EXHIBIT 10.18
RECORDING REQUESTED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:
MAYER, BROWN, ROWE & MAW
350 South Grand Avenue
Suite 2500
Los Angeles, California 90071
Attn: Kevin L. Shaw, Esq.
Instructions to County Recorder:
Index this document as:
(1) A deed of trust
(2) A fixture filing
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DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING
FROM
CALPINE CORPORATION,
a Delaware corporation, Trustor
(Taxpayer I.D. No. 77-0212977)
TO
CHICAGO TITLE INSURANCE COMPANY, Trustee
AND
THE BANK OF NOVA SCOTIA, for itself and as
Agent, Beneficiary
(Taxpayer I.D. No. 13-494-1099)
Dated as of May 1, 2002
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"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."
"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."
"THE OIL AND GAS INTERESTS AND AS EXTRACTED COLLATERAL INCLUDED IN THE
ENCUMBERED PROPERTY WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON
THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO
BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS."
"THE TRUSTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN EXHIBIT A HERETO."
"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE ENCUMBERED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS
FINANCING STATEMENT AND FIXTURE FILING IS TO BE FILED FOR RECORD, AMONG OTHER
PLACES, IN THE REAL ESTATE RECORDS."
"THE SECURED PARTIES ARE NOT SELLERS OR PURCHASE MONEY LENDERS OF THE
COLLATERAL."
"A POWER OF SALE HAS BEEN GRANTED IN THIS DEED OF TRUST. A POWER OF SALE MAY
ALLOW THE TRUSTEE TO TAKE THE ENCUMBERED PROPERTY AND SELL IT WITHOUT GOING TO
COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE TRUSTOR UNDER THIS DEED OF
TRUST."
"NOTICE TO JUNIOR LIENHOLDERS: THE OBLIGATIONS SECURED HEREBY PROVIDE FOR THE
ACCRUAL OF INTEREST WHICH MAY RESULT IN INCREASES IN THE PRINCIPAL BALANCE ABOVE
THE FACE PRINCIPAL AMOUNT OF THE APPLICABLE NOTES."
DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING
THIS DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION, SECURITY
AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING, dated as of May 1, 2002, is
from CALPINE CORPORATION, a Delaware corporation (herein called the "Trustor" or
"Borrower"), to CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation, as
trustee (herein, together with any successor hereto in such capacity, called the
"Trustee"), and THE BANK OF NOVA SCOTIA, a Canadian chartered bank
("Scotiabank"), for itself and as agent for the Lenders and the Lender Parties,
as beneficiary (herein called the "Agent").
Recitals and Definitions
------------------------
Borrower, certain institutional lenders (individually, a "2002 Lender" and
collectively, the "2002 Lenders") and Scotiabank have entered into a Credit
Agreement, dated as of March 8, 2002 (herein, as the same may be amended,
modified or supplemented from time to time, called the "2002 Loan Agreement"),
pursuant to which the 2002 Lenders have agreed to make loans to Borrower and
issue or cause to be issued letters of credit for the benefit of Borrower
(individually, a "2002 Letter of Credit" and collectively, the "2002 Letters of
Credit") in amounts not to exceed at any one time outstanding $1,600,000,000,
and Borrower, to evidence its indebtedness to the 2002 Lenders under the 2002
Loan Agreement, has executed and delivered (or will execute and deliver) to the
2002 Lenders its secured promissory notes in the aggregate, original principal
amount of $1,600,000,000, to mature not later than May 24, 2003 (individually, a
"2002 Loan Note" and collectively, the "2002 Loan Notes"), the 2002 Loan Notes
being payable to the order of the 2002 Lenders, bearing interest as provided for
therein, and containing provisions for payment of attorneys' fees and
acceleration of maturity in the event of default, as therein set forth.
Borrower, certain institutional lenders (individually, an "Existing Lender"
and collectively, the "Existing Lenders"; and together with the 2002 Lenders,
the "Lenders") and Scotiabank have entered into a Second Amended and Restated
Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended,
modified, or supplemented from time to time, called the "Existing Credit
Agreement") pursuant to which the Existing Lenders have agreed to make loans to
Borrower and issue or cause to be issued any letters of credit for the benefit
of Borrower (individually, an "Existing Letter of Credit" and collectively, the
"Existing Letters of Credit") in amounts not to exceed at any one time
$400,000,000, and Borrower, to evidence its indebtedness to the Existing Lenders
under the Existing Credit Agreement, has executed and delivered to the Existing
Lenders its secured promissory notes to mature not later than May 24, 2003
(individually, an "Existing Loan Note" and collectively, the "Existing Loan
Notes"), the Existing Loan Notes being payable to the order of the Existing
Lenders, bearing interest as provided for therein, and containing provisions for
payment of attorneys' fees and acceleration of maturity in the event of default,
as therein set forth. The 2002 Loan Agreement and the Existing Credit Agreement
are herein collectively called the "Credit Agreements." The 2002 Loan Notes and
the Existing Loan Notes are herein individually
1 [Deed of Trust]
called a "Loan Note" and collectively called the "Loan Notes". The 2002 Letters
of Credit and the Existing Letters of Credit are herein individually called a
"Letter of Credit" and collectively called the "Letters of Credit".
It is a condition precedent to the obligation of the Lenders to make Loans
under the Credit Agreements, to issue or cause to be issued Letters of Credit
under the Credit Agreements and to the obligations of the Agent, the Lenders or
the Lender Parties (as the case may be), that the Trustor executes and delivers
this instrument.
For all purposes of this instrument, unless the context otherwise requires:
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility
for administering, any Plan (as defined in the Credit Agreements)). A
Person shall be deemed to be "controlled by" any other Person if such other
Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Agent" is defined in the Preamble of this instrument.
"Applicable Law" means with respect to any Person or matter, any
federal, state, regional, tribal or local statute, law, code, rule, treaty,
convention, application, order, decree, consent decree, injunction,
directive, determination or other requirement (whether or not having the
force of law) relating to such Person or matter and, where applicable, any
interpretation thereof by a Governmental Authority having jurisdiction with
respect thereto or charged with the administration or interpretation
thereof.
"Borrower" is defined in the Preamble of this instrument.
"Credit Agreements" is defined in the recitals to this instrument.
"Deed of Trust" means each mortgage, deed of trust, or other real
property collateral security instrument in a form reasonably satisfactory
to the Agent, executed and delivered pursuant to Section 8.1.8 of the 2002
Credit Agreement, as amended, supplemented, restated or otherwise modified
from time to time, including, without limitation, this instrument.
"Encumbered Property" shall mean the properties, rights and interests
hereinafter described and defined as the Encumbered Property.
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"Environmental Laws" shall mean any and all present and future United
States federal, tribal, state and local laws or regulations, codes, plans,
orders, decrees, directives, judgments, injunctions and lawfully imposed
requirements issued, promulgated or entered thereunder relating to
pollution or protection of the environment, including laws relating to
reclamation of land and waterways and laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"Existing Assignment Agreement" means that certain Assignment and
Security Agreement executed and delivered by Calpine Gilroy Cogen, L.P., a
California limited partnership, pursuant to Section 6.1.3 of the Existing
Credit Agreement, substantially in the form of Exhibit F to the Existing
Credit Agreement, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"Existing Credit Agreement" is defined in the recitals to this
instrument.
"Existing Lenders" is defined in the recitals to this instrument.
"Existing Letters of Credit" is defined in the recitals to this
instrument.
"Existing Loan Documents" means the Existing Credit Agreement, the
Existing Loan Notes, the Existing Assignment Agreement, and each other
relevant agreement, document or instrument (including the fee letter
described in Section 3.3.2 of the Existing Credit Agreement) delivered in
connection therewith.
"Existing Loan Notes" is defined in the recitals to this instrument.
"Fee Letter" means the fee letter agreement described in Section 3.3.2
of the 2002 Credit Agreement.
"Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe
or otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.
"Guaranty" means the guaranty executed and delivered by the Guarantors
pursuant to Section 6.1.3 of the 2002 Credit Agreement, substantially in
the form of Exhibit H thereto, as amended, supplemented or otherwise
modified from time to time.
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"Hazardous Materials Indemnity" means that certain hazardous materials
undertaking and unsecured indemnity executed and delivered by the Borrower
pursuant to Section 8.1.8 of the 2002 Credit Agreement, as amended,
supplemented, restated or otherwise modified from time to time.
"Hedging Agreements" means: (a) interest rate swap agreements, basis
swap agreements, interest rate cap agreements, forward rate agreements,
interest rate floor agreements and interest rate collar agreements, and all
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates, and (b) forward
contracts, options, futures contracts, futures options, commodity swaps,
commodity options, commodity collars, commodity caps, commodity floors and
all other agreements or arrangements designed to protect such Person
against fluctuations in the price of commodities.
"Hedging Obligations" means with respect to any Person, all
liabilities (including without limitation obligations and liabilities
arising in connection with or as a result of early or premature termination
of a Hedging Agreement, whether or not occurring as a result of a default
thereunder) of such Person under a Hedging Agreement.
"Hydrocarbons" means collectively, oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate and all other liquid or
gaseous hydrocarbons and related minerals and all products therefrom, in
each case whether in a natural or a processed state.
"Indebtedness", "Note" and "Notes" shall have the respective meanings
set forth in Section 1.2 hereof.
"Indemnification Claim" is defined in Section 3.6 of this instrument.
"Indemnified Person" means Agent and each of the Lender Parties, and
their respective employees, affiliates, agents and attorneys, and any other
Person to be indemnified under this instrument.
"Joint Operating Agreements" shall mean, with respect to the lands
described in Exhibit A, the respective operating agreement burdening the
lands described in Exhibit A.
"lands described in Exhibit A" shall include the real property or
other interest in any lands which are either described in Exhibit A
attached hereto or the description of which is incorporated in Exhibit A by
reference to an instrument or document containing in, or referring to, such
a description, and shall also include any lands now or hereafter unitized
or pooled with lands which are either described in Exhibit A or the
description of which is incorporated in Exhibit A by reference and Fixtures
and all rights, titles and interests appurtenant thereto. References to
Exhibit A shall include, where applicable, Exhibit A-1 as well.
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"Leases" means any and all leases (including without limitation oil
and gas leases and oil, gas and other minerals leases), surface leases or
easements, subleases, licenses, concessions, operating rights or other
agreements (written or verbal, now or hereafter in effect) which grant a
possessory interest in and to, or the right to explore, use, lease,
license, possess, produce, process, store and transport Hydrocarbons from,
operate from, or otherwise enjoy, the Encumbered Property, together with
all amendments, modifications, extensions and renewals thereof.
"Legal Requirements" means (i) any and all present and future judicial
decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to the Trustor, or the
Encumbered Property, including the ownership, use, occupancy, operation,
maintenance, repair or reconstruction thereof, and any other Applicable Law
enacted by any Governmental Authority relating to health or the
environment, (ii) the Trustor's presently or subsequently effective Organic
Documents, (iii) any and all Leases, (iv) any and all leases and other
contracts (written or oral) of any nature to which the Trustor, or the
Encumbered Property may be bound and (v) any and all restrictions,
restrictive covenants or zoning, present and future, as the same may apply
to the Encumbered Property.
"Lender Party" or "Lender Parties" means, as the context may require,
the Agent, any Lender and any Affiliate of any Lender that is an issuer
under a letter of credit, and each of their respective successors,
transferees and assigns.
"Loan Documents" means the Existing Loan Documents and the 2002 Loan
Documents.
"Loan Note" is defined in the recitals to this instrument.
"Maximum Lawful Rate" means the maximum nonusurious rate of interest
that may be received, charged or contracted for under Applicable Law from
time to time in effect.
"Obligations" means any and all of the covenants, warranties,
representations and other obligations (other than to repay the
Indebtedness) made or undertaken by the Trustor or others to the Agent, the
Lender Parties or others as set forth in the Credit Agreements or other
Loan Documents.
"oil and gas leases" shall include oil, gas and mineral leases,
subleases and assignments thereof, operating rights, servitudes, and shall
also include subleases and assignments of operating rights.
"Operating Equipment" shall mean all surface or subsurface machinery,
goods, equipment, fixtures, movable property attached to immovable property
and other movable property, inventory, facilities, supplies or other
property of whatsoever kind or nature (excluding drilling rigs, trucks,
automotive equipment
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or other property taken to the premises to drill a well or for other
similar temporary uses) now or hereafter located on or under any of the
lands described in Exhibit A which are useful for the production,
gathering, treatment, processing, storage or transportation of Hydrocarbons
(together with all accessions, additions and attachments to any thereof),
including, but not by way of limitation, all oil wells, gas wells, water
wells, injection wells, casing, tubing, tubular goods, rods, pumping units
and engines, christmas trees, platforms, derricks, separators, steam
generators, compressors, gun barrels, flow lines, tanks, gas systems (for
gathering, treating and compression), pipelines (including gathering lines,
laterals and trunklines), chemicals, solutions, water systems (for
treating, disposal and injection), power plants, poles, lines,
transformers, starters and controllers, supervisory control and data
acquisition systems, machine shops, tools, storage yards and equipment
stored therein, buildings and camps, telegraph, telephone and other
communication systems, roads, boats, loading docks, loading racks and
shipping facilities.
"Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited
partnership agreement, joint venture agreement, trust agreement or other
similar documents governing the organization and operation of a business
association.
"Permits" means all authorizations, approvals, permits, variances,
land use entitlements, consents, licenses, franchises and agreements issued
by or entered into with any Governmental Authority now or hereafter
required for all stages of exploration, developing, operating, and plugging
and abandoning oil and gas wells (including, without limitation, those
shown on Exhibit A) on all or any part of the lands described in Exhibit A
(or any other lands any production from which, or profits or proceeds from
such production, is attributed to any interest in the lands described in
Exhibit A).
"Permitted Encumbrances" means the outstanding liens, easements,
building lines, restrictions, exceptions, reservations, conditions,
limitations, security interests and other matters (if any) as reflected on
Exhibit "B" attached hereto and the lien and security interests created by
the Security Documents.
"Person" means any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental
agency or any other entity, whether acting in an individual, fiduciary or
other capacity.
"Personalty" means all of the right, title and interest of the Trustor
now owned or hereafter acquired in and to all furniture, furnishings,
Equipment, machinery, Goods, General Intangibles, money, Accounts,
receivables, Contract Rights, Inventory, all refundable, returnable or
reimbursable fees, deposits or other funds or evidences of credit or
indebtedness deposited by or on behalf of the Trustor with any Governmental
Authority, agencies, boards, corporations, providers of utility services,
public or private, including specifically, but without
6
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits, commitment fees and development costs, and all other personal
property (other than the Fixtures) of any kind or character as defined in
and subject to the provisions of Article 9 of the Uniform Commercial Code,
now or hereafter located upon, within or about, or used in connection with,
the lands described in Exhibit A, together with all accessories,
replacements and substitutions thereto or therefor and the Proceeds
thereof.
"Pledge Agreements" means the pledge agreements executed and delivered
pursuant to Section 6.1.4 of the 2002 Credit Agreement, as such agreements
may be amended, supplemented, restated or otherwise modified from time to
time, which will be in substantially the form of Exhibit I thereto.
"Production Sale Contracts" shall mean contracts now in effect, or
hereafter entered into by the Trustor, or entered into by the Trustor's
predecessors in interest, for the sale, purchase, exchange, gathering,
transportation, treating or processing of Hydrocarbons produced from the
lands described in Exhibit A attached hereto and made a part hereof.
"Rents and Revenues" means all of the rents, revenues, income,
proceeds, profits and other benefits paid or payable by parties to the
Leases other than the Trustor for using, leasing, licensing, possessing,
operating, selling or otherwise enjoying the Encumbered Property, including
the proceeds from the sale of Hydrocarbons.
"Security Documents" means the Notes, this instrument, the financing
statements and any and all other instruments now or hereafter executed by
the Trustor or any other person or party to evidence or secure the payment
of the Indebtedness or the performance and discharge of the Obligations, as
any of the foregoing may be amended, renewed or extended. Notwithstanding
that the definition of Security Documents and various of the components
thereof include documents that may be amended, renewed or extended, such
definition shall in no way be construed to suggest that any party has
agreed (or is obligated) to amend, renew or extend them.
"2002 Assignment Agreement" means that certain Assignment and Security
Agreement referred to in Section 6.1.8 of the 2002 Credit Agreement, as
amended, supplemented, amended and restated or otherwise modified from time
to time.
"2002 Loan Agreement" is defined in the recitals to this instrument.
"2002 Lenders" is defined in the recitals to this instrument.
"2002 Letters of Credit" is defined in the recitals to this
instrument.
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"2002 Loan Documents" means the 2002 Credit Agreement, the 2002 Loan
Notes, the Pledge Agreements, the Guaranty, the Deeds of Trust, the 2002
Assignment Agreement, the Hazardous Materials Indemnity, the Fee Letter,
and each other relevant agreement, document or instrument delivered in
connection therewith.
"2002 Loan Notes" is defined in the recitals to this instrument.
"Taxes" means all real property and personal property taxes,
production taxes, assessments, permit fees, water, gas, sewer, electricity
and other utility rates and charges, charges for any easement, license or
agreement maintained for the benefit of the Encumbered Property, and all
other taxes, charges and assessments and any interest, costs or penalties
with respect thereto, of any kind and nature whatsoever which at any time
prior to or after the execution hereof may be charged, assessed, levied or
imposed upon the Encumbered Property or the Rents and Revenues or the
ownership, use, occupancy or enjoyment thereof.
"Transportation Agreements" shall mean any contracts or agreements
entered into from time to time by the Trustor, or entered into by the
Trustor's predecessors in interest, relating to the transportation of
Hydrocarbons, as any such agreement or contract may be amended,
supplemented, restated or otherwise modified from time to time.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the State of California or any other applicable
state, and the terms "Accounts", "Account Debtor", "As Extracted
Collateral," "Chattel Paper", "Contract Rights", "Deposit Accounts",
"Documents", "General Intangibles", "Goods", "Equipment", "Fixtures",
"Inventory", "Instruments", and "Proceeds" shall have the respective
meanings assigned to such terms in the Uniform Commercial Code.
"Water Rights" shall mean (including without limitation those
described in Exhibit A hereto) all now or hereafter existing or acquired
water and water rights, reservoirs and reservoir rights, ditches and ditch
rights, wells and well rights, whether evidenced or initiated by permit,
decree, well registration, appropriation not decreed, water court
application, shares of stock or other interests in mutual ditch or
reservoir companies or carrier ditch or reservoir companies or otherwise,
appertaining or appurtenant to or beneficially used or useful in connection
with the lands described in Exhibit A, together with all pumps, well
casings, wellheads, electrical installations, pumphouses, meters,
monitoring wells and systems, measuring devices, pipes, pipelines, and
other structures or personal property which are or may be used to produce,
regulate, measure, distribute, store, or use water from the said water and
water rights, reservoirs and reservoir rights, ditches and ditch rights,
wells and well rights.
NOW, THEREFORE, the Trustor, for and in consideration of the premises and
of the debts and trusts hereinafter mentioned, has granted, bargained, sold,
warranted,
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assigned, transferred and conveyed, and by these presents does grant,
bargain, sell, warrant, assign, transfer and convey unto the Trustee, IN
TRUST WITH POWER OF SALE, for the use and benefit of the Agent, all the
Trustor's right, title and interest, whether now owned or hereafter
acquired, in and to all of the hereinafter described properties, rights and
interests; and, insofar as such properties, rights and interests consist of
equipment, general intangibles, accounts, as extracted collateral, chattel
paper, contract rights, deposit accounts, documents, goods, instruments,
inventory, fixtures, proceeds of collateral or any other personal property
of a kind or character defined in or subject to the applicable provisions
of the California Uniform Commercial Code (as in effect from time to time),
the Trustor hereby grants to said Trustee, for the use and benefit of the
Agent, a security interest therein to the full extent of the Trustor's
legal and beneficial interest therein, now owned or hereafter acquired,
namely:
(1) the lands described in Exhibit A, and Leases, profit a prendre,
fee, mineral, overriding royalty, royalty and other interests which are
described in Exhibit A,
(2) the presently existing and (subject to the terms of Section 6.1
hereof) hereafter arising unitization, unit operating, communitization and
pooling agreements and the properties covered and the units created thereby
(including, without limitation, all units formed under orders, regulations,
rules, approvals, decisions or other official acts of any Governmental
Authority) which are specifically described in Exhibit A or which relate to
any of the properties and interests specifically described in Exhibit A,
(3) the Hydrocarbons which are in, under, upon, produced or to be
produced from or which are attributed or allocated to the lands described
in Exhibit A,
(4) the Permits,
(5) the Production Sale Contracts,
(6) the Joint Operating Agreements,
(7) the Transportation Agreements,
(8) the Hedging Agreements,
(9) the Leases,
(10) the Personalty,
(11) the Rents and Revenues,
(12) the Operating Equipment,
(13) the Water Rights, and
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(14) without duplication of any other provision of this granting
clause, Equipment, Fixtures and other Goods necessary or used in connection
with, and Inventory, Accounts, As Extracted Collateral, General
Intangibles, Contract Rights, Chattel Paper, Electronic Chattel Paper,
Deposit Accounts, Documents, Instruments and Proceeds arising from, or
relating to, the properties and other interests described in Exhibit A
(including Exhibit A-1),
together with any and all corrections or amendments to, or renewals,
extensions or ratifications of, or replacements or substitutions for, any
of the same, or any instrument relating thereto, and all accounts,
contracts, contract rights, options, nominee agreements, unitization or
pooling agreements, operating agreements and unit operating agreements,
processing agreements, farmin agreements, farmout agreements, joint venture
agreements, partnership agreements (including mining partnerships),
exploration agreements, bottom hole agreements, dry hole agreements,
support agreements, acreage contribution agreements, surface use and
surface damage agreements, net profits agreements, production payment
agreements, Hedging Agreements, insurance policies, title opinions, title
abstracts, title materials and information, files, records, writings, data
bases, information, systems, logs, well cores, fluid samples, production
data and reports, well testing data and reports, maps, seismic,
geophysical, geological and chemical data and information, interpretative
and analytical reports of any kind or nature (including, without
limitation, reserve studies and reserve evaluations), computer hardware and
software and all documentation therefor or relating thereto (including,
without limitation, all licenses relating to or covering such computer
hardware, software and/or documentation), trade secrets, trademarks,
service marks and business names and the goodwill of the business relating
thereto, copyrights, copyright registrations, unpatented inventions, patent
applications and patents, rights-of-way, franchises, bonds, easements,
servitudes, surface leases, permits, licenses, tenements, hereditaments,
appurtenances, concessions, occupancy agreements, privileges, development
rights, condemnation awards, claims against third parties, general
intangibles, rents, royalties, issues, profits, products and proceeds,
whether now or hereafter existing or arising, used or useful in connection
with, covering, relating to, or arising from or in connection with, any of
the aforesaid items (1) through (14), inclusive in this granting clause
referenced, and all other things of value and incident thereto (including,
without limitation, any and all liens, lien rights, security interests and
other properties, rights and interests) which the Trustor might at any time
have or be entitled to, but excluding any data or contracts with respect to
which mortgaging or granting of a lien or a security interest is prohibited
by existing third party agreements,
all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this
instrument by means of supplements hereto or otherwise, being hereinafter called
the "Encumbered Property".
Subject, however, to (i) Permitted Encumbrances (including all presently
existing royalties, overriding royalties, payments out of production and other
burdens which are
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referred to in Exhibit A and which are taken into consideration in computing any
percentage, decimal or fractional interest as set forth in Exhibit A), (ii) the
assignment of production contained in Article III hereof, but only insofar and
so long as said assignment of production is not inoperative under the provisions
of Section 3.5 hereof, and (iii) the condition that none of the Trustee, the
Agent nor any of the other Lender Parties shall be liable in any respect for the
performance of any covenant or obligation (including without limitation measures
required to comply with Environmental Laws) of the Trustor in respect of the
Encumbered Property.
TO HAVE AND TO HOLD the Encumbered Property unto the Trustee forever to
secure the payment of the Indebtedness and to secure the performance of the
obligations of the Trustor herein contained.
The Trustor, in consideration of the premises and to induce the Agent to
make the loans above described, hereby covenants and agrees with both the
Trustee and the Agent as follows:
ARTICLE 1
Indebtedness Secured
--------------------
1.1 Items of Indebtedness Secured. The following items of indebtedness are
secured hereby:
(a) The Loan Notes (including future advances to be made thereunder by
the Agent or the Lenders), the Letter of Credit Outstandings (as defined in
the Credit Agreements) and all other obligations and liabilities of Trustor
under the Credit Agreements, excluding, however, the Trustor's obligations
and liabilities under the Hazardous Materials Indemnity;
(b) All indebtedness and future advances evidenced by any promissory
notes evidencing any additional loans which the Agent or the Lenders may
from time to time make to Trustor, if any, the Agent and the Lenders not
being obligated, however, to make such additional loans;
(c) Any sums advanced or expenses or costs incurred by the Trustees,
the Agent or the Lender Parties, or by any receiver appointed hereunder,
which are made or incurred pursuant to, or permitted by, the terms hereof,
plus interest thereon at the rate herein specified or otherwise agreed
upon, from the date of the advances or the incurring of such expenses or
costs until reimbursed;
(d) Any and all other indebtedness of Trustor or any Affiliate of
Trustor to the Agent or any Lender Party now or hereafter owing, whether
direct or indirect, primary or secondary, fixed or contingent, joint or
several, regardless of how evidenced or arising, including without
limitation, all Letters of Credit; and
11
(e) Any extensions, refinancings, modifications or renewals of all
such indebtedness described in subparagraphs (a) through (d) above, whether
or not Trustor executes any extension agreement or renewal instrument.
1.2 Indebtedness and the Notes Defined. All the above items of indebtedness
described in subparagraphs (a) through (e) of Section 1.1 hereof are hereinafter
collectively referred to as the "Indebtedness". Any promissory note evidencing
any part of the Indebtedness, including, without limitation, each Loan Note, is
hereinafter referred to as a "Note", and all such promissory notes are
hereinafter referred to collectively as the "Notes".
ARTICLE 2
Particular Covenants and Warranties
-----------------------------------
of the Trustor
--------------
2.1 Payment of the Indebtedness and Performance of Obligations. The Trustor
will duly and punctually pay the Indebtedness, as and when called for in the
Credit Agreements and the Security Documents and on or before the due dates
thereof, and will timely perform and discharge all of the Obligations (including
each and every obligation owing on account of the Notes), in full and on or
before the dates same are to be performed and discharged.
2.2 Certain Representations and Warranties. The Trustor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Encumbered Property that
are operated by persons other than Trustor, Trustor makes such representations
and warranty to the best of its knowledge) that
(a) the oil and gas leases described in Exhibit A hereto are valid,
subsisting leases, superior and paramount to all other oil and gas leases
respecting the properties to which they pertain,
(b) all producing wells located on the lands described in Exhibit A
(including Exhibit A-1) have been drilled, operated and produced in
conformity with all Applicable Laws of all Governmental Authorities having
jurisdiction, and are subject to no penalties on account of past
production, and such wells are in fact bottomed under and are producing
from, and the well bores are wholly within, the lands described in Exhibit
A or lands pooled or unitized therewith,
(c) the Trustor, to the extent of the interest specified in Exhibit A
(including Exhibit A-1), has valid and indefeasible title to each property
right or interest constituting the Encumbered Property described in Exhibit
A (including Exhibit A-1) and has a good and legal right to grant and
convey the same to the Agent; such interest entitles Trustor to receive not
less than the share of
12
Hydrocarbons from such property indicated as its net revenue interest or
"NRI" share of such Hydrocarbons, and obligates Trustor to pay for not more
than the share of operating and other costs, liabilities and expenses
associated with such property indicated as its working interest or "WI"
share of such costs, liabilities and expenses,
(d) the Encumbered Property is free from all encumbrances or liens
whatsoever, except for the Permitted Encumbrances or as permitted by the
provisions of Section 2.4(e) hereof,
(e) the Trustor is not obligated, by virtue of any prepayment under
any contract providing for the sale by the Trustor of Hydrocarbons which
contains a "take or pay" clause or under any similar arrangement, to
deliver Hydrocarbons at some future time without then or thereafter
receiving full payment therefor,
(f) the Encumbered Property is currently being operated, maintained
and developed, in all material respects, in accordance with all applicable
currently existing Permits, Legal Requirements and all Applicable Laws
(including, without limitation, Environmental Laws),
(g) the cover page to this instrument lists the correct legal name of
the Trustor and the Trustor has not been known by any legal name different
from the one set forth on the cover page of this instrument, except as set
forth on Schedule I to this instrument; the Trustor is not now and has not
been known by any trade name, nor has the Trustor been the subject of any
merger or other corporate reorganization,
(h) the execution, delivery and performance by the Trustor of the
Security Documents and the borrowing evidenced by the Loan Notes, (i) are
within the Trustor's corporate powers and have been duly authorized by the
Trustor's Board of Directors, shareholders and all other requisite
corporate action, (ii) have received all (if any) requisite prior
governmental approval and consent in order to be legally binding and
enforceable in accordance with the terms thereof, and (iii) will not
violate, be in conflict with, result in a breach or constitute (with due
notice or lapse of time, or both) a default under, any Legal Requirement or
result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the Trustor's property or assets, except
as contemplated by the provisions of the Security Documents. The Security
Documents constitute the legal, valid and binding obligations of the
Trustor and others obligated under the terms of the Security Documents, in
accordance with their respective terms, and
(i) there are no actions, suits or proceedings pending, or to the
knowledge of the Trustor threatened, against or affecting the Trustor or
the Encumbered Property that could materially adversely affect the Trustor
or the Encumbered Property, or involving the validity or enforceability of
this instrument or the priority of the liens and security interests created
by the Security
13
Documents, and no event has occurred (including specifically the Trustor's
execution of the Security Documents and its consummation of the Loans
described therein) which will violate, be in conflict with, result in the
breach of, or constitute (with due notice or lapse of time, or both) a
material default under, any Legal Requirement or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of the Trustor's property other than the liens and security interests
created by the Security Documents.
2.3 Further Assurances. The Trustor will warrant and forever defend the
Encumbered Property unto the Trustee against every person whomsoever lawfully
claiming the same or any part thereof, subject to Permitted Encumbrances, and
the Trustor will maintain and preserve the lien and security interest hereby
created so long as any of the Indebtedness remains unpaid. The Trustor will
execute and deliver such other and further instruments and will do such other
and further acts as, in the opinion of the Trustee or the Agent, may be
necessary or desirable to carry out more effectually the purposes of this
instrument, including, without limiting the generality of the foregoing, (i)
prompt correction of any defect which may hereafter be discovered in the title
to the Encumbered Property or in the execution and acknowledgment of this
instrument, any Note, or any other document executed in connection herewith, and
(ii) prompt execution and delivery of all notices to parties operating,
purchasing or receiving proceeds of production of Hydrocarbons from the
Encumbered Property, and all division orders or transfer orders, any of which,
in the opinion of the Agent, is needed in order to transfer effectually or to
assist in transferring effectually to the Agent the assigned proceeds of
production from the Encumbered Property.
2.4 Operation of the Encumbered Property. So long as the Indebtedness or
any part thereof remains unpaid, and whether or not the Trustor is the operator
of any particular part of the Encumbered Property, the Trustor shall, at the
Trustor's own expense:
(a) Do all things necessary to keep unimpaired the Trustor's rights in
the Encumbered Property and not, except in the ordinary course of business,
abandon any well or forfeit, surrender or release any Lease capable of
producing Hydrocarbons in paying quantities, without the prior written
consent of the Agent;
(b) Obtain and maintain all required Permits and cause the lands
described in Exhibit A to be maintained, developed, protected against
drainage, and operated for the production of Hydrocarbons in a good and
workmanlike manner as would a prudent operator, and in accordance with
generally accepted industry practices, Joint Operating Agreements, and all
Applicable Laws, excepting those being contested in good faith;
(c) Duly pay and discharge, or cause to be paid and discharged,
promptly as and when due and payable, all rentals and royalties (including
shut-in royalties) payable in respect of the Encumbered Property, and all
expenses incurred in or arising from the operation or development of the
Encumbered Property not later than the due date thereof, or the day any
fine, penalty, interest
14
or cost may be added thereto or imposed, or the day any lien may be filed,
for the non-payment thereof (if such day is used to determine the due date
of the respective item);
(d) Cause the Operating Equipment to be kept in good and effective
operating condition, ordinary wear and tear excepted, and all repairs,
renewals, replacements, additions and improvements thereof or thereto,
needful to the production of Hydrocarbons from the lands described in
Exhibit A, to be promptly made;
(e) Not, without the prior written consent of the Agent, create, place
or permit to be created or placed, or through any act or failure to act,
acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien
(statutory, constitutional or contractual), security interest, encumbrance
or charge, or conditional sale or other title retention agreement,
regardless of whether same are expressly subordinate to the liens of the
Security Documents, with respect to all or any portion of the Encumbered
Property, the Leases or the Rents and Revenues other than (1) the Permitted
Encumbrances, (2) Taxes constituting a lien but not due and payable, (3)
defects or irregularities in title, and liens, charges or encumbrances,
which, in the Agent's reasonable opinion, are not such as to interfere
materially with the development, operation or value of the Encumbered
Property and not such as to affect materially title thereto, (4) those
being contested by the Trustor in good faith in such manner as not to
jeopardize the Trustee's and the Agent's rights in and to the Encumbered
Property, (5) those liens permitted by each Section 8.2.3 of each of the
Credit Agreements, and (6) those consented to in writing by the Agent;
(f) Carry with financially sound and reputable insurance companies and
in amounts satisfactory to the Agent the following insurance: (1) workmen's
compensation insurance and public liability and property damage insurance
in respect of all activities in which the Trustor might incur personal
liability for the death of or injury to an employee or third person, or
damage to or destruction of another's property; and (2) to the extent such
insurance is carried by similar companies engaged in similar undertakings
in the same general areas in which the Encumbered Property is located,
insurance in respect of the Operating Equipment, against loss or damage by
fire, lightning, hail, tornado, explosion and other similar risks, hazards,
casualties and contingencies (including business interruption insurance
covering loss of Rents and Revenues); provided, that any such insurance may
be provided by way of self insurance to the extent that similar companies
engaged in similar undertakings in the same general areas also self-insure.
Each insurance policy issued in connection therewith shall provide by way
of endorsements, riders or otherwise that (i) name the Agent as a loss
payee on all property insurance policies and an additional insured on all
liability insurance policies, and provide that proceeds will be payable to
the Agent as its = interest may appear, which proceeds are hereby assigned
to the Agent, it being agreed by the Trustor that such payments shall be
applied A) if there be no event of default existing or which would exist
but for due notice or lapse of time,
15
or both, to the restoration, repair or replacement of the Encumbered
Property, or B) if there be an event of default existing, or which would
exist but for due notice or lapse of time, or both, at the option of the
Agent, either for the above stated purpose or toward the payment of the
Indebtedness; (ii) the coverage of the Agent shall not be terminated,
reduced or affected in any manner regardless of any breach or violation by
the Trustor of any warranties, declarations or conditions in such policy;
(iii) no such insurance policy shall be canceled, endorsed, altered or
reissued to effect a change in coverage for any reason and to any extent
whatsoever unless such insurer shall have first given the Agent thirty (30)
days prior written notice thereof; and (iv) the Agent may, but shall not be
obligated to, make premium payments to prevent any cancellation,
endorsement, alteration or reissuance and such payments shall be accepted
by the insurer to prevent same. The Agent shall be furnished with a
certificate evidencing such coverage in form and content acceptable to the
Agent. All policies to be maintained under this instrument are to be issued
on forms and by companies and with endorsements acceptable to the Agent.
The Trustor shall maintain insurance in an amount sufficient to prevent the
Trustor from becoming a co-insurer under any policy required hereunder. If
the Trustor fails to maintain the level of insurance required under this
instrument, then the Trustor shall and hereby agrees to indemnify the Agent
to the extent that a casualty occurs and insurance proceeds would have been
available had such insurance been maintained;
(g) Furnish to the Agent as soon as possible and in any event within
five (5) days after the occurrence from time to time of any change in the
address of the Trustor's location (as described on the signature page
hereto) or in the name of the Trustor, notice in writing of such change;
(h) Not initiate or acquiesce in any change in any material zoning or
other land use or Water Rights classification now or hereafter in effect
and affecting the Encumbered Property or any part thereof;
(i) Notify the Agent in writing as soon as possible and in any event
within five (5) days after it shall become aware of the occurrence of any
event of default under Section 4.1 or any event which, with notice, the
passage of time or both would be such an event of default;
(j) Appear and defend, with counsel acceptable to the Agent in its
reasonable discretion, and hold the Agent harmless from, any action,
proceeding or claim affecting the Encumbered Property or the rights and
powers of the Agent or the Trustee under the Security Documents, and all
costs and expenses incurred by the Agent in protecting its interests
hereunder in such an event (including all court costs and attorneys' fees)
shall be borne by the Trustor; provided, that such defense: (1) shall be
provided by a lawyer or law firm listed on a schedule delivered to and
approved in writing by the Agent, from time to time (the "Approved Counsel
List"), and (2) if the amount in controversy in such action, proceeding or
claim is in excess of $2,500,000 in actual or compensatory
16
damages and/or liquidated damages (or is reasonably believed to exceed such
amount if the demand involves unliquidated damages), such law firm shall be
approved by the Agent, in its reasonable discretion, for that particular
action, proceeding or claim. As to actions, proceedings or claims involving
a portion of the Encumbered Property in which the Trustor or a Subsidiary
of the Trustor is not the operator and with respect to which the Trustor
does not have a majority net revenue interest and/or working interest, the
Trustor may elect, in its reasonable judgment, to allow counsel for the
operator to appear for, and defend the Trustor in such matter, in which
case, selection of counsel by the operator shall not be governed by this
Section 2.4 (j); and further provided, that nothing herein shall restrict
or limit the right of the Agent or the Lenders to select its or their own
counsel to defend, at the Trustor's cost and expense, any action proceeding
or claim in which any of them are named as parties;
(k) Subject to the Trustor's right to contest the same, promptly pay
all Taxes legally imposed upon this instrument or upon the Encumbered
Property or upon the income and profits thereof, or upon the interest of
the Agent or the other Lender Parties therein; provided that the Trustor
shall not be liable for taxes accruing after a transfer of the Encumbered
Property following a foreclosure;
(l) Comply with, conform to and obey, in all material respects, all
present and future Legal Requirements and not use, maintain, operate,
occupy, or allow the use, maintenance, operation or occupancy of, the
Encumbered Property in any manner which (a) violates any present and future
Legal Requirement, (b) may be dangerous unless safeguarded as required by
Applicable Law, (c) constitutes a public or private nuisance or (d) makes
void, voidable or cancelable, or increases the premium of, any insurance
then in force with respect thereto; and
(m) Not, without the prior written consent of the Agent, permit any of
the Fixtures or Personalty to be removed at any time from the lands
described in Exhibit A unless (i) the removed item is removed temporarily
for maintenance and repair, (ii) if removed permanently, is replaced by an
article of equal suitability and value, owned by the Trustor, free and
clear of any lien or security interest except such as may be first approved
in writing by the Agent or (iii) such Fixtures or Personalty are removed in
connection with the plugging and abandoning of wells, or abandonment of
other facilities, in each case as permitted by this instrument.
2.5 Performance of Leases. The Trustor will: (a) duly and punctually
perform and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) not
voluntarily terminate, cancel or waive its rights or the obligations of any
other party under any of the Leases; (c) use all reasonable efforts to maintain
each of the Leases in force and effect during the full term thereof; and (d)
appear in and defend (or cause its operator to appear in and defend) any action
or proceeding arising under or in any manner
17
connected with any of the Leases or the representations, warranties, covenants
and agreements of it or the other party or parties thereto.
2.6 Recording, etc. The Trustor will promptly, and at the Trustor's
expense, record, register, deposit and file this and every other instrument in
addition or supplemental hereto in such offices and places and at such times and
as often as may be necessary to preserve, protect and renew the lien and
security interest hereof as a first lien on and prior perfected security
interest in real or personal property, as the case may be, and the rights and
remedies of the Trustee, of the Agent and of the other Lender Parties, and
otherwise will do and observe all things or matters necessary or expedient to be
done or observed by reason of any Applicable Law, for the purpose of effectively
creating, maintaining and preserving the lien and security interest hereof on
and in the Encumbered Property.
2.7 Sale or Mortgage of the Encumbered Property. Except (a) as set forth in
Section 6.1 of this instrument; (b) as permitted by each Section 8.2.10 of each
of the Credit Agreements; (c) for sales of severed Hydrocarbons in the ordinary
course of the Trustor's business; (d) sales of or dispositions of surplus,
obsolete or worn inventory or equipment; and (e) the lien and security interest
created by this instrument, the Trustor will not sell, convey, mortgage, pledge,
hypothecate, pool, unitize or otherwise dispose of or encumber the Encumbered
Property nor any portion thereof, nor any of the Trustor's right, title or
interest therein, without first securing the written consent of the Agent; and
the Trustor will not enter into any arrangement with any gas pipeline company or
other consumer of Hydrocarbons regarding the Encumbered Property whereby said
gas pipeline company or consumer may set off any claim against the Trustor by
withholding payment for any Hydrocarbons actually delivered.
2.8 Records, Statements and Reports. The Trustor will keep proper books of
record and account in which complete and correct entries will be made of the
Trustor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to the Agent such
information concerning the business, affairs and financial condition of the
Trustor as the Agent may from time to time reasonably request. Without limiting
the generality of the foregoing, the Trustor shall furnish to the Agent upon its
request, but not more than every six (6) months, (a) reports prepared by an
independent petroleum engineer acceptable to the Agent concerning (1) the
quantity of Hydrocarbons recoverable from the Encumbered Property, (2) the
projected income and expense attributable to the Encumbered Property, and (3)
the expediency of any change in methods of treatment or operation of all or any
wells productive of Hydrocarbons, any new drilling or development, any method of
secondary recovery by repressuring or otherwise, or any other action with
respect to the Encumbered Property, the decision as to which may increase or
reduce the quantity of Hydrocarbons ultimately recoverable or the rate of
production thereof, and (b) reports showing the gross proceeds from the sale of
Hydrocarbons produced from the lands described in Exhibit A (including any
thereof taken by the Trustor for the Trustor's own use), the quantity of such
Hydrocarbons sold, the severance, gross production, occupation, or gathering
taxes deducted from or paid out of such proceeds, the number of wells operated,
drilled or abandoned, and such other information as the
18
Agent may reasonably request (upon request of the Agent, such reports referred
to in clauses (a) and (b) above shall set forth such information on a lease or
unit basis, and after the occurrence of an Event of Default, and upon the
Agent's request, Trustor shall deliver the reports described in clause (b) on a
monthly basis).
2.9 Right of Entry.
(a) Upon at least twenty-four (24) hours notice to the Trustor, the
Trustor will permit the Agent, or its agents, at the cost and expense of
the Trustor, to enter upon the Encumbered Property and all parts thereof,
for the purpose of investigating and inspecting the condition and operation
thereof, and shall permit reasonable access to the field offices and other
offices (to the fullest extent that Trustor may do so under the terms of
the applicable Joint Operating Agreements and other applicable agreements
affecting the Encumbered Property), including the principal place of
business, of the Trustor to inspect and examine the Encumbered Property and
to inspect, review and reproduce as necessary any books, records, accounts,
contracts or other documents of the Trustor.
(b) Without limiting the generality of the foregoing, the Agent shall
have the right (to the fullest extent that Trustor may do so under the
terms of the applicable Joint Operating Agreements and other applicable
agreements affecting the Encumbered Property), on twenty-four (24) hours
prior notice to the Trustor, to cause such persons and entities as the
Agent may designate to enter the Encumbered Property to conduct (at the
cost and expense of the Trustor), or to cause the Trustor to conduct (at
the cost and expense of the Trustor), such tests and investigations as the
Agent deems necessary to determine whether any hazardous materials or solid
waste is being generated, transported, stored, or disposed of in accordance
with applicable Environmental Laws. Such tests and investigations may
include, without limitation, underground borings, ground water analyses and
borings from the floors, ceilings and walls of any improvements located on
the Encumbered Property. This Section 2.9 shall not be construed to affect
or limit the obligations of the Trustor pursuant to Section 2.4 hereof.
(c) The Agent shall have no duty to visit or observe the Encumbered
Property, or to conduct tests, and no site visit, observation or testing by
the Agent (or its agents and independent contractors) shall impose any
liability on the Agent or any other Lender Party, nor shall the Trustor or
any other obligor be entitled to rely on any visit, observation or testing
by the Agent in any respect. The Agent may, in its discretion, disclose to
the Trustor or any other Person, including any Governmental Authority, any
report or finding made as a result of, or in connection with, any site
visit, observation or testing by the Agent. the Trustor agrees that the
Agent makes no warranty or representation to the Trustor or any other
obligor regarding the truth, accuracy or completeness of any such report or
findings that may be so disclosed. The Trustor also acknowledges that,
depending upon the results of any site visit, observation or testing by the
Agent and disclosed to the Trustor, the Trustor may have a legal obligation
to notify one
19
or more Governmental Authorities of such results, that such reporting
requirements are site-specific, and are to be evaluated by the Trustor
without advice or assistance from the Agent.
2.10 Taxes. Subject to the Trustor's right to contest the same, the Trustor
will promptly pay all taxes, assessments and governmental charges legally
imposed upon this instrument or upon the Encumbered Property, or upon the
interest of the Agent therein, or upon the income and profits thereof.
2.11 No Governmental Approvals. The Trustor represents and warrants that
(a) no approval or consent of any regulatory or administrative commission or
authority, or of any other governmental body, is necessary to authorize the
execution and delivery of this instrument or of the Notes, or to authorize the
observance or performance by the Trustor of the covenants herein or in the Notes
contained, or that such approvals as are required have been obtained or will be
obtained promptly and (b) the Trustor has obtained all Permits which are
necessary for the operation of the Encumbered Property.
2.12 Environmental Laws. The Trustor represents and warrants, to the best
of its knowledge after due inquiry, and except as set forth in each Item 7.12 of
the Disclosure Schedule (including Part B thereof) attached to each of the
Credit Agreements that: the Encumbered Property is in compliance with all
applicable Environmental Laws; there are no conditions existing currently which
would be likely to subject the Trustor to damages, penalties, injunctive relief
or cleanup costs under any Environmental Laws or assertions thereof, or which
require or are likely to require cleanup, removal, remedial action or other
response pursuant to Environmental Laws by the Trustor; the Trustor is not a
party to any litigation or administrative proceedings, nor so far as is known by
the Trustor is any litigation or administrative proceeding threatened against
it, which asserts or alleges that the Trustor has violated or is violating
Environmental Laws or that the Trustor is required to clean up, remove or take
remedial or other responsive action due to the disposal, depositing, discharge,
leaking or other release of any hazardous substances or materials; neither the
Encumbered Property nor the Trustor is subject to any judgment, decree, order or
citation related to or arising out of Environmental Laws and neither has been
named or listed as a potentially responsible party by any governmental body or
agency in a matter arising under any Environmental Laws. The Trustor has also
obtained all permits, licenses or approvals required under applicable
Environmental Laws which are necessary for its current exploration, use, and
development activities at the Encumbered Property; and to the Trustor's
knowledge after reasonable investigation all use, generation, manufacturing,
release, discharge, storage, deposit, treatment, recycling or disposal of any
materials on, under or at the Encumbered Property or transported to or from the
Encumbered Property (or tanks or other facilities thereon containing such
materials) are being and will be conducted in accordance with applicable
Environmental Laws including without limitation those requiring cleanup, removal
or any other remedial action.
20
2.13 Corporate Status. The Trustor will continue to be duly qualified to
transact business in California and each state where the conduct of its business
requires it to be qualified.
ARTICLE 3
Assignment of Production
------------------------
3.1 Assignment.
(a) The Trustor hereby absolutely and irrevocably (a) transfers,
assigns, warrants and conveys to the Agent, effective as of May 1, 2002, at
7:00 A.M., local time, all Hydrocarbons which are thereafter produced from
and which accrue to the Encumbered Property, and all proceeds therefrom,
and (b) gives to and confers upon the Agent the right, power and authority
to collect such Hydrocarbons and proceeds. Subject to the terms of Section
3.1(b), all parties producing, purchasing or receiving any such
Hydrocarbons, or having such, or proceeds therefrom, in their possession
for which they or others are accountable to the Agent by virtue of the
provisions of this Article III, are authorized and directed to treat and
regard the Agent as the assignee and transferee of the Trustor and entitled
in the Trustor's place and stead to receive such Hydrocarbons and all
proceeds therefrom; and said parties and each of them shall be fully
protected in so treating and regarding the Agent and shall be under no
obligation to see to the application by the Agent of any such proceeds or
payments received by it; provided, however, that, until the Agent shall
have instructed such parties that an Event of Default has occurred and to
deliver such Hydrocarbons and all proceeds therefrom directly to the Agent,
such parties shall be entitled to deliver such Hydrocarbons and all
proceeds therefrom directly to the Trustor. So long as no Event of Default
shall have occurred, the Agent agrees that the Trustor shall be entitled to
receive directly from such parties, and keep and retain, all such proceeds
from the sale of such Hydrocarbons.
(b) Upon the occurrence of an Event of Default (it being understood
that the determination of the occurrence of an Event of Default by the
Agent shall be conclusive and binding as to all such parties for all
purposes hereof and that, at the time the Agent gives the initial
instruction and notice under this Article III, such Event of Default shall
then be continuing) said Hydrocarbons and products are to be delivered into
pipelines connected with the oil and gas leases, or to the purchaser
thereof, free and clear of all Taxes, and the proceeds from the sale of
such Hydrocarbons paid in accordance with Section 3.6 of this instrument.
The Trustor agrees to perform all such acts, and to execute all such
further assignments, transfers and division orders, and other instruments
as may be required or desired by the Agent or any party in order to have
said revenues and proceeds so paid to the Agent, as and when provided in
this Article III. With respect to any funds received by the Agent after
notice of an Event of Default shall have been given under this Article III,
the Agent is fully authorized to receive and give receipt for any such
revenues and proceeds that are received by
21
Agent; to endorse and cash any and all checks and drafts payable to the
order of the Trustor or the Agent for the account of the Trustor received
from or in connection with said revenues or proceeds and apply the proceeds
thereof in accordance with Section 3.2 hereof, and to execute transfer and
division orders in the name of the Trustor, or otherwise, with warranties
binding the Trustor. The assignment of the Hydrocarbons and proceeds in
this Section 3.1 is intended to be an absolute assignment from the Trustor
to the Agent and not merely the passing of a security interest. Such
Hydrocarbons and proceeds are hereby assigned absolutely by the Trustor to
the Agent.
3.2 Application of Proceeds. All payments received by the Agent pursuant to
Section 3.1 hereof shall be placed in a cash collateral account at the Agent and
on the last business day of each calendar month applied as follows:
First: To the payment and satisfaction of all costs and expenses
incurred in connection with the collection of such proceeds, and to the
payment of all items of the Indebtedness and the Obligations not evidenced
by any Note.
Second: To the payment of the interest on the Notes accrued to the
date of such payment.
Third: To the payment of the amounts of principal then due and owing
on the Notes.
Fourth: The balance, if any, shall either be applied on the then
unmatured principal amounts of the Notes, such application to be on such of
the Notes and installments thereof as the Agent may select, or, at the
option of the Agent, released to the Trustor.
3.3 Collection Upon Default. Upon the occurrence of any event of default
under Section 4.1 hereof, the Agent may, at any time without notice, either in
person, by agent or by a receiver appointed by a court, and without regard to
the adequacy of any security for the Indebtedness, enter upon and take
possession of the Encumbered Property, or any part thereof, in its own name or
as agent or as attorney-in-fact for the Trustor sue for or otherwise collect
such rents, issues, profits, Hydrocarbons and proceeds, including those past due
and unpaid and apply the same, less costs and expenses of operation and
collection, including attorneys' fees, upon any of the Indebtedness, and in such
order as the Agent may determine. The collection of such rents, issues, profits,
Hydrocarbons and proceeds, or the entering upon and taking possession of the
Encumbered Property, or the application thereof as aforesaid, shall not cure or
waive any default or notice of default hereunder or invalidate any act done in
response to such default or pursuant to notice of default.
3.4 No Liability of the Agent in Collecting. The Agent is hereby absolved
from all liability for failure to enforce collection of any proceeds so assigned
(and no such failure shall be deemed to be a waiver of any right of the Agent
under this Article)
22
and from all other responsibility in connection therewith, except the
responsibility to account to the Trustor for funds actually received.
3.5 Assignment Not a Restriction on the Agent's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of the Trustor to
make payment of the Indebtedness regardless of whether the proceeds assigned by
this Article are sufficient to pay the same, and the rights under this Article
shall be in addition to all other security now or hereafter existing to secure
the payment of the Indebtedness.
3.6 Status of Assignment. Notwithstanding the other provisions of this
Article, and in addition to the other rights hereunder, the Trustee, the Agent
or any receiver appointed in judicial proceedings for the enforcement of this
instrument shall have the right to receive all of the Hydrocarbons herein
assigned and the proceeds therefrom after the occurrence and during the
continuance of any Event of Default and, in any event, after any Note or other
item of Indebtedness has been declared due and payable in accordance with the
provisions of Section 4.1 hereof and to apply all of said proceeds as provided
in Section 3.2 hereof. Upon any sale of the Encumbered Property or any part
thereof pursuant to Article V, the rents, issues, profits and Hydrocarbons
thereafter produced from the property so sold, and the proceeds therefrom, shall
be included in such sale and shall pass to the purchaser free and clear of the
assignment contained in this Article.
3.7 Indemnification Obligations. The following provisions shall apply to,
and be deemed in each case to modify, each of the provisions of this instrument
(except those set forth in Section 2.12 hereof) and the other Security Documents
(except to the extent otherwise expressly provided therein) wherein the Trustor
is obligated to indemnify each of the Indemnified Persons:
(a) Trustor agrees to indemnify the Trustee and the Agent against all
legal and administrative proceedings for which a claim for indemnification
may be made by the Indemnified Person (herein, collectively, called
"Indemnification Claims") made against or incurred by them or any of them
as a consequence of the assertion, either before or after the payment in
full of the Indebtedness, that they or any of them received Hydrocarbons
herein assigned or the proceeds thereof claimed by third persons and the
Agent and the Trustee shall have the right to defend against any such
Indemnification Claims, employing attorneys therefor, and unless furnished
with reasonable indemnity, they or any of them shall have the right to pay
or compromise and adjust all such Indemnification Claims. The Trustor will
indemnify and pay to the Trustee or the Agent any and all such amounts as
may be paid in respect thereof or as may be successfully adjudged against
the Trustee and the Agent or any of them. The obligations of the Trustor as
hereinabove set forth in this Section 3.6 shall survive the release
termination, foreclosure or assignment of this instrument or any sale
hereunder.
(b) The Trustor shall pay when due any judgments with respect to an
Indemnification Claim against any of the Indemnified Persons and which are
23
rendered by a final order or decree of a court of competent jurisdiction
from which no further appeal may be taken or has been taken within the
applicable appeal period. In the event that such payment is not made, any
of the Indemnified Persons at its sole discretion may pay any such
judgments, in whole or in part, and look to the Trustor for reimbursement
pursuant to this instrument, or may proceed to file suit against the
Trustor to compel such payment.
(c) Any amount which the Trustor is obligated to pay to or for the
benefit of an Indemnified Person with respect to an Indemnification Claim,
but which is not paid when due, shall bear interest at the default or post
maturity rate of interest provided for in the Note from the date such
amount is due until such amount is paid.
ARTICLE 4
Events of Default
-----------------
4.1 Events of Default Hereunder. In case any one or more of the following
"events of default" shall occur and shall not have been remedied:
(a) default in the payment of principal of or interest on any Note, or
in the payment of any other Indebtedness or in the performance and
discharge of the Obligations secured hereby, when due;
(b) the occurrence of an event of default (other than any relating to
non-payment of principal of or interest on the Loan Note) under the terms
and provisions of either Credit Agreement and the continuance of such event
of default for the applicable period of grace, if any;
(c) any warranty or representation made by Trustor herein shall prove
to be untrue in any material respect as of the date made or deemed made; or
(d) failure by Trustor, within the applicable period of grace, if any,
to cure a default in the due performance or observance of any covenant or
agreement contained in this Mortgage and not constituting a default in the
payment of principal of or interest upon any Note or in the payment of any
other Indebtedness;
then and in any such event the Agent, at its option, may declare the entire
unpaid principal of and the interest accrued on the Notes and all other
Indebtedness secured hereby to be forthwith due and payable, without any notice
or demand of any kind, both of which are hereby expressly waived.
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ARTICLE 5
Enforcement of the Security
---------------------------
5.1 Acceleration Upon Default; Additional Remedies. Upon the occurrence of
an event of default and declaration by the Agent of the entire unpaid principal
of and the interest accrued on the Notes and all other Indebtedness secured
hereby to be forthwith due and payable, the Agent may:
(a) Commence an action to foreclose this instrument as a mortgage,
appoint a receiver, or specifically enforce any of the covenants hereof.
(b) Exercise any or all of the remedies available to a secured party
under the Uniform Commercial Code of the State of California, including,
but not limited to:
(i) Either personally or by means of a court appointed receiver,
take possession of all or any of the personal property constituting a
part of the Encumbered Property and exclude therefrom the Trustor and
all others claiming under the Trustor, and thereafter hold, store,
use, operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and exercise
all rights and powers of the Trustor in respect of such personal
property or any part thereof. In the event the Agent demands or
attempts to take possession of such personal property in the exercise
of any rights under the Credit Agreements or any document executed in
connection therewith, the Trustor promises and agrees promptly to turn
over and deliver complete possession thereof to the Agent;
(ii) Without notice to or demand upon the Trustor, make such
payments and do such acts as the Agent may deem necessary to protect
its security interest in such personal property, including without
limitation, paying, purchasing, contesting or compromising any
encumbrance, charge or lien which is prior to or superior to the
security interest granted hereunder, and in exercising any such powers
or authority to pay all expenses incurred in connection therewith;
(iii) Require the Trustor to assemble such personal property or
any portion thereof, at a place designated by the Agent and reasonably
convenient to both parties, and promptly to deliver such personal
property to the Agent, or an agent or representative designated by it.
The Agent, and its agents and representatives shall have the right to
enter upon any or all of the Trustor's premises and property to
exercise the Agent's rights hereunder;
(iv) Elect to treat the fixtures constituting a part of the
Encumbered Property as either real property collateral or personal
25
property collateral and then proceed to exercise such rights as apply
to such type of collateral; and
(v) Sell, lease or otherwise dispose of such personal property at
public sale, with or without having such personal property at the
place of sale, and upon such terms and in such manner as the Agent may
determine, and the Agent may be a purchaser at any such sale.
Unless such personal property is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, the
Agent shall give the Trustor at least ten (10) days prior written notice of the
time and place of any public sale of such personal property or other intended
disposition thereof. Such notice may be mailed to the Trustor at the address set
forth on the signature page(s) of this instrument.
(c) Deliver to the Trustee a written declaration of default and demand
for sale, and a written notice of default and election to cause the
Trustor's interest in the Encumbered Property to be sold, which notice the
Trustee or the Agent shall cause to be duly filed for record in the
Official Records of the county or counties in which the Encumbered Property
is located.
(d) Any other remedy permitted to be exercised by the beneficiary of a
deed of trust or a secured party or both under the laws of the State of
California.
5.2 Foreclosure By Power of Sale. Should the Agent elect to foreclose by
exercise of the power of sale herein contained, the Agent shall notify the
Trustee and shall deposit with the Trustee this instrument and the Notes and
such receipts and evidence of expenditures made and secured hereby as the
Trustee may require.
(a) Upon receipt of such notice from the Agent, the Trustee shall
cause to be recorded, published and delivered to the Trustor such Notice of
Default and Election to Sell as then required by law and by this
instrument. The Trustee shall, without demand on the Trustor, after lapse
of such time as may then be required by law and after recordation of such
Notice of Default and after Notice of Sale having been given as required by
law, sell the Encumbered Property at the time and place of sale fixed by it
in said Notice of Sale, either as a whole, or in separate lots or parcels
or items as the Trustee shall deem expedient, and in such order as it may
determine, at public auction to the highest bidder for cash in lawful money
of the United States payable at the time of sale. The Trustee shall deliver
to such purchaser or purchasers thereof its good and sufficient deed or
deeds conveying the property so sold, but without any covenant or warranty,
express or implied. The recitals in such deed of any matters or facts shall
be conclusive proof of the truthfulness thereof. Any person, including,
without limitation, the Trustor, the Trustee or the Agent, may purchase at
such sale and Trustor hereby covenants to warrant and defend the title of
such purchaser or purchasers.
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(b) After deducting all costs, fees and expenses of the Trustee and of
this Trust, including costs of evidence of title in connection with sale,
the Trustee shall apply the proceeds of sale to payment of: all sums
expended under the terms hereof, not then repaid, with accrued interest at
the highest rate of interest from time-to-time accruing under and as
provided in the Credit Agreements; all other sums then secured hereby and
the remainder, if any, to the person or persons legally entitled thereto.
(c) The Trustee may postpone sale of all or any portion of the
Encumbered Property by public announcement at such time and place of sale,
and from time to time thereafter may postpone such sale by public
announcement at the time fixed by the preceding postponement or
subsequently noticed sale, and without further notice make such sale at the
time fixed by the last postponement, or may, in its discretion, give a new
notice of sale.
5.3 Appointment of Receiver. If an event of default described in Section
4.1 of this instrument shall have occurred and be continuing, the Agent, as a
matter of right and without notice to the Trustor or anyone claiming under the
Trustor, and without regard to the then value of the Encumbered Property or the
interest of the Trustor therein, shall have the right to apply to any court
having jurisdiction to appoint a receiver or receivers of the Encumbered
Property, and the Trustor hereby irrevocably consents to such appointment and
waives notice of any application therefor. Any such receiver or receivers shall
have all the usual powers and duties of receivers in like or similar cases and
all the powers and duties of the Agent in case of entry as provided in Section
5.4 of this instrument and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Encumbered Property unless such
receivership is sooner terminated.
5.4 Operation of the Encumbered Property by the Agent. If an event of
default described in Section 4.1 of this instrument shall have occurred and be
continuing, and in addition to all other rights herein conferred on the Agent,
the Agent (or any person, firm or corporation designated by the Agent) shall
have the right and power, but shall not be obligated, to enter upon and take
possession of any of the Encumbered Property, and to exclude the Trustor, and
the Trustor's agents or servants, wholly therefrom, and to hold, use,
administer, manage and operate the same to the extent that the Trustor shall be
at the time entitled and in its place and stead. The Agent, or any person, firm
or corporation designated by the Agent, may operate the same without any
liability to the Trustor in connection with such operations, except to use
ordinary care in the operation of such properties, and the Agent or any person,
firm or corporation designated by the Agent, shall have the right to collect,
receive and receipt for all rents, issues, profits and Hydrocarbons from said
properties, to make repairs, purchase machinery and equipment, conduct work-over
operations, drill additional wells and to exercise every power, right and
privilege of the Trustor with respect to the Encumbered Property. When and if
the expenses of such operation and development (including costs of unsuccessful
work-over operations or additional wells) have been paid and the Indebtedness
paid, said properties shall, if there has been no sale or foreclosure, be
returned to the Trustor.
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5.5 The Trustor's Waiver of Rights. The Trustor waives the benefit of all
laws now existing or that hereafter may be enacted providing for (i) any
appraisement before sale of any portion of the Encumbered Property, and (ii) the
benefit of all laws that may be hereafter enacted in any way extending the time
for the enforcement of the collection of the Notes or the debt evidenced thereby
or creating or extending a period of redemption from any sale made in collecting
said debt. To the full extent the Trustor may do so, the Trustor agrees that the
Trustor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force providing for any appraisement,
valuation, stay, extension or redemption, and the Trustor, for the Trustor, the
Trustor's heirs, devisees, representatives, successors and assigns, and for any
and all persons ever claiming any interest in the Encumbered Property, to the
extent permitted by law, hereby waives and releases all rights of redemption,
valuation, appraisement, stay of execution, notice of election to mature or
declare due the whole of the secured indebtedness and marshalling in the event
of foreclosure of the liens hereby created. If any law referred to in this
Section and now in force, of which the Trustor, the Trustor's heirs, devisees,
representatives, successors and assigns or other person might take advantage
despite this Section, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to preclude the application of this Section.
The Trustor expressly waives and relinquishes any and all rights and remedies
which the Trustor may have or be able to assert by reason of the laws of the
State of California pertaining to the rights and remedies of sureties.
5.6 Remedies Not Exclusive. The Trustee and the Agent, and each of them,
shall be entitled to enforce payment and performance of any Indebtedness or
obligations secured hereby and to exercise all rights and powers under this
instrument or under the Credit Agreements or other agreements or any laws now or
hereafter in force, notwithstanding some or all of the Indebtedness and
obligations secured hereby may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the
acceptance of this instrument nor its enforcement whether by court action or
pursuant to the power of sale or other powers herein contained, shall prejudice
or in any manner affect the Trustee's or the Agent's right to realize upon or
enforce any other security now or hereafter held by the Trustee or the Agent, it
being agreed that the Trustee and the Agent, and each of them, shall be entitled
to enforce this instrument and any other security now or hereafter held by the
Agent or the Trustee in such order and manner as they or either of them may in
their absolute discretion determine. No remedy herein conferred upon or reserved
to the Trustee or the Agent is intended to be exclusive of any other remedy
herein or by law provided or permitted, but each shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. Every power or remedy given by the
Credit Agreements or any document executed in connection therewith to the
Trustee or the Agent or to which either of them may be otherwise entitled, may
be exercised, concurrently or independently, from time to time and as often as
may be deemed expedient by the Trustee or the Agent and either of them may
pursue inconsistent remedies.
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ARTICLE 6
Miscellaneous Provisions
------------------------
6.1 Pooling and Unitization. The Trustor shall have the right, and is
hereby authorized, to pool or unitize all or any part of the lands described in
Exhibit A, insofar as relates to the Encumbered Property, with adjacent lands,
leaseholds and other interests, when, in the reasonable judgment of the Trustor,
it is necessary or advisable to do so in order to form a drilling and/or
production unit to facilitate the orderly development of that part of the
Encumbered Property affected thereby, or to comply with the requirements of any
Applicable Law or governmental order or regulation relating to the spacing of
wells or proration of the production therefrom; provided, however, that any unit
so formed for the production of oil shall not substantially exceed 160 acres,
and any unit so formed for the production of gas shall not substantially exceed
640 acres, unless a larger area is required to conform to an Applicable Law or
governmental order or regulation relating to the spacing of wells or to obtain
the maximum allowable production under any Applicable Law or governmental order
or regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied. Any unit so formed may relate to one or
more zones or horizons, and a unit formed for a particular zone or horizon need
not conform in area to any other unit relating to a different zone or horizon,
and a unit formed for the production of oil need not conform in area with any
unit formed for the production of gas. Immediately after formation of any such
unit, the Trustor shall furnish to the Trustee and the Agent a true copy of the
pooling agreement, declaration of pooling or other instrument creating such
unit, in such number of counterparts as the Trustee or the Agent may reasonably
request. The interest in any such unit attributable to the Encumbered Property
(or any part thereof) included therein shall become a part of the Encumbered
Property and shall be subject to the lien hereof in the same manner and with the
same effect as though such unit and the interest of the Trustor therein were
specifically described in Exhibit A. The Trustor may enter into pooling or
unitization agreements not hereinabove authorized only with the prior written
consent of the Agent, which consent shall not be unreasonably withheld.
6.2 No Liability. The Trustee and the Agent shall not be liable for any
error of judgment or act done by the Trustee and the Agent in good faith, or be
otherwise responsible or accountable under any circumstances whatsoever, except
for their negligence or bad faith. The Trustee and the Agent shall not be
personally liable in case of entry by them, or anyone entering by virtue of the
powers herein granted them, upon the Encumbered Property for debts contracted or
liability or damages incurred in the management or operation of the Encumbered
Property. the Trustee and the Agent shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by them hereunder, believed by them in good faith to be
genuine. The Trustee shall be entitled to reimbursement for expenses incurred by
them in the performance of their duties hereunder and to reasonable compensation
for such of their services hereunder as shall be rendered.
29
Trustor will, from time to time, pay the compensation due to the Trustee and the
Agent hereunder and reimburse the Trustee and the Agent for, and save them
harmless against, any and all liability and expenses which may be incurred by
them in the performance of their duties.
6.3 Successor Trustees. Any Trustee may resign in writing addressed to the
Agent or be removed at any time with or without cause by an instrument in
writing duly executed by the Agent. In case of the resignation or removal of a
Trustee, one or more successor Trustees may be appointed by the Agent by
instrument of substitution complying with any applicable requirements of law,
and in the absence of any such requirement without formality other than
appointment and designation in writing. Such appointment and designation shall
be full evidence of the right and authority to make the same and of all facts
therein recited, and upon the making of any such appointment and designation
this conveyance shall vest in the named successor Trustee or Trustees all the
estate and title of the prior Trustee in all of the Encumbered Property, and he
or they shall thereupon succeed to all the rights, powers, privileges,
immunities and duties hereby conferred upon the prior Trustee. All references
herein to the Trustee shall be deemed to refer to the Trustee from time to time
acting hereunder.
6.4 Actions or Advances by the Agent or the Trustee. Each and every
covenant herein contained shall be performed and kept by the Trustor solely at
the Trustor's expense. If the Trustor, following notice and demand for
performance from the Agent or the Trustee but without prejudice to the Agent's
rights under Articles IV and V hereof, shall fail to perform or keep any of the
covenants of whatsoever kind or nature contained in this instrument, the Agent,
or the Trustee or any receiver appointed hereunder, may, but shall not be
obligated to, take action and/or make advances to perform the same in the
Trustor's behalf, and the Trustor hereby agrees to repay the expense of such
action and such advances upon demand plus interest at an annual rate equal to
the Alternate Base Rate (as defined in the Credit Agreements) of interest from
time to time accruing on the Notes plus the Applicable Margin (as defined in the
Credit Agreements) plus two percent (2%) until paid or, in the event any
promissory note evidences such indebtedness, upon the terms and conditions
thereof. No such advance or action by the Agent, the Trustee or any receiver
appointed hereunder shall be deemed to relieve the Trustor from any default
hereunder.
6.5 Defense of Claims. The Trustor will notify the Agent, in writing,
promptly of the commencement of any legal proceedings affecting the lien and
security interest hereof or the Encumbered Property, or any part thereof, and
will take such action, employing attorneys as set forth in Section 2.4 (j), as
may be necessary or appropriate to preserve the Trustor's, the Trustee's and the
Agent's rights affected thereby and/or to hold harmless the Trustee and the
Agent in respect of such proceedings; and should the Trustor fail or refuse to
take any such action, the Trustee or the Agent may, upon giving prior written
notice thereof to the Trustor, take such action in behalf and in the name of the
Trustor and at the Trustor's expense. Moreover, the Agent or the Trustee on
behalf of the Agent, may take such independent action in connection therewith as
the Agent may in its discretion deem proper, the Trustor hereby agreeing that
all sums advanced or all expenses incurred in such actions plus interest at an
annual rate equal
30
to the Alternate Base Rate (as defined in the Credit Agreements) of interest
from time to time accruing on the Loan Note plus the Applicable Margin (as
defined in the Credit Agreements) plus two percent (2%) until paid, will, on
demand, be reimbursed, as appropriate, to the Agent, the Trustee or any receiver
appointed hereunder or under Applicable Law. The obligations of the Trustor as
hereinabove set forth in this Section 6.3 shall survive the release,
termination, foreclosure or assignment of this instrument or any sale hereunder.
6.6 Trustee's Powers. At any time, or from time to time, without liability
therefor and without notice, upon written request of the Agent and presentation
of this instrument and the Notes secured hereby for endorsement, and without
affecting the Trustor's personal liability or the effect of this instrument upon
the remainder of the Encumbered Property, the Trustee may (a) reconvey any part
of the Encumbered Property, (b) consent in writing to the making of any map or
plat thereof, (c) join in granting any easement thereon, or (d) join in any
extension agreement or any agreement subordinating the lien or security interest
hereof.
6.7 Agent's Powers. Without affecting the liability of any other person
liable for the payment of the Indebtedness herein mentioned, and without
affecting perfection or priority of the lien or security interest of this
instrument against or in any portion of the Encumbered Property not then or
theretofore released as security for the full amount of all unpaid obligations,
the Agent may, from time to time and without notice (a) release any person so
liable, (b) extend the maturity or alter any of the terms of any such
obligation, (c) grant other indulgences, (d) release or reconvey, or cause to be
released or reconveyed at any time at the Agent's option, any parcel, portion or
all of the Encumbered Property, (e) take or release any other or additional
security for any obligation herein mentioned, or (f) make compositions or other
arrangements with debtors in relation thereto.
6.8 Reconveyance by the Trustee. Upon written request of the Agent stating
that all sums secured hereby have been paid, and upon surrender of this
instrument and the Notes to the Trustee for cancellation and retention and upon
payment by the Trustor of the Trustee's fees, the Trustee shall reconvey to the
Trustor, or the person or persons legally entitled thereto, without
representation or warranty, any portion of the Encumbered Property then held
hereunder. The recitals in such reconveyance of any matters or facts shall be
conclusive proof of the truthfulness thereof. The grantee in any reconveyance
may be described as "the person or persons legally entitled thereto".
6.9 Effect of Partial Release or Reconveyance. If there is a partial
release or reconveyance by the Trustee of any portion of the Encumbered
Property, the Trustee and the Agent may look to the remainder of the Encumbered
Property as security for the full payment of the Notes and all other
Indebtedness secured by this instrument.
6.10 Subrogation. To the extent that proceeds of the Indebtedness are owed
to pay any outstanding lien, charge or prior encumbrance against the Encumbered
Property, such proceeds have been or will be advanced by the Agent at the
Trustor's
31
request and the Agent shall be subrogated to any and all rights and liens owed
by any owner or holder of such outstanding liens, charges and prior
encumbrances, irrespective of whether said liens, charges or encumbrances are
released.
6.11 No Merger. If both the lessor's and lessee's estates under any lease
or any portion thereof which constitutes a part of the Encumbered Property shall
at any time become vested in one owner, this instrument and the lien and
security interest created hereby shall not be destroyed or terminated by
application of the doctrine of merger and, in such event, the Agent shall
continue to have and enjoy all of the rights and privileges of the Agent as to
the separate estates. In addition, upon the foreclosure of the lien and security
interest created by this instrument on the Encumbered Property pursuant to the
provisions hereof, any leases or subleases then existing and created by the
Trustor shall not be destroyed or terminated by application of the law of merger
or as a matter of law or as a result of such foreclosure unless the Agent or any
purchaser at any such foreclosure sale shall so elect. No act by or on behalf of
the Agent or any such purchaser shall constitute a termination of any lease or
sublease unless the Agent or such purchaser shall give written notice thereof to
such tenant or subtenant.
6.12 Renewals, Amendments and Other Security. Renewals and extensions of
the Indebtedness and modifications of any kind of the Obligations may be given
at any time and amendments may be made to agreements with third parties relating
to any part of such Indebtedness or the Trustee and the Agent may take or may
now hold other security for the Indebtedness, all without notice to or consent
of the Trustor. If an event of default described in Section 4.1 of this
instrument shall have occurred and be continuing, amendments may be made to
agreements relating to any part of the Indebtedness or the Encumbered Property
without notice to or consent of the Trustor. The Trustee or the Agent may resort
first to such other security or any part thereof or first to the security herein
given or any part thereof, or from time to time to either or both, even to the
partial or complete abandonment of either security, and such action shall not be
a waiver of any rights conferred by this instrument, which shall continue as a
first lien upon and prior perfected security interest in the Encumbered Property
not expressly released until the Notes and all other Indebtedness secured hereby
are fully paid.
6.13 Construction of this Instrument as an Assignment, etc. This instrument
shall be deemed to be and may be enforced from time to time as an assignment,
chattel mortgage, contract, deed of trust, financing statement, real estate
mortgage, or security agreement, and from time to time as any one or more
thereof.
6.14 Limitation on Interest. It is the intent of the Trustor and the Agent
in the execution of this instrument and the Notes and all other instruments
securing payment of the Notes to contract in strict compliance with the usury
laws of the State of California and any other jurisdiction whose laws may govern
the loan(s) evidenced by the Notes. In furtherance thereof, the Agent and the
Trustor stipulate and agree that none of the terms and provisions contained in
the Credit Agreements or any document executed in connection therewith shall
ever be construed to create a contract for the use, forbearance or detention of
money requiring payment of interest at a rate in excess of
32
the maximum interest rate permitted to be charged by the laws of the State of
California or any other jurisdiction whose laws may govern the loans evidenced
by the Notes. The Trustor or any guarantor, endorser or other party now or
hereafter becoming liable for the payment of the Notes shall never be liable for
unearned interest on the Notes and shall never be required to pay interest on
the Notes at a rate in excess of the maximum interest that may be lawfully
charged under the laws of the State of California or any other jurisdiction
whose laws may govern the loans evidenced by the Notes and the provisions of
this Section shall control over all other provisions of the Notes and any other
instrument executed in connection herewith which may be in apparent conflict
herewith. In the event any holder of the Notes shall collect monies which are
deemed to constitute interest which would otherwise increase the effective
interest rate on the Notes to a rate in excess of that permitted to be charged
by the laws of the State of California or any other jurisdiction whose laws may
govern the loans evidenced by the Notes, all such sums deemed to constitute
interest in excess of the legal rate shall be immediately returned to the
Trustor upon such determination.
6.15 Unenforceable Provisions. If any provision hereof or of the Notes is
invalid or unenforceable in the State of California or otherwise, the other
provisions hereof or of the Notes shall remain in full force and effect, and the
remaining provisions hereof shall be liberally construed in favor of the Trustee
and the Agent in order to effectuate the provisions hereof.
6.16 Waiver by the Agent. Any and all covenants in this instrument may from
time to time by instrument in writing signed by the Agent be waived to such
extent and in such manner as the Agent may desire, but no such waiver shall ever
affect or impair either the Trustee's or the Agent's rights or liens or security
interests hereunder, except to the extent specifically stated in such written
instrument.
6.17 Successors and Assigns. This instrument is binding upon the Trustor,
the Trustor's successors and assigns, and shall inure to the benefit of the
Trustee, its successors, and the Agent, its successors and assigns, and the
provisions hereof shall likewise be covenants running with the land.
6.18 Article and Section Headings. The article and section headings in this
instrument are inserted for convenience of reference and shall not be considered
a part of this instrument or used in its interpretation.
6.19 Execution in Counterparts. This instrument may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all of which are identical, except that, to facilitate recordation
or filing, in any particular counterpart portions of Exhibit A hereto which
describe properties situated in counties other than the county in which such
counterpart is to be recorded or filed may have been omitted.
6.20 Special Filing as Financing Statement. This instrument shall likewise
be a security agreement and a financing statement. This instrument shall be
filed for record, among other places, in the real estate records of each county
in which any part
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of the real property covered by the oil and gas leases described in Exhibit A
hereto is situated, and, when filed in such counties shall be effective as a
financing statement covering fixtures located on oil and gas properties, which
oil and gas properties (and accounts arising therefrom) are to be financed at
the wellheads of the wells located on the real property described in Exhibit A
hereto. A portion of the goods encumbered hereby are, or are to become, fixtures
as that term is defined in Section 9313 of the Uniform Commercial Code of the
State of California. At the option of the Agent, a carbon, photographic or other
reproduction of this instrument or of any financing statement covering the
Encumbered Property or any portion thereof shall be sufficient as a financing
statement and may be filed as such.
6.21 Notices. Any notice, request, demand or other instrument which may be
required or permitted to be given or served upon the Trustor pursuant to this
instrument shall be sufficiently given and deemed given when mailed by
first-class mail, addressed to the Trustor at the address shown below the
signatures at the end of this instrument or to such different address as the
Trustor shall have designated by written notice received by the Agent.
6.22 Request for Notice. The Trustor hereby requests a copy of any notice
of default and that any notice of sale hereunder be mailed to it at the address
set forth on the signature page(s) of this instrument.
6.23 Statements by the Trustor. The Trustor, within ten (10) days after
being given notice by mail, will furnish to the Agent a written statement
stating the unpaid principal of and interest on the Notes and any other amounts
secured by this instrument and stating whether any offset or defense exists
against such principal and interest.
6.24 Acceptance by the Trustee. The Trustee accepts this Trust when this
instrument, duly executed and acknowledged, is made a public record as provided
by law.
6.25 Release and Waiver. The Trustor hereby waives and releases any and all
rights of contribution, reimbursement or indemnity it has or may hereafter have
against the Trustee and/or the Agent arising from or relating to this instrument
and/or the Encumbered Property, including without limitation claims or
liabilities relating to Environmental Laws. Notwithstanding anything to the
contrary set forth in this instrument or any other Loan Document, the
obligations and liabilities of the Trustor under and pursuant to the Hazardous
Materials Undertaking and Unsecured Indemnity are not secured by this
instrument.
6.26 No Partnership. Nothing contained in this instrument is intended to,
or shall be construed as, creating to any extent and in any manner whatsoever,
any partnership, mining partnership, joint venture, or association among the
Trustor, the Trustee and the Agent, or in any way as to make the Agent or the
Trustee co-principals with the Trustor with reference to the Encumbered
Property, and any inferences to the contrary are hereby expressly negated.
34
6.27 Conflict with the Agreement. In the case of irreconcilable conflict
between the provisions of this instrument and those of either Credit Agreement,
the provisions of the applicable Credit Agreement shall control.
6.28 The Agent as Agent. As described above, certain Affiliates of the
Agent or a Lender, are or may become parties to certain Hedging Agreements with
the Trustor and/or Affiliates of the Trustor. This instrument secures the
obligations of the Trustor and such Affiliates, as the case may be, under such
Hedging Agreements, and the parties acknowledge for all purposes that the Agent
acts for itself and as agent on behalf of such Affiliates of the Agent or any
Lender which are so entitled to share in the rights and benefits accruing to the
Agent under this instrument in respect of the Encumbered Property.
35
IN WITNESS WHEREOF, the Trustor has executed or caused to be executed this
Deed of Trust with Power of Sale, Assignment of Production, Security Agreement,
Financing Statement and Fixtures Filing on the day, month and year first above
written.
TRUSTOR AND DEBTOR
CALPINE CORPORATION, a Delaware
corporation
By:______________________________________
Title: _______________________________
Printed Name: ________________________
The name and mailing address of the Trustor and Debtor is:
Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX 77002
[CA Deed of Trust]
BENEFICIARY AND SECURED PARTY
-----------------------------
THE BANK OF NOVA SCOTIA, as Agent
By:______________________________________
Title: Managing Director
Printed Name: Jon Burckin
The name and mailing address of the Secured Party and Beneficiary is:
The Bank of Nova Scotia, as Agent
580 California Street
Suite 2100
San Francisco, CA 94104
The mailing address of the additional Secured Party, Chicago Title Insurance
Company, as Trustee, is:
Chicago Title Insurance Company
5300 California Avenue
Bakersfield, California 93309
Attention:
[CA Deed of Trust]
CALIFORNIA
ACKNOWLEDGMENT
STATE OF _____________________)
COUNTY OF ____________________)
On __________________ before me, __________________________, a Notary Public in
and for said County and State, personally appeared __________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
Signature:________________________
Notary Public
[CA Deed of Trust]
CALIFORNIA
ACKNOWLEDGMENT
STATE OF _____________________)
COUNTY OF ____________________)
On __________________ before me, __________________________, a Notary Public in
and for said County and State, personally appeared Jon Burckin, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
Signature:________________________
Notary Public
[CA Deed of Trust]
SCHEDULE I To Deed Of Trust With Power Of Sale,
Assignment Of Production, Security Agreement,
Financing Statement And Fixture Filing,
Dated May 1, 2002, From
Calpine Corporation, A Delaware Corporation ,
As Trustor
To
Chicago Title Insurance Company, As Trustee,
And The Bank Of Nova Scotia, As Beneficiary
Prior Names of the Trustor
--------------------------
Calpine Natural Gas Company L.P.
TGX Corporation
Sheridan Energy, Inc.
Sheridan California Energy, Inc.
Calpine Natural Gas California, Inc.
Calpine Natural Gas Company
Michael Petroleum Corporation
-1-
EXHIBIT A To Deed Of Trust With Power Of Sale,
Assignment Of Production, Security Agreement,
Financing Statement And Fixture Filing,
Dated May 1, 2002, From
Calpine Corporation, A Delaware Corporation ,
As Trustor
To
Chicago Title Insurance Company, As Trustee,
And The Bank Of Nova Scotia, As Beneficiary
List of Properties
------------------
1. Depth limitations, unit designations, unit tract descriptions and
descriptions (including percentages, decimals or fractions) of undivided
leasehold interests, well names, "Operating Interests", "Working Interests"
and "Net Revenue Interests" contained in this Exhibit A and the listing of
any percentage, decimal or fractional interest in this Exhibit A shall not
be deemed to limit or otherwise diminish the interests being subjected to
the lien, security interest and encumbrance of this instrument.
2. Some of the land descriptions in this Exhibit A may refer only to a portion
of the land covered by a particular lease. This instrument is not limited
to the land described in Exhibit A but is intended to cover the entire
interest of the Trustor in any lease described in Exhibit A even if such
interest relates to land not described in Exhibit A. Reference is made to
the land descriptions contained in the documents of title recorded as
described in this Exhibit A. To the extent that the land descriptions in
this Exhibit A are incomplete, incorrect or not legally sufficient, the
land descriptions contained in the documents so recorded are incorporated
herein by this reference.
3. References in Exhibit A to instruments on file in the public records are
made for all purposes. Unless provided otherwise, all recording references
in Exhibit A are to the official real property records of the county or
counties in which the encumbered property is located and in which records
such documents are or in the past have been customarily recorded, whether
Deed Records, Oil and Gas Records, Oil and Gas Lease Records, Official
Records or other records.
4. A statement herein that a certain interest described herein is subject to
the terms of certain described or referred to agreements, instruments or
other matters shall not operate to subject such interest to any such
agreement, instrument or other matter except to the extent that such
agreement, instrument or matter is otherwise valid and presently subsisting
nor shall such statement be deemed to constitute a recognition by the
parties hereto that any such agreement, instrument or other matter is valid
and presently subsisting.
[Do not detach this page]
A-1
EXHIBIT B To Deed Of Trust With Power Of Sale,
Assignment Of Production, Security Agreement,
Financing Statement And Fixture Filing,
Dated May 1, 2002, From
Calpine Corporation, A Delaware Corporation ,
As Trustor
To
Chicago Title Insurance Company, As Trustee,
And The Bank Of Nova Scotia, As Beneficiary
Permitted Encumbrances
----------------------
All initially-capitalized terms used in this Exhibit B, whether or not
defined in this instrument, shall have the meanings given such terms in the
Credit Agreements.
(a) Liens securing payment of the Obligations granted pursuant to any Loan
Document and Liens securing payment of the obligations granted pursuant to the
loan documents relating to the Existing Credit Agreement;
(b) Liens granted prior to the Effective Date to secure payment of
Indebtedness of the type permitted and described in clause (a) of Section 8.2.2
of the Credit Agreements;
(c) Liens granted to secure payment of Indebtedness of the type permitted
and described in clause (b) of Section 8.2.2 of the Credit Agreements where
recourse is limited as described in clause (b) of Section 8.2.2 of the Credit
Agreements;
(d) Liens for taxes, assessments or other governmental charges or levies
not at the time delinquent or thereafter payable without penalty or being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(e) Liens of carriers, warehousemen, mechanics, materialmen and landlords
incurred in the ordinary course of business for sums not overdue or being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(f) Liens incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed money) entered into
in the ordinary course of business or to secure obligations on surety or appeal
bonds;
(g) judgment Liens in existence less than 15 days after the entry thereof
or with respect to which execution has been stayed or the payment of which is
covered in full (subject to a customary deductible) by insurance maintained with
responsible insurance companies;
B-1
(h) Liens granted to secure payment of Indebtedness of the type permitted
and described in clauses (e) and (g) of Section 8.2.2 of the Credit Agreements
where recourse is limited as described in clauses (e) or (g), as applicable, of
Section 8.2.2 of the Credit Agreements;
(i) Zoning restrictions, easements, rights of way, title irregularities and
other similar encumbrances which alone or in the aggregate do not materially
detract from the value of the property subject thereto;
(j) Liens on the property or assets of any Subsidiary of the Borrower in
favor of the Borrower;
(k) Banker's Liens and similar Liens (including set-off rights) in respect
of bank deposits;
(l) Landlord's Liens and similar Liens in respect of leased property;
(m) Liens securing Attributable Debt with respect to outstanding leases
entered into pursuant to Sale/Leaseback Transactions so long as, with respect to
Sale/Leaseback Transactions closing after January 1, 2002, the amount thereof
does not exceed 10% of the consolidated tangible assets of the Borrower and its
Subsidiaries; and
(n) Liens incurred in connection with the extension, renewal or refinancing
of Indebtedness secured by Liens permitted and described in clauses (b), (c) and
(h) of Section 8.2.3 of the Credit Agreements; provided, however, that (x) such
new Lien shall be limited to all or part of the same property that secured the
original Lien and (y) the Indebtedness secured by such Lien at such time is not
increased (other than by an amount necessary to pay fees and expenses, including
premiums, related to the refinancing, refunding, extension, renewal or
replacement of such Indebtedness); provided, further, that the limitations set
forth in this clause (n) shall not apply to Liens which are otherwise permitted
under Section 8.2.3 of the Credit Agreements, even if such Liens secure
Indebtedness issued to repay or refinance existing Indebtedness permitted and
described in clauses (b), (c) and (h) of Section 8.2.3 of the Credit Agreements.
B-2