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EXHIBIT 10.53
PRODUCTION PAYMENT CONVEYANCE
THIS PRODUCTION PAYMENT CONVEYANCE (this "Conveyance"), dated as of the
date set out at the end hereof, is made from and by TransTexas Gas Corporation,
a Delaware corporation (herein called "Grantor") to and in favor of Southern
Producer Services, L.P., TCW Portfolio No. 1555 DR V Sub-Custody Partnership,
L.P. and TCW DR VI Investment Partnership, L.P. (herein collectively called
"Grantee").
ARTICLE I
Section 1.1. Defined Terms. When used in this Conveyance or in any
exhibit or schedule hereto (unless otherwise defined in any such exhibit or
schedule), the following terms have the respective meanings assigned to them in
this section or in the sections, subsections, exhibits and schedules referred to
below:
"Affiliate" means, with respect to any Person: (a) any other Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Person, (b) any other Person
10% or more of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by such Person, and (c) any other
Person directly or indirectly controlling, controlled by or under common control
with such Person; provided that, "Affiliate" also means, with respect to Fund V
and Fund VI, (i) any of the TCW Beneficiaries, (ii) any trustee, general
partner, investment manager, custodian, custodial agent, or other fiduciary of
or for Fund V, Fund VI, or any TCW Beneficiary, (iii) Trust Company of the West,
a California trust company, and (iv) TCW Asset Management Company, a California
corporation, whether acting as Funds Agent or in any other capacity.
"Agreed Rate" means a rate of interest of fifteen percent (15.0%) per
year, calculated on the basis of actual days elapsed and a year of 360 days.
"Application Date" means the fifth Business Day of each calendar month,
starting with May 5, 2000. As used herein with respect to any Application
Period, the "related Application Date" means the Application Date that occurs
approximately five weeks after the end of such Application Period. For example,
if an Application Period ends at 9:00 a.m., Texas time, on March 1 and the fifth
Business Day of the following calendar month is April 6, the related Application
Date is such April 6.
"Application Period" means a period of time beginning at 9:00 a.m.,
Texas time, on the first day of any calendar month and ending at 9:00 a.m.,
Texas time, on the first day of the next succeeding calendar month. The first
Application Period will begin at the Initial Time and will end at 9:00 a.m.,
Texas time, on April 1, 2000. As used herein with respect to any Application
Date, the "related Application Period" means the Application Period ending
approximately five weeks prior to such Application Date. For example, if an
Application Date occurs on March 5, 6 or 7, the related Application Period is
the one which ended at 9:00 a.m., Texas time, on the preceding February 1.
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"Bankruptcy Court Order" means the order authorizing this Conveyance
entered by the United Bankruptcy Court for the Southern District of Texas,
Corpus Christi Division, a copy of which is attached hereto as Exhibit C.
"Barrel" means 42 United States standard gallons of 231 cubic inches
per gallon at 60 degrees Fahrenheit.
"Beneficiary" means any SPS Beneficiary or TCW Beneficiary.
"British Thermal Unit" or "BTU" means the amount of energy required to
raise the temperature of one pound of pure water one degree Fahrenheit from 58.5
degrees Fahrenheit to 59.5 degrees Fahrenheit, as defined in the American Gas
Association Gas Measurement Manual and any subsequent revisions.
"Business Day" means a day that is not a Saturday, a Sunday, a legal
holiday in Houston, Texas, a legal holiday in Los Angeles, California, or a
legal holiday in Atlanta, Georgia.
"Commercial Well" has the meaning given such term in Section 3.2(c).
"Dedication Percentage" means:
(a) fifty percent (50%) from the Initial Time until 9:00 a.m.,
Texas time, on September 1, 2000;
(b) sixty-two percent (62%) from 9:00 a.m., Texas time, on
September 1, 2000 until 9:00 a.m., Texas time, on March 1, 2001; and
(c) seventy percent (70%) from and after 9:00 a.m., Texas
time, on March 1, 2001.
"Delivery Point" means (a) as of the Initial Time, for each field
listed on Schedule 2 hereto, the Delivery Point specified for such field on such
Schedule, or (b) such other delivery point or points in the vicinity of such
field hereafter from time to time designated by Grantee at which Gas from the
Subject Interests in such field is (or reasonably could be, without any
additional material expenses or expenditures) sold to a third party or delivered
into a pipeline for transportation to a market point, or (c) such other delivery
point or points as may from time to time be agreed upon in writing by Grantor
and Grantee. Unless otherwise agreed by Grantor, any designation by Grantee of a
new Delivery Point shall become effective one month after the first day of the
next succeeding Application Period.
"Delivery Services" has the meaning given such term in Section 2.5.
"Designated Event" has the meaning given such term in the Purchase
Agreement.
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"Direct Taxes" means all ad valorem, property, gathering,
transportation, pipeline regulating, gross receipts, severance, production,
excise, heating content, carbon, value, value added, environmental, occupation,
franchise, sales, use, fuel, and other taxes and governmental charges and
assessments imposed on or as a result of all or any part of the Subject
Interests, the Hydrocarbons produced from Subject Interests or the proceeds
thereof, the Production Payment, or the PP Hydrocarbons or the proceeds thereof,
regardless of the point at which or the manner in which such taxes, charges or
assessments are charged, collected, levied or otherwise imposed. The only taxes
which are not Direct Taxes are federal income taxes, state income taxes, and
franchise taxes levied against any Grantee or any Beneficiary and any other
taxes levied against the overall net income of any Grantee or any Beneficiary
(including interest, penalties and withholding obligations owing to governmental
authorities with respect to such income or franchise taxes). Interest, penalties
and withholding obligations owing to governmental authorities with respect to
any Direct Taxes shall constitute "Direct Taxes".
"economically feasible" has the meaning given such term in Section
3.2(c).
"Environmental Laws" means all applicable local, state or federal laws,
rules, regulations, or orders regulating or otherwise pertaining to (a) the use,
generation, migration, storage, removal, treatment, remedy, discharge, release,
transportation, disposal or cleanup of pollutants, contamination, hazardous
wastes, hazardous substances, hazardous materials, toxic substances or toxic
pollutants, (b) the soil, surface waters, groundwater, land, stream sediments,
surface or subsurface strata, ambient air and any other environmental medium on
or off any Subject Interest, or (c) the environment or health and safety-related
matters; including the following as from time to time amended and all others
whether similar or dissimilar and whether now existing or hereinafter enacted:
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986,
the Resource observation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials
Transportation Act, as amended, the Toxic Substance Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and all regulations
promulgated pursuant thereto.
"Expense Components" has the meaning given such term in Section 2.2.
"Field Delivery Charges" means the actual costs, if any, incurred by
any Grantee for separating, gathering, compressing, treating, stabilization, or
Processing PP Hydrocarbons prior to a Delivery Point or of transporting PP
Hydrocarbons to a Delivery Point in a condition satisfactory to meet pipeline
specifications and qualifications at such Delivery Point (net of any revenues
received by Grantee in connection with any such Processing, to the extent that
such revenues are not included in PP Proceeds) or of otherwise providing
Delivery Services.
"Force Majeure" means (a) unavoidable interruption of Delivery Services
caused by catastrophic physical events (such as freezing of wells or lines of
pipe) or (b) unavoidable or sudden mechanical difficulties relating to
performance of the Delivery Services and which by the exercise of due diligence
such party is unable to prevent or overcome; provided that Grantor shall not be
authorized as a reason for nonperformance, in part or in full, of the Delivery
Services, to
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claim an event of Force Majeure to the extent and beginning 24 hours after such
time as Grantee has designated a new Delivery Point or Delivery Points that
allow Grantor the ability to perform or cause to be performed the Delivery
Services despite the event of Force Majeure.
"Funds Agent" means the Person named as Funds Agent in Section 8.7,
acting in such capacity, together with its successors and assigns in such
capacity.
"Fund V" means TCW Portfolio No. 1555 DR V Sub-Custody Partnership,
L.P. and, unless the context in which used shall otherwise require, such term
shall also include any successor to it as owner at the time in question of any
or all of the Production Payment.
"Fund VI" means TCW DR VI Investment Partnership, L.P. and, unless the
context in which used shall otherwise require, such term shall also include any
successor to it as owner at the time in question of any or all of the Production
Payment.
"Gas" means natural gas and all other gaseous hydrocarbons, including
casinghead gas, whether or not such natural gas and other gaseous hydrocarbons
are Processed and including all natural gas liquids that are the products of
processing.
"GBPC" means Galveston Bay Processing Corporation, a wholly-owned
subsidiary of Grantor.
"Grantee" means the Persons named in the preamble to this Conveyance as
the Grantee, and, unless the context in which used shall otherwise require, such
term shall also include any successor to any such Person as owner at the time in
question of any or all of the Production Payment, provided that "a Grantee" or
"any Grantee" means any one of the Persons included in "Grantee".
"Grantor" means the Person named in the preamble of this Conveyance as
Grantor, and, unless the context in which used shall otherwise require, such
term means any successor-owner at the time in question of any or all of the
Subject Interests (other than the Production Payment).
"Hydrocarbons" means Oil and Gas.
"Imbalance Charges" has the meaning given such term in Section 2.6(c).
"Initial Time" means 9:00 a.m., Texas time, on March 1, 2000.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"Lease Measuring Point" means, with respect to any particular Subject
Well, the point at which the BTU content of Gas included in PP Hydrocarbons
produced from such Subject Well is initially measured.
"Marketer" has the meaning given such term in the Purchase Agreement.
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"Mcf" means one thousand cubic feet.
"MMBTU" means one million BTUs.
"Non-Affiliate" means, with respect to any Person, any Person who is
not an Affiliate of such Person.
"NRI Percentage" means, with respect to each portion of Subject Lands
described on Exhibit A, the percentage shown on Exhibit A as the "Net Revenue
Interest" for such portion of Subject Lands.
"Oil" means crude oil, condensate, and other liquid hydrocarbons,
specifically to include condensate or other liquid hydrocarbons separated at the
surface (e.g., using conventional separators) but not to include the products of
Processing.
"Operating Costs" means, with respect to the Subject Interests or any
other properties, respectively, all costs and expenses (including all Direct
Taxes, all Field Delivery Charges, and all costs, expenses and liabilities for
labor, materials and equipment incurred in connection with the Subject Interests
or such other properties and all obligations to the holders of lessors'
interests, royalty interests and other interests affecting the Subject Interests
or such other properties) incurred in exploring, developing, operating,
reworking, remediating and maintaining the Subject Interests or such other
properties or in producing, handling, treating and transporting Hydrocarbons
produced therefrom. The "Operating Costs" with respect to the Subject Interests
also include, without duplication, any other amounts owing by Grantor to Davis
Petroleum Corp. (together with its successors and assigns, "Davis") with respect
to any of the rights of Davis, or secured by any of the liens of Davis, that are
referred to in subparagraph (a) or (to the extent applicable) subparagraph (b)
of Paragraph 2 of the Bankruptcy Court Order, but the Operating Costs with
respect to the Subject Interests do not include any costs of handling, treating,
or transporting Hydrocarbons downstream of a Delivery Point.
"Percentage Share" means, with respect to each Person included in
Grantee, the fractional undivided interest which it owns in the Production
Payment at the time in question. At the initial grant of the Production Payment,
the Percentage Share of each Person included in Grantee is as follows:
Fund V 42.859594%
Fund VI 21.429797%
SPS 35.710609%
"Permitted Assigns" has the meaning given such term in Section 6.2.
"Permitted Encumbrances" has the meaning given such term in the
Purchase Agreement.
"Person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture, court
or governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
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"PP Hydrocarbons" means the Dedication Percentage of the NRI Percentage
of all Hydrocarbons in and under and that may be produced from (or, to the
extent pooled or unitized, allocated to) any Subject Lands between the Initial
Time and the Termination Time.
"PP Proceeds" means, for any particular Application Period, the total
dollar amount actually received by Grantee during or (to the extent not
previously applied) prior to such Application Period, determined after deduction
of all PP Severance Taxes (whether paid before or after receipt by Grantee),
from sales of PP Hydrocarbons under arm's length sales agreements with third
Persons (or under agreements with Affiliates with terms at least as good),
provided that to the extent that Fund V and Fund VI sell their Percentage Shares
of any PP Hydrocarbons to SPS, as Marketer, under the Production Sales
Agreements and SPS then resells to third Persons all of such PP Hydrocarbons
(i.e., the Percentage Shares of PP Hydrocarbons so purchased from Fund V and
Fund VI together with its own Percentage Share of such PP Hydrocarbons), then
(a) the PP Proceeds received by Fund V and Fund VI shall be the amounts actually
paid by SPS, as Marketer, under the Production Sales Agreements for the
respective Percentage Shares of Fund V and Fund VI, and (b) SPS, as a Grantee
hereunder, shall be deemed to have received PP Proceeds in an amount equal to
its own Percentage Share of such PP Hydrocarbons times the price per Barrel or
per MMBTU, as appropriate, paid by SPS as Marketer to Fund V and Fund VI for
their Percentage Shares of such PP Hydrocarbons.
"PP Severance Taxes" means all severance taxes actually attributable to
the PP Hydrocarbons, taking into account any applicable credits, rebates and
other factors.
"Previous Production Payments" means the production payment previously
granted by Grantor to Fund V and Fund VI pursuant to that certain Production
Payment Conveyance dated February 23, 1998, as heretofore supplemented and
amended and recorded as described in the Reconveyance, and the production
payment previously granted by Grantor to Fund VI pursuant to that certain
Production Payment Conveyance dated September 30, 1998, as heretofore
supplemented and amended and recorded as described in the Reconveyance.
"Primary Sum" means the sum of $35,003,604 (as such sum may be
increased from time to time by amendments or supplements hereto), and at any
time the "unliquidated balance of the Primary Sum" shall be the Primary Sum plus
the aggregate amounts which have been added thereto pursuant to Section 2.3(a),
less the aggregate amount of PP Proceeds which have been applied thereto at or
before such time pursuant to Section 2.3(a)(ii), and less any reductions under
Section 2.3(b). The Purchase Agreement contains mechanisms and procedures to
increase the Primary Sum, and the parties hereto contemplate that the Primary
Sum may be increased from time to time hereafter.
"Processing" or "Processed" means to manufacture, fractionate or refine
Subject Hydrocarbons or otherwise to engage in any process designed to remove
elements (hydrocarbons or nonhydrocarbons) from Gas, but such terms do not mean
or include natural pressure reduction, the use of normal lease or well equipment
or other normal operations on or near any of the Subject Interests (such as the
use on or near the lease -- or, in the case of any offshore or near-shore wells,
at or near the landfall of the connecting pipeline -- of dehydrators, gas
treating facilities, separators, heater-treaters, lease compression facilities,
injection or recycling equipment, tank batteries, field gathering systems,
pipelines and equipment and so forth).
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References to Hydrocarbons which are "Processed" (including the reference
thereto contained in the definition of Gas) refer both to the natural gas
liquids and other products of Processing and to the residue gas and other
hydrocarbons remaining after such operations.
"Production Payment" means the term overriding royalty which is granted
to Grantee under this Conveyance, as from time to time supplemented and amended,
and all other rights, titles, interests, estates, remedies, powers and
privileges appurtenant or incident to such term overriding royalty, whether
hereunder, under the Purchase Agreement, by operation of law, or otherwise.
"Production Payment Documents" has the meaning given such term in the
Purchase Agreement.
"Production Payment Period" means the period from and after the Initial
Time until the Termination Time.
"Production Sales Agreements" has the meaning given such term in the
Purchase Agreement.
"Purchase Agreement" means the Purchase Agreement of even date herewith
between Grantor and Grantee, as from time to time amended or supplemented.
"Reconveyance" means the Reconveyance of Production Payment of even
date herewith from Grantee to Grantor (a true and correct copy of which is
attached hereto as Exhibit B), pursuant to which Grantee has reconveyed the
Previous Production Payments to Grantor and Grantor has ratified and confirmed
certain indemnification and reimbursement obligations which (as provided in
Section 2.9 of each conveyance under which a Previous Production Payment was
granted) are to survive the termination thereof.
"Reimbursable Expenses" means all costs and expenses paid or incurred
by or on behalf of any Grantee or its Affiliates which are in any way related
to: (a) the negotiation, acquisition, ownership, enforcement, or termination of
the Production Payment, this Conveyance, the other Production Payment Documents,
or any waivers or amendments hereto or thereto, (b) the negotiation,
acquisition, ownership, enforcement, or termination of any related marketing,
transportation or processing agreements or (c) any litigation, contest, payment,
release or discharge of any adverse claim or demand made or proceeding
instituted by any Person affecting in any manner whatsoever the Production
Payment, any PP Hydrocarbons or PP Proceeds, this Conveyance or the other
Production Payment Document, or the enforcement or defense hereof or thereof, or
the defense of any Grantee's and its Affiliates' exercise of their rights
hereunder or thereunder. Included among the Reimbursable Expenses are (i) all
recording and filing fees, (ii) all reasonable fees and expenses of counsel,
engineers, accountants and other consultants, experts and advisors for any
Grantee and its Affiliates, (iii) all reasonable travel and other out of pocket
expenses of any Grantee and its Affiliates, (iv) all Imbalance Charges payable
hereunder by Grantor, and (v) all amounts which any Grantee is entitled to
receive under Section 4.1 or 5.1 hereof or with respect to any of Grantor's
"Surviving Duties", as defined in the Reconveyance. Notwithstanding the
foregoing, Reimbursable Expenses shall not include expenses associated with (1)
third party claims relating to title to the Production Payment, to the extent
such claims
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arise solely due to the actions of Grantee or its Affiliates, (2) third party
claims that arise solely out of the failure by Grantee to perform its
obligations under any contractual arrangement entered into directly by Grantee
pursuant to Section 2.6 (a) hereof, which failure by Grantee is not caused, in
whole or in part, by any failure by Grantor to perform its obligations under any
Production Payment Document, or (3) expenses of litigation or arbitration among
or between Persons constituting Grantee hereunder, which litigation or
arbitration is not caused, in whole or in part, by any failure by Grantor to
perform its obligations under any Production Payment Document.
"Restricted Assignee" has the meaning given to such term in the
Purchase Agreement.
"Retained Interests" means the interests retained by Grantor in the
Subject Interests after conveyance of the Production Payment hereunder.
"Separation Point" means the point at which lease level separation of
Oil takes place.
"SPS" means Southern Producer Services, L.P., and, unless the context
in which used shall otherwise require, such term shall also include any
successor to it as owner at the time in question of any or all of the Production
Payment.
"SPS Beneficiary" means any Person that at any time is a general or
limited partner in SPS.
"Subject Hydrocarbons" means that portion of the Hydrocarbons in and
under and that may be produced from (or, to the extent pooled or unitized,
allocated to) Subject Lands which is attributable (after deducting all
royalties, overriding royalties, production payments and similar burdens,
excluding only the Production Payment, which both burden the Subject Interests
at the Initial Time and are reflected in the Net Revenue Interest figures set
out on Exhibit A) to the Subject Interests.
"Subject Interests" means:
(a) All of the leasehold interests and other property
interests described in Exhibit A attached hereto; and
(b) Without limitation of the foregoing, all other right,
title and interest (of whatever kind or character, whether legal or
equitable and whether vested or contingent) of Grantor in and to the
oil, gas and other minerals in and under or that may be produced from
Subject Lands (including interests in oil, gas or mineral leases to the
extent the same cover such lands, overriding royalties, production
payments and net profits interests in such lands or such leases, and
fee mineral interests, fee royalty interests and other interests in
such oil, gas and other minerals) even though Grantor's interest in
such oil, gas and other minerals may be incorrectly described in, or
omitted from, Exhibit A; and
(c) All rights, titles and interests of Grantor in and to, or
otherwise derived from, all presently existing and valid oil, gas or
mineral unitization, pooling, or communitization agreements,
declarations or orders and in and to the properties covered
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and the units created thereby (including all units formed under orders,
rules, regulations, or other official acts of any federal, state, or
other authority having jurisdiction, voluntary unitization agreements,
designations or declarations, and so-called "working interest units"
created under operating agreements or otherwise) relating to the
properties described in subsections (a) or (b) above in this
definition.
"Subject Lands" means the lands and depths described in Exhibit A
(where no depth limit is specified, Subject Lands shall include all depths).
"Subject Wells" means all wells now located on the Subject Lands
(whether fully drilled and completed or not) or hereafter drilled on the Subject
Lands, and (unless production therefrom is expressly excluded by the terms of
the descriptions on Exhibit A) any other wells now or hereafter located on lands
or leases pooled, communitized or unitized with the Subject Interests. A well
shall be deemed located on lands and depths based on its bottom hole location or
the location of other tested or producing zones.
"TCW Beneficiary" means any Person that at any time is a general or
limited partner in Fund V or in Fund VI or any Person for whom such a general or
limited partner is acting as investment manager, custodian or custodial agent or
in a similar capacity.
"Termination Time" has the meaning assigned to it in Section 2.9.
"Total Sum" has the meaning assigned to it in Section 2.2.
Section 1.2. Rules of Construction. All references in this Conveyance
to articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Conveyance unless
expressly provided otherwise. Titles appearing at the beginning of any of such
subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words "this Conveyance", "this instrument", "herein",
"hereof", "hereunder"' and words of similar import refer to this Conveyance as a
whole and not to any particular subdivision unless expressly so limited. Unless
the context otherwise requires: "including" and its grammatical variations mean
"including without limitation"; "or" is not exclusive; words in the singular
form shall be construed to include the plural and vice versa; words in any
gender include all other genders; references herein to any instrument or
agreement refer to such instrument or agreement as it may be from time to time
amended or supplemented; and references herein to any Person include such
Person's successors and assigns. All references in this Conveyance to exhibits
and schedules refer to exhibits and schedules to this Conveyance unless
expressly provided otherwise, and all such exhibits and schedules are hereby
incorporated herein by reference and made a part hereof for all purposes.
ARTICLE II
Section 2.1. Conveyance. Grantor does hereby GRANT, BARGAIN, SELL,
CONVEY, ASSIGN, TRANSFER, SET OVER AND DELIVER unto Grantee, as a production
payment, to be held by the Persons included in Grantee in undivided interests in
proportion to their Percentage Shares, a term overriding royalty interest carved
out of and burdening the Subject
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Interests equal to and measured by all PP Hydrocarbons in and under and that may
be produced from (or, to the extent pooled or unitized, allocated to) the
Subject Lands, with such production payment to terminate as of the Termination
Time.
TO HAVE AND TO HOLD the Production Payment unto Grantee, its successors
and Permitted Assigns, until the Termination Time.
Section 2.2. Amount and Term. The Production Payment shall continue and
remain in full force and effect until the receipt and realization by Grantee
from PP Proceeds of the aggregate sum of the amounts specified in the following
subsections of this Section 2.2 (herein collectively called the "Total Sum"):
(a) the full amount of the Primary Sum; plus
(b) an amount equal to the interest which would accrue at the
Agreed Rate on the unliquidated balance of the Primary Sum outstanding
during the period from the Initial Closing Date (as defined in the
Purchase Agreement) to but not including the first Application Date,
and thereafter during each period from and including one Application
Date to but not including the next occurring Application Date, if the
unliquidated balance of the Primary Sum were to bear such interest;
plus
(c) an amount equal to all Direct Taxes (other than PP
Severance Taxes), to the extent such Direct Taxes are paid by any
Grantee or Beneficiary should Grantor fail to promptly pay the same as
required by Section 2.4, together with an additional amount equal to
interest on the amount so paid computed at the Agreed Rate from and
including the date any Grantee or Beneficiary pays such Direct Taxes to
but not including the earlier of the date such Direct Taxes are either
reimbursed by Grantor or paid by the application of PP Proceeds under
Section 2.3(a) or added to the unliquidated balance of the Primary Sum
under Section 2.3(a); plus
(d) an amount equal to all Reimbursable Expenses to the extent
paid by any Grantee or any Beneficiary should Grantor fail to promptly
pay the same as required by Section 2.4, together with an additional
amount equal to interest on the amount so paid computed at the Agreed
Rate from and including the date any Grantee or Beneficiary pays such
Reimbursable Expenses to but not including the earlier of the date such
Reimbursable Expenses are either reimbursed by Grantor or paid by the
application of PP Proceeds under Section 2.3(a) or added to the
unliquidated balance of the Primary Sum pursuant to Section 2.3(a);
plus
(e) an amount equal to all Operating Costs to the extent paid
by any Grantee or Beneficiary should Grantor fail to promptly pay the
same as required by Section 2.4, together with an additional amount
equal to interest on the amount so paid, computed at the Agreed Rate
from and including the date any Grantee or Beneficiary pays such
Operating Costs to but not including the earlier of the date such
Operating Costs are either reimbursed by Grantor or paid by the
application of PP Proceeds under Section 2.3(a) or added to the
unliquidated balance of the Primary Sum pursuant to Section 2.3(a).
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The amounts (including interest) referred to in subsections (c), (d) and (e) of
this section are herein collectively called the "Expense Components".
Section 2.3. Application of PP Proceeds.
(a) On each Application Date, all PP Proceeds that have actually been
received by Grantee (whether from the purchasers of PP Hydrocarbons or from
Grantor as provided in Section 2.10) in immediately available funds prior to
noon, Los Angeles time, on such Application Date, shall, to the extent not
previously applied, be applied as follows to the Total Sum:
(i) First, to the amounts described in subsections (b), (c),
(d) and (e) of Section 2.2; and
(ii) Second, to the reduction of the unliquidated balance of
the Primary Sum.
If PP Proceeds applied on any Application Date are insufficient to cover the
full amounts specified in the foregoing subsection (i) of this subsection (a),
then such unrecovered amounts shall be added to the unliquidated balance of the
Primary Sum.
(b) Neither the actual or potential application of PP Proceeds to
Expense Components shall release Grantor from its obligations to make any
payments or reimbursements of Expense Components required under Section 2.4, but
if any PP Proceeds are actually applied to Expense Components or added to the
unliquidated balance of the Primary Sum pursuant to the preceding subsection (a)
and if such Expense Components (including interest thereon) are thereafter paid
or reimbursed by Grantor, then on the next occurring Application Date the
unliquidated balance of the Primary Sum shall be reduced by the amounts so paid
or reimbursed by Grantor.
Section 2.4. Non-Cost-Bearing Interest. The Production Payment shall be
free and clear of, and Grantee shall have no liability for, any Operating Costs
other than PP Severance Taxes. All Operating Costs (other than PP Severance
Taxes) shall be borne by the Retained Interests and paid by Grantor promptly, on
or before the dates the same become due and owing (except to the extent payment
thereof is discharged or the time for payment is extended pursuant to the
Bankruptcy Court Order). In addition, Grantor will promptly (and in any event
within 30 days after receiving any notice or statement for the same) pay all
Reimbursable Expenses which have been incurred and are unpaid and reimburse
Grantee or Beneficiaries for any Reimbursable Expenses which have been paid by
Grantee or Beneficiaries. Each amount which is to be paid by Grantor pursuant to
this Section 2.4 which is instead paid by Grantee or Beneficiaries shall bear
interest at the Agreed Rate on each day from and including the date of such
payment until but not including the date repaid by Grantor.
Section 2.5. Delivery Services.
(a) Expected Deliveries. To the extent not prevented by Force Majeure,
Grantor shall deliver, or cause to be delivered, all PP Hydrocarbons
constituting Gas to the relevant Delivery Point in a condition satisfactory to
meet or exceed pipeline specifications and qualifications at such Delivery Point
and all quality standards and other requirements of the applicable sales,
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transportation or processing contract, and Grantor will deliver all PP
Hydrocarbons constituting Oil at the points at which the Grantor delivers Oil
from the same Subject Interests into third party pipelines or to third party
transporters in a condition satisfactory to meet all quality standards and other
requirements of the applicable sales, transportation or processing contracts.
All tasks required to make such delivery (whether gathering, treating,
separating, compressing, Processing, transporting, or otherwise) are herein
called the "Delivery Services". All Delivery Services, whether performed by
Grantor or by any other Person, shall be performed without any cost or charge to
Grantee, whether incurred or assessed by Grantor or any other Person, and all
costs so incurred or assessed shall be borne and paid by Grantor as provided in
Section 2.4. The Delivery Services shall be provided to Grantee on a first
priority basis, to the extent permitted by law and applicable contracts
(meaning, for example, that (A) pipeline and compressor capacity, if owned or
controlled by Grantor or any Affiliate of Grantor, shall be afforded to Subject
Hydrocarbons prior to affording any such capacity to Grantor, any Affiliates of
Grantor or any other Person with respect to any other Hydrocarbons, and (B)
pipeline and compressor capacity owned or controlled by any Person other than
Grantor or any Affiliate of Grantor shall be afforded to Subject Hydrocarbons
prior to affording any such capacity to Grantor or any Affiliate of Grantor with
respect to any other Hydrocarbons), and Grantor hereby expressly subordinates
any capacity rights it may now or hereafter have to the PP Hydrocarbons. Grantor
shall, to the extent permitted by law and applicable contracts, take whatever
action is appropriate to cause any Affiliate of Grantor or any other Person to
afford Subject Hydrocarbons the priority capacity described in this subsection
(a), including assigning to Grantee, upon Grantee's request following failure by
Grantor to provide Delivery Services as required hereunder, any capacity rights
Grantor may have under assignable contracts or other arrangements with an
Affiliate or any other Person as may be necessary or useful to facilitate
delivery of PP Hydrocarbons to each Delivery Point in a condition satisfactory
to meet or exceed pipeline specifications or qualifications at such Delivery
Point.
(b) Excess Deliveries. If at any time Grantor delivers to Grantee PP
Hydrocarbons in excess of the amount of PP Hydrocarbons required to be delivered
to Grantee hereunder, the amount of such excess delivery shall not be returned
by Grantee but shall instead be deemed an early delivery by Grantor of future PP
Hydrocarbons and shall be considered as fully and finally delivered to Grantee
for all purposes hereunder on the date received by Grantee; provided that if any
Hydrocarbons are delivered hereunder to Grantee following the termination hereof
the proceeds of such Hydrocarbons shall be paid to Grantor.
Section 2.6. Marketing of PP Hydrocarbons by Grantee.
(a) Marketing by Grantee. Grantee shall take possession of all of the
PP Hydrocarbons at the applicable Delivery Points and shall thereafter market
and sell such PP Hydrocarbons for its own account, subject to the requirements
of Section 4.9 of the Purchase Agreement. Grantor shall take such actions
(including executing all division orders, transfer orders, instructions in lieu
thereof and other additional instruments) as are necessary or appropriate to
achieve such results, and Grantor will cooperate with Grantee in instructing all
purchasers of such PP Hydrocarbons to pay the proceeds thereof directly to
Grantee and shall execute such additional instruments (including division
orders, transfer orders and instructions in lieu thereof) as may be requested by
Grantee in connection therewith. If payment for any PP Hydrocarbons is
nonetheless made to Grantor for any reason, all amounts so paid to Grantor shall
be held in trust
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by Grantor for Grantee and Grantor shall immediately pay over such proceeds, in
the form received, to Grantee (but without recourse to Grantor on any proper
endorsement by Grantor to Grantee). Grantor shall not enter into any contracts
or other arrangements for the sale, transportation, gathering, Processing or
other marketing of Subject Hydrocarbons which would interfere with Grantee's
rights under this Section 2.6 to take possession of and market the PP
Hydrocarbons, free and clear of such contracts or other arrangements.
(b) Cooperation and Assistance. Grantee and Grantor will each be taking
quantities of Hydrocarbons from the Subject Interests, and Grantor and Grantee
recognize that coordination between Grantee and Grantor will be required with
respect thereto. Grantor agrees to cooperate with, and assist, Grantee in
connection with Grantee's receipt and sale of PP Hydrocarbons. Without
limitation of the foregoing:
(i) Not less than 10 days prior to the first day of each
Application Period, Grantor will notify Grantee or its authorized
representatives or direct purchasers, in writing, of the total amounts
and average daily amounts of Gas and Oil which Grantor expects to be
produced from the Subject Interests during such Application Period and
the portion thereof which Grantor projects will be PP Hydrocarbons.
(ii) To the extent reasonably practicable, Grantor shall
thereafter immediately notify Grantee or its authorized representatives
or direct purchasers, in writing, of any change in the rate of delivery
of PP Hydrocarbons from the Subject Interests that has come to the
attention of Grantor.
(iii) Grantor and Grantee will cooperate to ensure that
nominations to transporters, processors and purchasers are timely made
and that such nominations reflect expected deliveries from the various
Subject Interests, and Grantee and its authorized representatives shall
be entitled to rely upon Grantor's projections for the purposes of
scheduling deliveries with transporters, processors and purchasers and
entering into hedges and similar agreements. In no event shall Grantor
be responsible for the failure, through no fault of Grantor, of such
transporters, processors (except for GBPC) or purchasers to fulfill
their obligations under the relevant arrangements.
Unless Grantee otherwise notifies Grantor in writing, Grantor will furnish the
information provided for above and will make nominations and schedule deliveries
in conjunction with Grantee (and make any revisions to such nominations and
reschedule deliveries in conjunction with Grantee) for PP Hydrocarbons (in the
form and at the times required by such Persons), directly to the Persons
purchasing, processing or transporting PP Hydrocarbons for Grantee. Grantor and
Grantee acknowledge to each other that concurrently herewith SPS, Fund V and
Fund VI are entering into the Production Sales Agreements under which SPS, as
Marketer, is the purchaser of the PP Hydrocarbons belonging to Fund V and Fund
VI.
(c) Responsibility. In the event that Grantee is ever making
nominations with respect to PP Hydrocarbons and any charges, costs, penalties or
expenses are incurred or payable to any Person solely as a result of Grantee's
failure to adjust nominations or scheduled deliveries in accordance with (i) a
notification from Grantor to Grantee of any increase or decrease in quantities
to be delivered from any Subject Well, or (ii) a notification from Grantee's
direct
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purchaser of any increase or decrease in quantities to be delivered at Delivery
Points, where it was reasonably possible for Grantee to make such adjustment
without penalty, then, as between the parties hereto, Grantee shall be liable
for and shall hold Grantor harmless from any such charges, costs, penalties or
expenses. If any such charges, costs, penalties or expenses (the "Imbalance
Charges") are incurred or payable to any Person other than in the circumstances
provided for in the preceding sentence (including charges, costs, penalties or
expenses caused by failure to deliver projected quantities or failure to provide
notice of changes in deliveries, or charges, costs, penalties or expenses
incurred when Grantor is making nominations, or revisions to nominations, on
behalf of Grantee, as provided for in the next-to-last sentence of Section
2.6(b)), then, as between the parties hereto, Grantor shall be liable for and
shall indemnify and hold Grantee and SPS harmless for such Imbalance Charges.
Each of Grantor and Grantee shall promptly notify the other of any notice
received by it from any third party which indicates that an imbalance in
deliveries exists or is occurring that may give rise to any such Imbalance
Charges.
Section 2.7. Measurement: Hydrocarbons Lost or Used. As used in this
Conveyance, the term "Hydrocarbons" shall not include Oil or Gas produced from
any particular Subject Well which are unavoidably lost in the production thereof
or in the compression or transportation thereof prior to the Lease Measuring
Point for such Subject Well, or which are used by Grantor or the operator of any
Subject Well for the production of Subject Hydrocarbons or for the compression
or transportation of Subject Hydrocarbons prior to the Lease Measuring Point for
such Subject Well, in each case only to the extent the same are lost or used in
the course of operations which are being conducted prudently and in a good and
workmanlike manner. Grantor hereby represents, warrants and covenants to Grantee
as follows: (a) the Lease Measuring Point applicable to each Subject Well is and
will continue to be located at a point prior to any point where Gas from such
Subject Well is commingled with Gas or any other Hydrocarbons from any other
well or wells, (b) Grantor currently meters, and will continue to meter, Gas
from each Subject Well separately (i.e., on a well-by-well basis), (c) the
volumes (measured in Mcfs) of PP Hydrocarbons constituting Gas produced from or
out of any particular Subject Well are measured and determined, and will
continue to be measured and determined at the Lease Measuring Point applicable
to such Subject Well, and (d) the Separation Point for each Subject Well is and
will continue to be upstream of the Lease Measuring Point for such Subject Well.
Grantor covenants and agrees to determine the number of MMBTUs in each Mcf of
Gas included in PP Hydrocarbons at the Lease Measuring Points.
Section 2.8. No Proportionate Reduction. It is understood and agreed
that, though the Production Payment is conveyed by Grantor to Grantee out of the
Subject Interests, the Production Payment shall be equal to the full Dedication
Percentage in effect from time to time of the NRI Percentage of the Hydrocarbons
produced from (or, to the extent pooled or unitized, allocated to) the various
Subject Lands and shall not be reduced for any reason. Among other things, the
Production Payment and the PP Hydrocarbons shall not be reduced due to (a) the
undivided interest owned by Grantor in a lease constituting any Subject
Interests being less than the entire interest in such lease, or (b) the interest
in Oil, Gas or other minerals underlying any portion of the Subject Lands which
is covered by a particular lease (or group of leases) being less than the entire
interest in the oil, gas and other minerals underlying such portion of the
Subject Lands, or (c) the share of production from (or, to the extent pooled or
unitized, allocated to) any portion of Subject Lands which is attributable to
the Subject Interests being less than the NRI Percentage set forth on Exhibit A
for such portion of the Subject Lands, or (d) Grantor's failure to
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own, or otherwise have good title to, all or any part of the Subject Interests
as described on Exhibit A.
Section 2.9. Termination. The Production Payment shall remain in full
force and effect until the time (herein called the "Termination Time") when the
full aggregate amount of the Total Sum, together with all reimbursements,
indemnities, restitutions, and other payments required hereunder, have been
fully and indefeasibly received by Grantee as provided herein. At the
Termination Time, all rights, titles and interests herein conveyed in and to any
Hydrocarbons thereafter produced shall automatically terminate and vest in
Grantor, and, upon request by Grantor, Grantee shall execute and deliver such
instrument or instruments (in proper recordable form, if applicable) as may be
necessary to evidence such termination of the Production Payment; provided that,
notwithstanding the foregoing or anything herein to the contrary, any and all
obligations which any Person may have to indemnify or reimburse any Grantee or
its Affiliates for any reason, or to make payments to any Grantee or its
Affiliates on account of PP Hydrocarbons produced before the Termination Time,
shall survive any termination of the Production Payment. No pipeline company or
other Person purchasing, taking, or processing PP Hydrocarbons shall ever be
required to take notice of, or keep informed concerning, the termination of the
Production Payment, until actual receipt of written notice from Grantee
confirming that such termination has occurred, which Grantee agrees to deliver
with reasonable promptness upon request of Grantor. To the extent that Grantee
is ever obligated, after the termination of the Production Payment, to reimburse
or pay to any Person (including Marketer) any amount that was previously
received from the sale of PP Hydrocarbons and applied as PP Proceeds under
Section 2.3 hereof, then Grantor will promptly upon request therefor pay the
same amount to Grantee.
Section 2.10. Immediate Payments. All PP Proceeds received by Grantor
(instead of directly by Grantee) in any Application Period shall be immediately
paid by Grantor to Grantee. No PP Proceeds (whether paid by Grantor or any other
Person) shall be deemed received by Grantee or applied to the Production Payment
until such PP Proceeds have been so received by Grantee's bank or collection
agent in immediately available funds for the account of Grantee.
ARTICLE III
Section 3.1. Operations. As between Grantee and Grantor, Grantor shall
have exclusive charge, management and control of all operations to be conducted
on the Subject Interests. Grantor shall take or cause to be taken any and all
actions that a prudent operator would deem necessary in the operation,
maintenance and management thereof and in the production, handling, treating and
transportation of Hydrocarbons produced therefrom and shall otherwise act in
accordance with its customary practices; in doing the foregoing Grantor shall
not take into account the diminution in Grantor's share of production from the
Subject Interests caused by the granting of the Production Payment and Grantor
shall make its economic decisions as if Grantor owned the full interest in the
Subject Interests undiminished by the Production Payment. Except as expressly
provided in Section 3.1(e) or 3.5 below, and notwithstanding any other provision
hereof to the contrary, during the Production Payment Period Grantor shall not
conduct any redrilling or deepening of existing Commercial Wells on the Subject
Lands and nothing in this Conveyance shall impose upon Grantor any express or
implied obligation to conduct any
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exploration activities, development drilling of new wells or redrilling or
deepening of existing wells on the Subject Lands. Without limitation of the
foregoing, Grantor shall:
(a) operate and maintain the Subject Interests in material
conformity with all applicable laws and all rules, regulations and
orders of all duly constituted authorities having jurisdiction
(including all Environmental Laws) and in conformity with all leases
and other contracts and agreements forming a part of or relating to the
Subject Interests;
(b) promptly pay all Operating Costs with respect to the
Subject Interests (except to the extent that (i) Grantor is contesting
any such Operating Costs in good faith by appropriate proceedings, (ii)
Grantor has reserved adequate funds for the payment thereof, and (iii)
if any such Operating Costs are owed to any lessor of any lease under
which any of the Subject Interests are held, failure to win such
contest would not result in termination or cancellation of such lease);
(c) maintain in full force and effect, free of any right of
cancellation, forfeiture or termination, the Subject Interests, as well
as all material permits, licenses, easements, servitudes and other
rights necessary or useful in connection with the operation or
management of the Subject Interests or providing the Delivery Services;
(d) maintain in good working order and, to the extent
necessary, repair and replace, each Subject Well and the equipment
needed for production therefrom, and all separation, metering and
related facilities that are located on each Lease Measuring Point or
Separation Point; and
(e) except as may from time to time be otherwise agreed in
writing by Grantee, complete each Subject Well and properly equip it
for production (as used herein, the term "complete" includes, without
limitation, casing, testing, perforating, fracturing, shooting,
acidizing or otherwise stimulating and, if testing indicates that such
Subject Well would constitute a Commercial Well, physically connecting
such Subject Well to a pipeline or other outlet).
As to any of the Subject Interests of which Grantor is now, or hereafter
becomes, the operator, Grantor will not resign, or otherwise voluntarily
relinquish, its position as operator, except when an assignee of Grantor under a
transaction authorized under subsection 6.1(c) becomes operator. As to any
matters which Grantor does not control because Grantor is not at that time the
operator of a part of Subject Interests, Grantor shall exercise its full
contractual rights to cause the operator of such part of the Subject Interests
to take any and all actions as are required above.
Section 3.2. Shut-in or Abandonment of Subject Wells; Abandonment of
Subject Interests.
(a) Need for Consent. Until the termination of the Production Payment,
Grantor shall not, without first obtaining the consent of Grantee:
(i) abandon (or propose or consent to the abandonment of) any
Subject Well or surrender, abandon or release (or propose or consent to
the surrender, abandonment or
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release of) any Subject Interest; provided, however, that after any
Subject Well becomes a Commercial Well, Grantor may, without the
consent of Grantee, abandon such Subject Well if and when such Subject
Well ceases to be a Commercial Well and it would not be economically
feasible (without regard to the burden of the Production Payment) to
restore the productivity of such well by reworking, reconditioning,
plugging back, or otherwise conducting operations with respect to such
well (not to include redrilling or deepening of the well).
(ii) voluntarily shut-in or restrict the flow from a Subject
Well (or propose or consent to such a shut-in or restriction); provided
that (1) a shut-in of, or restriction of flow from, a well shall not be
deemed to be voluntarily made if it is caused by or results from
governmental requirements, operation and maintenance requirements
(which cannot be satisfied by actions taken with respect to other
wells, which actions do not violate other contractual duties of
Grantor), or sound reservoir management requirements, or from an act or
event of Force Majeure which act or event is not reasonably within the
control of and not caused by the fault or negligence of Grantor and
which by the exercise of due diligence Grantor is unable to prevent or
overcome, and (2) a Subject Well which has ceased to be a Commercial
Well and can be abandoned under subsection (i) above may be shut-in
pending such abandonment.
(b) Reworking. If, prior to the termination of the Production Payment,
a Subject Well that has become a Commercial Well then ceases to be a Commercial
Well and it would be economically feasible (without regard to the burden of the
Production Payment) to restore or enhance the productivity of such well by
reworking, reconditioning, plugging back, or otherwise conducting operations
relative to such well (not to include redrilling or deepening of the well),
Grantor shall take such action to restore or enhance the productivity of such
well.
(c) Definitions of "Commercial Well" and "economically feasible". For
all purposes of this Conveyance:
(i) A well shall be deemed to be a "Commercial Well" unless
and until there arises a condition, which reasonably appears to be
permanent, such that the aggregate value of the Hydrocarbons which are
being produced or which it reasonably appears will be produced from
such well -- net of Direct Taxes and of royalties, overriding royalties
and similar ownership interests reflected in the Net Revenue Interest
figures set out on Exhibit A, but without regard to the burden of the
Production Payment or any liens -- no longer exceeds the costs and
expenses directly related to the operation and maintenance of such
well.
(ii) The restoration of the productivity of a well shall be
deemed to be "economically feasible" whenever the net present value,
discounted at fifteen percent per annum, of the Hydrocarbons which it
reasonably appears will be produced from such well -- net of Direct
Taxes, of the costs of operating and maintaining such well (other than
overhead charges), and of royalties, overriding royalties and similar
ownership interests reflected in the Net Revenue Interest figures set
out on Exhibit A, but without regard to the burden of the Production
Payment or any liens -- exceeds the costs and expenses directly related
to such restoration.
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Section 3.3. Renewals and Extensions and New Leases. This Conveyance
and the Production Payment shall apply to all renewals, extensions and other
similar arrangements of the leases (or other determinable interests) which are
included in the Subject Interests, whether such renewals, extensions or
arrangements have heretofore been obtained by Grantor or are hereafter obtained
by or for Grantor or any Affiliate thereof and whether or not the same are
described in Exhibit A. For the purposes of the preceding sentence, a new lease
that covers the same interest (or any part thereof) covered by a prior lease,
and which is acquired within one year after the expiration, termination, or
release of such prior lease, shall be treated as a renewal or extension of such
prior lease.
Section 3.4. Adverse Claims. Grantor will, immediately after discovery
of such claim or demand, cause written notice to be given to Grantee of every
adverse claim or demand overtly threatened by any Person affecting the Subject
Interests or the Hydrocarbons produced therefrom in any manner whatsoever, or of
any proceedings instituted or threatened with respect thereto; and Grantor will
cause all necessary and proper steps to be diligently taken to protect and
defend the Subject Interests and such Hydrocarbons against any such adverse
claim or demand.
Section 3.5. Insurance and Replacement. Grantor shall maintain or cause
to be maintained, at its sole cost and expense and with financially sound and
reputable insurers reasonably satisfactory to Grantee, insurance covering the
Subject Interests and all wells, equipment and facilities located thereon,
against such liabilities, casualties, risks and contingencies and in such types,
as is customary in the case of companies engaged in similar operations and
having similar property. Such insurance shall in any event include the types and
coverages described in Schedule 1, with limits of coverage no less than those
set out in such Schedule. All liability insurance shall name Grantee (and, if
Grantee so requests, each Beneficiary) as an additional insured. Grantor shall
furnish annual certificates of such insurance to Grantee not less than 30 days
prior to the expiration or termination of such policy of insurance. In the event
of any damage to or loss of any well, equipment or facility on the Subject
Interests, Grantor (at no cost to Grantee, and without regard to whether
insurance proceeds are available to Grantor) shall promptly redrill, rebuild,
reconstruct, repair, restore or replace such damaged or lost property, if such
action is economically feasible, as defined in Section 3.2(c).
Section 3.6. Government Regulation. The obligations of Grantor
hereunder shall be subject to all applicable federal, state and local laws,
rules, regulations and orders (including those of any applicable agency, board,
official or commission having jurisdiction). Grantor shall timely make all
material filings with all applicable agencies, boards, officials and commissions
having jurisdiction with respect to the Subject Interests or the operation
thereof prior to or at the time any such filing becomes due. Should any statute,
or any rules or regulations of any governmental body, or any provisions in
private contracts (including those limiting the size of overriding royalties and
similar interests but excluding any contracts directly entered into by Grantee)
become applicable to the Subject Interests so as to limit the portion of the
Hydrocarbons produced from the lands covered by a particular Subject Interest
which may be attributable to the Production Payment, the Production Payment
shall, as to such Subject Interest and for the period of time during which such
statute, rule, regulation or contractual provision is applicable, be limited to
the maximum amount of production from such lands which can be attributed to the
Production Payment under such statute, rule, regulation or contractual
provision; provided, however, should such limitation come into effect as to one
or more Subject Interests, then
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(without prejudice to other rights Grantee may have) the Dedication Percentage
applicable to that portion of production from (or, to the extent pooled or
unitized, allocated to) Subject Lands covered by other Subject Interests which
would be attributable to the Production Payment in the absence of the provisions
of this subsection shall be increased, up to a maximum of 75%, as to cause, to
the maximum extent possible, Grantee to receive, by virtue of ownership of the
Production Payment, the same amount of Hydrocarbons which Grantee would have
received had the aforementioned statute, rule, regulation or contractual
provision not reduced the share of production from the aforementioned Subject
Interest with respect to which the Production Payment could be paid. Unless and
until the Dedication Percentages are otherwise increased as provided herein and
in the Purchase Agreement, the foregoing increase in the Dedication Percentages
shall remain in effect only for so long as such limitation applies, and
thereafter until Grantee has received PP Hydrocarbons sufficient to reduce the
unliquidated balance of the Primary Sum to what it would have been had such
limitation never existed.
Section 3.7. Pooling and Unitization. Certain of the Subject Interests
may have been pooled or unitized for the production of Hydrocarbons prior to the
date hereof, and may, after the date hereof, be pooled or unitized (a) pursuant
to any law, rule, regulation or order of any governmental body or official, or
(b) voluntarily by Grantor with the consent of Grantee. To the extent certain
Subject Interests are so pooled or unitized, such Subject Interests are and
shall be subject to the terms and provisions of such pooling and unitization
agreements or orders.
Section 3.8. Non-Consent Operations. Without the prior consent of
Grantee, Grantor shall not elect to be a non-participating party with respect to
any plugging back, reworking, sidetracking, completion, or other operation on
any Subject Interest (or lands pooled therewith), or (except in instances where
abandonment of such well would be permitted without Grantee's consent hereunder)
elect to be an abandoning party with respect to a well located on any Subject
Interest (or lands pooled therewith), if the consequence of such election is
that Grantor's interest in such Subject Interest or any part thereof is
temporarily (e.g., during a recoupment period) or permanently forfeited to the
parties participating in such operations or electing not to abandon such well.
Upon any such election by Grantor that is consented to by Grantee, such election
shall also be binding on the Production Payment as to the interest so
temporarily or permanently forfeited. Any additional interests acquired by
Grantor by virtue of electing to pay for or acquire the interest of a
non-consenting or abandoning party in a situation of the type described in the
preceding sentence shall not become a part of the Subject Interests or be
subject to the Production Payment.
Section 3.9. Future Gas Imbalances.
(a) No Undertakes Without Consent. Without the prior consent of
Grantee, Grantor will not deliberately take (for itself and for Grantee) a
lesser share of Gas produced from a Subject Well than the share of Gas which
Grantor and Grantee are collectively entitled to take by virtue of ownership of
the Subject Interests (without regard to any rights to take a lesser share under
any production balancing agreement or other arrangement or any rights under
common law with respect to production balancing), except as a result of Grantor
and Grantee, or any predecessor in title to such Subject Interest, having
previously taken from such Subject Well or other wells located on Subject
Interests more Gas than such parties would be entitled to receive by virtue of
their ownership ("previous overproduction"), but only to the extent that the
amount of such
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previous overproduction occurred after the Initial Time or occurred prior to the
Initial Time and is disclosed under Section 4.1(j) of the Purchase Agreement. If
any such deliberate undertakes by Grantor occur in violation of this Section
3.9, the PP Hydrocarbons shall be determined (to the maximum extent allowed
under applicable law and any applicable Permitted Encumbrances) without regard
thereto. It is recognized, however, that due to differences between the
nominations by Grantor and its (and Grantee's) share of actual production and
differences between nominations by other owners of production and their shares
of actual production, minor instances of overproduction or underproduction will
frequently occur, and any such instances will not be deemed violations of this
Section 3.9.
(b) Proportional Sharing in Overtakes. If, as permitted by applicable
contracts and laws, Grantor takes a greater share of the Gas produced from a
Subject Well than the share of Gas which Grantor is entitled to take by virtue
of ownership of the Subject Interests (such shares determined without regard to
the existence of the Production Payment), then Grantee shall be entitled to
share in such overproduction with Grantor in the same percentages that they
share in the normal production from such well (i.e., the production to which
they are entitled without regard to such overproduction).
(c) No Balancing From Other Properties. Except to the extent, if any,
that a Subject Interest is subject to such a balancing arrangement before it
becomes subject to this Conveyance and such fact is disclosed to (and accepted
by) Grantee as an express exception to Section 4.1(j) of the Purchase Agreement,
Grantor will not allow any Subject Interest to be subject to any production
balancing arrangement under which one or more third Persons may take a portion
of the production attributable to such Subject Interest without payment (or
without full payment) therefor as a result of production having been taken from,
or as a result of other actions or inactions with respect to, properties other
than such Subject Interest.
ARTICLE IV
SECTION 4.1. NO LIABILITY OF GRANTEE; INDEMNITY. EXCEPT AS
OTHERWISE SPECIFICALLY PROVIDED IN THIS CONVEYANCE WITH RESPECT TO PP SEVERANCE
TAXES, GRANTEE SHALL NEVER BE RESPONSIBLE FOR ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH THE EXPLORING, DEVELOPING, OPERATING,
OWNING, MAINTAINING, REWORKING OR RECOMPLETING OF THE SUBJECT INTERESTS OR
SUBJECT LANDS, THE PHYSICAL CONDITION OF THE SUBJECT INTERESTS OR THE SUBJECT
LANDS, OR THE PRODUCING, HANDLING, TREATING OR TRANSPORTING OF HYDROCARBONS
PRODUCED FROM THE SUBJECT LANDS (INCLUDING ANY COSTS, EXPENSES, LOSSES OR
LIABILITIES RELATED TO VIOLATION OF AN ENVIRONMENTAL LAW OR OTHERWISE RELATED TO
DAMAGE TO OR REMEDIATION OF THE ENVIRONMENT, WHETHER THE SAME ARISE OUT OF
GRANTEE'S OWNERSHIP OF AN INTEREST IN PROPERTY OR OUT OF THE ACTIONS OF GRANTOR
OR GRANTEE OR OF THIRD PARTIES OR ARISE OTHERWISE), OR
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THE FAILURE BY GRANTOR TO HAVE GOOD AND DEFENSIBLE TITLE TO THE SUBJECT
INTERESTS FREE AND CLEAR OF ALL BURDENS, ENCUMBRANCES, LIENS AND TITLE DEFECTS
OTHER THAN PERMITTED ENCUMBRANCES (INCLUDING ANY COSTS, EXPENSES, LOSSES OR
LIABILITIES SUFFERED BY GRANTEE AS A RESULT OF ANY CLAIM THAT GRANTEE MUST PAY
OVER TO ANY PERSON ANY PART OF THE PP PROCEEDS AT ANY TIME PREVIOUSLY RECEIVED
OR THEREAFTER TO BE RECEIVED BY GRANTEE), AND GRANTOR AGREES TO INDEMNIFY AND
HOLD GRANTEE HARMLESS FROM AND AGAINST ALL COSTS, EXPENSES, LOSSES AND
LIABILITIES INCURRED BY GRANTEE IN CONNECTION WITH ANY OF THE FOREGOING OR IN
CONNECTION WITH THE PRODUCTION PAYMENT, THE PURCHASE AGREEMENT, THIS CONVEYANCE,
ANY OTHER PRODUCTION PAYMENT DOCUMENT, OR THE TRANSACTIONS AND EVENTS (INCLUDING
THE ENFORCEMENT OR DEFENSE THEREOF OR HEREOF) AT ANY TIME ASSOCIATED WITH OR
CONTEMPLATED IN ANY OF THE FOREGOING. SUCH INDEMNITY SHALL ALSO COVER ALL COSTS
AND EXPENSES OF ANY GRANTEE, INCLUDING REASONABLE LEGAL FEES AND EXPENSES, WHICH
ARE INCURRED INCIDENT TO THE MATTERS INDEMNIFIED AGAINST. AS USED IN THIS
ARTICLE IV, "GRANTEE" REFERS TO THE PERSONS NAMED AS GRANTEE AT THE BEGINNING OF
THIS CONVEYANCE, TO FUNDS AGENT AND THE BENEFICIARIES, TO MARKETER, AND TO THE
RESPECTIVE SUCCESSORS AND ASSIGNS AND AFFILIATES OF EACH OF THE FOREGOING,
TOGETHER WITH ALL OF THE RESPECTIVE OFFICERS, DIRECTORS, AGENTS, BENEFICIARIES,
TRUSTEES, ATTORNEYS AND EMPLOYEES OF THE FOREGOING OR OF THEIR SUCCESSORS,
ASSIGNS AND AFFILIATES.
Section 4.2. Release. No recourse shall be had for any presently
existing claim that may exist by or on behalf of Grantor against Grantee based
on this Conveyance or the other Production Payment Documents or the transactions
and events (including the enforcement or defense hereof or thereof) associated
with or contemplated in any of the foregoing, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, and GRANTOR HEREBY RELEASES GRANTEE FROM ANY AND ALL SUCH
LIABILITY, WHETHER BASED UPON CONSTITUTION, STATUTE, COMMON LAW, OR EQUITY, AS A
PART OF THE CONSIDERATION FOR THE PURCHASE BY GRANTEE OF THE PRODUCTION PAYMENT;
PROVIDED THAT GRANTEE IS NOT HEREBY RELEASED FROM ANY LIABILITIES FOR ANY BREACH
BY GRANTEE OF GRANTEE'S CONTRACTUAL DUTIES UNDER THE PRODUCTION PAYMENT
DOCUMENTS.
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Section 4.3. Scope of Indemnities and Releases. THE INDEMNITIES AND
RELEASES GIVEN UNDER THE FOREGOING SECTIONS 4.1 AND 4.2 SHALL APPLY WHETHER OR
NOT ARISING OUT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF ANY GRANTEE OR ANY OTHER PERSON INDEMNIFIED HEREUNDER AND SHALL
APPLY, WITHOUT LIMITATION, TO ANY LIABILITY IMPOSED UPON ANY PERSON INDEMNIFIED
HEREUNDER AS A RESULT OF ANY STATUTE, RULE, REGULATION, THEORY OF STRICT
LIABILITY OR OTHERWISE.
The foregoing indemnities shall not, however, apply to any costs, expenses,
losses or liabilities of any Grantee which are proximately caused solely by its
own gross negligence or willful misconduct. The foregoing indemnities and
releases shall survive the termination of the Production Payment and of this
Conveyance.
ARTICLE V
Section 5.1. Remedies. If a Designated Event occurs then Grantee may,
either on its own behalf or through any agent or representative and in addition
to all other rights and remedies available to Grantee at law and in equity
(including the right to sue for damages, which right of Grantee is specifically
acknowledged), exercise any one or more of the following remedies (it being
agreed that the exercising of any one remedy shall not preclude the exercising
of any other remedy):
(a) If Grantor has failed to perform any act or to take any action
which Grantor is required hereunder to perform or take or to pay any money which
Grantor is required hereunder to pay, then, upon written notice to Grantor,
Grantee may, but shall not be obligated to, perform or cause to be performed
such act or take such action or pay such money, all in Grantor's name or in
Grantee's own name. Any expenses so incurred by Grantee and any money so paid by
Grantee shall be a demand obligation owing by Grantor to Grantee (which
obligation Grantor hereby expressly promises to pay) and Grantee, upon making
such payment, shall be subrogated to all of the rights of the Person receiving
such payment. Each amount due and owing by Grantor to Grantee pursuant to this
subsection shall bear interest each day, from the date of such expenditure or
payment until paid, at the Agreed Rate, which interest shall be payable on the
first day of each month and shall itself bear interest at the same rate if not
timely paid.
(b) Grantee shall be entitled to apply to a court of competent
jurisdiction for the specific performance or observance of any covenant or
agreement or in aid of the execution of any power herein granted and for the
appointment of a receiver for the Subject Interests but no such appointment
shall prejudice or affect the rights of Grantee to receive all PP Hydrocarbons,
all PP Proceeds, and any amounts due hereunder.
Section 5.2. Termination of Remedies. The specific remedies to which
Grantee may become entitled under Sections 5.1(a) and (b) shall cease to be
exercisable when all Designated Events have been fully cured or otherwise ceased
to exist (provided that the effecting of performance or observation of any
unperformed covenant or agreement, or other resolution of a Designated Event, by
Grantee or Grantee's agent or representative shall not be deemed to cure
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such Designated Event unless and until Grantor reimburses Grantee for all costs
and expenses incurred by Grantee in connection therewith), without prejudice,
however, to the exercise of any such remedies upon any subsequent occurrence of
a Designated Event. Nothing in this section shall impose limitations or
otherwise inhibit the exercise of any other rights or remedies which Grantee may
have.
ARTICLE VI
Section 6.1. Assignments by Grantor. Without the prior consent of
Grantee (which consent may be granted or withheld in the sole and absolute
discretion of Grantee), Grantor shall not assign, sell, transfer, convey,
exchange, mortgage or pledge all or any part of the Subject Interests or create
any lien thereon or security interest therein, except that, without the prior
consent of Grantee, Grantor may:
(a) permit Permitted Encumbrances to exist against all or any part of
the Subject Interests;
(b) mortgage any Retained Interest to any Person (and any such
mortgagee may foreclose its lien upon such Retained Interests); and
(c) transfer and convey all, but not less than all, of Grantor's
interests in the Retained Interests to any corporate entity, the stock in which
is directly and wholly owned by Grantor,
provided that, in the case of any mortgage or transfer and conveyance described
in subsections (b) or (c) above, (i) such Person or entity must expressly
acknowledge the Production Payment as carved out of and burdening the Subject
Interests, including the Subject Interests mortgaged or transferred and conveyed
to it (and, to the extent such Person receives other assets or collateral from
Grantor or its Affiliates that are the subject of any transportation,
processing, treatment, storage or similar contract relating to PP Hydrocarbons
between any buyer from Grantee and Grantor or any of its Affiliates, must
expressly acknowledge that such contract will continue to remain in effect
following such transfer and conveyance or any foreclosure on any such
collateral), (ii) such Person or entity (in the case of subsection (b) only)
must agree not to enforce any rights with respect to the Retained Interests
(under such mortgage or otherwise) in any way which prevents any owner of the
Retained Interests (whether Grantor or its successors and assigns) from honoring
its duties with respect to this Conveyance and must agree that any Person
acquiring the Retained Interests by foreclosure or other sale pursuant to such
mortgage will take the same subject to the obligation to perform, from and after
the date of such acquisition, the duties of Grantor with respect to this
Conveyance (other than any duties to pay damages for breach of any title
warranty or to pay damages for any other breach of the this Conveyance by
Grantor prior to the date of such acquisition), (iii) such Person or entity (in
the case of subsection (c) only) must assume in writing for the benefit of
Grantee all of the liabilities and obligations of Grantor hereunder and under
the Purchase Agreement and must succeed Grantor as the operator of the Subject
Interests, and (iv) the transfer, mortgage, or conveyance shall not constitute
or precipitate a breach or event of default under any trust indenture or other
material agreement of Grantor or otherwise directly relating to the Subject
Interests. Notwithstanding the foregoing, TransTexas Gas Corporation shall, from
and after any such transfer, mortgage, or conveyance, continue to remain jointly
and severally liable for all of the liabilities and obligations of Grantor
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under this Conveyance or the Purchase Agreement or the other Production Payment
Documents. By its acceptance of the benefits of this Conveyance, Grantee hereby
confirms that the foregoing requirements of this Section 6.1 are satisfied by
the provisions of (1) Section 9.2 of the Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement recorded
contemporaneously herewith, made by Grantor for the benefit of GMAC Commercial
Credit LLC, as Agent and (2) Section 9.2 of the Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement recorded
contemporaneously herewith, made by Grantor for the benefit of Firstar Bank,
N.A., as indenture trustee.
Section 6.2. Assignments by Grantee. Grantee's interest in the
Production Payment may not be transferred except in compliance with this
section. Any Grantee and any Permitted Assign (as hereinafter defined) shall
have the right to sell, assign, transfer or convey its interest in the
Production Payment, in whole or in part (and either absolutely or by mortgage or
other security instrument), at any time; provided that:
(a) no change of ownership or right to receive payment of the
Production Payment or of any part thereof, however accomplished, shall
be effective or binding upon Grantor until notice thereof, including
the Percentage Share and address of the transferee, shall have been
registered with Grantor by the transferor and by the transferee (which
transferee must make to Grantor the representations and warranties in
Section 4.2 of the Purchase Agreement), and then only with respect to
production occurring after receipt of such notice, and
(b) neither Grantee nor any Permitted Assign shall assign or
convey any rights under or any interest in the Production Payment
Documents or the Production Payment to any Restricted Assignee.
Any Person to whom all or any interest in the Production Payment is assigned or
conveyed in accordance with the foregoing requirements is herein called a
"Permitted Assign". Grantor shall keep records of all Permitted Assigns, their
Percentage Shares, and their addresses, and shall give notice thereof to the
other Persons, if any, from time to time holding the interests of Grantee
hereunder.
Section 6.3. More Than Three Grantees. If the interests of Grantee
under this Conveyance are ever owned by more than three Persons, all Persons
owning interests hereunder that were originally granted to SPS shall designate
one Person and all Persons owning interests hereunder that were originally
granted to Fund V or Fund VI shall designate a second Person, in each case to
act as their agent to deliver and receive all communications (including
consents) and exercise the discretion of Grantee hereunder on their behalf.
Section 6.4. Binding Effect. All the covenants and agreements of the
respective parties herein contained shall be deemed to be covenants running with
the Subject Interests and the lands covered thereby or included therein. All of
the provisions hereof shall be binding upon and shall inure to the benefit of
the parties hereto, and their respective successors and assigns.
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ARTICLE VII
Section 7.1. Warranty. Grantor hereby binds itself to warrant and
forever defend all and singular title to the Production Payment and the PP
Hydrocarbons unto Grantee, its successors and Permitted Assigns, against every
person lawfully claiming or to claim the same or any part thereof, subject,
however, to the Permitted Encumbrances. Without limitation of the generality of
the foregoing, Grantor represents and warrants to Grantee that the ownership of
Grantor of the Subject Interests does and will, with respect to each tract of
land identified in Exhibit A hereto, subject only to the Permitted Encumbrances:
(a) entitle Grantor to receive (subject to and before giving effect to
the Production Payment), free and clear of liens and encumbrances (except the
Permitted Encumbrances), a decimal or percentage net revenue interest share of
the Hydrocarbons produced from, or allocated to, such well or unit equal to not
less than the decimal or percentage interest set forth in Exhibit A in
connection with such tract of land in the column headed "Net Revenue Interest",
and
(b) cause Grantor to be obligated to bear a decimal or percentage share
of the costs associated with wells or operation on such tract of land not
greater than the decimal or percentage share set forth in Exhibit A in
connection with such tract of land in the column headed "Working Interest",
without a corresponding increase in net revenue interest.
Grantor further represents and warrants to Grantee that such shares of
production which Grantor is entitled to receive, and shares of expenses which
Grantor is obligated to bear, are not and will not be subject to change except,
and only to the extent that, such changes are reflected on Exhibit A. This
Conveyance is made with full substitution and subrogation of Grantee in and to
all covenants, representations and warranties by others heretofore given or made
with respect to the Subject Interests.
Section 7.2. Davis Agreements. Grantee acknowledges and agrees that,
notwithstanding anything to the contrary in this Conveyance:
(a) the Production Payment, insofar as it is carved out of the
properties and interests that are subject to the liens and rights of
Davis Petroleum Corp. under the "Eagle Point Agreements," as each is
modified and supplemented by the "September Letter Agreement," (as such
terms are defined in the November 30, 1999 Order of the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi
Division, entitled "Order (1) Pursuant to Motion Filed July 28, 1999
Authorizing the Transfer and Conveyance to Davis Petroleum Corp. Of
Certain Assets Free and Clear of Liens and Encumbrances; and (2)
Pursuant to Motion Filed October 18, 1999, (A) Approving the Amendment
and Assumption of Certain Operating Agreements With Davis Petroleum
Corp.; (B) Ratifying the Termination of Certain Operating Agreements
and Exploration Agreements With Davis Petroleum Corp.; (C) Approving an
Agreement With Davis Petroleum Corp. Concerning the Drilling of the
Trout Point Prospect; (D) Authorizing the Transfer, Conveyance and
Assignment of Certain Properties to Davis Petroleum Corp. Free and
Clear of Liens, Claims, Charges and Encumbrances; and (E) Directing
Turnover of Pre-Petition Funds Owed by Davis Petroleum Corp.) entered
in the case styled In re TransTexas Gas Corporation, et al. , case no.
99-21550 (the "November 30 Order") and as
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each may is modified or replaced by the "Amended Agreements" referred
to below, shall be subject to, and the Permitted Encumbrances shall
include, such liens and rights of Davis Petroleum Corp.; and
(b) if the Production Payment is at any time carved out of the
properties and interests that are subject to the liens and rights of
Davis Petroleum Corp. under the "Trout Point Agreements," as each is
modified and supplemented by the "September Letter Agreement," as such
terms are defined in the November 30 Order, then the New Production
Payment, insofar as it is carved out of such properties and interests,
shall be subject to, and the Permitted Encumbrances shall include, such
liens and rights of Davis Petroleum Corp.
As used above, "Amended Agreements" means the four following letter agreements,
each dated March 1, 2000 and sent by Davis Petroleum Corp. to (1) Tejas Gas
Marketing, LLC, Grantor and SPS, (2) Pan Energy Marketing Company, Grantor and
SPS, (3) Enron Reserve Acquisition Corp., Grantor and SPS, and (4) Duke Energy
Field Services, Grantor and SPS. These four letter agreements replace the
royalty letter agreements described in Paragraph C.(1)(iv) - (ix) of the
November 30 Order.
ARTICLE VIII
Section 8.1. Choice of Law. This Conveyance shall be construed and
enforced in accordance with and governed by the laws of the State of Texas
(without regard to conflicts of law principles thereof that would cause another
state's law to apply) and the laws of the United States of America.
Section 8.2. Intentions of the Parties. Nothing herein contained shall
be construed to constitute any party hereto (under state law or for tax
purposes) in partnership with any other party. In addition, the parties hereto
intend that the Production Payment shall at all times be treated (and all
provisions of this Conveyance shall be construed and treated accordingly): (a)
as a production payment (i.e., a term overriding royalty) and a presently vested
interest in real property under the laws of each state in which Subject
Interests are located; and (b) for federal income tax purposes only, as a
mortgage loan in registered form (and not a "royalty" or other "economic
interest" in Hydrocarbons) within the meaning of the Internal Revenue Code and
the regulations and judicial authority relating thereto.
Section 8.3. Ownership of Equipment. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or hereafter placed on, or used in
connection with, the Subject Interests, and the interest herein conveyed to
Grantee is exclusively a production payment (i.e., a term overriding royalty).
Section 8.4. Further Assurances. Grantor agrees to execute and deliver
to Grantee all such other and additional instruments, notices, division orders,
transfer orders and other documents and to do all such other and further acts
and things as may be necessary to more fully and effectively grant, convey and
assign to Grantee the rights, titles, interest and estates conveyed to Grantee
hereby or intended to be so conveyed.
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Section 8.5. Partition. Grantor and Grantee acknowledge that neither
has any right or interest that would permit it to partition any portion of the
Subject Interests as against the other, and each waives any such right.
Section 8.6. Notices and Addresses. All notices and other
communications required or permitted under this Conveyance shall be in writing
and, unless otherwise specifically provided, shall be delivered personally or by
telecopier or by registered or certified mail, postage prepaid, or by delivery
service with proof of delivery, at the respective addresses shown below, and
shall be deemed delivered on the date of receipt. Either party may specify as
its proper address any other street address within the continental limits of the
United States by giving notice to the other party, in the manner provided in
this Section, at least fifteen (15) days prior to the effective date of such
change of address.
Grantor's address:
1300 North Sam Houston Parkway East
Suite 310
Houston, Texas 77032-2949
Attention: Ed Donahue
Telephone: 281/987-8600
Telecopy: 281/986-8865
Grantee's address:
Southern Producer Services, L.P.
1200 Smith Street
Suite 2890
Houston, Texas 77002
Attention: David W. Stewart
Telephone: (713) 276-1902
Telecopy: (713) 276-1990
TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and
TCW DR VI Investment Partnership, L.P.
c/o Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Thomas F. Mehlberg
Telephone: 213/244-0702
Telecopy: 213/244-0604
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with a copy to the Funds Agent at its address:
TCW Asset Management Company
1000 Louisiana
Suite 2175
Houston, Texas 77002
Attention: Kurt Talbot
Telephone: 713/615-7413
Telecopy: 713/615-7460
Section 8.7. Funds Agent; Consents, Waivers, Supplements and
Amendments.
(a) Fund V and Fund VI have, pursuant to the Purchase Agreement,
appointed TCW Asset Management Company as their agent (herein called the "Funds
Agent") to administer the Production Payment and to act on their behalf (as
Persons included in Grantee) in giving any consents or waivers under this
Conveyance, in making any amendments or supplements hereto, and in arranging for
the marketing of the PP Hydrocarbons. Unless and until this Conveyance is
supplemented to reflect the termination of such agency or the appointment of a
replacement or successor Funds Agent (which supplement may be executed by Fund V
and Fund VI without the joinder of Grantor or SPS), all Persons dealing with
Grantor or Grantee in connection with the Production Payment shall be entitled
to rely upon the authority of TCW Asset Management Company to act as Funds Agent
for Fund V and Fund VI in connection herewith.
(b) No consent, waiver, supplement or amendment given by Grantee in
connection with this Conveyance or the Production Payment shall be valid or
effective unless given be in writing and signed by each Person included in
Grantee (provided that Funds Agent may sign the same on behalf of Fund V and
Fund VI but not on behalf of SPS).
Section 8.8. Counterparts. This Conveyance is being executed in
multiple counterparts, all of which are identical, except that, (i) to
facilitate recordation, in certain counterparts hereof only those portions of
Exhibit A which contain descriptions of properties located in the recording
jurisdiction in which the particular counterpart is to be recorded are included,
and (ii) Schedule l may be omitted from counterparts hereof which are being
recorded. All of such counterparts shall constitute one and the same instrument.
Complete copies of this Conveyance containing the entirety of Exhibit A, and all
schedules hereto, have been retained by Grantor and Grantee.
This Conveyance is executed on the day of March, 2000 and is made
effective as to runs of Oil and deliveries of Gas as of the Initial Time.
TRANSTEXAS GAS CORPORATION
By:
--------------------------------
Name: Ed Donahue
Title: Vice President
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STATE OF TEXAS )
)
COUNTY OF DALLAS )
The foregoing instrument was acknowledged before me on this ____ day of
March, 2000, by Ed Donahue as Vice President of TransTexas Gas Corporation, a
Delaware corporation, on behalf of such corporation.
-------------------------------------
Notary Public, State of Texas
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LIST OF EXHIBITS AND SCHEDULES
Schedule 1 - Insurance
Schedule 2 - Delivery Points
Exhibit A - Property Descriptions
Exhibit B - Reconveyance
Exhibit C - Bankruptcy Court Order
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