nonconsenting party or nonparticipating party with respect to which the gross proceeds derived from such costs are not credited to the Net Profits Account pursuant to Section 3.1(a), Grantor shall be solely responsible for such costs;

 

(ii)             all costs (including without limitation outside legal, accounting and engineering services) attributable to the Subject Interests of (A) handling, investigating and/or settling litigation, administrative proceedings and claims (including without limitation lien claims other than liens for borrowed funds) and (B) payment of judgments, penalties and other liabilities (including interest thereon), paid by Grantor (and not reimbursed under insurance maintained by Grantor or others) and to the extent involving any of the Subject Interests, or to the extent incident to the development, operation or maintenance of the Subject Interests, or requiring 

 

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the payment or restitution of any proceeds of Subject Minerals, or arising from tax or royalty audits; provided that there shall not be debited to the Net Profits Account any expenses incurred by Grantor in litigation of any claim or dispute arising hereunder between Grantor and Grantee or amounts paid by Grantor to Grantee pursuant to a final order entered by a court of competent jurisdiction resolving any such claim or dispute or amounts paid by Grantor to Grantee in connection with the settlement of any such claim or dispute;

 

(iii)            all taxes (except federal and state income, transfer, mortgage, inheritance, estate, franchise and like taxes) incurred, accrued or paid by Grantor with respect to the ownership of the Subject Interests or the extraction of the Subject Minerals, including without limitation production, severance, sales, gathering and/or excise and other similar taxes assessed against, and/or measured by, the production of (or the proceeds or value of production of) Subject Minerals, sales and use taxes, and ad valorem taxes assessed against or attributable to the Subject Interests or any equipment used in connection with production from any of the Subject Interests and any extraordinary or windfall profits taxes that may be assessed in the future based upon profits realized or prices received from the sale of Subject Minerals; provided, however, that if Grantee is assessed any of such taxes individually and Grantee pays such taxes, then the taxes which Grantee is assessed individually and has paid shall not be debited to the Net Profits Account;

 

(iv)            insurance premiums attributable to the ownership or operation of the Subject Interests paid by Grantor for insurance actually carried for periods after the Effective Time with respect to the Subject Interests, or any equipment located on any of the Subject Interests, or incident to the development, operation or maintenance of the Subject Interests, 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;

 

(v)             all amounts paid by Grantor attributable to the Subject Interests and consisting of (A) rent and other consideration paid for the use or damage to the surface, (B) delay rentals, shut-in well payments, overriding royalties and other burdens on production, minimum royalties and similar payments paid pursuant to the provisions of agreements in force and effect before the Effective Time and (C) fees for renewals or extensions of the Leases included in the Subject Interests;

 

(vi)            amounts attributable to the Subject Interests and charged by the relevant operator (including those amounts charged to Grantor by any Related Party) as overhead charges specified in the applicable operating agreements or other arrangements now or hereafter covering the Subject Interests or Grantor’s operations with respect thereto;

 

(vii)           to the extent Grantor is the operator of a Subject Interest and there is no operating agreement covering such Subject Interest now or hereafter, those overhead charges that are allocated by Grantor to such Subject Interest, to the extent that 

 

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such charges are allocated in the same manner that Grantor allocates to other similarly owned and operated properties for which operating agreements exist with third parties other than Related Parties and Affiliates of Grantor;

 

(viii)          if as a result of the occurrence of the bankruptcy or insolvency or similar occurrence of the purchaser of Subject Minerals any amounts previously credited to the Net Profits Account are reclaimed from Grantor or its representative, then the amounts reclaimed as promptly as practicable following Grantor’s payment thereof;

 

(ix)            if Grantor shall be a party to any non-consent operations conducted with respect to all or any of the Subject Interests, all costs related to such non-consent operations to be debited to the Net Profits Account with respect thereto, if any, shall be governed by Section 4.3;

 

(x)             the costs paid by Grantor in connection with the exercise of its rights pursuant to Section 4.6;

 

(xi)            all costs paid by Grantor for recording this Conveyance and, immediately prior to the last Payment Period, costs estimated in good faith to record the termination and/or release of this Conveyance;

 

(xii)           all Administrative Hedge Costs paid by Grantor;

 

(xiii)          all costs attributable to the Subject Interests associated with complying with tariffs and with federal policies related to the use of interstate pipeline capacity, obtaining and maintaining any permits, licenses, franchises, drilling bonds, approvals and certificates from federal, state or local governmental authorities, and reporting obligations imposed by federal, state or local governmental authorities;

 

(xiv)          any amounts previously included in gross proceeds, if such amounts have subsequently been refunded or paid out as interest or a penalty;

 

(xv)           without duplication of the costs described elsewhere in this Section 3.1(b) above, all other direct costs paid by Grantor for the necessary or proper drilling, completion, hook up, production, operation, reworking, recompleting and maintenance of the Subject Wells and Subject Interests, and the plugging and abandoning of any unplugged Subject Wells located on the Subject Interests, abandoning of any facilities used in connection with the Subject Interests and, where applicable, restoring of the surface of the Subject Interests;

 

(xvi)          any Debit Balance carried forward pursuant to Section 3.2(c); and

 

(xvii)         the amount of any increase in the Reserve Account related to projected costs of scheduled future capital expenditure projects, including well drilling, recompletion and workover costs that have been approved by Grantor in writing;

 

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provided that the costs referred to in this Section 3.1(b) shall be reduced by the following amounts received by Grantor from and after the Effective Time: (A) any amounts received by Grantor as delay rentals, bonus, royalty or other similar payments in connection with any Farmout Agreement or for dry hole, bottom hole or other similar contributions related to the Subject Interests or otherwise, (B) upon salvage or other disposition, the applicable actual salvage value (as determined in accordance with the applicable operating agreement then in effect and binding upon Grantor) of any Eligible Materials, less, in each instance the actual costs of salvage or other disposition, (C) any cash payments received by Grantor as a result of any pooling or unitization of the Subject Interests if the costs giving rise to such payments were charged to the Net Profits Account, directly or indirectly, (D) any insurance proceeds received by Grantor in respect of the Subject Interests, Subject Minerals or Eligible Materials if the cost of such insurance was charged to the Net Profits Account, directly or indirectly, (E) any amounts received by Grantor from third parties as rental or use fees for Eligible Materials, (F) the gross proceeds of any judgments or claims received by Grantor for damages occurring on or after the Effective Time to the Subject Interests (or any part thereof or interest therein) or any Materials (or any part thereof or interest therein) used in connection with the operation of the Subject Interests or any Subject Minerals, (G) any proceeds from the sale of Eligible Materials, (H) any payments made to Grantor in connection with the drilling or deferring of drilling of any Subject Well, (I) if, from and after the Effective Time, any Subject Minerals shall be Processed before sale, the excess, if any, of the Manufacturing Proceeds arising therefrom over the Manufacturing Costs of such Processing, (J) any interest, penalty or other amount not derived from the sale of the Subject Minerals that is paid to Grantor by the purchaser of production or escrow agent in connection with Possible Refundable Amounts withheld or deposited with an escrow agent, (K) the Hedge Settlement Revenues, (L) the amount described in Section 5.2(b), and (M) any amounts in the Reserve Account that are used to pay for any costs specified in clauses (i) through (xv) of this Section 3.1(b) (which amounts so used shall reduce the amount of the Reserve Account); provided that in any Payment Period where the aggregate reduction in costs described in subparts (A) through (M) above exceeds the amounts described in Section 3.1(b) above for such Payment Period, then such excess, plus interest at the Prime Interest Rate on such amount, commencing on the expiration date of the preceding Payment Period to the date such amounts have been used to reduce the costs referred to in this Section 3.1(b) shall not be applied to reduce the costs described in Sections 3.1(b) below zero but instead shall be applied to reduce such costs in each succeeding Payment Period, subject to this limitation, until exhausted, provided, however, that if any portion of such excess remains on the Termination Date, such amount will be forfeited and Grantee will not be entitled to benefit from such amount, and provided  further that (1) during each 12-month period beginning on the Capital Expenditure Limitation Date, the sum of (x) the capital expenditures to be debited to the Net Profits Account and (y) the amounts debited to the Net Profits Accounts pursuant to Section 3.1(b)(xvi) may not exceed the Average Annual Capital Expenditure Amount, and (2) any amounts in the Reserve Account referred to in Section 3.1(b)(xvii) immediately preceding the Termination Date shall be credited to Net Profits Account as of the Termination Date.

 

(c)           Notwithstanding anything herein to the contrary, the amounts debited to the Net Profits Account shall not include any of the following: (A) any amount that has also been used to reduce or offset the amount of the Subject Minerals (or proceeds of production thereof) or has otherwise not been included therein (including, by way of example and without limitation, proceeds attributable to royalties, overriding royalties, production payments and other charges 

 

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burdening the Subject Interests at the Effective Time); (B) any overriding royalty, production payment or other charge burdening the Subject Interests which was created by Grantor after the Effective Time; (C) any general, administrative or overhead costs paid or incurred by Grantor or its Affiliates, except for those permitted under Section 3.1(b)(vi) and (vii); (D) any amounts paid by Grantor (initial or a successor) to such Grantor’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 Grantor to such predecessor in interest to acquire all or part of the Subject Interests); (E) any interest, premiums, fees or similar charges arising out of borrowings or purchases of any goods, equipment or other items on credit, whether or not used on or otherwise related to the Subject Interests; (F) any amount arising from any condition, circumstance, activity, practice, incident, action, or plan that gives rise to any material liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, Release or threatened Release into the environment, of any pollutant, contaminant, or hazardous substance or other toxic material or waste from or attributable to the use or operation of any of the Subject Interests which either occurred prior to, on or after the Effective Time and are attributable to Grantor’s gross negligence or willful misconduct.

 

(d)           Nothing set forth in this Section 3.1 shall be interpreted or applied in any manner that shall ever require or permit any duplication of all or any part of any credit or debit (or reduction thereto) to the Net Profits Account with respect to the same transaction, item of expense or charge, under this Conveyance, or that shall ever require or permit any inclusion of any charge to the Net Profits Account that is reimbursed to Grantor by any Person.

 

(e)           GRANTEE, BY ITS ACCEPTANCE OF THE NET PROFITS INTEREST, CLEARLY AND UNEQUIVOCALLY EXPRESSES ITS INTENT THAT THE DEBITS TO THE NET PROFITS ACCOUNT CONTAINED IN SECTION 3.2(b) SHALL BE APPLICABLE REGARDLESS OF WHETHER OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES THAT MAY BE DEBITED IN ACCORDANCE WITH SUCH SECTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF GRANTOR OR ANY OF ITS AFFILIATES, OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF GRANTOR OR ANY OF ITS AFFILIATES, EXCEPT TO THE EXTENT THAT ANY SUCH LOSSES, COSTS, EXPENSES OR DAMAGES RESULT, DIRECTLY OR INDIRECTLY, FROM ANY BREACH OR NONCOMPLIANCE WITH THE OPERATIONS STANDARD SET FORTH IN SECTION 4.1 HEREOF, AND NOTHING CONTAINED HEREIN OR ELSEWHERE IN THIS CONVEYANCE SHALL BE CONSTRUED AS A WAIVER OR RELEASE OF GRANTOR FROM ANY CLAIM, ACTION OR LIABILITY ARISING UNDER SECTION 4.1 HEREOF.

 

3.2           Accounting.

 

(a)           After the end of each Payment Period, a calculation shall be made by Grantor by deducting (i) the total debits (net of reductions thereof) properly made to the Net Profits Account during such Payment Period pursuant to Section 3.1(b) from (ii) the total credits properly made to such Net Profits Account during such Payment Period pursuant to Section 3.1(a).

 

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(b)           If the computation made in accordance with Section 3.2(a) results in a positive amount with respect to a Payment Period (any such positive amount, the “Net Profits”), then (i) the Net Profits shall be subtracted from the balance of the Net Profits Account to cause the Net Profits Account to have a zero balance immediately following the end of such Payment Period, (ii) the Net Profits shall be multiplied by the Proceeds Percentage to determine the Net Profits Interest and (iii) the resulting product from the calculations in (ii) above shall be payable to Grantee as specified in Section 3.3.

 

(c)           If the computation made in accordance with Section 3.2(a) results in a negative amount with respect to a Payment Period, the negative sum shall be deemed the “Debit Balance.”  Any Debit Balance shall be carried forward as a debit to the Net Profits Account for the following Payment Period.  If there is a Debit Balance at the end of any Payment Period, no payments shall be made to Grantee in respect of the Net Profits Interest nor shall Grantee ever be liable to make any payment to Grantor in respect of the Debit Balance.  In the event that any Debit Balance exists, then an amount shall be computed equal to interest on such Debit Balance at the Prime Interest Rate for the period between the last day of the Payment Period that resulted in such Debit Balance and the last day of the next Payment Period, which amount shall, on the last day of such next Payment Period, be debited to the Net Profits Account in the same manner as other debits to the Net Profits Account for such Payment Period.

 

(d)           All amounts received by Grantor from the sale of the Subject Minerals for any Payment Period shall be held by Grantor in one of its general bank accounts and Grantor shall not be required to maintain a segregated account for such funds.

 

3.3           Payment of Proceeds Percentage of Net Profits.  On or before the Quarterly Record Date for each Payment Period, Grantor shall transfer or cause to be transferred to Grantee an amount in respect of the Subject Interests equal to the product of the Proceeds Percentage times the Net Profits with respect to the immediately preceding Payment Period in accordance with Section 3.2(b).  All funds delivered to Grantee on account of the Net Profits Interest shall be calculated and paid entirely and exclusively out of the gross proceeds attributable to the Subject Minerals attributable to the Subject Interests.

 

3.4           Overpayment; Past Due Payments.

 

(a)           If Grantor ever pays Grantee more than the amount of money then due and payable to Grantee under this Conveyance, Grantee shall not be obligated to return the overpayment, but Grantor may, subject to the next sentence, reduce the gross proceeds used to calculate the Net Profits and retain for its own account an amount equal to the overpayment, plus interest at the Prime Interest Rate on such amount, commencing on the sixth (6th) day from the date of the overpayment to the date such amount is recovered by Grantor from such proceeds.  In order to exercise its rights under this Section 3.4, Grantor must notify Grantee in writing, together with supporting worksheets and data, within 120 days after the end of the fiscal year to which the quarterly statement (as required by Section 3.5(a)) containing such overpayment relates.

 

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(b)           Any amount not paid by Grantor to Grantee with respect to the Net Profits Interest when due shall bear, and Grantor hereby agrees to pay, interest at the Prime Interest Rate from the due date until such amount has been paid.

 

(c)           Grantor shall give Grantee written notice with respect to any underpayment described in Section 3.4(b), together with supporting worksheets and data.

 

3.5           Statements.

 

(a)           At least twelve days before each Quarterly Record Date, Grantor shall deliver to Grantee a statement showing the computation of the Net Profits and the Proceeds Percentage of the Net Profits, including gross proceeds and debits therefrom (including any reductions to such gross proceeds and/or debits), with respect to the preceding Payment Period.

 

(b)           At least twelve days before the first Quarterly Record Date after the end of each calendar year and at least twelve days before the Quarterly Record Date after the Termination Date, such statement shall also show the computation of the Net Profits and the Proceeds Percentage of the Net Profits, including gross proceeds and debits therefrom (including any reductions to such gross proceeds and/or debits), for the preceding calendar year (or portion thereof when the Net Profits Interest was in effect).

 

(c)           If Grantee takes exception to any item or items included in any quarterly statement required by Section 3.5(a) (including, with respect to the first Quarterly Record Date, information relating to the Pre-Effective Time Payment), Grantee must notify Grantor in writing within 120 days after the end of the fiscal year with respect to which such statements relate.  Such notice must set forth in reasonable detail the specific debits complained of and to which exception is taken or the specific credits which should have been made and allowed.  Adjustments shall be made for all complaints and exceptions that are agreed to by the parties; provided that if the parties do not agree, such disputed matters shall be subject to the arbitration provisions set forth in Article XI of the Trust Agreement.

 

(d)           Notwithstanding anything to the contrary herein, all matters reflected in Grantor’s statements for the preceding calendar year (or portion thereof) that are not objected to by Grantee in the manner provided by this Section 3.5(c) shall be deemed correct as rendered by Grantor to Grantee.

 

3.6           Information/Access.

 

(a)           Grantor shall maintain true and correct books, records, and accounts of (i) all transactions and activities required or permitted by, or otherwise associated with, this Conveyance and (ii) the financial information necessary to reflect such transactions and activities, including the financial information needed to calculate the Net Profits with respect to any Payment Period.

 

(b)           Grantee or its representative, at the Trust’s expense, may inspect and copy such books, records, and accounts, and such other documents, contracts and information as may be reasonably requested by the Trustee, in the offices of Grantor during normal business hours and upon reasonable notice.

 

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(c)           At Grantee’s request, subject to applicable restrictions on disclosure and transfer of information, Grantor shall give Grantee and its designated representatives (on behalf of the Trust) reasonable access in Grantor’s office during normal business hours to (i) all geological, Subject Well and production data in Grantor’s possession or Grantor’s Affiliates’ possession, relating to operations on the Subject Interests and (ii) all reserve reports and reserve studies in the possession of Grantor or of Grantor’s Affiliates, relating to the Subject Interests, whether prepared by Grantor, by Grantor’s Affiliates, or by consulting engineers.

 

(d)           Grantor makes no representations or warranties about the accuracy or completeness of any such data, reports, or studies referred to in Section 3.6(c) and shall have no liability to Grantee, the Trust or any other Person resulting from such data, studies, or reports.

 

ARTICLE IV
 OPERATION OF THE SUBJECT INTERESTS

 

4.1           Operations Standard.  To the extent that Grantor controls such matters and notwithstanding anything to the contrary herein, with respect to each Subject Interest, Grantor agrees that it will conduct and carry on, or use commercially reasonable efforts to cause the operator thereof to conduct and carry on, the maintenance and operation of such Subject Interest in the same manner as a reasonably prudent operator in the state in which the Subject Interest is located would do under the same or similar circumstances acting with respect to its own properties (without regard to the existence of the Net Profits Interest).  Grantee acknowledges that Grantor is and shall be an undivided interest owner with respect to the Subject Interests.  Grantee agrees that the acts or omissions of Grantor’s co-owners shall not be deemed to constitute a violation of the provisions of this Section 4.1, nor shall any action required by a vote of co-owners be deemed to constitute such a violation so long as Grantor has voted its interest in a manner designed to comply with this Section 4.1.  Nothing contained in this Section 4.1 shall be deemed to prevent or restrict Grantor from electing not to participate in any operations that are to be conducted under the terms of any operating agreement, unit operating agreement, contract for development, or similar instrument affecting or pertaining to the Subject Interests (or any portion thereof) and permitting consenting parties to conduct non-consent operations thereon if a reasonably prudent operator in the state in which the Subject Interest affected thereby is located acting with respect to its own properties (without regard to the existence of the Net Profits Interest) would make such elections.

 

4.2           Pooling and Unitization.  Grantor shall have the right to pool or unitize all or any of the Leases as to any one or more of the formations or horizons thereunder, and as to any of the Subject Minerals, when, in the reasonable judgment of Grantor, it is necessary or advisable to do so in order to form a drilling or proration unit to facilitate the orderly development of the Subject Interests or to comply with the requirements of any law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom.  For purposes of computing the Net Profits, there shall be allocated to the Subject Interests included in such unit a pro rata portion of the Minerals produced from the pooled unit on the same basis that production from the pool or unit is allocated to other working interests in such pool or unit.  The interest in any such unit attributable to the Subject Interests (or any part thereof) included therein shall become a part of the Subject Interests and shall be subject to the Net Profits Interest in the same

 

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manner and with the same effect as if such unit and the interest of Grantor therein were specifically described in Exhibit A to this Conveyance.

 

4.3           Non-Consent.  Subject to Section 4.1, if Grantor elects to be a non-participating party (whether pursuant to an operating agreement or other agreement or arrangement, including without limitation, non-consent rights and obligations imposed by statute or regulatory agency) with respect to any operation on any Subject Interest or elects to be an abandoning party with respect to a Subject Well located on any Subject Interest, the consequence of which election is that Grantor’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 Subject Well, then the costs and proceeds attributable to such forfeited interest shall not, for the period of such forfeiture (which may be a continuous and 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 Interest.  Notwithstanding anything to the contrary contained herein, Grantor shall not elect, as to any Subject Interest, to be a non-participating party with respect to any operation contemplated in this Section 4.3 in the event any Related Party or Affiliate of Grantor will also be a participating party in such operation.

 

4.4           Marketing/Hedges.  As between Grantor and Grantee, Grantor shall have exclusive charge and control of the marketing of all Subject Minerals.  Grantor shall market, or cause to be marketed, the Subject Minerals allocable to the Net Profits Interest in the same manner that it markets its Subject Minerals and Grantor shall not be entitled to deduct from the calculation of the Net Profits any fee for marketing the Subject Minerals allocable to the Net Profits Interest.  Grantor shall not enter into any Hedges (other than the Existing Hedges) with respect to the Subject Minerals from and after the Effective Time or modify or terminate the Existing Hedges.

 

4.5           Amendment of Leases.  Grantor shall have the unrestricted right to renew, extend, modify, amend, or supplement the Leases with respect to any of the lands covered thereby in any particular without the consent of Grantee; provided, that the Net Profits Interest shall apply to all renewals, extensions, modifications, amendment, supplements and other similar arrangements (and/or interests therein) of the Leases, whether or not such renewals, extensions modifications, amendment, supplements or arrangements have heretofore been obtained, or are hereafter obtained, by Grantor and no renewal, extension, modification, amendment, or supplementation shall adversely affect any of Grantee’s rights hereunder, including, without limitation, the amount, computation, or method of payment of the Net Profits Interest; provided  further that any fees payable with respect to such renewal, extension, modification, amendment or supplementation may be debited to the Net Profits Account pursuant to Section 3.1(b).  Grantor shall furnish Grantee with written notice of any renewal, extension, modification, amendment, or supplementation, which materially affects the Net Profits Interest, within 30 days after Grantor has entered into the same, which notice shall specify the date thereof and the location and the acreage covered thereby.

 

4.6           Abandonment.  Grantor shall have the right without the joinder of Grantee to release, surrender and/or abandon its interest in the Subject Interests, or any part thereof, or interest therein even though the effect of such release, surrender or abandonment will be to

 

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release, surrender or abandon the Net Profits Interest the same as though Grantee had joined therein insofar as the Net Profits Interest covers the Subject Interests, or any part thereof or interest therein, so released, surrendered or abandoned by Grantor; provided, however, that Grantor shall not release, surrender or abandon any Subject Interest unless and until Grantor reasonably believes (acting like a reasonably prudent operator in the state in which such Subject Interests are located with respect to its own properties, without regard to the existence of the Net Profits Interest) that such Subject Interest has ceased to produce or will no longer produce Subject Minerals in commercially paying quantities; and provided  further that Grantor will, promptly after the release, surrender or abandonment of any Subject Interest, or any part thereof or interest therein, notify Grantee in writing, giving a description of such Subject Interest, or part thereof or interest therein, that has been released, surrendered or abandoned, and the date on which such release, surrender or abandonment has occurred.  Grantor shall have an unequivocal right to abandon a Subject Interest or any part thereof, if such abandonment is necessary for health, safety or environmental reasons, or the Subject Minerals that would have been produced from the abandoned Subject Interest would otherwise be produced from Subject Wells located on the remaining Subject Interests.

 

4.7           Contracts with Affiliates and Related Parties.  Grantor, its Affiliates or Related Parties may perform services and furnish supplies and/or equipment with respect to the Subject Interests that are required to operate the Subject Interests in accordance with the operations standard set forth in Section 4.1 hereof and debit the Net Profits Account for the costs of such services and/or furnishing of such supplies and/or equipment, provided that, notwithstanding anything to the contrary herein, the terms of the provision of such services or furnishing of supplies and/or equipment shall not be less favorable than those terms available from non-Affiliates and non-Related Parties in the same area as such Subject Interests that are engaged in the business of rendering comparable services or furnishing comparable equipment and supplies, taking into consideration all such terms, including the price, term, condition of supplies or equipment, availability of supplies and/or equipment, and all other terms.

 

ARTICLE V
 RELEASES AND TRANSFERS OF SUBJECT INTERESTS/SUBJECT WELLS

 

5.1           Assignment by Grantor Subject to Net Profits Interest.

 

(a)           Grantor may from time to time Transfer, mortgage, or pledge the Subject Interests, or any part thereof or undivided interest therein, subject to the Net Profits Interest and this Conveyance.

 

(b)           Upon any Transfer of the Subject Interests, or any part thereof or undivided interest therein, by Grantor pursuant to this Section 5.1, Grantor may delegate to its transferee all obligations, requirements, and responsibilities of Grantor arising under this Conveyance with respect to the property Transferred, but, as between Grantor and Grantee, Grantor shall remain responsible therefor as if the Transfer had not taken place.

 

(c)           Grantee is not entitled to receive any share of the sales proceeds received by Grantor in any transaction permitted by this Section 5.1.

 

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(d)           For purposes of computing Net Profits from and after the effective date of any Transfer pursuant to this Section 5.1, the Transfer shall be disregarded; provided  however, that the debits and credits to the Net Profits Account during each Payment Period in respect of the Subject Interests Transferred shall reflect items received or incurred by the transferee, such items to be computed in accordance with the provisions of Article III hereof.

 

5.2           Sale and Release of Properties.

 

(a)           Grantor may from time to time Transfer the Subject Interests, or any part thereof or undivided interest therein, free of the Net Profits Interest and this Conveyance provided that:

 

(i)                                          no Subject Interest or portion thereof may be Transferred pursuant to this Section 5.2 where the production of Subject Minerals from such Subject Interest or part thereof for the twelve (12) months immediately preceding the proposed sale date for such Subject Interest or part thereof exceeds one quarter of one percent (0.25%) of the total production of total Subject Minerals produced from all of the Subject Interests for the twelve (12) months immediately preceding the proposed sale date for such Subject Interest or part thereof;

 

(ii)                                       in connection with any such Transfer, Grantee shall receive as compensation for the release of its Net Profits Interest in the Subject Interest (or portion thereof) so Transferred the Fair Value of the portion of the Net Profits Interest so released;

 

(iii)                                    such Transfer shall not be to an Affiliate or Related Party; and

 

(iv)                                   the aggregate fair market value of all portions of the Net Profits Interest released pursuant to Section 5.2(a) during any consecutive twelve (12) month period shall not exceed $500,000.

 

(b)           In connection with any Transfer pursuant to this Section 5.2, Grantor shall remit to Grantee an amount equal to the Fair Value of the portion of the Net Profits Interest being released.  Grantor shall make such payment to Grantee on or before the Quarterly Record Date for the Payment Period in which Grantor receives the payment with respect to any such Transfer of the Subject Interest.

 

(c)           In connection with any Transfer provided for in this Section 5.2, Grantee shall, on request, immediately prior to any such Transfer, execute, acknowledge, and deliver to Grantor a recordable instrument (reasonably acceptable to Grantor) that releases the Net Profits Interest and this Conveyance with respect to the Subject Interests being Transferred.

 

(d)           From and after the actual date of any such Transfer by Grantor, Grantor and any assignee, purchaser, transferee or grantee of such Subject Interest shall be relieved of all obligations, requirements, and responsibilities arising under the Net Profits Interest or this Conveyance with respect to the Subject Interests Transferred, except for those that accrued prior to such date.

 

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5.3           Release of Other Properties.

 

(a)           Notwithstanding anything herein to the contrary, in the event that any Person notifies Grantor that, pursuant to a Prior Reversionary Interest, Grantor is required to convey any of the Subject Interests to such Person or cease production from any Subject Well, Grantor may provide such conveyance with respect to such Subject Interest or permanently cease production from any such Subject Well.

 

(b)           Notwithstanding anything herein to the contrary, in the event that Grantor receives compensation pursuant to any Prior Reversionary Interest, Grantee shall not be entitled to any share of such compensation.

 

(c)           In connection with any conveyance or permanent cessation of production provided for in Section 5.3(a) above, Grantee shall, on request, immediately prior to such event, execute, acknowledge, and deliver to Grantor a recordable instrument (reasonably acceptable to Grantor) that releases the Net Profits Interest and this Conveyance with respect to any such Subject Well or Subject Interests.

 

(d)           From and after the actual date of any conveyance or permanent cessation of production provided for in Section 5.3(a), Grantor and any assignee, purchaser, transferee or grantee of such Subject Interest shall be relieved of all obligations, requirements, and responsibilities arising under the Net Profits Interest or this Conveyance with respect to the Subject Interests Transferred (and no credits or debits shall be made to the Net Profits Account therefor), except for those that accrued prior to such date.

 

5.4           Farmouts.

 

(a)           Grantor may from time to time enter into Farmout Agreements with third parties who are not Related Parties or Affiliates of Grantor with respect to a Subject Interest.  In the event that Grantor enters into any Farmout Agreement with a third party, the Net Profits Interest and this Conveyance shall burden only Grantor’s retained interest in the Subject Interest after giving effect to any interest in the Subject Interest that a counterparty to the Farmout Agreement may earn under such Farmout Agreement.

 

(b)           In connection with Grantor entering into any Farmout Agreement, Grantee shall, upon request, execute, acknowledge, and deliver to Grantor a recordable instrument (reasonably acceptable to Grantor) that releases the Net Profits Interest and this Conveyance with respect to the Subject Interests being Transferred pursuant to such Farmout Agreement; provided, the Net Profits Interest shall continue to burden the Subject Interest retained by Grantor.

 

ARTICLE VI
 OWNERSHIP OF PROPERTY; LIABILITY OF GRANTEE; NO RIGHT OF OPERATIONS BY GRANTEE

 

6.1           Ownership of Certain Property.  The Net Profits Interest does not include any right, title, or interest in and to any personal property, fixtures, or equipment and is exclusively an interest in and to the Subject Leases and the Minerals in and under and produced and saved

 

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from the Subject Interests, and Grantee shall look solely to the Subject Minerals and payments in respect thereof (as provided herein) for the satisfaction and realization of the Net Profits Interest.

 

6.2           No Personal Liability.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS CONVEYANCE, GRANTEE 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; PROVIDED, HOWEVER, ALL SUCH COSTS AND EXPENSES SHALL, TO THE EXTENT THE SAME RELATE TO ACTS, OMISSIONS, EVENTS, CONDITIONS OR CIRCUMSTANCES OCCURRING FROM AND AFTER THE EFFECTIVE TIME, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED, except as otherwise provided herein.

 

6.3           No In-Kind Rights.  Grantee shall have no right to take in kind any Subject Minerals allocable to the Net Profits Interest.

 

6.4           No Operating Rights.  IT IS THE EXPRESS INTENT OF GRANTOR AND GRANTEE THAT THE NET PROFITS INTEREST SHALL CONSTITUTE (AND THIS CONVEYANCE SHALL CONCLUSIVELY BE CONSTRUED FOR ALL PURPOSES AS CREATING) A SINGLE, SEPARATE NON-OPERATING NET PROFITS INTEREST IN AND TO THE SUBJECT LEASES AND MINERALS IN AND UNDER AND PRODUCED AND SAVED FROM THE SUBJECT INTERESTS DURING THE NET PROFITS PERIOD FOR ALL PURPOSES AND A FULLY VESTED AND FULLY CONVEYED INTEREST IN PROPERTY.  WITHOUT LIMITATION OF THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE, GRANTOR AND GRANTEE ACKNOWLEDGE THAT GRANTEE HAS NO RIGHT OR POWER TO PARTICIPATE IN THE SELECTION OF A DRILLING CONTRACTOR, TO PROPOSE THE DRILLING OF A WELL, TO DETERMINE THE TIMING OR SEQUENCE OF DRILLING OPERATIONS, TO COMMENCE OR SHUT DOWN PRODUCTION, TO TAKE OVER OPERATIONS, OR TO SHARE IN ANY OPERATING DECISION WHATSOEVER, OR IN ANY DECISION PERTAINING TO THE MARKETING AND SALE OF PRODUCTION WHATSOEVER.  GRANTOR AND GRANTEE HEREBY EXPRESSLY NEGATE ANY INTENT TO CREATE (AND THIS CONVEYANCE SHALL NEVER BE CONSTRUED AS CREATING) A MINING OR OTHER PARTNERSHIP OR JOINT VENTURE OR OTHER RELATIONSHIP SUBJECTING GRANTOR AND GRANTEE TO JOINT LIABILITY.

 

ARTICLE VII
 WARRANTY AND NEGATIVE COVENANT

 

7.1           Warranty.  Grantor agrees to warrant and forever defend, all and singular, the Net Profits Interest unto Grantee, its successors and assigns, against all persons whomsoever claiming or to claim the same, or any part thereof, by, through or under Grantor, but not otherwise, subject to the Permitted Encumbrances.  Subject to the Net Profits Interest and the Permitted Encumbrances, Grantor further warrants to Grantee that with respect to claims made by, through or under Grantor or its Affiliates, immediately prior to the transfer made pursuant to this Conveyance, with respect to each Subject Well or Subject Lease set forth in Exhibit B, Grantor is

 

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(i) entitled to receive not less than the percentage set forth in Exhibit B hereto as the “Net Revenue Interest” of all Minerals produced, saved and marketed from such Subject Well or Subject Lease to which such “Net Revenue Interest” corresponds without reduction of such interest throughout the duration of the life of such Subject Well or Subject Lease, except as specifically set forth in Exhibit B, and (ii) obligated to bear the percentage of the costs and expenses relating to the maintenance, development and operation of such Subject Well or Subject Lease not greater than the “Working Interest” shown in Exhibit B with respect to such Subject Well or Subject Lease, without increase throughout the duration of the life of such Subject Well or Subject Lease, as applicable, except as specifically set forth in Exhibit B.  Grantor also hereby transfers to Grantee by way of substitution and subrogation (to the fullest extent that same may be transferred), all rights or actions over and against all predecessors (other than Affiliates of Grantor), covenantors or warrantors of title.

 

7.2           Senior Obligation.  Grantor and Grantee acknowledge and agree that the Net Profits Interest is intended to be a real property conveyance and, as such, each agreement, indenture, bond, deed of trust, filing, application or other instrument that creates or purports to create a lien, mortgage, security interest or other charge secured by the Subject Interests, Subject Minerals or the proceeds from the sale of the Subject Minerals or the Existing Hedges that is entered into on or after the date hereof shall be subject to the Net Profits Interest and the Net Profits Interest shall be senior in right of payment and collection to any and all obligations created thereby in respect of the Subject Interests, Subject Minerals or the proceeds from the sale of the Subject Minerals or the Existing Hedges.

 

ARTICLE VIII
 ASSIGNMENT OF PRE-EFFECTIVE TIME PAYMENT

 

8.1           For and in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable consideration (including the issuance by Grantee to Grantor of the Trust Units identified in Article I) to Grantor paid by Grantee, the receipt and sufficiency of which are hereby acknowledged by Grantor, Grantor hereby GRANTS, BARGAINS, SELLS, CONVEYS, TRANSFERS, ASSIGNS, SETS OVER AND DELIVERS unto Grantee, effective as of the Effective Time, an amount, payable by wire transfer of immediately available funds on or before August 1, 2011, equal to the product of the Proceeds Percentage times the Net Profits that would have been payable by Grantor to Grantee pursuant to the terms of this Conveyance for the Production Period Prior to the Effective Time as if the Net Profits Interest had been in existence and this Conveyance had been dated and in effect as of January 1, 2011 (the “Pre-Effective Time Payment”). In no event shall any item of gross proceeds, cost, revenue or other amount used in determining the Pre-Effective Time Payment be duplicated with any such item of gross proceeds, cost, revenue or other amount pursuant to the calculation of Net Profits.

 

ARTICLE IX

MISCELLANEOUS

 

9.1           Notices.  All notices and other communications required or permitted under this Conveyance shall be in writing and, unless otherwise specifically provided, shall be delivered personally, by electronic transmission, by registered or certified mail, postage prepaid, or by delivery service for which a receipt is obtained, to the respective addresses of Grantor and Grantee shown below, and shall be deemed delivered on the date of receipt.  Either party may

 

26

 

specify his proper address or any other post office address within the continental limits of the United States by giving notice to the other party, in the manner provided in this Section, at least fifteen (15) days prior to the effective date of such change of address.  For purposes of notice, the addresses of Grantor and Grantee shall be as follows:

 

If to Grantor:         VOC Brazos Energy Partners, L.P.

c/o Vess Oil Corporation.

1700 Waterfront Parkway, Building 500

Wichita, Kansas 67206

Attention:              Mike Vess

 

If to Grantee:         The Bank of New York Mellon Trust Company, N.A.

919 Congress Avenue, Suite 500

Austin, Texas 78701

Attention:              Michael J. Ulrich

 

9.2           Payments.  Grantor shall transfer or cause to be transferred all monies to which Grantee is entitled hereunder by Federal funds wire transfer not later than the date when due, to Grantee at the bank account specified by Grantee in writing to Grantor.

 

9.3           Amendments.  This Conveyance may not be amended, altered, or modified except pursuant to a written instrument executed by Grantor and Grantee.

 

9.4           Further Assurances.  Grantor and Grantee shall from time to time do and perform such further acts and execute and deliver such further instruments, conveyances, and documents as may be required or reasonably requested by the other party to establish, maintain, or protect the respective rights and remedies of Grantor and Grantee and to carry out and effectuate the intentions and purposes of this Conveyance, provided in each case the same does not conflict with any provision of this Conveyance.

 

9.5           Waivers.  The failure of Grantor or Grantee to insist upon strict performance of any provision hereof shall not constitute a waiver of or estoppel against asserting the right to require such performance in the future, nor shall a waiver or estoppel in any one instance constitute a waiver or estoppel with respect to a later breach of a similar nature or otherwise.

 

9.6           No Partition.  Grantor and Grantee acknowledge that Grantee has no right or interest that would permit Grantee to partition any portion of the Subject Interests, and Grantee hereby waives any such right.

 

9.7           Governing Law.  THIS CONVEYANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THE PROPERTY LAWS OF THE STATE IN WHICH THE SUBJECT INTERESTS ARE LOCATED ARE APPLICABLE.

 

9.8           Rule Against Perpetuities.  It is not the intent of Grantor or Grantee that any provision herein violate any applicable law regarding the rule against perpetuities, the suspension of the absolute power of alienation, or other rules regarding the vesting or duration of estates,

 

27

 

and this Conveyance shall be construed as not violating any such applicable law to the extent the same can be so construed consistent with the intent of the parties.  In the event, however, that any provision hereof is determined to violate any such applicable law, then such provision shall nevertheless be effective for the maximum period (but not longer than the maximum period) permitted by any such applicable law that will result in no violation.  To the extent such maximum period is permitted to be determined by reference to “lives in being”, Grantor and Grantee agree that “lives in being” shall refer to the lifetime of the last to die of the now living lineal descendants of the late Joseph P. Kennedy (father of the late President of the United States of America).

 

9.9           Tax Matters.

 

(a)           Nothing herein contained shall be construed to constitute a partnership or to cause either party hereto (under state law or for tax purposes) to be treated as being the agent of, or in partnership with, the other party.  In addition, the parties hereto intend that the Net Profits Interest conveyed hereby to Grantee shall at all times be treated as (i) an incorporeal (i.e., a non-possessory) interest in real property or land under the laws of the state in which the Subject Interests are located, and (ii) a production payment under Section 636 of the Code, and therefore, for tax purposes, debt, payable out of net profits from the production of Subject Minerals (rather than as a working or any other interest).  The parties hereto intend that the Pre-Effective Time Payment conveyed hereby to Grantee shall at all times prior to Grantor’s payment of the Pre-Effective Time Payment to Grantee, be treated for United States federal income tax purposes as a payment obligation of Grantor separate and apart from the Net Profits Interest.

 

(b)           Grantor and Grantee agree, and by acquisition of an interest in Grantee each holder of an interest in Grantee shall be deemed to have agreed, for United States federal income tax purposes, (1) to treat the Net Profits Interest as indebtedness that is subject to Treasury Regulations Section 1.1275-4 (the “Contingent Debt Regulations”) and, for purposes of the Contingent Debt Regulations, to treat payments received with respect to the Net Profits Interest as contingent payments, and (2) to accrue interest with respect to the Net Profits Interest according to the “noncontingent bond method” set forth in Treasury Regulations Section 1.1275-4(b), using the comparable yield of 9.0% per annum compounded semi-annually.

 

(c)           Grantor and Grantee acknowledge and agree, and by acquisition of an interest in Grantee each holder of an interest in Grantee shall be deemed to have agreed, that (i) the comparable yield and the schedule of projected payments are not determined for any purpose other than for the determination of interest accruals and adjustments thereof in respect of the Net Profits Interest for United States federal income tax purposes and (ii) the comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the amounts payable on the Net Profits Interest.

 

(d)           Grantor may cause to be withheld from any payment hereunder any tax withholding required by law or regulations, including, in the case of any withholding obligation arising from income that does not give rise to any cash or property from which any applicable withholding tax could be satisfied, by way of set off against any subsequent payment of cash or property hereunder.

 

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9.10         Counterparts; Termination.

 

(a)           Multiple counterparts of this Conveyance have been recorded in the counties of the States of Kansas and Texas where the Subject Interests are located.  The counterparts are identical except that, to facilitate recordation, the counterpart recorded in each county may contain property descriptions relating only to the Subject Interests located in that county.  A counterpart of this Conveyance containing all property descriptions of Subject Interests will be filed for record in each of Stafford County, Kansas and Brazos County, Texas.

 

(b)           If any Subject Interests are located in more than one county, the description of such Subject Interests may be included in any one or more counterparts prepared for recordation in separate counties, but the inclusion of the same property description in more than one counterpart of this Conveyance shall not be construed as having effected any cumulative, multiple, or overlapping interest in the Subject Interests in question.

 

(c)           On the Termination Date, Grantee shall, on request, execute, acknowledge and deliver to Grantor a recordable instrument (reasonably acceptable to Grantor) that terminates and releases the Net Profits Interest with respect to the Subject Interests.

 

9.11         Binding Effect.  All the covenants and agreements of Grantor herein contained shall be deemed to be covenants running with Grantor’s interest in the Subject Interests and the lands affected thereby.  All of the provisions hereof shall inure to the benefit of Grantee and its successors and assigns and shall be binding upon Grantor and its successors and assigns and all other owners of the Subject Interests or any part thereof or any interest therein.

 

[Signature page follows]

 

29

 

EXECUTED effective for all purposes as of the Effective Time.

 

	
 
    	
GRANTOR:
    
	
 
    	
 
    	
 
    
	
 
    	
VOC   BRAZOS ENERGY PARTNERS, L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
By:   Vess Texas Partners, LLC, its general partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:  Vess Holding Corporation, its Manager
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   J. Michael Vess
    
	
 
    	
Name:
    	
J.   Michael Vess
    
	
 
    	
Title:
    	
Designated   Representative
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
VOC   KANSAS ENERGY PARTNERS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:  Vess Holding Corporation, its Manager
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   J. Michael Vess
    
	
 
    	
Name:
    	
J.   Michael Vess
    
	
 
    	
Title:
    	
Designated   Representative
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
GRANTEE:
    
	
 
    	
 
    	
 
    
	
 
    	
VOC   ENERGY TRUST
    
	
 
    	
 
    
	
 
    	
By   its Trustee, The Bank of New York Mellon
    
	
 
    	
Trust   Company, N.A.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael J. Ulrich
    
	
 
    	
Name:
    	
Michael   J. Ulrich
    
	
 
    	
Title:
    	
Vice   President
    

 

Acknowledgment Page to Conveyance of Net Profits Interest

 

 

	
STATE   OF KANSAS
    	
§
    	
 
    	
 
    
	
 
    	
§
    	
 
    	
 
    
	
COUNTY   OF SEDGWICK
    	
§
    	
 
    	
 
    

 

BE IT REMEMBERED, THAT I, the undersigned authority, a notary public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, and being authorized in such county and state to take acknowledgments, hereby certify that, on this 10th day of May, 2011, there personally appeared before me J. Michael Vess, Designated Representative of Vess Holding Corporation, the Manager of Vess Texas Partners, LLC, the general partner of VOC Brazos Energy Partners, L.P., a Texas limited partnership, known to me to be such officer, such limited partnership being a party to the foregoing instrument and duly acknowledged the execution of same.

 

IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the City of Wichita, Sedgwick County, Kansas, on the day and year first above written.

 

 

	
 
    	
/s/   Angela R. Coady
    
	
 
    	
Notary   Public in and for
    
	
 
    	
the   State of Kansas
    
	
 
    	
Printed   Name of Notary: Angela R. Coady
    
	
 
    	
Commission   Expires: 11-05-2014
    

 

	
STATE   OF KANSAS
    	
§
    	
 
    	
 
    
	
 
    	
§
    	
 
    	
 
    
	
COUNTY   OF SEDGWICK
    	
§
    	
 
    	
 
    

 

BE IT REMEMBERED, THAT I, the undersigned authority, a notary public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, and being authorized in such county and state to take acknowledgments, hereby certify that, on this 10th day of May, 2011, there personally appeared before me J. Michael Vess, Designated Representative of Vess Holding Corporation, the Manager of VOC Kansas Energy Partners, LLC, a Kansas limited liability company, known to me to be such officer, such limited liability company being a party to the foregoing instrument and duly acknowledged the execution of same.

 

IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the City of Wichita, Sedgwick County, Kansas, on the day and year first above written.

 

 

	
 
    	
/s/   Angela R. Coady
    
	
 
    	
Notary   Public in and for
    
	
 
    	
the   State of Kansas
    
	
 
    	
Printed   Name of Notary: Angela R. Coady
    
	
 
    	
Commission   Expires: 11-05-2014
    

 

31

 

	
STATE   OF TEXAS
    	
§
    	
 
    	
 
    
	
 
    	
§
    	
 
    	
 
    
	
COUNTY   OF TRAVIS
    	
§
    	
 
    	
 
    

 

BE IT REMEMBERED, THAT I, the undersigned authority, a notary public duly qualified, commissioned, sworn and acting in and for the county and state aforesaid, and being authorized in such county and state to take acknowledgments, hereby certify that, on this 5th day of May, 2011, there personally appeared before me Michael J. Ulrich, Vice President of The Bank of New York Mellon Trust Company, N.A., as trustee of VOC Energy Trust, known to me to be such officer of such trustee being a party to the foregoing instrument and duly acknowledged the execution of same.

 

IN WITNESS WHEREOF, I have hereunto set my hand and official seal in the City of Austin, Texas County, Travis, on the day and year first above written.

 

 

	
 
    	
/s/   Sarah Newell
    
	
 
    	
Notary   Public in and for
    
	
 
    	
the   State of Texas
    
	
 
    	
Printed   Name of Notary:
    	
Sarah   Newell
    
	
 
    	
Commission   Expires:
    	
02-16-2014
    

 

32

 

EXHIBIT A

 

LEASES

 

Exhibit A – Page 1

 

EXHIBIT B

 

SUBJECT WELLS/SUBJECT LEASES

 

Exhibit B – Page 1

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