EXHIBIT T3E(9)
FORM OF
COLLATERAL TRUST AND INTERCREDITOR AGREEMENT
AMONG
SOUTHWEST ROYALTIES, INC.
AND ITS SUBSIDIARIES,
AS DEBTORS,
UNION BANK OF CALIFORNIA, N.A.
AS AGENT FOR THE SENIOR LENDERS
UNDER THE CREDIT AGREEMENT,
The Senior Lenders
from Time to Time Parties to the Credit Agreement,
WILMINGTON TRUST COMPANY,
AS INDENTURE TRUSTEE
UNDER THE INDENTURE,
The Subordinated Noteholders,
AND
UNION BANK OF CALIFORNIA, N.A.,
AS COLLATERAL TRUSTEE
Dated as of _____________ ___, 2002
COLLATERAL TRUST AND INTERCREDITOR AGREEMENT
THIS COLLATERAL TRUST AND INTERCREDITOR AGREEMENT, dated as of
___________ ___, 2002 (this "Agreement"), is made and entered into by and among
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SOUTHWEST ROYALTIES, INC., a Delaware corporation (the "Company"), BLUE HEEL
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COMPANY, a Delaware Corporation ("Blue Heel", together with the Company and all
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of the Company's now existing and future Subsidiaries, the "Debtors"),
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WILMINGTON TRUST COMPANY, as Trustee (the "Indenture Trustee") for itself and
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the holders from time to time of those certain notes issued by the Company
pursuant to the Indenture (as defined below) (the "Subordinated Noteholders"),
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UNION BANK OF CALIFORNIA, as Agent (the "Senior Loan Agent") for itself and the
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lenders signatory to the Credit Agreement from time to time (as defined below)
(the "Senior Lenders"), and UNION BANK OF CALIFORNIA, as Collateral Trustee
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hereunder (the "Collateral Trustee").
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W I T N E S S E T H:
WHEREAS, the Debtors, the Senior Loan Agent and the Senior Lenders are
parties to that certain Credit Agreement, dated as of even date herewith,
pursuant to which the Senior Lenders have made various credit facilities
available to the Company in an aggregate maximum amount of up to $80,000,000;
WHEREAS, the Debtors and the Indenture Trustee are parties to that certain
Indenture, dated as of an even date herewith, pursuant to which the Company
issued $60,000,000 of senior secured notes due 2004 to the Subordinated
Noteholders;
WHEREAS, in order to secure repayment of the obligations of the Company to
the Senior Lenders under the Credit Agreement and to the Subordinated
Noteholders under the Indenture, the Debtors have granted to the Collateral
Trustee, as collateral trustee for the benefit of both the Senior Lenders and
the Subordinated Noteholders, liens on and security interests in substantially
all of the Debtors' assets pursuant to various Security Documents (as defined
below); and
WHEREAS, the parties hereto now wish to set forth various agreements
regarding, among other things, their relative rights in and obligations with
respect to the Collateral (as defined below).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and incorporating the foregoing
recitals herein, the parties hereto agree as follows.
ARTICLE 1. DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following
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terms shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
Bankruptcy Code: shall mean Title 11 of the United States Code, as
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amended from time to time.
Class of Master Debt: shall mean any related class of Master Debt
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under any Master Debt Agreement. All loans and other obligations
outstanding under any syndicated bank credit agreement shall constitute one
Class of Master Debt.
Collateral: shall mean all property of any kind or description in
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which the Collateral Trustee has, or purports to have, a Lien or other
interest under any Security Document including, without limitation, the
Collateral Account Collateral and all Proceeds of Collateral, but excluding
any property set forth on Schedule 2.
Collateral Account: shall have the meaning specified in Section
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4.4(a).
Collateral Account Collateral: shall have the meaning specified in
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Section 4.4(a).
Collateral Trustee: shall mean Union Bank of California, N.A., in its
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capacity as Collateral Trustee and any successor appointed pursuant to
Section 5.5 or Section 8.9 of this Agreement.
Company: shall mean Southwest Royalties, Inc., a Delaware corporation,
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its successors and assigns.
Credit Agreement: shall mean that certain Credit Agreement dated as of
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_______, 2002, among the Company, the Senior Loan Agent and the Senior
Lenders governing the creation, repayment and all other aspects of the
Senior Debt.
Debtors: shall have the meaning set forth in the introductory
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paragraph of this Agreement.
Distribution Date: shall mean each date for the distribution of
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amounts on deposit in the Collateral Account.
Event of Default: shall mean any default or event of default, however
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denominated, under any Master Debt Agreement which is continuing after the
expiration of any and all grace or notice and cure periods provided for
under the applicable Master Debt Agreement with respect to any such default
or event of default.
Indenture means that certain Indenture dated _________, 2002, as the
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same may from time to time be amended, between the Company and the
Indenture Trustee and pursuant to which the Subordinated Notes were issued.
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Indenture Trustee: shall mean Wilmington Trust Company, in its
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capacity as trustee under the Indenture, and any successor trustee under
the Indenture.
Initial Closing Date: shall mean the earliest date on which an initial
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extension of credit is provided for under the Credit Agreement or the
Indenture becomes effective.
Lien: shall mean any mortgage, pledge, hypothecation, assignment,
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deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including any conditional sale or other title
retention agreement, any capital lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or comparable law of any jurisdiction in respect of
any of the foregoing).
Master Debt: shall mean as of any date, the principal amount of
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indebtedness under the Master Debt Agreements, whether outstanding or
available pursuant to the terms of such Master Debt Agreement (whether or
not conditions precedent thereto are then not met or about to be met), all
accrued but unpaid interest thereon, all premium, if any, due in connection
therewith, all fees due in connection therewith, all reimbursement
obligations thereunder, all cash collateralization obligations thereunder,
all hedging obligations thereunder, and all other unpaid obligations and
liabilities thereunder, excluding, however, any amounts owing under any
Master Debt Agreement to which any restriction contained in this Agreement
on the increase of such indebtedness would apply. Amounts available under
any Master Debt Agreement includes amounts available to be drawn on Letters
of Credit permitted to be issued under the terms of the relevant Master
Debt Agreement if the conditions precedent thereof specified in such
agreement are met (even if they are not then met or about to be met).
Master Debt Agreements: shall mean the Credit Agreement and the
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Indenture.
Master Debt Outstanding: shall mean, at any time, the outstanding
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amount of Master Debt and, with respect to letters of credit, the
outstanding face amount of such letters of credit outstanding.
Noteholders: shall mean the Senior Lenders and the Subordinated
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Noteholders, and their respective assignees.
Note Interest shall have the meaning specified in Section 6.2 hereof.
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Notice of Event of Default: shall mean a written certification
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delivered in accordance with Section 4.2(b) hereof certifying that an Event
of Default has occurred and is continuing.
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Permitted Investment: shall mean investments in (a) direct obligations
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of the United States, or any Person for which investments are guaranteed by
the full faith and credit of the United States, maturing in twelve months
or less from the date of acquisition thereof, including repurchase
agreements entered into with banks or trust companies described in clause
(c) below having a term of less than one year and fully collateralized by
such obligations; (b) commercial paper and bankers' acceptances maturing in
twelve months or less from the date of issuance and which, at the time of
acquisition, are rated A-2 or better by Standard & Poor's Corporation and
P-2 or better by Xxxxx'x Investors Services, Inc; (c) time deposits or
certificates of deposit maturing within one year from the date such
investment is made and issued by a bank or trust company or any branch of
any Noteholder, which bank, trust company or branch is organized under the
laws of the United States or any state thereof having capital, surplus, and
undivided profits aggregating at least $250,000,000 and whose long-term
certificates of deposit are, at the time of acquisition thereof, rated A-2
by Standard & Poor's Corporation or P-2 by Xxxxx'x Investors Services,
Inc.; and (d) investments in money market funds which invest solely in the
types of investments described in paragraphs (a) through (c) above.
Person: shall mean a corporation, business trust, joint stock company,
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trust, joint venture, association, partnership, limited liability company,
organization, business, individual, government or political subdivision
thereof, governmental agency, or other entity of whatever nature.
Potential Default: shall mean any event which with notice or lapse of
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time, or both, would become an Event of Default.
Proceeds: shall mean all "proceeds" as such term is defined in Section
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9-102 of the UCC and all present and future proceeds of any Collateral,
whether arising from the collection, sale, lease, exchange, assignment,
licensing, or other disposition of the Collateral, the proceeds of any
casualty or condemnation of the Collateral (including proceeds of property
insurance and condemnation awards), all claims of the Company or any of its
Subsidiaries against third parties for impairment, loss, damage, or
impairment of the value of the Collateral, and all rights of the Company or
any of its Subsidiaries under any insurance, indemnity, warranty, or
guaranty of or for any of the foregoing, whether such proceeds are
represented as money, deposit accounts, accounts, general intangibles,
securities, instruments, documents, chattel paper, inventory, equipment,
fixtures, goods, or otherwise, and all proceeds of such proceeds.
Release Notice: shall mean a written notice, signed by a Responsible
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Officer of the Company, which requests the release of Liens held by the
Collateral Trustee in the specific items of Collateral specified in such
notice, and which certifies to the Collateral Trustee that such Collateral
is properly permitted to be disposed of in a transaction contemplated and
permitted under each Master Debt Agreement.
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Required Majority: shall mean, with respect to any determination in
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question, any Class or Classes of Master Debt which have the Required
Percentage of each such Class of Master Debt agreeing upon such
determination and which Class or Classes of Master Debt hold more than 50%
of the aggregate amount of Master Debt Outstanding.
Required Percentage: shall mean, with respect to any Class of Master
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Debt and with respect to any determination in question, the percentage or
number of the holder or holders of such Class of Master Debt required to
make such determination under the terms of the Master Debt Agreement under
which such Class of Master Debt was issued (but if no such percentage or
number is specified under the terms of such Master Debt Agreement, then the
holder or holders of more than 50% of the Master Debt Outstanding with
respect to such Class of Master Debt).
Required Plurality: shall mean, with respect to any determination in
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question, (a) the Senior Debt provided that the Required Percentage of such
Senior Debt agrees upon such determination or (b) the Subordinated Debt
provided that the Required Percentage of such Subordinated Debt agrees upon
such determination.
Responsible Officer: shall mean, with respect to any Debtor, the chief
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executive officer, president, executive vice president, chief financial
officer, treasurer, or secretary of the applicable Debtor.
Secured Obligations: shall mean (a) all Master Debt and (b) all
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amounts payable by the Debtors to the Collateral Trustee under the Security
Documents.
Security Documents: shall mean this Agreement and all deeds of trust,
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mortgages, security agreements, pledge agreements, financing statements,
pledges, documents, and other instruments listed on Schedule 1 attached
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hereto, and all future deeds of trust, mortgages, security agreements,
pledge agreements, financing statements, pledges, documents, and other
instruments made by any Debtor in favor of the Collateral Trustee granting
interests in and to the Trust Estate.
Senior Debt: shall mean the Master Debt payable pursuant to the Credit
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Agreement.
Senior Lenders: shall have the meaning set forth in the introductory
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paragraph of this Agreement.
Senior Loan Agent: shall mean Union Bank of California, in its
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capacity as Agent under the Credit Agreement, and any successor Agent under
the Credit Agreement.
Stated Maturity Date: shall mean the maturity of the Subordinated Debt
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as provided for in the Indenture as in effect on the Initial Closing Date.
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Subordinated Debt: shall mean the Master Debt evidenced by the
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Subordinated Notes and otherwise payable under the Indenture.
Subordinated Notes: shall mean those certain notes issued by the
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Company pursuant to the Indenture.
Subordinated Noteholders: shall mean those Persons who, at the
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relevant time, are the holders of the Subordinated Notes.
Subordination Event shall mean the occurrence of an Event of Default
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under the Credit Agreement or the non-payment of any Note Interest
(notwithstanding the existence of any cure period stated in the Indenture
for such non-payment), notification of which event has been delivered in
accordance with Section 6.2 hereof.
Subsidiary: shall mean, with respect to any specified Person, any
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other Person of which, at the time of determination, such specified Person,
directly and/or indirectly through one or more other Persons, owns more
than 50% of the voting interests. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Company.
Trust Estate: shall mean all right, title, and interest of the Debtors
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in the Collateral granted to the Collateral Trustee by the Security
Documents and all rights of the Collateral Trustee thereunder.
UCC: shall mean the Uniform Commercial Code as adopted from time to
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time in the State of Texas.
Withdrawal Notice: shall have the meaning specified in Section 4.2(b)
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hereof.
ARTICLE 2. COLLATERAL TRUST
2.1 Creation of Collateral Trust. In order to provide for the perfection
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and maintenance of all Liens granted under and the enforcement of the various
rights and remedies set forth in the Security Documents, and to set forth the
relative rights of the Noteholders with regard to the Collateral as set forth
herein, the Noteholders hereby appoint Union Bank of California, N.A., as the
Collateral Trustee under this Agreement and the other Security Documents, and
the Collateral Trustee hereby accepts its appointment subject to the terms and
conditions of this Agreement and the Security Documents. Each Debtor hereby
reaffirms and confirms the grant of the Trust Estate in favor of the Collateral
Trustee in accordance with the terms of the Security Documents and for the
ratable benefit of the Noteholders as set forth herein.
2.2 Possession and Use of Collateral. So long as no Event of Default
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exists, each Debtor shall have the right to remain in possession and retain
control of the Collateral (other than
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the Collateral Account Collateral and any Collateral for which applicable law
requires that Liens on such Collateral be perfected by control or possession) in
accordance with the terms of the Security Documents.
2.3 Addition of Collateral to the Trust Estate. At any time, any Debtor
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and the Collateral Trustee may enter into one or more Security Documents, in
form reasonably satisfactory to the Collateral Trustee to: (a) supplement or add
to the covenants of such Debtor for the benefit of all Noteholders or to
surrender any right or power conferred upon the Debtors; (b) unless prohibited
by any agreement to which such Debtor is party, mortgage or pledge to the
Collateral Trustee, or grant a security interest in favor of the Collateral
Trustee in, any property or assets as additional security for the Secured
Obligations; or (c) cure any ambiguity, correct or supplement any provision
herein or in any Security Document which may be defective or inconsistent with
any other provision herein or therein, or make any other provision with respect
to matters or questions arising hereunder which shall not be inconsistent with
any provision hereof. The Collateral Trustee, the Senior Loan Agent, the
Indenture Trustee and the Noteholders agree that the forms of Security Documents
outstanding on the date of the execution of this Agreement are satisfactory to
such parties. The Company will deliver or cause to be delivered to the
Collateral Trustee, promptly upon the execution and delivery thereof, executed
counterparts of all Security Documents and all amendments and supplements
thereto. The Collateral Trustee shall keep all Security Documents held by it at
the principal corporate office of the Collateral Trustee and shall permit any
Noteholder or the representative thereof to inspect the same upon reasonable
request.
2.4 Releases of Collateral. In connection with the proposed sale,
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assignment, transfer, or other disposition of any Collateral by any Debtor (an
"Asset Sale"), the Company, on behalf of such selling Debtor, shall deliver a
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Release Notice to the Collateral Trustee, the Senior Loan Agent and the
Indenture Trustee. If, within ten (10) days after the delivery of such Release
Notice, the Collateral Trustee shall not have received a written objection from
either the Senior Loan Agent or the Indenture Trustee stating that the selling
Debtor is not entitled under the terms of the Credit Agreement or the Indenture,
as the case may be, to obtain the release of the Collateral specified in the
Release Notice, then the Collateral Trustee shall provide for the release of the
Liens with respect to such Collateral to the extent required by the Company in
the Release Notice, provided, however, that the effective delivery of any
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releases provided under this Section 2.4 shall be expressly conditioned upon the
consummation of the Asset Sale to which the Release Notice relates. If, however,
the Collateral Trustee receives a written objection within the aforementioned 10
day period, the Liens will not be released and the Collateral Trustee will not
take any actions requested of it by the Company until such certificate shall be
withdrawn in writing by the Senior Loan Agent or the Indenture Trustee, as the
case may be, or until three (3) business days after the Collateral Trustee shall
have received an order of a court of competent jurisdiction directing it to
release the Liens of the Collateral Trustee with respect to such Collateral and
no stay exists with respect to such direction or order. Upon consummation of the
Asset Sale for which a release of Liens was granted hereunder, all Proceeds,
including any non-cash Proceeds, received by or owing to any Debtor from the
sale of such released Collateral shall be immediately turned over to the
Collateral Trustee, together with any necessary endorsements or instruments of
assignment or transfer, for
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deposit in the Collateral Account and shall be distributed in accordance with
the provisions of Section 4.4 hereof.
2.5 Obligations Absolute.
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(a) The Security Documents may not be revoked by any Debtor. Each
Debtor agrees that such Debtor's obligations and the obligations of such
Debtor's Subsidiaries under the Security Documents shall not be released,
diminished, or impaired by, and waives any rights which such Debtor might
otherwise have which relate to:
(i) Any lack of validity or enforceability of the Secured
Obligations, any Security Document, or any other agreement or
instrument relating thereto; any increase, reduction, extension, or
rearrangement of the Secured Obligations; any amendment, supplement,
or other modification of the Security Documents; any waiver or consent
granted under the Security Documents; or any sale, assignment,
delegation, or other transfer of the Secured Obligations or the
Security Documents;
(ii) Any grant of any security or support for the Secured
Obligations or any impairment of any security or support for the
Secured Obligations, including any full or partial release, exchange,
subordination, or waste of any collateral for the Secured Obligations
or any full or partial release of any Debtor or any other Person
liable for the payment or performance of the Secured Obligations; any
change in the organization or structure of any Debtor or any other
Person liable for the payment or performance of the Secured
Obligations; or the insolvency, bankruptcy, liquidation, or
dissolution of any Debtor or any other Person liable for the payment
or performance of the Secured Obligations;
(iii) The manner of applying payments on the Secured Obligations
or the proceeds of any security or support for the Secured Obligations
against the Secured Obligations;
(iv) The failure to give notice of the occurrence of any of the
events or actions referred to in this Section 2.5, notice of any
Potential Default or Event of Default, notice of intent to demand,
notice of demand, notice of presentment for payment, notice of
nonpayment, notice of intent to protest, notice of protest, notice of
grace, notice of dishonor, notice of intent to accelerate, notice of
acceleration, notice of bringing of action to enforce the payment or
performance of the Secured Obligations, notice of any sale or
foreclosure of any collateral for the Secured Obligations, notice of
any transfer of the Secured Obligations, notice of the financial
condition of or other circumstances regarding the Company, any Debtor,
or any other Person liable for the Secured Obligations, or any other
notice of any kind relating to the Secured Obligations; or
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(v) Any other action taken or omitted which affects the Secured
Obligations or the Collateral, whether or not such action or omission
prejudices any Debtor or increases the likelihood that any Debtor will
be required to pay or support payment of the Secured Obligations
pursuant to the terms hereof.
(b) The Security Documents shall continue to be effective or be
reinstated if any payment on the Secured Obligations must be refunded for
any reason including any bankruptcy proceeding. In the event that the
Collateral Trustee must refund any payment received against the Secured
Obligations, any prior release from the terms of this Agreement or the
other Security Documents given to any Debtor by the Collateral Trustee
shall be without effect, and all such Security Documents shall be
reinstated in full force and effect.
ARTICLE 3. MASTER DEBT
3.1 Master Debt; Modification of Master Debt.
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(a) No additions to Master Debt subject to this Agreement shall be
made without the written agreement of all parties hereto, except that
nothing contained herein shall (i) prevent the incurring or repayment of
indebtedness pursuant to the terms of any Master Debt Agreement, as such
terms exist on the Initial Closing Date, or (ii) prevent the Senior Lenders
from amending the Credit Agreement to increase the total commitments or the
maximum principal amount of the debt permitted to be outstanding thereunder
from time to time without the consent of any party hereto provided,
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however, that (x) the Senior Lenders hereby agree that any and all
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increases in the amount of total commitments or loans available under the
Credit Agreement (after giving effect to such amendment) over the amount of
the total commitments or loans which would otherwise be available at that
time under the Credit Agreement (as the same is in effect on the Initial
Closing Date) (the "Increased Senior Debt Amount"), and any payment with
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respect to any Increased Senior Debt Amount, shall be fully subordinated to
the Subordinated Debt to the same extent and in the same manner as the
Subordinated Debt is subordinated to the Senior Debt as of the Initial
Closing Date pursuant to the provisions of Article 6 hereof, except that
the provisions of Sections 6.1, 6.2 and 6.3 regarding the payment or
non-payment of Note Interest (or any other similar interest payments on the
Increased Senior Debt Amount) shall not apply to the subordination of any
Increased Senior Debt Amount, and (y) the Senior Loan Agent shall promptly
notify the Indenture Trustee of the existence of any such Increased Senior
Debt Amount.
(b) The Company, the Indenture Trustee and the Subordinated
Noteholders agree not to renew, extend, modify or amend the Indenture or
any of the instruments or documents relating to the Subordinated Debt
without the prior written consent of the Senior Loan Agent, which consent
shall not be unreasonably withheld.
(c) The Company, the Senior Loan Agent and the Senior Lenders may,
without the prior written consent of any of the other parties hereto,
amend, alter, vary,
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supplement or revise any of the terms or provisions of, or add any new or
additional terms or provisions to, the Credit Agreement and related
agreements, instruments and documents, except that, without the written
consent of the Required Percentage of the Subordinated Noteholders, no
amendment may be made, and no further secured loan or other secured credit
shall be provided to any Debtor (except as permitted by clause (ii) of
Section 3.1(a) above) which would (i) increase the maximum principal amount
of the debt permitted to be outstanding from time to time under the Credit
Agreement (except by increases arising from advances made for the purpose
of preserving Collateral), or (ii) increase the maximum principal amount of
debt permitted to be outstanding from time to time under the Credit
Agreement by amending or modifying the Borrowing Base formula, the manner
in which the Borrowing Base (as defined in the Credit Agreement) is
determined, or the definition of Borrowing Base or any other terms relevant
to the definition, (iii) increase the Prime Rate Margin (as defined in the
Credit Agreement) or the LIBOR Margin (as defined in the Credit Agreement),
or alter the calculation of any variable rate of interest provided for in
the Credit Agreement which would have the effect of increasing such rate
(except for increases provided for in the Credit Agreement as of the date
of this Agreement), (iv) shorten the maturity date of any of the facilities
under the Credit Agreement, or (v) decrease the term of the revolving debt,
or increase the frequency or amount of mandatory repayments due, pursuant
to the Credit Agreement (except nothing contained in this Section 3.1 shall
restrict the rights of the Senior Lenders under the Credit Agreement to
determine the Borrowing Base and any Monthly Commitment Reduction as set
forth in the Credit Agreement as of the Initial Closing Date, irrespective
of whether any such determination of the Borrowing Base or the Monthly
Commitment Reduction would result in a mandatory repayment being due
pursuant to the terms of the Credit Agreement).
ARTICLE 4. ACTIONS REGARDING COLLATERAL
4.1 Preservation and Maintenance of Collateral. The Collateral Trustee
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may from time to time take action for the protection and enforcement of its
rights under the Security Documents on behalf of the Noteholders, but the
Collateral Trustee shall not be obligated to take any action under the Security
Documents except that (a) the Collateral Trustee shall file appropriate Uniform
Commercial Code financing and continuation statements and perform such duties as
are specifically set forth herein including, without limitation, the taking of
action during an Event of Default as set forth in Section 4.2 below to the
extent required thereby, and (b) the Collateral Trustee shall take such action
as may be reasonably requested from time to time in writing pursuant to this
Agreement as long as the requested action is permitted by the Security Documents
and/or applicable law. The Collateral Trustee shall exercise the same care and
diligence in holding the Collateral that the Collateral Trustee would devote to
the custody of collateral of the same nature held solely for its account.
4.2 Enforcement Action under the Security Documents.
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(a) The Collateral Trustee shall be deemed not to have knowledge of
the existence of any condition or event which constitutes an Event of
Default, unless notified in
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writing by the Indenture Trustee or any Noteholder. The Collateral Trustee
shall not be under any obligation, as a result of knowledge of an Event of
Default, to take any action under the provisions of any Security Document
unless so directed by the Senior Loan Agent, the Indenture Trustee or the
Noteholders in accordance with this Agreement.
(b) If at any time an Event of Default exists, the Senior Loan Agent,
the Indenture Trustee or the Required Percentage of any Class of Master
Debt shall be entitled to give the Collateral Trustee and the Company a
Notice of Event of Default hereunder. The failure to give any Notice of
Event of Default hereunder shall in no way affect the validity of any
similar notice of default or Event of Default provided to the Company or to
the Debtors under the applicable Master Debt Agreement, nor shall the
failure of the Company to receive any Notice of Event of Default hereunder
affect the validity of any request to the Collateral Trustee or the ability
of the Collateral Trustee to exercise the rights and remedies provided in
the Security Documents upon receipt of such notice. The Collateral Trustee
shall provide all parties to this Agreement with a copy of any Notice of
Event of Default within four (4) business days from its receipt of any such
notice.
(c) The Senior Loan Agent, the Indenture Trustee or the Required
Percentage of any Class of Master Debt may withdraw any Notice of Event of
Default it previously delivered pursuant to Section 4.2(b) above by
delivering a written notice of withdrawal (a "Withdrawal Notice") to the
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Collateral Trustee and the Debtors and the other parties thereto, and such
Withdrawal Notice shall be effective (subject to the provisions of Section
4.2(e)) if delivered (i) before the Collateral Trustee takes any action to
exercise any remedy with respect to the Collateral, or (ii) at any time
after the Collateral Trustee takes any action to exercise any remedy with
respect to the Collateral, if (x) the Collateral Trustee reasonably
determines that the exercise of any remedy or remedies with respect to the
Collateral can be reversed, terminated, or withdrawn without prejudice to
the Collateral Trustee or any Noteholder, and (y) the Debtors have
reimbursed, or have made acceptable arrangements to reimburse, the
Collateral Trustee, the Indenture Trustee and the Noteholders with respect
to all costs and expenses incurred by the Collateral Trustee, the Indenture
Trustee and the Noteholders in connection with the enforcement actions and
the reversing or termination thereof. The Collateral Trustee shall provide
all parties to this Agreement with a copy of any Withdrawal Notice within
four (4) business days from its receipt of any such notice.
(d) Prior to the Stated Maturity Date, if a Notice of Event of Default
shall have been received by the Collateral Trustee and shall not have been
withdrawn in accordance with the provisions of paragraph (c) above, the
Collateral Trustee shall exercise such rights and remedies of the
Collateral Trustee under the Security Documents, institute and maintain
such suits and proceedings, and take such other actions in connection
therewith as the Senior Loan Agent may direct from time to time in writing,
in each case as permitted under the Security Documents during the existence
of an Event of Default. Upon the effectiveness of any Withdrawal Notice
pursuant to the terms and provisions of paragraph (c) above, the Collateral
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Trustee shall discontinue and terminate any enforcement action taken by the
Collateral Trustee with respect to such Notice of Event of Default.
(e) At any time after the Stated Maturity Date of the Subordinated
Debt as provided for in the Indenture, if a Notice of Event of Default
shall have been received by the Collateral Trustee and shall not have been
withdrawn in accordance with the provisions of paragraph (c) above, the
Collateral Trustee shall exercise such rights and remedies of the
Collateral Trustee under the Security Documents, institute and maintain
such suits and proceedings, and take such other actions in connection
therewith as the Senior Loan Agent, the Indenture Trustee or any Required
Plurality may direct from time to time in writing, in each case as
permitted under the Security Documents during the existence of an Event of
Default. Upon the effectiveness of any Withdrawal Notice pursuant to the
terms and provisions of paragraph (c) above, the Collateral Trustee shall
discontinue and terminate any enforcement action taken by the Collateral
Trustee with respect to the Notice of Event of Default, provided, however,
-----------------
that any such Withdrawal Notice shall not become effective if, within ten
(10) days after receipt by the Collateral Trustee of the Withdrawal Notice,
any party entitled to deliver a separate Notice of Event of Default
hereunder does not object to the discontinuance or termination of such
enforcement action.
(f) In the event that the Collateral Trustee shall receive conflicting
instructions from the Senior Loan Agent, the Indenture Trustee, any
Required Plurality, and/or from different Required Pluralities, regarding
the specific action to be taken or not to be taken under the Security
Documents, or the manner or timing of the exercise of any rights or
remedies thereunder, the Collateral Trustee shall follow the instructions
received in writing from the Senior Loan Agent, provided, however, that
-----------------
after the Stated Maturity Date of the Subordinated Debt the Senior Loan
Agent shall direct and the Collateral Trustee shall diligently pursue (in
each case, to the extent reasonably requested by the Indenture Trustee or
any Required Plurality) the good faith exercise of rights and remedies
under the Security Documents or applicable law with respect to the
Collateral, including, without limitation and if requested by the Indenture
Trustee or any Required Plurality, the commencement of actions to foreclose
the Collateral Trustee's Liens on or to take possession of all or any
material portion of the Collateral, the commencement of any judicial
proceedings or actions against or with respect to all or any material
portion of the Collateral, or the taking of any action to vacate any stay
on enforcement of the Collateral Trustee's Liens on all or a material
portion of the Collateral.
(g) Any sale or disposition of Collateral by the Collateral Trustee
pursuant to any power or in accordance with any rights or remedies set
forth in the Security Documents shall be in an arm's length transaction and
in a commercially reasonable manner.
(h) The Collateral Trustee shall not be obligated to follow any
written directions received pursuant to this Agreement if the Collateral
Trustee determines in good faith that such written directions are in
conflict with any provisions of applicable law or any Security Document.
-12-
4.3 General Provisions Regarding Remedies.
-------------------------------------
(a) No remedy conferred upon or reserved to the Collateral Trustee
herein or in the Security Documents is intended to be exclusive of any
other remedy or remedies, but every such remedy shall be cumulative and
shall be in addition to every other remedy conferred herein or in any of
the Security Documents or now or hereafter existing at law or in equity or
by statute. All of the powers, remedies, and rights of the Collateral
Trustee as set forth in this Agreement may be exercised by the Collateral
Trustee in respect of any Security Document as though set forth at length
therein, and all the powers, remedies, and rights of the Collateral Trustee
as set forth in any Security Document may be exercised from time to time as
herein and therein provided. No delay or omission by the Collateral Trustee
in the exercise of any right, remedy, or power accruing upon any Event of
Default shall impair any such right, remedy or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every right, power, and remedy given by any Security Document may be
exercised from time to time and as often as may be deemed expedient by the
Collateral Trustee.
(b) In case the Collateral Trustee shall have proceeded to enforce any
right, remedy, or power under any Security Document and the proceeding for
the enforcement thereof shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Collateral Trustee,
then and in every such case the Debtors, the Collateral Trustee, the
Indenture Trustee and the Noteholders shall, subject to any effect of or
determination in such proceeding, severally and respectively be restored to
their former positions and rights under such Security Document with respect
to the Trust Estate and in all other respects, and thereafter all rights,
remedies, and power of the Collateral Trustee shall continue as though no
such proceeding had been taken.
(c) All rights of action and rights to assert claims upon or under the
Security Documents may be enforced by the Collateral Trustee without the
possession of any Master Debt Agreement or other instruments which manifest
the Master Debt or the production thereof in any trial or other proceeding
relative thereto, and any such suit or proceedings instituted by the
Collateral Trustee shall be brought in its name as Collateral Trustee for
the benefit of the Noteholders and any recovery of and from any judgment
shall be held as part of the Trust Estate. Each Debtor hereby waives notice
of intent to demand, demand, presentment for payment, notice of nonpayment,
protest, notice of protest, grace, notice of dishonor, notice of intent to
accelerate, notice of acceleration, and all other notices in connection
with the enforcement of the Master Debt, the Security Documents, and the
Collateral. To the full extent each Debtor may do so, such Debtor shall not
insist upon, plead, claim, or take advantage of any law providing for any
appraisement, valuation, stay, extension, or redemption, and each such
Debtor hereby waives and releases the same, and all rights to a marshaling
of the assets of such Debtor and the Collateral, or to a sale in inverse
order of alienation in the event of foreclosure of the Liens and security
interests granted pursuant to the Security Documents. Each Debtor agrees
not to assert any right under any law pertaining to the marshaling of
assets, sale in inverse order of alienation, the
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administration of estates of decedents, or other matters whatsoever to
defeat, reduce, or affect the right of the Collateral Trustee or
Noteholders under the terms of the Security Documents or applicable law.
(d) Each Debtor hereby irrevocably constitutes and appoints the
Collateral Trustee and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full power and
authority to act on behalf of such Debtor, in the name of such Debtor or in
its own name, upon the occurrence and during the continuance of any Event
of Default, to take any and all appropriate action, execute any and all
documents and instruments, or institute any proceedings which the
Collateral Trustee, the Senior Loan Agent, the Indenture Trustee and/or the
Noteholders deem reasonably necessary or desirable to carry out purposes
and terms of any of the Security Documents. This power of attorney is a
power coupled with an interest and shall be irrevocable. Each Debtor hereby
ratifies all acts of such attorney-in-fact consistent with the foregoing.
Any such attorney-in-fact shall not be liable for any acts or omissions,
INCLUDING NEGLIGENT ACTS AND OMISSIONS OF SUCH ATTORNEY-IN-FACT, unless
they constitute the gross negligence or willful misconduct of such
attorney-in-fact, but in no event shall the attorney-in-fact be liable for
special, indirect or consequential losses or damages of any kind whatsoever
(including but not limited to lost profits).
(e) Notwithstanding any other provision of any Security Document, and
except as expressly set forth in this Agreement, neither the rights of the
Senior Loan Agent, Indenture Trustee or the Noteholders to receive payment
on the Master Debt held by such holders, to institute suit for the
enforcement of such payment, to assert their respective positions as a
creditor or to receive any distribution in any proceeding under or related
to the Bankruptcy Code, or to otherwise exercise any right they may have in
connection with such Master Debt (other than the right to enforce any Lien
on the Collateral under the Security Documents, which shall in all
circumstances be exercisable only in accordance with this Agreement as long
as this Agreement remains in effect), nor the obligation of each Debtor to
pay the Master Debt owing by such Debtor, shall be impaired or affected
without the consent of the Senior Loan Agent, the Indenture Trustee or such
Noteholders, as the case may be.
4.4 Application of Monies by Collateral Trustee.
-------------------------------------------
(a) On the date hereof there shall be established and, at all times
thereafter until the Trust Estate has been terminated, there shall be
maintained by the Collateral Trustee an account (the "Collateral Account")
------------------
which shall be maintained with the Collateral Trustee at one of its offices
in the city in which its principal place of business is located. To secure
the prompt and complete payment, when due, and the observance and
performance of all terms, covenants, and agreements relating to all Secured
Obligations, each Debtor hereby assigns and pledges to the Collateral
Trustee for the benefit of the Noteholders and grants to the Collateral
Trustee for the benefit of the Noteholders a security interest in all of
the right, title, and interest of such Debtor in and to the following
property, whether presently existing or hereafter arising or acquired (the
"Collateral Account Collateral"): the Collateral Account, all cash
-----------------------------
deposited therein,
-14-
all certificates and instruments, if any, from time to time representing
the Collateral Account; all investments from time to time made pursuant to
paragraph (b) below; all notes, certificates of deposit, and other
instruments from time to time hereafter delivered to or otherwise possessed
by the Collateral Trustee in substitution for, or in addition to, any or
all of the then existing Collateral Account Collateral; all interest,
dividends, cash, instruments, and other property from time to time
received, receivable, or otherwise distributed in respect of or in exchange
for any or all of the then existing Collateral Account Collateral; and to
the extent not covered above, all Proceeds of the foregoing (whether the
same are acquired before or after the commencement of a case under the
Bankruptcy Code). All right, title, and interest in and to the Collateral
Account shall vest in the Collateral Trustee, and funds on deposit in the
Collateral Account and other Collateral Account Collateral shall constitute
part of the Trust Estate. The Collateral Account Collateral and Collateral
Account shall be subject to the exclusive dominion and control of the
Collateral Trustee and shall be held for the benefit of the Noteholders as
their respective interests appear.
(b) All money and other Proceeds received by the Collateral Trustee in
respect of any Collateral, including Proceeds derived from Asset Sales,
insurance proceeds and condemnation proceeds, amounts received as a result
of set off by the Collateral Trustee, collections of accounts, instruments,
chattel paper, and other receivables, and Proceeds from any foreclosure
proceedings, shall be deposited in or credited to the Collateral Account.
Any Proceeds deemed not appropriate at the time of receipt for deposit or
credit to the Collateral Account shall be held by the Collateral Trustee
for the benefit of the Noteholders until such time as cash proceeds are
realized therefrom or the Collateral Trustee deems such Proceeds
appropriate for deposit or credit to the Collateral Account. All funds in
the Collateral Account shall be invested, reinvested, and liquidated (at
the risk and expense of the Debtors) in accordance with instructions given
to the Collateral Trustee by (i) the Company, prior to a Notice of Event of
Default having been received by the Collateral Trustee, or (ii) the Senior
Loan Agent or the Indenture Trustee subsequent to a Notice of Event of
Default having been received by the Collateral Trustee, provided that if
--------
the Collateral Trustee receives conflicting instructions from the Senior
Loan Agent and the Indenture Trustee, the Collateral Trustee shall comply
with the instructions of the Senior Loan Agent for so long as any Senior
Debt remains outstanding, and provided further that, in all circumstances,
----------------
all investments shall be Permitted Investments. The Collateral Trustee
shall not be liable for any loss resulting from any Permitted Investment or
the sale or redemption thereof in accordance with the preceding sentence.
If and when cash is required for disbursement in accordance with this
Agreement, the Collateral Trustee is authorized, to the extent necessary,
to cause Permitted Investments to be sold or otherwise liquidated in such
manner as the Collateral Trustee shall deem appropriate.
(c) Prior to any Notice of Event of Default having been received by
the Collateral Trustee, all amounts in the Collateral Account shall be held
by the Collateral Trustee for the benefit of the Noteholders until the
Company requests the release thereof. Any such request by the Company shall
be made in writing, delivered to the Collateral Trustee, the Senior Loan
Agent and the Indenture Trustee, and shall be accompanied by a certificate
of a
-15-
Responsible Officer of the Company specifying (i) the use for the funds
released and stating that the funds shall be used for the specified
purpose, (ii) that the release is permitted under the terms of all Master
Debt Agreements, (iii) that no Potential Default or Event of Default then
exists, and (iv) that the release, if granted, would not reasonably be
expected to cause or result in the occurrence of an Event of Default. If
the Collateral Trustee does not receive an objection from the Senior Loan
Agent or the Indenture Trustee within ten (10) days after such request is
delivered stating that the release would violate the terms of a Master Debt
Agreement or result in an Event of Default, then the Collateral Trustee
shall release the funds or other items of Collateral as requested by the
Company. If, however, an objection is received by the Collateral Trustee,
then the Collateral Trustee shall retain the funds or other property in the
Collateral Account until such time as (i) the objection is withdrawn, (ii)
distributions are made under paragraph (d) below, or (iii) the Collateral
Trustee shall have received an order of a court of competent jurisdiction
directing it to release the funds or property.
(d) After any Notice of Event of Default having been received by the
Collateral Trustee and such notice not having been withdrawn, all moneys
and property held or received by the Collateral Trustee in the Collateral
Account shall be held in the Collateral Account for the benefit of the
Noteholders and, upon request of the Senior Loan Agent prior to the Stated
Maturity Date, and thereafter upon the request of the Senior Loan Agent,
the Indenture Trustee or any Required Plurality and to the extent available
for distribution, shall be distributed from time to time by the Collateral
Trustee in the following order of priority:
First: to the Collateral Trustee in an amount equal to all amounts due
-----
and unpaid to it as of such Distribution Date pursuant to Section 5.3
and Section 5.4 and all other amounts due and unpaid it under the
terms of the Security Documents as of such Distribution Date,
including all reasonable costs and expenses (including reasonable
attorneys fees) incurred in connection with any sale, disposition, or
other attempt to realize upon all or any part of the Collateral (and
to the extent any such amounts have been previously paid on behalf of
the Debtors under Section 5.3, Section 5.4 or otherwise by other
Persons to reimburse such Persons);
Second: to the holders of the Senior Debt in an amount equal to the
------
outstanding unpaid principal indebtedness under the Master Debt
Agreements pertaining to the Senior Debt, all accrued but unpaid
interest thereon, all accrued but unpaid premium, if any, due in
connection therewith, all accrued but unpaid fees due in connection
therewith, all accrued but unpaid reimbursement obligations
thereunder, all accrued but unpaid cash collateralization obligations
thereunder, all accrued but unpaid hedging obligations thereunder, and
all other accrued but unpaid obligations and liabilities thereunder,
including costs and expenses, in each case to the extent such amounts
are Secured Obligations and whether or not due and payable; provided,
however, that with respect to all cash collateralization obligations
covering contingent obligations under letters of credit, (1) rather
than distributing the amounts allocable to such obligations to the
holders thereof, such amounts shall be reserved in the Collateral
Account (such reserve being an
-16-
"L/C Reserve") and set aside for the purpose of covering reimbursement
-----------
obligations for such letters of credit as they arise in connection
with draws under such letters of credit, (2) upon any draws under such
letters of credit that are not reimbursed when due, and at the request
of the Required Percentage of the holders of such obligations, the
Collateral Trustee shall distribute the ratable share of the L/C
Reserve allocable to such reimbursement obligations to the holders of
Senior Debt, and (3) as such obligations expire or become covered by
cash collateral, the Collateral Trustee shall release and deposit the
ratable share of the L/C Reserve allocable to such obligations which
have expired into the Collateral Account for general distribution in
accordance with this Agreement;
Third: after payment in full of the Senior Debt, to the Indenture
-----
Trustee for the benefit of Subordinated Noteholders in an amount equal
to the outstanding unpaid principal indebtedness under the Indenture,
all accrued but unpaid interest thereon, all accrued but unpaid
premium, if any, due in connection therewith, all accrued but unpaid
reimbursement obligations thereunder, all accrued but unpaid cash
collateralization obligations thereunder, all accrued but unpaid
hedging obligations thereunder, and all other accrued but unpaid
obligations and liabilities thereunder, including costs and expenses,
in each case to the extent such amounts are Secured Obligations and
whether or not due and payable; and
Finally: any surplus then remaining shall be paid to the Company or
-------
its successors or assigns.
The term "unpaid" as used in this paragraph (d) refers: (1) in the absence
------
of a bankruptcy proceeding with respect to any Debtor, to all amounts of
Secured Obligations outstanding as of a Distribution Date, whether or not
then due and payable, and (2) during the pendency of a bankruptcy
proceeding with respect to any Debtor, to all amounts with respect to such
Debtor allowed by the bankruptcy court in respect of Secured Obligations as
a basis for distribution (including estimated amounts, if any, allowed in
respect of contingent claims), in each case, to the extent that prior
distributions have not been made in respect thereof.
(e) Notwithstanding anything herein to the contrary, the Collateral
Trustee shall, at all times, have the right to apply funds and property
held in the Collateral Account to the payment of amounts due and unpaid to
it pursuant to Section 5.3. The Collateral Trustee shall provide the
Company, the Senior Loan Agent and the Indenture Trustee with prompt notice
of any such application of moneys or property prior to the application
thereof. Further, notwithstanding anything to the contrary contained
herein, the Collateral Trustee, shall, at all times, have the right to
distribute Proceeds from an Asset Sale, net of the reasonable costs and
expenses incurred by the Collateral Trustee in connection with such
disposition (including reasonable attorneys' fees), to the Noteholders in
the same manner and to the same extent as provided in Paragraph (d) above.
-17-
(f) In making amounts available for distribution hereunder, the
Collateral Trustee may liquidate investments prior to maturity in order to
make a distribution. All such distributions shall be made in cash in United
States Dollars.
ARTICLE 5. THE COLLATERAL TRUSTEE
5.1 Acceptance of Trust Estate; Duties and Limitations. The Collateral
--------------------------------------------------
Trustee hereby accepts the trusts of this Agreement on behalf of and for the
benefit of all Noteholders, but only upon the terms herein set forth herein,
including the following:
(a) Notwithstanding any provision in any other Security Document which
may require the Company to maintain the perfection of all Liens on the
Collateral, the Collateral Trustee shall use its best efforts to ensure
that all Liens are properly recorded, continued and/or perfected at all
times during which any of the Master Debt is outstanding, except the
Collateral Trustee shall not be responsible for errors made by or in any
proper recording office. Except as otherwise provided herein or in the
Security Documents, the Collateral Trustee makes no representation and has
no responsibility as to the validity of the Security Documents, the
sufficiency or value of the Collateral, the title to the Collateral, or
verification of the sufficiency or continuation of any insurance in respect
thereof;
(b) the Collateral Trustee may rely and shall be protected in acting
upon any resolution, certificate, opinion, consent, or other document
reasonably believed by it to be genuine and to have been executed or
presented by the proper party or parties and, without limiting the
foregoing, (i) in making any payment or in taking any other action
hereunder in respect of any Master Debt, the Collateral Trustee may rely
upon a certificate signed by the Indenture Trustee or the Senior Loan
Agent, as appropriate, with respect to the ownership of each such Class of
Master Debt and the amounts due thereunder, and (ii) whenever in the
administration of its duties hereunder, the Collateral Trustee deems it
reasonably necessary for a matter to be proved or established prior to
taking any action hereunder, the Collateral Trustee may request a
certification from such party or parties regarding such matter as it deems
appropriate in its reasonable discretion and upon which the Collateral
Trustee shall be protected in relying; and
(c) the Collateral Trustee shall be under no liability with respect to
any action or omission taken in accordance with this Agreement or for any
other action or omission of the Collateral Trustee, INCLUDING NEGLIGENT
ACTIONS OR OMISSIONS OF THE COLLATERAL TRUSTEE (except that nothing
contained herein shall relieve the Collateral Trustee from liability for
its own gross negligence or willful misconduct), and in no event shall the
Collateral Trustee be liable for special, indirect, or consequential losses
or damages of any kind whatsoever (including but not limited to lost
profits).
-18-
5.2 Limitation of Scope of Duties. Beyond its duties set forth in this
-----------------------------
Agreement and the other Security Documents as to the perfection of Liens
against, and the custody and preservation of Collateral, which are for the
benefit of the Noteholders, and the accounting to the Company, the Indenture
Trustee and the Noteholders for moneys received by it hereunder and thereunder,
the Collateral Trustee shall not have any duty to any Debtor, the Indenture
Trustee or the Noteholders with respect to any Collateral in its possession or
control or in the possession or control of its agent or nominee, any income
thereon, or the preservation of rights against prior parties or any other rights
pertaining thereto.
5.3 Expenses. Each Debtor and each Noteholder agrees to pay on demand of
--------
the Collateral Trustee (a) all reasonable out-of-pocket costs and expenses of
the Collateral Trustee in connection with the preparation, execution, delivery,
administration, modification, and amendment of the Security Documents, including
the reasonable fees and expenses of outside counsel for the Collateral Trustee,
and (b) all out-of-pocket costs and expenses of the Collateral Trustee in
connection with the preservation or enforcement of rights under the Security
Documents, whether through negotiations, legal proceedings, or otherwise,
including fees and expenses of counsel for the Collateral Trustee. Each
Noteholder shall be liable for the foregoing only to the extent (i) that such
expenses are not paid by the Debtors, (ii) that such expenses are not paid or
recoverable out of the Collateral, (iii) that such expenses relate to actions of
the Collateral Trustee acting as Collateral Trustee, and (iv) of such
Noteholder's ratable share of such expenses based upon the Master Debt
Outstanding. The provisions of this paragraph shall survive the repayment of the
Secured Obligations and any purported termination of the Security Documents
which does not expressly refer to this paragraph.
5.4 Indemnification.
---------------
(a) Each Debtor and each Noteholder, on behalf of themselves and all
Persons claiming by, through, or under any of them, agrees to protect,
defend, indemnify, and hold harmless the Collateral Trustee, and its
shareholders, directors, officers, employees, agents, representatives and
affiliates and the shareholders, directors, officers, employees, agents,
and representatives of those affiliates (collectively, the "Indemnified
-----------
Parties"), from and against all demands, claims, actions, suits, damages,
-------
judgments, fines, penalties, liabilities, and out-of-pocket costs and
expenses, including reasonable costs of attorneys and related costs of
experts such as accountants (collectively, the "Indemnified Liabilities"),
-----------------------
actually incurred by any Indemnified Party which are related to any
litigation or proceeding relating to the Security Documents or the
transactions contemplated thereunder or hereunder in connection with the
Collateral Agent acting in its capacity as Collateral Agent, INCLUDING ANY
INDEMNIFIED LIABILITIES CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE
AND ANY INDEMNIFIED LIABILITIES IMPOSED UPON THE INDEMNIFIED PARTY, OR ANY
OF THEM, UNDER ANY THEORY OF STRICT LIABILITY, but not Indemnified
Liabilities which are a result of any Indemnified Party's gross negligence
or willful misconduct. Each Noteholder shall be liable for the foregoing
only to the extent (i) that any such Indemnified Liability is not paid by
the Debtors, (ii) that such expenses
-19-
are not paid or recoverable out of the Collateral, (iii) that such
Indemnified Liability relates to the actions of the Collateral Trustee
acting as Collateral Trustee, and (iv) of such Noteholder's ratable share
of such Indemnified Liability based upon the Master Debt Outstanding. The
provisions of this paragraph shall survive the repayment of the Secured
Obligations, the resignation or removal of the Collateral Trustee and any
purported termination of the Security Documents. In no event however shall
Indemnified Liabilities include, special or consequential losses as damages
of any kind whatsoever (including, but not limited to lost profits).
5.5 Resignation, Removal, and Replacement of Collateral Trustee.
-----------------------------------------------------------
(a) The Collateral Trustee or any successor Collateral Trustee may
resign at any time by giving at least thirty (30) days' prior written
notice of resignation to the Company and each Noteholder, such resignation
to be effective on the later of (a) the date specified in such notice or
(b) the date on which a replacement trustee agrees to act as Collateral
Trustee hereunder and under the Security Documents. If appropriate
instruments of assignment to and acceptance by a successor Collateral
Trustee shall not have been executed and delivered within thirty (30) days
after the giving of such notice of resignation, the resigning Collateral
Trustee may petition any court of competent jurisdiction for the
appointment of a successor Collateral Trustee.
(b) If a successor Collateral Trustee has agreed to accept appointment
as successor Collateral Trustee, the Required Majority may at any time
remove the Collateral Trustee, for or without cause, by an instrument or
instruments in writing delivered to the Collateral Trustee and the Company.
In the event the office of Collateral Trustee shall become vacant for any
reason, the Required Majority may appoint a successor Collateral Trustee to
fill such vacancy if a successor Collateral Trustee has agreed to accept
such position.
(c) Upon the appointment of any successor Collateral Trustee, such
successor Collateral Trustee shall execute, acknowledge, and deliver to the
Company and to the retiring Collateral Trustee an instrument accepting such
appointment, and the retiring Collateral Trustee, at the expense of the
Company, shall duly assign, transfer, and deliver to such successor
Collateral Trustee all rights, instruments and moneys or other Collateral
(including any funds or Collateral Account Collateral then held in the
Collateral Account) then held by the retiring Collateral Trustee as
Collateral Trustee hereunder and under the Security Documents, and shall
execute and deliver such other proper instruments in such form as may be
reasonably requested by such successor Collateral Trustee to evidence such
assignment, transfer, and delivery. Upon the execution, acknowledgment and
delivery of all such instruments, the successor Collateral Trustee shall
immediately, and without the need for any further action, succeed to all of
the rights and obligations of the retiring Collateral Trustee under this
Agreement and the Security Documents as if originally named therein.
5.6 Eligibility of Collateral Trustee. The Collateral Trustee shall at
---------------------------------
all times be either a Senior Lender or the Indenture Trustee, provided such a
Person is willing and able to accept such
-20-
trust upon reasonable and customary terms. In all other cases the Collateral
Trustee shall be a financial institution with assets in excess of $250,000,000.
If, at any time, the Collateral Trustee shall cease to be eligible in accordance
with the provisions of this Section 5.6, the Collateral Trustee shall
immediately resign in the manner and with the effect specified in Section 5.5.
5.7 Appointment of Separate or Co-Collateral Trustee. The Collateral
------------------------------------------------
Trustee may and, upon the request of any Required Plurality, shall by an
instrument in writing delivered to the Company and to each Noteholder, appoint a
bank or trust company or an individual to act as separate trustee or co-trustee
with respect to the Master Debt in a jurisdiction where the Collateral Trustee
is disqualified from acting. Such separate trustee or co-trustee shall exercise
only such rights and shall have only such duties as shall be specified in the
instrument of appointment. The Debtors will pay the reasonable compensation and
expenses of any such separate trustee or co-trustee and indemnify such person as
if such Person was the Collateral Trustee hereunder.
5.8 Non-Reliance on Collateral Trustee or Other Noteholders. Each
-------------------------------------------------------
Noteholder agrees that it has, independently and without reliance on the
Collateral Trustee or any other Noteholder, and based upon such documents and
information as it has deemed appropriate, made its own credit analysis of the
Debtors and the Collateral, including, without limitation, the status of the
title of such Collateral, and its own independent decision to enter into this
Agreement and the Master Debt Agreement to which it is a party or under which it
is legally bound. Each Noteholder agrees that it will independently and without
reliance upon the Collateral Trustee or any other Noteholder, and based upon
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking any
action under this Agreement and/or the Security Documents. Except as expressly
set forth herein or in the Security Documents, the Collateral Trustee acting
solely as Collateral Trustee, shall not be required to keep itself or the
Noteholders informed as to the performance of the Debtors under this Agreement,
any Master Debt Agreement or any other document, instrument or agreement,
referred to or provided for herein or therein, or to inspect the properties or
books of the Debtors. Except as expressly provided for herein, the Collateral
Trustee shall not have any duty, responsibility or liability to provide any
Noteholder with any credit or other information concerning the affairs,
financial condition or business of the Debtors which may come into the
possession of the Collateral Trustee, provided, however, that the Collateral
-----------------
Trustee shall send to each Noteholder, promptly upon receipt thereof, duplicates
or copies of all notices, requests, and other instruments received by the
Collateral Trustee under or pursuant to this Agreement.
ARTICLE 6. SUBORDINATION
6.1 Subordination of Amounts Due to Subordinated Noteholders. The payment
--------------------------------------------------------
of the Subordinated Debt is expressly subordinated to the prior payment in full
of the Senior Debt to the extent and in the manner set forth in this Agreement.
Except as provided in Section 6.2 of this Agreement, the Debtors, the Indenture
Trustee and the Subordinated Noteholders hereby postpone and subordinate the
payment of the Subordinated Debt to the payment of all Senior Debt. The Debtors,
the Indenture Trustee and the Subordinated Noteholders agree that until the
Senior Debt is
-21-
paid in full, except as provided in Section 6.2 of this Agreement, the
Subordinated Noteholders will not demand, take or receive from the Debtors, in
cash or property or by set-off or in any other manner (including the bringing of
a lawsuit or the filing of a petition in bankruptcy or other insolvency
proceeding), payment of or on account of, and the Debtors will not pay, in whole
or in any part any of the Subordinated Debt.
6.2 Payment of Note Interest. The provisions of Section 6.1 hereof
------------------------
notwithstanding, prior to the payment in full of the Senior Debt, the Debtors
may pay and the Subordinated Noteholders may receive scheduled payments of
interest (the "Note Interest") which are or become due and payable on the
Subordinated Debt in accordance with the terms of the Indenture as in effect on
the initial Closing Date, unless and until a Subordination Event has occurred
and is continuing or would occur as a result of such payment, and written notice
of such Subordination Event has been delivered to the Debtors, the Senior
Lenders, the Indenture Trustee, as appropriate. Upon occurrence of an Event of
Default which is continuing under the Credit Agreement, the Senior Loan Agent
may notify the Debtors and the Indenture Trustee of such Event of Default in
writing specifying (i) in reasonable detail the particular nature of the Event
of Default and the date and time of its occurrence, if known or applicable, and
(ii) that such Event of Default shall constitute a Subordination Event under
this Agreement. Upon the failure of the Company to make any payment of Note
Interest when due in accordance with the terms of the Indenture, the Indenture
Trustee may notify the Debtors, the Senior Loan Agent and the Subordinated
Noteholders of such Event of Default in writing (i) specifying the date and time
of its occurrence, and (ii) that such Event of Default shall constitute a
Subordination Event under this Agreement. Effective immediately upon delivery of
such notice to the Indenture Trustee or the Debtors, all payments and receipt of
Note Interest to or by the Subordinated Noteholders shall immediately cease and
may thereafter resume only as provided for in Section 6.3 hereof.
6.3 Blocking Provisions. Once a Subordination Event has occurred and
-------------------
notice thereof has been given as required in Section 6.2 above, a period during
which no Note Interest may be paid (the "Blocking Period") shall begin and shall
continue until the earlier to occur of: (a) one hundred eighty (180) days after
the date notice of such Subordination Event was delivered, (b) the date on which
the Subordination Event is cured, waived or for which a forbearance agreement
satisfactory to the Senior Loan Agent is put in place, (c) the date on which the
Senior Debt is paid in full, or (d) the filing of a petition under the
Bankruptcy Code commencing a bankruptcy case by or against the Company. Upon the
expiration or termination of any Blocking Period, the Debtors shall pay to the
Subordinated Noteholders all interest which has accrued (including any interest
which has accrued at the Default Rate provided for in the Indenture), has become
due or is past due and remains unpaid and, thereafter, shall pay Note Interest
when the same becomes due and payable as provided for in the Indenture.
Following the expiration or termination of any Blocking Period, additional
Blocking Periods may be commenced in accordance with this Section 6.3, provided,
--------
that in no event shall there be Blocking Periods in effect for more than one
hundred eighty (180) days in any period of three hundred sixty (360) consecutive
days.
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6.4 Acceleration of Subordinated Debt. The Subordinated Debt may not be
---------------------------------
accelerated for any reason unless and until (a) the Senior Debt is paid in full
or (b) any Debtor files a bankruptcy petition (or an involuntary petition is
filed against it and not dismissed in sixty (60) days, (c) the Senior Debt has
been accelerated (provided such acceleration has not been withdrawn), or (d) the
Subordinated Debt has matured and the principal thereof is due and payable in
accordance with the terms of the Indenture as in effect on the Initial Closing
Date.
6.5 Insolvency Proceedings.
----------------------
(a) Each of the Senior Loan Agent and the Indenture Trustee agrees to
file, in accordance with applicable law, all filings and claims required to
preserve the Master Debt under the Indenture and the Credit Agreement in
any formal insolvency proceeding, whether under the Bankruptcy Code or
state law, within the time periods required by such applicable law to
preserve those debts, claims and rights, and each of the Senior Loan Agent,
the Subordinated Noteholders, and the Indenture Trustee hereby irrevocably
authorizes, empowers and appoints the other to (i) execute, verify, deliver
and file proofs of claim upon the failure of such other party to do so with
respect to the relevant Class of Master Debt (and in any event, prior to 10
days prior to the expiration of the time to file such proof of claim);
provided, however, that neither the Senior Loan Agent nor the Indenture
-----------------
Trustee shall have the obligation to execute, verify, deliver, and/or file
any such proof of claim.
(b) The Indenture Trustee and the Subordinated Noteholders agree that,
unless and until the Senior Debt shall have been paid in full, the
Indenture Trustee and the Subordinated Noteholders, as the case may be,
shall hold any and all moneys, dividends, or other assets received by it or
any of the them in any such insolvency proceeding on account of the
Subordinated Debt (a "Distribution") in trust for the Senior Lenders, and
------------
pay over to the Senior Loan Agent, on behalf of the Senior Lenders (on
demand made by the Senior Loan Agent), any such Distribution in the form
received for application to the Senior Debt, except that (a) the
Subordinated Noteholders may receive (i) debt securities that are
subordinated to the Senior Debt (or to any debt securities issued in
exchange for the Senior Debt) at least to the same extent as set forth in
this Agreement or (ii) equity interest in the Debtors, and (b) to the
extent that any part of the Subordinated Debt is or is deemed unsecured in
an insolvency proceeding and any distribution to general unsecured
creditors is made in such proceeding with the consent of the Senior Lenders
or from a carve out of the Collateral, the Indenture Trustee, on behalf of
the Subordinated Noteholders, shall be entitled to receive and retain any
such Distribution made to unsecured creditors which would otherwise be paid
or payable over to the Senior Lenders.
6.6 Rights of Subordinated Noteholders. Except as expressly provided
----------------------------------
herein, nothing contained in this Agreement is intended to, nor shall it, impair
or reduce the obligation of the Debtors, which are absolute and unconditional,
to pay the Subordinated Debt as and when the same shall become due and payable
or to comply with all of the terms and conditions of the Indenture. No Person,
including the Debtors, any third party, a trustee in bankruptcy or
representative of
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creditors, other than the Senior Lenders shall be entitled to any benefit
under this Agreement so as to claim any priority over the Subordinated
Noteholders.
ARTICLE 7. NOTEHOLDER AGREEMENTS
7.1 Miscellaneous Security Interests. Each of the Indenture Trustee, the
--------------------------------
Senior Loan Agent and each Noteholder agrees that it is, and shall act as, the
agent and bailee for the other Noteholders (without effect on the priorities
established hereunder and without any liability or responsibility) to the extent
reasonably necessary to perfect any security interest in Collateral required to
be perfected by possession or control and which is at any time in the possession
or under the control of any such Person. Each Noteholder represents and warrants
to each other that, except as set forth on Schedule 2 hereto, as of the date
hereof (a) there are no assets of the Debtors known to it in which the
Collateral Trustee does not hold a valid, perfected and enforceable Lien, and
(b) there is no asset, collateral or security granted to the Indenture Trustee
or to any Noteholder in which the Collateral Trustee does not hold a valid,
perfected and enforceable Lien (in each case, after giving effect to the
transactions contemplated to occur on the Initial Closing Date).
7.2 Coordination of Enforcement Efforts. Without providing any rights or
-----------------------------------
benefits to the Debtors, the Senior Loan Agent, the Indenture Trustee and each
Noteholder agree that, in the event enforcement proceedings are necessary at any
time after the Stated Maturity Date of the Subordinated Debt, such parties shall
reasonably discuss the possibility of undertaking a coordinated enforcement
process, including an effort, if advisable, to attempt to sell the Collateral
assets of the Debtors for fair market value as a going concern and to reasonably
enter into arrangements between themselves so as to permit the ongoing operation
of the business of the Debtors. Failure to enter into such discussions shall in
no way affect the rights and/or obligations of any party as set forth in this
Agreement nor shall it entitle any party to specific performance pursuant to
Section 7.4 hereof.
7.3 Information. The Indenture Trustee and the Senior Loan Agent agree to
-----------
furnish to each other and to all Noteholders from time to time upon request,
information and particulars as to the amounts owing by the Debtors under the
Master Debt Agreements, and the Debtors hereby consent to all such disclosures.
The Senior Loan Agent and the Indenture Trustee shall provide to each other
copies of any written waivers of any Events of Default granted by it to any
Debtor and copies of all amendments to their respective Master Debt Agreements.
7.4 Specific Performance. Each of the parties to this Agreement
--------------------
acknowledges that the Senior Lenders and the Subordinated Noteholders would be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached.
Accordingly, each of the parties to this Agreement agrees that the Senior
Lenders and the Subordinated Noteholders, and the Senior Loan Agent and
Indenture Trustee shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions of this Agreement in any
-24-
action instituted in any court of competent jurisdiction, in addition to any
other remedy to which they may be entitled at law or in equity, without the need
to demonstrate any actual damage to be suffered by the party seeking such relief
and without posting any bond or other security.
ARTICLE 8. MISCELLANEOUS
8.1 Interpretation and Survival of Provisions. Article, Section,
-----------------------------------------
Schedule, and Exhibit references are to this Agreement, unless otherwise
specified. All references to instruments, documents, contracts, and agreements
are references to such instruments, documents, contracts, and agreements as the
same may be amended, supplemented, and otherwise modified from time to time,
unless otherwise specified. The word "including" shall mean "including but not
limited to." Whenever any Debtor has an obligation under this Agreement, the
expense of complying with that obligation shall be an expense of the Debtors
unless otherwise specified. Whenever any determination, consent, or approval is
to be made or given by the Collateral Trustee, such action shall be in the
Collateral Trustee's reasonable discretion unless otherwise specified in this
Agreement. If any provision in this Agreement is held to be illegal, invalid,
not binding, or unenforceable, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid, not
binding, or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions shall remain in full force and effect.
This Agreement has been reviewed and negotiated by sophisticated parties with
access to legal counsel and shall not be construed against the drafter. The
representations, warranties, and covenants made in this Agreement shall remain
operative and in full force and effect regardless of (a) any investigation made
by or on behalf of any Person, or (b) the issuance and acceptance of any Master
Debt and payment therefor. Provisions which expressly state so shall remain
operative and in full force and effect unless such provisions are expressly
terminated in a writing referencing those individual provisions, regardless of
any purported general termination of this Agreement.
8.2 Binding Effect; Assignment. This Agreement and the Security Documents
--------------------------
shall be binding upon all parties hereto and thereto and their respective
successors and permitted assigns. Except as expressly provided herein and in the
Security Documents, such agreements shall not be construed so as to confer any
right or benefit upon any Person, including a trustee in bankruptcy or any other
representatives of creditors generally, other than the parties to this
Agreement, the Noteholders, and their respective successors and permitted
assigns. The Debtors may not assign their rights or delegate their duties under
the Security Documents. The Collateral Trustee may assign its rights and
delegate its duties under the Security Documents in accordance with the terms of
this Agreement.
8.3 Modifications, Waivers and Consents. This Agreement may be amended
-----------------------------------
without the consent of any Debtor. Unless otherwise set forth herein, all
modifications, waivers, and consents under all other Security Documents shall be
in writing and signed by the Debtors party thereto and the Collateral Trustee,
acting upon the written direction of the Required Percentage of each Class of
Master Debt, but if such modification, waiver, or consent adversely affects the
rights, duties, or immunities of the Collateral Trustee, then the Collateral
Trustee shall take such action
-25-
only in its own discretion. Nothing herein is intended to impair the
obligations of the Debtors to execute documents and agreements in accordance
with the Master Debt Agreements.
8.4 Notices.
-------
(a) Any notice or other instrument required to be delivered to any
Debtor under this Agreement or under the other Security Documents shall be
simultaneously delivered by the sender to all other parties to this
Agreement as provided below. The Collateral Trustee shall, promptly after
receipt thereof, deliver to each other party to this Agreement, other than
the Debtors, copies of all other notices, requests, correspondence or
instruments received by the Collateral Trustee from any Person under or
pursuant to this Agreement.
(b) All notices, requests, correspondence, and other instruments
delivered to any party hereunder shall be in writing, and shall be
delivered by registered or certified mail, return receipt requested, telex,
telegram, telecopy, air courier guaranteeing overnight delivery, or
personal delivery, to such parties at the following addresses:
If to the Collateral Trustee:
Union Bank of California, N.A., as Collateral Trustee
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxx, Vice President
Telecopier: (000) 000-0000
If to the Senior Loan Agent or the Senior Lenders:
Union Bank of California, N.A., as Senior Loan Agent
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxx, Vice President
Telecopier: (000) 000-0000
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If to the Indenture Trustee or the Subordinated Noteholders:
Wilmington Trust Company
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Corporate Trust Administration
Telecopier: (000) 000-0000
If to the Company or any Other Debtor:
Southwest Royalties, Inc.
000 X. Xxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: X.X. Xxxxxxx, III, President
Telecopier: (000) 000-0000
or to such other addresses as such parties may designate to the others in
writing. All such notices requests, correspondence, and other instruments shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; four (4) days after being sent by certified mail, return receipt
requested, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and on the next business day if timely delivered to an air
courier guaranteeing overnight delivery. Any notice required under this
Agreement to be delivered to the Debtors shall be deemed duly delivered if
delivered to the Company or another of such Debtors.
8.5 Further Assurances. Each party to this Agreement shall execute,
------------------
acknowledge, and deliver all such agreements, documents and instruments and take
all such further action as may be reasonably necessary in order to further
effectuate the purposes and to carry out the terms of this Agreement and the
Security Documents.
8.6 Governing Law. The laws of the State of Texas will govern this
-------------
Agreement without regard to principles of conflicts of laws.
8.7 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same Agreement.
8.8 Conflict. In the event any term or provision hereof is inconsistent
--------
with or conflicts with any provision of the Security Documents, the terms and
provisions contained in this Agreement shall be controlling.
-27-
8.9 Termination.
-----------
(a) This Agreement and the obligations of the parties hereunder shall
terminate, and be of no further force and effect, when all amounts owed
under the Master Debt Agreements have been fully and finally paid.
(b) Except as otherwise set forth in this paragraph (b), the rights
and obligations of the Senior Lenders and the Senior Loan Agent shall
terminate and be of no further force and effect when all of the Senior Debt
has been fully and finally paid. If, upon the repayment in full of the
Senior Debt, the Senior Loan Agent or any Senior Lender shall then be
acting as the Collateral Trustee under this Agreement, then the Senior Loan
Agent or such Senior Lender, as the case may be, shall duly assign,
transfer, and deliver unto the Indenture Trustee all of the rights,
instruments and moneys or other Collateral (including any funds or
Collateral Account Collateral then held in the Collateral Account) then
held by the Senior Loan Agent or such Senior Lender as Collateral Trustee
hereunder and under the Security Documents, and shall execute and deliver
such proper instruments in such form as may reasonably be requested by the
Indenture Trustee to evidence such assignment, transfer, and delivery. Upon
the Indenture Trustee's acceptance of the assignment, transfer, and
delivery as aforesaid (i) the Indenture Trustee shall immediately and
without the need for any further action succeed to all of the rights and
obligations of the Collateral Trustee under the Security Documents as if
originally named as such therein, (ii) the Senior Loan Agent and all Senior
Lenders shall be fully and finally released in writing from any and all
obligations under this Agreement, and (iii) this Agreement and the
obligations of the remaining parties hereunder shall terminate, and be of
no further force and effect.
(c) Notwithstanding anything to the contrary contained in this Section
8.9, upon the termination of this Agreement (i) the indemnification
provisions of Section 5.4 hereof shall survive the termination of this
Agreement, and (ii) unless and until all obligations owed under all Master
Debt Agreements have been fully and finally paid, the Security Documents
(other than this Agreement) and all of the obligations of the Debtors
thereunder shall remain in full force and effect
8.10 Subsidiaries. Each Debtor hereby covenants and agrees that it will
------------
not permit any of its existing or future Subsidiaries to take or fail to take
any action that a Debtor is either required or prohibited, as the case may be,
from taking under the provisions of this Agreement.
8.11 JURY WAIVER. THE PARTIES HERETO HEREBY WAIVE, TO THE FULLEST EXTENT
-----------
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDINGS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
-28-
[Signatures on the Following Pages]
-29-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers and
attorneys-in-fact as of the day and year first above written.
SENIOR LENDERS:
UNION BANK OF CALIFORNIA, N.A.,
as Senior Loan Agent and as Senior Lender
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
BANK OF SCOTLAND
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
FBR ASSET INVESTMENT CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[Signatures Continued on the Following Page]
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WILMINGTON TRUST COMPANY,
as Indenture Trustee and also on behalf
of all Subordinated Noteholders
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
COLLATERAL TRUSTEE:
UNION BANK OF CALIFORNIA, N.A.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
DEBTORS:
SOUTHWEST ROYALTIES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
BLUE HEEL COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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Schedule 2
to Collateral Trust Agreement
Assets of Debtors not Subject to Liens
in favor of Collateral Trustee
------------------------------
NONE
Collateral Security not Subject to Liens
in favor of Collateral Trustee
------------------------------
1. The Indenture Trustee holds a pledge of the capital stock of
Basic Energy Services, Inc directly owned by Southwest Realty
Holdings, Inc., an affiliate of the Debtors.
2. The Indenture Trustee holds a pledge of the capital stock Midland
Red Oak Realty, Inc., directly owned by MRO Holdings, Inc. and
formerly owned by Southwest Realty Holdings, Inc., an affiliate
of the Debtors.
-32-
