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HUGOTON ROYALTY TRUST
ROYALTY TRUST INDENTURE
December 1, 1998
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TABLE OF CONTENTS
ARTICLE I. DEFINITION............................................................ 1
Section 1.01. Defined Terms............................................. 1
ARTICLE II. NAME AND PURPOSE OF THE TRUST....................................... 4
Section 2.01. Name....................................................... 4
Section 2.02. Purposes................................................... 4
Section 2.03. Nature of the Trust........................................ 5
Section 2.04. Transfer of Trust Property to the Trust; Closing Matters... 5
ARTICLE III. ADMINISTRATION OF THE TRUST........................................ 6
Section 3.01. General.................................................... 6
Section 3.02. Limited Power to Dispose of Royalties...................... 6
Section 3.03. No Power to Engage in Business or Make Investments......... 7
Section 3.04. Interest on Cash on Hand................................... 7
Section 3.05. Power to Settle Claims..................................... 7
Section 3.06. Power to Contract for Services............................. 7
Section 3.07. Payment of Liabilities of Trust............................ 8
Section 3.08. Establishment of Reserves.................................. 8
Section 3.09. Limited Power to Borrow.................................... 8
Section 3.10. Income and Principal....................................... 8
Section 3.11. Term of Contracts.......................................... 8
Section 3.12. Transactions between Related Parties....................... 9
Section 3.13. No Bond Required........................................... 9
Section 3.14. Timing of Trust Income and Expenses........................ 9
Section 3.15. Divestiture of Units....................................... 9
Section 3.16. Filing of Registration Statements, Listing of Units....... 10
Section 3.17. Reserve Reports........................................... 12
Section 3.18. Miscellaneous............................................. 13
ARTICLE IV. BENEFICIAL SHARES AND CERTIFICATES................................... 13
Section 4.01. Creation and Distribution.................................. 13
Section 4.02. Beneficial Interest of Unitholders......................... 13
Section 4.03. Execution of Certificates.................................. 14
Section 4.04. Registration and Transfer of Unit.......................... 14
Section 4.05. Mutilated, Lost, Stolen and Destroyed Certificates......... 15
Section 4.06. Protection of Trustee...................................... 15
Section 4.07. Determination of Ownership of Certificates................. 15
ARTICLE V. ACCOUNTING AND DISTRIBUTION; REPORTS................................. 16
Section 5.01. Fiscal Year and Accounting Method.......................... 16
Section 5.02. Distributions.............................................. 16
Section 5.03. Income Tax Reporting....................................... 16
Section 5.04 Reports to Unitholders..................................... 16
Section 5.05. Filings.................................................... 17
Section 5.06. Information to be Supplied by Grantor and Trustee.......... 17
Section 5.07. Reliance on Information.................................... 17
ARTICLE VI. LIABILITY OF TRUSTEE,
INDEMNIFICATION AND METHOD OF SUCCESSION......................................... 18
Section 6.01. Liability of Trustee....................................... 18
Section 6.02. Indemnification of Trustee................................. 18
Section 6.03. Guaranty................................................... 19
Section 6.04. Contribution............................................... 19
Section 6.05. Indemnification Procedures................................. 19
Section 6.06. Resignation of Trustee..................................... 20
Section 6.07. Removal of Trustee......................................... 20
Section 6.08. Appointment of Successor Trustee........................... 20
Section 6.09. Laws of Other Jurisdictions................................ 21
Section 6.10. Force Majeure.............................................. 21
ARTICLE VII. COMPENSATION OF THE TRUSTEE........................................ 22
Section 7.01. Compensation of Trustee.................................... 22
Section 7.02. Expenses................................................... 22
Section 7.03. Other Services............................................. 22
Section 7.04. Source of Funds............................................ 22
ARTICLE VIII. MEETINGS OF UNITHOLDERS........................................... 22
Section 8.01. Purpose of Meetings........................................ 22
Section 8.02. Call and Notice of Meetings................................ 22
Section 8.03. Voting..................................................... 23
Section 8.04. Conduct of Meetings........................................ 23
Section 8.05. Unitholder Proposals....................................... 23
ARTICLE IX. DURATION, REVOCATION AND TERMINATION OF TRUST....................... 24
Section 9.01. Revocation................................................. 24
Section 9.02. Termination................................................ 24
Section 9.03. Disposition and Distribution of Properties................. 24
ARTICLE X. AMENDMENTS........................................................... 25
Section 10.01. Prohibited................................................ 25
Section 10.02. Permitted................................................. 25
ARTICLE XI. ARBITRATION......................................................... 25
XII. MISCELLANEOUS.............................................................. 28
Section 12.01. Inspection of Trustee's Books............................. 28
Section 12.02. Trustee's Employment of Experts........................... 28
Section 12.03. Merger or Consolidation of Trustee........................ 28
Section 12.04. Filing of this Indenture.................................. 29
Section 12.05. Severability.............................................. 29
Section 12.06. Notices................................................... 29
Section 12.07. Counterparts.............................................. 30
Section 12.08. Successors................................................ 30
HUGOTON ROYALTY TRUST INDENTURE
This Royalty Trust Indenture ("Indenture") of Hugoton Royalty Trust (the
"Trust") is entered into as of December 1, 1998, between Cross Timbers Oil
Company, a Delaware corporation ("Grantor"), as Grantor, and NationsBank, N.A.,
a banking association organized under the laws of the United States (the
"Bank"), as trustee.
WHEREAS, Grantor is engaged in the business of developing and producing oil
and gas and owns various mineral interests in properties that contain proved
reserves of oil and gas and are currently producing oil and gas; and
WHEREAS, Grantor has determined to convey to the Trust the Royalties
(hereinafter defined) pursuant to the Conveyances (hereinafter defined) in
consideration for the issuance by the Trust to Grantor of 40,000,000 Units
(hereinafter defined) representing the ownership of undivided Beneficial
Interest (hereinafter defined) in the assets of the Trust;
NOW, THEREFORE, in furtherance of forming the Trust, Grantor has delivered
to the Bank, on behalf of the Trust, One Thousand Dollars ($1,000.00) upon
execution of this Indenture, which Bank accepts and agrees to hold in trust,
together with the Royalties to be received hereunder, for the purposes, and in
accordance with the duties, terms and conditions hereof.
ARTICLE I. DEFINITIONS
Section 1.01. Defined Terms. As used herein, the following terms are used
with the meanings indicated:
"Affiliate" of a Person means another Person controlled by,
controlling or under common control with such Person. As used herein,
"control" (including the terms "controlling", "controlled by" and "under
common control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Beneficial Interest" means the aggregate equitable interest of the
Unitholders in the Trust Estate as expressly set out in this Trust
Indenture and all other rights of beneficiaries of express trusts created
under the Texas Trust Code, subject to the limitations set forth in this
Trust Indenture.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which national banking institutions in the City of Fort Worth,
Texas, are closed as authorized or required by law or a holiday determined
by the New York Stock Exchange as "affecting 'ex' dates."
"Certificate" means a certificate issued by the Trustee pursuant to
Article IV evidencing the ownership of one or more Units.
"Code" means the Internal Revenue Code of 1986, as amended.
"Closing" means the closing of the initial public offering of Units
contemplated by the Securities Act Registration Statement.
"Conveyances" means the Net Overriding Royalty Conveyances effective
as of December 1, 1998 between Grantor and the Trust pursuant to which the
Royalties are to be conveyed to the Trust.
"Distribution Date" means the date of a distribution, which shall be
on or before ten Business Days after the Monthly Record Date.
"Effective Time" means 12:01 A.M. on December 1, 1998.
"Environmental Laws" means all applicable federal, state and local
laws, regulations, ordinances, rules, orders, permits and governmental
restrictions relating to the environment, the effect of the environment on
human health or safety, pollutants, contaminants, hazardous substances, or
hazardous waste, in effect on the date of this Indenture, and all binding
judicial and administrative interpretations thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Act Registration Statement" means the registration statement
by which the Units may be registered under Section 12 of the Exchange Act.
"Indenture" means this instrument, as originally executed, or, if
amended or supplemented, as so amended or supplemented.
"Monthly Distribution Amount" means for each Monthly Period an amount
determined by the Trustee (pursuant to Section 5.02 hereof) to be equal to
the excess, if any, of (a) the cash received by the Trustee during the
Monthly Period attributable to the Royalties, plus any cash available for
distribution as a result of the reduction or elimination during the Monthly
Period of any existing cash reserve created pursuant to Section 3.08 hereof
to provide for the payment of liabilities of the Trust, plus any other cash
receipts of the Trust during the Monthly Period including any cash received
from interest earned pursuant to Section 3.04, other than interest earned
on deposits of the Monthly Distribution Amount for any prior Monthly Period
pending distribution of such amount, over (b) the liabilities of the Trust
paid during the Monthly Period, plus the amount of any cash used pursuant
to Section 3.08 hereof in the Monthly Period to establish or increase a
cash reserve for the payment of any accrued, future or contingent
liabilities of the Trust. Without limiting the foregoing, the liabilities
of the Trust to be paid during the first Monthly Period shall include
liabilities incurred prior to the Effective Time that relate to the
formation of the Trust or for which the Trust or Trustee is otherwise
responsible for payment. If the Monthly
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Distribution Amount determined in accordance with the preceding sentence
shall for any Monthly Period be a negative amount, then the Monthly
Distribution Amount shall be zero, and such negative amount shall reduce
the next Monthly Distribution Amount. Notwithstanding the foregoing, the
Monthly Distribution Amount for any Monthly Period shall not include any
amount which would have been required to be reported to any securities
exchange or quotation system on which the Units are listed or admitted in
connection with the establishment of an 'ex' date in order to be
distributed to Unitholders who were such on the Monthly Record Date for
such Monthly Period but was not so reported unless the securities exchange
or quotation system agrees to such amount being a part of that Monthly
Period's Monthly Distribution Amount or the Trustee receives an opinion of
counsel, in a form reasonably satisfactory to the Trustee, stating that
none of the Trust, the Trustee or any owner of Units will be adversely
affected by such inclusion. An amount which pursuant to the preceding
sentence is not included in the Monthly Distribution Amount for that
Monthly Period shall be included in the Monthly Distribution Amount for the
next Monthly Period (unless it is reserved pursuant to Section 3.08
hereof).
"Monthly Period" means, for the initial period, the period which
commences on the Effective Time and continues through and includes the
Monthly Record Date occurring in March 1999, and for succeeding periods the
period which commences on the day following a Monthly Record Date and
continues through and includes the next succeeding Monthly Record Date.
"Monthly Record Date" for each month means the close of business on
the last Business Day of such month unless the Trustee determines that a
different date is required to comply with applicable law or the rules of
any exchange or quotation system on which the Units may be listed or
admitted for trading, in which event it means such different date.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"NYSE" means the New York Stock Exchange.
"Person" means an individual, a corporation, partnership, limited
liability company, trust, estate or other organization.
"Reserve Report" means a report of estimated proved reserves
attributable to the Royalties and the present value thereof prepared on the
basis required by the SEC for inclusion in financial statements filed with
the SEC.
"Royalties" means the net overriding royalty interests conveyed to the
Trustee pursuant to the Conveyances.
"SEC" means the Securities and Exchange Commission and any agency
which may succeed to its responsibilities and functions after the date
hereof.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securities Act Registration Statement" means a registration statement
filed under and complying with the requirements of the Securities Act, and
the rules and regulations promulgated thereunder, in respect of the
offering and sale of all or a fraction of the Units to the public and the
transactions related thereto.
"Subject Interests" has the meaning set forth in the Conveyances.
"Transferee", as to any Unitholder or former Unitholder, means any
Person succeeding to the interest of such Unitholder or former Unitholder
in one or more Units of the Trust, whether as purchaser, donee, legatee or
otherwise.
"Trust" means the express trust created hereby which shall be held and
administered as provided herein and in accordance with the terms and
provisions (not inconsistent with any terms and provisions hereof) of the
Texas Trust Code.
"Trust Estate" means the assets held by the Trustee under this
Indenture, and shall include both income and principal if separate accounts
or records are kept therefor.
"Trustee" means the initial trustee under this instrument, or any
successor, during the period it is so serving in such capacity.
"Unit" means an undivided fractional interest in the Beneficial
Interest, determined as hereinafter provided.
"Unitholder" means the owner of one or more Units as reflected on the
books of the Trustee pursuant to Article IV.
ARTICLE II. NAME AND PURPOSE OF THE TRUST
Section 2.01. Name. The Trust shall be known as the Hugoton Royalty
Trust, and the Trustee may transact the affairs of the Trust in that name.
Section 2.02. Purposes. The purposes of the Trust are:
(a) to receive, hold, protect and conserve, for the benefit of the
Unitholders, the Trust Estate;
(b) to convert the Royalties to cash either (1) by retaining them and
collecting the proceeds from production payable with respect thereto until
production has ceased or the Royalties have otherwise terminated or (2) by
selling or otherwise disposing of all or a part of the Royalties in
accordance with and subject to the terms of this Indenture;
(c) to pay, or provide for the payment of, any costs and liabilities
incurred in carrying out the purposes of the Trust, and thereafter to
distribute the remaining amounts of
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cash received by the Trust to the Unitholders pro rata based on the number
of Units owned; and
(d) subject to Section 3.03 of this Indenture, to engage in such other
activities as are necessary or convenient for the attainment of any of the
foregoing or are incident thereto and which may be engaged in or carried
out by a trust under the Texas Trust Code.
Section 2.03. Nature of the Trust. It is the intention and agreement of
Grantor and the Trustee to create an express trust within the meaning of Section
111.004(4) of the Texas Trust Code, for the benefit of the owners of Units, and
a grantor trust for federal income tax purposes of which the owners of Units are
the grantors. As set forth above and amplified herein, the Trust is intended to
be limited to the receipt of revenues attributable to the Royalties and the
distribution of such revenues, after payment of or provision for Trust expenses
and liabilities, to the Unitholders. It is neither the purpose nor the intention
of the parties hereto to create, and nothing in this Trust Indenture shall be
construed as creating, a partnership, joint venture, joint stock company or
business association between or among Unitholders, present or future, or among
or between Unitholders, or any of them, and the Trustee or Grantor.
Section 2.04. Transfer of Trust Property to the Trust; Closing Matters.
Upon the execution of this Indenture, Grantor has paid to the Trustee, in trust,
and the Trustee has accepted, for the uses and purposes provided herein, the sum
of One Thousand Dollars ($1,000.00) in consideration for 40,000,000 Units to be
issued by the Trust to Grantor, which Units shall collectively represent the
entire Beneficial Interest in accordance with Section 4.01 of this Indenture.
At or before the Closing, Grantor shall grant, bargain, sell, convey and assign
the Royalties to the Trust for the uses and purposes provided herein and for the
benefit of the Unitholders, pursuant to the Conveyances. The Units to be issued
by the Trust to Grantor in accordance with the first sentence of this Section
2.04 shall be evidenced by one or more Certificates (which may be temporary
Certificates) issued in such denominations and otherwise in accordance with
written instructions furnished to the Trustee. Upon receipt of written transfer
instructions from Grantor, the Trustee shall prepare Certificates (which may be
temporary Certificates) in proper form duly executed and countersigned in
accordance with Section 4.03 of this Indenture in such names and in such
denominations as Grantor may request in writing not less than two full Business
Days before the Closing. For the purpose of expediting the checking and
packaging of the Certificates so prepared by the Trustee pursuant to the
preceding sentence, the Trustee shall make such Certificates available for
inspection by the representatives of the several underwriters named in the
Securities Act Registration Statement. The Trustee shall deliver such
Certificates to such location and at such time as is stated in the written
transfer instructions from Grantor and shall release such Certificates (a) upon
the receipt from Grantor of one or more Certificates, duly endorsed for
transfer, that evidence a number of Units equal to or not less than the number
of Units evidenced by the Certificates to be so released and (b) in accordance
with the instructions of Grantor. At the Closing, the Trustee shall receive the
following documents dated as of the date of the Closing: (i) local counsel
opinions and opinions of Kelly, Hart & Hallman, P.C. and Butler & Binion, L.L.P.
addressed to the Trustee substantially in the forms of the opinions to be
delivered by such counsel at the Closing pursuant to the underwriting agreement
referred to in the Securities Act Registration Statement (the "Underwriting
Agreement"), (ii) a certificate of Grantor signed by an executive officer
certifying that the representations and warranties of Grantor contained in the
Underwriting Agreement are true and correct as of the date of the Closing and
(iii) such other
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documents or certificates as the Trustee may reasonably request; provided, that
the certificate regarding Grantor's representations and warranties set forth in
said Underwriting Agreement may be to the best knowledge of the officer
certifying as to such representations and warranties, and shall exclude
information furnished to Grantor in writing by or on behalf of the Trustee.
ARTICLE III. ADMINISTRATION OF THE TRUST
Section 3.01. General. The Trustee accepts the Trust created by this
Indenture and agrees to perform its duties in accordance with the terms of this
Indenture. Subject to the limitations set forth in this Indenture, the Trustee
is authorized to take such action as in its judgment is necessary or advisable
best to achieve the purposes of the Trust, including the authority to enter into
the Conveyances, to agree to modifications or settlements of the terms of the
Conveyances or to settle disputes with respect thereto, so long as such
modifications or settlements do not alter the nature of the Royalties as rights
to receive a share of the proceeds of oil and gas produced from the properties
presently burdened by such Royalties which are free of any obligation for
operating expenses and as rights which do not possess any operating rights or
obligations. The Trustee may not dispose of all or any portion of the Royalties
except as provided in Sections 3.02, 3.05, 3.09 and 9.03 of this Indenture.
Section 3.02. Limited Power to Dispose of Royalties.
(a) In the event the Trustee determines it to be in the best interest
of the Unitholders the Trustee may sell, at any time and from time to time,
all or any part of any of the Royalties for cash in such a manner as it
deems in the best interest of the Unitholders if approved by the
Unitholders present or represented at a meeting held in accordance with the
requirements of Article VIII. This Section 3.02(a) shall not be construed
to require approval of the Unitholders for any sale or other disposition of
all or any part of the Royalties pursuant to Sections 3.02(b), 3.05, 3.09
or 9.03. The Trustee is authorized to retain any of the Royalties in the
form in which such property was transferred to the Trustee, without regard
to any requirement to diversify investments or other requirements.
(b) Grantor may at any time and from time to time notify the Trustee
that it desires to sell for cash any of the Subject Interests to any Person
not an Affiliate of Grantor free of and unburdened by the Royalties, and
upon receipt of such notice the Trustee shall be required to join in such
sale and execute and deliver a partial release, assignment or such other
instrument as Grantor may reasonably request to evidence that such Subject
Interest is being sold free and unburdened by the Royalties; provided,
however, that the Trustee shall not be required to join in such sale if the
value of the Royalties (determined as provided below) associated with the
Subject Interests to be so sold in any calendar year pursuant to this
Section 3.02(b) exceeds one percent (1%) of the value of all the Royalties
before such sale. The net proceeds from any sale pursuant to this Section
3.02(b) shall be allocated twenty percent (20%) to Grantor and eighty
percent (80%) to the Trust. For purposes of this Section 3.02(b), the
value of the Royalties associated with the Subject Interests to be sold and
of all the Royalties shall be the discounted present value of the future
net revenue attributable to the proved reserves attributable to such
Royalties, respectively, as determined by reference to the Reserve Report
as of December 31 of the year preceding the closing of the sale. The
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use of such values is solely for the purpose of determining compliance with
this Section 3.02(b) and it is recognized that the proceeds of sale may be
greater or lesser than the value so determined.
Section 3.03. No Power to Engage in Business or Make Investments. The
Trustee shall not, in its capacity as Trustee under the Trust, engage in any
business or commercial activity of any kind whatsoever and shall not, under any
circumstances, use any portion of the Trust Estate to acquire any oil and gas
lease, royalty or other mineral interest other than the Royalties, or, except as
permitted in Sections 3.04 and 3.15, acquire any other asset. The Trustee shall
have no right or duty to operate the Subject Interests burdened by the Royalties
or to market any production therefrom. The Trustee shall not accept
contributions to the Trust other than the Royalties and the initial cash
deposit.
Section 3.04. Interest on Cash on Hand. Cash being held by the Trustee as
a reserve for liabilities or for distribution at the next Distribution Date
shall be invested (in the Trustee's discretion) in: (a) obligations issued (or
unconditionally guaranteed) by the United States of America or any agency or
instrumentality thereof (provided such agency or instrumentality obligations are
secured by the full faith and credit of the United States of America), (b)
repurchase agreements secured by obligations qualifying under subparagraph (a)
above, or (c) certificates of deposit of any bank having capital, surplus and
undivided profits in excess of $100,000,000; provided such repurchase agreements
or certificates of deposit shall bear interest at a rate that is not less than
the greater of (i) the interest rate that the Bank or its successor pays in the
normal course of business on amounts placed with it, taking into account the
amounts involved, the period held and other relevant factors, or (ii) the rate
of interest paid on obligations qualifying under subparagraph (a) above. Any
such obligations, repurchase agreements or certificates representing funds to be
distributed at the next Distribution Date must mature on or before the next
succeeding Distribution Date and must be held to maturity. To the extent not
prohibited by Section 113.057 of the Texas Trust Code, any such cash may be
placed with the Bank or any successor bank serving as Trustee.
Section 3.05. Power to Settle Claims. Subject to the limitations
specified in Article XI, the Trustee is authorized to prosecute or defend, or to
settle by arbitration or otherwise, any claim of or against the Trustee, the
Trust or the Trust Estate, to waive or release rights of any kind and to pay or
satisfy any debt, tax or claim upon any evidence by it deemed sufficient,
without the joinder or consent of any Unitholder. Such authority shall include,
but not be limited to, the authority to dispose of or relinquish title to any of
the Royalties that are the subject of such a dispute upon receipt of such
evidence. The Trustee agrees to respond definitively to, and within a
commercially reasonable time period following its receipt of, any written
request by Grantor relating to any such claim and complying with the last
sentence of this Section 3.05, and the failure of the Trustee so to respond
definitively and timely shall conclusively estop the Trustee from thereafter
claiming a right that is inconsistent with the stated intent as set forth in the
notice and materially detrimental to Grantor or its Affiliates with respect to
such requested matter. Any request made by Grantor intended to be governed by
this Section 3.05 shall specifically reference this Section.
Section 3.06. Power to Contract for Services. In the administration of
the Trust, the Trustee is empowered to employ oil and gas consultants,
independent reservoir engineers, accountants (who may be the same accounting
firm who are engaged as outside auditors for Grantor), attorneys (who
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may be counsel to Grantor unless Grantor otherwise notifies the Trustee in
writing), transfer agents and other professional and expert persons and to
employ or contract for clerical and other administrative assistance (including
assistance from Grantor or its Affiliates) and to make payments of all fees for
services or expenses in any manner thus incurred out of the Trust Estate.
Section 3.07. Payment of Liabilities of Trust. The Trustee shall, to the
extent that funds of the Trust are available therefor (which shall not include
funds previously set aside for payment of a Monthly Distribution Amount), make
payment of all liabilities of the Trust, including, but without limiting the
generality of the foregoing, all expenses, taxes, liabilities of all kinds,
including compensation to it for its services hereunder, and compensation to
such parties as may be employed as provided for in Section 3.06 hereof.
Section 3.08. Establishment of Reserves. With respect to any liability
which is contingent or uncertain in amount or which otherwise is not currently
due and payable, the Trustee in its sole discretion may, but is not obligated
to, establish a cash reserve for the payment of such liability.
Section 3.09. Limited Power to Borrow. If at any time the cash on hand and
to be received by the Trust and available to pay liabilities is not, or will not
be, in the judgment of the Trustee, sufficient to pay liabilities of the Trust
as they become due or to purchase Units if required under Section 3.15(b), the
Trustee is authorized to borrow the funds required to pay such liabilities or
make such purchases. In such event, no further distributions will be made to
Unitholders (except in respect of previously determined Monthly Distribution
Amounts) until the indebtedness created by such borrowing has been paid in full.
Such funds may be borrowed from any Person, including, without limitation, the
Bank or any other fiduciary hereunder. To secure payment of such indebtedness,
the Trustee is authorized to mortgage, pledge, grant security interests in or
otherwise encumber (and to include as a part thereof any and all terms, powers.
remedies, covenants and provisions deemed necessary or advisable in the
Trustee's discretion, including, without limitation, the power of sale with or
without judicial proceedings) the Trust Estate, or any portion thereof,
including the Royalties, and to carve out and convey production payments.
Section 3.10. Income and Principal. The Trustee shall not be required to
keep separate accounts or records for income and principal or maintain any
reserves for depletion of the Royalties. However, if the Trustee does keep such
separate accounts or records, then the Trustee is authorized to treat all or any
part of the receipts from the Royalties as income or principal, and in general
to determine all questions as between income and principal and to credit or
charge to income or principal or to apportion between them any receipt or gain
and any charge, disbursement or loss as is deemed advisable under the
circumstances of each case. Regardless of any such characterization, however,
the Trustee shall not make any distribution, accumulate any funds, or maintain
any reserve except as expressly provided in this Indenture.
Section 3.11. Term of Contracts. In exercising the rights and powers
granted hereunder, the Trustee is authorized to make the term of any transaction
or contract or other instrument extend beyond the term of the Trust.
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Section 3.12. Transactions between Related Parties. The Trustee shall not
be prohibited in any way in exercising its powers from making contracts or
having dealings with itself in any other capacity (fiduciary or otherwise) or
with Grantor.
Section 3.13. No Bond Required. The Trustee shall not be required to
furnish any bond or security of any kind.
Section 3.14. Timing of Trust Income and Expenses. The Trustee will use
all reasonable efforts to cause the Trust and the Unitholders to recognize
income and expenses on Monthly Record Dates. The Trustee will invoice the Trust
for services rendered by the Trustee only on a Monthly Record Date and shall
cause the Trust to pay any such invoices only on the Monthly Record Date on
which an invoice is rendered and will use all reasonable efforts to cause all
Persons to whom the Trust becomes liable to invoice the Trust for such liability
on a Monthly Record Date and to cause the Trust to pay any such liabilities on
the Monthly Record Date on which such liability is invoiced. In connection with
the requirements of any securities exchange on which the Units are listed or
market system through which Units are traded, the Trustee will, if required by
such securities exchange or market system, use all reasonable efforts to
determine the Monthly Distribution Amount and report such amount to the exchange
or market system at such time as may be required by such securities exchange or
market system. Nothing in this Section 3.14 shall be construed as requiring the
Trustee to cause payment to be made for Trust liabilities on any date other than
on such date as in its sole discretion it shall deem to be in the best interest
of the Unitholders.
Section 3.15. Divestiture of Units. If at any time the Trust or the
Trustee is named a party in any judicial or administrative proceeding which
seeks the cancellation or forfeiture of any property in which the Trust has an
interest because of the nationality, or any other status, of any one or more
Unitholders, the following procedures will be applicable:
(a) The Trustee will promptly give written notice ("Notice") to each
Unitholder ("Ineligible Holder") whose nationality or other status is an
issue in the proceeding as to the existence of such controversy related to
the Royalties, the Trust or the Trust Units. The Notice will contain a
reasonable summary of such controversy and will constitute a demand to each
Ineligible Holder that he dispose of his Units to a party which would not
be an Ineligible Holder within 30 days after the date of the Notice.
(b) If any Ineligible Holder fails to dispose of his Units as required
by the Notice, the Trustee will have the right to purchase, and will
purchase, any such Units at any time during the 90 days after the
expiration of the 30-day period specified in the Notice. The purchase price
on a per Unit basis will be determined as of the last Business Day
("determination day") preceding the end of the 30-day period specified in
the Notice and will equal the following per Unit amount: (i) if the Units
are then listed on a securities exchange the price will equal the closing
price of the Units on such exchange (or, if the Units are then listed on
more than one exchange, on the largest such exchange in terms of the volume
of Units traded thereon during the preceding twelve months) on the
determination day if any Units were sold on such exchange on such day or,
if not, on the last preceding day on which any Units were sold on such
exchange or (ii) if the Units are not then listed on any securities
exchange, but are traded through a market system, the price will equal the
mean between the
9
closing bid and asked prices for the Units in such market system on the
determination day if quotations for such prices on such day are available
or, if not, on the last preceding day for which such quotations are
available or (iii) if the Units are not then listed on any stock exchange
or traded through any market system, the price will be determined by
multiplying the present value of the estimated future net revenues
attributable to proved reserves of the Royalties as reflected in the latest
Reserve Report prepared for the Trust (minus all liabilities of the Trust)
by 1.4 and by then dividing such amount by the number of Units (including
the Units to be purchased) then outstanding. Such purchase will be
accomplished by tender of the above cash price to the Ineligible Holder at
his address as shown on the records of the Trustee, either in person or by
mail as provided in Section 12.06, accompanied by notice of cancellation.
Concurrently with such tender the Trustee shall cancel or cause to be
cancelled all Certificates representing Units then owned by such Ineligible
Holder and for which tender has been made, and the Trustee shall issue or
cause to be issued to itself a Certificate or Certificates representing the
same number of Units as were so cancelled. Upon such cancellation, the
Ineligible Holder shall part with the Beneficial Interest attributable to
the Units theretofore owned by him and all interests, rights and benefits
of the Ineligible Holder as a Unitholder shall terminate. In the event the
tender is refused by the Ineligible Holder or if he cannot be located after
reasonable efforts to do so, the tendered sum shall be held by the Trustee
in an interest bearing account for the benefit of such Ineligible Holder,
until proper claim for same (together with interest accrued thereon) has
been made by such Holder, but subject to applicable laws concerning
unclaimed property.
(c) The Trustee may, in its sole discretion, cancel any Units acquired
in accordance with the foregoing procedures or may sell such Units, either
publicly or privately, in accordance with all applicable laws. The proceeds
of any such sale of Units, less the expenses of such sale, will constitute
revenues of the Trust.
Section 3.16. Filing of Registration Statements, Listing of Units.
(a) The Trustee shall, in connection with the initial public offering
of the Units and otherwise, upon the request of Grantor, on behalf of the
Trust, cooperate with Grantor and otherwise use its best efforts to cause:
(i) one or more Securities Act Registration Statements to be
prepared, signed, filed and declared effective by the SEC;
(ii) an Exchange Act Registration Statement to be prepared,
signed, filed and become effective;
(iii) the Units to be qualified or exempted from qualification
under the securities or Blue Sky laws of the several states; and
(iv) the Units to be listed for trading on the NYSE or another
national securities exchange, as it shall select, or, if listing on a
national securities exchange is not feasible or is undesirable, to
cause the Units to be admitted for quotation on the NASDAQ.
10
(b) Grantor shall be obligated and entitled, at its own expense except
as otherwise herein provided, to take or cause to be taken all steps
customary or appropriate to the accomplishment of the objectives set forth
above including, without limitation, engaging counsel for itself and
approving special counsel for the Trust, engaging accountants for the
Trust, contracting for all printing and engraving services, making all
filings and applications necessary to the foregoing and paying all filing
and application fees associated therewith. The Trustee shall execute, by
and on behalf of the Trust, any documents incidental or related to the
foregoing as reasonably requested by Grantor. Notwithstanding anything in
this Section 3.16 to the contrary, unless required by the SEC, the Trustee
shall not be required to sign any Securities Act Registration Statement or
Exchange Act Registration Statement in connection with the initial public
offering or any subsequent offering of the Units. If the Trustee does not
sign any Securities Act Registration Statement or Exchange Act Registration
Statement on behalf of the Trust in connection with the initial public
offering or any subsequent offering of the Units by Grantor, then Grantor
may sign on behalf of the Trust.
(c) Except as precluded in Article VI, the reasonable fees, charges,
expenses, disbursements and other costs incurred by the Trustee in
connection with the discharge of its duties under this Section 3.16 shall
be paid by Grantor.
(d) The Trustee shall cooperate with and assist Grantor in every
reasonable way and in good faith in accomplishing the foregoing. Among
other things, the Trustee shall permit counsel, special counsel and
accountants engaged by Grantor and other representatives of Grantor
reasonable access to information responsive to the requirements of the
Securities Act, the Exchange Act, the securities or Blue Sky laws of the
several states, the rules of any securities exchange upon which listing is
to be sought and the rules of the NASD, and to Trustee personnel having
such information, as fully and to the same extent as if the Trustee were
proceeding for its own purposes to accomplish such objectives. The Trustee
agrees to provide Grantor with the authority and, if required pursuant to
Section 3.16(b) above, the signatures required for the filing of the
Securities Act Registration Statements, the Exchange Act Registration
Statement, and registration statements, notices of exemption, applications
for exemption, consents to service of process and all other documents
necessary to comply with the Blue Sky laws of the several states, a listing
application with the NYSE or any other national securities exchange or an
application for quotation on the NASDAQ. The Trustee shall also provide
Grantor upon request with a Unitholders' list as of the latest Monthly
Record Date in such form as Grantor may reasonably request.
(e) After the registration of the Units pursuant to the Exchange Act
and/or the listing of the Units on the NYSE or another national securities
exchange or the admission for quotation of the Units on the NASDAQ, the
Trustee, on behalf of the Trust, shall cause the Trust to comply with all
of the rules, orders and regulations of the SEC, such exchange or the
NASDAQ, and take all such other actions necessary for the Units to remain
so registered, listed or admitted for quotation until the Trust is
terminated.
(f) The Trustee shall be empowered to, in connection with the initial
public offering of the Units or such other public offering of Units, upon
request of Grantor, in the
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name and on behalf of the Trust, enter into any underwriting or similar
securities purchase agreement for the purpose of causing the Trust to
provide certain warranties and agreements, including, without limitation,
providing, jointly and severally with the Grantor, indemnification in favor
of the underwriters and their control persons for material misstatements
and omissions made in connection with the public offering (and related
contribution agreements), and in connection therewith the Trustee shall,
upon request of Grantor, provide certificates and other documents (provided
that in no event shall the Trustee be required to sign any registration
statement under the Securities Act or Exchange Act unless required to do so
by the SEC) and engage legal counsel to provide opinions of counsel
reasonably requested by the underwriters under such agreements; provided
that the warranties and agreements or obligations of the Trust under this
paragraph (f) shall be limited soley to the assets of the Trust and shall
not result in the incurrence of any liability by the Trustee or any
Unitholder.
(g) To the fullest extent permitted by law, Grantor agrees to defend,
indemnify and hold the Trust and the Trustee harmless from and against any
loss, cost, claim, damage, expense or liability, joint or several, or any
action in respect thereof, to which the Trust or the Trustee or the
officers, employees or agents of the Trustee or any controlling person of
the Trustee becomes subject, under the Securities Act or the Exchange Act,
or otherwise, insofar as such loss, cost, claim, damage, expense or
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Securities Act Registration Statement or Exchange Act Registration
Statement, or any other document filed by or on behalf of Grantor with the
SEC, or any other statement publicly made by or on behalf of Grantor, or
(ii) the omission or alleged omission to state in any Securities Act
Registration Statement or Exchange Act Registration Statement, or any other
document, or any other statement publicly made by or on behalf of Grantor,
any material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that Grantor shall
not be liable in any case to the extent that any such loss, cost, claim,
damage, expense, liability or action arises out of, or is based upon, (A)
any fraudulent misrepresentation, gross negligence or willful misconduct of
the Trustee or (B) any untrue statement or alleged untrue statement or
omission or alleged omission included in any such Securities Act
Registration Statement or Exchange Act Registration Statement, or any other
document filed by or on behalf of Grantor, the Trust or the Trustee with
the SEC, or any other statement publicly made by or on behalf of Grantor,
the Trust or the Trustee in reliance upon and in conformity with written
information furnished by or on behalf of the Trustee specifically for
inclusion therein. This provision shall in no way limit the general rights
to indemnification and contribution and limitations on liability of the
Trust and Trustee set forth in Article VI of this Indenture or elsewhere
herein.
Section 3.17. Reserve Reports. If a Reserve Report for the Royalties is
not provided by Grantor pursuant to Section 4.08 of the Conveyances, the Trustee
shall cause a Reserve Report for the Royalties to be prepared as of December 31
of each year, in accordance with criteria established by the SEC showing
estimated proved oil and gas reserves attributable to the Royalties as of
December 31 of such year and other reserve information required in order for the
Trustee to furnish the information required in Sections 5.03 and 5.04 of this
Indenture. The Reserve Reports shall be prepared by a firm of independent
petroleum engineers selected by the Trustee. Such Reserve Report
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shall also show estimated future net revenues and the net present value
(discounted at 10 percent or such other rate required by the SEC) of the
estimated future net revenues (calculated in accordance with criteria
established by the SEC) of proved reserves attributable to the Royalties. The
costs of such Reserve Reports, whether provided by Grantor or obtained by the
Trustee, shall constitute an administrative expense of the Trust payable out of
the Trust Estate pursuant to Section 3.07. Grantor shall assist the Trustee in
the preparation of the Reserve Reports by furnishing all current and existing
reserve, production and geophysical data in its possession relating to the
Royalties reasonably requested by or on behalf of the independent petroleum
engineers selected by the Trustee as necessary to prepare such Reserve Reports;
provided, that Grantor shall not be required to disclose or produce any
information, documents or other materials which (a) were generated for analysis
or discussion purposes or contain interpretative data or (b) are subject to the
attorney-client or attorney-work product privileges, or any other privileges to
which Grantor may be entitled pursuant to applicable law.
Section 3.18. Miscellaneous. Except as otherwise provided in this
Indenture, this Indenture and the Trust shall be governed, construed,
administered and controlled by and under the laws of the State of Texas, and the
rights, powers, duties and liabilities of the Trustee shall be in accordance
with and governed by the terms and provisions of the Texas Trust Code and other
applicable laws of the State of Texas as in effect at any applicable time.
ARTICLE IV. BENEFICIAL SHARES AND CERTIFICATES
Section 4.01. Creation and Distribution. The entire Beneficial Interest
shall be divided into 40,000,000 Units. The ownership of the Units shall be
evidenced by Certificates in substantially the form of Schedule 1 attached to
this Indenture, containing such changes or alterations of form, but not
substance, as the Trustee shall from time to time, in its discretion, deem
necessary or desirable.
Section 4.02. Beneficial Interest of Unitholders. Each Unit shall
represent pro rata undivided ownership of the Beneficial Interest and shall
entitle its holder to participate pro rata in the rights and benefits of the
Unitholders under this Indenture. A Unitholder (by assignment or otherwise)
shall take and hold each Unit subject to all the terms and provisions of this
Indenture and the Conveyances, which shall be binding upon and inure to the
benefit of the heirs, personal representatives, successors and assigns of the
Unitholder. By an assignment or transfer of one or more Units represented by a
Certificate, the assignor thereby shall, effective as of the close of business
on the date of transfer and with respect to such assigned or transferred Unit or
Units, part with, except as provided in Section 4.04 in the case of a transfer
after a Monthly Record Date and prior to the corresponding monthly payment date,
(i) all his Beneficial Interest attributable thereto; (ii) all his rights in, to
and under such Certificate; and (iii) all interests, rights and benefits under
this Trust of a Unitholder which are attributable to such Unit or Units as
against all other Unitholders and the Trustee. The Certificates, the Units and
the rights, benefits and interests evidenced by either or both (including,
without limiting the foregoing, the entire Beneficial Interest) are and shall be
held and construed to be in all respects intangible personal property, and the
Certificates and Units evidenced thereby shall be bequeathed, assigned, disposed
of and distributed as intangible personal property. No Unitholder as such shall
have any legal or equitable title in or to any real or personal property
interest which is a part of the Trust Estate, including, without limiting the
foregoing, the
13
Royalties or any part thereof, but the sole interest of each Unitholder shall be
such Unitholder's Beneficial Interest and the obligation of the Trustee to hold,
manage and dispose of the Trust Estate and to account for the proceeds thereof
as herein provided. No Unitholder shall have the right to call for or demand or
secure any partition or distribution of the Royalties during the continuance of
the Trust or during the period of liquidation and winding up under Section 9.03
of this Indenture.
Section 4.03. Execution of Certificates.
(a) All Certificates shall be signed by a duly authorized officer of
the Trustee. Certificates may be signed on behalf of the Trustee by such
persons as at the actual date of the signing of such Certificates shall be
the proper officers of the Trustee, although at the nominal date of such
Certificates any such person shall not have been such officer of the
Trustee. Any such signature may be the manual or facsimile signature (to
the extent permitted by law or the rules or regulations of any stock
exchange or quotation system on which the Units are listed or traded) of
such officers and may be affixed, imprinted or otherwise reproduced on the
Certificate.
(b) Pending the preparation of definitive Certificates, the Trustee
shall execute, and the transfer agent and registrar for the Units appointed
in accordance with Section 3.06 of this Indenture shall countersign and
register, temporary Certificates, as directed in a certificate of an
officer of Grantor. Temporary Certificates may contain such references to
any provisions of this Indenture as may be appropriate. Each temporary
Certificate shall be executed by the Trustee and signed and registered upon
the same conditions and in substantially the same manner, and with like
effect as the definitive Certificates.
(c) As promptly as practicable, the Trustee shall execute and furnish
definitive Certificates and thereupon temporary Certificates may be
surrendered in exchange therefor without charge to the Unitholders at the
principal office of the transfer agent at which Certificates may be
presented for transfer pursuant to Section 4.04 hereof, and the Trustee (or
the transfer agent and registrar if the Trustee is not serving in such
capacities) shall sign and register in exchange for such temporary
Certificates a like aggregate amount of definitive Certificates. Until so
exchanged, the temporary Certificates shall be entitled to the same
benefits under this Indenture as definitive Certificates.
Section 4.04. Registration and Transfer of Units. The Units shall be
transferable as against the Trustee as provided herein, and then only on the
records of the Trustee and, except as provided in Section 3.15 hereof, upon the
surrender of Certificates, if any, and compliance with such reasonable
regulations as it may prescribe. No service charge shall be made to Unitholders
or Transferees for any transfer of a Unit, but the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto. Until any such transfer is completed, the Trustee
may treat the owner of any Unit as shown by its records as the owner of the Unit
for all purposes and shall not be charged with notice of any claim or demand
respecting such Unit or the Beneficial Interest represented thereby by any other
party. Any such transfer of a Unit shall, as to the Trustee, transfer to the
Transferee as of the close of business on the date of transfer all of the
Beneficial Interest of the transferor; provided that a transfer of a Unit after
any Monthly Record Date shall not transfer to the Transferee the right of the
transferor to any sum
14
payable to such transferor as title holder of the Certificate of record on said
Monthly Record Date. As to matters affecting the title, ownership, warranty or
transfer of Units and Certificates, except as provided to the contrary herein,
Article 8 of the Uniform Commercial Code, the Texas Uniform Act for
Simplification of Fiduciary Security Transfers under Chapter 33 of the Texas
Business and Commerce Code and other statutes and rules with respect to the
transfer of securities, each as adopted and then in force in the State of Texas,
shall govern and apply. The death of any Unitholder shall not entitle the
Transferee to an accounting or valuation for any purpose, but such Transferee
shall succeed to all rights of the deceased Unitholder under this Indenture upon
proper proof of title satisfactory to the Trustee.
Section 4.05. Mutilated, Lost, Stolen and Destroyed Certificates. If any
Certificate is lost, stolen, destroyed or mutilated, the Trustee, in its
discretion and upon proof satisfactory to the Trustee, together with receipt by
the Trustee of a surety bond sufficient in the opinion of the Trustee to
indemnify the Trustee and the Trust against all losses and expenses that may
reasonably be expected to be incurred in connection therewith (if deemed
advisable by the Trustee), and surrender of the mutilated Certificate, will
issue a new Certificate to the holder of such lost, stolen, destroyed or
mutilated Certificate as shown by the records of the Trustee, upon payment of a
reasonable charge of the Trustee and any reasonable expenses incurred by it in
connection therewith.
Section 4.06. Protection of Trustee. The Trustee shall be protected in
acting or relying upon any notice, certificate, assignment or other document or
instrument believed by the Trustee to be genuine and to be signed by the proper
party or parties, including, without limitation, any instructions or documents
received from Grantor in connection with this Indenture. Except as provided
herein to the contrary, the Trustee is specifically authorized to rely upon the
application of Article 8 of the Uniform Commercial Code, the application of the
Texas Uniform Act for Simplification of Fiduciary Security Transfers under
Chapter 33 of the Texas Business and Commerce Code and the application of other
statutes and rules with respect to the transfer of securities, each as adopted
and then in force in the State of Texas, as to all matters affecting title,
ownership, warranty or transfer of the Certificates and the Units represented
thereby, without any personal liability for such reliance, and the indemnity
granted under Section 6.02 of this Indenture shall specifically extend to any
matters arising as a result thereof.
Section 4.07. Determination of Ownership of Certificates. In the event of
any disagreement between persons claiming to be Transferees of any Unit, and in
addition to any other rights it may have under applicable law, the Trustee shall
be entitled, at its option, to refuse to recognize any such claim so long as
such disagreement shall continue. In so refusing, the Trustee may elect to make
no delivery or other disposition of the interest represented by the Certificate
involved, or any part thereof, or of any sum or sums of money, accrued or
accruing thereunder, and, in so doing, the Trustee shall not be or become liable
to any Person for the failure or refusal of the Trustee to comply with such
conflicting claims, and the Trustee shall be entitled to continue so to refrain
and refuse so to act, until
(a) the rights of the adverse claimants have been adjudicated by
arbitration (pursuant to Article XI) or by a final nonappealable judgment
of a court assuming and having jurisdiction of the parties and the interest
and money involved, or
15
(b) all differences have been resolved by valid agreement between said
parties and the Trustee shall have been notified thereof in writing signed
by all of the interested parties.
ARTICLE V. ACCOUNTING AND DISTRIBUTION; REPORTS
Section 5.01. Fiscal Year and Accounting Method. The fiscal year of the
Trust shall be the calendar year. The Trustee shall maintain its books in
accordance with generally accepted accounting principles or such other method as
will provide appropriate financial data responsive to the needs of the
Unitholders and which shall comply with Sections 5.03 and 5.04.
Section 5.02. Distributions. The Trustee shall determine the Monthly
Distribution Amount for each month and shall establish a cash reserve equal to
such amount on the Monthly Record Date for such month. On the Distribution Date
for such Monthly Distribution Amount, the Trustee will distribute pro rata to
the Unitholders of record on such Monthly Record Date such Monthly Distribution
Amount.
Section 5.03. Income Tax Reporting. For federal or state income tax
purposes, the Trustee shall file for the Trust such returns and statements as in
its judgment are required to comply with applicable provisions of the Code and
regulations and any applicable state laws and regulations, in either case to
permit each Unitholder to report such Unitholder's share of the income and
deductions of the Trust. The Trustee will treat all income and deductions of the
Trust for each month as having been realized on the Monthly Record Date for such
month unless otherwise advised by its counsel or the Internal Revenue Service.
The Trustee will report as a grantor trust until and unless it receives an
opinion of tax counsel that such reporting is no longer proper. Within 75 days
following the end of each fiscal year, the Trustee shall mail, to each
Unitholder of record on a Monthly Record Date during such fiscal year, a report
which shall show in reasonable detail such information as is necessary to permit
all holders of record of Units on a Monthly Record Date during such fiscal year
to make calculations necessary for tax purposes, including depletion.
Section 5.04 Reports to Unitholders. As promptly as practicable
following the end of each calendar quarter except the fourth calendar quarter,
(a) the Trustee shall mail to each Person who was a Unitholder of record on a
Monthly Record Date during such quarter a report which shall show in reasonable
detail such information as is necessary to permit holders of Units to make all
calculations necessary for tax purposes including depletion, and (b) the Trustee
shall mail to each Person who was a Unitholder of record on the last Monthly
Record Date during such calendar quarter a report, which may be a copy of the
Trust's report on Form 10Q under the Exchange Act, which shall show the assets
and liabilities of the Trust at the end of such quarter and distributable income
of the Trust for such quarter. Within 120 days following the end of each fiscal
year, the Trustee shall mail, to each Unitholder of record on a date to be
selected by the Trustee, an annual report containing financial statements
audited by a nationally recognized firm of public accountants selected by the
Trustee. Notwithstanding the foregoing, the Trustee will furnish to the
Unitholders such reports, in such manner and at such times, as are at any time
required by law or by rules or regulations of any securities exchange or
quotation system on which the Units are listed or admitted for trading.
16
Section 5.05. Filings. The Trustee is authorized to make all Exchange Act
filings on behalf of the Trust required by applicable law or regulation. It is
the intention of Grantor that the Units be listed on the NYSE, and, in this
regard, Grantor shall advise the Trustee of any actions (consistent with the
purposes of the Trust) that the Trustee should take in connection with the
effectuation of such listing. If listing is accomplished, the Trustee shall
take all reasonable actions necessary to maintain such listing, including
compliance with the stock exchange's rules and the filing of any reports
required by the stock exchange. Grantor shall prepare and file all filings and
reports required under the Securities Act or state securities or Blue Sky laws.
The Trustee is authorized to and shall take all reasonable actions to prepare
and mail to Unitholders, any reports, press releases or statements, financial or
otherwise, that Grantor notifies the Trustee in writing are required to be
provided by the Trust to Unitholders by law or governmental regulation or the
requirements of any securities exchange or quotation system on which the Units
are listed or admitted for trading, subject to receipt by the Trustee of a
satisfactory opinion of counsel confirming the necessity of such reports, if
such an opinion is deemed necessary by the Trustee.
Section 5.06. Information to be Supplied by Grantor and Trustee. Grantor
shall provide, or cause to be provided, to the Trustee on a timely basis (a) an
annual audited statement of revenues and direct operating expenses of the
Subject Interests and quarterly statements of revenues and direct operating
expenses of the Subject Interests, which quarterly statements may be on a
condensed basis and need not be audited by a firm of independent accountants and
(b) such other information as is not known to the Trustee or is otherwise more
easily available to Grantor than to the Trustee concerning the Royalties
(including information with respect to the properties burdened by the Royalties)
and related matters as shall be necessary for Trustee to comply with the
reporting obligations of the Trust pursuant to the Exchange Act, the
requirements of any securities exchange or quotation system on which the Units
are listed or admitted for trading and this Indenture, including, without
limitation, Sections 5.03, 5.04 and 5.05 hereof. For purposes of this Section
5.06, the phrase "timely basis" shall mean not less than 10 days prior to the
date on which the Trustee is required to comply with such reporting obligations
of the Trust. In addition, Grantor shall provide to the Trustee on a timely
basis, for use in connection with the Trust's Form 10-K annual report, a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to such financial statements. Notwithstanding any
provision to the contrary in this Indenture or the Conveyances, Grantor and its
Affiliates shall not be required to disclose, produce or prepare any
information, documents or other materials which (i) were generated for analysis
or discussion purposes or contain interpretative data or (ii) are subject to the
attorney-client or attorney-work-product privileges, or any other privileges to
which they may be entitled pursuant to applicable law. At least one Business Day
prior to reporting the Monthly Distribution Amount to the securities exchange or
market system in accordance with Section 3.14, the Trustee shall provide to
Grantor a written and reasonably detailed report showing such Monthly
Distribution Amount and each administrative cost of the Trust paid or payable
for such Monthly Period, including, but not limited to, each out-of-pocket
expenditure, and all Trustee compensation. The Trustee will respond promptly to
Grantor's reasonable questions regarding such report.
Section 5.07. Reliance on Information. The Trustee, so long as acting in
good faith, shall be entitled to rely, without investigation, on all information
provided to it by Grantor for purposes of complying with the reporting
obligations of the Trust as contemplated by Section 5.06, including, without
limitation, information regarding depletion and entitlement to tax credits under
Section 29
17
of the Code. Notwithstanding any time limit imposed by applicable laws or
regulations or by the provisions of this Indenture, if, due to the
unavailability prior to the expiration of any such time limit of information
necessary, or a delay in receipt by the Trustee of information necessary, for
preparation of a report required to be filed, made or delivered by the Trustee,
the Trustee shall be unable to prepare and file or mail such report within such
time limit, the Trustee shall prepare and file or mail such report as soon as
practicable after such information is received.
ARTICLE VI. LIABILITY OF TRUSTEE,
INDEMNIFICATION AND METHOD OF SUCCESSION
Section 6.01. Liability of Trustee.
(a) Except as otherwise provided herein and specifically except as
provided in subparagraph (b) below, the Trustee, in carrying out its powers
and performing its duties, may act in its discretion directly, or at the
expense of the Trust, through agents or attorneys pursuant to agreements
entered into with any of them, and shall be personally or individually
liable only for fraud or gross negligence or for acts or omissions in bad
faith as adjudicated by final, nonappealable judgment of a court of
competent jurisdiction and shall not individually or personally be liable
for any act or omission of any agent or employee of the Trustee unless the
Trustee has acted in bad faith or with gross negligence in the selection
and retention of such agent or employee.
(b) If the Trustee enters into a contract on behalf of the Trust
Estate without ensuring that any liability arising out of such contract
shall be satisfiable only out of the Trust Estate and shall not in any
event, including the exhaustion of the Trust Estate, be satisfiable out of
amounts at any time distributed to any Unitholder or out of any other
assets owned by any Unitholder, then Trustee, vis-a-vis the Unitholders,
shall be fully and exclusively liable for such liability, but shall have
the right to be indemnified and reimbursed from the Trust Estate to the
extent provided in Section 6.02.
Section 6.02. Indemnification of Trustee. The Trustee and its officers,
agents and employees when acting in such capacity shall be indemnified by, and
receive reimbursement from, the Trust Estate against and from any and all
liability, expense, claims, damages or loss incurred by it individually or as
Trustee in the administration of the Trust and the Trust Estate or any part or
parts thereof, including, without limitation, any liability, expense, claims,
damages or loss arising out of or in connection with any liability under
Environmental Laws, or in the doing of any act done or performed or omission
occurring on account of its being Trustee or acting in such capacity, except
such liability, expense, claims, damages or loss as to which it is liable under
Section 6.01. Trustee shall have a lien upon the Trust Estate to secure it for
such indemnification and reimbursement and for compensation to be paid to
Trustee. Except as provided in Section 4.05, neither the Trustee nor any
officer, agent or employee of the Trustee shall be entitled to any reimbursement
or indemnification from any Unitholder for any liability, expense, claims,
damages or loss incurred by the Trustee or any such officer, agent or employee,
their right of reimbursement and indemnification, if any, being limited solely
to the Trust Estate (and Grantor pursuant to Section 6.03), whether or not the
Trust Estate is exhausted without full reimbursement or indemnification of the
Trustee or any such officer, agent or employee.
18
Section 6.03. Guaranty. If the Trust Estate is exhausted without the
Trustee (or any officer, agent or employee of the Trustee) being fully
reimbursed as provided in Section 6.02 above, then Grantor shall fulfill the
remaining indemnity obligation to the Trustee.
Section 6.04. Contribution. If the indemnification provided for in this
Indenture shall for any reason (including, without limitation, due to violation
of public policy) be unavailable to or insufficient to hold harmless the Trustee
in respect of any liability, expense, claims, damages or loss as to which the
Trustee would otherwise be entitled to indemnification pursuant to Section
3.16(f), 6.02 or 6.03, then Grantor and the Trust shall, in lieu of indemnifying
the Trustee, contribute to the amount paid or payable by the Trustee as a result
of such liability, expense, claims, damages or loss, in such proportion as shall
be appropriate to reflect the relative fault of Grantor (with respect to
contribution by the Trust or Grantor) or the Trustee with respect to the events,
acts or circumstances giving rise to the liability, expense, claims, damages or
loss, as well as any other relevant equitable considerations. For purposes of
determining contribution liability with respect to claims based upon the
Securities Act or Exchange Act, relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by Grantor or by the Trustee. The Trustee shall look first to the
Trust Estate for contribution under this Section 6.04, and then to Grantor to
the extent the assets of the Trust Estate are not sufficient to reimburse the
Trustee fully for all such liability, expense, claims, damages or loss.
Section 6.05. Indemnification Procedures. If any action or proceeding
shall be brought or asserted against the Trust, or the Trustee or any officer,
agent or employee thereof (each referred to as an "Indemnified Party" and,
collectively, the "Indemnified Parties") in respect of which indemnity may be
sought from Grantor or the Trust (the "Indemnifying Party") pursuant to Sections
6.02 or 6.03 of this Indenture, of which the Indemnified Party shall have
received notice, the Indemnified Party shall promptly notify the Indemnifying
Party in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
party and the payment of all costs and expenses; provided, however, that the
failure so to notify the Indemnifying Party of the commencement of any such
action or proceeding shall not relieve the Indemnifying Party from any liability
that it may have to any Indemnified Party unless the Indemnifying Party or
Grantor is prejudiced or damaged by the failure to receive prompt notice. The
Indemnified Party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party shall have failed to assume the defense of such action or
proceeding and employ counsel reasonably satisfactory (including the
qualifications of such counsel) to the Indemnified Party on any such action or
proceeding or (iii) the named parties to any such action or proceeding include
both the Indemnified Party and the Indemnifying Party and the Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or in addition to
those available to the Indemnifying Party or any other Indemnified Party (in
which case, if the Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of the Indemnified Party and the Indemnified
Party may employ such counsel for the
19
defense of such action or proceeding as is reasonably satisfactory to the
Indemnifying Party; it being understood, however, that except in the case of the
addition of counsel caused by the existence or development of a conflict
rendering unified representation impermissible or unadvisable, the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys for
the Indemnified Parties at any time). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without the written
consent of the Indemnifying Party, but, if settled with such written consent, or
if there be a final judgment for the plaintiff in any such action or proceeding,
the Indemnifying Party agrees (to the extent stated above) to indemnify and hold
harmless the Indemnified Party from and against any liability, expense, claims,
damages or loss by reason of such settlement or judgment. The Indemnified Party
and the Indemnifying Party (if not Grantor) shall, if so requested by Grantor,
provide reports to Grantor on the status of such actions or proceedings.
Section 6.06. Resignation of Trustee. The Trustee may resign, with or
without cause, at any time by notice to Grantor and each of the then Unitholders
of record. Such notice shall specify a date when such resignation shall take
effect, which shall be a Business Day not less than ninety days after the date
such notice is mailed; provided, however, that in no event shall any resignation
of the Trustee be effective until a qualified successor Trustee has accepted
appointment as successor Trustee. In case of such resignation, the Trustee will
use its best efforts to nominate a successor, and will call a meeting of
Unitholders for the purpose of appointing a successor, and will solicit proxies
for such meeting. If the Trustee has given notice of resignation in accordance
with this Section 6.06 and a successor has not accepted its appointment as
successor Trustee during the 180-day period following the receipt by Grantor of
such notice of resignation, the annual fee payable to the Trustee as set forth
on Schedule 2 attached hereto shall be increased as of the end of such 180-day
period by ten percent and shall further be increased by ten percent for each
month to a maximum of three times the fee payable at the time the notice of
resignation was received by Grantor until a successor has accepted its
appointment as successor Trustee.
Section 6.07. Removal of Trustee. The Trustee may be removed, with or
without cause, at a meeting held in accordance with the requirements of Article
VIII by the affirmative vote of the holders of a majority of all the Units then
outstanding; provided, however, that any removal of the Trustee shall be
effective only at such time as a qualified successor Trustee has accepted
appointment as successor Trustee.
Section 6.08. Appointment of Successor Trustee. In the event of a vacancy
in the position of Trustee or if the Trustee has given notice of its intention
to resign, the Unitholders present or represented at a meeting held in
accordance with the requirements of Article VIII may appoint a successor
Trustee. Nominees for appointment may be made by (i) the resigned or resigning
Trustee, (ii) any Unitholder or Unitholders owning of record at least 15% of the
Units then outstanding, or (iii) Grantor. Any such successor Trustee shall be a
bank or trust company having a capital, surplus and undivided profits (as of the
end of its last fiscal year prior to its appointment) of at least $100,000,000.
In the event that a vacancy in the position of Trustee continues for sixty days,
a successor Trustee may be appointed by any State or Federal District Court
having jurisdiction in Tarrant County, Texas, upon the application of Grantor or
any Unitholder, and in the event any such
20
application is filed, such court may appoint a temporary trustee at any time
after such application is filed, which shall, pending the final appointment of a
Trustee, have such powers and duties as the court appointing such temporary
trustee shall provide in its order of appointment, consistent with the
provisions of this Indenture.
Immediately upon the appointment of any successor Trustee, all rights,
titles, duties, powers and authority of the predecessor Trustee hereunder shall
be vested in and undertaken by the successor Trustee which shall be entitled to
receive from the predecessor Trustee all of the Trust Estate held by it
hereunder and all records and files in connection therewith. Any resigning or
removed Trustee shall account to its successor for its administration of the
Trust. No successor Trustee shall be obligated to examine or seek alteration of
any account of any preceding Trustee, nor shall any successor Trustee be liable
personally for failing to do so or for any act or omission of any preceding
Trustee. The preceding sentence shall not prevent any successor Trustee or
anyone else from taking any action otherwise permissible in connection with any
such account.
Section 6.09. Laws of Other Jurisdictions. If, notwithstanding the other
provisions of this Indenture, the laws of jurisdictions other than Texas (each
being referred to below as "such jurisdiction") apply to the administration of
properties under this Indenture, the following provisions shall apply. If it is
necessary or advisable for a trustee to serve in such jurisdiction and if the
Trustee is disqualified from serving in such jurisdiction or for any other
reason fails or ceases to serve there, an ancillary trustee meeting the
requirements set forth in the third sentence of Section 6.08 shall be designated
in writing by the Trustee. To the extent permitted under the laws of such
jurisdiction, the Trustee may remove the ancillary trustee in such jurisdiction,
without cause and without necessity of court proceeding or Unitholder approval,
and may or may not appoint a successor ancillary trustee in such jurisdiction
from time to time. The ancillary trustee serving in such jurisdiction is
requested and authorized, to the extent not prohibited under the laws of such
jurisdiction, to appoint the Trustee to handle the details of administration in
such jurisdiction. The ancillary trustee in such jurisdiction shall have all
rights, powers, discretions, responsibilities and duties as are delegated in
writing by the Trustee, subject to such limitations and directions as shall be
specified by the Trustee in the instrument evidencing such appointment. Any
ancillary trustee in such jurisdiction shall be responsible for all assets with
respect to which such trustee is empowered to act. To the extent the provisions
of this Indenture and Texas law cannot be applicable to the administration in
such jurisdiction, the rights, powers, duties and liabilities of the ancillary
trustee in such jurisdiction shall be the same (or as near the same as permitted
under the laws of such jurisdiction if applicable) as if governed by Texas law.
In all events, the administration in such jurisdiction shall be as free and
independent of court control and supervision as permitted under the laws of such
jurisdiction. Whenever the term "Trustee" is applied in this Indenture to the
administration in such jurisdiction, it shall refer only to the trustee then
serving in such jurisdiction.
Section 6.10. Force Majeure. No party to this Indenture (or its
Affiliates) shall incur any liability to any other party to this Indenture or to
any Unitholder if, by reason of any current or future law or regulation
thereunder of the federal government or any other governmental authority, or by
reason of any act of God, war or other circumstance beyond its control, such
party is prevented or forbidden from doing or performing any act or thing
required by the terms hereof to be done or performed; nor shall any party to
this Indenture incur any liability to any other party to this Indenture or any
Unitholder by reason of any nonperformance or delay caused as aforesaid in the
performance
21
of any act or thing required by the terms hereof to be done or performed, or by
reason of any exercise of, or failure to exercise, any discretion provided for
herein caused as set forth above.
ARTICLE VII. COMPENSATION OF THE TRUSTEE
Section 7.01. Compensation of Trustee. The Trustee shall receive
compensation for its services as Trustee hereunder and as transfer agent as set
forth in Schedule 2 attached hereto.
Section 7.02. Expenses. The reasonable out-of-pocket costs incurred by
the Trustee, including, but not limited to, charges for SEC, NYSE and other
fees, Reserve Reports (including those contemplated by Section 4.08 of each of
the Conveyances), the audit contemplated by Section 4.07 of each of the
Conveyances, long distance telephone calls, overtime necessitated by rush
orders, travel, legal, accounting and other professional services, printing,
stationery, binders, envelopes, ledger sheets, transfer sheets, checks,
Certificate list sheets, postage and insurance will be reimbursed to the Trustee
at actual cost.
Section 7.03. Other Services. The Trustee shall be reimbursed for actual
reasonable expenditures made on account of any unusual duties in connection with
matters pertaining to the Trust. In the event of litigation involving the Trust,
audits or inspection of the records of the Trust pertaining to the transactions
affecting the Trust or any other unusual or extraordinary services rendered in
connection with the administration of the Trust, Trustee shall be entitled to
receive reasonable compensation for the services rendered; provided, however,
the Trustee shall not be entitled to reimbursement or compensation for services
that unreasonably duplicate services provided by or through Grantor.
Section 7.04. Source of Funds. All compensation, reimbursements and other
charges owing to the Trustee will be payable by the Trust out of the Trust
Estate.
ARTICLE VIII. MEETINGS OF UNITHOLDERS
Section 8.01. Purpose of Meetings. A meeting of the Unitholders may be
called at any time and from time to time pursuant to the provisions of this
Article VIII to transact any matter that the Unitholders may be authorized to
transact.
Section 8.02. Call and Notice of Meetings. Any such meeting of the
Unitholders may be called by the Trustee in its discretion and will be called by
the Trustee at the written request of Grantor or Unitholders owning of record
not less than 15% in number of the Units then outstanding. All such meetings
shall be held at such time and at such place in Tarrant County, Texas, as the
notice of any such meeting may designate. Except as may otherwise be required by
applicable law or by any securities exchange or market system on which the Units
are admitted for trading, written notice of every meeting of the Unitholders
signed by the Trustee setting forth the time and place of the meeting and in
general terms the matters proposed to be acted upon at such meeting shall be
given in person or by mail not more than sixty nor less than twenty days before
such meeting is to be held to all of the Unitholders of record as of a record
date set by the Trustee (the "Record Date
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Unitholders") which shall be not more than sixty days before the date of such
mailing. No matter other than that stated in the notice shall be acted upon at
any meeting. If such notice is given to any Unitholder by mail, it shall be
directed to him at his last address as shown by the ownership ledger of the
Trustee and shall be deemed duly given when so addressed and deposited in the
United States mail, postage paid. Only Record Date Unitholders shall be entitled
to notice of and to exercise rights at or in connection with the meeting. Any
action required by this Indenture to be taken at a meeting of the Unitholders,
or any action which may be taken at a meeting of the Unitholders, may not be
taken and shall not be effective without an actual meeting of the Unitholders,
prior written notice to the Unitholders thereof and a vote by the Unitholders
with respect thereto.
Section 8.03. Voting. Each Record Date Unitholder shall be entitled to
one vote for each Unit owned by him, and any Record Date Unitholder may vote in
person or by duly executed written proxy. At any such meeting the presence in
person or by proxy of Record Date Unitholders holding a majority of the Units
outstanding at the record date shall constitute a quorum, and, except as
otherwise specifically provided herein, any matter shall be deemed to have been
approved by the Unitholders if it is approved by the vote of a majority in
interest of such Record Date Unitholders constituting a quorum, although less
than a majority of all of the Units at the time outstanding, except that the
affirmative vote by the Record Date Unitholders of 80% or more of all the Units
outstanding at the record date shall be required to:
(a) approve or authorize any sale of all or any material part of the
assets of the Trust (excluding sales or dispositions authorized under
Sections 3.02(b), 3.05, 3.09 or 9.03), or
(b) terminate the Trust pursuant to Section 9.02(c), or
(c) approve any amendment to or affecting this Indenture, except that
amendments prohibited by Section 10.01 shall not be effected in any event
and amendments authorized by Section 10.02 shall not require the approval
of any Unitholder.
Section 8.04. Conduct of Meetings. The Trustee may make such reasonable
regulations consistent with the provisions hereof as it may deem advisable for
any meeting of the Unitholders, including regulations covering the closing of
the transfer books of the Trustee for purposes of determining Unitholders
entitled to notice of or to vote at any meeting, the appointment of proxies, the
appointment and duties of inspectors of votes, the submission and examination of
proxies, Certificates and other evidence of the right to vote, the preparation
and use at the meeting of a list authenticated by or on behalf of the Trustee of
the Unitholders entitled to vote at the meeting and such other matters
concerning the calling and conduct of the meeting as it shall deem advisable.
Section 8.05. Unitholder Proposals. In the event a meeting of Unitholders
is called for any purpose at the request of any Unitholder or Unitholders
pursuant to the provisions of this Article VIII, the Unitholder or Unitholders
requesting such meeting shall be required to prepare and file a proxy statement
with the SEC and the NYSE regarding such meeting in satisfaction of all
applicable SEC and NYSE rules and regulations and at the expense of such
requesting Unitholder or Unitholders. The Unitholder or Unitholders requesting
such meeting shall bear the expense of distributing to Unitholders the notice of
meeting and the proxy statement related thereto. The
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Trustee shall cooperate in the preparation of any such proxy statement and any
related materials and shall provide such information for inclusion therein as
and to the extent reasonably necessary at the expense of the Trust.
ARTICLE IX. DURATION, REVOCATION AND TERMINATION OF TRUST
Section 9.01. Revocation. The Trust is and shall be irrevocable and
Grantor, as such, retains no power to alter, amend or terminate the Trust. The
Trust shall be terminable only as provided in Section 9.02, and shall continue
until so terminated.
Section 9.02. Termination. The Trust shall terminate upon the first to
occur of the following events:
(a) the disposition of all of the Royalties pursuant to the terms of
this Indenture;
(b) at such time as the aggregate Gross Proceeds (as defined in the
Conveyances) with respect to the Subject Interests for each of two
successive years after the year 1999 is less than $1,000,000 per year;
(c) a vote in favor of termination by the Unitholders present or
represented at a meeting held in accordance with the requirements of
Article VIII; or
(d) the expiration of twenty-one years after the death of the last
survivor of the lawful descendants of any degree of the signers of the
Declaration of Independence in being on the date of execution hereof.
Section 9.03. Disposition and Distribution of Properties. For the purpose
of liquidating and winding up the affairs of the Trust at its termination, the
Trustee shall continue to act as such and exercise each power until its duties
have been fully performed and the Trust Estate finally distributed. Upon the
termination of the Trust, the Trustee shall sell for cash in one or more sales
all the properties other than cash then constituting the Trust Estate. The
Trustee shall as promptly as possible distribute the proceeds of any such sales
and any other cash in the Trust Estate according to the respective interests and
rights of the Unitholders, after paying, satisfying and discharging all of the
liabilities of the Trust, or, when necessary, setting up reserves in such
amounts as the Trustee in its discretion deems appropriate for contingent
liabilities. In the event that any property which the Trustee is required to
sell is not sold by the Trustee within two years after the termination of the
Trust, the Trustee shall cause such property to be sold at public auction to the
highest cash bidder. Notice of such sale by auction shall be mailed at least
thirty days prior to such sale to each Unitholder of record as of a date set by
the Trustee at such Unitholder's address as it appears upon the books of the
Trustee. Grantor may purchase all or any portion of the Trust Estate properties
at any sale pursuant to this Section. The Trustee shall not be required to
obtain approval of the Unitholders prior to selling property pursuant to this
Section 9.03. In connection with sales pursuant to this Section 9.03, the
Trustee may accept any offer to purchase the properties constituting the Trust
Estate that it deems reasonable in its discretion and shall have no liability in
connection with any such sales except under the circumstances described in
Section 6.01(a). The Trustee may engage the services of one or more investment
advisers or other parties deemed by the Trustee to be
24
qualified as experts on such matters to assist with such sales and shall be
entitled to rely on the advice of such professionals as contemplated by Section
12.02. Upon making final distribution to the Unitholders, the Trustee shall be
under no further liability except as provided in Section 6.01(b).
ARTICLE X. AMENDMENTS
Section 10.01. Prohibited. After the Closing, no amendment may be made to
any provision of the Indenture which would
(a) alter the purposes of the Trust or permit the Trustee to engage in
any business or investment activities or any activity substantially
different from that specified herein;
(b) alter the rights of the Unitholders vis-a-vis each other; or
(c) permit the Trustee to distribute the Royalties in kind either
during the continuation of the Trust or during the period of liquidation or
winding up under Section 9.03.
Section 10.02. Permitted. Prior to the Closing, this Indenture may be
amended by Grantor and the Trustee, jointly, and no party shall have any
liability to any Unitholder therefor, including for any amendment that increases
or decreases any right, benefit or liability of any present or future
Unitholder. After the Closing, Grantor and the Trustee may, jointly, from time
to time, supplement or amend this Indenture, without the approval of the
Unitholders, in order to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
hereof, or to change the name of the Trust, provided that such supplement or
amendment does not adversely affect the interests of the Unitholders. All other
amendments to the provisions of the Indenture shall be made only by a vote of
the Unitholders present or represented at a meeting held in accordance with the
requirements of Article VIII. The Trustee shall approve all amendments permitted
under this Section 10.02, provided all prior conditions are satisfied and there
is no adverse effect on the Trust or the Trustee. In connection with any
request by Grantor to supplement or amend this Indenture to cure any ambiguity,
defect or inconsistency, Grantor shall provide to the Trustee, and it shall be a
condition to the Trustee's approval thereof, an officer's certificate and an
opinion of counsel deemed satisfactory to the Trustee to support a determination
of the existence of an ambiguity, defect or inconsistency that may properly be
cured under this Section 10.01 and applicable law. The Trustee shall be
entitled to rely on such officers' certificate and opinion, and such officers'
certificate and opinion shall be full and complete authorization and protection
in respect of any action taken or suffered by it hereunder in good faith and in
accordance therewith.
ARTICLE XI. ARBITRATION
THE PARTIES TO THIS INDENTURE AGREE THAT ANY DISPUTE, CONTROVERSY OR CLAIM THAT
MAY ARISE BETWEEN OR AMONG GRANTOR (ON THE ONE HAND) AND THE TRUST OR THE
TRUSTEE (ON THE OTHER HAND) IN CONNECTION WITH OR OTHERWISE RELATING TO THIS
INDENTURE OR THE CONVEYANCES OR THE APPLICATION, IMPLEMENTATION, VALIDITY OR
BREACH OF THIS INDENTURE OR THE CONVEYANCES OR ANY PROVISION OF THIS INDENTURE
OR
25
THE CONVEYANCES (INCLUDING, WITHOUT LIMITATION, CLAIMS BASED ON CONTRACT, TORT
OR STATUTE), SHALL BE FINALLY, CONCLUSIVELY AND EXCLUSIVELY SETTLED BY BINDING
ARBITRATION IN FORT WORTH, TEXAS IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION
RULES (THE "RULES") OF THE AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR
THERETO ("AAA") THEN IN EFFECT. THE PARTIES TO THIS INDENTURE (AND ON BEHALF OF
THE TRUST) HEREBY EXPRESSLY WAIVE THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING, WITHOUT LIMITATION, THE RIGHT TO TRIAL BY JURY, WITH RESPECT TO ANY
MATTER SUBJECT TO ARBITRATION PURSUANT TO THIS ARTICLE XI. ANY PARTY TO THIS
INDENTURE MAY BRING AN ACTION, INCLUDING, WITHOUT LIMITATION, A SUMMARY OR
EXPEDITED PROCEEDING, IN ANY COURT HAVING JURISDICTION, TO COMPEL ARBITRATION OF
ANY DISPUTE, CONTROVERSY OR CLAIM TO WHICH THIS ARTICLE XI APPLIES. EXCEPT WITH
RESPECT TO THE FOLLOWING PROVISIONS (THE "SPECIAL PROVISIONS") WHICH SHALL APPLY
WITH RESPECT TO ANY ARBITRATION PURSUANT TO THIS ARTICLE XI, THE INITIATION AND
CONDUCT OF ARBITRATION SHALL BE AS SET FORTH IN THE RULES, WHICH RULES ARE
INCORPORATED IN THIS INDENTURE BY REFERENCE WITH THE SAME EFFECT AS IF THEY WERE
SET FORTH IN THIS INDENTURE.
(a) In the event of any inconsistency between the Rules and the
Special Provisions, the Special Provisions shall control. References in
the Rules to a sole arbitrator shall be deemed to refer to the tribunal of
arbitrators provided for under subparagraph (c) below in this Article XI.
(b) The arbitration shall be administered by AAA.
(c) The arbitration shall be conducted by a tribunal of three
arbitrators. Within ten days after arbitration is initiated pursuant to
the Rules, the initiating party or parties (the "Claimant") shall send
written notice to the other party or parties (the "Respondent"), with a
copy to the Dallas office of AAA, designating the first arbitrator (who
shall not be a representative or agent of any party but may or may not be
an AAA panel member and, in any case, shall be reasonably believed by the
Claimant to possess the requisite experience, education and expertise in
respect of the matters to which the claim relates to enable such person to
completely perform arbitral duties). Within ten days after receipt of such
notice, the Respondent shall send written notice to the Claimant, with a
copy to the Dallas office of AAA and to the first arbitrator, designating
the second arbitrator (who shall not be a representative or agent of any
party, but may or may not be an AAA panel member and, in any case, shall be
reasonably believed by the Respondent to possess the requisite experience,
education and expertise in respect of the matters to which the claim
relates to enable such person to competently perform arbitral duties).
Within ten days after such notice from the Respondent is received by the
Claimant, the Respondent and the Claimant shall cause their respective
designated arbitrators to select any mutually agreeable AAA panel member as
the third arbitrator. If the respective designated arbitrators of the
Respondent and the Claimant cannot so agree within said ten day period,
then the third arbitrator will be determined pursuant to the Rules. For
purposes of this Article XI, Grantor (on the one hand) and the
26
Trust and the Trustee (on the other hand) shall each be entitled to the
selection of one arbitrator. Prior to commencement of the arbitration
proceeding, each arbitrator shall have provided the parties with a resume
outlining such arbitrator's background and qualifications and shall certify
that such arbitrator is not a representative or agent of any of the
parties. If any arbitrator shall die, fail to act, resign, become
disqualified or otherwise cease to act, then the arbitration proceeding
shall be delayed for fifteen days and the party by or on behalf of whom
such arbitrator was appointed shall be entitled to appoint a substitute
arbitrator (meeting the qualifications set forth in this Article XI) within
such fifteen day period; provided, however, that if the party by or on
behalf of whom such arbitrator was appointed shall fail to appoint a
substitute arbitrator within such fifteen day period, the substitute
arbitrator shall be a neutral arbitrator appointed by the AAA arbitrator
within fifteen days thereafter.
(d) All arbitration hearings shall be commenced within one hundred
twenty days after arbitration is initiated pursuant to the Rules, unless,
upon a showing of good cause by a party to the arbitration, the tribunal of
arbitrators permits the extension of the commencement of such hearing;
provided, however, that any such extension shall not be longer than sixty
days.
(e) All claims presented for arbitration shall be particularly
identified and the parties to the arbitration shall each prepare a
statement of their position with recommended courses of action. These
statements of position and recommended courses of action shall be submitted
to the tribunal of arbitrators chosen as provided hereinabove for binding
decision. The tribunal of arbitrators shall not be empowered to make
decisions beyond the scope of the position papers.
(f) The arbitration proceeding will be governed by the substantive
laws of the State of Texas and will be conducted in accordance with such
procedures as shall be fixed for such purpose by the tribunal of
arbitrators, except that (i) discovery in connection with any arbitration
proceeding shall be conducted in accordance with the Federal Rules of Civil
Procedure and applicable case law, (ii) the tribunal of arbitrators shall
have the power to compel discovery and (iii) unless the parties otherwise
agree and except as may be provided in this Article XI, the arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. (S)(S) 1-
16, to the exclusion of any provision of state law or other applicable law
or procedure inconsistent therewith or which would produce a different
result. The parties shall preserve their right to assert and to avail
themselves of the attorney-client and attorney-work-product privileges, and
any other privileges to which they may be entitled pursuant to applicable
law. No party to the arbitration or any arbitrator may compel or require
mediation and/or settlement conferences without the prior written consent
of all such parties and the tribunal of arbitrators.
(g) The tribunal of arbitrators shall make an arbitration award as
soon as possible after the later of the close of evidence or the submission
of final briefs, and in all cases the award shall be made not later than
thirty days following submission of the matter. The finding and decision
of a majority of the arbitrators shall be final and shall be binding upon
the parties. Judgment upon the arbitration award or decision may be
entered in any court
27
having jurisdiction thereof or application may be made to any such court
for a judicial acceptance of the award and an order of enforcement, as the
case may be. The tribunal of arbitrators shall have the authority to assess
liability for pre-award and post-award interest on the claims, attorneys'
fees, expert witness fees and all other expenses of arbitration as such
arbitrators shall deem appropriate based on the outcome of the claims
arbitrated. Unless otherwise agreed by the parties to the arbitration in
writing, the arbitration award shall include findings of fact and
conclusions of law.
(h) Nothing in this Article XI shall be deemed to (i) limit the
applicability of any otherwise applicable statute of limitations or repose
or any waivers contained in this Indenture, (ii) constitute a waiver by any
party hereto of the protections afforded by 12 U.S.C. (S) 91 or any
successor statute thereto or any substantially equivalent state law, or
(iii) restrict the right of the Trustee to make application to any state or
federal district court having jurisdiction in Tarrant County, Texas, to
appoint a successor Trustee or to request instructions with regard to any
provision in this Indenture when the Trustee is unsure of its obligations
thereunder.
(i) This Article XI shall preclude participation by the Trust in any
class action brought against Grantor by any Person who is not a Unitholder
and the Trustee shall opt out of any such class action in which the Trust
is a purported class member.
ARTICLE XII. MISCELLANEOUS
Section 12.01. Inspection of Trustee's Books. Each Unitholder and such
Unitholder's duly authorized agents, attorneys and auditors shall have the
right, at such Unitholder's own expense and during reasonable business hours, to
examine and inspect the records of the Trust and the Trustee, including lists of
Unitholders, for any proper purpose in reference thereto. For purposes of
determining whether a purpose asserted by a Unitholder is a "proper purpose,"
the Trustee, in the absence of controlling precedent applicable to trusts
organized under the Texas Trust Code, may rely on any reasonably analogous
precedent, including laws and court decisions relating to corporations of the
State of Texas or other jurisdictions.
Section 12.02. Trustee's Employment of Experts. The Trustee may, but
shall not be required to, consult with counsel, who may be its own counsel,
accountants, geologists, engineers and other parties deemed by the Trustee to be
qualified as experts on the matters submitted to them, and the opinion or advice
of any such parties on any matter submitted to them by the Trustee shall be full
and complete authorization and protection in respect of any action taken or
suffered by it hereunder in good faith and in accordance with the opinion of any
such party. The Trustee is authorized to make payments of all reasonable and
necessary fees billed by third parties for services or expenses thus incurred
out of the Trust Estate.
Section 12.03. Merger or Consolidation of Trustee. Neither a change of
name of the Trustee nor any merger or consolidation of it or of its corporate
powers with another bank or with a trust company shall affect its right or
capacity to act hereunder. Upon any merger, consolidation, sale of assets or
other transaction involving the Trustee in which the Trustee is not the
surviving entity, the surviving entity in such transaction shall automatically
become Trustee of the Trust and succeed to
28
all rights, titles, duties, powers and authority of the predecessor Trustee
hereunder, without the requirement of Unitholder approval or any other action,
provided such surviving entity has succeeded to the rights and obligations of
the predecessor Trustee in accordance with applicable law and is a bank or trust
company having capital, surplus and undivided profits (as of the end of its last
fiscal year prior to the consummation of such transaction) of at least
$100,000,000.
Section 12.04. Filing of this Indenture. Neither this Indenture nor any
executed copy hereof need be filed in any county in which any of the Trust
Estate is located, but the same may be filed for record in any county by the
Trustee. In order to avoid the necessity of filing this Indenture for record,
the Trustee agrees that for the purpose of vesting the record title to the
Royalties in any successor Trustee, the succeeded Trustee will, upon appointment
of any successor Trustee, execute and deliver to such successor Trustee
appropriate assignments or conveyances.
Section 12.05. Severability. If any provision of this Indenture or the
application thereof to any Person or circumstances shall be finally determined
by a court of proper jurisdiction to be illegal, invalid or unenforceable to any
extent, the remainder of this Indenture or the application of such provision to
Persons or circumstances, other than those as to which it is held illegal,
invalid or unenforceable, shall not be affected thereby, and every provision of
this Indenture shall be valid and enforced to the fullest extent permitted by
law.
Section 12.06. Notices. Any and all notices or demands permitted or
required to be given under this Indenture shall be in writing and shall be
validly given or made if (a) personally delivered, (b) delivered and confirmed
by telecopier or like instantaneous transmission service, or by Federal Express
or other overnight courier delivery service, which shall be effective as of
confirmation of receipt by the courier at the address for notice hereinafter
stated, (c) solely in the case of notice to any Unitholder, by press release in
a nationally recognized and distributed media, or (d) deposited in the United
States mail, first class, postage prepaid, certified or registered, return
receipt requested, addressed as follows:
If to the Trustee, to:
NationsBank, N.A.
901 Main Street, 17th Floor
Dallas, Texas 75202
Attention: Ron E. Hooper, Vice President
Telecopier No.: (214) 508-2431
If to Grantor, to:
Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102-6298
Attention: Corporate Secretary
Telecopier No. (817) 870-1671
If to a Unitholder, to:
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the Unitholder
at its last address as shown on the
ownership records maintained by the Trustee.
Notice which is mailed in the manner specified shall be conclusively deemed
given three days after the date postmarked or upon receipt, whichever is sooner.
Any party to this Indenture may change its address for the purpose of receiving
notices or demands by notice given as provided in this Section 12.06.
Section 12.07. Counterparts. This Indenture may be executed in a number
of counterparts, each of which shall constitute an original, but such
counterparts shall together constitute but one and the same instrument.
Section 12.08. Successors. This Indenture shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, Grantor and Trustee have caused this Indenture to be
duly executed the day and year first above written at Fort Worth, Tarrant
County, Texas.
CROSS TIMBERS OIL COMPANY
ATTEST:
By:
- ------------------------------- ----------------------------------
Name: Frank G. McDonald Name: Louis G. Baldwin
Title: Assistant Secretary Title: Senior Vice President
- GRANTOR -
ATTEST: NATIONSBANK, N.A.
By:
- ------------------------------- ----------------------------------
Name: Name: Ron E. Hooper
-------------------------- Title: Vice President
Title:
-------------------------
- TRUSTEE -
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SCHEDULE 2
TRUSTEE COMPENSATION
A. Administrative Fee
1. For all administrative and other services to be provided by the Trustee
under the Indenture including, but not limited to, costs of Trustee's
personnel, the Trustee will be paid, from the Trust Estate, the sum of
$35,000 per year, with such fee to be paid in equal monthly installments.
2. The Administrative Fee provided above will be adjusted annually,
beginning April 1, 2000. The adjustment shall be computed by multiplying
the current Administrative Fee by the percentage increase or decrease in
the average weekly earnings of Crude Petroleum and Gas Production Workers
for the last calendar year compared to the calendar year preceding as
shown by the index of average weekly earnings of Crude Petroleum and Gas
Production Workers as published by the United States Department of Labor,
Bureau of Labor Statistics. The adjusted Administrative Fee shall be the
Administrative Fee currently in use, plus or minus the computed
adjustment.
B. Termination Fee
Upon termination of the Trust, the Trustee shall be paid a Termination Fee
of $15,000.
C. The fees provided above are in addition to out-of-pocket cost reimbursements
permitted under the Indenture.
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