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EXHIBIT 10.41
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PURCHASE AGREEMENT
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PRODUCTION PAYMENT
DRILLING PROGRAM
between
TRANSTEXAS GAS CORPORATION
and
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P.,
TCW DR VI INVESTMENT PARTNERSHIP, L.P.
AND
TCW ASSET MANAGEMENT COMPANY, AS AGENT
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$75,000,000
February 23, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I - Definitions and References............................................................................1
Section 1.1. Defined Terms and References...............................................................1
Section 1.2. Rules of Construction......................................................................6
ARTICLE II - Purchase and Sale....................................................................................6
Section 2.1. Agreement of Purchase and Sale.............................................................6
Section 2.2. Initial Closing............................................................................6
Section 2.3. Subsequent Closings........................................................................7
Section 2.4. Payment of ................................................................................8
Section 2.5. Expenses...................................................................................9
Section 2.6. Payments to Grantee........................................................................9
ARTICLE III - Closing Dates and Closings.........................................................................10
Section 3.1. Times and Places of Closings..............................................................10
Section 3.2. Conditions to Initial Closing.............................................................10
Section 3.3. Conditions to Subsequent Closings.........................................................11
Section 3.4. Other Conditions to All Closings..........................................................12
ARTICLE IV - Representations and Covenants.......................................................................13
Section 4.1. Representations and Warranties of Grantor.................................................13
Section 4.2. Representations, Warranties and Disclosures by Grantee....................................18
Section 4.3. Covenants of Grantor......................................................................19
Section 4.4. Reporting Covenants of Grantor............................................................22
Section 4.5. Reporting Covenants of Grantee............................................................24
Section 4.6. Additional Remedies Upon Designated Event.................................................25
Section 4.7. Confidentiality...........................................................................25
Section 4.8. Future Processing Plant Arrangements......................................................26
ARTICLE V - Adjustment of Dedication Percentage..................................................................26
Section 5.1. Reserve Reports...........................................................................26
Section 5.2. Adjustment to Dedication Percentage.......................................................27
ARTICLE VI - Miscellaneous.......................................................................................28
Section 6.1. Waivers and Amendments....................................................................28
Section 6.2. Survival of Agreements; Cumulative Nature.................................................29
Section 6.3. Notices...................................................................................29
Section 6.4. Parties in Interest.......................................................................29
Section 6.5. Governing Law.............................................................................29
Section 6.6. Limitation on Interest....................................................................30
Section 6.7. Termination; Limited Survival.............................................................30
Section 6.8. Severability..............................................................................30
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Section 6.9. Arbitration...............................................................................31
Section 6.10. Agent....................................................................................32
Section 6.11. Counterparts.............................................................................35
SCHEDULE 1 - Litigation Summary
SCHEDULE 2 - Abstracts of Judgment
SCHEDULE 3 - Example Calculation of Unliquidated Balance of Primary Sum
EXHIBIT A - Legal Opinion
EXHIBIT B - Partial Release and Subordination
EXHIBIT C - Guaranty
EXHIBIT D - Purchase Agreement Supplement
EXHIBIT E - Conveyance Supplement
EXHIBIT F - Gas Sales Agreement
EXHIBIT G - Oil Sales Agreement
EXHIBIT H - Conveyance
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT dated as of February 23, 1998 (herein, as from
time to time amended or supplemented, called this "Agreement") is made by:
o TransTexas Gas Corporation, a Delaware corporation (herein
called "Grantor"),
o TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and
TCW DR VI Investment Partnership, L.P. (herein collectively
called "Grantee"), and
o TCW Asset Management Company, as Agent on behalf of Grantee
(in such capacity, "Agent").
RECITALS
1. Grantor is the owner of interests in certain oil and gas
leases.
2. Pursuant to the Trust Indenture described below, Grantor is
permitted, under certain circumstances, to enter into drilling programs to
obtain funds to reimburse it for certain costs it has paid in connection with
the drilling and completing of oil and gas ▇▇▇▇▇. Grantor desires to sell and
assign to Grantee upon the terms and conditions herein set forth, a production
payment under a production payment conveyance to be made by Grantor to Grantee,
in order to obtain such funds.
3. Grantee desires to purchase such production payment upon the
terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Grantor, Grantee and Agent hereby
agree as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms and References. As used herein, the terms
"Agreement", "Grantor", and "Grantee" have the meanings given them above
(provided that references to Grantor and Grantee also refer to the successors
and assigns of such Persons). Reference is also made to the "Conveyance", as
defined below, for the meaning of various terms defined therein, all of which
shall when used herein (unless otherwise expressly defined herein) have the
meanings given them in the Conveyance. For purposes of this Agreement, unless
the context otherwise requires, the following additional terms shall have the
following meanings:
"Agent" has the meaning given such term in Section 6.10(a).
"Closing" means the Initial Closing or any Subsequent Closing, and
"Closing Date" means the Initial Closing Date or any Subsequent Closing Date.
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"Conveyance" means the Production Payment Conveyance made by Grantor to
Grantee, substantially in the form of Exhibit H to this Agreement (appropriately
completed), as from time to time supplemented by Conveyance Supplements or
otherwise amended or supplemented.
"Conveyance Supplement" means a Supplement to Production Payment
Conveyance executed by Grantor and Grantee (acting through Agent), substantially
in the form of Exhibit E to this Agreement.
"Designated Event" means any of the following:
(a) any representation or warranty made by Grantor or any
Purchasing Subsidiary in the Conveyance, either Sales Agreement, this
Purchase Agreement or any other Production Payment Document is false or
incorrect in any material respect as of the time when made;
(b) Grantor or any Purchasing Subsidiary fails to pay or
perform any obligation, covenant or duty owed by it under the
Conveyance, either Sales Agreement, this Purchase Agreement or any
other Production Payment Document, and such failure is not fully
remedied, in the case of an obligation to pay money or to perform (or
cause to be performed) Delivery Services, within five days after it
occurs or, in the case of any other obligation, covenant, or duty,
within thirty days after it occurs;
(c) any representation or warranty made by TEC or the Trustee
in any Partial Release, or by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in the Guaranty, or by
any of them in any other Production Payment Document to which any of
them may hereafter become a party, is false or incorrect in any
material respect as of the time when made;
(d) the Trustee or TEC fails to provide any further assurances
requested under Section 2(d) of any Partial Release within forty-five
days after such request is first made;
(e) ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ fails to pay and perform any obligation,
covenant or duty owed by him under the Guaranty or any other Production
Payment Document to which he may hereafter become a party, and such
failure is not fully remedied, in the case of an obligation to pay
money within five days after it occurs or, in the case of any other
obligation, covenant, or duty, within thirty days after it occurs;
(f) the occurrence of an "Event of Default" under the Trust
Indenture; and
(g) the validity or enforceability of any Production Payment
Document is challenged by Grantor, any Affiliate of Grantor, the
Trustee, or ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in any court, arbitration, or regulatory
proceeding of any kind, or any Production Payment Document is held to
be unenforceable in any material respect in any court, arbitration, or
regulatory proceeding of any kind.
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"Drilling Costs" means, with respect to any Program Well, the costs to
Grantor of drilling and completing such Program Well.
"Estimated Drilling Costs" has the meaning given such term in Section
2.3(f).
"Gas Sales Agreement" means the Natural Gas Sales Agreement of even
date herewith between Grantor and Grantee, as from time to time supplemented and
amended, which is being executed concurrently herewith substantially in the form
of Exhibit F hereto and under which Grantee is agreeing to sell, and Grantor is
agreeing to buy, all of the Gas included in the PP Hydrocarbons.
"Guaranty" means that certain Guaranty, dated of even date herewith,
executed by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ substantially in the form of Exhibit C hereto.
"Hazardous Substance" means any "hazardous waste", "hazardous
substance", "extremely hazardous substance", "toxic chemical", "hazardous
chemical", "toxic pollutants", contaminants", "chemical", "chemical substance",
or "asbestos", as such terms are defined in any Environmental Law, or related
substances, in such quantities or concentrations as are prohibited by (or
require remediation under) any Environmental Law or other applicable law, or
which may be declared to constitute a material threat to human health or to the
environment.
"Initial Closing" and "Initial Closing Date" have the meanings given
them in Section 3.1.
"Initial Reimbursement/Installment Payment" means the first
Reimbursement/Installment Payment made hereunder, which shall be the lesser of
(a) the actual Drilling Costs for the Initial ▇▇▇▇▇, and (b) $27,701,170.
"Initial ▇▇▇▇▇" means Grantor's:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇. #▇ well, Acom Estate Gas Unit #5 well, Frost-Acom #1
well, ▇▇▇▇▇ ▇▇▇▇▇ #6-R and #8 ▇▇▇▇▇, ▇▇▇▇▇▇ Ranch #1 well, ▇▇▇▇-▇▇▇▇▇▇▇
#1 well, ▇▇▇▇▇▇▇▇ #1 well, and State Tract 331 #1 and #3 ▇▇▇▇▇.
"Oil Sales Agreement" means the Oil Sales Agreement of even date
herewith between Grantor and Grantee, as from time to time supplemented and
amended, which is being executed concurrently herewith substantially in the form
of Exhibit G hereto and under which Grantee is agreeing to sell, and Grantor is
agreeing to buy, all of the Oil included in the PP Hydrocarbons.
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"Partial Release" means a Partial Release and Subordination executed by
the Trustee, TEC and Grantor substantially in the form of Exhibit B hereto.
"Permitted Encumbrances" has the meaning given such term in Section
4.1(i).
"PPNPV" has the meaning given such term in Section 5.1(c).
"Preferential Right" has the meaning given such term in Section 4.1(p).
"Production Payment Documents" means this Agreement, the Purchase
Agreement Supplements, the Conveyance, the Conveyance Supplements, the Partial
Releases, the Guaranty, the Sales Agreements, and each certificate, agreement,
document, or instrument now or hereafter delivered to Grantee or Agent in
connection with any thereof by or on behalf of Grantor, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or TEC.
"Production Unit" means a tract of at least 40 acres (or, in the case
of State Tract 331, the easternmost 320 acres of such tract), specified as to
both area and depths, meeting the following conditions:
(a) Grantor owns good and defensible title (subject only to
Permitted Encumbrances) to an undivided fee or leasehold interest in
and to the oil, gas, and all other liquid and gaseous hydrocarbons
which may be produced from such tract, including the right to produce,
save and market production from any Program Well located thereon.
(b) Such tract satisfies all drilling and spacing regulations
of the Railroad Commission of Texas, or any other governmental
authority having jurisdiction and is of sufficient size to afford a
well thereon the maximum applicable allowable.
"Program Period" means the period beginning six months prior to the
date hereof through and including the earliest of (a) January 31, 1999, (b) the
date on which thirty Program ▇▇▇▇▇ become subject to the Conveyance, and (c) the
date on which Grantee has paid $75,000,000 in aggregate
Reimbursement/Installment Payments to Grantor.
"Program Well" means:
(a) each of the Initial ▇▇▇▇▇,
(b) each well not already subject to the Conveyance that is
drilled within the Program Period and that both (i) is within one mile
of any well (other than a well on State Tract 331) that has, at such
time, been made subject to the Conveyance, and (ii) penetrates a zone
produced by (or intended to be produced by) any such well, and
(c) each other well, if any, which Grantor chooses to offer to
Grantee under Section 2.3 during the Program Period.
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"Purchase Agreement Supplement" means a Supplement to Purchase
Agreement executed by Grantor, Grantee (acting through Agent), and Agent (and
consented to by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇), substantially in the form of Exhibit D to this
Agreement and appropriately completed.
"Purchasing Subsidiary" means any Subsidiary of Grantor that, with the
consent of Grantee, hereafter assumes the obligations of Grantor under either or
both of the Sales Agreements.
"Regular Evaluation Date" means each February 1, beginning with
February 1, 1999, and each August 1, beginning with August 1, 1998.
"Reimbursement/Installment Payment" means a payment to be made by
Grantee to Grantor under Section 2.2 or 2.3 in consideration of the Conveyance
or a Conveyance Supplement.
"Reserve Engineers" means Netherland, ▇▇▇▇▇▇ & Associates (or other
independent petroleum engineers of recognized standing selected by Grantor and
acceptable to Agent in the reasonable exercise of its discretion).
"Reserve Report" has the meaning given such term in Section 5.1.
"Sales Agreements" means the Gas Sales Agreement and the Oil Sales
Agreement.
"Senior Notes" means the 11 1/2% Senior Secured Notes due 2002 and the
13% Senior Secured Discount Notes due 2002 which have been issued by TEC
pursuant to the Trust Indenture.
"Special Evaluation Date" means that day which Grantee or Grantor, by
notice to the other, first designates as the Special Evaluation Date, provided
that such day must be the first day of a calendar month and must be at least six
months (and no more than twelve months) after the commencement of production
from the last Program Well to be made subject to the Conveyance. Only one
designation of a Special Evaluation Date may be made, and no such designation is
required to be made. The Special Evaluation Date may be, but need not be, a
Regular Evaluation Date.
"Subsequent Closing" and "Subsequent Closing Date" have the meanings
given them in Section 3.1.
"Tamco" means TCW Asset Management Company, a California corporation.
"TEC" means TransAmerican Energy Corporation, a Delaware corporation.
"TransAmerican" means TransAmerican Natural Gas Corporation, a Texas
corporation.
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"TransAmerican Company" means TransAmerican, Grantor, TEC,
TransAmerican Refining Corporation, and each other subsidiary of TransAmerican.
"Trust Indenture" means that certain Indenture dated as of June 13,
1997, made in connection with the Senior Notes by TEC (as Issuer) and Firstar
Bank of Minnesota, N.A. (as Trustee), as supplemented or amended from time to
time, together with any other indenture governing any issue of bonds or notes
which hereafter refinances the Senior Notes in whole or in part.
"Trustco" means Trust Company of the West.
"Trustee" means, at the time in question, the Person serving as Trustee
under the Trust Indenture. Firstar Bank of Minnesota, N. A. is the Trustee on
the date hereof.
Section 1.2. Rules of Construction. All references in this Agreement to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Agreement unless
expressly provided otherwise. Titles appearing at the beginning of any of such
subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words "this Agreement, "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. Unless the context otherwise requires: "including" (and its grammatical
variations) means "including without limitation"; "or" is not exclusive; words
in the singular form shall be construed to include the plural and vice versa;
words in any gender include all other genders; references herein to any
instrument or agreement refer to such instrument or agreement as it may be from
time to time supplemented or amended; and references herein to any Person
include such Person's successors and assigns. All references in this Agreement
to exhibits and schedules refer to the exhibits and schedules to this Agreement
unless expressly provided otherwise, and all such exhibits and schedules are
hereby incorporated herein by reference and made a part hereof for all purposes.
ARTICLE II - Purchase and Sale
Section 2.1. Agreement of Purchase and Sale. Upon the terms and
conditions of this Agreement, Grantor agrees to sell the first component of the
Production Payment to Grantee pursuant to the Conveyance, and Grantee agrees to
purchase the same from Grantor and to pay the Initial Reimbursement/Installment
Payment as the purchase price therefor.
Section 2.2. Initial Closing. On the Initial Closing Date, Grantor
shall deliver the Conveyance to Grantee, making the properties described therein
(including the Initial ▇▇▇▇▇) subject to the Production Payment, and shall
satisfy all of the conditions set out in Sections 3.2 and 3.4. Thereupon Grantee
shall pay the Initial Reimbursement/Installment Payment to Grantor, with:
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$18,467,446.67 being paid by TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P., and
$9,233,723.33 being paid by TCW DR VI Investment Partnership, L.P.
Section 2.3. Subsequent Closings. Throughout the Program Period (but no
more frequently than one time per month), Grantor shall present to Grantee all
logs which it has made or received with respect to any Program Well that has not
previously been offered to Grantee, together with a written description of:
(a) the interval or intervals which Grantor intends to
complete, together with (i) production information about offsetting
▇▇▇▇▇, and (ii) any relevant geological and geophysical maps (or access
thereto),
(b) the Production Unit on which such Program Well is located,
and whether or not such Production Unit contains acreage sufficient (i)
to afford such well its maximum allowable production (if any), as
determined in accordance with the rules and regulations of the Railroad
Commission of Texas or any other governmental authority having
jurisdiction, and (ii) to reasonably protect such Program Well from
drainage,
(c) the pipeline system or systems by means of which
production from such Program Well will be transported, the present
total capacity of such pipeline(s), and Grantor's expectations as to
how much of such capacity will be contractually committed to Grantor or
to other Persons who may have priority rights with respect to such
capacity,
(d) the gathering system to which such Program Well will be
connected, the time needed to make such connection, and whether or not
such gathering system has sufficient capacity and pressure to permit
the continuing delivery of all Hydrocarbons reasonably expected to be
able to be produced from such Program Well,
(e) Grantor's expectation as to whether production from such
Program Well will be exempt from severance tax pursuant to the Texas
Tax Code,
(f) Grantor's reasonable estimate of the Drilling Costs for
such Program Well (herein called the "Estimated Drilling Costs" for
such Program Well) and any request that Grantee (i) as contemplated in
Section 3.1(e) of the Conveyance, consent to such Program Well (if it
becomes a Subject Well) not being completed or (ii) as contemplated in
Section 3.2(a) of the Conveyance, consent to such Program Well (if it
becomes a Subject Well) being allowed to be abandoned, and
(g) such other matters, including environmental information,
as Grantee shall from time to time request be disclosed in connection
with Program ▇▇▇▇▇ and Production Units.
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Each such presentation by Grantor shall be deemed an offer and request by
Grantor to Grantee that such Production Unit be made subject to the Conveyance
in consideration of Grantee's payment of a Reimbursement/Installment Payment
specified by Grantor which does not exceed the lesser of such Estimated Drilling
Costs and Grantor's actual Drilling Costs for such Program Well. Grantee has no
obligation to accept any such offer. If Grantee in its discretion agrees to make
any additional Production Unit subject to the Conveyance and to pay such
Reimbursement/Installment Payment as an installment of purchase price for the
Production Payment:
(i) Grantor, Grantee (acting through Agent) and Agent shall in
connection therewith execute and deliver a Purchase Agreement
Supplement, which shall specify the amount of the
Reimbursement/Installment Payment which they have agreed upon for such
Program Well and the portion of such Reimbursement/Installment Payment
which Grantor then desires to receive and which shall contain any
exceptions to representations and warranties, or additional
representations, warranties, covenants or other matters, as Grantor and
Grantee may agree upon;
(ii) Grantee shall prepare a Conveyance Supplement which shall
contain a legal description for such Production Unit, a Delivery Point
for the field in which such Production Unit is located (if the same has
not already been designated for such field), and set out Grantor's net
revenue interest and working interest therein and the amount (equal to
the portions of any Reimbursement/Installment Payments which Grantor
will concurrently receive) by which the Primary Sum is to be increased;
(iii) Grantee shall prepare a supplement to the Gas Sales
Agreement and the Oil Sales Agreement, if production from new fields is
to be sold thereunder, which shall contain a delivery point and a sales
price for production from such field; and
(iv) On such Subsequent Closing Date, Grantor will execute and
deliver such Conveyance Supplement to Grantee and satisfy all other
conditions in Sections 3.3 and 3.4, Grantee (acting through Agent)
shall execute and deliver such Conveyance Supplement to Grantor, and
Grantee shall pay such portion of such Reimbursement/Installment
Payment to Grantor.
Section 2.4. Payment of Reimbursement/Installment Payments.
(a) Grantor will not at any time request payment of a
Reimbursement/Installment Payment (or any portion thereof) for any Program Well
in an amount that exceeds the actual Drilling Costs which Grantor has at such
time accrued for such Program Well. As Grantor accrues actual Drilling Costs,
however, Grantor may make requests from time to time for additional portions of
such Reimbursement/Installment Payment that do not exceed such limit. As
provided in Section 2.3(ii) above, the aggregate amount of all such portions of
Reimbursement/Installment Payments properly requested by Grantor shall be set
out in Conveyance Supplements as additions to the unliquidated balance of the
Primary Sum. If in any calendar month:
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(i) Grantor properly requests payments of portions of
Reimbursement/Installment Payments, but
(ii) Grantor and Grantee are not otherwise executing a
Conveyance Supplement under Section 2.3(ii),
then, if Grantor so requests, Grantor and Grantee will nonetheless execute a
Conveyance Supplement to increase the unliquidated balance of the Primary Sum by
the amount of such portions of Reimbursement/Installment Payments so requested
by Grantor.
(b) Grantee will make each payment of Reimbursement/Installment
Payments to Grantor by wire transfer of immediately available funds to such
banks and bank accounts as Grantor shall specify in the certificate delivered in
connection therewith pursuant to Section 3.2(d) or Section 3.3(c), as
appropriate.
(c) Under no circumstances shall the aggregate amount of the Initial
Reimbursement/Installment Payment paid under Section 2.2 and of any other
Reimbursement/Installment Payments paid under Section 2.3 exceed $75,000,000.
(d) Under no circumstances shall Grantee be liable to Grantor or any
third party for the payment of any Drilling Costs. It is the agreement of the
parties hereto that Grantee shall (to the extent otherwise specified hereunder)
purchase the Production Payment by making Reimbursement/Installment Payments in
amounts which are determined, among other things, by reference to Drilling Costs
and Estimated Drilling Costs, but that Grantor (and not Grantee) is responsible
for paying all Drilling Costs.
Section 2.5. Expenses. Grantor will pay to Grantee (or directly to
Grantee's attorneys and other consultants) all Reimbursable Expenses as they are
billed. Grantor has heretofore deposited $50,000 with Grantee, to be applied to
Reimbursable Expenses, and these funds will be applied toward the Reimbursable
Expenses before Grantor is asked to make any additional payments of Reimbursable
Expenses. To the extent that any such deposited funds are not needed to pay
Reimbursable Expenses (or other amounts which may be agreed to by Grantor),
Grantee will return the remainder to Grantor, but Grantor will thereafter remain
liable to pay all Reimbursable Expenses as billed. To the extent that such
deposited funds are insufficient to pay all Reimbursable Expenses, Grantor will
thereafter make additional deposits of $25,000 each with Grantee (or Grantee's
counsel), which will be used to pay all additional Reimbursable Expenses as
billed.
Section 2.6. Payments to Grantee. Grantor will pay any amounts owing to
Grantee under the Production Payment Documents by wire transfer of immediately
available funds to such banks and accounts as Grantee or Agent shall from time
to time specify in writing at least five Business Days prior to the effective
date for any such change of accounts. Until further notice, two-thirds of all
amounts payable to Grantee hereunder shall be sent as follows for TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. to:
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Boston Safe Deposit
ABA #▇▇▇▇▇▇▇▇▇
Real Estate Wiring #039624
Cost Center #3137
Re: Mellon Bank/▇▇▇▇▇▇ ▇▇▇▇▇▇▇/Fund V-TGC(3)
Account #CPFF 873-3072
and one third of all amounts payable to Grantee hereunder (as well as all
amounts, if any, payable to Agent hereunder) shall be sent as follows for TCW DR
VI Investment Partnership, L.P. (and for Agent) to:
Sanwa Bank California
1977 Saturn
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Trust Operations
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
ABA #▇▇▇▇▇▇▇▇▇
Account #76T02327-4
TCW Debt & Royalty Funds VI-TGC
If the Production Payment ever becomes owned by more than three Persons in
compliance with Section 6.4, then Grantor shall not be required to make wire
transfers to more than three such Persons. If Grantor chooses not to make wire
transfers to more than three such Persons, then any additional Person owning a
partial interest in the Production Payment in compliance with Section 6.4 may by
notice to Grantor request that payments to such owner be thereafter sent
directly to such owner by check, whereupon Grantor will do so.
ARTICLE III - Closing Dates and Closings
Section 3.1. Times and Places of Closings. The closing for the
consummation of the sale and purchase of the first component of the Production
Payment (herein called the "Initial Closing") shall take place at such place (or
places) and on such date as may be agreed to by Grantor and Grantee (herein
called the "Initial Closing Date"). The closing for the consummation of the sale
and purchase of each subsequent component, if any, of the Production Payment
(each herein called a "Subsequent Closing") shall take place at such place (or
places) and on such date as may be agreed to by Grantor and Grantee (each herein
called a "Subsequent Closing Date").
Section 3.2. Conditions to Initial Closing. The obligation of Grantee
to pay the Initial Reimbursement/Installment Payment is subject to Grantee's
receipt of each of the following, in form, substance, and date satisfactory to
Grantee:
(a) An "Omnibus Certificate" of the Secretary or Assistant
Secretary of Grantor, which shall contain the names and signatures of
the officers of Grantor authorized to execute the Production Payment
Documents and which shall certify to the
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truth, correctness and completeness of the following exhibits attached
thereto: (i) a copy of resolutions duly adopted by the Board of
Directors of Grantor and in full force and effect at the time this
Agreement is entered into, authorizing the execution of the Production
Payment Documents and the consummation of the transactions contemplated
therein, (ii) a copy of the charter documents of Grantor and all
amendments thereto, certified by the appropriate official of Grantor's
state of incorporation, and (iii) a copy of the bylaws of Grantor.
(b) An Omnibus Certificate for TEC, similar to that required
for Grantor under the preceding subsection (a).
(c) A certificate (or certificates) of the due formation,
valid existence and good standing of each of Grantor and TEC in its
state of incorporation, issued by the appropriate authorities of such
state, and certificates of Grantor's and TEC's good standing and due
qualification to do business in Texas.
(d) A Compliance Certificate of the Chief Financial Officer of
Grantor, dated as of the Initial Closing Date, in which such officer
shall certify to the satisfaction of the conditions set out in Section
3.4 and shall give the wiring instructions referred to in Section 2.4.
(e) Any assurances of title requested by Grantee concerning
the Production Payment, including the recording and filing of the
Conveyance and the updating of any specified title opinions through
such recording (it being understood that Grantee may require these to
be given after, as well as at, the Initial Closing, and that no title
deficiencies learned of by Grantee at any time shall in any way be
deemed to qualify any of Grantor's warranties of title or indemnities
with respect to title in any of the Production Payment Documents).
(f) Certificates from Grantor's insurance brokers or advisors
confirming that Grantor is in compliance with the requirements of
Section 3.5 of the Conveyance.
(g) A legal opinion of Gardere & ▇▇▇▇▇, L.L.P., as counsel to
Grantor, dated the Initial Closing Date and substantially in the form
of Exhibit A hereto.
(h) The Conveyance, the Gas Sales Agreement, and the Oil Sales
Agreement.
(i) A Partial Release executed by the Trustee and TEC, and
related UCC-3 financing statement changes.
(j) The Guaranty.
Section 3.3. Conditions to Subsequent Closings. The obligation of
Grantee to pay each Reimbursement/Installment Payment in connection with a
Subsequent Closing on the
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related Subsequent Closing Date is subject to Grantee's receipt of each of the
following, in form, substance, and date satisfactory to Grantee:
(a) Supplements to the "Omnibus Certificates" of Grantor and
TEC delivered under Section 3.2(a) and (b), confirming the matters
specified therein and containing any amendments or supplements to the
resolutions, charter documents and bylaws attached thereto.
(b) To the extent, if any, requested by Grantee, certificates
of the valid existence and good standing of Grantor in its state of
incorporation, issued by the appropriate authorities of such state, and
certificates of Grantor's good standing and due qualification to do
business in Texas.
(c) A Compliance Certificate of the Chief Financial Officer of
Grantor, dated as of such Closing Date, in which such officer shall
certify to the satisfaction of the conditions set out in Section 3.4
and shall give the wiring instructions referred to in Section 2.4.
(d) Any assurances of title requested by Grantee concerning
the Production Payment, including the recording and filing of the
Conveyance and the Conveyance Supplements and the updating of any
specified title opinions through such recording (it being understood
that Grantee may require these to be given after, as well as at, the
various Closings, and that no title deficiencies learned of by Grantee
at any time shall in any way be deemed to qualify any of Grantor's
warranties of title or indemnities with respect to title in any of the
Production Payment Documents).
(e) A legal opinion of Gardere & ▇▇▇▇▇, L.L.P., as counsel to
Grantor, dated as of such Closing Date and in form and substance
acceptable to Grantee and its counsel.
(f) A Purchase Agreement Supplement, and any documents called
for thereunder (including any supplements required for the Gas Sales
Agreement and the Oil Sales Agreement).
(g) A Conveyance Supplement.
(h) A Partial Release executed by the Trustee and TEC, and
related UCC-3 financing statement changes.
Section 3.4. Other Conditions to All Closings. In addition to the
receipt of the foregoing documents and instruments under Section 3.2 or 3.3, as
appropriate, the obligation of Grantee to pay any Reimbursement/Installment
Payment on the related Closing Date is subject to the satisfaction (or waiver by
Grantee) of the following conditions precedent:
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(a) All representations and warranties made by Grantor, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
or TEC in any Production Payment Document then or previously delivered shall be
true and correct as of such Closing Date (unless such representations and
warranties are expressly limited to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date).
(b) Grantor, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and TEC shall have performed and
satisfied all agreements, covenants, and conditions which each is required by
any Production Payment Document to perform or satisfy on or prior to such
Closing Date.
(c) The consummation of the Closing on such Closing Date shall not (i)
be prohibited by any law or any regulation or order of any court or governmental
agency or authority applicable to Grantor, TEC, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or Grantee or
(ii) subject any of them to any penalty or other onerous condition under or
pursuant to any such law, regulation or order.
ARTICLE IV - Representations and Covenants
Section 4.1. Representations and Warranties of Grantor. To induce
Grantee to enter into this Agreement and to pay the Reimbursement/Installment
Payments, Grantor hereby represents and warrants to Grantee that:
(a) Each of Grantor and TEC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and duly
qualified to do business and in good standing as a foreign corporation in the
State of Texas. Each has all requisite power and authority, corporate or
otherwise, to own and operate its assets in Texas and to execute and deliver,
and perform all of its obligations under, the Production Payment Documents.
Grantor is not a "foreign person" within the meaning of Sections 1445 and 7701
of the Internal Revenue Code of 1986, as amended (i.e., Grantor is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in the Code and any regulations
promulgated thereunder).
(b) The execution, delivery and performance by Grantor of the
Production Payment Documents to which it is a party, the execution, delivery and
performance by TEC of the Partial Release, and the consummation of the
transactions contemplated herein and in the other Production Payment Documents,
have been duly authorized by all necessary corporate action and do not and will
not (i) violate any material provision of any law, rule, regulation, order,
writ, judgment, decree, determination or award presently in effect having
applicability to Grantor or TEC or of the Certificate of Incorporation or
By-laws of Grantor or TEC, or (ii) result in a breach of, or constitute a
default under, any material contract, indenture, instrument, or agreement to
which either Grantor or TEC is a party or by which it or its property may be
presently bound or affected (including the leases under which Grantor holds the
Subject Interests), or result in or require the creation or imposition of any
lien or encumbrance on any assets of Grantor or TEC. Grantor has obtained or has
caused to be obtained all consents, authorizations and waivers necessary under
any such contract, indenture, instrument or agreement or under any such material
provision of law, rule, regulation, order,
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writ, judgment, decree, determination or award in order to permit the valid
execution, delivery and performance by Grantor and TEC of the Production Payment
Documents.
(c) The Production Payment Documents have been duly executed and
delivered by Grantor (to the extent it is a party thereto) and constitute the
legal, valid and binding acts and obligations of Grantor, enforceable against
Grantor in accordance with their respective terms except as such enforcement may
be limited by bankruptcy, insolvency, moratorium and other similar laws
applicable to creditors' rights generally or by general principles of equity.
(d) No event or state of affairs which would, upon delivery of the
Conveyance, be a Designated Event has occurred and is continuing. No material
"Default" and no "Event of Default" exists under the Trust Indenture. Except as
may have been disclosed to Grantee or Agent, there is no other trust indenture
to which any TransAmerican Company is a party with respect to which the
occurrence of a default by a TransAmerican Company, or the exercise of remedies
after such default, might reasonably be expected to cause a material adverse
effect upon Grantor, its financial condition, or its ability to perform the
Production Payment Documents. No bankruptcy or insolvency proceeding is
presently pending (or, to Grantor's best knowledge, threatened or contemplated)
by or against any TransAmerican Company under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction, and no such Person has made
a general assignment for the benefit of creditors.
(e) Each Partial Release given by the Trustee and by TEC constitutes
the legal, valid and binding act and obligation of the Trustee and of TEC,
enforceable against the Trustee, TEC and the holders of the Senior Notes in
accordance with the terms thereof, except as such enforcement may be limited by
bankruptcy, insolvency, moratorium and other similar laws applicable to
creditors' rights generally or by general principles of equity.
(f) The data, information, exhibits, memoranda and reports furnished by
or on behalf of Grantor to Grantee or Agent in connection with the negotiation
of the Production Payment Documents (taken as a whole, and taking into account
all corrections and supplements to such information heretofore delivered) do not
contain any material misstatement of fact relevant to the transactions
contemplated hereby or omit to state a material fact relevant to the
transactions contemplated hereby or any fact necessary to make the statements
contained therein that are relevant to the transactions contemplated hereby not
misleading. There is no fact known to Grantor that has not been disclosed to
Grantee or Agent which might reasonably be expected to materially and adversely
affect the value of the Production Payment. (The data and information referred
to in the above representations and warranties include any factual information
furnished by Grantor for incorporation or use in any reserve or production
reports or estimates furnished by Grantor or the Reserve Engineers in connection
herewith, but Grantor is not representing and warranting that any reserve or
production estimates made by Grantor or such engineers will ultimately prove to
have been accurate.) Except for production from the Subject ▇▇▇▇▇ in the
ordinary course of business or for matters disclosed to Agent or Grantee in
writing, no material adverse change in the financial condition of Grantor or TEC
or in the condition or aggregate value of the Subject ▇▇▇▇▇ or Subject Interests
has occurred since the date of the last financial statements delivered by
Grantor to Grantee.
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(g) Except for matters described on Schedule 2 hereto or matters
disclosed to Agent or Grantee in writing, there is no litigation or
administrative proceeding pending against any TransAmerican Company which
involves (i) a dispute or claim concerning title to any of the Subject
Interests, (ii) any actual or purported lien, security interest, charge or
burden upon any of the Subject Interests or any lease making up any part of the
Subject Interests, or (iii) any other claim which would affect a transferee of
any such lease or any of the Subject Interests. Except for matters described on
Schedule 1 hereto or matters disclosed to Agent or Grantee in writing, there is
no other litigation or proceeding pending or, to the best knowledge of Grantor,
threatened against any TransAmerican Company which, if determined adversely to
such TransAmerican Company, might reasonably be expected to have a material
adverse effect on the financial condition of Grantor or TEC, the value of the
Production Payment, the ability of Grantor to convey the Production Payment
pursuant to the Production Payment Documents, the enforceability of any Partial
Release, or the ability of Grantor to perform its obligations under the
Production Payment Documents.
(h) Schedule 2 (as amended and supplemented from time to time by any
Purchase Agreement Supplements) contains a complete and accurate list of all
abstracts of judgment and notices of lis pendens on file against any of the
Subject Interests. Grantor has posted supersedeas bonds in the amounts
sufficient in all respects to stay execution of (and pay, if necessary) any such
judgment.
(i) Grantor has good and defensible title to the Subject Interests,
free and clear of all liens, security interests, and encumbrances except for:
(i) the contracts, agreements, burdens, encumbrances and other
matters set forth as being applicable to certain of the Subject
Interests in the descriptions of such Subject Interests on Exhibit A to
the Conveyance (as such Exhibit A is amended and supplemented from time
to time by any Conveyance Supplements),
(ii) statutory liens for taxes which are not yet delinquent or
which (in the case of taxes hereafter coming due) are being contested
in good faith by appropriate proceedings and for the payment of which
Grantor has reserved adequate funds,
(iii) liens under operating agreements, pooling orders and
unitization agreements, and mechanics' and materialmen's liens, with
respect to obligations incurred in the ordinary course of business
which are not yet due or which (in the case of obligations hereafter
coming due) are being contested in good faith by appropriate
proceedings for the payment of which Grantor has reserved adequate
funds,
(iv) easements, rights-of-way, zoning, similar restrictions
and other similar encumbrances incurred in the ordinary course of
business which do not in any case materially detract from the value or
use of the property subject thereto,
(v) judgment liens and lis pendens (which, except for the
judgment liens and lis pendens listed in Schedule 2, do not burden the
Production Payment), but only for so
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long as enforcement thereof is stayed or otherwise prevented, and
(vi) liens in favor of TEC or the Trustee burdening the
Retained Interests but not the Production Payment, and security
interests in favor of any Person burdening the proceeds of that portion
of the Subject Hydrocarbons which is attributable to the Retained
Interests but not the PP Hydrocarbons.
The matters described in the foregoing clauses (i), (ii), (iii), (iv), (v) and
(vi) are herein called the "Permitted Encumbrances". The listing of Permitted
Encumbrances is made for the purpose of limiting the warranties of Grantor made
herein, and is not intended to restrict the description of the Subject
Interests, nor is it intended that the listing herein of any Permitted
Encumbrances shall subordinate the Production Payment to such Permitted
Encumbrance or otherwise cause the Conveyance, any Conveyance Supplement, or any
rights of Grantee or Agent thereunder to be made subject to, or encumbered by,
such Permitted Encumbrance. As provided above, no judgment lien or lis pendens
referred to in clause (v) above shall be considered to be a Permitted
Encumbrance (for the purposes of Section 4.1 of the Conveyance or for any other
purpose) after enforcement thereof ceases to be stayed or otherwise prevented.
(j) The oil, gas or mineral leases, contracts, servitudes and other
agreements forming a part of the Subject Interests, to the extent the same cover
or otherwise relate to the Subject Interests, are in full force and effect, and
Grantor agrees to so maintain them in full force and effect. All rents,
royalties and other payments due and payable under such leases, contracts,
servitudes and other agreements, or under the Permitted Encumbrances, or
otherwise attendant to the ownership or operation of the Subject Interests, have
been, and will continue to be, properly and timely paid. Grantor is not in
default with respect to Grantor's obligations (and Grantor is not aware of any
default by any third party with respect to such third party's obligations) under
such leases, contracts, servitudes and other agreements, or under the Permitted
Encumbrances, or otherwise attendant to the ownership or operation of any part
of the Subject Interests, where such default could materially and adversely
affect the ownership or operation of any of the Subject Interests; Grantor will
fulfill all such obligations coming due in the future.
(k) Except for (i) the Gas Purchase and Sale Agreement dated December
12, 1996 by and between PanEnergy Marketing Company and TransAmerican
(predecessor in interest to Grantor) and the Gas Processing Agreement dated the
same date between the same parties (both of which relate to the Acom Estate Gas
Unit #5 well and the Frost-Acom #1 well), (ii) the Gas Purchase Agreement dated
December 1, 1997, by and between HPL Resources Company and Grantor (which
relates to the ▇▇▇▇-▇▇▇▇▇▇▇ #1 well), and (iii) any contracts or arrangements
expressly mentioned in any Purchase Agreement Supplement, no Subject Interest is
dedicated or otherwise subject to any contract or other arrangement for the
sale, processing or transportation of Hydrocarbons produced therefrom (or
otherwise related to the marketing of such Hydrocarbons) which would bind
Grantee as owner of the PP Hydrocarbons or would otherwise restrict the rights
of Grantee under the Conveyance to take possession of and market PP
Hydrocarbons. Neither Grantor, nor any of its predecessors in title, has
received prepayments (including payments for gas not taken pursuant to "take or
pay" or other similar
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arrangements) for any Hydrocarbons produced or to be produced from the Subject
Interests. There is no Subject Interest with respect to which Grantor, or its
predecessors in title, has, prior to the date hereof, taken more
("overproduction"), or less ("underproduction"), Hydrocarbons than its (or its
predecessor's in title's) ownership interest in such Subject Interest would
entitle it to take, which overproduction or underproduction has not been
recouped as of the date hereof. No Subject Interest is subject to any production
balancing arrangement under which one or more third Persons may take a portion
of the production attributable to such Subject Interest without payment (or
without full payment) therefor as a result of production having been taken from,
or as a result of other actions or inactions with respect to, other properties.
No Subject Interest is subject on the date hereof to any regulatory refund
obligation and, to the best of Grantor's knowledge, no facts exist which might
cause the same to be imposed.
(l) The Subject Interests (and properties unitized therewith) are being
(and, to the extent the same could materially and adversely affect the ownership
or operation of the Subject Interests after the date hereof, have in the past
been) maintained, operated and developed in a good and workmanlike manner, in
accordance with prudent industry standards and in conformity in all material
respects with all applicable laws and all rules, regulations and orders of all
duly constituted authorities having jurisdiction and in conformity with all oil,
gas or other mineral leases and other contracts and agreements forming a part of
the Subject Interests and in conformity with the Permitted Encumbrances. No
Subject Interest is subject to having allowable production after the date hereof
reduced below the full and regular allowable (including the maximum permissible
tolerance) because of any overproduction (whether or not the same was
permissible at the time) prior to the date hereof. None of the ▇▇▇▇▇ located on
the Subject Interests (or properties unitized therewith) is deviated from the
vertical more than the maximum permitted by applicable laws, regulations, rules
and orders; no portion of any well bore for any such well is located outside of
the Subject Interests (or properties unitized therewith); and no such well is
bottomed under or producing from outside the Subject Interests (or properties
unitized therewith). Grantor has all governmental licenses and permits necessary
to own and operate the Subject Interests, and Grantor has not received notice of
any material violations in respect of any such licenses or permits.
(m) All expenses and liabilities (including all bills for labor,
materials and supplies used or furnished for use in connection with the Subject
Interests and all Direct Taxes and Current Ad Valorem Taxes relating to the
ownership or operation of the Subject Interests) have been, or are being, paid
(timely, and before the same become delinquent) by Grantor (and, as to
properties operated by third parties, by such third parties, to the best of
Grantor's knowledge) or are being contested in good faith by appropriate
proceedings for the payment of which Grantor has reserved adequate funds.
(n) The Subject Lands, and Grantor's present and proposed operations
thereon, are in compliance in all material respects with all applicable federal,
state or local laws, including all Environmental Laws. Grantor has taken all
steps necessary to determine and has determined that no Hazardous Substance has
been disposed of or otherwise released on or to the Subject Lands (except for
dispositions and releases done in material compliance with all applicable
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laws and for which Grantor otherwise has no material remedial obligations), and
the use which Grantor makes and intends to make of the Subject Lands will not
result in any such disposal or release. None of such operations of Grantor, and
none of the Subject Lands, is the subject of any federal, state or local
investigation evaluating whether any remedial action is needed to respond to a
release of any Hazardous Substance into the environment or to the improper
storage or disposal (including storage or disposal at offsite locations) of any
Hazardous Substance. Neither Grantor nor, to the best knowledge of Grantor, any
other Person has filed any notice under any Environmental Law indicating that
Grantor is responsible for the release into the environment, or the improper
storage or disposal, of any Hazardous Substance that is now located on, was
removed from, or is in any way related to any Subject Lands, or that any
Hazardous Substance has been released (other than atmospheric emissions from
compressor stations, which emissions are now in compliance and permitted under
applicable Environmental Laws), or is improperly stored or disposed of, upon any
Subject Lands or upon any property of Grantor located near to any Subject Lands.
No TransAmerican Company otherwise has any material contingent liability in
connection with its operations or properties in or near any Subject Lands for
the release into the environment, or the improper storage or disposal, of any
such pollutant, waste, substance or constituent.
(o) No Subject Interest is subject to any tax or common law partnership
or to any joint venture (other than a Permitted Encumbrance).
(p) No Subject Interest is subject to a preferential right to purchase
(herein called a "Preferential Right") or subject to the requirement that a
consent to assignment (other than a Partial Release) be obtained from a third
party, which Preferential Right or requirement for consent might apply to or
otherwise affect the transfer of the Production Payment to Grantee or any
subsequent transfer of the Production Payment by Grantee.
(q) Grantor has incurred no obligation or liability, contingent or
otherwise, for broker's or finder's fees in respect of any of the matters
provided for in this Agreement.
(r) Grantor believes that it will be able to transport production from
the State Tract 331, No. 1 well to one or more points of sale by June 1, 1998
and that it will be able to transport production from the State Tract 331, No. 3
well to one or more points of sale by the latter of such date or the completion
of such well. Grantor believes that it will be able to transport production from
each other Subject Well to the applicable Delivery Point, promptly upon
completion of such Subject Well.
Section 4.2. Representations, Warranties and Disclosures by Grantee.
Each Person included within Grantee hereby represents and warrants to Grantor
that: (a) such Person has incurred no obligation or liability, contingent or
otherwise, for broker's or finder's fees in respect of any of the matters
provided for in this Agreement for which fees Grantor might be liable; (b) this
Agreement constitutes the legal, valid and binding act and obligation of such
Person, enforceable against such Person in accordance with its terms except as
such enforcement may be limited by bankruptcy, insolvency, moratorium and other
similar laws applicable to creditors' rights generally or by general principles
of equity; (c) no bankruptcy
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or insolvency proceeding is presently pending (or, to such Person's best
knowledge, threatened) by or against such Person under any applicable
bankruptcy, insolvency or other similar law of any jurisdiction; (d) such Person
has not made a general assignment for the benefit of creditors; (e) such Person
is acquiring the Production Payment for its own account and not with any
intention to transfer all or any part of the Production Payment to others in
violation of the Securities Act of 1933, as amended, or any other applicable
securities laws, and (f) such Person is a "United States person", within the
meaning of Section 7701 of the Internal Revenue Code of 1986, as amended.
Section 4.3. Covenants of Grantor. To induce Grantee to enter into this
Agreement and to pay the Reimbursement/Installment Payments, Grantor covenants
and agrees that until the full and final payment of all payments due under the
Production Payment Documents and the termination of this Agreement and the
Production Payment, unless Grantee has previously agreed otherwise:
(a) Grantor will perform all of its covenants and duties under the
Production Payment Documents, all as fully as if they were set out in full
herein.
(b) In addition to any reports and information specifically required by
the terms of this Agreement or the Conveyance, Grantor agrees to furnish to
Grantee full information, at all reasonable times, which Grantee may request
concerning any covenant, provision or condition of the Production Payment
Documents or any matter or records in connection with such documents or with the
operation of, reserve engineering for, production from, or accounting for the
Subject Interests. Subject to any restrictions on Grantor's right to do so under
applicable operating agreements or similar contracts, Grantor will permit
representatives designated by Grantee, including independent accountants,
agents, attorneys, and other Persons, to visit and inspect the Subject Interests
and Grantor's books and records pertaining to the Subject Interests (and to make
copies and photocopies from such records and to write down and record such
information as such representatives may request, provided that no copies may be
made of geological or seismic data), and Grantor shall permit Grantee and its
designated representatives reasonably to investigate and verify the accuracy of
information furnished to Grantee hereunder or in connection herewith and to
discuss all such matters with its officers, employees and representatives.
(c) If any Person ever challenges or attacks (i) the validity or
priority of any Production Payment Document or of any rights, titles, or
interests created or evidenced thereby or (ii) the title of Grantor to any
Subject Interest or of Grantee to any part of the Production Payment, then upon
learning thereof Grantor will give prompt written notice thereof to Grantee and
at Grantor's own cost and expense will diligently endeavor to defeat such
challenge or attack and to cure any defect that may be developed or claimed, and
Grantor will take all necessary and proper steps for the defense of any legal
proceedings with respect thereto, including the employment of counsel (at
reasonable fees) to represent Grantor, the prosecution or defense of litigation,
and the release or discharge of all adverse claims. Each of Grantee and Agent
(whether or not named as a party to legal proceedings with respect thereto) is
hereby authorized and empowered to take such additional steps as in its judgment
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and discretion may be necessary or proper for the defense of any such legal
proceedings or the protection of the validity or priority of the Production
Payment Documents and the rights, titles, and interests created or evidenced
thereby, including the employment of independent counsel at reasonable fees to
represent Grantee and Agent, the prosecution or defense of litigation, the
compromise or discharge of any adverse claims made with respect to the
Production Payment, the purchase of any tax title and the removal of prior liens
or security interests, and all expenditures so made of every kind and character
shall be a Reimbursable Expense (which obligation Grantor hereby expressly
promises to pay on demand) owing by Grantor to Grantee or Agent and shall bear
interest from the date demanded until paid at the Agreed Rate.
(d) Grantor will, on request of Grantee, (i) promptly correct any
defect, error or omission which may be discovered in the contents, execution or
acknowledgment of any Production Payment Document, (ii) execute, acknowledge,
deliver and record or file such further instruments and do such further acts as
may be necessary, desirable or proper to carry out more effectively the purposes
of the Production Payment Documents and to more fully identify and make subject
to the Conveyance any property intended to be covered thereby, including any
renewals, additions, substitutions, replacements, or appurtenances to the
Subject Interests; and (iii) execute, acknowledge, deliver, and file or record
any document or instrument reasonably requested by Grantee to protect its
rights, title and interests under the Production Payment Documents against the
rights or interests of third Persons. Grantor shall pay all reasonable costs
connected with any of the foregoing.
(e) Without limitation of Grantee's remedies for breach of the
representations or warranties contained in Section 4.1(p), if a third party
properly exercises a Preferential Right after any Closing, Grantee will, in its
sole and absolute discretion, either (i) join in any required conveyance of the
affected Subject Interest to such third party, or (ii) make a conveyance of the
Production Payment insofar as it covers the affected Subject Interest to Grantor
in order that Grantor may make the necessary conveyance to such third party.
Upon making a conveyance in accordance with (i) or (ii), above, Grantee shall
(without limitation of its remedies for breach of the representations or
warranties contained in Section 4.1(p) hereof) be entitled to receive (and shall
thereafter apply in the same manner as PP Proceeds) -- either from the
exercising third party, assuming that Grantee exercised option (i), or from
Grantor, assuming that Grantee exercised option (ii) -- the entire amount of
consideration attributable to Grantee's interest in the particular Subject
Interest covered by such Preferential Right. In addition, Grantor shall, if
requested to do so by Grantee, repurchase the entire Production Payment from
Grantee for a price equal to the then unliquidated balance of the Primary Sum as
determined after the application of all PP Proceeds on such date or the next
occurring Application Date. Grantee and Agent shall not incur any liabilities
with respect to any reconveyance of properties that may be required in
accordance with this subsection or otherwise with respect to any exercise of a
Preferential Right, and Grantor shall indemnify and hold harmless Grantee and
Agent from any liabilities (including reasonable attorneys' fees) with respect
thereto.
(f) Grantor will not cause or permit the Subject Lands or Grantor to be
in material
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violation of any Environmental Laws with respect to the Subject Lands or do
anything or permit anything to be done which will subject Grantor or the Subject
Lands to any material remedial obligations under any Environmental Laws
pertaining to the Subject Lands, assuming in each case disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Subject Lands, and Grantor will
promptly notify Grantee in writing of any existing, pending or, to the best
knowledge of Grantor, threatened investigation or inquiry by any private party
or governmental authority in connection with any Environmental Laws. Grantor
will take all steps necessary to determine that no Hazardous Substances are
disposed of or otherwise released or being released on or to the Subject Lands
in violation of any Environmental Laws. Grantor will not cause or permit the
disposal or other release of any Hazardous Substance on or to the Subject Lands
in violation of any Environmental Law and covenants and agrees to remove or
remediate any Hazardous Substance on the Subject Lands.
(g) Grantor will ensure that no Event of Default occurs under the Trust
Indenture. Grantor will use all of the Reimbursement/Installment Payments in
compliance with the Trust Indenture.
(h) Grantor will provide to Grantee any assurances of title which
Grantee may from time to time reasonably request concerning the Production
Payment, including the recording and filing of the Conveyance and the Conveyance
Supplements and the updating of any specified title opinions through such
recording (it being understood that no title deficiencies learned of by Grantee
shall in any way be deemed to qualify any of Grantor's warranties of title or
indemnities with respect to title in any of the Production Payment Documents).
(i) Grantor will fully bond (or pay) any judgment entered in any
lawsuit listed in Schedule 1 or Schedule 2 so that such judgment can be fully
paid by proceeding against such bond without enforcement of any judgment lien or
rights relating to any lis pendens and without otherwise affecting the
Production Payment.
(j) If for any reason any well located on Subject Lands in State Tract
331 is not completed so that it becomes mechanically capable (or if for any
reason such well ceases to remain mechanically capable) of production from the
intervals previously identified to Grantee on the logs for such well, then
Grantor shall promptly cause such well to become mechanically capable of
production or shall promptly redrill such well, or a satisfactory substitute
well, on the same lands and to the same intervals, in either case at no cost to
Grantee and without any payment by Grantee of additional
Reimbursement/Installment Payments in connection therewith (provided that
Grantor may recomplete such well at other intervals if in so doing Grantor
would be able to increase production from such well over the remaining expected
term of the Production Payment, from that which would reasonably be
accomplished as a result of such drilling).
(k) Grantor will at all times be a corporation validly existing and in
good standing under the laws of its state of incorporation and duly qualified to
do business and in good standing in the State of Texas.
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(l) Grantor will at all times obtain and possess (or cause to be
obtained and possessed) all consents, authorizations and waivers necessary under
any material contract, indenture, instrument or agreement binding on or
affecting Grantor or any of Grantor's assets or under any material provision of
law, rule, regulation, order, writ, judgment, decree, determination or award
binding on or affecting Grantor or any of Grantor's assets, in order to permit
the performance by Grantor of the Production Payment Documents.
(m) Grantor will maintain good and defensible title to the Retained
Interests, free and clear of all liens, security interests, and encumbrances
except for Permitted Encumbrances, provided that Grantor may hereafter assign or
mortgage any Assignable 331 Retained Interest to the extent permitted under
Section 6.1 of the Conveyance.
Section 4.4. Reporting Covenants of Grantor. To induce Grantee to enter
into this Agreement and to pay the Reimbursement/Installment Payments, Grantor
covenants and agrees that until the full and final payment of all payments due
under the Production Payment Documents and the termination of this Agreement,
unless Grantee has previously agreed otherwise, Grantor will furnish the
following statements and reports, at Grantor's expense, to Agent and to each
Person included within Grantee which has requested separate payment under
Section 2.6:
(a) Monthly, within 25 days after the end of the month to
which each report applies, Grantor shall furnish a report (in a form
reasonably acceptable to Grantee) showing:
-- in Part I thereof: (i) the name of each Subject Well, (ii)
the portion of gross production of Gas from each Subject Well (measured
in Mcfs) which is attributable to Subject Interests as metered at the
well (and, if requested, the size of choke applied to such well, the
flowing tubing pressure of such well, the suction and discharge
pressure of any compression, and the operating pressure of the gas
sales line), (iii) the quantity of Gas PP Hydrocarbons (measured in
Mcfs) produced from each Subject Well, (iv) the number of MMBTUs in
each Mcf of Gas PP Hydrocarbons produced, as measured at the well, (v)
the quantity of Gas PP Hydrocarbons (measured in MMBTUs) produced from
each Subject Well, (vi) if known by Grantor, the aggregate amounts
received by Grantee from such sales of Gas PP Hydrocarbons, as
determined pursuant to the Conveyance and before deductions for
severance taxes withheld, and (vii) if known by Grantor, the PP
Severance Taxes for such Application Period with respect to Gas PP
Hydrocarbons, and
-- in Part II thereof: (i) the name of each Subject Well, (ii)
the portion of gross production of Oil from each Subject Well (measured
in barrels) which is attributable to Subject Interests as measured at
the well, (iii) the quantity of Oil PP Hydrocarbons (measured in
barrels) produced from each Subject Well, (iv) if known by Grantor, the
aggregate amounts received by Grantee from sales of Oil PP
Hydrocarbons, as determined pursuant to the Conveyance and before
deductions for severance taxes withheld, and (v) if known by Grantor,
the PP Severance Taxes for such Application
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Period with respect to Oil PP Hydrocarbons.
(As used in this subsection (a), "Gas PP Hydrocarbons" means PP
Hydrocarbons consisting of Gas and "Oil PP Hydrocarbons" means PP
Hydrocarbons consisting of Oil.) Such report shall be supplemented, if
and when requested by Agent, to show: (i) the gross production of
Hydrocarbons from each Subject Well, (ii) the quantities thereof, if
any, used in lease operations, (iii) the most recent status of any Gas
imbalances, if any, affecting the Subject Interests, (iv) the number of
▇▇▇▇▇ operated, ▇▇▇▇▇ drilled and ▇▇▇▇▇ abandoned on the Subject
Interests, and (v) if requested, the costs to Grantor of operating the
Subject Interests. To the extent that any of such information is not
available to Grantor (despite all reasonable efforts to obtain same) at
the time any monthly report is furnished, it shall be supplied promptly
after receipt.
(b) Within 60 days after each Regular Evaluation Date or
Special Evaluation Date, Grantor shall furnish a Reserve Report
covering the Subject Interests and prepared in accordance with the
terms of Section 5.1 hereof.
(c) Quarterly, within 60 days after the end of the first three
fiscal quarters in each fiscal year of Grantor, and annually, within
105 days after the end of each fiscal year of Grantor, Grantor's
consolidated financial statements as of the end of and for such period,
including a balance sheet and statements of income, cash flows, and
stockholder's equity, prepared in accordance with generally accepted
accounting principles and, with respect to the annual financial
statements, accompanied by a report of the Grantor's independent
certified public accountants stating that their examination was made in
accordance with generally accepted auditing standards and that in their
opinion such financial statements fairly present the matters reported
on in accordance with generally accepted accounting principles
consistently applied. For so long as Grantor files Forms 10-Q and 10-K
with the Securities and Exchange Commission, Grantor may satisfy the
reporting requirements in this subsection (c) by sending a copy of each
such form 10-Q and 10-K within fifteen days after filing the same with
such Commission, and whenever Grantor or any Affiliate of Grantor files
any Form 10-Q or 10-K with such Commission or Grantor files any Form
8-K, Grantor shall obtain and send a copy of such form to Agent (and
each other Person then entitled to receive reports under this section)
within fifteen days after such form is so filed.
(d) As each Subject Well is drilled, completed, and put onto
production, copies of: (i) well logs across all pay zones, (ii) all
test information, and (iii) reports detailing completion and response
to stimulation.
(e) Upon request of Agent, but not more often than quarterly,
Grantor shall furnish reports, in detail reasonably acceptable to
Agent, concerning any change in methods of operation of all or any
Subject ▇▇▇▇▇, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect
to the Subject Interests, the decision as to which may increase or
reduce the quantity of Hydrocarbons ultimately recoverable from the
Subject Interests, or the rate
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of production therefrom, or which may shorten or prolong the period of
time required for liquidation of the Production Payment.
(f) Upon request of Agent, Grantor shall furnish copies of
surface maps showing property lines and well locations, flow and
pressure tests, natural gas analysis and casing programs and other
similar information related to the Subject Interests, the Subject ▇▇▇▇▇
and the production therefrom.
(g) Upon request of Agent, at any time and from time to time
(but not more frequently than once in any period of twelve consecutive
months, unless there has occurred a Designated Event that is not cured
within the applicable grace period) Grantor will provide at Grantor's
sole expense an inspection or audit of the Subject Interests and the
Subject Lands from an engineering or consulting firm approved by
Grantee, indicating compliance or non-compliance with Environmental
Laws. Except for reports requested during the continuance of a
Designated Event, Grantor shall be responsible to pay for the costs of
only ONE such report during the term of the Production Payment (which
report shall be specified by Agent), and Grantee shall be responsible
for the costs of all others.
(h) Promptly (and in any event within five days) after
learning of the occurrence of any Designated Event or of the making of
any claim by any Person which allegedly affects the rights of Grantor
or Grantee in and to the Subject Interests, Grantor will give Agent
written notice thereof.
Section 4.5. Reporting Covenants of Grantee. Grantee covenants and
agrees that until the full and final payment of all payments due under the
Production Payment Documents and the termination of this Agreement, unless
Grantor has previously agreed otherwise:
(a) Monthly, within 30 days after the end of the month to
which such report applies, Grantee or Agent will furnish to Grantor a
report, in the form of Schedule 3, showing the unliquidated balance of
the Primary Sum, as calculated by Grantee or Agent. To the extent that
these reports show applications of PP Proceeds to any Direct Taxes
(other than PP Severance Taxes), Reimbursable Expenses or Delivery
Charges paid by Grantee or Agent, Grantee or Agent will on request by
Grantor furnish an itemized breakout of such deductions.
(b) Monthly, within 20 days after the end of each month, (if
and to the extent required to determine PP Proceeds), Grantee or Agent
will furnish to Grantor information on the actual prices received by
Grantee for any sales which Grantee may make of PP Hydrocarbons to any
Person other than a TransAmerican Company.
Section 4.6. Additional Remedies Upon Designated Event. Upon the
occurrence of a Designated Event, and provided the breach giving rise to such
Designated Event has not been cured within 30 days after Grantee or Agent gives
notice of such breach to Grantor, Grantee shall, in addition to its other rights
and remedies, have the right, but not the obligation, to:
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(a) remove Grantor as the operator of any or all of the
Subject Interests in which 100% of the working interest is owned by
Grantor (in this section, a "100% Property"), or
(b) instruct Grantor to resign as the operator of any Subject
Interest (in this section, a "Third Party Property") that is subject to
a joint operating agreement between Grantor and any third party working
interest owner other than Grantor (in this section, a "Third Party
JOA").
In the event Grantor is removed by Grantee or Agent as the operator of any
particular 100% Property, Grantee or Agent may appoint any reputable third party
(which may be an Affiliate of Grantee or Agent but which may not otherwise be
any of the Persons described in clauses (ii) or (iii) of Section 6.2(b) of the
Conveyance, or any Affiliate of any such Person) who is experienced in operating
Gas properties, as the operator of any particular 100% Property, and Grantee or
Agent may negotiate with such third party a substitute operating agreement
containing such terms and conditions as are commercially reasonable in a
transaction involving a contract operator with no ownership interest in the
contract area covered by an operating agreement. All costs, expenses and fees
billed or invoiced under any such substitute operating agreement shall be borne
and timely paid by Grantor. In the event Grantee or Agent requests in accordance
herewith that Grantor resign as the operator of any Third Party Property (or in
the event Grantor is otherwise removed as operator under the terms of an
applicable Third Party JOA, in which case Grantor shall immediately so notify
Grantee and Agent), Grantor shall consult with Grantee and Agent prior to
casting any vote it may have to name a substitute operator and shall cast such
vote as directed by Grantee or Agent.
Section 4.7. Confidentiality. Each party hereto shall hold in
confidence any confidential information it has obtained from another party
hereto, provided that disclosure thereof shall be permitted: (a) to the
Affiliates, investors, officers and employees of any party hereto (provided that
such Persons are made aware that such information is required to be held in
confidence), (b) to the auditors, counsel, and other professional advisors of
any party hereto (provided that such Persons are made aware that such
information is required to be held in confidence), (c) in the course of any
arbitration, trial or other legal proceeding between any of the parties hereto
or any of their Affiliates, (d) as required by any applicable securities law or
other law (including any subpoena, interrogatory, or other similar requirement
for such information to be disclosed), and (e) in connection with any assignment
or potential assignment of such party's rights hereunder which is or would be
permitted under Section 6.4 (provided that each such assignee or potential
assignee is made aware that such information is required to be held in
confidence).
Section 4.8. Future Processing Plant Arrangements. Grantor has informed
Grantee that one possible way to market the Subject Hydrocarbons from State
Tract 331 involves the construction of a gas processing plant near the landfall
of the pipeline connecting the State Tract 331 ▇▇▇▇▇ to shore and that it may be
necessary to commit the Subject Hydrocarbons to such plant in order to induce a
third party to build and operate such plant. Grantor has further informed
Grantee that such third party may ask Grantee to commit the PP Hydrocarbons to
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such plant in the event that the Gas Sales Agreement is for any reason
terminated or suspended. Grantee agrees to consider any such request in good
faith and to cooperate with Grantor in any negotiations with such a third party,
but it is understood by Grantor and Grantee that each reserves the right to
agree or disagree with the terms of any agreements that are ultimately proposed
with respect to the Subject Hydrocarbons and any such gas plant.
ARTICLE V - Adjustment of Dedication Percentage
Section 5.1. Reserve Reports. Within 60 days after each Regular
Evaluation Date or Special Evaluation Date, Grantor shall furnish to Agent (and
to each Person included within Grantee which has requested separate payment
under Section 2.6) a reserve engineering report prepared as of such date by the
Reserve Engineers with respect to the Subject Interests. Each such report is
herein called a "Reserve Report". Each such Reserve Report shall be prepared and
furnished at the cost of Grantor. Each Reserve Report shall be prepared in
accordance with the standards of the Society of Petroleum Engineers and the
Reserve Engineers' customary professional practices, provided that each Reserve
Report shall:
(a) separately address proved developed producing reserves
from other reserves.
(b) separately address the anticipated production of proved
developed producing reserves accruing to (i) the Production Payment and
(ii) the total Subject Interests.
(c) separately calculate the future net revenues allocable to
the Production Payment and the future net revenues allocable to the
total Subject Interests from anticipated sales of production from
proved developed producing reserves and, using a discount factor of ten
percent (10%) per annum, the present value of each on the date as of
which such report is prepared. In calculating the future net revenues
attributable to the Production Payment the Reserve Engineers shall take
into account all factors used in the calculation of PP Proceeds and
shall deduct any PP Severance Taxes. As used herein, "PPNPV" means such
discounted present value of the future net revenues accruing to the
Production Payment from anticipated sales of production from proved
producing reserves.
(d) in making such calculations, use pricing for anticipated
sales of MMBTUs of Gas equal to the lesser of:
(i) the weighted average price received by Grantee
for all sales of PP Hydrocarbons made up of Gas during the
preceding twelve months (or, during the first twelve months of
the term of the Production Payment, since the beginning of
such term), determined by dividing the aggregate amount of PP
Proceeds received by Grantee during such period from the sale
of such PP Hydrocarbons by the aggregate MMBTUs of such PP
Hydrocarbons which were sold to generate such PP Proceeds, and
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(ii) twenty-seven cents ($0.27) less than the average
of the prices per MMBTU on the New York Mercantile Exchange
(or any successor organization) for ▇▇▇▇▇ Hub gas, as reported
in the Wall Street Journal for the date as of which such
report is prepared (or, if such date is not a Business Day,
for the first Business Day thereafter), under the twelve
forward contracts which are listed therein as the first to
mature after such date,
which price shall be escalated at three percent per year for each year
after the first year.
(e) in making such calculations, use pricing for anticipated
sales of Barrels of Oil equal to the lesser of:
(i) the weighted average price received by Grantee
for all sales of PP Hydrocarbons made up of Oil during the
preceding twelve months (or, during the first twelve months of
the term of the Production Payment, since the beginning of
such term), determined by dividing the aggregate amount of PP
Proceeds received by Grantee during such period from the sale
of such PP Hydrocarbons by the aggregate Barrels of such PP
Hydrocarbons which were sold to generate such PP Proceeds, and
(ii) two dollars ($2.00) less than the average of the
prices per Barrel on the New York Mercantile Exchange (or any
successor organization) for West Texas Intermediate light
sweet crude oil, as reported in the Wall Street Journal for
the date as of which such report is prepared (or, if such date
is not a Business Day, for the first Business Day thereafter),
under the twelve forward contracts which are listed therein as
the first to mature after such date,
which price shall be escalated at three percent per year for each year
after the first year.
Section 5.2. Adjustment to Dedication Percentage. Using the Reserve
Report prepared as of each Regular Evaluation Date or Special Evaluation Date
and the PPNPV as calculated therein, Agent shall calculate the ratio, as of such
date, of (a) such PPNPV to (b) the "unliquidated balance of the Primary Sum" (as
defined in the Conveyance) as of such date. If such ratio is equal to or greater
than one hundred forty percent (140%) then, as provided in the Conveyance in the
definition of "Dedication Percentage", the Dedication Percentages thereunder
shall remain unchanged. If, however, this ratio is not equal to or greater than
140%, then Agent (working with the Reserve Engineers who prepared such Reserve
Report, and increasing the Dedication Percentage for State Tract 331 and the
Dedication Percentage for the other Subject Interests proportionately, unless
restricted by the maximum percentages set out below) shall calculate the
Dedication Percentages (herein called the "Calculated Percentages") which would
be required in order to cause such ratio to equal 140%. As provided in the
Conveyance in the definition of "Dedication Percentage", the new Dedication
Percentage to take effect as of the Adjustment Time with respect to State Tract
331 shall then
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be the lesser of the Calculated Percentage applicable thereto and a maximum
percentage of sixty-five percent (65%) and the new Dedication Percentage to take
effect as of the Adjustment Time with respect to all other Subject Interests
shall then be the lesser of the Calculated Percentage applicable thereto and a
maximum percentage of ninety percent (90%).
ARTICLE VI - Miscellaneous
Section 6.1. Waivers and Amendments. No failure or delay (whether by
course of conduct or otherwise) by Grantee in exercising any right, power or
remedy which Grantee may have under any of the Production Payment Documents
shall operate as a waiver thereof or of any other right, power or remedy, nor
shall any single or partial exercise by Grantee of any such right, power or
remedy preclude any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Production Payment Document
and no consent to any departure therefrom shall ever be effective unless it is
in writing and signed by Grantee, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No notice to or demand on Grantor
shall in any case of itself entitle Grantor to any other or further notice or
demand in similar or other circumstances. This Agreement and the other
Production Payment Documents set forth the entire understanding and agreement of
the parties hereto and thereto with respect to the transactions contemplated
herein and therein and supersede all prior discussions and understandings with
respect to the subject matter hereof and thereof, and no modification or
amendment of or supplement to this Agreement or the other Production Payment
Documents shall be valid or effective unless the same is in writing and signed
by the party against whom it is sought to be enforced.
THIS WRITTEN AGREEMENT AND THE OTHER PRODUCTION PAYMENT DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 6.2. Survival of Agreements; Cumulative Nature. All of the
various representations, warranties, indemnities, covenants and agreements in
the Production Payment Documents shall survive the execution and delivery of
this Agreement and the other Production Payment Documents and the performance
hereof and thereof, including the granting of the Production Payment and the
delivery of the Conveyance and the Conveyance Supplements. The representations,
warranties, indemnities, and covenants made by the parties in the Production
Payment Documents, and the rights, powers, and privileges granted to the parties
in the Production Payment Documents, are cumulative, and, except for expressly
specified waivers and consents, no Production Payment Document shall be
construed in the
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context of another to diminish, nullify, or otherwise reduce the benefit to
either party of any such representation, warranty, indemnity, covenant, right,
power or privilege. In particular and without limitation, no exception set out
in this Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Production Payment Document, and each such
similar representation, warranty, indemnity, or covenant shall be subject only
to those exceptions which are expressly made applicable to it by the terms of
the various Production Payment Documents.
Section 6.3. Notices. All notices, requests, consents, demands and
other communications (in this section, collectively called "notices") which are
required or permitted under any Production Payment Document shall be in writing,
unless otherwise specifically provided in such Production Payment Document, and
shall be deemed sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service with proof of delivery, or by
registered or certified United States mail, postage prepaid, to Grantor, Grantee
or Agent at its address specified on the signature pages hereto. Any such notice
shall be deemed to have been given (a) in the case of personal delivery or
delivery service, as of the date of first attempted delivery at the address and
in the manner provided herein, (b) in the case of telecopy, upon receipt, or (c)
in the case of registered or certified United States mail, three days after
deposit in the mail. Each of Grantor, Grantee and Agent may change its address
from time to time by sending a notice of the new address, in the manner provided
for in this section, to the other parties hereto.
Section 6.4. Parties in Interest. All grants, covenants and agreements
contained in the Production Payment Documents shall bind and inure to the
benefit of the parties thereto and their respective successors and assigns;
provided that any assignment of any party's rights and duties hereunder must be
made in accordance with Article VI of the Conveyance.
Section 6.5. Governing Law. Except to the extent that the law of
another jurisdiction may be expressly elected in a Production Payment Document,
the Production Payment Documents shall be deemed contracts and instruments made
under the laws of the State of Texas and shall be construed and enforced in
accordance with and governed by the laws of the State of Texas and the laws of
the United States of America, without regard to principles of conflicts of law.
Section 6.6. Limitation on Interest. Although the Production Payment
Documents provide for the sale and purchase of a real property interest and not
a loan (except under federal income tax law), there are certain provisions (such
as Section 5.1(a) of the Conveyance) of the Production Payment Documents which
provide for the charging and payment of interest. Grantee and Grantor intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof they hereby stipulate and agree that none of the
terms and provisions contained in the Production Payment Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. No party to any
Production Payment
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Document shall ever be liable for unearned interest or shall ever be required to
pay interest in excess of the maximum amount that may be lawfully charged under
applicable law from time to time in effect, and the provisions of this section
shall control over all other provisions of the Production Payment Documents
which may be in conflict or apparent conflict herewith. In determining whether
or not the interest paid or payable, under any specific circumstance, exceeds
the maximum amount permitted under applicable law, the parties to the Production
Payment Documents shall to the greatest extent permitted under applicable law:
(a) characterize any non-principal payment as an expense, fee or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate, and spread the total amount of interest
throughout the entire contemplated term of the interest bearing obligation in
accordance with the amounts thereof outstanding from time to time and the
maximum legal rate of interest from time to time in effect under applicable law
in order to lawfully charge the maximum amount of interest permitted under
applicable law. In the event applicable law provides for an interest ceiling
under ss.303 of the Texas Finance Code and Chapter 1D of Title 79, Texas Revised
Civil Statutes Annotated, that ceiling shall be the "indicated rate ceiling" or
"weekly ceiling" as defined in the Texas Finance Code or such Chapter 1D. As
used in this section the term "applicable law" means the laws of the State of
Texas or the laws of the United States of America, whichever laws allow the
greater interest, as such laws now exist or may be changed or amended or come
into effect in the future.
Section 6.7. Termination; Limited Survival. As provided in the
Conveyance, the Production Payment will terminate at the Termination Time
referred to therein. Notwithstanding the foregoing or anything to the contrary
in any Production Payment Document, all waivers or admissions made by Grantor in
any Production Payment Document and all obligations which any Person may have to
indemnify or compensate Grantee shall survive any termination of this Agreement
or any other Production Payment Document. At the request and expense of Grantor,
Grantee shall prepare, execute and deliver all necessary instruments to reflect
and effect such termination of the Production Payment and limited survival of
the Production Payment Documents.
Section 6.8. Severability. If any term or provision of any Production
Payment Document shall be determined to be illegal or unenforceable, all other
terms and provisions of the Production Payment Documents shall nevertheless
remain effective and shall be enforced to the fullest extent permitted by
applicable law.
Section 6.9. Arbitration.
(a) As used in this section:
(i) "AAA" means the American Arbitration Association (or any
successor thereto),
(ii) "Claims" means all claims by either party hereto against
the other with respect to the Production Payment or any of the
Production Payment Documents (including among others any claims with
respect to the interpretation or validity of any
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Production Payment Document, the existence or scope of any duties owed
thereunder, whether or not any such duties have been performed or
breached in any circumstances, or the extent or enforcement of any
property rights created thereunder or subject thereto), and
(iii) Disputed Matters" means all Claims, all defenses against
any Claims, and all controversies relating thereto.
(b) If either party hereto ever desires to assert a Claim against the
other party, the party asserting such Claim will give written notice thereof to
the other party. During the thirty day period following receipt of such notice
by the other party, both parties will discuss such Claim and the validity
thereof. If the parties hereto cannot come to agreement about such Claim by the
end of such thirty day period (as such period may be extended by mutual
agreement), then within fifteen days after the end of such period either party
may by written notice to the other invoke the arbitration provisions of this
Agreement, whereupon Grantee and Grantor shall submit such Claim and all
Disputed Matters in any way related thereto to arbitration under the procedures
in the next following subsection (c).
(c) All Disputed Matters shall be resolved by arbitration conducted by
three arbitrators in accordance with this Section 6.9 and, to the extent not in
conflict herewith, the Commercial Arbitration Rules of the AAA then in effect.
Each such arbitrator must be independent and impartial and a person with at
least ten years' experience in the financing and valuation of oil and gas
properties. Within ten days after the sending and receipt of a notice invoking
arbitration as provided in subsection (b) above, each of Grantor and Grantee
shall specify (by notice to the other) the name and address of an arbitrator
appointed by it. At the end of such ten days, if one party has made a
specification of its appointed arbitrator but has not received notice of a
similar specification by the other party, then the party which has made a
specification shall give notice to the other party that it has not received a
specification from the other party. If the other party does not act to specify
its arbitrator within an additional seven days after the giving of such notice,
the party who has made its specification may appoint the second arbitrator in
place of the party who has failed to do so. Within fifteen days after the first
two arbitrators have been appointed, they shall select the third arbitrator. If
a third arbitrator has not been selected within such period, either party hereto
may petition the Administrative Judge presiding over the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ to appoint such third arbitrator, whereupon such judge
(or any person designated by such judge to make such appointment) may make such
appointment unless the first two arbitrators have come to agreement on the third
arbitrator. Consistent with the expedited nature of arbitration, each party
will, upon the written request of the other party, provide the other with copies
of documents relevant to the issues raised by the Disputed Matter. Other
discovery may be ordered by the arbitrators to the extent they deem relevant and
appropriate, and any dispute regarding discovery, including disputes as to the
need thereof or the relevance or scope thereof, shall be determined by the
arbitrators, whose determination shall be conclusive. Unless Grantee and Grantor
agree otherwise, all arbitrations hereunder shall be held in Los Angeles,
California at the offices of Trust Company of the West. Grantee and Grantor
shall proceed expeditiously with any such arbitration and shall conclude all
proceedings thereunder,
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including any hearing, in order to allow a decision based on applicable law to
be rendered within ninety days after the appointment of the third arbitrator.
The decision of any two such arbitrators on the issues before them shall be
final, and any award or order so decided may be enforced in any court having
personal jurisdiction over the party against whom enforcement is sought. Grantor
shall bear its own expenses, including attorneys' fees and expenses of
arbitration, in connection with any such arbitration, but all expenses of
Grantee shall be considered Reimbursable Expenses to be paid or reimbursed by
Grantor. Although the foregoing arbitrations shall be conducted under the rules
of the AAA, the AAA itself shall not conduct such arbitrations, nor shall such
arbitrations be considered under the auspices of the AAA, nor shall any fee be
due the AAA. The arbitrators shall honor Grantor's and Grantee's election of the
laws of the State of Texas as set out in the various Production Payment
Documents, provided that each arbitration proceeding shall also be subject to
the United States Arbitration Act, 9 U.S.C., Chapter 1, Sections 1 et seq, to
the extent applicable. The arbitrators are not empowered to award punitive or
exemplary damages on any Claim (but are empowered to award Reimbursable
Expenses to Grantee and pre-award interest to either party), and EACH OF
GRANTOR AND GRANTEE HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO RECOVER
PUNITIVE OR EXEMPLARY DAMAGES ON ANY CLAIM.
(d) All applicable statutes of limitations and defenses based on the
passage of time shall be tolled during the period in which arbitration has been
invoked as set forth in this section. Each of Grantor and Grantee is required to
continue to perform its obligations under the Production Payment Documents
pending final resolution of any Disputed Matter.
Section 6.10. Agent.
(a) Agent. Grantee, for itself and for its successors and assigns as
Grantee, hereby appoints Tamco as its agent (together with its successors in
such capacity, herein called "Agent") to act for and on behalf of Grantee under
and pursuant to this Agreement and the other Production Payment Documents, and
Tamco hereby accepts such appointment. Agent is authorized to act on behalf of
Grantee in (i) exercising rights and remedies with respect to any matter under
any of the Production Payment Documents, (ii) giving notices or instructions to
Grantor, (iii) receiving information from or notices by Grantor, (iv)
communicating to Grantor determinations required or permitted to be made under
this Agreement or any other Production Payment Document, and (v) agreeing to,
and executing and delivering, all Conveyance Supplements and Purchase Agreement
Supplements, the Gas Sales Agreement, the Oil Sales Agreement and any other
agreements for the sale of PP Hydrocarbons or amendments or supplements to any
Production Payment Documents. Agent may, on behalf of Grantee, take any other
action which Grantee is entitled to take hereunder or under any of the
Production Payment Documents. Grantor may rely on any action of Agent as binding
upon Grantee. Such appointment of Tamco as Agent shall not, however, impair or
modify any rights, obligations or duties which Tamco or any Affiliate of Tamco
otherwise has with respect to Grantee. In its administration of this Agreement
and the other Production Payment Documents, except to the extent to which
another standard applies to Tamco by reason of any
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Grantee Governing Document or other document or relationship between Tamco and
any Person making up Grantee, Agent will exercise the same care that it
exercises in the administration or handling of transactions for its own account.
(b) Definitions. As used in this Section 6.10:
"Grantee Governing Documents" means all documents and
instruments (other than the Production Payment Documents) under which
Tamco and its Affiliates have undertaken to act for the Beneficiaries.
"Holder" means each Person at any time owning an interest in
the Production Payment.
"Requisite Holders" means, at any time, Holders owning at
least sixty-six and two-thirds percent (66-2/3%) of the Production
Payment.
(c) Requisite Holders. All powers of Agent shall be exercised for the
benefit of Holders. Any action, decision or consent taken or given by the
Requisite Holders shall be binding upon all the Holders. Except as may be
otherwise provided by the Grantee Governing Documents, the Requisite Holders
may, in their reasonable discretion, remove Tamco from its appointment as Agent
and then select a new party to fulfill, in accordance with the terms hereof,
such position. If any Person other than the Holders which are original parties
to this Agreement or the Grantee Governing Documents ever acquires any interest
in the Production Payment, Agent may insist on the execution of an agency
agreement by such Person, in form satisfactory to Agent and providing for
satisfactory indemnification, before carrying out any further actions under the
Production Payment Documents on behalf of such Person. Until any such agency
agreement is executed: (i) Tamco shall have the right to withdraw as Agent,
subject, however, to its rights and duties under any Grantee Governing
Documents, and (ii) any action of Agent under any Production Payment Document
shall be binding on such Person.
(d) Distribution of Proceeds. The Holders shall share in the proceeds
and other benefits obtained by Agent under the Production Payment Documents in
the relative proportions of their interests in the Production Payment; provided
that Agent shall first be reimbursed for all of its costs and expenses incurred
on behalf of all Holders to the extent permitted by the Grantee Governing
Documents.
(e) Agents and Attorneys. Agent may execute any of its respective
duties under this Agreement and the other Production Payment Documents by or
through agents or attorneys selected by it using reasonable care. Agent shall be
entitled to the advice of counsel concerning all matters pertaining to its
duties hereunder.
(f) No Liability for Grantor. Agent and its officers, directors,
employees, agents, attorneys-in-fact and affiliates shall not be responsible in
any manner to any Holder or any other Person for any failure of Grantor or any
other Person to perform its obligations under
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this Agreement or any other Production Payment Document.
(g) Reliance upon Documentation. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or any telephone
conversation believed by it to be genuine and correct and to have been signed,
sent, made or spoken by the proper Person or Persons, and upon the advice and
statements of legal counsel, independent accountants and other experts selected
by Agent.
(h) Reliance by Grantor. Grantee and each other Holder agree that,
prior to the delivery to Grantor of a notice of the removal or termination of
Tamco (or any subsequent Agent) as Agent as set forth below, Grantor shall be
entitled to rely on Tamco's (or any subsequent Agent's) authority to act on
behalf of Grantee and each Holder in all dealings with Tamco (or any such
subsequent Agent) with respect to the Production Payment Documents; Grantor
shall be protected in relying on actions, communications, notices and
terminations relating thereto or required or permitted thereunder by Agent; and
Grantor shall discharge its obligations under this Agreement and the Production
Payment Documents by delivering payments, notices and other information to
Agent. In the event of the removal of Agent and the appointment of a successor
Agent by Holders, Grantor shall not be required to recognize any such removal or
appointment unless and until Grantor shall have received a writing setting forth
such removal and appointment executed by the Requisite Holders, and Grantor
shall be entitled to rely on such writing as being genuine and what it purports
to be without any necessity of any investigation whatsoever.
(i) ACKNOWLEDGMENT, WAIVER AND RELEASE BY GRANTOR. GRANTOR HAS BEEN
INFORMED, AND HEREBY ACKNOWLEDGES AND AGREES, THAT ALL ACTS BY TAMCO AS AGENT IN
CONNECTION WITH THE PRODUCTION PAYMENT DOCUMENTS ARE DONE ON BEHALF OF GRANTEE
AND THE BENEFICIARIES, AND THAT TAMCO AND ITS AFFILIATES (EXCLUDING GRANTEE, BUT
WITHOUT LIMITING ANY WAIVERS, RELEASES AND INDEMNITIES IN THE PRODUCTION PAYMENT
DOCUMENTS OTHERWISE BENEFITTING GRANTEE) AND ITS AND THEIR SHAREHOLDERS,
REPRESENTATIVES, TRUSTEES, AGENTS, EMPLOYEES, OFFICERS, DIRECTORS, AND ATTORNEYS
(COLLECTIVELY, THE "TCW ENTITIES") SHALL NOT BE PERSONALLY LIABLE TO ANY PERSON
(OTHER THAN THE BENEFICIARIES) WITH RESPECT TO ANY ACTIONS TAKEN (OR NOT TAKEN)
BY AGENT IN ITS CAPACITY AS AGENT UNDER THIS AGREEMENT AND THE OTHER PRODUCTION
PAYMENT DOCUMENTS. IN FURTHERANCE OF THE FOREGOING, GRANTOR HEREBY WAIVES AND
RELEASES (FOR ITSELF AND ON BEHALF OF ITS SHAREHOLDERS, AFFILIATES,
REPRESENTATIVES, TRUSTEES, AGENTS, EMPLOYEES, OFFICERS, DIRECTORS, AND
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ATTORNEYS) THE TCW ENTITIES FROM ANY AND ALL SUCH LIABILITIES.
Section 6.11. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
GRANTOR: TRANSTEXAS GAS CORPORATION
By: /s/ ▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇ ▇▇▇▇▇▇▇
Vice President
Grantor's address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇ ▇▇▇▇▇▇▇, Vice President
Telephone: 281/▇▇▇-▇▇▇▇
Telecopy: 281/986-8865
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GRANTEE: TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P.
By: TCW Royalty Company V, as managing general
partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
TCW DR VI INVESTMENT PARTNERSHIP, L.P.
By: TCW DR VI Royalty Partnership, L.P., as
general partner
By: TCW Royalty Company VI, as managing
general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
Grantee's address: c/o Trust Company of the West
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: 213/▇▇▇-▇▇▇▇
Telecopy: 213/244-0604
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AGENT: TCW ASSET MANAGEMENT COMPANY, as Agent
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Director
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Managing Director
Agent's address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telephone: 713/▇▇▇-▇▇▇▇
Telecopy: 713/615-7460
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