1
EXHIBIT 10.65
AMENDMENT NO. 1
TO
THIRD AMENDED AND RESTATED ACCOUNTS RECEIVABLE MANAGEMENT AND
SECURITY AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment No. 1") is entered into as of October
1, 2000, by and between TransTexas Gas Corporation, a Delaware corporation
("Borrower") and GMAC Commercial Credit LLC ("Lender").
BACKGROUND
Borrower and Lender are parties to a Third Amended and Restated Accounts
Receivable Management and Security Agreement dated as of March 15, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"), pursuant to which Lender provides Borrower with certain
financial accommodations.
Borrower proposes to enter into a Permitted Hedging Transaction with
Southern Company Energy Marketing L.P. ("SCEM"), which Permitted Hedging
Transaction is to be supported by the SCEM Letter of Credit (as defined,
pursuant to the amendment to the credit Agreement effected by this Amendment No.
1, in Section 1(A) of the Credit Agreement as so amended) to be issued, or
arranged for issuance, by Lender. The reimbursement obligations of Borrower
related to the SCEM Letter of Credit shall be secured solely by the SCEM LC
Mortgages (as defined, pursuant to the amendment to the Credit Agreement
effected by this Amendment No. 1, in Section 6(c) of the Credit Agreement as so
amended) on a basis which is subordinate to Borrower's obligations under the Oil
& Gas Credit Facility.
Borrower has requested that Lender issue or arrange for issuance of the
SCEM Letter of Credit and make certain amendments to the Credit Agreement and
Lender is willing to do so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Lender, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Credit Agreement.
2. Amendment to Credit Agreement. Subject to satisfaction of the conditions
precedent set forth in Section 4 below, the Credit Agreement is hereby amended
as follows:
(a) Section 1(A) is amended as follows:
(i) the following defined terms are added in their appropriate
alphabetical order:
2
"Amendment No. 1" means Amendment No. 1 to this Credit Agreement
dated as of October 1, 2000, between Borrower and Lender.
"Amendment No. 1 Effective Date" means the date upon which all of
the conditions precedent set forth in Section 4 of Amendment No. 1
have been satisfied.
"Drilling Production Payment" means a Dollar-Denominated
Production Payment or a Volumetric Production Payment conveyed to a
third party in accordance with the provisions of Sections 6.2 and 6.3
of the Oil & Gas Credit Facility.
"LC Overadvance" means the PV 10 Valuation Amount (as those terms
are defined in the Oil & Gas Credit Facility) of proved Hydrocarbon
Reserves which are subject to the SCEM LC Mortgages (after giving
effect to any proposed disposition, release or subordination of any
Mortgage Collateral) does not exceed 140% of the sum of (v) the
Maximum Loan Amount under the Oil and Gas Credit Facility plus (ii)
the undrawn principal amount of the SCEM Letter of Credit.
"Mortgage" means each mortgage, deed of trust, trust deed, deed
to secure debt, assignment, assignment of production, security
agreement, financing statement or similar document, however styled,
executed by Borrower, or any other person, in favor of Lender for the
purpose of creating or granting a Lien on the property described
therein, to secure all or any part of the Obligations relating to the
SCEM Letter of Credit (but no other portion of the Obligations).
"Mortgage Collateral" means the Real Property, Hydrocarbon
Reserves and other property encumbered by any one or more of the SCEM
LC Mortgages.
"SCEM Hedging Transaction" means the Transaction (as defined in
the SCEM ISDA Agreement) to be effected between SCEM and Borrower
pursuant to the SCEM ISDA Agreement involving a base quantity of not
more than 50,000 MMBtu per day of the aggregate of Borrower's natural
gas production during the period not to exceed twelve months in
duration beginning on or about the date of issuance of the SCEM Letter
of Credit.
"SCEM ISDA Agreement" means the Master Agreement dated as of
October 1, 2000, between SCEM and Borrower, and includes (a) the ISDA
Schedule to the Master Agreement (Multicurrency - Cross Border) of
even date therewith between SCEM and Borrower attached to said Master
Agreement (the "ISDA Schedule), (b) ISDA Credit Support Annex of even
date therewith between SCEM and Borrower annexed to the ISDA Schedule
(the "ISDA Annex"), and (c) Paragraph 13 of even date therewith
attached to the ISDA Annex.
"SCEM Letter of Credit" means that certain Letter of Credit in
the form of Exhibit B issued or arranged for issuance by Lender for
the account of Borrower for the benefit of Southern Company Energy
Marketing L.P. in the face amount
2
3
not to exceed $6,500,000 and with an expiry date not more than
thirteen months after the date of its issuance (and in no event later
than March 14, 2005), and any amendments thereto effecting a reduction
in the face amount thereof.
"SCEM LC Mortgages" has the meaning set forth in Section 6(c).
"SPS" means Southern Producer Services, L.P.
"Subordination Agreement" means the Subordination Agreement dated
as of the date of Amendment No. 1 by and among lender, Trustee and
GMACCC as agent for the lenders under the Oil & Gas Credit Facility.
"TCW/Southern" means SPS, TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P. and TCW DR VI Investment Partnership, L.P., together
with their successors and assigns as owners of the TCW/Southern
Production Payment.
"TCW/Southern Mandatory Offered Xxxxx" means all of the following
xxxxx that are drilled during the period beginning one day prior to
the date hereof and ending on and including March 31, 2001:
(a) each well not already subject to the TCW/Southern
Production Payment that either (i) has a bottom hole location
that is within 1500 feet of any lands and depths that are at such
time subject to the TCW/Southern Production Payment, or (ii)
penetrates a geological reservoir in communication with a zone
either produced or able to be produced from any well that is at
such time subject to the TCW/Southern Production Payment,
provided that with respect to the Xxxxxxxx Xx. 0 Xxx Xxxx xx
Xxxxxxx Xxxxxx, Xxxxx, any TCW/Southern Mandatory Offered Xxxxx
shall be limited to xxxxx located on such unit, and
(b) each other well with its bottom hole location in State
Tracts 308, 329, 330, 331, 332, 351, 352 and 353 in Galveston
County, Texas, the adjacent acreage in the City of San Xxxx,
Texas that was originally made subject to the TCW/Southern
Production Payment, and any other acreage that is now or
hereafter included in any production unit with any of the
foregoing acreage.
References herein to each well described in the foregoing
paragraph (a) shall include the associated drilling unit of at
least 80 acres, and references herein to each well described in
the foregoing paragraph (b) shall include the associated drilling
unit of at least 160 acres.
"TCW/Southern Order" means the Order of the Bankruptcy Court
dated February 2, 2000, in case No. 99-21550-C-11, in the United
States Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division, approving the TCW/Southern Production Payment
Transaction.
3
4
"TCW/Southern Production Payment" means the Drilling
Production Payment conveyed as contemplated by the
TCW/Southern Order and as part of the TCW/Southern Production
Payment Transaction by Borrower to TCW/Southern pursuant to
that certain Production Payment Conveyance dated on or about
the date hereof as from time to time supplemented and amended.
(ii) the defined term "Letter of Credit Liabilities"
is amended by inserting the following parenthetical phrase after the words
"Letter of Credit" in the first line thereof: "(including the SCEM Letter of
Credit)."
(iii) the defined term "Ancillary Agreements" is
amended by inserting the words ", the Mortgages" after the words "any Guaranty"
in the first line thereof.
(iv) the defined term "Availability" is amended by
inserting the following parenthetical phrase after the words "Letter of Credit
Liabilities":
"(exclusive of the undrawn amount of the SCEM
Letter of Credit in calculating Availability
under subsection (y) herein)"
(b) Section 2(c) is hereby amended by inserting the
parenthetical phrase "(exclusive of the undrawn amount of the SCEM Letter of
Credit for purposes of subsection (y) below)" after the words "outstanding
Letter of Credit Liabilities" in the fourth line thereof.
(c) Section 2(j) of the Credit Agreement is hereby amended in
its entirety to read as follows:
"In connection herewith, Borrower has entered into a
letter agreement with the Lender dated the Closing Date Re:
Letter of Credit Financing Supplement to Third Amended and
Restated Accounts Receivable Management and Security Agreement
(the "Letter of Credit Agreement") pursuant to which Lender
agrees to assist the Borrower in obtaining letters of credit
(herein "Letters of Credit") from time to time. The aggregate
Letter of Credit Liabilities in respect of all Letters of
Credit at any time outstanding shall not exceed $10,000,000
(such amount the "Letter of Credit Sublimit"). Without the
prior written consent of Lender, which may be granted or
denied by Lender in any instance in its sole discretion, no
Letter of Credit will have an expiry date of more than 180
days from the date of issuance or an expiry date which is
later than the last day of the Term."
(d) Section 5(b)(iv) of the Credit Agreement is hereby amended
in its entirety to read as follows:
"(iv) Letter of Credit Fee. Borrower shall pay Lender a
fee each month at the rate of (1) one quarter of one percent
(.25 %) per annum times the total amount of the undrawn face
amount of outstanding Letters of Credit (other than the SCEM
Letter of Credit) of Borrower for each day during the prior
month and (2) one half of one percent (.50%) per annum times
the total amount of the undrawn face amount of the SCEM Letter
of Credit for each day during the prior
4
5
month. This fee shall be increased by one sixteenth (1/16) of
one percent per annum for each day in any month in which the
aggregate amount of Revolving Credit Advances plus the
aggregate amount of Letter of Credit Liabilities (other than
the SCEM Letter of Credit) exceeds the Formula Amount or the
Letter of Credit Liabilities exceed the Letter of Credit
Sublimit. Upon the occurrence and during the continuance of an
Event of Default, the applicable letter of credit fee for any
month within such period shall be increased by an additional
one sixth (1/6) of one percent per annum."
(e) Section 6 is hereby amended by inserting new subsections
(c), (d), (e), and (f) in the appropriate order to read in their entirety as
follows:
"(c) SCEM LC Mortgages. Borrower, to secure the prompt
payment to Lender of the Obligations relating to the SCEM
Letter of Credit shall execute and deliver Mortgages, in form
and substance satisfactory to Lender, upon the Real Property
and Hydrocarbon Reserves described on Exhibit A to Amendment
No. 1 (the "SCEM LC Mortgages"). The SCEM LC Mortgages shall
secure all Obligations with respect to the SCEM Letter of
Credit (but shall not secure any other Obligations) and shall
not be subject to any Liens having priority over the Liens of
the SCEM LC Mortgages except Permitted Prior Liens, the Liens
of the M&M Claimants pursuant to Section 6B of the Plan and
the Liens of Agent and the other Lenders under the Oil & Gas
Credit Facility (but only to the extent such Liens do not
cover collateral pledged pursuant to Section 6(a) of this
Agreement). Without limiting the generality of the foregoing,
until such time as the obligations of Borrower under the Oil &
Gas Credit Facility have been paid in full and the Oil & Gas
Credit Facility has terminated, the Liens of the Mortgages
held by Agent and the Lenders under the Oil & Gas Credit
Facility with respect to the property also covered by the SCEM
LC Mortgages (but only to the extent such Liens of Agent and
Lenders under the Oil & Gas Credit Facility do not relate to
Collateral pledged pursuant to Section 6(a) of this
Agreement), shall be senior and superior in priority to the
Liens of the SCEM LC Mortgages.
(d) Disposition of Certain Mortgage Collateral Without
Requesting Release. Borrower or its Subsidiaries may, so long
as an Event of Default shall not have occurred and be
continuing or would exist after giving effect thereto and
without requesting or receiving the consent of Lender (or any
trustee under any of the SCEM LC Mortgages) dispose of
Mortgage Collateral, free from the Lender's security
interests, if and to the extent such disposition is permitted
pursuant to Section 6.2(b) of the Oil & Gas Credit Facility;
provided, however, Borrower shall not dispose of or transfer
any Mortgage if after giving effect thereto an LC Overadvance
shall exist.
(e) Requesting Release of Mortgage Collateral.
(i) Upon receipt of a written request in the form
of an officer's certificate (a "Release Request")
Lender shall execute and deliver, within five Business
Days from the receipt of such
5
6
Release Request, any instruments deemed by Borrower to
be reasonably necessary or reasonably appropriate to
release all or a part of the Mortgage Collateral from
the security interests of Lender, if the provisions of
this Section 6(e) have been complied with. Any such
Release Request shall request Lender to execute one or
more specifically described release instruments (which
release instruments shall accompany such Release
Request) and shall certify (1) that no Event of
Default has occurred and is continuing, (2) that no
Mortgage Collateral shall be disposed of if after
giving effect to such disposition an LC Overadvance
shall exist, and (3) that one of the conditions of
Section 15.2 of the Oil & Gas Credit Facility
(specifying such condition) has been fulfilled, and if
such specified condition is described in Section
15.2(a)(i) of the Oil & Gas Credit Facility, that the
conditions of Section 15.1(a) of the Oil & Gas Credit
Facility, if applicable, have been, or simultaneously
with or immediately following the release will be,
fulfilled.
(ii) At the request of Borrower (or with respect
to releases under the Security Documents, the grantor
of the security interest thereunder), Lender shall, in
lieu of releasing any Mortgage Collateral pursuant to
this Section 6(e), execute and deliver a Subordination
Agreement with respect to such Mortgage Collateral in
form and substance acceptable to Lender.
(f) With Regard to the TCW/Southern Production Payment.
Neither the foregoing provisions nor anything else in this
Agreement or the Ancillary Documents shall be deemed to
prevent Borrower from offering to TCW/Southern, as supplements
and additions to the TCW/Southern Production Payment, any
TCW/Southern Mandatory Offered Xxxxx that Borrower is
obligated to offer pursuant to the terms of the Production
Payment Purchase Agreement on or about the date hereof,
between TCW/Southern and Borrower, and upon request Lender
shall execute such documents as may be necessary to permit any
such TCW/Southern Mandatory Offered Well to be made subject to
the TCW/Southern Production Payment and to confirm that the
interests therein added to the TCW/Southern Production Payment
(but not Borrower's retained interests) are free from any
Liens under the Ancillary Documents. In addition (but not in
limitation of the foregoing), Borrower may make additional
xxxxx and acreage, other than TCW/Southern Mandatory Offered
Xxxxx, subject to the TCW/Southern Production Payment or any
other Drilling Production Payment, provided that:
(i) Borrower shall not, without Lender's consent, so
make subject any proved hydrocarbon reserves that have
been given value in any proved reserves report submitted
by Borrower in connection with any borrowing base
determination under the Oil & Gas Credit Facility.
6
7
(ii) the Indebtedness attributable to any such
Drilling Production Payment, plus all then existing
Indebtedness of Borrower and its Subsidiaries in respect
of other Drilling Production Payments, shall not exceed
the limitations in Section 7.4 of the Oil & Gas Credit
Facility on the maximum amount of Drilling Production
Payment Indebtedness that Borrower can incur, and
(iii) Borrower shall certify to Lender that the
foregoing conditions have been satisfied and that no Event
of Default then exists. Subject to such conditions, Lender
shall upon request execute such documents as may be
necessary to permit the proposed Drilling Production
Payment transaction to be implemented."
(f) A new Section 10A is hereby added to the Credit Agreement
after Section 10 to read in its entirety as follows:
"10A. Representations, Warranties and Covenants Concerning
the SCEM LC Mortgages. Borrower hereby makes all of the
additional representations, warranties and covenants set forth
on Exhibit 10A of this Agreement."
(g) Section 13(g) is hereby amended by inserting the following
immediately after the sixth sentence thereof (i.e., the sentence ending with the
words "in its sole discretion shall determine") and immediately before the
seventh sentence thereof (i.e., the sentence beginning with the words "Any
surplus shall"):
"Notwithstanding the foregoing, and whether or not an
Event of Default exists, Lender will make available to
Borrower insurance proceeds covering properties subject to
the TCW/Southern Production Payment for the purpose of
permitting Borrower to use such funds for the repair of
such properties and Borrower shall use such funds to
diligently repair such properties as promptly as possible.
Subject to the rights of the Agent under the Oil & Gas
Credit Facility, the balance of any proceeds remaining
after application to repair shall be remitted to Lender to
be applied to the Obligations."
(h) The penultimate sentence of Section 20 is hereby amended
in its entirety to read as follows:
"The proceeds of sale shall be applied first to all costs
and expenses of sale, including all reasonable attorneys'
fees, and second to the payment (in whatever order Lender
elects) of all Obligations; provided, however, that no
proceeds of the SCEM LC Mortgages or of any of the
collateral encumbered thereby (which collateral is not
also encumbered pursuant to this Agreement) shall be
applied to repay any Obligations other than Obligations
relating to the SCEM Letter of Credit."
7
8
3. Amendment to Letter of Credit Agreement. Section I (2) (a) of the Letter
of Credit Agreement is hereby amended by inserting the following proviso at the
end thereof but before the semicolon:
"provided, however, with respect to the SCEM Letter of Credit, Borrower
shall pay a fee equal to one half of one percent (.50%) per month on the
undrawn amount thereof, as opened or amended (as to expiration date or
dollar amount), for the entire term of the SCEM Letter of Credit".
4. Conditions of Effectiveness. This Amendment No. 1 shall become effective
upon satisfaction of the following conditions precedent: Lender shall have
received (i) four (4) copies of this Amendment No. 1 executed by Borrower, (ii)
an amendment fee equal to $25,000, which fee shall be charged to Borrower's
account with Lender on the date of Amendment No. 1, (iii) executed SCEM LC
Mortgages in recordable form and in form and substance satisfactory to Lender,
(iv) executed UCC-1 financing statements in form and substance satisfactory to
Lender necessary to perfect Lender's Lien upon the assets subject to the
Mortgage, (v) a counterpart of the First Amendment to Gas and Natural Gas
Liquids Purchase Agreement dated as of October 1, 2000, between Borrower and
SPS, and joined in by SCEM, in form and substance satisfactory to Lender (the
"First Amendment"), covering SPS's right to offset against payables owing to
Borrower by SPS under the Gas and Natural Gas Liquids Purchase Agreement dated
as of March 14, 2000, between Borrower and SPS (the "Gas Purchase Agreement"),
amounts owing by Borrower to SCEM under the SCEM ISDA Agreement, with Lender's
execution of this Amendment No. 1 being evidence of its consent to Borrower's
execution of the First Amendment for the purpose of amending the Gas Purchase
Agreement to implement the offset provisions contained in the First Amendment,
(vi) an opinion of counsel from Gardere & Xxxxx in form and substance
satisfactory to Lender, (vii) subordination agreement with the Trustee under the
Indenture in form and substance satisfactory to Lender and (viii) and such other
certificates, instruments, documents and agreements as may be required by Lender
or its counsel, each of which shall be in form and substance satisfactory to
Lender and its counsel.
5. Representations and Warranties. Borrower hereby represents and warrants
as follows:
(a) This Amendment No. 1 and the Credit Agreement, as amended hereby,
constitute legal, valid and binding obligations of Borrower and are enforceable
against Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment No. 1, Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement to the extent the same are not amended hereby and agree that all such
covenants, representations and warranties shall be deemed to have been remade as
of the effective date of this Amendment No. 1.
(c) No Event of Default or Default has occurred and is continuing or
would exist after giving effect to this Amendment No. 1.
8
9
(d) Borrower has no defense, counterclaim or offset with respect to the
Credit Agreement.
(e) Borrower represents and warrants that the proposed SCEM Hedging
Transaction and the issuance of the SCEM Letter of Credit in connection
therewith constitute a "Permitted Hedging Transaction" within the meaning of
this Agreement and the Indenture.
6. Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended herein, the Credit Agreement, and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment No. 1
shall not operate as a waiver of any right, power or remedy of Lender, nor
constitute a waiver of any provision of the Credit Agreement, or any other
documents, instruments or agreements executed and/or delivered under or in
connection therewith.
7. Governing Law. This Amendment No. 1 shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
and shall be governed by and construed in accordance with the laws of the State
of New York.
8. Headings. Section headings in this Amendment No. 1 are included herein
for convenience of reference only and shall not constitute a part of this
Amendment No. 1 for any other purpose.
9. Counterparts; Facsimile. This Amendment No. 1 may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed an
original and all of which when taken together shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
9
10
IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed as of the
day and year first written above.
TRANSTEXAS GAS CORPORATION
By:
--------------------------------------
Name:
Title:
GMAC COMMERCIAL CREDIT LLC
By:
--------------------------------------
Name:
Title:
10
11
EXHIBIT 10A
All defined terms herein not otherwise defined in the Agreement or in the
Oil & Gas Credit Facility shall have the meanings ascribed thereto in the
Mortgages.
A. Representations and Warranties. Borrower hereby warrants and represents,
as of the date hereof, as follows:
1. Leases. With respect to Leases covering all xxxxx and Lands to
which value has been ascribed in that certain reserve report prepared as of
July 1, 2000, by Netherland Xxxxxx & Associates, LLC (the "Netherland
Reserve Report") and which are included in the Mortgage Collateral: (a) the
Leases are valid, subsisting leases as to all such xxxxx and Lands, and are
superior and paramount to all other Oil and Gas Leases respecting the
properties to which they pertain and all rentals, royalties and other
amounts due and payable in accordance with the terms of the Leases have
been duly paid or provided for; (b) the Leases are in full force and
effect; and (c) except as disclosed in writing by Borrower to Lender,
Borrower, and to the best of Borrower's knowledge all other parties to the
Leases, have performed in all material respects all obligations required to
be performed by them and are not in material default under nor in receipt
of any claim of material default under any Lease, and no event has occurred
which, with the passage of time or the giving of notice or both, would
cause a material breach of, or default under, any Lease, and Borrower has
no knowledge of any material breach or anticipated breach by the other
parties to any Lease.
2. Documents. Each of the existing Material Production Sale Contracts
is valid, binding and enforceable in accordance with its respective terms
(except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or moratorium or other similar laws relating to
creditor's rights and by general equitable principles which may limit the
right to obtain equitable remedies (regardless of whether such
enforceability is considered in a proceeding at equity or at law), and
except as rights to indemnity thereunder may be limited by applicable law)
and is in full force and effect, and no material default on the part of any
party thereto exists thereunder. To the best knowledge of Borrower, all
amounts due and payable in accordance with the terms of each Material
Production Sale Contract have been duly paid or provided for and the
obligations to be performed under each of the Material Production Sale
Contracts have been duly performed, in all material respects in accordance
with the terms of such contracts and any related agreements, and in
conformity with all applicable laws, rules, regulations and orders of all
courts and regulatory authorities having jurisdiction.
3. Title. Except for Permitted Liens, Borrower has (a) good and
indefeasible title to, and is possessed of, the portion of the Mortgage
Collateral constituting the leasehold estates under the Leases referred to
in A1 above (b) good and marketable title to the portion of the Mortgage
Collateral constituting Pipeline Assets or other personal property for the
use and operation of such Pipeline Assets as it has been used in the past
and as it is proposed to be used in the business of storing and
transporting Hydrocarbons and other products and any lack of title to such
Pipeline Assets or personal property related thereto has not had and will
not have any material adverse effect on Borrower's
11
12
ability to use the Pipeline Assets and related personal property as it is
proposed to be used in Borrower's business and will not materially increase
the cost of such use, and (c) good title to the portion of the Mortgage
Collateral constituting personal property that is not described in the
foregoing clause (b). Borrower owns, in the aggregate, not more than the
amount of undivided working interests and not less than the amount of net
revenue interests in the Leases set forth in the Netherland Reserve Report.
For purposes of this Paragraph (c), "working interest" shall refer to
Borrower's share of expense in the applicable Lease, well or drilling and
production unit shown in the Netherland Reserve Report, and "net revenue
interest" shall refer to Borrower's share of production from the applicable
Lease, well or drilling and production unit after satisfaction of all
royalties, overriding royalties, production payments or similar
non-operating interests. Each of the Material Production Sale Contracts is
free from any material credit, deduction, allowance, defense, dispute,
setoff, or counterclaim (other than current charges provided for in such
instruments but not yet due and payable), and there is no material
extension or indulgence with respect thereto. Borrower is not aware of any
defect in or challenge to its ownership of the rights or other interests in
any of the Mortgage Collateral that would, individually or in the
aggregate, materially lessen the value of the Mortgage Collateral for its
use as part of the Pipeline Assets or materially interfere with the
ordinary conduct of the business of Borrower or the use of the Mortgage
Collateral for the purposes for which held, except as expressly disclosed
to Lender in writing.
4. Contracts. Borrower is not obligated by virtue of any prepayment
under any Production Sale Contract, balancing agreement or other similar
contract providing for the sale by Borrower of Hydrocarbons, helium and/or
other minerals, which contains a "take or pay" clause or under any similar
prepayment agreement or arrangement, including, without limitation, "gas
balancing agreements" to deliver Hydrocarbons, helium and/or other minerals
(amounting to a material portion of the Hydrocarbons, helium and/or other
minerals covered hereby) at some future time without then or thereafter
receiving full payment therefor.
5. Producing Xxxxx. All producing xxxxx located on the Lands have been
drilled, operated and produced in conformity in all material respects with
all applicable laws, rules, regulations and orders of all regulatory
authorities having jurisdiction and are subject to no material penalties on
account of past production, and such xxxxx are, in fact, bottomed under and
are producing from, and the well bores are wholly within, the Lands.
6. Pipelines and Pipeline Assets. All Pipelines and Pipeline Assets
have been constructed and operated in conformity in all material respects
with all applicable laws, rules, regulations and orders of all regulatory
authorities having jurisdiction and, except as expressly disclosed in
writing to Lender, are subject to no material penalties on account of past
operations.
B. Particular Covenants and Agreements of Borrower. Borrower hereby
covenants to Lender as follows:
12
13
1. Operation of Mortgage Collateral. So long as the Obligations or any
part thereof remains unpaid, and whether or not Borrower is the operator of
the Mortgage Collateral, Borrower shall, at Borrower's own expense:
(a) do all things necessary to keep unimpaired Borrower's rights
and remedies in or under the Mortgage Collateral and, except as
otherwise permitted in this Agreement or in the Oil & Gas Credit
Facility, shall (i) not abandon any well or forfeit, surrender,
release or default under (other than any abandonment, forfeiture,
surrender, release or default that, individually or in the aggregate
with all other such defaults, would not have a Material Adverse
Effect) any Lease to which value has been ascribed in the Proved
Reserve Report, or in the event Borrower is not the operator, shall
use commercially reasonable efforts to prevent any of the above,
unless undertaken in the ordinary course of business, (ii) enter into
or otherwise acquire obligations under Production Sale Contracts (as
defined in the Mortgages) only on terms and conditions to which a
reasonably prudent producer, seller, purchaser, or processor, as
applicable, of Subject Minerals, would agree, and (iii) not abandon,
sell, convey, assign, lease or otherwise transfer any right, title or
interest of Borrower into or under the Pipelines or the Pipeline
Assets, or consent to any of the foregoing, except as permitted in
Section 6.2 of the Oil & Gas Credit Facility;
(b) except as otherwise permitted in this Agreement or in the Oil
& Gas Credit Facility, perform or cause to be performed, each and all
covenants, agreements, terms, conditions and limitations imposed upon
Borrower or its predecessors in interest (except where any failure to
so perform or cause to be performed, individually or in the aggregate
with all other such failures, would not have a Material Adverse
Effect) and expressly contained in (i) the Leases and any instrument
or document relating thereto, and (ii) any assignment or other form of
conveyance, under or through which the Leases, the Pipelines, Pipeline
Assets, Lands, or Rights-of-Way and Franchises, or an undivided
interest therein are now held, and perform or cause to be performed
all implied covenants and obligations imposed upon Borrower in
connection therewith or with any document or instrument relating
thereto;
(c) cause, or in the event Borrower is not the operator of the
Subject Interests or the Pipeline Assets, use commercially reasonable
efforts to cause, the Subject Interests and the Pipeline Assets to be
maintained, developed, protected against drainage, and continuously
operated for the production of Hydrocarbons, helium and/or other
minerals, and the gathering, storing, transmission and distribution of
Hydrocarbons, as applicable, in a good and workmanlike manner as would
be operated by a prudent operator and in compliance in all material
respects with all applicable operating agreements and contracts, and
all applicable federal, state and local laws, rules and regulations,
excepting those being contested in good faith in such a manner as not
to jeopardize Lender's rights in and to the Subject Interests or the
Pipeline Assets, as applicable;
13
14
(d) except as otherwise permitted in this Agreement or in the Oil
& Gas Credit Facility, cause to be paid, promptly as and when due and
payable, except where the failure to make any such payments would not,
individually or in the aggregate, have a Material Adverse Effect, all
rentals, delay rentals, royalties and Obligations payable in respect
of the Subject Interests, and all expenses incurred in or arising from
the operation or development of the Subject Interests, or, in the
event Borrower is not the operator, shall use its best efforts to
cause each of the foregoing to be paid;
(e) cause the Equipment necessary for the Borrower's business
operations to be kept in good and effective operating condition
(reasonable wear and tear excepted) and all repairs, renewals,
replacements, additions and improvements thereof or thereto, needful
to the production of the Subject Minerals, to be promptly made;
(f) except as otherwise permitted in this Agreement or in the Oil
& Gas Credit Facility, cause the Pipelines to be kept in good and
effective operating condition (reasonable wear and tear excepted), and
all repairs, renewals, replacements, additions and improvements
thereof or thereto, necessary to the gathering, storing, transmission
and distribution of Hydrocarbons through the Pipelines, to be promptly
made;
(g) deliver, or cause to be delivered, to Lender a copy of any
notice, demand or other communication from any other party to any
material Leases or any material Production Sale Contract, relating to
any alleged, potential or actual material breach thereunder or
material breach of any of the covenants, agreements, terms, or
limitations thereof or purporting to terminate or in any other way
adversely affect the rights of Borrower thereunder.
2. Recording, Etc. Borrower will promptly and at Borrower's expense
record, register, deposit and file this and every other instrument in
addition or supplemental hereto in such offices and places and at such
times and as often as may be necessary to perfect, preserve, protect and
renew the lien and security interest hereof as a recorded lien on the real
property and fixtures now or hereafter comprising the Mortgage Collateral
and perfected security interest on the personal property and fixtures now
or hereafter comprising the Mortgage Collateral, as the case may be and the
rights and remedies of the Lender hereunder, and otherwise will do and
perform all matters or things necessary or expedient to be done or observed
by reason of any law or regulation of the State of Texas or of the United
States of America or any other state of the United States or of any other
competent authority, for the purpose of effectively creating, maintaining
and preserving the lien and security interest created by this Agreement and
the Mortgages and the perfection and priority thereof.
3. Records, Statements and Reports. Borrower will keep proper books of
record and account in which complete and correct entries will be made of
Borrower's transactions in accordance with GAAP consistently applied.
14
15
4. Further Assurances. Borrower will execute and deliver such other
and further instruments and will use its best efforts to do such other and
further acts as in the opinion of Lender may be necessary or desirable to
carry out more effectively the purposes of the Mortgages, including,
without limiting the generality of the foregoing, (a) prompt correction of
any defect which may hereafter be discovered in the title to the Mortgage
Collateral or any part thereof other than Permitted Liens or in the
execution and acknowledgment of the Mortgages, the Notes or other document
executed in connection herewith or therewith, (b) prompt execution and
delivery of all division or transfer orders that in the opinion of the
Lender are needed to transfer effectively to Lender the assigned proceeds
of production from the Subject Interests, (c) obtaining any necessary
governmental approvals, including, without limitation, those of the State
of Texas and (d) prompt execution of any supplements or amendments to this
Agreement for purposes of memorializing the encumbrance of any after
acquired property.
5. Adverse Claim. Borrower will warrant and forever defend, subject to
the Permitted Liens, the title to the Mortgage Collateral unto the Lender
against every Person whomsoever lawfully claiming the same or any part
thereof. Should an adverse claim be made against or a cloud develop upon
the title to any part of the Mortgage Collateral, other than Permitted
Liens, or upon the lien and security interest created by the Mortgage,
Borrower agrees that it will immediately defend such adverse claim or take
appropriate action to remove such cloud at Borrower's expense, and Borrower
further agrees that after prior notice to Borrower, Lender may take such
other action as it deems advisable to protect and preserve their interests
in the Mortgage Collateral, and, in such event, Borrower will indemnify
Lender against any and all costs, attorneys' fees and other expenses which
it or they may incur in defending against any such adverse claim or taking
action to remove any such cloud.
6. Notice of Pooling or Unitization. Except as otherwise provided in
the Mortgages hereof, Borrower will promptly notify Lender in writing upon
the first filing of any petition or request with any governmental or
regulatory agency regarding any pooling or unitization arrangement
pertaining to the Mortgage Collateral or any part thereof, and any pooling
or unitization arrangement which is imposed or which Borrower learns may be
imposed on the Mortgage Collateral or any part thereof, which would cause
Borrower to suffer a significant reduction in income on a monthly basis
from the Mortgage Collateral.
7. Compliance with Operating Agreements. Borrower agrees to promptly
pay all bills for labor and materials incurred in the operation of the
Mortgage Collateral and will promptly pay its share of all costs and
expenses incurred under any joint operating agreement affecting the
Mortgage Collateral or any portion thereof (except for those amounts being
disputed in good faith and for which adequate reserves have been made);
will furnish Lender, as and when requested, full information as to the
status of any joint account maintained with others under any such operating
agreement; will not take any action to incur any liability or lien
thereunder.
8. Evidence of Title. Promptly upon receipt of a written request from
Lender, Borrower will furnish and deliver, at the election of Lender ,
either (a) complete
15
16
or supplemental abstracts of title, as the case may be, prepared by
competent abstractors, or (b) title opinions prepared by competent legal
counsel and, in either event, covering title to property described in the
most recent Proved Reserve Report delivered under the Oil and Gas Credit
Facility from the sovereignty of the soil to the latest practicable date,
when taken together with abstracts and/or title opinions previously
furnished to Lender by Borrower. Should Borrower fail to furnish such
abstracts upon such request, Lender may obtain such abstracts, and any and
all costs incurred thereby shall be payable by Borrower to Lender upon
demand at the principal offices of Lender. The abstracts shall be and
constitute a part of the Mortgage Collateral as defined above.
9. Notification of Legal Proceedings. Borrower will notify Lender
promptly and in writing of the commencement of any legal material
proceedings affecting the Mortgage Collateral or any part thereof, and will
take such action as may be necessary to preserve the rights of Borrower,
the Lender affected thereby; and should Borrower fail or refuse to take any
such action, Lender may at its election take such action on behalf and in
the name and at the cost and expense of Borrower.
10. Transfer or Division Orders. Upon written request of Lender,
Borrower will execute and deliver written notices of assignments to any
persons, corporations or other entities owing or which may in the future
owe to Borrower monies or accounts arising in connection with (a) any oil,
gas or mineral production from all or any portion of the Mortgage
Collateral; (b) any gas contracts, processing contracts or other contracts
relating to all or any portion of the Mortgage Collateral; or (c) the
operation of or production from all or any portion of the Mortgage
Collateral. The notices of assignments shall advise the third parties that
all of the monies or accounts described above have been assigned to Lender,
and if required by Lender, shall also require and direct that future
payments thereof, including amounts then owing and unpaid, be paid directly
to Lender.
11. Performance of Gas Contracts. Borrower will perform and observe in
all material respects all of its obligations under each contract relating
to the sale of gas produced from or attributable to the Mortgage Collateral
except where the failure to do so could not have a Material Adverse Effect.
12. Borrower Holds as Nominee. In the event that the Lender forecloses
or attempts to foreclose on the Mortgage Collateral, but such foreclosure
will not become effective as to some or all of the Mortgage Collateral
unless and until the consent of a third party is obtained, then Borrower
agrees to hold title to such portion of the Mortgage Collateral as nominee
for Lender or any other party who would have acquired such Mortgage
Collateral at foreclosure until such time as the necessary consents are
obtained. In acting as nominee, Borrower shall take such acts, and only
such acts, with respect to the Mortgage Collateral as Lender or any other
party who would have acquired the same may direct and the beneficial
interest under such Mortgage Collateral shall run to Lender or such other
party. Borrower shall enter into a nominee agreement in form and substance
satisfactory to Lender or such other party and execute any other documents
or agreements reasonably necessary to effectuate the provisions of this
section.
16
