<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997
REGISTRATION NO.333-33803
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________________________________
TRANSTEXAS GAS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 76-0401023
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
1300 N. SAM HOUSTON PARKWAY E., SUITE 310,
HOUSTON, TEXAS 77032-2949, (281) 987-8600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ED DONAHUE, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1300 N. SAM HOUSTON PARKWAY E., SUITE 310,
HOUSTON, TEXAS 77032-2949, (281) 987-8600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
___________________________________
copy to:
C. ROBERT BUTTERFIELD
GARDERE & WYNNE, L.L.P.
3000 THANKSGIVING TOWER
DALLAS, TEXAS 75201
(214) 999-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
13 3/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2001
($115,815,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
13 3/4% SERIES D SENIOR SUBORDINATED NOTES DUE 2001
($115,815,000 PRINCIPAL AMOUNT)
OF
TRANSTEXAS GAS CORPORATION
------------------------
The Exchange Offer will expire at 5:00 p.m., New York City time, on
October 6, 1997, unless extended.
------------------------
TransTexas Gas Corporation, a Delaware corporation (the "Company" or
"TransTexas"), hereby offers (the "Exchange Offer"), upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange up to an aggregate
principal amount of $115,815,000 of its 13 3/4% Series D Senior Subordinated
Notes due 2001 (the "Exchange Notes") for an equal principal amount of its
outstanding 13 3/4% Series C Senior Subordinated Notes due 2001 (the
"Outstanding Notes" and, together with the Exchange Notes, the "Notes"), in
integral multiples of $1,000. The Exchange Notes will be subordinated
unsecured obligations of the Company and are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the
Outstanding Notes for which they may be exchanged pursuant to this Exchange
Offer, except for certain transfer restrictions and registration rights
relating to the Outstanding Notes and except for certain interest provisions
relating to such rights. The Outstanding Notes have been, and the Exchange
Notes will be, issued under an Indenture dated as of June 13, 1997 (the
"Indenture"), among the Company and Bank One, NA, as trustee (the "Trustee").
See "Description of the Notes." There will be no proceeds to the Company from
this offering; however, pursuant to a Registration Rights Agreement dated as of
June 13, 1997 (the "Registration Rights Agreement") among the Company and the
persons to whom the Outstanding Notes were originally issued (the "Original
Holders"), the Company will bear certain offering expenses.
(Cover text continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
TO BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is September 4, 1997.
<PAGE> 3
The Company will accept for exchange any and all Outstanding Notes
validly tendered on or prior to 5:00 p.m., New York City time, on October 6,
1997, unless extended (the "Expiration Date"). Tenders of Outstanding Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; thereafter, such tenders are irrevocable. Bank One, NA is
acting as Exchange Agent in connection with the Exchange Offer. The Exchange
Offer is not conditioned upon any minimum principal amount of Outstanding Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions.
The Exchange Notes will bear interest from the date of issuance (or
the most recent Interest Payment Date (as defined) to which interest on such
Exchange Notes has been paid) at a rate of 13 3/4% per annum on the same terms
as the Outstanding Notes. Interest on the Exchange Notes will be payable
semiannually on June 30 and December 31 of each year commencing December 31,
1997. Accrued interest on the Outstanding Notes that are tendered in exchange
for the Exchange Notes will be payable on or before December 31, 1997.
Outstanding Notes that are accepted for exchange will cease to accrue interest
on and after the date on which interest on the Exchange Notes will begin to
accrue.
The Outstanding Notes were issued by the Company in June 1997,
pursuant to an Exchange Offer and Consent Solicitation dated May 17, 1997, as
supplemented (the "June Exchange Offer") in exchange for all of the Company's
outstanding 13 1/4% Senior Subordinated Notes due 2003 (the "December 1996
Notes"), which were sold by the Company on December 13, 1996. The issuances of
both the December 1996 Notes and the Outstanding Notes were in transactions not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Outstanding Notes may not be reoffered, resold or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
obligations of the Company under the Registration Rights Agreement. See "The
Exchange Offer."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder who is not an affiliate of the Company without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating in and has no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. Persons wishing to exchange Outstanding
Notes in the Exchange Offer must represent to the Company that such conditions
have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
Exchange Notes. The Letter of Transmittal for the Exchange Offer states that
by so acknowledging and delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such
Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
to make this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale for a period of up to 180 days from the date on
which the registration statement, of which this Prospectus forms a part, is
declared effective. See "Plan of Distribution."
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading on The Nasdaq
Stock Market. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of or
the trading market for the Exchange Notes.
Any Outstanding Notes not tendered and accepted in the Exchange Offer
will remain outstanding. To the extent that any Outstanding Notes of other
holders are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered Outstanding Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Outstanding Notes will
continue to be subject to the existing restrictions upon transfer thereof.
ii
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act with respect to the securities offered by this Prospectus.
Certain information contained in the Registration Statement is omitted from
this Prospectus, and reference is hereby made to the Registration Statement and
exhibits and schedules relating thereto for further information with respect to
the Company and the securities offered by this Prospectus. The Company is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other
information are available for inspection at, and copies of such materials may
be obtained upon payment of the fees prescribed therefor by the rules and
regulations of the Commission from the Commission at its principal offices
located at Judiciary Plaza, 450 Fifth Street, Room 1024, Washington, D.C.
20549, and at the Regional Offices of the Commission located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and at 7 World Trade Center, Suite 1300, New York, New York 10048.
The Commission maintains a World Wide Web site on the Internet at http: / /
www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants, including the Company, that file
electronically with the Commission. In addition, the common stock of the
Company ("Common Stock") is traded on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol TTXG, and such reports, proxy statements
and other information may be inspected at the offices of The Nasdaq Stock
Market, 1735 K Street N.W., Washington, D.C. 20006.
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, it is required to furnish the information
required to be filed with the Commission to the Trustee and the holders of the
Notes. The Company has agreed that, even if it is entitled under the Exchange
Act not to furnish such information to the Commission, it will nonetheless
continue to furnish information that would be required to be furnished by the
Company by Section 13 of the Exchange Act to the Trustee and the holders of the
Notes as if it were subject to such periodic reporting requirements.
INFORMATION INCORPORATED BY REFERENCE
The Company's annual report on Form 10-K for the fiscal year ended
January 31, 1997; quarterly report on Form 10-Q for the fiscal quarter ended
April 30, 1997; current reports on Form 8-K dated May 14, 1997, May 29, 1997
and June 13, 1997; and the Company's Registration Statement on Form 8-A, and
Amendment No. 1 thereto, each as filed with the Commission, are incorporated by
reference herein.
All documents filed by the Company pursuant to Section 13(a), 13(c),
14, or 15(d) of the Exchange Act, after the date of this Prospectus and prior
to the termination of the effectiveness of the Registration Statement of which
this Prospectus is a part with respect to registration of the Exchange Notes,
shall be deemed to be incorporated by reference in this Prospectus and a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference that are not
presented herein or delivered herewith. These documents are available upon
request from TransTexas Gas Corporation, 1300 North Sam Houston Parkway East,
Suite 310, Houston, Texas 77032-2949, Attention: Investor Relations Manager
(telephone number (281) 987-8600). In order to ensure timely delivery of the
documents, any request should be made by September 29, 1997.
iii
<PAGE> 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: The forward-looking statements provided below and in other
locations throughout this document (collectively, "Forward-Looking Statements")
are based on the Company's historical operating trends, its proved reserves as
of February 1, 1997 and other information available to the management of the
Company. Forward-Looking Statements involve certain risks and uncertainties
that could cause actual results to differ materially from those projected in the
Forward-Looking Statements. These statements assume that market conditions for
the Company's oil and gas production are comparable to those experienced in
fiscal 1996 and 1997 and the first three months of fiscal 1998. These
statements also assume that no significant changes will occur in the operating
environment for the Company's oil and gas properties following the Exchange
Offer. Finally, the Forward-Looking Statements assume no material changes in
the composition of the Company's property base as the result of any material
acquisitions or divestitures and that no material changes will occur in the
Company's financial facilities, except as disclosed herein. The Company
cautions that the Forward-Looking Statements are subject to all the risks and
uncertainties discussed under the captions "Risk Factors" and "The Company."
Without limiting the foregoing, potential risks and uncertainties include such
factors as fluctuations in natural gas and crude oil prices, the ultimate
success of drilling programs, the competitive nature of the oil and gas
exploration, development and production industry and uncertainties associated
with the drilling, completion and operation of natural gas and oil wells.
Moreover, the Company may make material acquisitions, execute new contracts or
terminate existing contracts, or enter into new financing transactions that may
affect the accuracy of the Forward-Looking Statements. None of these events can
be predicted with certainty and, accordingly, are not taken into consideration
in the Forward-Looking Statements made herein. For all of the foregoing
reasons, actual results may vary materially from the Forward-Looking Statements
and there is no assurance that the assumptions used are necessarily the most
likely to occur.
iv
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the financial statements (including notes thereto)
appearing elsewhere in this Prospectus or incorporated herein by reference.
Unless the context indicates otherwise, references in this Prospectus to the
"Company" or to "TransTexas" are to TransTexas Gas Corporation and the business
and assets transferred to TransTexas on August 24, 1993 by TransAmerican
Natural Gas Corporation ("TransAmerican").
THE COMPANY
TransTexas is engaged in the exploration for and development and
production of natural gas, primarily in South Texas. Since 1973, TransTexas has
drilled over 1,400 wells and discovered over 3.5 Tcfe of natural gas.
TransTexas' business strategy is to utilize its extensive experience gained
from over 20 years of drilling and operating wells in South Texas, to continue
to find, develop and produce reserves at a low cost. TransTexas has
traditionally performed most of its own well site preparation, drilling,
workover, completion, pipeline and production services.
In 1994, as part of its strategy to expand its productive reserves
beyond the Lower Wilcox Lobo Trend (the "Lobo Trend") in Webb and Zapata
counties in South Texas, TransTexas began evaluating prospects that exhibited
the potential to add proved reserves of at least 50 Bcfe of natural gas per
development area. Since that time, TransTexas has evaluated over 300 potential
areas and its development of certain of these areas has resulted in substantial
additions to its reserves and production. Since July 31, 1994, TransTexas has
added 812 Bcfe of net proved reserves to its asset base, at an average finding
cost of $0.65 per Mcfe and, as of April 30, 1997, had acquired leasehold
interests in approximately 484,000 gross acres. Management believes that
TransTexas' combination of exploration and development expertise, financial
resources and ability to quickly evaluate and execute acreage acquisition
transactions provides it with a significant competitive advantage over other
oil and gas companies in acquiring prospective acreage in its areas of
operations.
On May 29, 1997, TransTexas entered into and consummated a stock
purchase agreement with an unaffiliated buyer (the "Lobo Sale Agreement"), with
an effective date of March 1, 1997, to effect the sale (the "Lobo Sale") of
the stock of TransTexas Transmission Corporation ("TTC"), its subsidiary that
owned substantially all of TransTexas' Lobo Trend producing properties and
related pipeline transmission system, for a sales price in excess of $1
billion, subject to adjustments as provided for in the Lobo Sale Agreement.
Purchase price adjustments were made for, among other things: the value of
certain NGLs and stored hydrocarbons; the value of gas in TTC's pipeline;
prepaid expenses relating to post-effective date operations; post-closing
expenses related to pre-closing operations; the value of oil and gas produced
and sold between the effective date of the Lobo Sale Agreement and closing
(approximately $44 million); property defects; and estimated costs associated
with liabilities incurred before closing. Purchase price adjustments made at
the closing of the Lobo Sale are subject to a review, reconciliation and
resolution process, which is expected to be completed within 105 days following
the closing. With proceeds from the Lobo Sale, TransTexas repaid certain
indebtedness and other obligations, including production payments, in an
aggregate amount of approximately $84 million. The remaining net proceeds were
used for the repurchase or redemption of the Company's 11 1/2% Senior Secured
Notes due 2002 (the "TransTexas Senior Secured Notes") and for general
corporate purposes.
As of February 1, 1997, the Lobo Trend producing properties divested
in the Lobo Sale had proved reserves of approximately 550 Bcfe. As of April 30,
1997, after giving effect to the Lobo Sale, TransTexas would have owned over
577,000 gross (418,700 net) acres of mineral interests, with net daily
production of approximately 186 MMcfd of natural gas and 2,397 BPD of
condensate and crude oil (the "Continuing Operations"). As of February 1,
1997, TransTexas' proved reserves as estimated by Netherland, Sewell &
Associates, Inc., for the Continuing Operations were 404 Bcfe.
TransTexas' average net daily natural gas production for the year
ended January 31, 1997, was approximately 420 MMcfd, for a total net production
of 153.6 Bcf of natural gas.
1
<PAGE> 7
TransTexas' average net daily production of natural gas and crude and condensate
for the quarter ended April 30, 1997 was approximately 186 MMcfd and 2,397 BPD,
respectively. During the three months ended April 30, 1997, TransTexas
completed approximately 72% of the 29 wells it drilled in the period.
TransTexas' integrated drilling services division provides oil field
services including drilling, oil and natural gas well workover, stimulation and
completion, drilling fluids provision, pipeline construction and equipment
repair and maintenance to TransTexas. As of April 30, 1997, the assets of this
division included 22 land drilling rigs, nine workover rigs and two fracture
stimulation fleets. Complementary drilling, completion and workover service
equipment includes a ready-mix concrete plant, twin cementing trucks, a coiled
tubing unit, a snubbing unit, electric line and logging units, slickline units,
tag units and an extensive fleet of construction, inspection and other rolling
stock.
TransTexas intends to contribute the assets of its drilling services
division to its wholly owned subsidiary, TransTexas Drilling Services, Inc.
("TTXD"). Thereafter, TransTexas intends to consider alternatives to maximize
stockholder value with respect to TTXD, including options such as a spin-off, a
sale to a third party, a merger or another business combination. In connection
with the Lobo Sale, TransTexas entered into a long-term agreement, which can be
transferred to TTXD, pursuant to which it will provide drilling and certain
other services to the new operator of the Lobo Trend properties divested in the
Lobo Sale.
The address of the Company's principal executive offices is 1300 North
Sam Houston Parkway East, Suite 310, Houston, Texas 77032-2949 and its
telephone number at that address is (281) 987-8600.
RECENT EVENTS
On June 13, 1997, TransAmerican Energy Corporation ("TEC"), which
directly and indirectly owns approximately 73% of the Company's outstanding
common stock, completed a private offering (the "TEC Notes Offering") of $475
million aggregate principal amount of 11 1/2% Senior Secured Notes due 2002
(the "TEC Senior Secured Notes") and $1.13 billion aggregate principal amount
of 13% Senior Secured Discount Notes due 2002 (the "TEC Senior Secured Discount
Notes" and, together with the TEC Senior Secured Notes, the "TEC Notes") for
net proceeds of approximately $1.3 billion.
With the proceeds of the TEC Notes Offering, TEC made intercompany
loans to TransTexas of $450 million (the "TransTexas Intercompany Loan") and to
TEC's wholly owned subsidiary, TransAmerican Refining Corporation ("TARC"), of
$676 million (the "TARC Intercompany Loan" and together with the TransTexas
Intercompany Loan, the "Intercompany Loans"). The TransTexas Intercompany Loan
bears interest at a rate of 10 7/8% per annum, payable semi-annually in cash in
arrears, and the TARC Intercompany Loan accretes principal at 16% per annum,
compounded semi-annually, to a final accreted value of $920 million, and
thereafter pays interest semi-annually in cash in arrears on the accreted value
thereof, at a rate of 16% per annum. The Intercompany Loans will mature on
June 1, 2002. The Intercompany Loan agreements contain certain restrictive
covenants, including, among others, limitations on incurring additional debt,
asset sales, dividends and transactions with affiliates.
On June 13, 1997, the Company completed a tender offer for the
TransTexas Senior Secured Notes for 111 1/2% of their principal amount (plus
accrued and unpaid interest). Approximately $785.4 million principal amount of
TransTexas Senior Secured Notes were tendered and accepted by the Company.
TransTexas completed the redemption of the TransTexas Senior Secured Notes
remaining outstanding on June 30, 1997 pursuant to the terms of the governing
indenture.
2
<PAGE> 8
On June 19, 1997, the Company completed the June Exchange Offer in
which the Outstanding Notes were issued in exchange for the December 1996
Notes.
As a result of the Lobo Sale, the Tender Offer and the June Exchange
Offer, TransTexas expects to record a pretax gain of approximately $600 million
and a pretax extraordinary charge of approximately $120 million during the
quarter ending July 31, 1997.
TransTexas has implemented a stock repurchase program (the "Stock
Repurchase Program") pursuant to which it plans to repurchase common stock from
its public stockholders and from its affiliates, including TEC and TARC, in an
aggregate amount of approximately $400 million in value of stock purchased. It
is anticipated that TransTexas will acquire four times the number of shares
from its affiliated stockholders than it acquires from its public stockholders.
Shares may be purchased through open market purchases, negotiated transactions
or tender offers, or combination of the above. It is anticipated that the
price paid to affiliated stockholders will equal the weighted average price
paid to purchase shares from the public stockholders. At July 31, 1997, the
Company had acquired 3.1 million shares of its common stock from unaffiliated
stockholders at prices ranging from $13.625 to $16.250 for an aggregate
purchase price of $49.6 million.
Pursuant to a disbursement agreement (the "Disbursement Agreement")
among TransTexas, TEC and Firstar Bank of Minnesota, N.A., the trustee under
the indenture governing the TEC Notes and disbursement agent, approximately
$400 million of the proceeds of the TransTexas Intercompany Loan was placed in
an account (the "Disbursement Account") to be held and invested by the
disbursement agent until disbursed. Funds in the Disbursement Account will be
disbursed to TransTexas as needed to fund the Stock Repurchase Program.
TransTexas may at any time request disbursement of interest earned on the funds
in the Disbursement Account. As of July 31, 1997, approximately $49.6 million
had been disbursed to TransTexas out of the Disbursement Account to fund
purchases of common stock from the public pursuant to the Stock Repurchase
Program.
3
<PAGE> 9
THE EXCHANGE OFFER
The Outstanding Notes . . . . . The Outstanding Notes were issued by the
Company in June 1997, pursuant to the
June Exchange Offer.
Registration Requirements . . . Pursuant to the June Exchange Offer, the
Company and the Original Holders entered
into the Registration Rights Agreement,
which grants the holders of the
Outstanding Notes certain exchange and
registration rights. The Exchange Offer
is intended to satisfy such exchange
rights. By execution and delivery of the
accompanying Letter of Transmittal, each
exchanging holder of Outstanding Notes
confirms its obligations under the
Registration Rights Agreement, including
indemnity obligations in connection with
this Exchange Offer. If applicable law
or applicable interpretations of the
staff of the Commission do not permit the
Company to effect the Exchange Offer, the
Company has agreed to file a shelf
registration (the "Shelf Registration
Statement") covering resales of the
Outstanding Notes. See "The Exchange
Offer -- Shelf Registration Statement."
The Exchange Offer . . . . . . The Company is offering to exchange
$1,000 principal amount of the Exchange
Notes for each $1,000 principal amount of
Outstanding Notes. As of the date
hereof, $115,815,000 aggregate principal
amount of Outstanding Notes are
outstanding. The Company will issue the
Exchange Notes to holders of Outstanding
Notes on October 10, 1997 (the "Exchange
Date").
Based on an interpretation of the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other
than any such holder which is an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that such Exchange Notes are
acquired in the ordinary course of such
holder's business and that such holder
does not intend to participate and has no
arrangement or understanding with any
person to participate in the distribution
of such Exchange Notes.
Each Participating Broker-Dealer must
acknowledge that it will deliver a
prospectus in connection with any resale
of Exchange Notes. The Letter of
Transmittal for the Exchange Offer states
that by so acknowledging and by
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by a broker-dealer
in connection with resales of Exchange
Notes received in exchange for
Outstanding Notes where such Outstanding
Notes were acquired by such broker-dealer
as a result of market-making activities
or other trading activities. The Company
has agreed to make this Prospectus
available to any Participating
Broker-Dealer for use in connection with
any such resale for a period of up to 180
days from the date the registration
statement of which this Prospectus forms
a part is declared effective. See "Plan
of Distribution."
Any holder who tenders in the Exchange
Offer with the intention to participate,
or for the purpose of participating, in a
distribution of the
4
<PAGE> 10
Exchange Notes cannot rely on the position
of the staff of the Commission enunciated
in Exxon Capital Holdings Corporation
(available April 13, 1989) or similar
no-action letters and, in the absence of
an exemption therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with the resale transaction.
Failure to comply with such requirements
in such instance may result in such holder
incurring liability under the Securities
Act for which the holder is not
indemnified by the Company.
Expiration Date . . . . . . . . 5:00 p.m., New York City time, on
October 6, 1997.
Procedures for Tendering
Outstanding Notes . . . . . . Each holder of Outstanding Notes wishing
to accept the Exchange Offer must
complete, sign and date the accompanying
Letter of Transmittal, or a facsimile
thereof, in accordance with the
instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, together with the Outstanding
Notes and any other required
documentation to the Exchange Agent at
the address set forth herein. By
executing the Letter of Transmittal, each
holder will represent to the Company
that, among other things, the holder or
the person receiving such Exchange Notes,
whether or not such person is the holder,
is acquiring the Exchange Notes in the
ordinary course of business and that
neither the holder nor any such other
person has any arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes.
Special Procedures for
Beneficial Owners . . . . . . Any beneficial owner whose Outstanding
Notes are registered in the name of a
broker-dealer, commercial bank, trust
company or other nominee and who wishes
to tender should contact such registered
holder promptly and instruct such
registered holder to tender on such
beneficial owner's behalf.
If such beneficial owner wishes to tender
on such owner's own behalf, such owner
must, prior to completing and executing
the Letter of Transmittal and delivering
its Outstanding Notes, either make
appropriate arrangements to register
ownership of the Outstanding Notes in
such owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery
Procedures . . . . . . . . . Holders of Outstanding Notes who wish to
tender their Outstanding Notes and whose
Outstanding Notes are not immediately
available or who cannot deliver their
Outstanding Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date must tender their
Outstanding Notes according to the
guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights . . . . . . . Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time,
on the Expiration Date pursuant to the
procedures described under "The Exchange
Offer -- Withdrawal of Tenders."
5
<PAGE> 11
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes . . . . . . . Subject to certain conditions, the
Company will accept for exchange any and
all Outstanding Notes that are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer
will be delivered on the Exchange Date.
See "The Exchange Offer -- Terms of the
Exchange Offer."
Federal Income Tax
Consequences . . . . . . . . The exchange pursuant to the Exchange
Offer should not be a taxable event for
federal income tax purposes. See
"Certain Federal Income Tax
Consequences."
Effect on Holders of
Outstanding Notes . . . . . . As a result of the making of this
Exchange Offer, the Company will have
fulfilled one of its obligations under
the Registration Rights Agreement, and,
with certain exceptions noted below,
holders of Outstanding Notes who do not
tender their Outstanding Notes will not
have any further registration rights
under the Registration Rights Agreement
or otherwise. Such holders will continue
to hold the untendered Outstanding Notes
and will be entitled to all the rights
and subject to all the limitations
applicable thereto under the Indenture,
except to the extent such rights or
limitations, by their terms, terminate or
cease to have further effectiveness as a
result of the Exchange Offer. All
untendered Outstanding Notes will
continue to be subject to certain
restrictions on transfer. Accordingly,
if any Outstanding Notes are tendered and
accepted in the Exchange Offer, the
trading market of the untendered
Outstanding Notes could be adversely
affected. See "Risk Factors -- Exchange
Offer Procedures."
Exchange Agent . . . . . . . . Bank One, NA
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Securities Offered . . . . . . $115,815,000 aggregate principal amount
of 13 3/4% Series D Senior Subordinated
Notes due 2001.
Maturity Date . . . . . . . . . December 31, 2001.
Interest Payment Dates . . . . June 30 and December 31 of each year,
commencing December 31, 1997.
Optional Redemption . . . . . . The Notes are not redeemable prior to
June 30, 2000, except that, prior to June
30, 1999, the Company may redeem, at its
option, up to $35 million of the Notes at
a price equal to 113.250% of the
principal amount thereof, plus accrued
and unpaid interest, if any, to the date
of redemption, with certain of the net
proceeds of any Public Equity Offering.
The Notes may be redeemed in whole or
from time to time in part at any time on
and after June 30, 2000, at the option of
the Company, at the redemption prices set
forth herein, together with any accrued
but unpaid interest to the date of
redemption.
6
<PAGE> 12
Ranking . . . . . . . . . . . . The Exchange Notes will be senior
subordinated obligations of the Company,
subordinated to all Senior Debt (as
defined) and ranking pari passu with all
other debt of the Company. As of June
30, 1997, the Company had approximately
$478 million of Senior Debt. Subject to
certain limitations set forth in the
Indenture, the Company may incur
additional Senior Debt and other Debt.
See "Description of the Notes --
Ranking."
Change of Control . . . . . . . Upon a Change of Control, the Company may
be required, subject to certain
conditions, to offer to repurchase all
outstanding Notes at 101% of the
principal amount thereof, plus accrued
and unpaid interest to the date of
purchase. See "Description of the Notes
-- Change of Control."
Certain Covenants . . . . . . . The Indenture contains certain covenants,
including, but not limited to, covenants
limiting the Company with respect to the
following: (i) asset sales; (ii)
restricted payments; (iii) the incurrence
of additional indebtedness and the
issuance of certain redeemable preferred
stock; (iv) liens; (v) lines of business;
(vi) dividend and other payment
restrictions affecting subsidiaries;
(vii) mergers and consolidations; and
(viii) transactions with affiliates. See
"Description of the Exchange Notes --
Certain Covenants."
RISK FACTORS
For a discussion of certain risks that should be considered in
connection with the Exchange Offer and in evaluating an investment in the
Exchange Notes, see "Risk Factors."
7
<PAGE> 13
SUMMARY HISTORICAL AND PROFORMA FINANCIAL AND OPERATING DATA
In January 1996, the Company changed its fiscal year end for financial
reporting purposes from July 31 to January 31. The following tables set forth
selected historical financial data of the Company for and at the end of each of
the four fiscal years in the period ended July 31, 1995, the six-month
transition period ended January 31, 1996 and the comparable six-month period
ended January 31, 1995, the fiscal year ended January 31, 1997 and the
comparable year ended January 31, 1996, and the three months ended April 30,
1996 and 1997, and operating data of the Company for such periods, and pro
forma financial data for and at the end of the three months ended April 30,
1997 and for the year ended January 31, 1997. The historical financial data
for the fiscal years ended July 31, 1992, 1993, 1994 and 1995, the six months
ended January 31, 1996, and the year ended January 31, 1997 have been derived
from the audited consolidated financial statements of the Company. The
historical financial data for the six months ended January 31, 1995, the year
ended January 31, 1996 and the three months ended April 30, 1996 and 1997, are
derived from the unaudited consolidated financial statements of the Company.
The data for the six months ended January 31, 1995, the year ended January 31,
1996 and the three months ended April 30, 1996 and 1997, contain all
adjustments (consisting only of normal recurring accruals) necessary, in the
opinion of management of the Company, for a fair presentation thereof. The
results of operations for these periods presented are not necessarily
indicative of the results to be expected for an entire year. The pro forma
information at April 30, 1997, and for the three month period ended April 30,
1997 and the year ended January 31, 1997, gives effect to the consummation of
the Lobo Sale and the transactions described under "-- Recent Events" as of
April 30, 1997 for the balance sheet data and as of February 1, 1997 and 1996,
respectively, for the statement of operations data. The pro forma data are not
necessarily indicative of the operating results or financial position that
would have been obtained had the transactions to which they give pro forma
effect actually occurred on the dates indicated or the results of operations
for any future date or period. The summary historical and pro forma financial
data should be read in conjunction with the consolidated historical and pro
forma financial statements and notes thereto included elsewhere or incorporated
by reference in this Prospectus.
<TABLE>
<CAPTION>
Six Months
Year Ended July 31, Ended January 31,
-------------------------------------------- ------------------------
1992 1993 1994 1995 1995 1996
---------- --------- -------- --------- ----------- ---------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Gas, condensate, and natural gas
liquids . . . . . . . . . . . . . $ 227,208 $ 294,753 $302,522 $ 275,627 $ 143,304 $ 124,663
Transportation revenues . . . . . 30,749 30,816 33,240 36,787 19,161 15,892
Other revenues . . . . . . . . . . 223 247 157 285 52 601
---------- --------- -------- --------- ----------- ---------
258,180 325,816 335,919 312,699 162,517 141,156
Operating costs and expenses . . . 75,416 99,982 103,459 99,310 50,893 45,629
Depreciation, depletion, and
amortization . . . . . . . . . 96,523 95,016 113,858 129,964 70,345 60,894
General and administrative . . . . 27,855 23,613 40,311 31,935 12,595 13,685
Litigation settlements . . . . . . -- (5,600) (1,000) -- (18,300) (18,300)
Net interest expense . . . . . . . 1,703 2,442 50,155 65,797 29,059 40,436
Income taxes and other . . . . . . 4,274 16,746 5,380 (2,415) (131) (416)
Extraordinary loss, net of taxes . -- -- -- 56,637 -- --
---------- --------- -------- --------- ----------- ---------
Net income (loss) . . . . . . $ 52,409 $ 93,617 $ 23,756 $ (68,529) $ (244) $ (772)
========== ========= ======== ========= =========== =========
Net income (loss) per share: (1)
Income (loss) before extraordinary
item . . . . . . . . . . . . . $ 0.33 $ (0.16) $ -- $ --
Extraordinary item . . . . . . . -- (0.77) -- --
-------- --------- ----------- ---------
Net income (loss) . . . . . . . . $ 0.33 $ (0.93) $ -- $ (0.01)
======== ========= =========== =========
Dividends declared per common
share (2) . . . . . . . . . . . . -- -- -- --
Ratio of earnings to
consolidated fixed charges(3) . . 17.8x 34.9x(4) 1.5x --(5) --(5) --(5)
OTHER FINANCIAL DATA:
EBITDA(6) . . . . . . . . . . . . $ 156,573 $ 208,635 $195,044 $ 184,695 $ 100,224 $ 103,413
Net cash provided (used) by:
Operating activities(14) . . . . 131,869 184,466 136,243 94,312 74,332 52,172
Investing activities . . . . . . (88,515) (142,848) (237,781) (309,415) (105,326) (136,664)
Financing activities . . . . . . (1,652) 507 484,631 284,224 18,249 13,055
OPERATING DATA:
Gas sales volumes (Bcf)(9) . . . . 128.4(7) 119.3 130.9 147.9 76.9 66.9
Average gas prices (dry)(per
Mcf)(10) . . . . . . . . . . . $1.36 $1.98 $1.96 $1.40 $1.41 $1.65
Average finding costs (per Mcfe) . .66(8) 1.01 1.12 .21 .32 1.06
Average lifting costs (per Mcfe) . .19 .22 .24 .21 .21 .23
Number of gross wells drilled . . 71 103 140 97 60 65
Percentage of wells drilled
completed . . . . . . . . . . . 82% 85% 83% 77% 78% 74%
Net proved reserves(11):
Gas (Mmcf) . . . . . . . . . . . 686,212 695,011 717,367 1,122,645 943,427 1,139,127
Condensate (MBbls) . . . . . . . 2,171 1,968 1,935 3,049 2,637 2,903
SEC PV10(12) . . . . . . . . . . $ 623,173 $ 701,434 $544,387 $ 547,646 $ 533,281 $ 808,062
<CAPTION>
July 31, January 31,
------------------------------------ -----------------------------
1992 1993 1994 1995 1995 1996 1997
------- ------ ------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(13) . . $ (35,295) $ 56,949) $ (8,865) $106,836 $ (56,749) $ 43,602 $ 71,586
Net property and equipment . . . 292,587 341,976 462,340 601,460 498,165 715,340 846,393
Total assets . . . . . . . . . . 306,842 360,241 583,591 826,570 594,738 938,829 1,053,152
Total debt . . . . . . . . . . . 3,246 8,270 500,000 800,000 518,701 824,241 941,922
Stockholders' equity (deficit) . 153,741 204,575 (85,139) (153,668) (85,383) (154,440) (150,795)
</TABLE>
<TABLE>
<CAPTION>
Year Ended Three Months
January 31, Ended April 30,
------------------------- -----------------------
1996 1997 1996 1997
----------- ---------- ------------ --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Gas, condensate, and natural gas
liquids . . . . . . . . . . . . . $ 256,986 $ 363,459 $ 79,802 $ 72,882
Transportation revenues . . . . . 33,518 34,423 8,195 9,291
Other revenues . . . . . . . . . . 834 8,465 7,961 178
----------- ---------- ------------ --------
291,338 406,347 95,958 82,351
Operating costs and expenses . . . 94,046 137,019 32,622 32,356
Depreciation, depletion, and
amortization . . . . . . . . . 120,513 132,453 30,099 33,557
General and administrative . . . . 33,025 45,596 7,439 15,140
Litigation settlements . . . . . . (18,300) (96,000) --
Net interest expense . . . . . . . 77,174 91,463 21,152 23,664
Income taxes and other . . . . . . (2,700) 12,491 1,626 (7,828)
Extraordinary loss, net of taxes . 56,637 -- -- --
----------- ---------- ------------ --------
Net income (loss) . . . . . . $ (69,057) $ 83,325 $ 3,020 $(14,538)
=========== ========== ============ ========
Net income (loss) per share: (1)
Income (loss) before extraordinary
item . . . . . . . . . . . . . $ (0.17) $ 1.13 $ 0.04 $ (0.20)
Extraordinary item . . . . . . . (0.77) -- -- --
----------- ---------- ------------ --------
Net income (loss) . . . . . . . . $ (0.94) $ 1.13 $ 0.04 $ (0.20)
=========== ========== ============ ========
Dividends declared per common
share (2) . . . . . . . . . . . . -- -- -- --
Ratio of earnings to
consolidated fixed charges(3) . . --(5) 1.7x(4) 1.0x --(5)
OTHER FINANCIAL DATA:
EBITDA(6) . . . . . . . . . . . . $ 187,705 $ 325,962 $ 57,242 $ 36,853
Net cash provided (used) by:
Operating activities(14) . . . . 72,152 221,061 67,049 92,037
Investing activities . . . . . . (340,753) (272,883) (64,837) (104,001)
Financing activities . . . . . . 279,030 64,135 461 70
OPERATING DATA:
Gas sales volumes (Bcf)(9) . . . . 137.9 153.6 36.2 35.4
Average gas prices (dry)(per
Mcf)(10) . . . . . . . . . . . $1.51 $2.14 $2.03 $1.67
Average finding costs (per Mcfe) . n/a 2.21 n/a n/a
Average lifting costs (per Mcfe) . .23 .29 .35 .43
Number of gross wells drilled . . 102 151 52 29
Percentage of wells drilled
completed . . . . . . . . . . . 75% 68% 75% 72%
Net proved reserves(11):
Gas (Mmcf) . . . . . . . . . . . 1,139,127 919,718 n/a n/a
Condensate (MBbls) . . . . . . . 2,903 5,738 n/a n/a
SEC PV10(12) . . . . . . . . . . $808,062 $1,449,068 n/a n/a
<CAPTION>
April 30,
------------------------
1996 1997
-------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(13) . . $ (17,865) $ 7,565
Net property and equipment . . . 774,302 909,481
Total assets . . . . . . . . . . 1,002,528 1,114,260
Total debt . . . . . . . . . . . 833,837 934,202
Stockholders' equity (deficit) . (151,420) (106,055)
</TABLE>
8
<PAGE> 14
<TABLE>
<CAPTION>
Year Ended Three Months Ended
January 31, 1997 April 30, 1997
---------------- --------------------
(pro forma) (pro forma)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gas, condensate and natural gas liquids . . $189,698 $ 36,020
Transportation . . . . . . . . . . . . . . -- --
Gain on sale of assets . . . . . . . . . . . 7,856 --
Other . . . . . . . . . . . . . . . . . . . 609 178
-------- --------
Total revenues . . . . . . . . . . . . 198,163 36,198
-------- --------
Costs and expenses:
Operating . . . . . . . . . . . . . . . . . 16,959 5,206
Depreciation, depletion and amortization . 53,521 19,149
General and administrative . . . . . . . . 43,596 7,452
Taxes other than income taxes . . . . . . . 9,748 2,764
Litigation settlement . . . . . . . . . . . (96,000) --
-------- --------
Total costs and expenses . . . . . . . 27,824 34,571
-------- --------
Operating income . . . . . . . . . . . 170,339 1,627
-------- --------
Other income (expenses):
Interest income . . . . . . . . . . . . . . 5,544 1,694
Interest expense, net . . . . . . . . . . . (72,639) (16,339)
-------- --------
Total other income (expense) . . . . . (67,095) (14,645)
-------- --------
Loss before income taxes . . . . . . . 103,244 (13,018)
Income taxes (benefit) . . . . . . . . . . . 36,135 (4,556)
-------- --------
Net income (loss) . . . . . . . . . . . $ 67,109 $ (8,462)
======== ========
</TABLE>
<TABLE>
<CAPTION>
April 30, 1997
--------------
(pro forma)
<S> <C>
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $131,202
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 458,889
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 757,044
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,631
Stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,826)
</TABLE>
9
<PAGE> 15
(1) Net income per share for the year ended July 31, 1994 gives effect to
69,000,000 shares of common stock outstanding after the 69,000-for-1
stock split which was effected in February 1994. Per share data for
1992 and 1993 is omitted because the Company's predecessor was not a
separate entity with its own capital structure.
(2) The Company's existing debt instruments contain certain restrictions
with respect to the payment of dividends on the Company's common
stock.
(3) For purposes of determining the ratio of earnings to consolidated
fixed charges, earnings are defined as pre-tax income plus
consolidated fixed charges (excluding capitalized interest).
Consolidated fixed charges consist of interest expense (including
capitalized interest) on all indebtedness and a portion of operating
lease rental expense that represents the interest factor.
(4) The ratio for the year ended July 31, 1993 would be 33.2x if the gain
on litigation settlement of $5.6 million was excluded from income
before taxes. Earnings for the year ended January 31, 1997 would have
been inadequate to cover consolidated fixed charges by $16.1 million if
the gain on litigation settlement of $96 million was excluded from
income before taxes.
(5) Earnings for the year ended July 31, 1995, the six months ended
January 31, 1995 and 1996, the year ended January 31, 1996, and the
three months ended April 30, 1997 were inadequate to cover
consolidated fixed charges by $15.2 million, $0.4 million, $8.6
million, $23.4 million and $27.0 million respectively.
(6) Earnings before consolidated fixed charges, income taxes,
depreciation, depletion and amortization. EBITDA for the Transition
Period and for the year ended January 31, 1996 includes a gain on a
litigation settlement of $18.3 million. EBITDA for the year ended
January 31, 1997 includes a gain on a litigation settlement of $96.0
million. EBITDA includes capitalized interest of $0.7 million and $0.9
million for the years ended July 31, 1994 and 1995, respectively, $7.4
million for the Transition Period, $8.3 million and $15.9 million for
the years ended January 31, 1996 and 1997, respectively, and $3.7
million and $4.7 million for the three months ended April 30, 1996 and
1997, respectively. EBITDA includes litigation accruals of $3.1
million, $10.0 million, $13.0 million and $7.0 million for the years
ended July 31, 1992, 1993, 1994 and 1995, respectively. EBITDA
includes litigation accruals of $7.0 million and $15.5 million for
the years ended January 31, 1996 and 1997, respectively, and $4.0
million for the three months ended April 30, 1997. EBITDA, as defined
herein and in the Indenture, is not presented in accordance with
generally accepted accounting principles ("GAAP") and should not be
used in lieu of GAAP presentations of results of operations and cash
flows.
(7) Includes a 3.5 Bcf adjustment resulting from a favorable litigation
settlement.
(8) Average finding costs for the year ended July 31, 1992 were $0.64 per
Mcfe after giving effect to a favorable litigation settlement.
(9) Sales volumes for the year ended January 31, 1997 and for the three
months ended April 30, 1996 and 1997, include 32.0 Bcf, 5.9 Bcf and
7.2 Bcf, respectively, delivered pursuant to volumetric production
payments.
(10) Average price for the year ended January 31, 1997 includes amounts
delivered under volumetric production payments. The average gas price
for the Company's undedicated production for these periods was $2.39
per Mcf. Gas prices do not include the effect of hedging agreements.
(11) These reserve data are estimates of the Company's proved reserves as
of August 1, 1992, 1993, 1994 and 1995 and February 1, 1996 and 1997,
as evaluated by Netherland, Sewell & Associates, Inc. See "Risk
Factors -- Reliance on Estimates of Proved Reserves."
10
<PAGE> 16
(12) As of February 1, 1997, the sales price used for purposes of
estimating the Company's proved reserves and the future net revenues
from those reserves was $3.17 per Mcf of natural gas and $23.99 per
Bbl of condensate.
(13) All periods before August 24, 1993 exclude all cash and accounts
receivable of the Company because TransAmerican did not transfer those
assets to the Company. Working capital includes $44.7 million at July
31, 1995 and $46.0 million at January 31, 1996 and 1997, and April 30,
1996 and 1997, of cash restricted pursuant to the indenture governing
the TransTexas Senior Secured Notes.
(14) For the year ended January 31, 1997, cash flow from operating
activities includes $96 million relating to a litigation settlement
and $58.6 million from volumetric production payments.
11
<PAGE> 17
RISK FACTORS
In addition to the other information set forth elsewhere in this
Prospectus, the following factors relating to the Company and this Exchange
Offer should be considered by prospective investors when evaluating an
investment in the Exchange Notes offered hereby.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Outstanding Notes
pursuant to the Exchange Offer will be made only after a timely receipt by the
Company of such Outstanding Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents. Therefore, holders of
the Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to the tenders of Outstanding Notes for exchange. Outstanding Notes
that are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. Upon consummation of the Exchange Offer,
the registration rights under the Registration Rights Agreement will terminate
except that if any holder of an Outstanding Note notifies the Company on or
prior to the Exchange Date that (i) due to a change in law or policy it is not
entitled to participate in the Exchange Offer, (ii) due to a change in law or
policy it may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and this prospectus is not
appropriate or available for such resales by such holder or (iii) it is a
broker-dealer that owns Outstanding Notes acquired directly from the Company or
an affiliate of the Company, then the Company has agreed to file and maintain
for a period of two years the Shelf Registration Statement. In addition, any
holder of Outstanding Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Outstanding Notes, where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." To the extent that Outstanding Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Outstanding Notes could be adversely affected. See
"The Exchange Offer."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Outstanding Notes are currently owned by a relatively small number
of beneficial owners. The Outstanding Notes have not been registered under the
Securities Act and are subject to significant restrictions on resale. The
Exchange Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the Outstanding Notes or
the Exchange Notes on any national securities exchange or to seek the admission
thereof to trading in The Nasdaq Stock Market. Accordingly no assurance can be
given that an active public or other market will develop for the Exchange Notes
or if such market develops, that it will not be sporadic and volatile.
Furthermore, no assurance can be given as to the liquidity of the Exchange
Notes.
SUBORDINATION
The payment of principal of, premium, if any, and interest on, the
Exchange Notes will be subordinated in right of payment to the prior payment in
full of all Senior Debt of the Company, whether outstanding at the date of the
Indenture or later incurred. In the event of any default in the payment of the
principal or interest with respect to any Senior Debt, no payment with respect
to the principal of, premium, if any, or interest on, the Exchange Notes will
be made by the Company unless and until such default has been cured or waived.
In addition, upon the occurrence of any other event of default entitling the
holders of Senior Debt to accelerate the maturity thereof and receipt by the
Trustee
12
<PAGE> 18
of written notice of such occurrence, the holders of Senior Debt will be able
to block payment on the Exchange Notes for specified periods of time.
Upon any payment or distribution of the Company's assets to creditors
upon any dissolution, winding up, liquidation, reorganization, bankruptcy,
insolvency, receivership or other proceedings relating to the Company, whether
voluntary or involuntary, the holders of Senior Debt will be entitled first to
receive payment in full of all amounts due thereon before the holders of the
Exchange Notes will be entitled to receive any payment upon the principal of,
or premium, if any, or interest on, the Exchange Notes. By reason of such
subordination, in the event of the insolvency of the Company, holders of the
Exchange Notes may recover less, ratably, than holders of Senior Debt and other
creditors of the Company or may recover nothing. The terms and conditions of
the subordination provisions pertinent to the Exchange Notes are described in
more detail in "Description of the Exchange Notes -- Subordination."
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL OR CERTAIN ASSET SALES
Upon the occurrence of a Change of Control, the Company may be
required to offer to purchase (a "Change of Control Offer") all Exchange Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest to the date of purchase. Additionally, in the
event of certain asset dispositions, the Company will be required under certain
circumstances to use the Accumulated Amount (as defined) to offer to purchase
the Exchange Notes at 100% of the principal amount thereof, plus accrued
interest to the date of purchase (an "Offer to Purchase"). See "Description of
the Exchange Notes -- Certain Covenants."
Prior to commencing such a Change of Control Offer or an Offer to
Purchase, the Company may be required to (i) repay in full all Senior Debt or
other indebtedness of the Company that would prohibit the repurchase of the
Exchange Notes or (ii) obtain any requisite consent to permit the repurchase.
If the Company is unable to repay all of such indebtedness or is unable to
obtain the necessary consents, then the Company will be unable to offer to
purchase the Exchange Notes and such failure will constitute an Event of
Default under the Indenture. There can be no assurance that the Company will
have sufficient funds available at the time of any Change of Control Offer or
Offer to Purchase to repay Senior Debt or repurchase the Exchange Notes.
The events that require a Change of Control Offer or Offer to Purchase
under the Indenture may also constitute events of default under the Senior Debt
of the Company. Such events may permit the lenders under such debt instruments
to accelerate the debt and, if the debt is not paid, to commence litigation
that could ultimately result in a sale of substantially all the assets of the
Company to satisfy the debt, thereby limiting the Company's ability to raise
cash to repurchase the Exchange Notes and reducing the practical benefit of the
offer to purchase provisions to the holders of the Exchange Notes.
INDENTURE RESTRICTIONS
The Indenture limits the Company's ability to incur additional
indebtedness, transfer or sell assets, transfer assets to subsidiaries, pay
dividends or make other restricted payments, create liens, enter into certain
transactions with affiliates or consummate a merger, consolidation or sale of
all or substantially all of its assets. There can be no assurance that these
limitations will not adversely affect the Company's results of operations or
financial condition.
SIGNIFICANT LEVERAGE
At June 30, 1997, the Company's long-term debt, including the
TransTexas Intercompany Loan, the Outstanding Notes, the BNY Facility (defined
below) and certain equipment financing was approximately $594 million. The
Company's high degree of leverage has significant consequences, including (i) a
substantial portion of the Company's net cash provided by operations will be
committed to the payment of the Company's interest expense and principal
repayment obligations, (ii) the Company's cash flow is more sensitive to
fluctuations in natural gas prices than less highly leveraged companies and
(iii) the Company is more highly leveraged than other large companies in the
gas exploration, production and transmission business, which may place it at a
competitive disadvantage. These
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consequences could adversely affect the Company's ability to meet its
obligations, including obligations under the TransTexas Intercompany Loan and
to the holders of the Notes. Further, the Company's ability to fund its
current capital expenditures and debt service requirements and, ultimately, to
pay the principal amounts of the Notes upon maturity in December 2001 from its
cash flows from operations would require significant increases in production.
The Company may have available to it sources of liquidity other than cash flow
from operations, including asset sales, equity offerings or debt financings, to
retire or otherwise refinance the principal amount of the Notes on or prior to
maturity. However, there can be no assurance that such sources will be
available if and when needed on terms acceptable to the Company, or at all.
SUBSTANTIAL CAPITAL REQUIREMENTS
TransTexas makes substantial capital expenditures for the
exploration, development and production of its natural gas reserves. TransTexas
anticipates that its capital expenditures and cash interest expense will be
approximately $220 million and $70 million, respectively, in fiscal 1998.
Historically, TransTexas has financed capital expenditures and serviced its
debt with cash from operations, public and private offerings of debt and equity
securities, the sale of production payments, asset sales and other financings.
TransTexas intends to use cash flow from operations, together with cash on hand
to fund its cash requirements in fiscal 1998. If capital expenditures are
higher than anticipated, cash flow from operations is lower than anticipated or
certain contingent obligations of TransTexas become fixed, TransTexas may not
have sufficient funds for capital expenditures necessary to replace its
reserves, to maintain production at current levels or to attain increased
production levels, after giving effect to the Lobo Sale, and, as a result,
production from operations may decrease over time. No assurance can be given
that TransTexas' cash flow from operating activities will be sufficient to meet
actual capital expenditures, contingent liabilities and debt service in the
future.
POTENTIAL TAX LIABILITIES
Based upon independent legal advice, including an opinion from a
nationally recognized law firm, TransTexas has determined that it will not
report any significant federal income tax liability as a result of the Lobo
Sale. There are, however, significant uncertainties regarding TransTexas' tax
position and no assurance can be given that TransTexas' position will be
sustained if challenged by the Internal Revenue Service (the "IRS"). TransTexas
is part of an affiliated group for tax purposes (the "TNGC Consolidated
Group"), which includes TNGC Holdings Corporation, the sole stockholder of
TransAmerican ("TNGC"), TransAmerican, TEC, TransTexas, TARC and TTXD. No
letter ruling has been or will be obtained from the IRS regarding the Lobo Sale
by any member of the TNGC Consolidated Group. If the IRS were to successfully
challenge TransTexas' position, each member of the TNGC Consolidated Group would
be severally liable under the consolidated tax return regulations for the
resulting taxes, in the estimated amount of up to $230 million (assuming the use
of the existing tax attributes of the TNGC Consolidated Group), possible
penalties equal to 20% of the amount of the tax, and interest at the statutory
rate (currently 9%) on the tax and penalties (if any). An agreement among
members of the TNGC Consolidated Group (the "Tax Allocation Agreement") requires
TransAmerican to fund the entire tax deficiency (if any) resulting from the Lobo
Sale. There can be no assurance that TransAmerican would be able to fund any
such payment at the time due and the other members of the TNGC Consolidated
Group, thus, may be required to pay the tax. TransTexas intends to reserve $75
million with respect to this potential tax liability for financial reporting
purposes to reflect a portion of the potential tax liability that TransAmerican
might not be able to pay. If TransTexas were required to pay this tax
deficiency, it is likely that it would be required to sell significant assets or
raise additional debt or equity capital to fund the payment.
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provisions (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended (the "Code"), and has reduced its tax attributes (including
its net operating loss and credit carryforwards) as a consequence of the COD
Exclusion. No federal tax opinion was rendered with respect to this
transaction, however, and TransAmerican has not obtained a ruling from the IRS
regarding this transaction. TransTexas
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believes that there is substantial legal authority to support the position that
the COD Exclusion applies to the cancellation of TransAmerican's indebtedness.
However, due to factual and legal uncertainties, there can be no assurance that
the IRS will not challenge this position, or that any such challenge would not
be upheld. Under the Tax Allocation Agreement, TransTexas has agreed to pay an
amount equal to any federal tax liability (which would be approximately $25.4
million) attributable to the inapplicability of the COD Exclusion. Any such tax
would be offset in future years by alternative minimum tax credits and retained
loss and credit carryforwards to the extent recoverable from TransAmerican. As
a member of the TNGC Consolidated Group, each of TEC, TransTexas and TARC will
be severally liable for any tax liability resulting from the above-described
transactions. The IRS has commenced an audit of the consolidated federal income
tax returns of the TNGC Consolidated Group for its taxable years ended July 31,
1994 and July 31, 1995. Because the audit is in its initial stages, it is not
possible to predict the scope of the IRS' review or whether any tax
deficiencies will be proposed by the IRS as a result of its review.
DECONSOLIDATION FOR FEDERAL INCOME TAX PURPOSES
Under certain circumstances, TransAmerican, TEC or TARC may sell or
otherwise dispose of shares of common stock of TransTexas. If, as a result of
any sale or other disposition of TransTexas common stock or otherwise, the
aggregate ownership of TransTexas by members of the TNGC Consolidated Group
(excluding TransTexas) is less than 80% (measured by voting power and value),
TransTexas will no longer be a member of the TNGC Consolidated Group for
federal income tax purposes ("Deconsolidation") and, with certain exceptions,
will no longer be obligated under the terms and conditions of, or entitled to
the benefits of, the Tax Allocation Agreement. Further, if TEC or TARC sells or
otherwise transfers any stock of TARC, or issues any options, warrants or other
similar rights relating to such stock, outside of the TNGC Consolidated Group,
which, when aggregated with the outstanding TARC Warrants, represent more than
20% of the voting power or equity value of TARC, then a Deconsolidation of TARC
would occur. A Deconsolidation of TARC would result in a Deconsolidation of
TransTexas if the TNGC Consolidated Group members, excluding TARC, did not then
own at least 80% of the voting power and equity value of TransTexas. Upon a
Deconsolidation of TransTexas, members of the TNGC Consolidated Group that own
TransTexas common stock could incur a substantial amount of federal income tax
liability. If such Deconsolidation occurred during the fiscal year ending
January 31, 1998, the aggregate amount of this tax liability is estimated to be
between $175 million and $200 million, assuming no reduction for tax attributes
of the TNGC Consolidated Group. However, such tax liability generally would be
substantially reduced or eliminated in the event that the IRS successfully
challenged TransTexas' position on the Lobo Sale. Each member of a consolidated
group filing a consolidated federal income tax return is severally liable to
the IRS for the consolidated federal income tax liability of the consolidated
group. There can be no assurance that each TNGC Consolidated Group member will
have the ability to satisfy any tax obligation attributable to the
above-described transactions at the time due and, therefore, other members of
the group, including TransTexas, may be required to pay the tax.
Generally, under the Tax Allocation Agreement, if net operating losses
of TransTexas are used by other members of the TNGC Consolidated Group, then
TransTexas is entitled to the benefit (through reduced current taxes payable)
of such losses in later years to the extent TransTexas has taxable income and
remains a member of the TNGC Consolidated Group and the other group members
have the ability to pay such taxes. If TARC, TransAmerican or TEC transfers
shares of common stock of TransTexas (or transfers options or other rights to
acquire such shares) and, as a result of such transfer, Deconsolidation occurs,
TransTexas would not thereafter receive any benefit pursuant to the Tax
Allocation Agreement for net operating losses of TransTexas used by other
members of the TNGC Consolidated Group prior to Deconsolidation.
LIMITED OPERATING HISTORY IN CONTINUING OPERATIONS
Prior to the Lobo Sale, TransTexas derived a substantial amount of
its revenues from gas produced from its Lobo Trend producing properties.
TransTexas' experience in the drilling and operation of wells in areas outside
of the Lobo Trend is limited, its completion rate in such areas is
substantially lower and its average lifting costs in such areas are higher.
Accordingly, results of operations from the Continuing Operations or from
properties acquired in the future might differ materially from those in the
Lobo Trend.
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ABILITY TO REPLACE SHORT-LIVED RESERVES
TransTexas' principal producing properties are characterized by high
initial production followed by a steep decline in production rates, with wells
typically having a half-life of less than two years and an economic life of
approximately ten years. As a result, TransTexas must find and develop or
acquire new natural gas reserves to replace those being depleted by production.
Without successful drilling and exploration or acquisition activities,
TransTexas' reserves and production will decline rapidly. TransTexas' business
strategy is to add reserves by pursuing an active drilling program on its
existing undeveloped properties and on properties that it may acquire in the
future. There can be no assurance that production from new wells will be
sufficient to replace production from existing wells.
NATURAL GAS PRICE FLUCTUATIONS AND MARKETS
TransTexas' results of operations and the value of its gas and oil
properties are highly dependent upon the prices TransTexas receives for its
natural gas. Substantially all of TransTexas' sales of natural gas are made in
the spot market, or pursuant to contracts based on spot market prices, and not
pursuant to long-term, fixed-price contracts. Accordingly, the prices received
by TransTexas for its natural gas production are dependent upon numerous
factors beyond the control of TransTexas, including the level of consumer
product demand, the North American supply of natural gas, government
regulations and taxes, the price and availability of alternative fuels, the
level of foreign imports of oil and natural gas, and the overall economic
environment. Demand for natural gas is seasonal, with demand typically higher
during the summer and winter, and lower during the spring and fall, with
concomitant changes in price. During the quarter ended April 30, 1997, the
average gas price for the Continuing Operations was $1.90 per Mcf.
Any significant decline in current prices for natural gas could have a
material adverse effect on TransTexas' financial condition, results of
operations and quantities of reserves recoverable on an economic basis. In
order to mitigate its vulnerability to natural gas price volatility, TransTexas
has entered into and may continue to enter into commodity price swap agreements
to reduce its exposure to price risk in the spot market for natural gas.
However, a substantial majority of TransTexas' current production remains
subject to natural gas price fluctuations. Based on an assumed average daily
net production level of 230 MMcfd (after giving effect to the Lobo Sale),
certain hedge agreements and historical pricing differentials between delivery
points, TransTexas estimates that a $0.10 per MMBtu change in average gas prices
received would change annual operating income by approximately $6.4 million.
COMPETITION
TransTexas competes in the highly competitive areas of natural gas
exploration, development and production. Many of TransTexas' competitors have
substantially larger financial resources, staffs and facilities than
TransTexas.
DRILLING RISK
Drilling activities are subject to numerous risks, including
mechanical risk and the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that new wells drilled by TransTexas
will be productive or that TransTexas will recover all or any portion of its
investment. The cost of drilling, completing and operating wells is often
uncertain. TransTexas' drilling operations may be curtailed, delayed or
canceled as a result of numerous factors, many of which are beyond TransTexas'
control, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment
and services.
TRANSPORTATION
As a result of the Lobo Sale, TransTexas no longer owns the pipeline
assets held by TTC, which assets are used to transport natural gas from the
Continuing Operations. Although TransTexas has entered into a transportation
agreement to provide it access to such pipeline, there can be no assurance that
this agreement will provide sufficient access or capacity or that the terms
thereof will remain competitive with market rates.
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RISKS RELATED TO LOBO SALE
The Lobo Sale Agreement contains representations and warranties by
TransTexas typical for the sale of an oil and gas exploration, production and
transmission company, including representations and warranties relating to the
following: the accuracy of financial information; liabilities under employee
benefit plans; payment of taxes; existence of litigation or other claims;
compliance with laws, including environmental laws; condition of personal
property; existence of contracts, commitments and contingent liabilities; and
title to properties. TransTexas has indemnified the buyer for certain
liabilities related to the assets of TTC, including judgment liens, costs to
remediate conditions that may result in environmental liability and liabilities
and costs related to inaccuracies in representations and warranties (without
regard to TransTexas' knowledge of such inaccuracy) with respect to which no
purchase price adjustment was made at the closing or as part of the post-closing
reconciliation. TransTexas does not anticipate that it will be responsible for
any material amount of post-closing indemnity obligations under the Lobo Sale
Agreement, but there can be no assurance that such liabilities will not
significantly reduce the benefits obtained by TransTexas from the Lobo Sale.
OPERATING HAZARDS AND UNINSURED RISKS
TransTexas' operations are subject to hazards and risks inherent in
drilling for, and the production, processing and transportation of, natural
gas, such as fires, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims
and other damage to properties of TransTexas and others. TransTexas' insurance
coverage includes, among other things, operator's extra expense, physical
damage on certain assets, employer's liability, comprehensive general
liability, automobile and workers' compensation insurance. TransTexas believes
that its insurance is adequate and customary for companies of a similar size
engaged in operations similar to those of TransTexas, but losses can occur for
uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage.
GOVERNMENT REGULATIONS
TransTexas' business is subject to certain federal, state and local
laws and regulations relating to the exploration for and the development,
production and transportation of natural gas, as well as environmental and
safety matters. Many of these laws and regulations have become more stringent
in recent years, often imposing greater liability on a larger number of
potentially responsible parties. Because the requirements imposed by such laws
and regulations are frequently changed, TransTexas is unable to predict the
ultimate cost of compliance with these requirements or their effect on its
operations.
MATERIAL PROCEEDINGS AND CONTINGENT LIABILITIES
The Company is involved in many legal proceedings. The litigation and
contingent liabilities of the Company, individually and in the aggregate,
amount to significant potential liability and, if adjudicated adversely, could
have a material adverse effect on the Company. The adverse resolution in any
reporting period of one or more of these matters could have a material adverse
impact on the results of operations or cash flow of the Company for that
period. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect these matters to have a material adverse
effect on its financial position.
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SUBSTANTIVE CONSOLIDATION; BANKRUPTCY
An investment in the Exchange Notes involves certain insolvency and
bankruptcy considerations including substantive consolidation and fraudulent
transfer issues. A financial failure by Mr. Stanley, TNGC, TransAmerican,
TransAmerican Exploration Corporation ("TEXC") or TARC could have adverse
consequences for holders of the Exchange Notes if a bankruptcy court were to
"substantively consolidate" the Company with Mr. Stanley or any of such
entities. If a bankruptcy court substantively consolidated the Company with
Mr. Stanley, TNGC, TransAmerican, TEXC, TEC or TARC, the assets of each entity
so consolidated would be subject to the claims of creditors of each other such
entity. TransAmerican filed for bankruptcy protection under the federal
bankruptcy laws in 1975 and 1983. As a result of the bankruptcy proceedings,
creditors of TransAmerican received less than the amount to which they would
otherwise have been entitled.
CONTROL BY TRANSAMERICAN AND TNGC; POTENTIAL CONFLICTS OF INTEREST
TransAmerican is the indirect controlling stockholder of the Company.
TransAmerican is wholly owned by TNGC. As a member of the board of directors
and chief executive officer of TransAmerican and the Company and sole
stockholder, sole director and chief executive officer of TNGC, John R. Stanley
will be in a position to control or significantly influence the management and
operations of the Company, including actions with respect to pending and any
future litigation. There can be no assurance that conflicts will not arise
between TNGC, TransAmerican, TNGC's other subsidiaries and Mr. Stanley, on one
hand, and the other stockholders of the Company, on the other. In addition,
Mr. Stanley has guaranteed certain indemnity obligations of TransAmerican and
the Company and certain debt of the Company. The Company's response to any
litigation or any indemnification demand may be influenced by TransAmerican or
Mr. Stanley in a manner that could be adverse to the holders of the Exchange
Notes. TransAmerican and its existing subsidiaries, including the Company, are
parties to the Tax Allocation Agreement, the general terms of which provide for
TransAmerican and all of its subsidiaries to file federal income tax returns as
members of a consolidated group. The Tax Allocation Agreement requires the
Company, TEC and TARC to make certain payments to TransAmerican to enable
TransAmerican to pay its federal or alternative minimum tax. In the event of
an IRS audit or examination, the Tax Allocation Agreement generally gives
TransAmerican the authority to compromise or settle disputes and to control
litigation, subject to the approval of the Company, TEC or TARC, as the case
may be, where such compromise or settlement affects the determination of the
separate tax liability of that company.
RELIANCE ON ESTIMATES OF PROVED RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
reserve data incorporated by reference in this Prospectus represent only
estimates prepared by Netherland, Sewell & Associates, Inc. Gas reserve
assessment is a subjective process of estimating the recovery from underground
accumulations of gas that cannot be measured in an exact way, and estimates of
other persons might differ materially from those of Netherland, Sewell &
Associates, Inc. Certain events, including production, acquisitions and future
drilling and development could result in increases or decreases in estimated
quantities of proved reserves. In addition, estimates of the Company's future
net revenues from proved reserves and the present value thereof are based on
certain assumptions regarding future natural gas prices, production levels,
production and ad valorem taxes and operating and development costs that may
not prove to be correct over time.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were issued by the Company in June 1997 pursuant
to the June Exchange Offer in exchange for the December 1996 Notes, which were
sold by the Company on December 13, 1996. As a condition of the June Exchange
Offer, the Company entered into the Registration Rights Agreement with the
persons to whom the Outstanding Notes were originally issued, which requires,
among other things, that the Company file with the Commission a registration
statement under the Securities Act with respect to an offer by the Company to
the holders of the Outstanding Notes to issue and deliver to such holders, in
exchange for Outstanding Notes, a like principal amount of Exchange Notes. The
Company is required to use its best efforts to cause the Registration Statement
relating to the Exchange Offer to be declared effective by the Commission under
the Securities Act and commence the Exchange Offer. The Exchange Notes are to
be issued without a restrictive legend and may be reoffered and resold by the
holder without restrictions or limitations under the Securities Act (other than
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act). A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The term "Holder" with respect to the Exchange
Offer means any person in whose name the Outstanding Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Company has the right, at any
time or from time to time, to extend the Exchange Offer at its discretion, in
which event the term "Expiration Date" shall mean the latest date to which the
Exchange Offer is extended. On the Exchange Date, the Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of Outstanding Notes accepted in the Exchange Offer. Holders may tender
some or all of their Outstanding Notes pursuant to the Exchange Offer.
However, Outstanding Notes may be tendered only in integral multiples of
$1,000.
The forms and terms of the Exchange Notes are the same as the form and
terms of the Outstanding Notes except that (i) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (ii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement. The
Exchange Notes will evidence the same debt as the Outstanding Notes and will be
entitled to the benefits of the Indenture.
As of the date of this Prospectus, $115,815,000 aggregate principal
amount of the Outstanding Notes was outstanding. The Company has fixed the
close of business on August 29, 1997 as the record date for the Exchange
Offer for purposes of determining the persons to whom this Prospectus and the
Letter of Transmittal will be mailed initially.
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder, including Rule
14e-1 thereunder.
The Company will be deemed to have accepted validly tendered
Outstanding Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering Holders for the purpose of receiving the Exchange Notes from the
Company.
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If any tendered Outstanding Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, the certificates for any such unaccepted Outstanding Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the date of issuance of the
Exchange Notes. Interest on the Outstanding Notes that are tendered in
exchange for the Exchange Notes that has accrued from June 30, 1997, through
the Exchange Date will be payable on or before December 31, 1997. Interest on
the Exchange Notes will be payable semiannually on each June 30 and December 31
commencing December 31, 1997.
PROCEDURES FOR TENDERING
Only a Holder of Outstanding Notes may tender such Outstanding Notes
in the Exchange Offer. To tender in the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Outstanding Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
The Company is not asking any Holder for a proxy, and no Holder is requested to
send the Company a proxy. To be tendered effectively, the Outstanding Notes,
Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representations set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes" and will confirm its obligations under
the Registration Rights Agreement.
The tender by a Holder and the acceptance thereof by the Company will
constitute agreement between such Holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING
NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
such registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as
the case may be, must be by an Eligible Institution (as defined below) unless
the Outstanding Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter
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of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power,
signed by such registered Holder as such registered Holder's name appears on
such Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Outstanding Notes not properly tendered or any Outstanding Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Outstanding Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Outstanding Notes will not
be deemed to have been made until such defects or irregularities have been
cured or waived. Any Outstanding Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
Holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver
their outstanding Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Expiration Date, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent
receives from the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name
and address of the Holder, the certificate number(s) of such
Outstanding Note(s) tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the
certificate(s) representing the Outstanding Notes and any other
documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent;
and
(c) such properly completed and executed Letter of
Transmittal (or facsimile thereof), as well as the
certificate(s) representing all tendered Outstanding Notes in
proper form for transfer and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent
within three New York Stock Exchange trading days after the
Expiration Date.
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<PAGE> 27
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to Holders who wish to tender their Outstanding Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may
be withdrawn at any time prior to 5:00 P.M., New York City time, on the
Expiration Date.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Outstanding Notes to be
withdrawn (the "Depositor"), (ii) identify the Outstanding Notes to be
withdrawn (including the certificate number(s) and principal amount of such
Outstanding Notes), (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Outstanding Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee with respect to the
Outstanding Notes register the transfer of such Outstanding Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any
such Outstanding Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Outstanding Notes so withdrawn are validly retendered. Any
Outstanding Notes which have been tendered but which are not accepted for
exchange, will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described above under "Procedures for
Tendering" at any time prior to the Expiration Date.
EXCHANGE AGENT
Bank One, NA has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Mail or Hand: By Facsimile:
Bank One, NA Bank One, NA-0H1-0184 Bank One, NA
P.O. Box 70184 100 East Broad Street Attn: Corporate Trust Department
Columbus, Ohio 43271-0184 Columbus, Ohio 43215 Facsimile No. (614) 248-5088
Attn: Lora Marsch Attn: Lora Marsch Confirm by Telephone No.
(614) 248-4856
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation is being made by mail;
however, additional solicitation may be made by telegraph, telephone, facsimile
or in person by officers and regular employees of the Company and its
affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and registration expenses,
including fees and expenses of the Trustee, filing fees, blue sky fees and
printing and distribution expenses.
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<PAGE> 28
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Outstanding Notes for the
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be issued in the name of, any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of the Outstanding Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes as reflected in the Company's accounting records on the date
of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating,
in a distribution of the Exchange Notes may not rely on the position of the
staff of the Commission enunciated in Exxon Capital Holdings Corporation
(available April 13, 1989) and Morgan Stanley & Co., Incorporated (June 5,
1991), or similar no-action letters, but rather must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Outstanding Notes, where such Outstanding Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the distribution of the Exchange Notes (a) they must, in
the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on the no-action letters
referenced above and (b) failure to comply with such requirements in such
instance could result in such Holder incurring liability under the Securities
Act for which such Holder is not indemnified by the Company. Further, by
tendering in the Exchange Offer, each Holder that may be deemed an "affiliate"
(as defined under Rule 405 of the Securities Act) of the Company will represent
to the Company that such Holder understands and acknowledges that the Exchange
Notes may not be offered for resale, resold or otherwise transferred by that
Holder without registration under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely
on the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
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<PAGE> 29
SHELF REGISTRATION STATEMENT
If the Company is not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by any applicable law or applicable
interpretation of the Commission or the staff of the Commission, the Company
has agreed file with the Commission, use its best efforts to have declared
effective and maintain for up to two years a registration statement that would
allow resales of outstanding Notes owned by such holders.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Outstanding Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
The Company may in the future seek to acquire untendered Outstanding
Notes in open market or privately negotiated transactions through subsequent
exchange offers or otherwise. The Company has no present plans to acquire any
Outstanding Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Outstanding Notes.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes contemplated in this
prospectus, the Company will receive Outstanding Notes in like principal
amount, the form and terms of which are substantially similar to the form and
terms of the Exchange Notes, except as otherwise described herein. The
Outstanding Notes surrendered in exchange for Exchange Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Exchange
Notes will not result in any increase or decrease in the indebtedness of the
Company.
24
<PAGE> 30
THE COMPANY
GENERAL
TransTexas is engaged in the exploration for and development and
production of natural gas, primarily in South Texas. Since 1973, TransTexas has
drilled over 1,400 wells and discovered over 3.5 Tcfe of natural gas.
TransTexas' business strategy is to utilize its extensive experience gained
from over 20 years of drilling and operating wells in South Texas, to continue
to find, develop and produce reserves at a low cost. TransTexas has
traditionally performed most of its own well site preparation, drilling,
workover, completion, pipeline and production services.
In 1994, as part of its strategy to expand its productive reserves
beyond the Lobo Trend, TransTexas began evaluating prospects that exhibited the
potential to add proved reserves of at least 50 Bcfe of natural gas per
development area. Since that time, TransTexas has evaluated over 300 potential
areas and its development of certain of these areas has resulted in substantial
additions to its reserves and production. Since July 31, 1994, TransTexas has
added 812 Bcfe of net proved reserves to its asset base, at an average finding
cost of $0.65 per Mcfe, and, as of April 30, 1997, had acquired leasehold
interests in approximately 484,000 gross acres. Management believes that
TransTexas' combination of exploration and development expertise, financial
resources and ability to quickly evaluate and execute acreage acquisition
transactions provides it with a significant competitive advantage over other
oil and gas companies in acquiring prospective acreage in its areas of
operations.
On May 29, 1997, TransTexas consummated the sale of TTC, its
subsidiary that owned substantially all of TransTexas' Lobo Trend producing
properties and related pipeline transmission system, for a sales price in
excess of $1 billion. As of February 1, 1997, the Lobo Trend producing
properties divested by the sale of the stock of TTC had proved reserves of
approximately 550 Bcfe. As of April 30, 1997, after giving effect to the Lobo
Sale, TransTexas would have owned over 577,000 gross (418,700 net) acres of
mineral interests, with net daily production of approximately 186 MMcfd of
natural gas and 2,397 BPD of condensate and crude oil. As of February 1, 1997,
TransTexas' proved reserves as estimated by Netherland, Sewell & Associates,
Inc., for the Continuing Operations were 404 Bcfe.
TransTexas' average net daily natural gas production for the twelve
months ended January 31, 1997, was approximately 420 MMcfd, for a total net
production of 153.3 Bcf of natural gas. TransTexas' average net daily
production of natural gas and crude and condensate for the quarter ended April
30, 1997 was approximately 186 MMcfd and 2,397 BPD, respectively. During the
three months ended April 30, 1997, TransTexas completed approximately 72% of
the 29 wells it drilled in the period.
OPERATING AREAS
TransTexas' primary areas of operations are discussed below:
BOB WEST NORTH. In late 1994, TransTexas made a natural gas discovery
in the Bob West North area of southern Zapata County, Texas. Since the
discovery, TransTexas has drilled 50 wells and completed 45 wells in the area.
TransTexas' mineral interests in Bob West North consist of a 98% working
interest in 17,000 gross (14,800 net) acres and a 90% net profits interest in
660 gross acres. The Bob West North area surpassed the Lobo Trend in net daily
natural gas production to TransTexas by the end of fiscal 1997. On April 30,
1997, TransTexas was drilling four wells in Bob West North, was in the process
of completing two wells and had daily gross natural gas production of 180 MMcfd
(129 net MMcfd). For the twelve months ended January 31, 1997, TransTexas
produced 45.7 Bcf (32.6 net Bcf) from the Bob West North area. Recent drilling
results indicate the potential for a new productive fault block of the
structure that previously had not been drilled. For the three months ended
April 30, 1997, TransTexas produced 18.6 Bcf (13.4 net Bcf) from the Bob West
North area.
FANDANGO SOUTH. TransTexas is developing an additional natural gas
discovery located in the Lower Wilcox sands in Jim Hogg County, Texas known as
the Fandango South area. As of April 30, 1997, TransTexas had drilled
25
<PAGE> 31
and completed one well in Fandango South, which was producing at a gross rate of
12 MMcfd (9.3 net MMcfd), was drilling two additional wells in the area that it
intends to complete, and was completing one additional well. As of April 30,
1997, TransTexas held a 100% working interest in approximately 5,600 gross
(5,600 net) acres in Fandango South. TransTexas believes that its interests in
the area hold the potential for a total of approximately 20 well sites.
WHARTON COUNTY. In 1995, TransTexas entered into an agreement with a
privately held concern to jointly develop the mineral rights in Frio and
Miocene sands in Wharton County, Texas. TransTexas is not the operator of this
shallow play but interprets data from a dedicated 3-D seismic program to select
drilling locations in which prior production has not depleted the shallow
reservoirs. As of April 30, 1997, 48 wells had been drilled in shallow
formations in the area, 21 of which had been completed and were producing at a
combined gross rate of 11.9 MMcfd (7.3 net MMcfd). The operator was also in
the process of completing an additional well. Based on correlation of 3-D
seismic analyses and extensive subsurface geology, TransTexas believes that its
acreage interests covering the area's shallow reservoirs contain the potential
for as many as 12 additional wells.
TransTexas also acquired mineral rights covering deep prospective
production of the Wilcox formation in Wharton County. As of April 30, 1997,
TransTexas had drilled a well testing the potential of the deeper formation and
was drilling a second well. Preliminary electric log interpretation indicated
40 feet of potential pay in the Middle Wilcox formation in the first well.
Based upon this preliminary analysis, TransTexas has negotiated with a
transmission company to transport natural gas from the area and intends to
drill two additional development wells in the area. Recently, offset operators
have announced several major discoveries in adjacent areas. As of April 30,
1997, TransTexas held a 75% working interest in the shallow mineral rights in
approximately 43,100 gross (34,500 net) acres in Wharton County and a 100%
working interest in the deep mineral rights in approximately 2,200 gross (1,800
net) acres. Based on correlation of 3-D seismic analysis and extensive
subsurface geology, TransTexas believes that it may be able to drill as many as
12 such deep wells in the area.
LODGEPOLE, NORTH DAKOTA. TransTexas is participating in the
exploration and development of the Lodgepole area of Stark and Dunn counties in
North Dakota. In late 1996, TransTexas announced the discovery of a Lodgepole
carbonate reef oil field in Dickinson, North Dakota with the Heart River #1-4,
which flow tested at a daily rate of 6,836 BPD. TransTexas has conducted or
participated in a series of 3-D seismic surveys covering more than 270 square
miles in order to develop its drilling locations and evaluate acreage holdings.
Based upon such 3-D seismic information, TransTexas has selected additional
drilling locations in the producing reef and further seismic anomalies.
TransTexas holds an average working interest of 80% in approximately 198,800
gross (98,400 net) acres in the Lodgepole. As of April 30, 1997, TransTexas had
drilled a total of 10 wells in the Lodgepole, three of which had been completed
and were producing at a combined gross daily production rate of 2,753 BPD.
Effective June 1997, all producing wells in the field are restricted to a
State-mandated allowable daily rate of approximately 500 BPD per well.
AUSTIN CHALK. With the advent of more sophisticated geophysical data
interpretation techniques and improved drilling technologies, horizontal
drilling has proven to be very successful in the economic development of
thinner gas bearing formations. The Austin Chalk formation is particularly well
suited to the drilling of horizontal wells for the primary production of
natural gas. In 1996, TransTexas began the implementation of a strategy
consisting of the evaluation of electric logs and production characteristics of
previously drilled vertical wells. TransTexas then selects areas where the
thickness and resistivity of prospective pay is sufficient to economically
justify the acquisition of mineral lease acreage and the drilling of horizontal
development wells. As of April 30, 1997, TransTexas had drilled and completed
one such horizontal well, in Walker County, Texas, that had flow tested at a
gross rate of 5.7 MMcfd (4.6 net MMcfd). Based on this success, TransTexas was
drilling a second such well as of April 30, 1997. A pipeline connection is
currently under construction to allow the marketing of natural gas. TransTexas
embarked upon a program of selected mineral lease acreage acquisition in late
1996, and as of April 30, 1997, held a 100% working interest in approximately
42,800 gross (40,800 net) acres in the Austin Chalk.
OTHER AREAS. TransTexas has also made discoveries of natural gas and
oil in other prospects that, as of April 30, 1997, some of which have undergone
less development drilling, but which management believes could add material
reserves and production.
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<PAGE> 32
In March 1997, TransTexas began drilling of an exploration well in
Galveston Bay, Texas, the State Tract 331 #1. TransTexas owns a 75% working
interest in approximately 5,600 gross (5,100 net) acres in the area.
Management believes that this area covers four separate structures along trend
from the Chocolate Bayou and Treasure Island fields in Galveston Bay and
adjacent coastal areas. In early May and again in early July, TransTexas
encountered surface pressure of 9,600 p.s.i from a depth of approximately
15,400 feet in the Vicksburg formation that necessitated suspending drilling
operations to control pressure. Subsequently, TransTexas has resumed drilling
and intends to conduct electric logging and testing of the potentially
productive zones. A second well, the State Tract 88A #1, was commenced in June
1997 on a separate structure within the same acreage.
TransTexas owns a 75% working interest in approximately 7,000 gross
(3,100 net) acres in a development area in Wayne County, Mississippi, in which
it has drilled and completed an initial well. As of April 30, 1997, TransTexas
had drilled and was in the process of completing two additional wells. The
discovery well, The Foote Estate #1, has flow tested at a daily gross
production rate of 12.4 MMcfd (7.0 net MMcfd) and 440 BPD (247 net BPD) of
condensate and is being recompleted. TransTexas is participating in a 3-D
seismic survey covering 14,000 acres that it intends to use to select
additional drilling sites.
TransTexas holds an 89% working interest in approximately 36,000 gross
(32,900 net) acres in the Cuba Libre area of Webb County, Texas. As of April
30, 1997, TransTexas had daily gross natural gas production of 4.6 MMcfd (2.9
net MMcfd) from a total of 19 wells drilled in Cuba Libre, of which 9 wells had
been completed by TransTexas. As of April 30, 1997, TransTexas was drilling a
well, based upon the interpretation of its 3-D seismic program, which it
anticipated completing.
TransTexas holds a working interest in excess of 80% in approximately
103,000 gross (81,900 net) acres in the La Grulla area of Starr County, Texas.
As of April 30, 1997, TransTexas had combined daily gross natural gas production
of 10.5 MMcfd (6.7 net MMcfd) from a total of 30 wells drilled in La Grulla, of
which 15 wells had been completed.
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<PAGE> 33
DESCRIPTION OF CERTAIN INDEBTEDNESS
INTERCOMPANY LOAN
With the proceeds of the TEC Offering, TEC made the Intercompany Loans
to TransTexas and TARC. The TransTexas Intercompany Loan, in the principal
amount of $450 million, (i) bears interest at a rate of 10 7/8% per annum,
payable semi-annually in cash in arrears and (ii) is secured initially by a
security interest in substantially all of the assets of TransTexas, but
excluding inventory, receivables and equipment. The TARC Intercompany Loan, in
the original amount of $676 million, (i) accretes principal at 16% per annum,
compounded semi-annually, until June 15, 1999, to a final accreted value of $920
million, and thereafter pays interest semi-annually in cash in arrears on the
accreted value thereof, at a rate of 16% per annum, and (ii) is secured
initially by a security interest in substantially all of TARC's assets other
than inventory, receivables and equipment. The Intercompany Loans will mature
on June 1, 2002. The Intercompany Loan Agreements contain certain restrictive
covenants, including, among others, limitations on incurring additional debt,
asset sales, dividends and transactions with affiliates. Upon the occurrence of
a Change of Control (as defined), TEC will be required to make an offer to
purchase all of the outstanding TEC Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, or,
in the case of any such offer to purchase the TEC Senior Secured Discount Notes
prior to June 15, 1999, at a price equal to 101% of the accreted value thereof,
in each case, to and including the date of purchase. Pursuant to the terms of
the Intercompany Loans, TEC may require TransTexas and TARC to pay a pro rata
share of the purchase price paid by TEC.
RECEIVABLES FACILITY
The Company and BNY Financial Corporation are parties to an Amended
and Restated Accounts Receivable Management and Security Agreement (the "BNY
Facility"), dated as of October 31, 1995 and amended in December 1996. In
connection with the transactions described under "Prospectus Summary -- Recent
Events," the Company and BNY entered into a waiver of the BNY Facility,
pursuant to which advances under the BNY Facility are made at the sole
discretion of the lender and the lender may require repayment of principal and
interest at any time. As of June 30, 1997, outstanding advances under the BNY
Facility totaled approximately $3.6 million. Interest accrues on advances at
the rate of (i) the higher of (a) the prime rate of The Bank of New York and
(b) the Federal Funds Rate plus 1/2 of 1% plus (ii) 1/2 of 1%.
Obligations under the BNY Facility are secured by liens on the
Company's receivables and inventory. The Notes will be subordinate and junior
in right of payment to the Company's obligations under the BNY Facility in the
event of liquidation.
The Company is currently negotiating an amendment and restatement of
the BNY Facility.
EQUIPMENT FINANCING
As of June 30, 1997, the Company had approximately $24.9 million in
notes payable collateralized by certain of the Company's operating equipment.
These notes payable bear interest at rates ranging from approximately 9.25% to
12.9% per annum and mature at various dates through 2000.
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<PAGE> 34
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued as a separate series of notes under
an indenture (the "Indenture") dated as of June 13, 1997 between the Company
and BankOne, NA, as trustee (the "Trustee"). The Exchange Notes will be senior
unsecured obligations of the Company and are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the
Outstanding Notes for which they may be exchanged pursuant to this offer,
except for certain transfer restrictions and registration rights relating the
Outstanding Notes and except for certain interest provisions relating to such
rights. Under the terms of the Indenture, the covenants and events of default
will apply equally to the Exchange Notes and the Outstanding Notes, and the
Exchange Notes and the Outstanding Notes will be treated as one class for all
actions to be taken by the holders thereof and for determining their respective
rights under the Indenture. References to the Notes include the Exchange Notes
and the Outstanding Notes unless the context otherwise requires. The
Outstanding Notes were issued under the Indenture in an aggregate principal
amount of $115,815,000. The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summaries of certain provisions of the Indenture and the Registration Rights
Agreement do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Indenture and
the Registration Rights Agreement, including the definition of certain terms
contained therein and those terms that are made a part of the Indenture by
reference to the Trust Indenture Act. Copies of the Indenture and Registration
Rights Agreement have been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. Capitalized terms not otherwise defined below
or elsewhere in this Prospectus have the meanings given to them in the
Indenture. The definition of certain capitalized terms used in the summary are
set forth below under "--Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be unsecured senior subordinated general
obligations of the Company, will mature on December 31, 2001, and will be
limited in aggregate principal amount (as shown on the face thereof) to
$117,573,000. The Exchange Notes will be issued in denominations of $1,000 and
integral multiples thereof in fully registered form.
The Exchange Notes will accrue interest at the rate of 13 3/4% per
annum from the date of issuance, or from the most recent interest payment date
to which interest has been paid or duly provided for, and accrued and unpaid
interest will be payable semi-annually on June 30 and December 31 of each year,
commencing December 31, 1997. Interest will be paid to the person in whose
name the Exchange Note is registered at the close of business on the June 15 or
December 15, as applicable, immediately preceding such interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Exchange Notes will be payable both as to principal and interest
at the office or agency of the Company maintained for such purpose within the
City and State of New York. In addition, interest may be paid, at the option
of the Company, by check mailed to the holders of the Exchange Notes
("Holders") at their respective addresses set forth in the register of Holders.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. Any
Outstanding Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer will be treated as a single class of securities under the Indenture.
OPTIONAL REDEMPTION
The Notes are not redeemable prior to June 30, 2000, except that,
prior to June 30, 1999, the Company may redeem, at its option, up to $35
million of the principal amount thereof at a price equal to 113.250% of the
principal amount thereof at the date of redemption, plus accrued and unpaid
interest, if any, to the date of redemption, with certain of the net proceeds
of any Public Equity Offering.
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<PAGE> 35
The Notes may be redeemed in whole or from time to time in part at any
time on and after June 30, 2000, at the option of the Company, at the
redemption prices (expressed as a percentage of principal amount) set forth
below in each case, together with accrued but unpaid interest, if any, to the
date of redemption, if redeemed during the periods shown below:
<TABLE>
<S> <C>
Period Redemption Price
------ ----------------
On or after June 30, 2000, but before June 30, 2001 106.00%
On or after June 30, 2001 100.00%
</TABLE>
Any such redemptions will comply with Article III of the Indenture.
In the event of a redemption of less than all of the Notes, the Notes
will be selected for redemption by the Trustee pro rata, by lot or by any other
method that the Trustee considers fair and appropriate and, if the Exchange
Notes are listed on any securities exchange, by a method that complies with the
requirements of such exchange. Notice of redemption will be mailed at least 15
days but not more than 60 days before the redemption date to each Holder of
Exchange Notes to be redeemed at such Holder's registered address. On and
after the redemption date, interest will cease to accrue on Exchange Notes or
portions thereof called for redemption (unless the Company shall default in the
payment of the redemption price or accrued interest).
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Notes is subordinated in right of payment as set forth in the Indenture to the
prior payment in full of all Senior Debt, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed or guaranteed.
No payment may be made by the Company on or behalf of the Company on
account of principal of or interest on the Notes or to acquire or repurchase
any of the Notes or on account of the redemption provisions of the Notes (i)
upon the maturity of any Senior Debt by lapse of time, acceleration or
otherwise, unless and until all such Senior Debt is first paid in full or (ii)
upon the happening of any default in payment of any principal of or interest on
any Senior Debt when the same becomes due and payable (a "Payment Default"),
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist.
Upon the happening of a default (other than a Payment Default) with
respect to any Senior Debt, as such default or event of default is defined
therein or in the instrument or agreement under which it is outstanding, and
upon written notice thereof given to the Company and the Trustee by any holders
of such Senior Debt or their representative (a "Payment Notice"), then, unless
and until such default or event of default shall have been cured or waived or
shall have ceased to exist or the representative gives its written approval, no
payment shall be made by or on behalf of the Company on account of principal of
or interest on the Notes or to acquire or repurchase any of the Notes or on
account of the redemption provisions of the Notes; provided, however, that
these provisions will not prevent the making of any payment for more than 179
days after the due date of the first principal or interest payment on the Notes
after a Payment Notice shall have been given. Notwithstanding the foregoing,
not more than one Payment Notice shall be given within a period of 360
consecutive days.
Upon any distribution of the assets of the Company or payment on the
Notes on behalf of the Company in the event of any insolvency or liquidation
proceeding with respect to the Company, the holders of Senior Debt will be
entitled to receive payment in full of such Senior Debt before the Holders are
entitled to receive any payment on account of the principal amount or interest
due with respect to the Notes.
Because of these subordination provisions, creditors of the Company
who are also holders of Senior Debt may recover more, ratably, than the Holders
of the Notes.
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The subordination provisions described above will cease to be
applicable to the Notes upon any legal defeasance or covenant defeasance of the
Notes as described under "--Legal Defeasance or Covenant Defeasance of
Indenture."
As of June 30, 1997, the Company had outstanding Senior Debt of
approximately $478 million. The foregoing amounts include only liabilities on
the Company's consolidated balance sheet under GAAP; the Company and its
subsidiaries have other liabilities, including contingent liabilities, which
may be significant. Although the Indenture will contain limitations on the
amount of additional Debt that the Company and its Subsidiaries may incur, the
amounts of such Debt could be substantial and, in any case, such Debt may be
Senior Debt or Debt of Unrestricted Subsidiaries (to which the Notes will be
structurally subordinated). See "Certain Covenants--Limitation on Incurrence
of Additional Debt and Issuances of Disqualified Capital Stock."
CERTAIN DEFINITIONS
"Adjusted Consolidated Net Income" of any Person for any period means
the net income (loss) of such Person and its Consolidated Subsidiaries for such
period, determined in accordance with GAAP, excluding (without duplication) (i)
all extraordinary gains, (ii) the net income, if positive, of any other Person,
other than a Consolidated Subsidiary, in which such Person or any of its
Consolidated Subsidiaries has an interest, except to the extent of the amount
of any dividends or distributions actually paid in cash to such Person or a
Consolidated Subsidiary of such Person during such period, (iii) the net
income, if positive, of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (iv) the
net income, if positive, of any Subsidiary of such Person to the extent that
the declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule, or governmental regulation
applicable to such Subsidiary.
"Adjusted Consolidated Tangible Assets" means (without duplication),
as of the date of determination, (A) the sum of (i) discounted future net cash
flows from proved oil and gas reserves of the Company and its Consolidated
Subsidiaries, calculated in accordance with SEC guidelines (before any state or
federal income tax), as estimated by nationally recognized independent
petroleum engineers in a Reserve Report dated as of a date no earlier than the
Company's most recent fiscal year end (or, if such Reserve Report is
unavailable, or if the date of determination is after the end of the first
fiscal quarter of the most recent fiscal year of the Company, as estimated by
Company engineers on the same basis as of a date no earlier than the end of the
most recent fiscal quarter, which estimates shall be confirmed in writing by a
report by nationally recognized independent petroleum engineers in accordance
with SEC guidelines in the event of a Material Change if the amount of Adjusted
Consolidated Tangible Assets is required to be computed under the Indenture),
(ii) the Net Working Capital on a date no earlier than the date of the
Company's latest consolidated annual or quarterly financial statements and
(iii) with respect to all other tangible assets of the Company or its
Consolidated Subsidiaries (which are deemed to include leasehold mineral
interests), the greater of (a) the net book value of such other tangible assets
on a date no earlier than the date of the Company's latest consolidated annual
or quarterly financial statements, and (b) the appraised value, as estimated by
a qualified independent appraiser, of such other tangible assets, as of a date
no earlier than the date that is three years prior to the date of determination
(or such later date on which the Company shall have a reasonable basis to
believe that there has occurred a material decrease in value since the
determination of such appraised value), minus (B) minority interests and, to
the extent not otherwise taken into account in determining Adjusted
Consolidated Tangible Assets, any gas balancing liabilities of the Company and
its Consolidated Subsidiaries. In addition to, but without duplication of the
foregoing, for purposes of this definition, "Adjusted Consolidated Tangible
Assets" shall be calculated after giving effect, on a pro forma basis, to (1)
any Permitted Investment, to and including the date of the transaction giving
rise to the need to calculate Adjusted Consolidated Tangible Assets (the
"Assets Transaction Date"), in any other Person that, as a result of such
Investment, becomes a Subsidiary of the Company, (2) the acquisition, to and
including the Assets Transaction Date (by merger, consolidation or purchase of
stock or assets), of any business or assets, including,
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without limitation, Permitted Investments, (3) any sales or other dispositions
of assets (other than sales of Hydrocarbons or other mineral products in the
ordinary course of business) occurring on or prior to the Assets Transaction
Date, and (4) the TTXD Spin-off, if the TTXD Spin-off has occurred. For
purposes of calculating the ratio of the Company's Adjusted Consolidated
Tangible Assets to total consolidated principal amount of Debt of the Company
and its Subsidiaries, Debt of a Subsidiary that is not a Wholly Owned Subsidiary
of the Company (which Debt is non-recourse to the Company or any other
Subsidiary of the Company or any of their assets) shall be included only to the
extent of the Company's pro rata ownership interest in such Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director or controlling shareholder of such other Person. For purposes of this
definition, the term "control" means the power to direct the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise.
"Asset Sale" means any direct or indirect conveyance, sale, transfer
or other disposition, in one or a series of related transactions, of any of the
properties, businesses or assets of the Company or any Subsidiary of the
Company, whether owned on the Issue Date or thereafter acquired; provided,
however, that "Asset Sale" shall not include (a) any disposition of
Receivables, Inventory or Equipment, (b) any pledge or disposition of assets
(if such pledge or disposition would otherwise constitute an Asset Sale) to the
extent and only to the extent that it results in the creation of a Permitted
Lien (other than the creation of a Permitted Lien in connection with (i) a
Dollar-Denominated Production Payment that the Company or any of its
Subsidiaries does not elect to treat as Debt, (ii) a Volumetric Production
Payment or (iii) a Presale of Gas, which in each case shall be treated as an
Asset Sale hereunder, provided, however, that neither the contribution of a
Dollar-Denominated Production Payment to a Hedging Subsidiary nor the mortgage
or other encumbrance of such Dollar-Denominated Production Payment by such
Hedging Subsidiary as contemplated by clause (e) of the definition of
"Permitted Liens" shall constitute an Asset Sale), or (c) conveyances, sales,
transfers or other dispositions in connection with a Drilling Program.
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP
or, in the event that such rate of interest is not reasonably determinable,
discounted at the rate of 13 3/4% per annum) of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
Sale and Leaseback Transaction (including any period for which such lease has
been extended or may, at the option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means a day that is not a Legal Holiday.
"Capital Expenditures" of a Person means expenditures (whether paid in
cash or accrued as a liability) by such Person or any of its Subsidiaries that,
in conformity with GAAP, are or would be included in "capital expenditures,"
"additions to property, plant, or equipment" or comparable items in the
consolidated financial statements of such Person consistent with prior
accounting practices.
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"Capital Stock" means, with respect to any Person, any capital stock
of such Person and shares, interests, participations, or other ownership
interests (however designated) of such Person and any rights (other than debt
securities convertible into corporate stock), warrants or options to purchase
any of the foregoing, including, without limitation, each class of common stock
and preferred stock of such Person if such Person is a corporation, and each
general and limited partnership interest or other equity interest of such
Person, if such Person is a partnership.
"Capitalized Lease Obligation" means obligations under a lease that
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Debt represented by such obligations shall be the
capitalized amount of such obligations, as determined in accordance with GAAP.
"cash" means U.S. Legal Tender.
"Cash Equivalents" means (a) United States dollars, (b) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (c) certificates of deposit
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year, and overnight bank
deposits, in each case, with any Eligible Institution, (d) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (b) and (c) entered into with any Eligible
Institution, (e) commercial paper rated "P-1," "A-1" or the equivalent thereof
by Moody's or S&P, respectively, and in each case maturing within one year
after the date of acquisition, (f) shares of money market funds, including
those of the Trustee, that invest solely in United States dollars and
securities of the types described in clauses (a) through (e) preceding, (g)
demand and time deposits and certificates of deposit with any commercial bank
organized in the United States not meeting the qualifications specified in
clause (c) preceding, provided that such deposits and certificates support
bonds, letters of credit and other similar types of obligations incurred in the
ordinary course of business, (h) deposits with any Eligible Institution, (i)
demand or fully insured time deposits used in the ordinary course of business
with commercial banks insured by the Federal Deposit Insurance Corporation.
"Change of Control" means (i) the liquidation or dissolution of, or
the adoption of a plan of liquidation by, the Company, or (ii) any transaction,
event or circumstance pursuant to which any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable), other than John R. Stanley (or his heirs, his estate, or
any trust in which he or his immediate family members have, directly or
indirectly, a beneficial interest in excess of 50%) and his Subsidiaries or the
TEC Indenture Trustee, is or becomes the "beneficial owner" (as that term is
used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable), directly or indirectly, of more than 50%, on a fully diluted
basis, of the total voting power of the Company's then outstanding Voting
Stock, unless, at the time of the occurrence of an event specified in clauses
(i) or (ii), the Notes have a current rating issued by a Rating Agency;
provided, however, that if, at any time within the period commencing on the
date that is immediately prior to the date of the first public announcement of
such event and ending on, but not including, the date that is 90 days after
occurrence of such event (which period shall be deemed to be extended so long
as prior to the end of such 90-day period and continuing thereafter the rating
of the Notes is under publicly announced consideration for possible downgrade
by either Rating Agency) either (a) the Notes are downgraded by either Rating
Agency to a rating at least one gradation (including a change within rating
categories, e.g., a decline in rating from BB+ to BB, or from B to B-) below
that which existed on the date immediately prior to the date of the first
public announcement of such an event, or (b) either Rating Agency withdraws its
rating of the Notes, then, in either case, such event shall be a "Change of
Control."
"Common Stock" means the common stock, $0.01 par value per share, of
the Company, now or hereafter issued, or any reclassification thereof.
"Consolidated EBITDA" of any Person for any period, unless otherwise
defined herein, means (a) the Consolidated Net Income of such Person for such
period, plus (b) the sum, without duplication (and only to the extent such
amounts are deducted from net revenues in determining such Consolidated Net
Income), of (i) the provision for income taxes for such period for such Person
and its Consolidated Subsidiaries, (ii) depreciation, depletion, and
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amortization of such Person and its Consolidated Subsidiaries for such period,
and (iii) Consolidated Fixed Charges of such Person for such period,
determined, in each case, on a consolidated basis for such Person and its
Consolidated Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" on any date (the
"Transaction Date") means, with respect to any Person, the ratio, on a pro
forma basis, of (i) the aggregate amount of Consolidated EBITDA of such Person
(attributable to continuing operations and businesses and exclusive of the
amounts attributable to operations and businesses discontinued or disposed of,
on a pro forma basis as if such operations and businesses were discontinued or
disposed of on the first day of the Reference Period) for the Reference Period
to (ii) the aggregate Consolidated Fixed Charges of such Person (exclusive of
amounts attributable to discontinued operations and businesses on a pro forma
basis as if such operations and businesses were discontinued or disposed of on
the first day of the Reference Period, but only to the extent that the
obligations giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such Person's Consolidated Fixed Charges subsequent
to the Transaction Date) during the Reference Period; provided, that for
purposes of such computation, in calculating Consolidated EBITDA and
Consolidated Fixed Charges, (a) the transaction giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio shall be assumed to have
occurred on the first day of the Reference Period, (b) the incurrence of any
Debt or issuance of Disqualified Capital Stock (and the application of the
proceeds therefrom) or the retirement of any Debt or Disqualified Capital Stock
during the Reference Period or subsequent thereto and on or prior to the
Transaction Date shall be assumed to have occurred on the first day of such
Reference Period, (c) Consolidated Interest Expense attributable to any Debt
(whether existing or being incurred) bearing a floating interest rate shall be
computed as if the rate in effect on the Transaction Date had been the
applicable rate for the entire period, unless such Person or any of its
Consolidated Subsidiaries is a party to a Swap Obligation (that remains in
effect for the 12-month period after the Transaction Date) that has the effect
of fixing the interest rate on the date of computation, in which case such rate
(whether higher or lower) shall be used, and (d) Consolidated EBITDA and
Consolidated Fixed Charges of any Person shall be calculated by giving pro
forma effect to the TTXD Spin-off as if such transaction had occurred on the
first day of the Reference Period, but only if such transaction occurred
during the Reference Period.
"Consolidated Fixed Charges" of any Person for any period means
(without duplication) the sum of (i) Consolidated Interest Expense of such
Person for such period, (ii) dividend requirements of such Person and its
Consolidated Subsidiaries (whether in cash or otherwise (except dividends
payable solely in shares of Qualified Capital Stock)) with respect to Preferred
Stock paid, accrued, or scheduled to be paid or accrued during such period, in
each case to the extent attributable to such period and excluding items
eliminated in consolidation, and (iii) fees paid, accrued, or scheduled to be
paid or accrued during such period by such Person and its Consolidated
Subsidiaries in respect of performance bonds or other guarantees of payment.
For purposes of clause (ii) above, dividend requirements shall be increased to
an amount representing the pre-tax earnings that would be required to cover
such dividend requirements; accordingly, the increased amount shall be equal to
a fraction, the numerator of which is such dividend requirements and the
denominator of which is 1 minus the applicable actual combined effective
Federal, state, local, and foreign income tax rate of such Person and its
subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal
year immediately preceding the date of the transaction giving rise to the need
to calculate Consolidated Fixed Charges.
"Consolidated Interest Expense" of any Person means, for any period,
the aggregate interest (without duplication), whether expensed or capitalized,
paid, accrued, or scheduled to be paid or accrued during such period in respect
of all Debt of such Person and its Consolidated Subsidiaries (including (i)
amortization of deferred financing costs and original issue discount and
non-cash interest payments or accruals, (ii) the interest portion of all
deferred payment obligations, calculated in accordance with the effective
interest method, and (iii) all commissions, discounts, other fees, and charges
owed with respect to letters of credit and banker's acceptance financing and
costs associated with Swap Obligations, in each case to the extent attributable
to such period, but excluding any interest accrued on intercompany payables for
taxes to the extent the liability for such taxes has been assumed by
TransAmerican pursuant to the Tax Allocation Agreement) determined on a
consolidated basis in accordance with GAAP. For purposes of this definition,
(x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined to be the rate of interest implicit in such
Capitalized Lease Obligation in
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accordance with GAAP (including Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board), and (y) Consolidated Interest
Expense attributable to any Debt represented by the guarantee by such Person or
a Consolidated Subsidiary of such Person other than with respect to Debt of
such Person or a Consolidated Subsidiary of such Person shall be deemed to be
the interest expense attributable to the item guaranteed.
"Consolidated Net Income" of any Person for any period means the net
income (loss) of such Person and its Consolidated Subsidiaries for such period,
determined in accordance with GAAP, excluding (without duplication) (i) all
extraordinary, unusual and nonrecurring gains, (ii) the net income, if
positive, of any other Person, other than a Consolidated Subsidiary, in which
such Person or any of its Consolidated Subsidiaries has an interest, except to
the extent of the amount of any dividends or distributions actually paid in
cash to such Person or a Consolidated Subsidiary of such Person during such
period, but not in excess of such Person's pro rata share of such other
Person's aggregate net income earned during such period or earned during the
immediately preceding period and not distributed during such period, (iii) the
net income, if positive, of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition, and (iv) the
net income, if positive, of any Consolidated Subsidiary of such Person to the
extent that the declaration or payment of dividends or similar distributions is
not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule, or governmental
regulation applicable to such Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated for
financial statement reporting purposes with the financial statements of such
Person in accordance with GAAP.
"Continuing Operations" means the aggregate of the operations of the
TransTexas Entities after giving effect to the sale by the Company of the stock
of TTC.
"Debt" means, with respect to any Person, without duplication, (i) all
liabilities, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof), (b) evidenced by bonds, notes,
debentures, or similar instruments or letters of credit, (c) representing the
deferred and unpaid balance of the purchase price of any property acquired by
such Person or services received by such Person, other than long-term service
contracts or supply contracts which require minimum periodic payments and other
than any such balance that represents an account payable or other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business of such Person in connection with
obtaining goods, materials or services due within twelve months (or such longer
period for payment as is customarily extended by such trade creditor) of the
Incurrence thereof, which account is not overdue by more than 150 days, unless
such account payable is being contested in good faith or has been extended, (d)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks or Swap Obligations, (e) for the payment of money relating to a
Capitalized Lease Obligation, (f) the Attributable Debt associated with any
Sale and Leaseback Transaction, or (g) Dollar-Denominated Production Payments
that the Company or any of its Subsidiaries elect to treat as Debt (excluding
all other Permitted Production Payment Obligations); (ii) reimbursement
obligations of such Person with respect to letters of credit; (iii) all
liabilities of others of the kind described in the preceding clause (i) or (ii)
that such Person has guaranteed or that is otherwise its legal liability (to
the extent of such guaranty or other legal liability), but excluding
liabilities arising by reason of endorsements, with recourse, of negotiable and
similar instruments for purposes of deposit or collection in the ordinary
course of business; (iv) all obligations secured by a Lien (other than
Permitted Liens, except to the extent the obligations secured by such Permitted
Liens are otherwise included in clause (i), (ii) or (iii) of this definition
and are obligations of such Person) to which the property or assets (including,
without limitation, leasehold interests and any other tangible or intangible
property rights) of such Person are subject, regardless of whether the
obligations secured thereby shall have been assumed by or shall otherwise be
such Person's legal liability (but, if such obligations are not assumed by such
Person or are not otherwise such Person's legal liability, the amount of such
Debt shall be deemed to be limited to the fair market value of such property or
assets determined as of the end of the preceding fiscal quarter); and (v) any
and all deferrals, renewals, extensions, refinancings, and refundings (whether
direct or
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indirect) of, or amendments, modifications, or supplements to, any liability of
the kind described in any of the preceding clauses (i) through (iv)
regardless of whether between or among the same parties.
"Default" means an event or condition, the occurrence of which is, or
with the lapse of time or giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means, with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms or by the
terms of any security into which it is convertible or exchangeable, is, or upon
the happening of an event or the passage of time would be, required to be
redeemed or repurchased by such Person or its Subsidiaries, including at the
option of the holder, in whole or in part, or has, or upon the happening of an
event or passage of time would have, a redemption or similar payment due, on
or prior to the Stated Maturity.
"Dollar-Denominated Production Payment" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
obligations and undertakings in connection therewith.
"Drilling Agreement" means a drilling and services agreement between
the Company and TTXD relating to the provision of such services at market rates
by TTXD to the Company upon the terms approved by the Board of Directors of
each of TTXD and the Company, as in effect on the Issue Date and as amended
from time to time, provided that any such amendment is not materially adverse
to the Holders of the Notes.
"Drilling Program" means any arrangement between the Company or any
Subsidiary of the Company and another Person pursuant to which (i) such Person
agrees (a) to drill, complete or perform operations to enhance recovery from, a
well or wells on mineral interests owned by the Company or such Subsidiary or
(b) to pay all or a portion of the costs incurred in connection with of
drilling, completing or performing such other operations (or to reimburse the
Company or such Subsidiary for payment of such costs within six months of the
incurrence thereof) and (ii) the Company or such Subsidiary agrees to convey or
assign to such person an interest in such well or wells in accordance with
clause (l) of the definition of "Permitted Liens."
"Eligible Institution" means a domestic commercial banking institution
that has combined capital and surplus of not less than $500 million and that is
rated "A" (or higher) according to Moody's or S&P at the time as of which any
Investment or rollover therein is made.
"Equipment" means and includes, as to any Person, all of such Person's
now owned or hereafter acquired Vehicles, drilling rigs, workover rigs,
fracture stimulation equipment, well site compressors, rolling stock and
related equipment and other assets accounted for as equipment by such Person on
its financial statements, all proceeds thereof, and all documents of title,
books, records, ledger cards, files, correspondence, and computer files, tapes,
disks and related data processing software that at any time evidence or contain
information relating to the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Assets" means assets acquired by the Company or any
Subsidiary of the Company in exchange for assets of the Company or such
Subsidiary in connection with an Asset Sale, which acquired assets include
proved reserves with a value that, together with the cash or Cash Equivalents
therefor by the Company or such Subsidiary, is equal to or greater than the
value of the proved reserves included in the properties disposed of by the
Company or such Subsidiary in connection with such Asset Sale; except, that
during any fiscal year the Company or any of its Subsidiaries can collectively
acquire assets (other than proved reserves, cash or Cash Equivalents) with a
fair market value of up to $40 million in exchange for assets of the Company or
such Subsidiaries with proved reserves, and such assets acquired by the Company
or such Subsidiaries shall constitute "Exchange Assets" hereunder.
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"GAAP" means generally accepted accounting principles as in effect in
the United States on the Issue Date applied on a basis consistent with that
used in the preparation of the audited financial statements of the Company
included in the Company's annual report on Form 10-K for the year ended January
31, 1997.
"Gas Purchase Agreement" means the Interruptible Gas Sales Terms and
Conditions between TARC and the Company, as in effect on the Issue Date and as
amended from time to time, provided that any such amendment is not adverse to
the Holders of the Notes in any material respect.
"Hedging Subsidiary" means a Subsidiary of the Company engaged solely
in the business of facilitating Permitted Hedging Transactions for the benefit
of the Company or any of its Subsidiaries.
"Hydrocarbons" means oil, natural gas, condensate, and natural gas
liquids.
"Independent Director" means an individual that is not and has not
been affiliated (other than as a director of TransAmerican or any of its past
or present Subsidiaries) with, and is not and has not been a Related Person
(other than solely as a director of TransAmerican or one of its past or present
Subsidiaries) with respect to, John R. Stanley, TransAmerican or the Company or
its Subsidiaries.
"Intercompany Loan Redemption" means a redemption by the Company of
all or a portion of the principal of the TransTexas Intercompany Loan, together
with payment of accrued and unpaid interest, if any, to and including the date
of such redemption.
"Interest Rate or Currency Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.
"Inventory" means and includes, as to any Person, all of such Person's
now owned or hereafter acquired casing, drill pipe and other supplies accounted
for as inventory by such Person on its financial statements (excluding any
Hydrocarbons), all proceeds thereof, and all documents of title, books,
records, ledger cards, files, correspondence, and computer files, tapes, disks
and related data processing software that at any time evidence or contain
information relating to the foregoing.
"Investment" by any Person in any other Person means (a) the
acquisition (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership, or other ownership
interests or other securities of such other Person or any agreement to make any
such acquisition; (b) the making by such Person of any deposit with, or
advance, loan, or other extension of credit to, such other Person (including
the purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) and (without duplication) any amount committed to be advanced, loaned
or extended to such other Person; (c) the entering into of any guarantee of, or
other contingent obligation with respect to, Debt or other liability of such
other Person; (d) the entering into of any Swap Obligation with such other
Person; or (e) the making of any capital contribution by such Person to such
other Person.
"Investment Grade Rating" means, with respect to any Person or issue
of debt securities or preferred stock, a rating in one of the four highest
letter rating categories (without regard to "+" or "-" or other modifiers) by
any rating agency or if any such rating agency has ceased using letter rating
categories or the four highest of such letter rating categories are not
considered to represent "investment grade" ratings, then the comparable
"investment grade" ratings (as designated by any such rating agency).
"Issue Date" means the date of first issuance of the Securities under
the Indenture.
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"Junior Debt" means Debt of the Company or any Subsidiary of the
Company that is subordinate or junior in right of payment to the Notes in the
event of a liquidation, dissolution or other winding up of the Company or any
insolvency or bankruptcy of the Company.
"Lien" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, regardless of whether filed, recorded, or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).
"Material Change" means an increase or decrease of more than 10% since
the then most recent Reserve Report in the discounted future net cash flows
(excluding changes that result from changes in prices) from proved oil and gas
reserves of the Company and its Consolidated Subsidiaries (before any state or
federal income tax); provided, however, that the following will be excluded
from the Material Change calculation: (i) any acquisitions since the then most
recent Reserve Report of oil and gas reserves that have been estimated by
independent petroleum engineers and on which a report or reports have been
prepared by such independent petroleum engineers within twelve months of the
acquisition, (ii) any reserves added since the then most recent Reserve Report
attributable to the drilling or recompletion of wells not included in previous
reserve estimates, and (iii) any disposition of properties existing on the date
of the then most recent Reserve Report that have been disposed of.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock, the aggregate net cash proceeds received by the
Company from the sale of Qualified Capital Stock (other than to a Subsidiary)
after payment of reasonable out-of-pocket expenses, commissions and discounts
incurred in connection therewith, and (b) in the case of any exchange,
exercise, conversion or surrender of any outstanding securities or Debt of the
Company for or into shares of Qualified Capital Stock of the Company, the net
book value of such outstanding securities as adjusted on the books of the
Company or Debt of the Company to the extent recorded in accordance with GAAP,
in each case, on the date of such exchange, exercise, conversion or surrender
(plus any additional amount required to be paid by the holder of such Debt or
securities to the Company upon such exchange, exercise, conversion or surrender
and less (i) any and all payments made to the holders of such Debt or
securities and (ii) all other expenses incurred by the Company in connection
therewith; in each case insofar as such payments or expenses are incident to
such exchange, exercise, conversion or surrender).
"Net Working Capital" means (i) all current assets of the Company and
its Consolidated Subsidiaries, minus (ii) all current liabilities of the
Company and its Consolidated Subsidiaries, except current liabilities that are
Debt, each item to be determined in conformity with GAAP.
"Net Worth" of any Person means, at any date of determination,
stockholders' equity as set forth in the most recently available quarterly or
annual consolidated balance sheet of such Person and its Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts included therein attributable to Disqualified
Capital Stock or any equity security convertible into or exchangeable for Debt,
the cost of treasury stock (not otherwise deducted from stockholders' equity),
and the principal amount of any promissory notes receivable from the sale of
the Capital Stock of such Person or any of its Subsidiaries, each item to be
determined in conformity with GAAP.
"New Property" means real or personal property acquired by the Company
or any of its Subsidiaries after the Issue Date.
"NNM" means the Nasdaq National Market.
"Obligor" means the Company.
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"Office Leases" means the existing leases of office space at 1300
North Sam Houston Parkway East, Houston, Texas 77032-2949.
"Permitted Hedging Transactions" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement transactions) engaged in by the Company or any of its
Subsidiaries as part of the normal business operations of the TransTexas
Entities as a risk-management strategy or hedge against adverse changes in
prices of oil, natural gas, or natural gas liquids; provided, that such
transactions do not, on a monthly basis, relate to more than 90% of the
TransTexas Entities' average net natural gas production per month from
Continuing Operations for the most recent three-month period measured at the
time of such incurrence; and provided, further, that, at the time of such
transaction (i) the counter party to any such transaction is an Eligible
Institution or a Person that has an Investment Grade Rating or that has an
issue of debt securities or preferred stock outstanding with an Investment
Grade Rating or (ii) such counter party's obligation pursuant to such
transaction is unconditionally guaranteed in full by, or secured by a letter of
credit issued by, an Eligible Institution or a Person that has an Investment
Grade Rating or has an issue of debt securities or preferred stock outstanding
with an Investment Grade Rating.
"Permitted Investment" means, when used with reference to the Company
or its Subsidiaries, (i) trade credit extended to persons in the ordinary
course of business; (ii) purchases of Cash Equivalents; (iii) Investments by
the Company or its Wholly Owned Subsidiaries in Wholly Owned Subsidiaries of
the Company that are engaged in Related Businesses; (iv) Swap Obligations; (v)
the receipt of Capital Stock in lieu of cash in connection with the settlement
of litigation or a claim in a bankruptcy or insolvency proceeding; (vi)
advances to officers and employees in connection with the performance of their
duties in the ordinary course of business in an amount not to exceed $3,000,000
in the aggregate outstanding at any time; (vii) margin deposits in connection
with Permitted Hedging Transactions; (viii) an Investment in Capital Stock
resulting from an Asset Sale described in subparagraph (viii) of the second
paragraph under the caption " -- Certain Covenants -- Limitation on Asset
Sales"; (ix) an Investment in one or more Unrestricted Subsidiaries of the
Company in an aggregate amount not in excess of $25,000,000 (net of returns on
investment) less the amount of any Unrestricted Non-Recourse Debt outstanding
of TransTexas or any of its Subsidiaries; (x) Investments and expenditures made
in the ordinary course of business by the Company or its Subsidiaries, and of a
nature that is or shall have become customary in, the oil and gas business as
means of actively exploiting, exploring for, acquiring, developing, processing,
gathering, marketing or transporting oil or gas through agreements,
transactions, interests or arrangements which permit a Person to share risks or
costs, comply with regulatory requirements regarding local ownership or satisfy
objectives customarily achieved through the conduct of the oil and gas business
jointly with third parties, including, without limitation, (a) ownership
interests in oil and gas properties or gathering systems and (b) Investments
and expenditures in the form of or pursuant to operating agreements, processing
agreements, farm-in agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization agreements, pooling agreements,
joint bidding agreements, service contracts, joint venture agreements,
partnership agreements (whether general or limited), subscription agreements,
stock purchase agreements and other similar agreements with third parties
(including Unrestricted Subsidiaries), provided that in the case of any joint
venture engaged in processing, gathering, marketing or transporting oil or gas
(1) all Debt of such joint venture (other than a joint venture that is an
Unrestricted Subsidiary) which would not otherwise constitute Debt of one of
the TransTexas Entities shall be deemed Debt of the Company in proportion to
its direct or indirect ownership interest in such joint venture and (2) such
joint venture shall be reasonably calculated to enhance the value of the
reserves of the TransTexas Entities or the marketability of production from
such reserves; (xi) a guaranty by any Subsidiary of the Company permitted under
clause (f) of the covenant described under the caption " -- Certain Covenants
- -- Limitation on Incurrence of Additional Debt and Issuances of Disqualified
Capital Stock"; (xii) deposits permitted by of the definition of "Permitted
Liens" or any extension, renewal, or replacement of any of them; (xiii) capital
contributions by the Company to TTXD or to a joint venture, a partnership, a
limited liability company or a similar entity of the Company's drilling and
energy services business and pipeline services business and related assets;
(xiv) the TTXD Equity Investment (in addition to any contribution by the
Company pursuant to clause (xiii) preceding); (xv) [intentionally omitted];
(xvi) guarantees by the Company of Debt of TTXD to the extent that such Debt
relates to assets contributed to TTXD pursuant to clause (xiii) hereof; (xvii)
other Investments, not in excess of $5,000,000 at any time outstanding; (xviii)
a capital contribution by TTXD of any or all of its assets to a
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joint venture, a partnership, a limited liability company or a similar entity;
or (xix) loans made (a) to officers, directors and employees of the Company or
any of its Subsidiaries approved by the applicable Board of Directors (or by an
authorized officer), the proceeds of which are used solely to purchase stock or
to exercise stock options received pursuant to an employee stock option plan or
other incentive plan, in a principal amount not to exceed the purchase price of
such stock or the exercise price of such stock options, as applicable, and (b)
to refinance loans, together with accrued interest thereon, made pursuant to
this clause (xix), in the case of each of (a) and (b) of this clause (xix) not
in excess of $3,000,000 in aggregate principal amount outstanding at any one
time.
"Permitted Liens" means (a) Liens imposed by governmental authorities
for taxes, assessments, or other charges not yet due or which are being
contested in good faith and by appropriate proceedings, if adequate reserves
with respect thereto are maintained on the books of the Company in accordance
with GAAP; (b) statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen, repairmen, mineral interest owners, or other like Liens arising by
operation of law in the ordinary course of business, provided that (i) the
underlying obligations are not overdue for a period of more than 90 days, or
(ii) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on the
books of the Company in accordance with GAAP; (c) pledges of assets or deposits
of cash or Cash Equivalents to secure the performance of bids, trade contracts
(other than borrowed money), leases, statutory obligations, surety bonds,
appeal bonds, supersedeas bonds, performance bonds, and other obligations of a
like nature incurred in the ordinary course of business (or to secure
reimbursement obligations or letters of credit in support of such bonds); (d)
Liens encumbering customary initial deposits and margin deposits securing Swap
Obligations or Permitted Hedging Transactions; (e) pledges of assets,
including, without limitation, any mortgage or other encumbrance of a
production payment by a Hedging Subsidiary, to secure margin obligations,
reimbursement obligations or letters of credit in connection with Permitted
Hedging Transactions, provided that, at the time such pledge is made (or, if
such pledge secures future Permitted Hedging Transactions, at the time any such
Permitted Hedging Transaction is entered into), the maximum aggregate exposure
under such Permitted Hedging Transactions does not exceed the greater of (i)
$25,000,000 or (ii) 10% of the SEC PV10 indicated on the Company's then most
recent Reserve Report; (f) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects incurred in the
ordinary course of business which, in the aggregate, are not material in
amount, and which do not in any case materially detract from the value of the
property subject thereto (as such property is used by the Company or any of its
Subsidiaries) or materially interfere with the ordinary conduct of the business
of the Company or any of its Subsidiaries; (g) Liens arising by operation of
law in connection with judgments, only to the extent, for an amount and for a
period not resulting in an Event of Default with respect thereto; (h) Liens
securing Debt or other obligations not in excess of $3,000,000 and Liens
existing on the Issue Date that were Permitted Liens under the Series A/B
Indenture; (i) pledges or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance, and other types
of social security legislation, property insurance and liability insurance; (j)
Liens granted on Equipment, Inventory or Receivables; (k) Liens granted in
connection with the Presale of Gas; (l) Liens created on acreage drilled or to
be drilled pursuant to Drilling Programs, on Hydrocarbons produced therefrom
and on the proceeds of such Hydrocarbons to secure the Company's obligations
thereunder, provided that (i) such obligations are limited to a percentage of
production from such wells, (ii) such Liens survive only until the Person to
whom such Lien was granted has received production with a value equal to the
reimbursable costs, expenses and fees related to property and services provided
or paid for by such Person plus an agreed-upon interest component, and (iii)
such Liens secure obligations that are nonrecourse to the Company and its
Subsidiaries; (m) Liens on the assets of any entity existing at the time such
assets are acquired by the Company or any of its Subsidiaries, whether by
merger, consolidation, purchase of assets or otherwise, so long as such Liens
(i) are not created, incurred or assumed in contemplation of such assets being
acquired by the Company or such Subsidiary and (ii) do not extend to any other
assets of the Company or any of its Subsidiaries; (n) any extension, renewal,
or replacement of Liens created pursuant to any of clauses (a) through (m) or
(o) through (u) of this definition, provided that such Liens would have
otherwise been permitted under such clauses, and further provided that the
Liens permitted by this clause (n) do not secure any additional Debt or
encumber any additional property; (o) Liens securing (i) Royalty Payment
Obligations and (ii) Permitted Production Payment Obligations; (p) Liens on any
of the assets of any of the Subsidiaries of the Company in favor of another
TransTexas Entity; (q) Liens that secure Unrestricted Non-Recourse Debt;
provided, however, that at the time of incurrence the aggregate fair market
value of the assets securing such Unrestricted Non-Recourse Debt
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<PAGE> 46
(exclusive of the stock of the applicable Unrestricted Subsidiary) shall not
exceed the amount of Unrestricted Non-Recourse Debt at the time permitted
hereunder; (r) Liens on the proceeds of any property subject to a Permitted
Lien or on deposit accounts containing any such proceeds; (s) Liens (including
renewals and extensions thereof) on New Property, provided, however, that (i)
such Lien is created solely for the purpose of securing Debt Incurred to
finance the cost (including the cost of improvements or construction) of New
Property subject thereto and such Lien is created at the time of, or within six
months after the later of the acquisition, the completion of construction, or
the commencement of full operation of such New Property, (ii) the principal
amount of the Debt secured by such Lien does not exceed 100% of such cost,
including costs and fees related to the financing thereof, (iii) any such Lien
shall not extend to or cover any property or assets other than such item of New
Property and any improvements on such New Property; (t) Liens that secure
Senior Debt, whether in whole or part thereof; and (u) Liens securing Debt on
any one or more of the following properties: (i) the land and improvements now
or hereafter located at 1300 North Sam Houston Parkway East, Houston, Texas,
(ii) the land and improvements, now known as "TransTexas Gas Corporation," now
or hereafter located on U.S. Highway 359 in Webb County, Texas, and (iii) the
land and improvements, now known as "TransTexas Gas Corporation," now or
hereafter located approximately two miles west of Zapata, Texas, on
Farm-to-Market Road 496 in Zapata County, Texas.
"Permitted Production Payment Obligations" means Volumetric Production
Payments and Dollar-Denominated Production Payments, each as permitted to be
made hereunder, and similar burdens on the property of the Company or any
Subsidiary of the Company to the extent such burdens are limited in recourse to
(x) the properties subject to such interests or agreements, (y) the
Hydrocarbons produced from such properties, and (z) the proceeds of such
Hydrocarbons.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"Post-Commencement Amounts" means all interest and fees accrued or
accruing after the commencement of any proceeding initiated under any
Bankruptcy Law in accordance with and at the contract rate (including, without
limitation, any non-usurious rate applicable upon default) and all premiums,
expenses (including costs of collection), indemnities and other amounts that
would have accrued or been incurred after the commencement of any such
proceeding in any case as specified in any agreement or instrument creating,
evidencing, or governing any Senior Debt, whether or not, pursuant to
applicable law or otherwise, the claim for such interest, fees, premiums,
expenses, indemnities or other amounts is allowed and non-avoidable as a claim
in such proceeding.
"Preferred Stock" means, with respect to any corporation, any class or
classes (however designated) of Capital Stock of such Person that is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation over
shares of Capital Stock of any other class of such corporation.
"Presale of Gas" means any advance payment agreement or other
arrangement covering deliveries of Hydrocarbons for a period exceeding 31 days
pursuant to which the Company or its Subsidiaries, having received full payment
of the purchase price for a specified quantity of Hydrocarbons more than 31
days prior to the date of first delivery, is required to deliver, in one or
more installments subsequent to the date of such agreement or arrangement, such
quantity of Hydrocarbons to the purchaser of such Hydrocarbons pursuant to and
during the term of such agreement or arrangement; provided, however, that the
term "Presale of Gas" shall not include (i) a transaction to the extent and
only to the extent that it results in the creation of any Permitted Lien under
clauses (l) or (o) of the definition of "Permitted Liens," (ii) Permitted
Hedging Transactions or (iii) an Asset Sale involving Hydrocarbon reserves.
"principal" of any Debt (including the Securities) means the principal
of such Debt plus, without duplication, any applicable premium, if any, on such
Debt.
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"property" means any right or interest in or to property or assets of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Public Equity Offering" means an underwritten public offering by a
nationally recognized member of the National Association of Securities Dealers
of Qualified Capital Stock of the Company pursuant to an effective registration
statement filed with the SEC pursuant to the Securities Act.
"Qualified Capital Stock" means any Capital Stock of the Company that
is not Disqualified Capital Stock.
"Rating Agency" means each of Moody's and S&P or, if Moody's or S&P
shall have ceased to be a "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act) or shall have
ceased to make publicly available a rating on any outstanding securities of any
company engaged primarily in the oil and gas business, such other organization
or organizations, as the case may be, then making publicly available a rating
on the Notes as is selected by the Company.
"Receivables" means and includes, as to any Person, any and all of
such Person's now owned or hereafter acquired "accounts" as such term is
defined in Article 9 of the Uniform Commercial Code in the State of New York,
all products and proceeds thereof, and all books, records, ledger cards, files,
correspondence, and computer files, tapes, disks or software that at any time
evidence or contain information relating to the foregoing.
"Record Date" means a Record Date specified in the Securities
regardless of whether such Record Date is a Business Day.
"Reference Period" with regard to any Person means the four full
fiscal quarters of such Person ended on or immediately preceding any date upon
which any determination is to be made pursuant to the terms of the Notes or the
Indenture.
"Registration Rights Agreement" means the registration rights
agreement of even date herewith between the Company and the original purchasers
of the Series C Notes.
"Reimbursement and Credit Facility" means the Reimbursement and Credit
Agreement dated January 25, 1996, pursuant to which a third party caused a $20
million letter of credit to be issued to collateralize a supersedeas bond on
behalf of the Company, as in effect on the Issue Date and as amended from time
to time, provided that any such amendment is not materially adverse to the
Holders of the Notes.
"Related Business" means (i) the exploration for, acquisition of,
development of, production, transportation, gathering, and processing (in
connection with natural gas and natural gas liquids only) of crude oil, natural
gas, condensate and natural gas liquids; provided that the term "Related
Business" shall not include any refining or distilling of Hydrocarbons other
than processing and fractionating natural gas and natural gas liquids, (ii) the
drilling and energy services business and pipeline services business or (iii)
owning and operating a Hedging Subsidiary.
"Related Person" means (i) any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any Subsidiary of the Company or any officer, director, or
employee of the Company or any Subsidiary of the Company or of such Person,
(ii) the spouse, any immediate family member, or any other relative who has the
same principal residence of any Person described in clause (i) above, and any
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with, such spouse, family member, or other relative,
and (iii) any trust in which any Person described in clause (i) or (ii), above,
is a fiduciary or has a beneficial interest. For purposes of this definition
the term "control" means (a) the power to direct the management and policies of
a Person, directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise, or (b) the
beneficial ownership of 10% or more of the voting common equity of such Person
(on a fully diluted basis) or of warrants or other rights to acquire such
equity (regardless of whether presently exercisable).
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"Related TTXD Business" means the drilling and energy services
business and pipeline services business.
"Reserve Report" means a report prepared by independent petroleum
engineers with respect to Hydrocarbon reserves in accordance with guidelines
published by the SEC.
"Restricted Investment" means any direct or indirect Investment by the
Company or any Subsidiary of the Company other than a Permitted Investment.
"Restricted Payment" means, with respect to any Person, (i) any
Restricted Investment, (ii) any dividend or other distribution on shares of
Capital Stock of such Person, (iii) any payment on account of the purchase,
redemption, or other acquisition or retirement for value of any shares of
Capital Stock of such Person, and (iv) any defeasance, redemption, repurchase,
or other acquisition or retirement for value, or any payment in respect of any
amendment in anticipation of or in connection with any such retirement,
acquisition or defeasance, in whole or in part, of any Junior Debt, directly or
indirectly, of such Person or a Subsidiary of such Person prior to the
scheduled maturity or prior to any scheduled repayment of principal in respect
of such Junior Debt; provided, however, that the term "Restricted Payment" does
not include (i) any dividend, distribution, or other payment on shares of
Capital Stock of an issuer solely in shares of Qualified Capital Stock of such
issuer that is at least as junior in ranking as the Capital Stock on which such
dividend, distribution or other payment is to be made, (ii) any dividend,
distribution or other payment to the Company, or any of its directly or
indirectly owned Subsidiaries, by any of its Subsidiaries, (iii) any
defeasance, redemption, repurchase or other acquisition or retirement for
value, in whole or in part, of any Junior Debt of such Person payable solely in
shares of Qualified Capital Stock of such Person, (iv) any payments or
distributions made pursuant to and in accordance with the Transfer Agreement,
the Drilling Agreement, the Gas Purchase Agreement, the TEC Registration Rights
Agreement, the Services Agreement, the Office Leases or the Tax Allocation
Agreement, (v) any Investment by the Company in, or distribution by the Company
on, its Capital Stock pursuant to share repurchases or dividends on its Capital
Stock as described in the Offering Circular dated June 5, 1997, relating to the
offer by TransAmerican Energy Corporation of its 11 1/2% Senior Secured Notes
due 2002 and of its 13% Senior Secured Discount Notes due 2002 in an aggregate
amount not to exceed $400 million, (vi) the redemption, purchase, retirement or
other acquisition of any Junior Debt with the proceeds of any refinancing Debt
permitted to be incurred pursuant to clause (j) of the covenant described under
the caption " -- Certain Covenants -- Limitation on Incurrence of Additional
Debt and Issuances of Disqualified Capital Stock"; (vii) any transfer, dividend
or other distribution by the Company of assets, including, without limitation,
shares of Capital Stock of TTXD, in connection with the TTXD Spin-off, (viii)
the purchase by the Company of shares of Capital Stock of TARC, the Company or
TTXD in connection with the Company's employee benefit plans, including without
limitation any employee stock ownership plans or any employee stock option
plans, in an aggregate amount not to exceed seven percent of the aggregate
market value of the voting stock held by non- affiliates of the issuer measured
from the date of the first such purchase; and (ix) any redemption, defeasance,
repurchase or other retirement for value of the Senior Notes by the
Company.
"Royalty Payment Obligations" means (i) royalties, overriding
royalties, revenue interests, net revenue interests, net profit interests, and
reversionary interests, (ii) the interests of others in pooling or unitization
agreements, production sales contracts and operating agreements, (iii) Liens
arising under, in connection with or related to farm-out, farm-in, joint
operating, pooling, unitization or area of mutual interest agreements or other
similar or customary arrangements, agreements or interests, and (iv) similar
burdens on the property of the Company or any Subsidiary of the Company; each
as incurred in the ordinary course of business and to the extent such burdens
are limited in recourse to (x) the properties subject to such interests or
agreements, (y) the Hydrocarbons produced from such properties, and (z) the
proceeds of such Hydrocarbons.
"S&P" means Standard & Poor's Corporation, Inc. and its successors.
"Sale and Leaseback Transaction" means an arrangement relating to
property owned on the Issue Date or thereafter acquired whereby the Company or
a Subsidiary of the Company transfers such property to a Person and leases it
back from such Person.
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"SEC" means the Securities and Exchange Commission.
"SEC PV10" means the standardized measure of future net cash flows
discounted at 10%, determined in all material respects in accordance with the
rules and regulations of the SEC, including the assumption of the continuation
of existing economic conditions and estimated by applying period-end gas and
condensate prices, adjusted for future price changes as allowed by contract, to
estimated future production of period-end proved reserves.
"Securities" means the Notes.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securityholder" means the Person in whose name a Note is registered
on the Registrar's book.
"Senior Debt" means all Debt of the Company, including, without
limitation, the TransTexas Intercompany Loan, now or hereafter created,
incurred, assumed or guaranteed by the Company (and all renewals, extensions or
refundings thereof or of any part thereof) (including the principal of,
interest on and fees, premiums, expenses (including costs of collection),
indemnities and other amounts payable in connection with such Indebtedness, and
including Post- Commencement Amounts), unless the instrument governing such
Debt expressly provides that such Debt is not senior or superior in right of
payment to the Notes. Notwithstanding the foregoing, Senior Debt of the
Company shall not include (i) Debt evidenced by the Notes, (ii) Debt of the
Company to any Subsidiary of the Company or to any Unrestricted Subsidiary of
the Company, or (iii) any amounts payable or other Debt to trade creditors
created, incurred, assumed or guaranteed by the Company or any Subsidiary of
the Company in the ordinary course of business in connection with obtaining
goods or services.
"Senior Notes" means the 11 1/2% Senior Secured Notes due 2002 of the
Company, as supplemented from time to time in accordance with the terms of the
indenture pursuant to which they were issued, as such indenture may be amended
or supplemented from time to time in accordance with its terms.
"Series A/B Indenture" means the indenture, dated as of December 13,
1996, as amended or supplemented from time to time in accordance with the terms
thereof, by and between the Company and the Trustee, as trustee, relating to
the Series A/B Notes.
"Series A/B Notes" means the 13 1/4% Series A Senior Subordinated
Notes due 2003 and the 13 1/4% Series B Senior Subordinated Notes due 2003 of
the Company.
"Series C Notes" and "Series D Notes" mean the 13 3/4% Series C Senior
Subordinated Notes due 2001 and the 13 3/4% Series D Senior Subordinated Notes
due 2001 of the Company.
"Services Agreement" means the Services Agreement among the Company,
TransAmerican and other Subsidiaries of TransAmerican as in effect on the Issue
Date and as amended from time to time, provided that any such amendment is not
materially adverse to the Holders of the Notes.
"Stated Maturity," when used with respect to any Note, means December
31, 2001.
"Subordinated Debt" means Debt of any Person that (i) requires no
payment of principal prior to or on the date on which all principal of and
interest on the TransTexas Intercompany Loan is paid in full and (ii) is
subordinate and junior in right of payment to the TransTexas Intercompany Loan
in the event of liquidation.
"Subsidiary," with respect to any Person, means (i) a corporation with
respect to which such Person or its Subsidiaries owns, directly or indirectly,
at least fifty percent of such corporation's Capital Stock with voting power,
under ordinary circumstances, to elect directors, or (ii) a partnership in
which such Person or a subsidiary of such
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Person is, at the time, a general partner of such partnership and has more than
50% of the total voting power of partnership interests entitled (without regard
to the occurrence of any contingency) to vote in the election of managers
thereof, or (iii) any other Person (other than a corporation or a partnership)
in which such Person, one or more Subsidiaries of such Person, or such Person
and one or more Subsidiaries of such Person, directly or indirectly, at the
date of determination thereof has (x) at least a fifty percent ownership
interest or (y) the power to elect or direct the election of the directors or
other governing body of such other Person; provided, however, that "Subsidiary"
shall not include any Unrestricted Subsidiary of such Person, except for
purposes of the covenant described under " -- Certain Covenants -- Limitation
on Transactions with Related Persons."
"Swap Obligation" of any Person means any Interest Rate or Currency
Agreement entered into with one or more financial institutions or one or more
futures exchanges in the ordinary course of business and not for purposes of
speculation that is designed to protect such Person against fluctuations in (x)
interest rates with respect to Debt Incurred and which shall have a notional
amount no greater than 105% of the principal amount of the Debt being hedged
thereby, or (y) currency exchange rate fluctuations.
"TARC" means TransAmerican Refining Corporation, a Texas corporation.
"Tax Allocation Agreement" means the Tax Allocation Agreement, dated
as of August 24, 1993, among TNGC Holdings Corporation, the Company, and other
subsidiaries, as in effect on the Issue Date and as amended from time to time,
provided that any such amendment is not materially adverse to the Holders of
the Notes.
"TEC" means TransAmerican Energy Corporation, a Delaware corporation.
"TEC Indenture" means the indenture, dated as of June 13, 1997, by and
between TEC and Firstar Bank of Minnesota, N.A., as trustee, relating to the
TEC Notes.
"TEC Indenture Trustee" means the trustee under the TEC Indenture.
"TEC Notes" means TEC's 11 1/2% Senior Secured Notes due 2002 and 13%
Senior Secured Discount Notes due 2002, issued pursuant to the TEC Indenture.
"TEC Registration Rights Agreements" means the agreements in
connection with the registration under federal securities laws of (i) the TEC
Notes and (ii) the capital stock of TARC, the Company and TTXD pledged or to be
pledged to the TEC Indenture Trustee, in each case between TEC and the TEC
Indenture Trustee, as in effect on the Issue Date and as amended from time to
time, provided that any such amendment is not materially adverse to the Holders
of the Notes.
"TransAmerican" means TransAmerican Natural Gas Corporation, a Texas
corporation.
"Transfer Agreement" means the Transfer Agreement, dated as of August
24, 1993, among TransAmerican, the Company, TTC and John R. Stanley, as in
effect on the Issue Date and as amended from time to time, provided that any
such amendment is not materially adverse to the Holders of the Notes.
"TransTexas Borrowing Base" means, as of any date, an amount equal to
the sum of (a) 85% of the book value of all accounts receivable owned by the
Company and its Subsidiaries (excluding any accounts receivable that are more
than 90 days past due, less, without duplication, the allowance for doubtful
accounts attributable to such current accounts receivable) calculated on a
consolidated basis and in accordance with GAAP and (b) 70% of the current
market value of all inventory owned by the Company and its Subsidiaries as of
such date. To the extent that information is not available as to the amount of
accounts receivable as of a specific date, the Company may utilize, to the
extent reasonable, the most recent available information for purposes of
calculating the TransTexas Borrowing Base.
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"TransTexas Entities" means the Company and each of its Subsidiaries.
"TransTexas Intercompany Loan" means the senior secured promissory
note from the Company to TARC in the principal amount of $450 million together
with any renewals or extensions thereof.
"TransTexas Security Documents" means, collectively, (i) any and each
mortgage, deed of trust, assignment, assignment of production, security
agreement, pledge agreement, financing statement and each other agreement
relating to the pledge of assets at any time securing all or any part of the
TransTexas Intercompany Loan (and/or all or any portion of the obligations of a
guarantor of all or any part of the TransTexas Intercompany Loan under any
guarantee described in the following clause (ii)), and (ii) any and each
guarantee, now existing or hereafter executed, of all or any part of the
obligations of the Company under the TransTexas Intercompany Loan.
"TTC" means TransTexas Transmission Corporation, a Delaware
corporation.
"TTXD" means TransTexas Drilling Services, Inc., a Delaware
corporation, which on the Issue Date is a Subsidiary of the Company, or a newly
formed corporation that is initially a Wholly Owned Subsidiary of TransTexas,
formed for the purpose of receiving the Investments described under clauses
(xiii) or (xiv) of the definition of "Permitted Investment."
"TTXD Entities" means TTXD and each of its Subsidiaries.
"TTXD Equity Investment" means an equity Investment by the Company in
TTXD in an aggregate amount not in excess of $75 million.
"TTXD Spin-off" means (i) the transfer of all or a portion of the
drilling and integrated services business and pipeline services business and
related assets from the Company to TTXD and (ii) a dividend of shares of common
stock of TTXD to holders of the Company's common stock or any other transaction
that in either case would result in the Company being the beneficial owner of
less than 50% of the common stock of TTXD.
"Unrestricted Non-Recourse Debt" of the Company or any of its
Subsidiaries means (i) Debt of such Person that is secured solely (other than
with respect to the following clause (ii)) by a Lien upon the stock of an
Unrestricted Subsidiary of such Person and as to which there is no recourse
(other than with respect to the following clause (ii)) against such Person or
any of its assets other than against such stock (and the dollar amount of any
Debt of such Person as described in this clause (i) shall be deemed to be zero
for purposes of all other provisions of this Indenture) and (ii) guarantees of
the Debt of Unrestricted Subsidiaries of such Person; provided, that the
aggregate of all Debt of the Company or any of its Subsidiaries Incurred and
outstanding pursuant to clause (ii) of this definition, together with all
Permitted Investments (net of any return on such Investment) in Unrestricted
Subsidiaries of such Person, does not exceed $25 million plus in the case of
clause (ii) preceding, Restricted Payments permitted to be made pursuant to
Section 4.3.
"Unrestricted Subsidiary" of any Person means any other Person ("Other
Person") that would, but for this definition of "Unrestricted Subsidiary," be a
Subsidiary of such Person organized or acquired after the Issue Date as to
which all of the following conditions apply: (i) neither such Person nor any of
its other Subsidiaries provides credit support of any Debt of such Other Person
(including any undertaking, agreement or instrument evidencing such Debt),
other than Unrestricted Non-Recourse Debt; (ii) such Other Person is not
liable, directly or indirectly, with respect to any Debt other than
Unrestricted Subsidiary Debt; (iii) neither such Person nor any of its
Subsidiaries has made an Investment in such Other Person unless such Investment
was permitted by the provisions of Section 4.3; and (iv) the Board of Directors
of such Person, as provided below, shall have designated such Other Person to
be an Unrestricted Subsidiary on or prior to the date of organization or
acquisition of such Other Person. Any such designation by the Board of
Directors of such Person shall be evidenced to the Trustee by delivering to the
Trustee a resolution thereof giving effect to such designation and an Officers'
Certificate certifying that such designation complies with the foregoing
conditions. The Board of Directors of any Person may designate any
Unrestricted
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<PAGE> 52
Subsidiary of such Person as a Subsidiary of such Person; provided that (a) if
the Unrestricted Subsidiary has any Debt outstanding or is otherwise liable for
any Debt or has a negative Net Worth, then immediately after giving pro forma
effect to such designation, such Person could incur at least $1.00 of
additional Debt pursuant to the provisions of the second paragraph of the
covenant described under the caption " -- Certain Covenants -- Limitation on
Incurrences of Additional Debt and Issuances of Disqualified Capital Stock"
(assuming, for purposes of this calculation, that each dollar of negative Net
Worth is equal to one dollar of Debt), (b) all Debt of such Unrestricted
Subsidiary shall be deemed to be incurred by a Subsidiary of the Person on the
date such Unrestricted Subsidiary becomes a Subsidiary, and (c) no Default or
Event of Default would occur or be continuing after giving effect to such
designation. Any subsidiary of an Unrestricted Subsidiary shall be an
Unrestricted Subsidiary for purposes of the Indenture.
"Unrestricted Subsidiary Debt" means, as to any Unrestricted
Subsidiary of any Person, Debt of such Unrestricted Subsidiary (i) as to which
neither such Person nor any Subsidiary of such Person is directly or indirectly
liable (by virtue of such Person or any such Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such Debt),
unless such liability constitutes Unrestricted Non-Recourse Debt and (ii)
which, upon the occurrence of a default with respect thereto, does not result
in, or permit any holder (other than the Company or any Subsidiary of the
Company) of any Debt of such Person or any Subsidiary of such Person to
declare, a default on such Debt of such Person or any Subsidiary of such Person
or cause the payment thereof to be accelerated or payable prior to its stated
maturity, unless, in the case of this clause (ii), such Debt constitutes
Unrestricted Non-Recourse Debt.
"U.S. Government Obligations" means direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Vehicles" means all trucks, automobiles, trailers and other vehicles
covered by a certificate of title.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertaking and obligations in connection therewith.
"Voting Stock" means Capital Stock of the Company having generally the
right to vote in the election of directors of the Company.
"Weighted Average Life" means, as of the date of determination, with
respect to any debt instrument, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such debt instrument
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Wholly Owned Subsidiary" means, with respect to any Person, at any
time, a Subsidiary of such Person, all of the Capital Stock of which (except
any director's qualifying shares) is at the time owned directly or indirectly
by such Person.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Repurchase of Notes at the Option of the Holder Upon a Change of
Control. In the event that a Change of Control occurs, each Holder of Notes
will have the right, at such Holder's option, subject to the terms and
conditions of the Indenture, to require the Company to repurchase all or any
part of such Holder's Notes (provided that the principal amount of such Notes
must be $1,000 or an integral multiple thereof) on a date that is no later than
60
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Business Days after the occurrence of such Change of Control (the date on
which the repurchase is effected being referred to herein as the "Change of
Control Payment Date"), at a cash purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any (the "Change of
Control Purchase Price"), to and including the Change of Control Payment Date.
The Company will notify the Trustee within five Business Days after
each date upon which the Company knows, or reasonably should know, of the
occurrence of a Change of Control. Within 20 Business Days after the Company
knows, or reasonably should know, of the occurrence of each Change of Control,
the Company will make an irrevocable, unconditional offer (a "Change of Control
Offer") to the Holders of Notes to purchase all of the Notes at the Change of
Control Purchase Price by sending written notice of a Change of Control Offer,
by first class mail, to each Holder at its registered address, with a copy to
the Trustee. The notice to Holders will contain all instructions and materials
required by applicable law and will contain or make available to Holders other
information material to such Holders' decision to tender Notes pursuant to the
Change of Control Offer.
On or before the Change of Control Payment Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer prior to the close of the third Business Day prior to
the Change of Control Payment Date, (ii) deposit with the Paying Agent U.S.
Legal Tender sufficient to pay the Change of Control Purchase Price (including
accrued and unpaid interest) of all Notes so tendered, and (iii) deliver or
cause to be delivered to the Trustee Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to the Holders of Notes so
accepted payment in an amount equal to the Change of Control Purchase Price
(including accrued and unpaid interest), and the Trustee will promptly
authenticate and mail or deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.
To the extent applicable and if required by law, the Company will
comply with Section 14 of the Exchange Act and the provisions of Regulation 14E
and any other tender offer rules under the Exchange Act and other securities
laws, rules, and regulations which may then be applicable to any offer by the
Company to purchase the Notes at the option of Holders upon a Change of Control
and, if such laws, rules and regulations require or prohibit any action
inconsistent with the foregoing, compliance by the Company with such laws,
rules and regulations will not constitute a breach of the Company's obligations
with respect to the foregoing.
Limitation on Restricted Payments. The Company will not make,
directly or indirectly, any dividend or other distribution on shares of Capital
Stock of the Company or make any payment on account of the purchase,
redemption, or other acquisition or retirement for value of any such shares of
Capital Stock (except to any of its Subsidiaries) unless such dividends,
distributions or payments are made in cash or Qualified Capital Stock or a
combination thereof, except in connection with the TTXD Spin-off. In addition,
the Company will not make, directly or indirectly, any Restricted Payment, if,
at the time or after giving effect thereto on a pro forma basis, (a) the
Consolidated Fixed Charge Coverage Ratio does not exceed 2 to 1, (b) the
Company's Adjusted Consolidated Net Tangible Assets are not equal to or greater
than 125% of the total consolidated principal amount or accreted value, as the
case may be, of Debt of the Company and its Subsidiaries (excluding, for
purposes of the calculation of Debt, any Swap Obligations), (c) a Default or an
Event of Default would occur or be continuing, or (d) the aggregate amount of
all Restricted Payments made by the Company and its Subsidiaries, including
such proposed Restricted Payment and all payments that may be made pursuant to
the next paragraph (if not made in cash, then the fair market value of any
property used therefor) from and after the Issue Date and on or prior to the
date of such Restricted Payment, shall exceed the sum of (i) 50% of
Consolidated Net Income of the Company accrued on a cumulative basis for the
period (taken as one accounting period) commencing with the first full fiscal
quarter that commenced after the Issue Date, to and including the fiscal
quarter ended immediately prior to the date of each calculation (or, in the
event Adjusted Consolidated Net Income for such period is a deficit, then minus
100% of such deficit), minus (ii) 100% of the amount of any write-downs,
write-offs, other negative reevaluations and other negative extraordinary
charges not otherwise reflected in Consolidated Net Income of the Company
during such
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period, plus (iii) the aggregate Net Proceeds received by the Company from the
issuance or sale (other than to or a Subsidiary of the Company) of its
Qualified Capital Stock from and after the Issue Date and on or prior to the
date of such Restricted Payment, plus (iv) $10,000,000.
Nothing in the foregoing provision will prohibit the payment of any
dividend within 60 days after the date of its declaration if such dividend
could have been made on the date of its declaration in compliance with the
foregoing provisions.
Limitation on Status as Investment Company or Public Utility Company.
The Company will not, and will not permit any of its Subsidiaries to, become an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or a "holding company," or "public utility company" (as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended) or otherwise become subject to regulation under the Investment Company
Act or the Public Utility Holding Company Act.
Limitation on Transactions with Related Persons. The Company will
not, and will not permit any of its Subsidiaries to, enter directly or
indirectly into, or permit to exist, any transaction or series of related
transactions with any Related Person (excluding any Related Person that is a
form of entity customarily used in the oil and gas business as a means of
exploiting, exploring for, acquiring, developing, processing, gathering,
marketing, or transporting oil or gas and is a Related Person solely because
the party engaging in such transaction has the ability to control the Related
Person under the definition of "control" contained within the definition of
"Related Person" contained herein) (including, without limitation: (i) the
sale, lease, transfer or other disposition of properties, assets or securities
to such Related Person, (ii) the purchase or lease of any properties, assets or
securities from such Related Person, (iii) an Investment in such Related Person
(excluding Investments permitted to be made pursuant to clauses (iii), (vi),
(ix), (xi), (xiii), (xiv), (xvi) or (xix) of the definition of "Permitted
Investment" contained herein), and (iv) entering into or amending any contract
or agreement with or for the benefit of a Related Person (each, a "Related
Person Transaction")), except for (A) permitted Restricted Payments, including
for this purpose the transactions excluded from the definition of Restricted
Payments by the proviso contained in the definition of "Restricted Payments"
contained herein, (B) transactions made in good faith, the terms of which are:
(x) fair and reasonable to the Company or such Subsidiary, as the case may be,
and (y) are at least as favorable as the terms which could be obtained by the
Company or such Subsidiary, as the case may be, in a comparable transaction
made on an arm's length basis with Persons who are not Related Persons, (C)
transactions between the Company and any of its Wholly Owned Subsidiaries or
transactions between Wholly Owned Subsidiaries of the Company, (D) transactions
pursuant to the Services Agreement, the TransTexas Intercompany Loan and any
other loan from TEC to the Company permitted to be Incurred pursuant to Section
4.11 (including, without limitation, Intercompany Loan Redemptions and all
other payments made thereon or with respect thereto), any one or more of the
TransTexas Security Documents, the Drilling Agreement, the Gas Purchase
Agreement, the TEC Registration Rights Agreement, the Transfer Agreement and
the Tax Allocation Agreement, (E) the lease of office space to the Company by
TransAmerican or an Affiliate of TransAmerican, provided that payments
thereunder do not exceed in the aggregate $2,000,000 per year, (F) any Sale and
Leaseback Transaction or other transfer to a corporate Affiliate of the Company
of the Company's headquarters building located at 1300 North Sam Houston
Parkway East, Houston, Texas, (G) any employee compensation arrangement in an
amount which together with the amount of all other cash compensation paid to
such employee by the Company and its Subsidiaries does not provide for cash
compensation in excess of $1,000,000 in any fiscal year of the Company or any
Subsidiary and which has been approved by a majority of the Company's
Independent Directors and found in good faith by such directors to be in the
best interests of the Company or such Subsidiary, as the case may be, and (H)
the Company and its Subsidiaries may pay a management fee to TransAmerican in
an amount not to exceed $2,500,000 per year.
(b) Without limiting the foregoing, with respect to any Related
Person Transaction or series of Related Person Transactions (other than any
Related Person Transaction described in clause (A), (C), (D), (F) or (G) of
Section 4.10(a)) with an aggregate value in excess of $5,000,000, such
transaction must first be approved by a majority of the Board of Directors of
the Company or its Subsidiary which is the transacting party and a majority of
the directors of such entity who are disinterested in the transaction pursuant
to a Board Resolution, as (x) fair
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and reasonable to the Company or such Subsidiary, as the case may be, and (y)
on terms which are at least as favorable as the terms that could be obtained by
the Company or such Subsidiary, as the case may be, on an arm's length basis
with Persons who are not Related Persons, and (b) with respect to any Related
Person Transaction or series of Related Person Transactions (other than any
Related Person Transaction described in clause (A), (C), (D), (F) or (G) of
Section 4.10(a)) with an aggregate value in excess of $10,000,000, the Company
must first obtain a favorable written opinion as to the fairness of such
transaction to the Company or such Subsidiary, as the case may be, from a
financial point of view, from a "big 6 accounting firm" or a nationally
recognized investment banking firm; provided that such opinion shall not be
necessary if approval of the Board of Directors to such Related Person
Transaction has been obtained after receipt of bona fide bids of at least two
other independent parties and such Related Person Transaction is in the
ordinary course of business.
Limitation on Incurrences of Additional Debt and Issuances of
Disqualified Capital Stock. The Company will not, and will not permit any of
its Subsidiaries (other than any of the TTXD Entities after the TTXD Spin-off)
to, directly or indirectly, create, incur, assume, guarantee or otherwise
become liable for, contingently or otherwise (to "Incur" or, as appropriate, an
"Incurrence"), any Debt or issue any Disqualified Capital Stock (other than
Capital Stock of a Subsidiary of the Company issued to the Company or a Wholly
Owned Subsidiary of the Company), except (a) Debt evidenced by the Notes, (b)
Debt existing on the Issue Date that was allowed to be Incurred under the
Series A/B Indenture, (c) Debt evidenced, guaranteed or secured by the
TransTexas Intercompany Loan or any of the TransTexas Security Documents, and
any other Debt at any time owing by any of the TransTexas Entities to TEC in
aggregate outstanding principal amount, when added to the then outstanding
principal amount of the TransTexas Intercompany Loan, of $500 million; (d)
Subordinated Debt of the Company solely to any Wholly Owned Subsidiary of the
Company, or Debt of any Wholly Owned Subsidiary of the Company solely to the
Company or to any Wholly Owned Subsidiary of the Company; (e) if either (i) the
Phase I Completion Date (as defined in the TEC Indenture) has occurred or (ii)
the Notes have a rating of BB- or better by S&P or B1 or better by Moody's,
Subordinated Debt of the Company with initial net proceeds to the Company not
in excess of $125 million in the aggregate; (f) any guaranty of Debt permitted
by clauses (c), (e), (j), (k), (l) or (p) of Section 4.11, which guaranty shall
not be included in the determination of the amount of Debt which may be
Incurred pursuant to clauses (c), (e), (j), (k), (l) or (p) of Section 4.11;
(g) Debt evidenced by the Series A/B Notes; (h) Debt of the Company secured by
a Permitted Lien that meets the requirements of clause (c), (d), (e), (g), (h),
(i), (l), (m), (o) or (r) of the definition of "Permitted Liens" contained
herein, to the extent that such Liens would give rise to Debt under clauses
(i), (ii), or (iii) of the definition of "Debt" contained herein; (i)
Unrestricted Non-Recourse Debt of the Company; (j) Debt outstanding under a
working capital credit facility in aggregate principal amount not to exceed at
any one time the greater of $30 million or the TransTexas Borrowing Base; (k)
Debt in an aggregate principal amount outstanding not to exceed at any one time
$35 million; (l) the Company may Incur Debt as an extension, renewal,
replacement, or refunding of any of the Debt permitted to be Incurred under any
clause of this covenant, including this clause (l) (such Debt is collectively
referred to as "Refinancing Debt"), provided, that (1) the maximum principal
amount of Refinancing Debt (or, if such Refinancing Debt is issued with
original issue discount, the original issue price of such Refinancing Debt)
permitted under this clause (l) may not exceed the lesser of (x) the principal
amount of the Debt being extended, renewed, replaced, or refunded plus premium,
if any, reasonable financing fees and other associated reasonable out-of-pocket
expenses including consent payments, premium, if any, and related fees, in each
case other than those paid to a Related Person (collectively, "Refinancing
Fees"), or (y) if such Debt being extended, renewed, replaced, or refunded was
issued at an original issue discount, the original issue price, plus
amortization of the original issue discount as of the time of the Incurrence of
the Refinancing Debt plus Refinancing Fees, (2) the Refinancing Debt has a
Weighted Average Life and a final maturity that is equal to or greater than the
Debt being extended, renewed, replaced, or refunded at the time of such
extension, renewal, replacement, or refunding, and (3) the Refinancing Debt
shall rank with respect to the Notes to an extent no less favorable in respect
thereof to the Holders than the Debt being refinanced; (m) Debt represented by
trade payables or accrued expenses, in each case incurred on normal, customary
terms in the ordinary course of business, not overdue for a period of more than
90 days (or, if overdue for a period of more than 90 days, being contested in
good faith and by appropriate proceedings and adequate reserves with respect
thereto being maintained on the books of the Company in accordance with GAAP)
and not constituting any amounts due to banks or other financial institutions,
provided that Debt at any time permitted under this clause (m) shall not be
deemed to have
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been Incurred until the date on which the same ceases to be permitted
under this clause (m); (n) Presales of Gas; (o) Debt evidenced by the Senior
Notes; (p) if either (i) the Phase I Completion Date (as defined in the TEC
Indenture) has occurred or (ii) the Notes have a rating of BB- or better by S&P
or B1 or better by Moody's, Debt which is secured by Liens permitted pursuant
to clause (s) of the definition of "Permitted Liens" contained herein, the
outstanding principal amount of which at any time does not exceed $35,000,000
in the aggregate; (q) the Attributable Debt Incurred in connection with Sale
and Leaseback Transactions; (r) Debt relating to the Reimbursement and Credit
Facility; (s) if either (i) the Phase I Completion Date (as defined in the
Indenture) has occurred or (ii) the Notes have a rating of BB- or better by S&P
or B1 or better by Moody's, Dollar-Denominated Production Payment Obligations
that the Company elects to treat as Debt not to exceed $40,000,000 in the
aggregate at any one time outstanding; (t) Swap Obligations of the Company; (u)
letter of credit and reimbursement obligations to the extent collateralized by
cash or Cash Equivalents; and (v) guarantees of Debt of TTXD to the extent that
such Debt was Debt of TransTexas on the Issue Date and relates to assets
contributed to TTXD pursuant to clause (xiii) of the definition of "Permitted
Investment" contained herein. For purposes of determining the amount of
outstanding Debt that has been Incurred pursuant to this covenant, there shall
be included in each such case the principal amount then outstanding of any Debt
originally Incurred pursuant to such clause and, after any refinancing or
refunding of such Debt, any outstanding Debt Incurred pursuant to clause (l) of
this covenant so as to refinance or refund such Debt Incurred pursuant to
clause (l) of this covenant and any subsequent refinancings or refundings
thereof.
Notwithstanding the foregoing provisions, the Company may Incur Debt
and may issue Disqualified Capital Stock if, at the time such Senior Debt is
Incurred or such Disqualified Capital Stock is issued, (i) no Default or Event
of Default shall have occurred and be continuing at the time or immediately
after giving effect to such transaction on a pro forma basis, (ii) immediately
after giving effect to the Consolidated Fixed Charges in respect of such Debt
being Incurred and the application of the proceeds therefrom to the extent used
to reduce Debt, on a pro forma basis, the Consolidated Fixed Charge Coverage
Ratio of the Company for the Reference Period is greater than 2 to 1, and (iii)
the Company's Adjusted Consolidated Tangible Assets are equal to or greater
than 125% of the total consolidated principal amount of Debt of the Company and
its Subsidiaries (excluding, for purposes of this calculation, the negative Net
Worth of any Subsidiary of the Company which was formerly designated as an
Unrestricted Subsidiary).
Debt Incurred and Disqualified Capital Stock issued by any Person that
is not a Subsidiary of the Company, which Debt or Disqualified Capital Stock is
outstanding at the time such Person becomes, or is merged into, or consolidated
with, the Company or a Subsidiary of the Company will be deemed to have been
Incurred or issued, as the case may be, at the time such Person becomes, or is
merged into, or consolidated with the Company or a Subsidiary of the Company.
For the purpose of determining compliance with this covenant, (A) if
an item of Debt meets the criteria of more than one of the types of Debt
described in the above clauses, the Company shall have the right to determine
in its sole discretion the category to which such Debt applies and will not be
required to include the amount and type of such Debt in more than one of such
categories and may elect to apportion such item of Debt between or among any
two or more of such categories otherwise applicable, and (B) the amount of any
Debt which does not pay interest in cash or which was issued at a discount to
face value shall be deemed to be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
For purposes of determining any particular amount of Debt Incurred
under this covenant, any Debt Incurred by the Company or any Subsidiary of the
Company incurred for, or related to, a Person other than another Subsidiary of
the Company or the Company, as applicable, will be deemed to be in an amount
equal to the greater of (i) the lesser of (A) the full amount of the Debt of
such other Person or (B) the fair market value of the assets and properties of
the Company or such Subsidiary of the Company as to which the holder or holders
of such Debt are expressly limiting the obligations of the Company or such
Subsidiary of the Company, the value of which assets and properties of the
Company or such Subsidiary of the Company will be as determined in good faith
by the Board of Directors of the Company or such Subsidiary of the Company, as
applicable (which determinations shall be
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evidenced by a Board Resolution of the applicable Person), and (ii) the amount
of the Debt of such other Person as has been expressly contractually assumed or
guaranteed by the Company or such Subsidiary of the Company.
Limitations on Restricting Subsidiary Dividends. The Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create, assume or suffer to exist any consensual encumbrance or restriction on
the ability of any Subsidiary of the Company to pay dividends or make other
distributions on the Capital Stock of any Subsidiary of the Company or pay any
obligation to the Company or any of its Subsidiaries or otherwise transfer
assets or make or pay loans or advances to the Company or any of its
Subsidiaries, except encumbrances and restrictions existing under or by reason
of customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Company or any Subsidiary of the Company,
any agreement of a Person acquired by the Company or a Subsidiary of the
Company, which restrictions existed at the time of acquisition, were not put in
place in anticipation of such acquisition and are not applicable to any Person
or property, other than the Person or any property of the Person so acquired,
customary provisions restricting transfers of property securing purchase money
obligations incurred in the ordinary course of business in connection with the
acquisition of such property, the Notes, the Series A/B Notes, Debt existing
pursuant to a written agreement in effect on the date of the Indenture, or Debt
incurred to refinance, refund, extend or renew any of the foregoing Debt,
provided such restrictions therein contained are not materially more
restrictive than those provided for in the Debt being refinanced, refunded,
extended or renewed.
Limitation on Liens. The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, Incur, or suffer to exist any Lien
upon any of its property or assets, whether now owned or hereafter acquired
unless the Notes are equally and ratably secured by such assets, other than
Permitted Liens. For the purpose of determining compliance with this covenant,
if a Lien meets the criteria of more than one of the types of Permitted Liens,
the Company shall have the right to determine in its sole discretion the
category of Permitted Lien to which such Lien applies, may elect to apportion
such Lien between or among any two or more categories of Permitted Lien
otherwise applicable, and shall not be required to include such Lien in more
than one of such categories.
Limitation on Asset Sales. The Company will not, and will not permit
any of its Subsidiaries to, consummate an Asset Sale, unless (A) an amount
equal to the Net Cash Proceeds (defined below) therefrom is applied as follows:
(1) to the mandatory or optional payment or prepayment of all or a portion of
the principal amount of and/or accrued interest on Senior Debt, and (2) all Net
Cash Proceeds not applied in accordance with clause (A)(1) of this paragraph
shall be used (x) to repurchase, ratably, (i) Notes pursuant to an Offer to
Purchase under this covenant and (ii) Series A/B Notes pursuant to an offer to
purchase under this covenant of the Series A/B Indenture, (y) to make cash
payments in the ordinary course of business and consistent with past practices
that are not otherwise prohibited by this Indenture, provided that the
aggregate amount so used pursuant to this clause (y) from and after the Issue
Date does not exceed $25,000,000 (without duplication of amounts used to
acquire any Capital Assets in accordance with clause (z) of this sentence), or
(z) with respect to an Asset Sale by the Company or any of its Subsidiaries
(aa) that includes proved reserve assets, used for Capital Expenditures in a
Related Business within 180 days after the date of such Asset Sale, provided
that the Company's most recent Reserve Report indicates that the Company and
its Subsidiaries, after giving effect to the Asset Sale and to the addition of
proved reserves associated with any assets acquired in connection with such
Asset Sale, have proved reserves at least equal to (AA) if such Asset Sale
occurs during the fiscal year ending 1998, 450 Bcfe of natural gas as indicated
on the most recent Reserve Report for such fiscal year, (BB) if such Asset Sale
occurs during the fiscal year ending 1999, 500 Bcfe of natural gas or with an
SEC PV10 of at least $600 million as indicated on the most recent Reserve
Report for such fiscal year and (CC) if such Asset Sale occurs during the
fiscal year ending 2000 or thereafter, 600 Bcfe of natural gas or with an SEC
PV10 of at least $700 million as indicated on the most recent Reserve Report
for such fiscal year, or (bb) involving assets that do not include proved
reserves, used for Capital Expenditures in a Related Business within 180 days
after the date of such Asset Sale; and (B) in the case of any Asset Sale or
series of related Asset Sales for total proceeds in excess of $5,000,000, at
least 85% of the value of the consideration for such Asset Sale consists of
cash, Cash Equivalents or Exchange Assets or any combination thereof.
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Notwithstanding the provisions of the foregoing paragraph that limit
Asset Sales or restrict the use of Net Cash Proceeds therefrom:
(i) the Company or any Subsidiary of the Company may
convey, sell, lease, transfer, or otherwise dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to the Company or
to a Wholly Owned Subsidiary of the Company;
(ii) the Company and its Subsidiaries may engage in Asset
Sales in the ordinary course of business;
(iii) the Company may engage in Asset Sales pursuant to and
in accordance with the provisions of Article V;
(iv) the Company and its Subsidiaries may sell, lease,
transfer, abandon or otherwise dispose of (a) damaged, worn out, or
other obsolete property in the ordinary course of business or (b)
other property no longer necessary for the proper conduct of their
business;
(v) the Company and its Subsidiaries may engage in Asset
Sales (a) the Net Cash Proceeds of which are used for payment of cash
interest on Senior Debt, the Series A/B Notes, the Notes and/or the
TransTexas Intercompany Loan, (b) in connection with the settlement of
litigation or the payment of judgments, or (c) the Net Cash Proceeds
of which are used in connection with the settlement of litigation or
for the payment of judgments; provided, that the aggregate value of
the assets transferred pursuant to clauses (b) and (c) of this clause
(v) from and after the Issue Date does not exceed not exceed
$25,000,000;
(vi) the Company may sell, convey, contribute or otherwise
transfer the assets comprising the Related TTXD Business to TTXD;
(vii) the Company and its Subsidiaries may convey, sell,
transfer or otherwise dispose of Hydrocarbons in the ordinary course
of business;
(viii) prior to the TTXD Spin-off, the Company may sell,
transfer, contribute or otherwise dispose of the Capital Stock of TTXD
or the assets comprising the drilling and energy services business
and the pipeline services business of the Company, provided, that (a)
in the case of a transfer, contribution or other disposition to a
company that has a class of equity securities publicly traded on a
national securities exchange or on the NNM, at least 50% of the value
of the consideration for such Asset Sale consists of cash and up to
50% of the value of the consideration for such Asset Sale may consist
of Capital Stock and (b) in the case of a transfer, contribution, or
other disposition to a joint venture, partnership, limited liability
company or similar entity newly formed for the purpose of this
transfer, up to 100% of the value of the consideration for such Asset
Sale may consist of Capital Stock or other equity interests in such
entity; provided, further, that in the case of either clause (a) or
clause (b) of this subparagraph (viii), the Net Cash Proceeds from
such Asset Sale are applied pursuant to the first paragraph of this
covenant; and
(ix) the Company and its Subsidiaries may engage in Asset
Sales not otherwise permitted in clause (i), (ii), (iii), (iv), (v),
(vi), (vii), or (viii) preceding, provided that the aggregate proceeds
from all such Asset Sales do not exceed $5,000,000 in any twelve-month
period.
Unless otherwise required by the immediately preceding paragraph, the
proceeds of any Asset Sale permitted by such paragraph may be used by the
Company or its Subsidiaries for any one or more purposes not otherwise
prohibited by the Indenture.
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For purposes of the foregoing, "Net Cash Proceeds" means the aggregate
amount of cash received by the Company and its Subsidiaries in respect of an
Asset Sale (other than those that constitute a Change of Control and those
expressly permitted in clauses (i) through (vi) above), less the sum of (a) all
reasonable out-of-pocket fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated in good faith
by the Company) of income, franchise, sales and other applicable taxes required
to be paid by the Company or any Subsidiary of the Company in connection with
such Asset Sale and (b) the aggregate amount of cash so received which is used
to retire any then existing Debt of the Company or its Subsidiaries (other than
the Securities), as the case may be, which is required by the terms of such
Debt to be repaid in connection with such Asset Sale.
The aggregate amount of Net Cash Proceeds (including any cash as and
when received from the proceeds of any property which itself was acquired in
consideration of an Asset Sale) not timely used for the purposes permitted
above and within the time provided above shall be referred to as the
"Accumulated Amount."
For the purposes hereof, "Minimum Accumulation Date" means each date
on which the Accumulated Amount exceeds $20,000,000. Not later than 20
Business Days after the Minimum Accumulation Date the Company shall make an
irrevocable, unconditional offer (an "Offer to Purchase") to the Holders to
purchase, on a pro rata basis, Notes having a principal amount (the "Offer
Amount") equal to the Accumulated Amount, at a purchase price (the "Offer
Price") equal to 100% of the Accreted Value thereof, plus accrued but unpaid
interest, if any, to, and including, the date the Notes tendered are purchased
and paid for in accordance with this covenant which date shall be no later than
25 Business Days after the first date on which the Offer to Purchase is
required to be made (the "Purchase Date"). Notice of an Offer to Purchase
shall be sent, at least 20 Business Days prior to the close of business on the
Final Put Date (as defined below), by first-class mail, by the Company to each
Holder at its registered address, with a copy to the Trustee. The notice to
the Holders shall contain all information, instructions and materials required
by applicable law or otherwise material to such Holders' decision to tender
Notes pursuant to the Offer to Purchase.
Any such Offer to Purchase shall comply with all applicable provisions
of Federal and state laws, including those regulating tender offers, if
applicable, and any provisions of the Indenture that conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before a Purchase Date, the Company shall (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Offer to Purchase
on or prior to the close of business on the Final Put Date (on a pro rata
basis), (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Offer Price for all Notes or portions thereof so accepted and (iii) deliver
to the Trustee Notes so accepted together with an Officers' Certificate setting
forth the Notes or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Notes so accepted payment in
an amount equal to the Offer Price for such Notes, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered. Any Notes
not so accepted shall be promptly mailed or delivered by the Company to the
Holder thereof. The Company will publicly announce the results of the Offer to
Purchase on or as soon as practicable after the Purchase Date.
If the amount required to acquire all Notes tendered by Holders
pursuant to the Offer to Purchase (the "Acceptance Amount") shall be less than
the Offer Amount, the excess of the Offer Amount over the Acceptance Amount may
be used by the Company for general corporate purposes without restriction,
unless otherwise restricted by the other provisions of this Indenture. Upon
consummation of any Offer to Purchase made in accordance with this covenant of
the Indenture, the Accumulated Amount as of the Minimum Accumulation Date shall
be reduced to zero and accumulations thereof shall be deemed to recommence from
the day next following such Minimum Accumulation Date.
Limitation on Ranking of Future Debt. The Company will not, directly
or indirectly, incur, create, or suffer to exist any Debt which is
contractually subordinate or junior in right of payment (to any extent) to any
Debt of the Company and which is not expressly by the terms of the instrument
creating such Debt made pari passu with, or subordinated and junior in right of
payment to, the Notes.
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Restriction on Sale and Issuance of Subsidiary Stock. The Company
will not sell, and will not permit any of its Subsidiaries to, issue or sell,
any shares of Capital Stock of any Subsidiary of the Company to any Person
other than the Company or a Wholly Owned Subsidiary of the Company unless an
amount equal to the net proceeds of such sale is used by the Company within 180
days after the date of such sale for one or more of the purposes specified in
the first paragraph of " -- Limitation on Asset Sales."
Limitations on Line of Business. Neither the Company nor any of its
Subsidiaries shall directly or indirectly engage to any substantial extent in
any line or lines of business activity other than a Related Business and such
other business activities as are reasonably related thereto.
TTXD Spinoff. If the TTXD Spinoff is effected through a pro rata
distribution or dividend to stockholders of the Company or if the Company
completes an Asset Sale described in subparagraph (viii) of the second
paragraph of " -- Limitation on Asset Sales" in which less than 50% of the
value of the consideration received consists of cash, then
(a) from the date of such distribution or dividend or Asset Sale,
in addition to the interest set forth in paragraph 1 of the Notes, interest
will accrue on the outstanding Notes and the additional Notes issued pursuant
to paragraph (b) of this covenant at the rate of 3/8% per annum, which
additional interest shall be payable by the Company to the Holders of such
Notes at the times, in the manner, and subject to the same terms and conditions
as set forth herein, as nearly as may be, as though the interest rate provided
in paragraph 1 of the Notes had been increased by 3/8% per annum from the date
of such distribution or dividend or Asset Sale; and
(b) promptly following such distribution or dividend or Asset
Sale, the Company will issue to each Holder of record on the date of such
distribution or dividend or Asset Sale additional Notes bearing interest from
the date of such distribution or dividend or Asset Sale, in principal amount
equal to 1 1/2% of the aggregate principal amount of the Notes then held by
such Holder; provided that, additional Notes will be issued only in integral
multiples of $1,000 and any Holder entitled to receive additional Notes in a
principal amount other than an integral multiple of $1,000 will receive a
payment in cash in lieu of such fractional amount.
MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The Indenture provides that the Company will not consolidate with or
merge with or into any other Person, or, directly or indirectly, sell, lease,
assign, transfer or convey all or substantially all of its assets (computed on
a consolidated basis), to another Person or group of Affiliated Persons,
whether in a single transaction or through a series of Related transactions,
unless: (i) either (a) the Company shall be the continuing Person, or (b) the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or to which all or substantially all of the properties
and assets of the Company are transferred as an entirety or substantially as an
entirety (the Company or such other Person being hereinafter referred to as the
"Surviving Person") shall be a corporation or partnership organized and validly
existing under the laws of the United States, any State thereof or the District
of Columbia, and shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee on or prior to the consummation of such
transaction, in form satisfactory to the Trustee, all the obligations of the
Company under the Securities and the Indenture; (ii) on a pro forma
consolidated basis, immediately after giving effect to such transaction and the
assumption of the obligations contemplated by clause (i), above, and the
incurrence or anticipated incurrence of any Debt or Disqualified Capital Stock
to be incurred or issued in connection therewith, the (x)Net Worth of the
Surviving Person is at least equal to the Net Worth of the Company and its
Subsidiaries immediately prior to such transaction and (y) the Surviving Person
could incur $1.00 of additional Debt pursuant to the second paragraph of the
covenant described in " -- Certain Covenants -- Limitation on Incurrence of
Additional Debt and Issuances of Disqualified Capital Stock"; (iii)
immediately before and on a pro forma basis immediately after giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1), above, and the incurrence or issuance or anticipated incurrence or
issuance of any Debt to be incurred or Disqualified Capital Stock to be issued
in connection therewith, no Default or Event of Default shall exist or shall
occur; and (iv) at the time or within 45 days after such transaction, the Notes
have not been or are not downgraded by S & P, Moody's, or any
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successor rating agencies to either entity to a rating below that which existed
immediately prior to the time such transaction is publicly announced.
Notwithstanding the foregoing, any Subsidiary with a net worth (net
worth being the sum of the par or stated value of capital stock outstanding of
such Subsidiary and additional paid-in capital plus retained earnings (or minus
accumulated deficit) of such Subsidiary, determined in accordance with
generally accepted accounting principles, except that there shall be excluded
any amounts attributable to Disqualified Capital Stock of such Subsidiary)
greater than zero, may merge into the Company (or a Wholly Owned Subsidiary of
the Company) at any time, provided the Company shall have delivered to the
Trustee an Officers' Certificate stating that such Subsidiary has a net worth
greater than zero and such merger does not result in a Default or an Event of
Default hereunder.
For purposes of the first paragraph above, the sale, lease,
conveyance, assignment, transfer, or other disposition of all or substantially
all of the properties and assets of one or more Subsidiaries of the Company
which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Upon any consolidation or merger, or any transfer of assets in
accordance with the foregoing, the Surviving Person formed by such
consolidation or into which the Company is merged or to which such transfer is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
Surviving Person had been named as the Company herein. When a Surviving Person
duly assumes all of the obligations of the Company pursuant hereto and pursuant
to the Securities, the predecessor shall be released from such obligations.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the
Company to pay installments of interest on the Notes as and when the same
become due and payable and the continuance of any such failure for 30 days,
(ii) the failure by the Company to pay all or any part of the principal or
premium, if any, on the Notes when and as the same become due and payable at
maturity, redemption, by acceleration, or otherwise, including payment of the
Offer Price or Change of Control Purchase Price, (iii) the failure by the
Company to observe or perform any other covenant, agreement, or warranty
contained in the Notes or the Indenture and, subject to certain exceptions, the
continuance of such failure for a period of 30 days after written notice is
given to the Company by the Indenture Trustee or the Company and the Indenture
Trustee by the Holders of at least 25% in aggregate principal amount of the
Notes outstanding, (iv) certain events of bankruptcy, insolvency, or
reorganization in respect of the Company or any of its Subsidiaries, (v) a
default which extends beyond any stated period of grace applicable thereto
(including any extension thereof) under any mortgage, indenture, or instrument
under which there is outstanding any Debt of the Company or any of its
Subsidiaries aggregating in excess of $20 million or a failure to pay such Debt
at its stated maturity if either (a) such default results from the failure to
pay principal of, premium, if any, or interest on any such Debt when due and
continuance of such default beyond any applicable cure, forbearance or notice
period, provided that a waiver by the lenders of such debt of such default shall
constitute a waiver hereunder for the same period, or (b) as a result of such
default, the maturity of such Debt has been accelerated prior to its scheduled
maturity, and such default and acceleration continues without having been
rescinded or annulled for a period of 10 days, (vi) final judgments not covered
by insurance aggregating at least $25 million at any one time rendered against
the Company or any of its Subsidiaries and not stayed or discharged within 60
days, (vii) Independent Directors not constituting a majority of the board of
directors of the Company or any Guarantor for a period of 90 days in the
aggregate in any twelve-month period, or (viii) there having occurred any
amendment to the Certificate of Incorporation or Bylaws of the Company or any of
its Subsidiaries that pertains to the directors and would have an adverse effect
on the holders of the Notes or any other amendment that would materially
adversely affect the interests of the Noteholders and, in the case of any such
other amendment, the failure to correct such other amendment continues for a
period of 90 days after written notice is given to the Company by the Trustee or
to the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Notes outstanding. The Indenture provides that if a
default occurs
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and is continuing and if it is known to the Indenture Trustee, the Indenture
Trustee must, within 90 days after the occurrence of such default, give to the
Holders notice of such default; provided, that, except in the case of default
in payment of principal of, premium, if any, or interest on the Notes,
including a default in the payment of the Offer Price or Change of Control
Purchase Price as required by the Indenture, the Trustee will be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Noteholders.
If an Event of Default occurs and is continuing (other than an Event
of Default specified in clause (iv), above, relating to the Company or its
Subsidiaries), then in every such case, unless the principal of all of the
Notes shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of Notes then outstanding, by
notice in writing to the Company (and to the Indenture Trustee if given by
Holders) (an "Acceleration Notice"), may declare all principal of the Notes,
determined as set forth below, and accrued interest thereon or, as appropriate,
the Change of Control Purchase Price, to be due and payable immediately. If an
Event of Default specified in clause (iv), above, relating to the Company or
its Subsidiaries occurs, all principal and accrued interest thereon will be
immediately due and payable on all outstanding Notes without any declaration or
other act on the part of the Indenture Trustee or the Holders. The Holders of
no less than a majority in aggregate principal amount of Notes generally are
authorized to rescind such acceleration if all existing Events of Default,
other than the non- payment of the principal of, premium, if any, and interest
on the Notes which have become due solely by such acceleration, have been cured
or waived.
Prior to the declaration of acceleration of the majority of the Notes,
the Holders of a majority in aggregate principal amount of the Notes at the
time outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of, premium, if any, or interest on any
Note not yet cured, or a default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Subject to the provisions of the Indenture relating
to the duties of the Indenture Trustee, the Indenture Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order, or direction of any of the Holders, unless such Holders have
offered to the Indenture Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority
in aggregate principal amount of the Notes at the time outstanding have the
right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Indenture Trustee.
COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture ceases to be of further effect as to all outstanding
Notes (except as to (i) rights of registration of transfer, substitution, and
exchange of Notes and the Company's right of optional redemption, (ii) rights
of Holders to receive payments of principal of, premium, if any, and interest
on the Notes (but not the Change of Control Purchase Price or the Offer Price of
the Notes) and any other rights of the Holders with respect to such amounts,
(iii) the rights, obligations, and immunities of the Trustee under the
Indenture, and (iv) certain other specified provisions in the Indenture (the
foregoing exceptions (i) through (iv) are collectively referred to as the
"Reserved Rights")) on the 91st day (or one day after such other greater period
of time in which any such deposit of trust funds may remain subject to
bankruptcy or insolvency laws, e.g., one year after any such deposit) after the
irrevocable deposit by the Company with the Trustee, in trust for the benefit of
the Holders, of (i) money in an amount, (ii) U.S. Government Obligations which
through the payment of interest and principal will provide, not later than one
day before the due date of payment in respect of the Notes, money in an amount,
or (iii) a combination thereof, sufficient to pay and discharge the principal
of, premium, if any, and interest on the Notes then outstanding on the dates on
which any such payments are due and payable in accordance with the terms of the
Indenture and of the Notes. Such a trust may be established only if certain
conditions are satisfied, including delivery by the Company to the Trustee of an
opinion of outside counsel acceptable to the Trustee (who may be outside counsel
to the Company) to the effect that (i) the defeasance and discharge will not be
deemed, or result in, a taxable event for Federal income tax purposes, with
respect to the Holders, (ii) the Company's deposit will not result in the
Company, the Trust, or the Trustee being subject to regulation under the
Investment Company Act of 1940, and (iii) after the passage of 90 days (or any
greater period of time in which any such deposit of trust funds may remain
subject to bankruptcy or insolvency laws insofar
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as those laws apply to the Company) following the deposit of the trust funds,
such funds will not be subject to set aside or avoidance under any bankruptcy,
insolvency, or other similar laws affecting creditors' rights generally. The
Indenture will not be discharged if, among other things, a Default or an Event
of Default shall have occurred and be continuing on the date of such deposit.
The Company will be deemed to have paid and discharged the entire indebtedness
on all of the outstanding Notes when (i) all outstanding Notes have been
delivered to the Trustee for cancellation, or (ii) the Company has paid or
caused to be paid the principal of and interest on the Notes.
REPORTS
The Company is required to furnish to the Trustee, within 60 days
after the end of each fiscal quarter, or 105 days after the end of a fiscal
quarter that is also the end of a fiscal year, with an officers' certificate to
the effect that such officers have conducted or supervised a review of the
activities of the Company and its Subsidiaries and of performance under the
Indenture and that, to the best of such officers' knowledge, based on their
review, the Company has fulfilled all of its obligations under the Indenture
or, if there has been a default, specifying each default known to them, its
nature and its status. The Company is also required to notify the Indenture
Trustee of any changes in the composition of the Board of Directors of the
Company or any of its Subsidiaries or of any amendment to the charter or bylaws
of the Company or any of its Subsidiaries.
The Company and each Guarantor shall deliver to the Trustee and to
each Holder, within 15 days after it files them with the Commission, copies of
all reports and information that the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Company and
each Guarantor agree to continue to be subject to the filing and reporting
requirements of the Commission as long as any of the Notes are outstanding.
Concurrently with the reports delivered pursuant to the preceding
paragraph, the Company shall deliver to the Trustee and to each Holder annual
and quarterly financial statements with appropriate footnotes of the Company
and its Subsidiaries, all prepared and presented in a manner substantially
consistent with those of the Company required by the preceding paragraph.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the
Trustee to enter into a supplemental indenture or amend the Security Documents
for certain limited purposes without the consent of the Holders. With the
consent of the Holders of not less than a majority in aggregate principal
amount of the Notes at the time outstanding, the Company and the Indenture
Trustee are permitted to amend or supplement the Indenture or any supplemental
indenture or modify the rights of the Holders; provided, that no such
modification may, without the consent of each Holder affected thereby; (i)
change the Stated Maturity of the principal of, or any installment of principal
of, or any installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Note or any premium or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on or
after the redemption date), or reduce the Change of Control Purchase Price or
alter the provisions of the "Repurchase of Notes at the Option of the Holder
Upon a Change of Control" covenant in a manner adverse to the Holders, or (ii)
reduce the percentage in principal amount of the Outstanding Notes, the consent
of whose Holders is required for any such amendment, supplemental indenture, or
waiver provided for in the Indenture, or (iii) modify any of the waiver
provisions, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Note affected thereby.
Notwithstanding the foregoing, (i) the consent of at least 66-2/3% of
the aggregate principal amount of Notes then outstanding shall be required to
approve any amendment, supplement or waiver that makes any changes in the terms
or provisions of the "Limitation on Asset Sales" covenant (other than the Offer
Price) and (ii) the consent of at least 90% of the aggregate principal amount
of the Notes then outstanding shall be required to approve any
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amendment, supplement or waiver that makes any changes in the "Repurchase of
Notes at the Option of the Holder Upon a Change of Control" covenant.
GOVERNING LAW
The Indenture provides that it is governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee need perform only those duties that are specifically
set forth (or incorporated by reference) in the Indenture and no others.
During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it by the Indenture, and use the same degree of
care and skill in such exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs.
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payments of
claims in certain cases or to realize on certain property received in respect
of any such claims as security or otherwise.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS
No stockholder, officer, or director, as such, past, present, or
future of the Company or any successor corporation shall have any personal
liability in respect of the obligations of the Company under the Indenture or
the Notes by reason of his or its status as such stockholder, officer, or
director.
REGISTRATION RIGHTS AGREEMENT; PENALTY INTEREST
If the Company reasonably determines in good faith and after
conferring with counsel that (i) the Exchange Notes would not, upon receipt in
the Exchange Offer by any holder of Outstanding Notes, other than affiliates or
broker dealers or affiliates thereof who are Original Holders of the
Outstanding Notes ("Restricted Persons"), be tradeable by each holder thereof
without restriction under the Securities Act and the Exchange Act and without
material instruction under applicable blue sky or state securities laws, (ii)
the Exchange Offer may not be made in compliance with applicable laws, (iii)
the Exchange Notes would not, upon consummation of any resale thereof by a
Restricted Person to anyone other than another Restricted Person, be tradeable
by each holder thereof without restriction under the Securities Act and the
Exchange Act and without material restriction under applicable blue sky or
state securities laws, or (iv) the Commission is unlikely to permit the
registration statement covering the Exchange Offer to become effective prior to
October 11, 1997, solely because such registration statement covers resale of
the Exchange Notes by Restricted Persons, then the Company will promptly
deliver notice thereof to the Trustee and the affected holders of Outstanding
Notes, and the Company shall use its best efforts to file with the Commission
pursuant to Rule 415 a shelf registration statement (the "Shelf Registration
Statement") relating to all Registrable Notes (the "Shelf Registration") the
holders of which have provided the information required by the Registration
Rights Agreement, and to have the Shelf Registration Statement declared
effective by the Commission on or prior to October 11, 1997. In such
circumstances, the Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective under the Securities Act, for a
period of two years (subject to extension under certain circumstances) or such
shorter period ending when all Registrable Notes covered by the Shelf
Registration Statement have been sold pursuant thereto (the "Effectiveness
Period"); provided, however, that the Effectiveness Period shall be extended to
the extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 under the Securities Act in the Registration
Rights Agreement.
59
<PAGE> 65
No holder of Notes may include any of its Notes in any Shelf
Registration Statement pursuant to this Agreement unless and until such holder
furnishes to the Company in writing, such information as the Company may
reasonably request for use in connection with any Shelf Registration Statement
or prospectus or preliminary prospectus included therein. Each holder of Notes
as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such
holder not materially misleading. In addition each holder of Notes covered by
a registration statement agrees (i), subject to exceptions specified in the
Registration Rights Agreement, not to effect any public sale or distribution of
Notes, including pursuant to Rule 144, during the period beginning 10 days
prior to date of any underwritten offering made pursuant to the registration
statement and (ii) to indemnify the Company and its controlling persons for any
liability arising out of material misstatements or omissions in the information
relating to such holder furnished in writing for inclusion in a registration
statement, including the registration statement of which this Prospectus is a
part.
If (i) the applicable Registration Statement has not been declared
effective by the Commission on or prior to the Effectiveness Date, (ii) the
Exchange Offer is required to be consummated under the Registration Rights
Agreement, the Company has not exchanged Exchange Notes for all Notes validly
tendered and not validly withdrawn in accordance with the terms of the Exchange
Offer by the Consummation Date, (iii) the Registration Statement pursuant to
which this Exchange Offer is made ceases to be effective before 30 days after
the date is declared effective by the Commission, or (iv) the applicable
Registration Statement is filed and declared effective but shall thereafter
cease to be effective without being succeeded immediately by any additional
Registration Statement covering the Notes which has been filed and declared
effective (each such event referred to in clauses (i) through (iv), an
"Illiquidity Event"), then the interest rate on Transfer Restricted Securities
will increase ("Additional Interest") by 1.00% per annum until all Illiquidity
Events have been cured. Following the cure of an Illiquidity Event, the
accrual of Additional Interest with respect to such Illiquidity Event will
cease and upon the cure of all Illiquidity Events the interest rate will revert
to the original rate.
The Company shall notify the Trustee and paying agent under the
Indenture promptly upon the happening of each and every Illiquidity Event. The
Additional Interest due shall be payable on each interest payment date
specified by the Indenture (or such other indenture) to the record holder
entitled to receive the interest payment to be made on such date. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the date of the applicable Illiquidity Event.
60
<PAGE> 66
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the
Internal Revenue Code of 1986, as amended, applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the IRS will not take a contrary view, and no ruling from the
IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Outstanding Notes (including
insurance companies, tax exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. Each Holder of an Outstanding Note should consult his, her or its own
tax advisor as to the particular tax consequences of exchanging such Holder's
Outstanding Notes for Exchange Notes, including the applicability and effect of
any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Outstanding Notes
pursuant to the terms set forth in this Prospectus should not constitute a
recognition event for federal income tax purposes. Consequently, no gain or
loss should be recognized by Holders of the Outstanding Notes upon receipt of
the Exchange Notes. For purposes of determining gain or loss upon the
subsequent sale or exchange of the Exchange Notes, a Holder's basis in the
Exchange Notes should be the same as such Holder's basis in the Outstanding
Notes exchanged therefor. Holders should be considered to have held the
Exchange Notes from the time of their original acquisition of the Outstanding
Notes.
Treasury regulations relating to the tax treatment of debt instruments
with original discount contain provisions for determining the yield and
maturity of debt instruments having one or more contingencies that could result
in the acceleration or deferral of amounts due under the debt (including
optional redemption). The Company will follow the general rule of these
provisions, which is to ignore contingencies, as it is more likely than not
that payments will be made under the Exchange Notes under the stated payment
schedule, and thus plans to accrue and report interest on the Exchange Notes
under the stated payment schedule.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes where such Outstanding Notes were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the date the registration
statement, of which this Prospectus forms a part, is declared effective, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sales of the
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchase or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act, and
any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal for the
Exchange Offer states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
61
<PAGE> 67
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer, other than commissions or concession of any
brokers or dealers, and will indemnify the holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under
the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
request the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemental Prospectus to such broker-dealer. If the Company shall give
any such notice to suspend the use of the Prospectus, it shall extend the
90-day period referred to above by the number of days during the period from
and including the date of the giving of such notice to and including when
broker-dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Gardere &
Wynne, L.L.P., Dallas, Texas.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets as of January 31, 1997 and 1996 and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the year ended January 31, 1997, the six months ended January
31, 1996, and for each of the two years in the period ended July 31, 1995 and
related schedules, incorporated by reference in this Prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
auditing and accounting. With respect to the unaudited interim financial
information for the period ended April 30, 1997 incorporated by reference in
this prospectus, the independent accountants have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report included in the
Company's quarterly report on Form 10-Q for the quarter ended April 30, 1997,
and incorporated by reference herein, state that they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of Section 11 of the Securities Act
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
EXPERTS
The reserve estimates of the Company included in the Company's Form
10-K for the year ended January 31, 1997 have been incorporated by reference in
this Prospectus and the Registration Statement in reliance upon reserve reports
and summary letters prepared by Netherland, Sewell & Associates, Inc., upon the
authority of such firm as experts in estimating proved oil and gas reserves.
62
<PAGE> 68
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF
TRANSTEXAS GAS CORPORATION
The following unaudited pro forma condensed consolidated financial
information of TransTexas Gas Corporation (the "Company") as of and for the
three months ended April 30, 1997 and for the year ended January 31, 1997,
illustrate the effect of the sale of the Company's wholly owned subsidiary,
TransTexas Transmission Corporation ("Lobo Sale"), and the following
transactions (the "Transactions") related to a private offering of debt
securities by TransAmerican Energy Corporation (the "TEC Notes Offering"): (i)
the TransTexas Intercompany Loan; (ii) the tender offer for the TransTexas
Senior Secured Notes; (iii) the June Exchange Offer; and (iv) the Stock
Repurchase Program. The unaudited pro forma condensed consolidated balance
sheet has been prepared assuming that the Lobo Sale, the TEC Notes Offering and
the Transactions were consummated on April 30, 1997. The unaudited pro forma
condensed consolidated statements of operations for the three months ended April
30, 1997 and for the year ended January 31, 1997 have been prepared assuming
that the Lobo Sale, the TEC Notes Offering and the Transactions were consummated
on February 1, 1997 and 1996, respectively.
The unaudited pro forma adjustments and the resulting unaudited pro
forma condensed consolidated financial information are based on the assumptions
noted in the footnotes thereto. The unaudited pro forma condensed consolidated
financial information does not purport to represent what the Company's financial
position or results of operations would have been had the Lobo Sale, the TEC
Notes Offering and the Transactions actually occurred on the dates indicated or
the financial position or results of operations for any future date or period.
The unaudited pro forma condensed consolidated financial information
and notes thereto should be read in conjunction with the Company's historical
consolidated financial statements and the notes thereto included in the
Company's quarterly report on Form 10-Q for the period ended April 30, 1997 and
its annual report on Form 10-K for the period ended January 31, 1997.
PF-1
<PAGE> 69
TRANSTEXAS GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 11,667 $ 1,073,42 (a) $ 197,669
450,000 (b)
65,000 (c)
(1,448,422)(d)
46,000 (f)
Cash restricted for interest . . . . . . . . . 46,000 (46,000)(f) --
Accounts receivable . . . . . . . . . . . . . 30,327 -- 30,327
Receivable from affiliates . . . . . . . . . . 70,436 (65,000)(c) 5,436
Inventories . . . . . . . . . . . . . . . . . 15,164 -- 15,164
Other current assets . . . . . . . . . . . . . 13,749 -- 13,749
------------ ----------- ----------
Total current assets . . . . . . . . . . . 187,343 75,002 262,345
Net property and equipment . . . . . . . . . . . 909,481 (450,592)(a) 458,889
Other assets . . . . . . . . . . . . . . . . . . 17,436 10,000 (d) 13,823
(13,613)(g)
Deferred tax asset . . . . . . . . . . . . . . . -- 21,987 (h) 21,987
------------ ----------- ----------
$ 1,114,260 $ (357,216) $ 757,044
============ =========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt . . . . . $ 8,406 $ -- $ 8,406
Revolving credit agreement . . . . . . . . . . 8,386 -- 8,386
Accounts payable . . . . . . . . . . . . . . . 60,377 -- 60,377
Accrued liabilities . . . . . . . . . . . . . 102,609 (13,879)(d) 53,974
(34,756)(d)
------------ ----------- ----------
Total current liabilities . . . . . . . . . 179,778 (48,635) 131,143
------------ ----------- ----------
Long-term debt, less current maturities . . . . . 13,024 -- 13,024
Intercompany loan . . . . . . . . . . . . . . . . -- 450,000 (b) 450,000
Production payments, less current portion . . . . 25,362 (7,212)(d) 18,150
Senior secured notes . . . . . . . . . . . . . . 800,000 (800,000)(d) --
Subordinated notes . . . . . . . . . . . . . . . 104,386 11,429 (e) 115,815
Deferred revenue . . . . . . . . . . . . . . . . 46,176 (46,176)(d) --
Deferred income taxes . . . . . . . . . . . . . . 35,542 (57,529)(h) --
21,987 (h)
Payable to affiliates . . . . . . . . . . . . . . 7,618 205,000 (h) 82,618
(130,000)(i)
Other liabilities . . . . . . . . . . . . . . . . 8,429 (1,309)(d) 7,120
Stockholders' deficit:
Common stock . . . . . . . . . . . . . . . . . 740 (250)(d) 490
Paid-in capital (deficit) . . . . . . . . . . (123,524) 130,000 (i) 6,476
Retained earnings (accumulated deficit) . . . 16,729 (399,034)(d) (67,792)
314,513 (j)
------------ ----------- ----------
Total stockholders' deficit . . . . . . . . (106,055) 45,229 (60,826)
------------ ----------- ----------
$ 1,114,260 $ (357,216) $ 757,044
============ =========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
PF-2
<PAGE> 70
TRANSTEXAS GAS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) To record the Lobo Sale for an adjusted purchase price of $1,073.4 million:
<TABLE>
<S> <C>
Cash proceeds . . . . . . . . . . . . . . . . . $ 1,073,424
Carrying value of stock sold . . . . . . . . . . (450,592)
-----------
Pretax gain on Lobo Sale . . . . . . . . $ 622,832 (j)
===========
</TABLE>
Purchase price adjustments were made for, among other things: the
value of certain NGLs and stored hydrocarbons; the value of gas in TTC's
pipeline; prepaid expenses relating to post-effective date operations;
post- closing expenses related to pre-closing operations; the value of oil
and gas produced and sold between the effective date of the Lobo Sale and
closing (approximately $44 million); property defects; and estimated costs
associated with liabilities incurred before closing. Purchase price
adjustments made at the closing of the Lobo Sale are subject to a review,
reconciliation and resolution process, which is expected to be completed
within 105 days following the closing.
(b) To record the borrowing by the Company of $450 million pursuant to the
TransTexas Intercompany Loan.
(c) To record the collection of amounts due from affiliates.
(d) To record the application of a portion of the proceeds from (a) through (c)
above:
<TABLE>
<S> <C>
Repurchase of Senior Secured Notes . . . . . . . $ 800,000
Premium of 11.5% for Senior Secured Notes . . . 92,000(j)
Accrued interest on Senior Secured Notes . . . . 34,756
Lobo Sale production repayment . . . . . . . . . 43,806(j)
Repayment of volumetric production payments
(deferred revenue), dollar-denominated
production payments and other debt . . . . . 68,576
Stock Repurchase Program . . . . . . . . . . . . 399,284
Debt issue costs . . . . . . . . . . . . . . . . 10,000
------------
$ 1,448,422
============
</TABLE>
Pending completion of the Stock Repurchase Program, up to $400 million
of proceeds from the TEC Notes Offering and the Transactions will be held
by the Company in a restricted cash account. Such proceeds will be
disbursed from such account (i) for purposes of the Stock Repurchase
Program or (ii) upon completion of Phase II of TARC's Capital Improvement
Program for general corporate purposes.
In addition to the above, proceeds of approximately $11 million were
used to pay accrued interest on the Senior Secured Notes for the period
from May 1, 1997 through June 13, 1997.
During the months of April and May 1997, the Company obtained
additional financing in the aggregate amount of $49.5 million, of which
approximately $29.2 million remained outstanding at June 30, 1997.
(e) To record the premium attributable to the Subordinated Notes Exchange
Offer. See (j).
(f) To release cash restricted pursuant to the Senior Secured Notes Indenture.
PF-3
<PAGE> 71
(g) To write off unamortized debt issue costs related to the Senior Secured
Notes and the Subordinated Notes. See (j).
(h) To record the income tax effects of the Lobo Sale and of expenses related
to the Senior Secured Notes Tender Offer and to reclassify $22.0 million of
deferred taxes to deferred tax assets.
<TABLE>
<S> <C>
Payable to TransAmerican pursuant to the Tax
Allocation Agreement . . . . . . . . . . . . $ 205,000
Deferred income taxes . . . . . . . . . . . . . (57,529)
-----------
$ 147,471
===========
</TABLE>
(i) To record the assumption of $130 million of estimated net tax liability by
TransAmerican in accordance with the Tax Allocation Agreement.
(j) To record the effects on retained earnings as a result of (a) through (i).
<TABLE>
<S> <C>
Pretax gain on Lobo Sale . . . . . . . . . . . . $ 622,832
Premium of 11.5% for Senior Secured Notes . . . (92,000)(1)
Lobo Sale production repayment . . . . . . . . . (43,806)
Premium attributable to the Subordinated
Notes Exchange Offer . . . . . . . . . . . . (11,429)(1)
Unamortized debt issue costs . . . . . . . . . . (13,613)(1)
Federal income taxes . . . . . . . . . . . . . . (147,471)
------------
$ 314,513
============
</TABLE>
_____________
(1) These amounts and the related income tax benefits, if any, will be
recorded as an extraordinary charge to income in the period that the
related debt is extinguished.
PF-4
<PAGE> 72
TRANSTEXAS GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Gas, condensate and natural gas liquids . . . $ 72,882 $ (36,862)(a) $ 36,020
Transportation . . . . . . . . . . . . . . . . 9,291 (9,291)(a) --
Other . . . . . . . . . . . . . . . . . . . . 178 -- 178 (d)
------------ ------------ ------------
Total revenues . . . . . . . . . . . . . . 82,351 (46,153) 36,198
------------ ------------ ------------
Costs and expenses:
Operating . . . . . . . . . . . . . . . . . . 27,142 (21,936)(a) 5,206
Depreciation, depletion and amortization . . . 33,557 (14,408)(a) 19,149
General and administrative . . . . . . . . . . 15,140 (7,688)(a) 7,452
Taxes other than income taxes . . . . . . . . 5,214 (2,450)(a) 2,764
------------ ------------ ------------
Total costs and expenses . . . . . . . . . 81,053 (46,482) 34,571 (d)
------------ ------------ ------------
Operating income . . . . . . . . . . . . . 1,298 329 1,627
------------ ------------ ------------
Other income (expenses):
Interest income . . . . . . . . . . . . . . . 1,694 -- 1,694
Interest expense, net . . . . . . . . . . . . (25,358) 9,019 (b) (16,339)
------------ ------------ ------------
Total other income (expense) . . . . . . . (23,664) 9,019 (14,645)
------------ ------------ ------------
Loss before income taxes . . . . . . . . . (22,366) 9,348 (13,018)
Income taxes (benefit) . . . . . . . . . . . . . (7,828) 3,272 (c) (4,556)
------------ ------------ -------------
Net loss . . . . . . . . . . . . . . . . . $ (14,538) $ 6,076 $ (8,462)
============ ============ ============
Net loss per share . . . . . . . . . . . . . . . $ (0.20) $ (0.17)
============ ============
Weighted average number of
common shares outstanding . . . . . . . . . . 74,000,000 49,044,750 (e)
============ ============
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
PF-5
<PAGE> 73
TRANSTEXAS GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Gas, condensate and natural gas liquids . . . $ 363,459 $ (173,761)(a) $ 189,698
Transportation . . . . . . . . . . . . . . . . 34,423 (34,423)(a) --
Gain on the sale of assets . . . . . . . . . . 7,856 -- 7,856
Other . . . . . . . . . . . . . . . . . . . . 609 -- 609 (d)
------------ ------------ ------------
Total revenues . . . . . . . . . . . . . . 406,347 (208,184) 198,163
------------ ------------ ------------
Costs and expenses:
Operating . . . . . . . . . . . . . . . . . . 114,453 (97,494)(a) 16,959
Depreciation, depletion and amortization . . . 132,453 (78,932)(a) 53,521
General and administrative . . . . . . . . . . 45,596 (2,000)(a) 43,596
Taxes other than income taxes . . . . . . . . 22,566 (12,818)(a) 9,748
Litigation settlement . . . . . . . . . . . . (96,000) -- (96,000)
------------ ------------ ------------
Total costs and expenses . . . . . . . . . 219,068 (191,244) 27,824 (d)
------------ ------------ ------------
Operating income . . . . . . . . . . . . . 187,279 (16,940) 170,339
------------ ------------ ------------
Other income (expenses):
Interest income . . . . . . . . . . . . . . . 5,544 -- 5,544
Interest expense, net . . . . . . . . . . . . (97,007) 24,368 (b) (72,639)
------------ ------------ ------------
Total other income (expense) . . . . . . . (91,463) 24,368 (67,095)
------------ ------------ ------------
Income before income taxes . . . . . . . . 95,816 7,428 103,244
Income taxes . . . . . . . . . . . . . . . . . . 12,491 23,644 (c) 36,135
------------ ------------ ------------
Net income . . . . . . . . . . . . . . . . $ 83,325 $ (16,216) $ 67,109
============ ============ ============
Net income per share . . . . . . . . . . . . . . $ 1.13 $ 1.37
============ ============
Weighted average number of
common shares outstanding . . . . . . . . . . 74,000,000 49,044,750 (e)
============ ============
</TABLE>
The accompany notes are an integral part of the pro forma financial
statements.
PF-6
<PAGE> 74
TRANSTEXAS GAS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) To adjust revenues, including losses relating to risk management
activities, operating expenses, depreciation, depletion and amortization,
general and administrative and taxes other than income taxes as a result
of the Lobo Sale.
(b) To adjust interest expense as follows:
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
April 30, 1997 January 31, 1997
-------------- ----------------
<S> <C> <C>
Interest on the Intercompany Loan at a rate of 10.875% . . $ 12,234 $ 48,938
Interest on estimated federal income tax liability payable
to affiliate at an assumed rate of 9.0% . . . . . . . . 1,688 6,750
Historical interest on Subordinated Notes . . . . . . . . (3,294) (1,646)
Interest on Subordinated Exchange Notes at a rate of 13.75% 3,981 15,925
Historical interest expense on the Senior Secured Notes . (23,000) (92,000)
Historical interest expense on other debt . . . . . . . . (634) (2,500)
Amortization of estimated debt issuance costs . . . . . . 500 2,000
Amortization of historical debt issuance costs . . . . . . (606) (1,835)
Change in interest capitalized . . . . . . . . . . . . . . 112 --
----------- -----------
Total adjustment to interest expense . . . . . . . $ (9,019) $ (24,368)
=========== ===========
</TABLE>
(c) To adjust income tax expense for the effects of adjustments (a) and (b)
above based on the federal statutory rate of 35%.
(d) Does not include revenues and related expenses attributable to the
Agreement for Services between the Company and Conoco Inc.
(e) Assumes 24,955,250 common shares are purchased pursuant to the Stock
Repurchase Program at $16 per shares.
PF-7
<PAGE> 75
================================================================================
All tendered Outstanding Notes, executed Letters of Transmittal and other
related documents should be directed to the Exchange Agent. Questions and
requests for assistance and requests for additional copies of the Prospectus,
the Letter of Transmittal and other related documents should be addressed to
the Exchange Agent as follows:
By Registered or Certified Mail:
Bank One, NA
P.O. Box 70184
Columbus, Ohio 43271-0184
Attention: Lora Marsch
By Overnight Mail or Hand Delivery:
Bank One, NA-0H1-0184
100 East Broad Street
Columbus, Ohio 43215
Attention: Lora Marsch
By Facsimile:
Bank One, NA
Attention: Lora Marsch
(614) 248-5088
Confirm by Telephone: (614) 248-4856
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
No person has been authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Prospectus and the accompanying Letter of Transmittal, and, if given or made,
such information or representations must not be relied upon as having been
authorized. Neither the Prospectus nor the accompanying Letter of Transmittal
nor both together constitute an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which the Prospectus relates
or an offer to sell or the solicitation of an offer to buy such securities in
any circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus or the Letter of Transmittal or both together nor
any exchange made hereunder shall, under any circumstances, create any
implication that the information contained or incorporated by reference herein
is correct as of any time subsequent to the date herein or that there has been
no change in the affairs of the Company since such date.
================================================================================
================================================================================
$115,815,000
TRANSTEXAS GAS CORPORATION
13 3/4% Series D Senior Subordinated Notes
due 2001
PROSPECTUS
September 4, 1997
TABLE OF CONTENTS
Page
Available Information . . . . . . . . . . . . . . . . iii
Information Incorporated by Reference . . . . . . . . iii
Special Note Regarding Forward-Looking Statements . . iv
Prospectus Summary . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . 12
The Exchange Offer . . . . . . . . . . . . . . . . . 19
Use of Proceeds . . . . . . . . . . . . . . . . . . . 24
The Company . . . . . . . . . . . . . . . . . . . . . 25
Description of Certain Indebtedness . . . . . . . . . 28
Description of the Exchange Notes . . . . . . . . . . 29
Certain Federal Income Tax Consequences . . . . . . . 61
Plan of Distribution . . . . . . . . . . . . . . . . 61
Legal Matters . . . . . . . . . . . . . . . . . . . . 62
Independent Accountants . . . . . . . . . . . . . . . 62
Experts . . . . . . . . . . . . . . . . . . . . . . . 62
Pro Forma Condensed Consolidated
Financial Information . . . . . . . . . . . . . . . PF-1
================================================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides that any person may be
indemnified by a Delaware corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of his being
or having been a director, officer, employee or agent of the Company. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
Section nine of the Company's Certificate of Incorporation provides
that directors of the Company shall not, to the fullest extent permitted by the
DGCL, as amended from time to time, be liable to the Company or its
stockholders for monetary damages for breach of their fiduciary duty to the
Company or the Company's stockholders.
The Company has entered into indemnification agreements with its
executive officers and directors that will contractually provide for
indemnification and expense advancement and include related provisions meant to
facilitate the indemnitees' receipt of such benefits. In addition, the Company
has purchased customary directors' and officers' liability insurance policies
for its directors and officers. The Bylaws of the Company and agreements with
directors and officers also provide for indemnification for amounts (i) in
respect of the deductibles for such insurance policies and (ii) that exceed the
liability limits of such insurance policies. Such indemnification may be made
even though directors and officers would not otherwise be entitled to
indemnification under other provisions of the Bylaws or such agreements.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
3.1 -- Articles of Incorporation (previously filed as an exhibit to the
Company's registration statement on Form S-1 (33-75050), and
incorporated herein by reference thereto).
4.1* -- Indenture governing Subordinated Exchange Notes dated June 13,
1997 between the Company, as issuer, and BankOne, N.A., as
trustee.
4.2* -- Registration Rights Agreement dated June 13, 1997 between the
Company and the holders of the Subordinated Exchange Notes.
4.3 -- Loan Agreement dated June 13, 1997 between the Company and TEC
(previously filed as an exhibit to the Company's current report on
Form 8-K dated June 13, 1997, and incorporated herein by reference
thereto).
4.4 -- Security and Pledge Agreement dated June 13, 1997 by the Company
in favor of TEC (previously filed as an exhibit to the Company's
current report on Form 8-K dated June 13, 1997, and incorporated
herein by reference thereto).
4.5 -- Disbursement Agreement dated June 13, 1997 among the Company, TEC
and Firstar Bank of Minnesota, as disbursement agent and trustee
(previously filed as an exhibit to the Company's current report on
Form 8-K dated June 13, 1997, and incorporated herein by reference
thereto).
4.6 -- Forms of Mortgage dated June 13, 1997 between the Company and
Firstar Bank of Minnesota, as trustee.
4.7 -- First Supplemental Indenture dated as of September 2, 1997,
between the Company, as issuer, and Bank One, N.A., as trustee.
5.1 -- Legal Opinion of Gardere & Wynne, L.L.P.
12.1* -- Statement regarding computation of ratio of earnings to
consolidated fixed charges.
</TABLE>
II-1
<PAGE> 77
<TABLE>
<S> <C>
15.1 -- Awareness Letter of Coopers & Lybrand, L.L.P.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Gardere & Wynne, L.L.P. (set forth in Exhibit 5.1).
23.3 -- Consent of Netherland, Sewell & Associates, Inc.
24.1* -- Power of Attorney.
25.1* -- Statement of Eligibility of Trustee (Form T-1).
99.1 -- Letter of Transmittal.
</TABLE>
- -------------
(*) Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended ("Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under
the Act, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) That, insofar as indemnification for liabilities
arising under the Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
II-2
<PAGE> 78
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) That, prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Act, the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other Items of the applicable form.
(7) That every prospectus (i) that is filed pursuant to
paragraph (6) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415 under the Act, will be filed as a
part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(8) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or
13 of this Form S-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of responding
to the request.
(9) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it became effective.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 2nd day of September, 1997.
TRANSTEXAS GAS CORPORATION
By: /s/ Ed Donahue
---------------------------------
Ed Donahue, Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on September 2, 1997.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
*
- -------------------------------------------
John R. Stanley Director and Chief Executive Officer
(Principal Executive Officer)
*
- -------------------------------------------
Thomas B. McDade Director
/s/ Ed Donahue
- -------------------------------------------
Ed Donahue Vice President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
*
- -------------------------------------------
James R. Lesch Director
*
- -------------------------------------------
Robert L. May Director
*
- -------------------------------------------
Donald D. Sykora Director
* By: /s/ Ed Donahue
- -------------------------------------------
Ed Donahue
Attorney-in-fact
</TABLE>
II-4
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 -- Articles of Incorporation (previously filed as an exhibit to the
Company's registration statement on Form S-1 (33-75050), and
incorporated herein by reference thereto).
4.1* -- Indenture governing Subordinated Exchange Notes dated June 13,
1997 between the Company, as issuer, and BankOne, N.A., as
trustee.
4.2* -- Registration Rights Agreement dated June 13, 1997 between the
Company and the holders of the Subordinated Exchange Notes.
4.3 -- Loan Agreement dated June 13, 1997 between the Company and TEC
(previously filed as an exhibit to the Company's current report on
Form 8-K dated June 13, 1997, and incorporated herein by reference
thereto).
4.4 -- Security and Pledge Agreement dated June 13, 1997 by the Company
in favor of TEC (previously filed as an exhibit to the Company's
current report on Form 8-K dated June 13, 1997, and incorporated
herein by reference thereto).
4.5 -- Disbursement Agreement dated June 13, 1997 among the Company, TEC
and Firstar Bank of Minnesota, as disbursement agent and trustee
(previously filed as an exhibit to the Company's current report on
Form 8-K dated June 13, 1997, and incorporated herein by reference
thereto).
4.6 -- Forms of Mortgage dated June 13, 1997 between the Company and
Firstar Bank of Minnesota, as trustee.
4.7 -- First Supplemental Indenture dated as of September 2, 1997,
between the Company, as issuer, and Bank One, N.A., as trustee.
5.1 -- Legal Opinion of Gardere & Wynne, L.L.P.
12.1* -- Statement regarding computation of ratio of earnings to
consolidated fixed charges.
15.1 -- Awareness Letter of Coopers & Lybrand, L.L.P.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Gardere & Wynne, L.L.P. (set forth in Exhibit 5.1).
23.3 -- Consent of Netherland, Sewell & Associates, Inc.
24.1* -- Power of Attorney.
25.1* -- Statement of Eligibility of Trustee (Form T-1).
99.1 -- Letter of Transmittal.
</TABLE>
- -------------
(*) Previously filed.
<PAGE> 1
EXHIBIT 4.6
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT
DATED AS OF JUNE 13, 1997
BETWEEN
TRANSTEXAS GAS CORPORATION
(MORTGAGOR AND DEBTOR)
TO
JAMES A. TAYLOR, TRUSTEE
FOR THE BENEFIT OF
TRANSAMERICAN ENERGY CORPORATION
(MORTGAGEE AND SECURED PARTY)
The mailing address of the above-named Mortgagee and Secured
Party is 1300 North Sam Houston Parkway East, Suite 200, Houston, Texas 77032,
Attn: Douglas J. Widlaski; the mailing address of Mortgagor and Debtor is 1300
North Sam Houston Parkway East, Suite 200, Houston, Texas 77032, Attn: Douglas
J. Widlaski; and the mailing address of the Trustee is c/o Baker & Botts,
L.L.P., 2001 Ross Avenue, Dallas, Texas 75201.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
ATTENTION OF RECORDING OFFICERS: This instrument is a
Mortgage of both real and personal property and is, among other things, a
Security Agreement and Financing Statement under the Uniform Commercial Code.
This instrument creates a lien on rights in or relating to lands of Mortgagor
which are described in Exhibit A attached hereto.
Recorded counterparts should be returned to:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
<PAGE> 2
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT
This Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement, from TRANSTEXAS GAS CORPORATION, a Delaware
corporation ("Mortgagor"), to James A. Taylor, as Trustee (the "Trustee") for
the benefit of TRANSAMERICAN ENERGY CORPORATION (together with its successors or
assigns, "Mortgagee"), is made and entered into as of this 13th day of June,
1997.
RECITALS
Mortgagor and TransAmerican Energy Corporation, a Delaware corporation
(together with its successors or assigns, "Mortgagee") entering into that
certain Loan Agreement, dated as of June 13, 1997 (as amended or modified and in
effect from time to time, the "Loan Agreement").
Pursuant to and on the terms and conditions set forth in the Loan
Agreement, Mortgagee is making a loan to Mortgagor in the aggregate principal
amount of $450,000,000 (the "Loan").
Mortgagor is entering into this Mortgage pursuant to its obligations
under the Loan Agreement and for the purpose, among other things, of securing
and providing for the repayment of the Loan.
ARTICLE I
Definitions
1.1 Certain Defined Terms. Unless the context otherwise
requires, as used in this Mortgage and all amendments, extensions,
modifications, renewals, supplements or waivers hereof or hereto, the following
terms shall have the following meanings, which meanings shall be equally
applicable to both the singular and plural form of such terms.
"Business Day" shall have the meaning assigned to that term
in the Loan Agreement.
"Collateral" shall have the meaning set out in Article VIII
of this Mortgage.
2
<PAGE> 3
"Debtor" shall have the meaning set out in Article VIII of
this Mortgage.
"Equipment" shall mean all of Mortgagor's now owned or
hereafter acquired Vehicles, drilling rigs, workover rigs, fracture stimulation
equipment, wellsite compressors, rolling stock and related equipment and other
assets accounted for as equipment by Mortgagor on its financial statements, all
proceeds thereof, and all documents of title, books, records, ledger cards,
files, correspondence and computer files, tapes, disks and related data
processing software that at any time evidence or contain information relating to
the foregoing; provided, however, that "Equipment" shall not include any assets
constituting a part of a natural gas pipeline or the compression or dehydration
equipment used in the operation of any such pipeline.
"Event of Default" shall have the meaning assigned to that
term in Section 6.1.
"Highest Lawful Rate" shall have the meaning ascribed
thereto in the Loan Agreement.
"Hydrocarbons" shall mean oil, gas, casinghead gas,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products separated, settled and dehydrated therefrom and all products refined
therefrom, including, without limitation, kerosene, liquified petroleum gas,
refined lubricating oils, diesel fuel, drip gasoline and natural gasoline and
all other minerals.
"Indebtedness" shall mean the following indebtedness and
liabilities of Mortgagor (and any extensions, renewals, refundings, increases,
substitutions, replacements, consolidations, modifications or rearrangements of
such indebtedness and liabilities, whether or not Mortgagor executes any
extension agreement or renewal instrument):
(a) all amounts advanced or expended by Mortgagee in its
capacity as lender under the Loan Agreement or under or in connection with this
Mortgage, all reasonable costs and out-of-pocket expenses (excluding expenses
representing administrative overhead) at any time and from time to time incurred
by the Trustee or Mortgagee in connection with the administration and/or
enforcement of this Mortgage, the Note or the Loan Agreement (including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel employed
by the Trustee or Mortgagee in connection therewith), and all sums due
3
<PAGE> 4
or to become due at any time and from time to time hereunder or under the Loan
Agreement to the Trustee or Mortgagee,
(b) all principal, premiums, accrued interest and any other
sums now or hereafter owing on the Note; and
(c) all other amounts payable by Mortgagor under the Loan
Agreement.
"Inventory" shall mean all of Mortgagor's now owned or hereafter
acquired line pipe, casing, drill pipe and other supplies accounted for as
inventory by Mortgagor on its financial statements (excluding any oil, natural
gas, condensate and natural gas liquids), all proceeds thereof, and all
documents of title, books, records, ledger cards, files, correspondence and
computer files, tapes, disks and related data processing software that at any
time evidence or contain information relating to the foregoing.
"Lands" shall mean that real property in Austin, Chambers,
Colorado, Goliad, Harris, Hidalgo, Jackson, Jim Hogg, Kent, Lavaca, Live Oak,
Starr, Val Verde, Victoria, Walker, Webb, Wharton and Zapata Counties described,
referred to or covered by the Leases described in Exhibit A hereto and the
Pipelines in Exhibit B hereto, or the description of which is incorporated in
Exhibit A by reference to any other instrument or document, together with any
and all other real property, or interests in real property, in the State of
Texas in which Mortgagor has any interest, legal or beneficial, recorded or
unrecorded now owned or hereafter acquired; provided, however, that "Lands"
shall not include the fee interest in that certain real property located in
Harris, Webb and Zapata Counties and more particularly described on Exhibit C
attached hereto and made a part hereof.
"Leases" shall mean those Oil and Gas Leases covering Lands in
Austin, Chambers, Colorado, Goliad, Harris, Hidalgo, Jackson, Jim Hogg, Kent,
Lavaca, Live Oak, Starr, Val Verde, Victoria, Walker, Webb, Wharton and Zapata
Counties described in Exhibit A hereto, or the description of which is
incorporated in Exhibit A by reference to any other instrument or document,
together with any and all other Oil and Gas Leases or leasehold estates covering
Lands in the State of Texas including any lands pooled or unitized therewith, in
which, or in any portion of which, Mortgagor has an interest, now owned or
hereafter acquired as well as any extensions, renewals or replacements of or for
any of the foregoing.
4
<PAGE> 5
"Lobo Reserves" shall mean the reserves identified on the Reserve
Report as being located in the Lobo Area Trend Field.
"Material Production Sale Contracts" shall mean Production Sale
Contracts that, individually or in the aggregate, are material to the conduct or
value of Mortgagor's business.
"Mortgage" shall mean this Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement, as same may from time
to time be amended or modified and in effect.
"Mortgaged Property" shall have the meaning set out in Article II
to this Mortgage.
"Mortgagee" shall have the meaning assigned to that term in the
introduction to this Mortgage.
"Mortgagor" shall have the meaning assigned to that term in the
introduction to this Mortgage.
"Note" shall mean that certain Promissory Note, dated as of June
13, 1997, in the original principal amount of $450,000,000 by Mortgagor payable
to Mortgagee, as amended, modified, supplemented, restated, renewed, extended
or increased in amount from time to time.
"Oil and Gas Leases" shall include oil, gas and mineral leases and
shall also include subleases and assignments of operating rights.
"Operating Equipment" shall mean Mortgagor's interest in all
personal property, surface or subsurface machinery, equipment, facilities,
supplies or other property of whatsoever kind or nature (excluding drilling
rigs, drill pipe, mud pumps, trucks, automotive equipment or other property
taken to the premises to drill a well or for other similar temporary uses) now
or hereafter located on or under any of the Lands or Leases or on a unit
including all or part of the Lands or Leases or now or hereafter used, held for
use or useful in connection with the exploration, development, operation,
production, treatment, storage, processing or transportation of Hydrocarbons,
helium and/or other minerals produced or to be produced from or attributable to
the Lands or Leases, including, but not by way of limitation, all oil wells, gas
wells, water wells, injection wells, casing, tubing, rods, pumps, pumping units
and engines, christmas
5
<PAGE> 6
trees, derricks, separators, gun barrels, flow lines, tanks, tank batteries, gas
systems (for gathering, treating, compression, disposal or injection),
chemicals, solutions, water systems (for treating, disposal and injection),
pipe, pipelines, boilers, meters, apparatus, compressors, liquid extractors,
connectors, valves, fittings, power plants, poles, lines, cables, wires,
transformers, starters and controllers, machine shops, tools, machinery and
parts, storage yards and equipment stored therein, buildings and camps,
telegraph, telephone and other communication systems, roads, loading docks,
loading racks and shipping facilities, fixtures and other appurtenances,
appliances and property of every kind and character, movable or immovable,
together with all improvements, betterments and additions, accessories and
attachments thereto and replacements thereof.
"Permitted Liens" shall have the meaning assigned to that term in
the Loan Agreement.
"Pipelines" shall mean the Pipeline Assets and all pipelines owned
and/or operating by Mortgagor for the gathering, transmission or distribution
of Hydrocarbons including, without limitation, those pipelines described in
Exhibit B attached hereto, and any interests in real property relating thereto.
"Pipeline Assets" shall mean all parts or aspects of the gas
pipeline system of Mortgagor now or hereafter situated on any of the Lands,
Rights-of-Way and Franchises, including, without limitation, the pipeline system
described in Exhibit B, and all fixtures, improvements, equipment, surface or
subsurface machinery, facilities, supplies, replacement parts, vehicles of every
description, all process control computer systems and equipment or other
property of whatsoever kind or nature, including, without limitation, all
buildings, structures, machinery, gas processing plants, Pipelines, stations,
substations, pumps, pumping stations, meter houses, metering stations, regulator
houses, ponds, tanks, scrapers and scraper traps, fittings, valves, connections,
cathodic or electrical protection by-passes, regulators, drips, meters, pumps,
pumping units, pumping stations, storage or tankage facilities, engines, pipes,
gates, telephone and telegraph lines, electric power lines, poles, wires,
casings, radio towers, fixtures, mechanical equipment, electrical equipment,
machine shops and other equipment, used or useful in connection therewith;
together with all of Mortgagor's liquid hydrocarbons, carbon dioxide, natural
gas liquids, refined petroleum products and other inventory fuels, carbon,
chemicals, electric energy and other consumable materials or products
manufactured, processed, generated, produced, transmitted, stored (whether above
or below ground) or purchased by
6
<PAGE> 7
Mortgagor for sale, exchange, distribution, consumption or transmission by
Mortgagor, including, without limitation, all system gas, drip gas and line
fill.
"Production Sale Contracts" shall mean, except to the extent that
the same constitute Receivables, all contracts now or hereafter in effect,
including, without limitation, any gas sales contracts, entered into by
Mortgagor, or Mortgagor's predecessors in interest, for the production, sale,
purchase, exchange or processing of Hydrocarbons, helium and/or other minerals
produced from or attributable to the Subject Interests.
"Receivables" shall mean any and all of Mortgagor's now owned or
hereafter acquired "accounts" as such term is defined in Article 9 of the
Uniform Commercial Code in the State of New York (excluding all intercompany
accounts), all products and proceeds thereof, and all books, records, ledger
cards, files, correspondence and computer files, tapes, disks or software that
at any time evidence or contain information relating to the foregoing.
"Reserve Report" shall have the meaning ascribed thereto in Section
3.1 hereof.
"Rights-of-Way and Franchises" shall mean all leases, leaseholds,
easements, rights-of-way, licenses, franchises, privileges, permits, ordinances,
grants, rights, consents, servitudes, surfaces leases or rights, amendatory
grants and interests in land for the installation, maintenance and operation of
the Pipelines or the Pipeline Assets or any portion thereof, now owned or held
by Mortgagor, including, without limitation, those leases, leaseholds,
easements, rights-of-way, licenses, franchises, privileges, permits, ordinances,
grants, rights, consents, servitudes, surface leases or rights, amendatory
grants and interests in land applicable to the Pipelines or the Pipeline Assets
owned or held by Mortgaged and located in Jim Hogg, Starr, Webb and Zapata
Counties and those leases, leaseholds, easements, rights-of-way, licenses,
franchises, privileges, permits, ordinances, grants, rights, consents,
servitudes, surfaces leases or rights, amendatory grants and interests in land
owned or held by Mortgagor and described in Exhibit B attached hereto or arising
by virtue of the documents described in Exhibit B attached hereto, which
descriptions of real property set forth in Exhibit B or incorporated by
reference to the documents described on Exhibit B are hereby made a part so that
all of the property rights, other rights and other assets described therein
shall be subject to this Mortgage to the same extent as if they were described
herein.
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"Secured Party" shall have the meaning set out in Article VIII of
this Mortgage.
"Subject Interests" shall mean each kind and character of right,
title, interest or estate, whether now owned or hereafter acquired, which
Mortgagor has in, under or to the Leases and all right, title, interest or
estate, whether now owned or hereafter acquired, which Mortgagor has in and to
the Lands, together with each kind and character of right, title, interest or
estate now or hereafter vested in Mortgagor in and to any and all overriding
royalty interests, mineral interests, leasehold interests, mineral rights,
royalty interests, net profits interests, oil payments, production payments,
carried interests and all other properties or interests of every kind or
character which relate to any of the Lands or Leases, whether such right, title,
interest or estate be under and by virtue of a Lease, a unitization or pooling
agreement, a unitization or pooling order, a mineral deed, a royalty deed, an
operating agreement, a revenue sharing agreement, a division order, a transfer
order, a farmout agreement, a fee simple conveyance or any other type of
contract, conveyance or instrument or under any other type of claim or title,
legal or equitable, recorded or unrecorded, all as the same shall be enlarged by
the discharge of any payments out of production or by the removal of any charges
or encumbrances to which any of same are subject.
"Subject Minerals" shall mean all Hydrocarbons, helium and/or other
minerals in, under, upon, produced or to be produced or which may be produced,
saved and sold from and which shall accrue and be attributable to the Subject
Interests, including, without limitation, all oil in tanks and all rents,
royalties, issues, profits, proceeds, products, revenues, and other income
arising from or attributable to the Subject Interests and Mortgagor's interest
therein.
"Trustee" shall have the meaning assigned to that term in the
introduction to this Mortgage.
"Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in the State of Texas.
"Vehicles" shall mean all trucks, automobiles, trailers and other
vehicles covered by a certificate of title.
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ARTICLE II
Mortgage, Deed of Trust
2.1 Grant of Deed of Trust on Real Property and Security
Interest in Personal Property. To secure the payment of the Indebtedness and to
secure the performance of the covenants, agreements and obligations of Mortgagor
contained herein, in the Loan Agreement and in all other security documents
executed in accordance therewith, Mortgagor, for and in consideration of the
premises and of the debts and trusts hereinafter mentioned, except to the extent
that the same constitute Equipment, Inventory or Receivables, has granted,
bargained, sold, warranted, mortgaged, assigned, transferred and conveyed a
security interest, and by these presents does grant, bargain, sell, warrant,
mortgage, assign, transfer and convey and grant a security interest, unto the
Trustee, for the use and benefit of Mortgagee with power of sale, all of
Mortgagor's rights, titles, interests and estates, if any, in, to, under,
derived from or with respect to all of the following described real and personal
property, whether now owned or hereafter acquired, namely:
(a) the Subject Interests;
(b) the Subject Minerals;
(c) the Production Sale Contracts;
(d) the Operating Equipment;
(e) the Leases and the Lands;
(f) the Pipelines;
(g) the Pipeline Assets;
(h) the Rights-of-Way and Franchises;
(i) all unitization, communitization, operating agreements,
pooling agreements and declarations of pooled units and the properties covered
and the units created thereby (including all units formed under orders,
regulations, rules or other official acts of any federal, state or other
governmental agency providing for pooling or unitization, spacing orders or
other well permits
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and other instruments) which relate to or affect all or any portion of the
Subject Interests;
(j) all deposit accounts, contract rights, operating rights,
general intangibles, chattel paper, documents and instruments arising under any
of the foregoing, including without limitation, the Production Sale Contracts
and all transmission contracts or other contracts now or hereafter in effect
with respect to the Pipelines or the Pipeline Assets;
(k) all subleases, farmout agreements, assignments of
interests, assignments of operating rights, contracts, operating agreements,
bidding agreements, advance payment agreements, rights-of-way, surface leases,
franchises, servitudes, privileges, permits, licenses, easements, tenements,
hereditaments, improvements, appurtenances and benefits now existing or in the
future obtained and incident and appurtenant to any of the foregoing;
(l) all lease records, well records, production records and
accounting and other records and files which relate to any of the foregoing, and
all maps, data bases, manuals, information and data which relate to any of the
foregoing, including without limitation engineering, geological and geophysical
data;
(m) all income, revenues, rents, profits and proceeds
arising out of the gathering, transportation, processing or sale of Hydrocarbons
through the Pipelines and other accounts, contract rights, operating rights,
general intangibles, chattel paper, documents and instruments arising under any
of the foregoing, but expressly excluding therefrom Receivables and the stock of
any "Unrestricted Subsidiary" (as defined in the Loan Agreement);
(n) any liens and security interests in the Subject
Interests in favor of Mortgagor securing payment of proceeds from the sale of
the Subject Minerals including, but not limited to, those liens and security
interests provided for in Tex. Bus. & Com. Code Ann. Section 9.319 (Tex. UCC)
(Vernon 1968), as amended;
(o) all other rights, titles and interests of Mortgagor in,
to and under or derived from the Lands, the Leases, the Rights-of-Way and
Franchises, the Production Sale Contracts and/or other properties described in
Exhibits A and B hereto;
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(p) any property that may from time to time hereafter, by
delivery or by writing of any kind executed by or on behalf of Mortgagor, be
subjected to the lien and security interest hereof by Mortgagor or by anyone
authorized on Mortgagor's behalf, and Mortgagee and Trustee are hereby
authorized to receive the same as additional security;
(q) all other property of every nature and kind and
wheresoever situated, now owned or hereafter acquired by Mortgagor or to which
Mortgagor is now or may hereafter be entitled at law or in equity, other than
Receivables, Inventory and Equipment; and
(r) any and all proceeds, returns, rents, royalties, issues,
profits, products, revenues and other income arising from or by virtue of the
sale, lease or other disposition of, or from any condemnation, eminent domain or
insurance payable with respect to damage, loss or destruction of, the items
described in subparagraphs (a) through (q) above;
together with any and all proceeds, products, increases, profits, substitutions,
replacements, renewals, additions, amendments and accessions of, to and for all
of the foregoing property. All the aforesaid properties, rights and interests
which are hereby subjected to the lien and/or security interest of this
instrument, together with any additions thereto which may be subjected to the
lien and/or security interest of this instrument by means of supplements hereto
or otherwise, other than Equipment, Inventory and Receivables, shall hereinafter
be referred to as the "Mortgaged Property."
TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee and to his
successors and assigns forever.
ARTICLE III
Particular Warranties and Representations of Mortgagor
Mortgagor hereby warrants and represents, as of the date hereof, to
the Trustee and Mortgagee as follows:
3.1 Leases. With respect to Leases covering all wells and Lands
to which value has been ascribed in that certain reserve report, prepared as of
February 1, 1997 (the "Reserve Report"), by Netherland, Sewell & Associates,
Inc., other than the Lobo Reserves: (a) the Leases are valid, subsisting leases
as
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to all such wells and Lands, and are superior and paramount to all other Oil and
Gas Leases respecting the properties to which they pertain and all rentals,
royalties and other amounts due and payable in accordance with the terms of the
Leases have been duly paid or provided for; (b) the Leases are in full force
and effect; and (c) except as disclosed in writing by Mortgagor to Mortgagee,
Mortgagor, and to the best of Mortgagor's knowledge all other parties to the
Leases, have performed in all material respects all obligations required to be
performed by them and are not in material default under nor in receipt of any
claim of material default under any Lease, and no event has occurred which,
with the passage of time or the giving of notice or both, would cause a
material breach of, or default under, any Lease, and Mortgagor has no knowledge
of any material breach or anticipated breach by the other parties to any Lease.
3.2 Documents. Each of the existing Material Production
Sale Contracts is valid, binding and enforceable in accordance with its
respective terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or moratorium or other similar laws
relating to creditor's rights and by general equitable principles which may
limit the right to obtain equitable remedies (regardless of whether such
enforceability is considered in a proceeding at equity or at law), and except as
rights to indemnity thereunder may be limited by applicable law) and is in full
force and effect, and no material default on the part of any party thereto
exists thereunder. To the best knowledge of Mortgagor, all amounts due and
payable in accordance with the terms of each Material Production Sale Contract
have been duly paid or provided for and the obligations to be performed under
each of the Material Production Sale Contracts have been duly performed, in all
material respects in accordance with the terms of such contracts and any related
agreements, and in conformity with all applicable laws, rules, regulations and
orders of all courts and regulatory authorities having jurisdiction.
3.3 Title. Except for Permitted Liens, Mortgagor has (a)
good and indefeasible title to, and is possessed of, the portion of the
Mortgaged Property constituting real property other than the Pipeline Assets,
including, without limitation, those referenced in Exhibit A (it being
understood that indefeasible title as used herein shall mean such title to real
property as is customarily held in the oil and gas business), (b) good and
sufficient title to the portion of the Mortgaged Property constituting Pipeline
Assets or other personal property for the use and operation of such Pipeline
Assets as it has been used in the past and as it is proposed to be used in the
business of storing and transporting Hydrocarbons and other products and any
lack of title to such Pipeline Assets
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or personal property related thereto has not had and will not have any material
adverse effect on Mortgagor's ability to use the Pipeline Assets and related
personal property as it is proposed to be used in Mortgagor's business and will
not materially increase the cost of such use, and (c) good and sufficient title
to the portion of the Mortgaged Property constituting personal property that is
not described in the foregoing clause (b). Mortgagor owns, in the aggregate,
not significantly more than the amount of undivided working interests and not
significantly less than the amount of net revenue interests in the Leases set
forth in the Reserve Report. For purposes of this Paragraph 3.3, "working
interest" shall refer to Mortgagor's share of expense in the applicable Lease,
well or drilling and production unit shown in the Reserve Report, and "net
revenue interest" shall refer to Mortgagor's share of production from the
applicable Lease, well or drilling and production unit after satisfaction of all
royalties, overriding royalties, production payments or similar non-operating
interests. Mortgagor has obtained reconveyances or reassignments of record
title into Mortgagor of all production payments, limited working interests or
similar interests conveyed by Mortgagor's predecessor in title to various
vendors and servicers with respect to any drilling program that has "paid out,"
as that term is defined in the respective drilling agreements, as may be
necessary to vest in Mortgagor record title to the working interests and net
revenue interests as set forth in the Reserve Report. Each of the Material
Production Sale Contracts is free from any material credit, deduction,
allowance, defense, dispute, setoff, or counterclaim (other than current
charges provided for in such instruments but not yet due and payable), and there
is no material extension or indulgence with respect thereto. Mortgagor is not
aware of any defect in or challenge to its ownership of the rights or other
interests in any of the Mortgaged Property that would, individually or in the
aggregate, materially lessen the value of the Mortgaged Property for its use as
part of the Pipeline Assets or materially interfere with the ordinary conduct of
the business of Mortgagor or the use of the Mortgaged Property for the purposes
for which held, except as expressly disclosed to Mortgagee in writing.
3.4 No Liens. Except for Permitted Liens, the Mortgaged
Property is free of any and all claims, liens, charges, encumbrances, mortgages,
security interests, contracts, agreements, options, preferential purchase rights
or other restrictions or limitations of any nature or kind.
3.5 Power and Authority. Mortgagor has full power and
legal right to bargain, grant, sell, mortgage, assign, transfer, convey and
grant a security interest in all of the Mortgaged Property, all in the manner
and form herein provided and without obtaining the waiver, consent or approval
of any
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lessor, sublessor, governmental agency or entity or party whomsoever or
whatsoever, except as already obtained or to be obtained pursuant to the terms
of the Loan Agreement.
3.6 Contracts. Mortgagor is not obligated by virtue of any
prepayment under any Production Sale Contract or other similar contract
providing for the sale by Mortgagor of Hydrocarbons, helium and/or other
minerals, which contains a "take or pay" clause or under any similar prepayment
agreement or arrangement, including, without limitation, "gas balancing
agreements" to deliver Hydrocarbons, helium and/or other minerals (amounting to
a material portion of the Hydrocarbons, helium and/or other minerals covered
hereby) at some future time without then or thereafter receiving full payment
therefor.
3.7 No Governmental Approvals. Mortgagor warrants that no
approval or consent of any regulatory or administrative commission or
authority, or of any other governmental body, is necessary to authorize the
execution and delivery of this Mortgage and that no such approval or consent is
necessary to authorize the observance or performance by Mortgagor of the
covenants herein contained.
3.8 Producing Wells. All producing wells located on the
Lands have been drilled, operated and produced in conformity in all material
respects with all applicable laws, rules, regulations and orders of all
regulatory authorities having jurisdiction and are subject to no material
penalties on account of past production, and such wells are, in fact, bottomed
under and are producing from, and the well bores are wholly within, the Lands.
3.9 Principal Place of Business. The principal place of
business and chief executive office of Mortgagor is located at 1300 North Sam
Houston Parkway East, Suite 200, Houston, Texas 77032.
3.10 Pipelines and Pipeline Assets. All Pipelines and
Pipeline Assets have been constructed and operated in conformity in all material
respects with all applicable laws, rules, regulations and orders of all
regulatory authorities having jurisdiction and, except as expressly disclosed in
writing to Mortgagee, are subject to no material penalties on account of past
operations.
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ARTICLE IV
Particular Covenants and Agreements of Mortgagor
Mortgagor hereby covenants to and agrees with Mortgagee as
follows:
4.1 Payment of the Indebtedness. Mortgagor will duly and
punctually pay the principal of and interest on all of the Indebtedness,
including each and every obligation owing under the Note as the same shall
become due and payable under the Note and in accordance with the terms of the
Loan Agreement.
4.2 Performance of Other Obligations. Mortgagor shall
duly and punctually perform and keep all other obligations required of Mortgagor
pursuant to the terms hereof, of the Loan Agreement and of any other documents
executed and delivered by Mortgagor in connection with the Loan Agreement.
4.3 Operation of Mortgaged Property. So long as the
Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor is
the operator of the Mortgaged Property, Mortgagor shall, at Mortgagor's own
expense:
(a) do all things necessary to keep unimpaired
Mortgagor's rights and remedies in or under the Mortgaged Property and, except
as otherwise permitted hereby or in the Loan Agreement, shall (i) not abandon
any well or forfeit, surrender, release or default under (other than any default
that, individually or in the aggregate with all other such defaults, would not
have a material adverse effect on Mortgagor's business) any Lease, or in the
event Mortgagor is not the operator, shall use its best efforts to prevent any
of the above, unless undertaken in the ordinary course of business, (ii) enter
into or otherwise acquire obligations under Production Sale Contracts only on
terms and conditions to which a reasonably prudent producer, seller, purchaser,
or processor, as applicable, of Hydrocarbons, helium and/or other minerals
similar to those produced from or attributable to the Subject Interests, would
agree, and (iii) not abandon, sell, convey, assign, lease or otherwise transfer
any right, title or interest of Mortgagor into or under the Pipelines or the
Pipeline Assets, or consent to any of the foregoing;
(b) except as otherwise permitted in the Loan
Agreement, perform or cause to be performed, each and all covenants, agreements,
terms,
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conditions and limitations imposed upon Mortgagor or its predecessors in,
interest, except where any failure to so perform or cause to be performed,
individually or in the aggregate with all other such failures, would not have a
material adverse effect on Mortgagor's business, and expressly contained in (i)
the Leases and any instrument or document relating thereto, and (ii) any
assignment or other form of conveyance, under or through which the Leases, the
Pipelines, Pipeline Assets, Lands, or Rights-of-Way and Franchises, or an
undivided interest therein are now held, and perform or cause to be performed
all implied covenants and obligations imposed upon Mortgagor in connection
therewith or with any document or instrument relating thereto;
(c) cause, or in the event Mortgagor is not the
operator of the Subject Interests or the Pipeline Assets, use its best efforts
to cause, the Subject Interests and the Pipeline Assets to be maintained,
developed, protected against drainage, and continuously operated for the
production of Hydrocarbons, helium and/or other minerals, and the gathering,
storing, transmission and distribution of Hydrocarbons, as applicable, in a good
and workmanlike manner as would be operated by a prudent operator and in
compliance with all applicable operating agreements and contracts, and all
applicable federal, state and local laws, rules and regulations, excepting those
being contested in good faith in such a manner as not to jeopardize the
Trustee's or Mortgagee's rights in and to the Subject Interests or the Pipeline
Assets, as applicable;
(d) except as otherwise permitted in the Loan
Agreement, cause to be paid, promptly as and when due and payable, except where
the failure to make any such payments would not, individually or in the
aggregate, have a material adverse effect on Mortgagor's business, all rentals,
delay rentals, royalties and indebtedness payable in respect of the Subject
Interests, and all expenses incurred in or arising from the operation or
development of the Subject Interests, or, in the event Mortgagor is not the
operator, shall use its best efforts to cause each of the foregoing to be paid;
(e) cause the Operating Equipment necessary for the
Mortgagor's business operations to be kept in good and effective operating
condition (reasonable wear and tear excepted) and all repairs, renewals,
replacements, additions and improvements thereof or thereto, needful to the
production of Hydrocarbons, helium and/or other minerals, as applicable, from
the Subject Interests, to be promptly made;
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(f) except as otherwise permitted by the Loan
Agreement, cause the the Pipelines to be kept in good and effective operating
condition (reasonable wear and tear excepted), and all repairs, renewals,
replacements, additions and improvements thereof or thereto, needful to the
gathering, storing, transmission and distribution of Hydrocarbons through the
Pipelines, to be promptly made;
(g) except for Permitted Liens or as otherwise
permitted by the Loan Agreement, cause the Mortgaged Property or any part
thereof or the rents, issues, revenues, profits and other income therefrom to be
kept free and clear of all claims, liens, charges, mortgages, security
interests, encumbrances or other restrictions or limitations of any nature or
kind;
(h) maintain insurance for the Mortgaged Property in
accordance with the requirements of the Loan Agreement;
(i) comply with, or cause to be complied with, in all
material respects, or, if Mortgagor is not the operator of the Mortgaged
Property, use its best efforts to cause to be complied with, in all material
respects, all applicable and valid laws, rules and regulations of the United
States, the State of Texas or any other governmental body exercising
jurisdiction, with respect to the operation and development of the Lands and the
production and sale of Hydrocarbons, helium and/or other minerals, as
applicable, therefrom or the operating of the Pipeline Assets; and
(j) deliver, or cause to be delivered, to Mortgagee
a copy of any notice, demand or other communication from any other party to the
Leases or any Production Sale Contract, relating to any alleged, potential or
actual material breach thereunder or material breach of any of the covenants,
agreements, terms, or limitations thereof or purporting to terminate or in any
other way adversely affect the rights of Mortgagor thereunder.
4.4 Taxes. Subject to Mortgagor's right to contest same as
provided in the Loan Agreement, Mortgagor will pay or cause to be paid, before
delinquent, all lawful taxes, assessments and other charges of every kind and
character imposed upon this Mortgage or upon the Mortgaged Property or any part
thereof or upon the interest of the Trustee or Mortgagee therein (excluding
taxes upon the income of the Trustee or Mortgagee), or upon the income, rents,
issues, revenues, profits or other income from the Mortgaged Property, or
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incident to or in connection with the production of Hydrocarbons, helium or
other minerals therefrom, or the operation and development thereof.
4.5 Recording, Etc. Mortgagor will promptly and at
Mortgagor's expense record, register, deposit and file this and every other
instrument in addition or supplemental hereto in such offices and places and at
such times and as often as may be necessary to perfect, preserve, protect and
renew the lien and security interest hereof as a recorded lien on the real
property and fixtures now or hereafter comprising the Mortgaged Property and
perfected security interest on the personal property and fixtures now or
hereafter comprising the Mortgaged Property, as the case may be and the rights
and remedies of the Trustee and of Mortgagee hereunder, and otherwise will do
and perform all matters or things necessary or expedient to be done or observed
by reason of any law or regulation of the State of Texas or of the United States
of America or of any other competent authority, for the purpose of effectively
creating, maintaining and preserving the lien and security interest created by
this Mortgage and the perfection and priority thereof.
4.6 Sale or Mortgage of Mortgaged Property. Except for
Permitted Liens and as otherwise permitted by the Loan Agreement, Mortgagor will
not sell, convey, mortgage, pledge, assign, abandon or otherwise dispose of or
encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's
rights, titles, interests or estates therein without first securing the express
written consent of Mortgagee.
4.7 Records, Statements and Reports. Mortgagor will keep
proper books of record and account in which complete and correct entries will be
made of Mortgagor's transactions in accordance with generally accepted
accounting principles.
4.8 Right of Entry and Inspection of Books. Mortgagee and
the agents of Mortgagee are hereby authorized (a) to the extent Mortgagor has
authority to do so, to enter upon the Lands, and all parts thereof, for the
purposes of investigating and inspecting the condition and operation thereof,
(b) to examine the books of account of Mortgagor, and (c) to discuss the
affairs, finances or accounts of Mortgagor and be advised as to the same by any
officer of Mortgagor, all at such reasonable times or intervals as Mortgagee may
desire.
4.9 Qualification to Do Business; Maintenance of Existence.
Mortgagor will (a) continue to be in good standing and duly qualified to
transact
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business in the State of Texas and (b) maintain its corporate existence, except
as otherwise permitted by the Loan Agreement.
4.10 Expenses. Mortgagor will promptly upon demand by
Mortgagee pay all reasonable costs and out- of-pocket expenses heretofore or
hereafter incurred by Mortgagee or the Trustee in connection with the
enforcement of any of the Trustee's and/or Mortgagee's rights hereunder.
4.11 Further Assurances. Mortgagor will execute and deliver
such other and further instruments and will use its best efforts to do such
other and further acts as in the opinion of Mortgagee may be necessary or
desirable to carry out more effectively the purposes of this instrument,
including, without limiting the generality of the foregoing, (a) prompt
correction of any defect which may hereafter be discovered in the title to the
Mortgaged Property or any part thereof other than Permitted Liens or in the
execution and acknowledgment of this instrument, the Note or other document
executed in connection herewith, (b) prompt execution and delivery of all
division or transfer orders that in the opinion of the Mortgagee are needed to
transfer effectively to Mortgagee the assigned proceeds of production from the
Subject Interests and (c) obtaining any necessary governmental approvals,
including, without limitation, those of the State of Texas.
4.12 Adverse Claim. Mortgagor will warrant and forever
defend, subject to the Permitted Liens, the title to the Mortgaged Property unto
the Trustee against every person whomsoever lawfully claiming the same or any
part thereof, and Mortgagor will maintain and preserve the priority of the lien
and security interest created hereby so long as any of the Indebtedness remains
unpaid. Should an adverse claim be made against or a cloud develop upon the
title to any part of the Mortgaged Property, other than Permitted Liens, or upon
the lien and security interest created by this Mortgage, Mortgagor agrees that
it will immediately defend such adverse claim or take appropriate action to
remove such cloud at Mortgagor's expense, and Mortgagor further agrees that
after prior notice to Mortgagor Mortgagee and/or the Trustee may take such other
action as either of them deems advisable to protect and preserve their interests
in the Mortgaged Property, and, in such event, Mortgagor will indemnify
Mortgagee and/or the Trustee against any and all costs, attorneys' fees and
other expenses which it or they may incur in defending against any such adverse
claim or taking action to remove any such cloud.
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4.13 Relocation of Offices. Mortgagor shall not relocate
its principal place of business or chief executive office to a county or state
other than that specified in Section 3.9 of this Mortgage or otherwise relocate
any material portion of the personal property comprising part of the Mortgaged
Property to a county or state other than that where it is presently located or
where, with respect to such property, Mortgagee has a perfected security
interest, unless, prior to such relocation, Mortgagor (a) gives 30 days' prior
written notice to Mortgagee, which notice shall include, without limitation, the
name of the county and state into which such relocation is to be made and (b)
prior to such relocation, executes and delivers all such additional documents
and performs all additional acts (including causing filings of public record and
paying all related fees and costs) as may be necessary or advisable in order to
continue and maintain the existence and priority of Mortgagee's security
interest in the personal property comprising part of the Mortgaged Property so
relocated.
4.14 Notice of Pooling or Unitization. Except as otherwise
provided in Section 9.1 hereof, Mortgagor will promptly notify Mortgagee in
writing upon the first filing of any petition or request with any governmental
or regulatory agency regarding any pooling or unitization arrangement pertaining
to the Mortgaged Property or any part thereof, and any pooling or unitization
arrangement which is imposed or which Mortgagor learns may be imposed on the
Mortgaged Property or any part thereof, which would cause Mortgagor to suffer a
significant reduction in income on a monthly basis from the Mortgaged Property.
4.15 Representations and Covenants Relating to Hazardous
Materials.
(a) Mortgagor is not in violation of any Federal,
state, local or foreign laws or regulations relating to pollution or protection
of human health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
("Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation, as defined below would have a material
adverse effect on Mortgagor. "Violation," as used herein, includes, but is not
limited to, noncompliance with any
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permit or other governmental authorization required under applicable
Environmental Laws and noncompliance with the terms and conditions of any such
permit or authorization. In addition, (a) except as previously disclosed in
writing to Mortgagee, Mortgagor has not received any communication (written or
oral), whether from a governmental authority, citizens' group, employee or
otherwise, alleging that Mortgagor is not in full compliance with any
Environmental Laws or permit or authorization required under applicable
Environmental Laws where such failure to comply fully would have a material
adverse effect on Mortgagor and (b) there are no circumstances that may prevent
or interfere with such full compliance in the future where such failure to
comply would have a material adverse effect on Mortgagor.
(b) To the knowledge of Mortgagor, there is no claim
action, cause of action, investigation or notice (written or oral) by any person
or entity alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from the presence, or release into the
environment, of any Material of Environmental Concern at any location owned or
operated by Mortgagor, or circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law (collectively, "Environmental
Claims") pending or threatened against Mortgagor, except where such an
Environmental Claim would not have a material adverse effect on Mortgagor.
(c) To the knowledge of Mortgagor there are no past
or present actions, activities, circumstances, conditions, events or incidents,
including without limitation, the release, emission, discharge, presence or
disposal or any Material of Environmental Concern, that could form the basis of
any Environmental Claim against Mortgagor, which Environmental Claim would have
a material adverse effect on Mortgagor.
4.16 Mortgagor Holds as Nominee. In the event that the
Trustee or Mortgagee forecloses or attempts to foreclose on the Mortgaged
Property, but such foreclosure will not become effective as to some or all of
the Mortgaged Property unless and until the consent of a third party is
obtained, then Mortgagor agrees to hold title to such portion of the Mortgaged
Property as nominee for Mortgagee or any other party who would have acquired
such Mortgaged Property at foreclosure until such time as the necessary consents
are obtained. In acting as nominee, Mortgagor shall take such acts, and only
such acts, with respect to the Mortgaged Property as Mortgagee or any other
party who would have acquired
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the same may direct and the beneficial interest under such Mortgaged Property
shall run to Mortgagee or such other party. Mortgagor shall enter into a
nominee agreement in form and substance satisfactory to Mortgagee or such other
party and execute any other documents or agreements reasonably necessary to
effectuate the provisions of this section.
ARTICLE V
Assignment of Production
5.1 Assignment. Subject to the rights of the holder of any
Permitted Liens prior to the lien of this Mortgage, as further security for the
payment of the Indebtedness, Mortgagor has transferred, assigned, warranted and
conveyed and does hereby transfer, warrant and convey to Mortgagee, effective as
of the date hereof at 7:00 a.m., local time, all of Mortgagor's rights, titles,
interests and estates in and to the following property, except to the extent
that any of the same constitute Excluded Equipment, Inventory or Receivables:
all Hydrocarbons, helium and/or other minerals which are thereafter produced and
which accrue to the Subject Interests, all products obtained or processed
therefrom and all revenues and proceeds now or hereafter attributable to said
Hydrocarbons, helium and/or other minerals and said products as well as any
liens and security interests securing any sales of said Hydrocarbons, helium
and/or other minerals, including, but not limited to, those liens and security
interests provided for in Tex. Bus. & Com. Code Ann. Section 9.319 (Tex. UCC)
(Vernon 1968), as amended. All parties producing, purchasing or receiving any
such Hydrocarbons, helium and/or other minerals or products, or having such
Hydrocarbons, helium and/or other minerals, products, or proceeds therefrom, in
their possession for which they or others are accountable to Mortgagee by virtue
of the provisions of this Article, are authorized and directed to treat and
regard Mortgagee as the assignee and transferee of Mortgagor and entitled in
Mortgagor's place and stead to receive such Hydrocarbons, helium and/or other
minerals and all proceeds therefrom, and said parties and each of them shall be
fully protected in so treating and regarding Mortgagee and shall be under no
obligation to see to the application by Mortgagee of any such proceeds or
payments received by it; provided, however; that, until Mortgagee or Mortgagor
shall have instructed such parties to deliver such Hydrocarbons, helium and/or
other minerals and all products, revenues and/or proceeds therefrom directly to
Mortgagee (which such instructions may be given only after the occurrence and
during the continuance of an Event of Default, as herein defined, but the giving
of such instructions shall as to all such parties be conclusive as to the
occurrence of an Event of Default),
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such parties shall be entitled to deliver such Hydrocarbons, helium and/or other
minerals and all products, revenues and/or proceeds therefrom to Mortgagor.
Mortgagor agrees, subject to the rights of the holder of any Permitted Lien
prior to the lien of this Mortgage, to perform all such acts, and to execute all
such further assignments, transfers and division orders and other instruments as
may be required or desired by Mortgagee or any party in order to have said
revenues and proceeds so paid to Mortgagee and/or to have such Hydrocarbons,
helium and/or other minerals delivered to Mortgagee. Mortgagee is fully
authorized to receive and issue a receipt for said revenue and proceeds, to
endorse and cash any and all checks and drafts payable to the order of Mortgagor
or Mortgagee for the account of Mortgagor received from or in connection with
said revenues or proceeds and apply the proceeds thereof in accordance with
Section 5.2 hereof, and to execute transfer and division orders in the name of
Mortgagor, or otherwise, with warranties binding Mortgagor. In the event that
Mortgagee elects to take delivery of any such Hydrocarbons, helium or other
minerals in kind, Mortgagee shall have the right to sell such Hydrocarbons,
helium or minerals upon such terms as Mortgagee may desire, and to apply the
proceeds of such sale as provided in Section 5.2 below.
5.2 Application of Proceeds. Any and all payments and sale
proceeds received by Mortgagee pursuant to Section 5.1 hereof shall be placed
in a cash collateral account with Mortgagee and on the first day of each month
applied as follows:
First: to the payment and satisfaction of all costs and
expenses incurred in connection with the collection
of such proceeds (and in the event Mortgagee shall
have taken delivery in kind, to the costs and
expenses of the sale of such Hydrocarbons, helium or
other minerals); and
Second: then in accordance with the provisions of Section 7.9
below.
5.3 No Liability of Mortgagee in Collecting. Mortgagee is
hereby absolved from all liability for failure to enforce collection of any
proceeds so assigned and from all other responsibility in connection therewith,
except the responsibility to account to Mortgagor for funds actually received.
Mortgagee shall have the right, at its election, to prosecute and defend any
and all actions or legal proceedings deemed advisable by Mortgagee in order to
collect such funds and to protect the interests of Mortgagee and/or Mortgagor,
with all reasonable costs,
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expenses and attorneys' fees incurred in connection therewith being paid by
Mortgagor.
5.4 Assignment Not a Restriction on Mortgagee's Rights.
Nothing herein contained shall detract from or limit the absolute obligation of
Mortgagor to make payment in full of the Indebtedness, regardless of whether
the proceeds assigned by this Article are sufficient to pay the same, and the
rights under this Article V shall be in addition to all other security now or
hereafter existing to secure the payment of the Indebtedness.
5.5 Status of Assignment. Notwithstanding the other
provisions of this Article V, the Trustee or any receiver appointed in judicial
proceedings for the enforcement of this instrument shall have the right to
receive all of the Hydrocarbons, helium, and/or other minerals herein assigned
and the proceeds therefrom after the Note has been declared due and payable in
accordance with the provisions of Section 6.2 hereof and to apply all of said
proceeds as set forth in Section 5.2 hereof. Upon any sale of the Subject
Interests or any part thereof pursuant to Article VII hereof, the Hydrocarbons,
helium, and/or other minerals thereafter produced from the Subject Interests so
sold, and the proceeds therefrom, shall be included in such sale and shall pass
to the purchaser free and clear of the assignment contained in this Article V.
5.6 Indemnity. Mortgagor agrees to indemnify, defend and
hold the Trustee and Mortgagee harmless against all claims, actions,
liabilities, judgments, costs, attorneys' fees or other charges of whatsoever
kind or nature (including without limitation amounts paid in settlement, court
costs and the fees and disbursements of counsel incurred in connection with any
investigation, litigation or other proceeding) (all hereinafter in this Section
5.6 called "claims"), other than claims arising from Mortgagee's own gross
negligence, willful misconduct or bad faith, made against or incurred by them or
any of them as a consequence, either before or after the payment in full of the
Indebtedness, of (i) the breach by Mortgagor of any covenant, representation or
warranty contained in this Mortgage, (ii) any violation of law by Mortgagor, or
(iii) the assertion that Mortgagor and/or Trustee received Hydrocarbons, helium
and/or other minerals herein assigned or the proceeds thereof claimed by third
persons. The Trustee and Mortgagee shall have the right to defend against any
such claims, employing attorneys therefor, and unless furnished with reasonable
indemnity, they or either of them shall have the right to pay or compromise and
adjust all such claims. Mortgagor will indemnify and pay to the Trustee or
Mortgagee any and all such amounts as may be paid in respect of such claims or
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as may be successfully adjudged against Mortgagee and the Trustee or either of
them. The obligations of Mortgagor as hereinabove set forth in this Section 5.6
shall survive the release of this instrument.
ARTICLE VI
Events of Default
6.1 Events of Default. It shall constitute an "Event of
Default" hereunder if an "Event of Default" occurs under the terms and
provisions of the Loan Agreement.
6.2 Effect of Event of Default. If an Event of Default
shall occur and be continuing:
(a) Mortgagee may, subject to and in accordance with
the terms of the Loan Agreement, by notice in writing to Mortgagor declare the
principal of and accrued interest on the Note and all other outstanding
Indebtedness secured hereby to be immediately due and payable whereupon the Note
and all other outstanding Indebtedness shall become and be immediately due and
payable, in each instance without (except for any grace and notice expressly
provided for in the Loan Agreement) grace, demand, presentment for payment,
protest or notice of any kind to Mortgagor or any other person (including, but
not limited to, notice of intent to accelerate and notice of acceleration), all
of which are hereby expressly waived; and
(b) Mortgagee may proceed to enforce its rights
hereunder.
ARTICLE VII
Enforcement of Remedies
7.1 Power of Sale of Real Property Constituting a Part of
the Mortgaged Property. Upon the occurrence and during the continuance of an
Event of Default, the Trustee is hereby authorized and empowered to sell or
offer for sale any part of the Mortgaged Property, with or without having first
taken possession of same, to the highest bidder for cash at public auction.
Such sale shall be made at the courthouse of the county in which the Mortgaged
Property or any part thereof is situated, as herein described, between the
hours of 10:00 a.m. and 4:00 p.m. on the first Tuesday of any month, beginning
within three (3)
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hours of the time provided in the notices described herein, after posting a
written or printed notice or notices of the place, the earliest time at which
the sale will begin and the terms of the sale, and the portion of the Mortgaged
Property to be sold, by posting (or having some person or persons acting for the
Trustee post) for at least twenty-one (21) days preceding the date of the sale,
written or printed notice of the proposed sale at the courthouse door of said
county in which the sale is to be made, and if such portion of the Mortgaged
Property lies in more than one county, one such notice of sale shall be posted
at the courthouse door of each county in which such part of the Mortgaged
Property is situated and such part of the Mortgaged Property may be sold at the
courthouse door of any one of such counties, and the notice so posted shall
designate in which county such property shall be sold. In addition to such
posting of notice, Mortgagee, the Trustee or other holder of the Indebtedness
hereby secured (or some person or persons acting for the Trustee, Mortgagee or
other such holder) shall, at least twenty-one (21) days preceding the date of
sale, file a copy of such notice(s) in the office of the county clerk in each of
such counties and serve or cause to be served written notice of the proposed
sale by certified mail on Mortgagor and on each other debtor, if any, obligated
to pay the Indebtedness hereby secured according to the records of Mortgagee.
Service of such notice shall be completed upon deposit of the notice, enclosed
in a postpaid wrapper properly addressed to Mortgagor and such other debtors at
their most recent address or addresses as shown by the records of Mortgagee in a
post office or official depository under the care and custody of the United
States Postal Service. The affidavit of any person having knowledge of the
facts to the effect that such a service was completed shall be prima facie
evidence of the fact of service. Mortgagor agrees that no notice of any sale,
other than as set out in this paragraph, need be given by the Trustee, Mortgagee
or any other person. Mortgagor hereby designates as its address for the purpose
of such notice, the address set out on the signature page hereof and agrees that
such address shall be changed only by depositing notice of such change enclosed
in a postpaid wrapper in post office or official depository under the care and
custody of the United States Postal Service, certified mail, postage prepaid,
return receipt requested, addressed to Mortgagee or other holder of the
Indebtedness secured hereby at the address for Mortgagee set out herein (or to
such other address as Mortgagee or other holder of the Indebtedness secured
hereby may have designated by notice given as above provided to Mortgagor and
such other debtors). Any such notice of change of address of Mortgagor or other
debtors or of Mortgagee or other holders of the Indebtedness secured hereby
shall be effective three (3) business days after such deposit if such post
office official depository is located in the State of Texas, otherwise to be
effective upon receipt. Mortgagor authorizes and empowers the
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Trustee to sell the Mortgaged Property in lots or parcels or in its entirety as
the Trustee shall deem expedient and to execute and deliver to the purchaser or
purchasers thereof good and sufficient deeds of conveyance thereto by fee simple
title, with evidence of warranty by Mortgagor, subject only to Permitted Liens,
and Mortgagor binds itself to warrant and forever defend the title of such
purchaser or purchasers when so made by the Trustee. Where portions of the
Mortgaged Property lie in different counties, sales in such counties may be
conducted in any order that the Trustee may deem expedient and one or more such
sales may be conducted in the same month or in successive or different months as
the Trustee may deem expedient.
7.2 Rights of the Trustee with Respect to Personal Property
Constituting a Part of the Mortgaged Property. Upon the occurrence and during
the continuance of an Event of Default, the Trustee will have all rights and
remedies granted by law, and particularly by the Uniform Commercial Code as
adopted in the State of Texas, including, but not limited to, (i) the right to
proceed as to both the real and the personal property covered hereby in
accordance with the Trustee's rights and remedies in respect of the real
property covered hereby and (ii) the right to take possession of all personal
property constituting a part of the Mortgaged Property, and for this purpose the
Trustee may enter upon any premises on which any or all of such personal
property is situated and take possession of and operate such personal property
(or any portion thereof) or remove it therefrom. The Trustee may require
Mortgagor to assemble such personal property and make it available to the
Trustee at a place to be designated by the Trustee which is reasonably
convenient to all parties. Unless such personal property is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Trustee will give Mortgagor reasonable notice of the time
and place of any public sale or of the time after which any private sale or
other disposition of such personal property is to be made. This requirement of
sending reasonable notice will be met if the notice is mailed by first class
mail, postage prepaid, to Mortgagor at the address shown below the signatures at
the end of this instrument at least five (5) Business Days before the time of
the sale or disposition.
7.3 Rights of the Trustee with Respect to Fixtures
Constituting a Part of the Mortgaged Property. Upon the occurrence and during
the continuance of an Event of Default, the Trustee may elect to treat the
fixtures constituting a part of the Mortgaged Property as either real property
collateral or personal property collateral and proceed to exercise such rights
as apply to such type of collateral.
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7.4 Judicial Proceedings. Upon the occurrence and during
the continuance of an Event of Default, the Trustee, in lieu of or in addition
to exercising any power of sale hereinabove given, may proceed by a suit or
suits in equity or at law, whether for a foreclosure hereunder, or for the sale
of the Mortgaged Property, or for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, or for the appointment of a receiver pending any foreclosure hereunder
or the sale of the Mortgaged Property, or for the enforcement of any other
appropriate legal or equitable remedy.
7.5 Possession of the Mortgaged Property. It shall not be
necessary for the Trustee to have physically present or constructively in his
possession at any sale held by the Trustee or by any court, receiver or public
officer any or all of the Mortgaged Property, and Mortgagor shall deliver to the
purchaser at such sale on the date of sale the Mortgaged Property purchased by
such purchasers at such sale, and, if it should be impossible or impracticable
for any of such purchasers to take actual delivery of the Mortgaged Property,
then the title and right of possession to the Mortgaged Property shall pass to
the purchaser at such sale as completely as if the same had been actually
present and delivered.
7.6 Certain Aspects of a Sale. Mortgagee shall have the
right to become the purchaser at any sale held by the Trustee or by any court,
receiver or public officer, and Mortgagee shall have the right to credit upon
the amount of the bid made therefor the amount payable out of the net proceeds
of such sale to it. Recitals contained in any conveyance made to any purchaser
at any sale made hereunder shall conclusively establish the truth and accuracy
of the matters therein stated, including, without limiting the generality of the
foregoing, nonpayment of the unpaid principal sum of, and the interest accrued
on, the Note after the same have become due and payable, advertisement and
conduct of such sale in the manner provided herein or appointment of any
successor Trustee hereunder.
7.7 Receipt of Purchaser. Upon any sale, whether made under
the Uniform Commercial Code, the power of sale herein granted and conferred or
by virtue of judicial proceedings, the receipt of the Trustee, or of the officer
making sale under judicial proceedings, shall be sufficient discharge to the
purchaser or purchasers at any sale for his or their purchase money, and such
purchaser or purchasers, his or their assigns or personal representatives shall
not, after paying such purchase money and receiving such receipt of the Trustee
or of such officer
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therefore, be obliged to see to the application of such purchase money or be in
anywise answerable for any loss, misapplication or non-application thereof.
7.8 Effect of Sale. Any sale or sales of the Mortgaged
Property or any part thereof, whether under the Uniform Commercial Code, the
power of sale herein granted and conferred or by virtue of judicial proceedings,
shall operate to divest all right, title, interest, claim and demand whatsoever
either at law or in equity, of Mortgagor of, in and to the Mortgaged Property
sold, and shall be a perpetual bar, both at law and in equity, against
Mortgagor, and Mortgagor's successors or assigns, and against any and all
persons claiming or who shall thereafter claim all or any of the property sold
from, through or under Mortgagor, or Mortgagor's successors or assigns.
Nevertheless, Mortgagor, if requested by the Trustee or Mortgagee so to do,
shall join in the execution and delivery of all proper conveyances, assignments
and transfers of the properties so sold.
7.9 Application of Proceeds. The proceeds of any sale of
the Mortgaged Property, or any part thereof, whether under the Uniform
Commercial Code, the power of sale herein granted and conferred or by virtue of
judicial proceedings, whose application has not elsewhere herein been
specifically provided for, shall be applied as follows:
First: to the payment of all expenses incurred by the
Trustee or Mortgagee incident to the enforcement
of this Mortgage, the Notes or any of the
Indebtedness including, without limiting the
generality of the foregoing, all expenses of any
entry or taking of possession, of any sale, of
advertisement thereof, and of conveyances, and as
well, court costs, compensation of agents and
employees and legal fees and expenses and a
reasonable fee to the Trustee;
Second: to the payment of all other costs, charges,
expenses, liabilities and advances incurred or
made by the Trustee or Mortgagee under this
Mortgage or in executing any trust or power
hereunder;
Third: to the payment of the Note and any other
Indebtedness (other than Indebtedness described
in "First" and "Second" above), with interest to
the date of such payment, in such order and manner
as set forth in the Loan Agreement; and
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Fourth: any surplus thereafter remaining shall be paid to
Mortgagor or Mortgagor's successors or assigns, as
their interests shall appear.
7.10 Mortgagor's Waiver of Rights of Marshalling, etc.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time insist upon or plead or in any manner whatever
claim the benefit of any stay, extension or redemption law now or hereafter in
force, in order to prevent or hinder the enforcement or foreclosure of this
Mortgage or the absolute sale of the Mortgaged Property or the possession
thereof by any purchaser at any sale made pursuant to any provision hereof, or
pursuant to the decree of any court of competent jurisdiction; but Mortgagor,
for Mortgagor and all who may claim by, through or under Mortgagor, to the
maximum extent that Mortgagor or those claiming by, through or under Mortgagor
now or hereafter lawfully may, hereby waives the benefit of all such laws.
Mortgagor, for Mortgagor and all who may claim through or under Mortgagor,
waives, to the maximum extent that Mortgagor or those claiming by, through or
under Mortgagor now or hereafter lawfully may do so, any and all right to have
any of the Mortgaged Property marshalled upon any foreclosure of the lien
hereof, or sold in inverse order of alienation, and agrees that the Trustee or
any court having jurisdiction to foreclose such lien may sell the Mortgaged
Property as an entirety. If any law in this Section 7.10 referred to and now in
force, of which Mortgagor or Mortgagor's successor or successors might take
advantage despite the provisions hereof, shall hereafter be repealed or cease to
be in force, such law shall not thereafter be deemed to constitute any part of
the contract herein contained or to preclude the operation or application of the
provisions of this Section 7.10.
7.11 Costs and Expenses. All reasonable costs and out-of-
pocket expenses (excluding expenses representing Mortgagee's administrative
overhead and including, without limitation, reasonable attorneys' fees) incurred
by the Trustee or Mortgagee in protecting and enforcing their rights hereunder
shall constitute a demand obligation owing by Mortgagor to the party incurring
such costs and expenses and shall draw interest at an annual rate equal to the
rate of interest accruing on the Note until paid, all of which shall constitute
a portion of the Indebtedness, provided, however, that in no event shall such
interest rate ever exceed the Highest Lawful Rate.
7.12 Operation of Property by the Trustee. Upon the
occurrence and during the continuance of an Event of Default and in addition to
all other rights herein conferred on the Trustee or Mortgagee, the Trustee (or
any person,
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firm or corporation designated by the Trustee) shall have the right and power,
but shall not be obligated, to enter upon and take possession of any of the
Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or
servants, wholly therefrom, and to hold, use, administer, manage and operate the
same to the extent that Mortgagor shall be at the time entitled and in his place
and stead. The Trustee, or any person, firm or corporation designated by the
Trustee, may operate the same without any liability to Mortgagor in connection
with such operations, except for its gross negligence or willful misconduct in
the operation of such properties, and the Trustee or any person, firm or
corporation designated by the Trustee, shall have the right and power, but shall
not be obligated, to collect, receive and issue a receipt for all Hydrocarbons
produced and sold from said properties, to make repairs, purchase machinery and
equipment, conduit and power, to enter work over operations, drill additional
wells and to exercise every power, right and privilege of Mortgagor with respect
to the Mortgaged Property. When and if the expenses of such operation and
development (including costs of unsuccessful work over operations or additional
wells) have been paid and the Indebtedness paid, said properties shall, if there
has been no sale or foreclosure, be returned to Mortgagor.
ARTICLE VIII
Security Agreement
Without limiting any of the provisions of this instrument,
to secure the Indebtedness, Mortgagor, as Debtor (referred to in this Article
VIII as "Debtor"), hereby expressly GRANTS, ASSIGNS, TRANSFERS and SETS OVER
unto Mortgagee, as Secured Party (referred to in this Article VIII as "Secured
Party," whether one or more), a lien upon and a security interest in all the
Mortgaged Property, together with any and all proceeds, products, increases,
profits, substitutions, replacements, renewals, additions, amendments and
accessions of, to and for the Mortgaged Property, insofar as such property
consists of equipment, deposit accounts, contract rights, instruments, general
intangibles, inventory, Hydrocarbons, helium and/or other minerals, fixtures and
any and all other personal property of any kind or character (including both
those now and those hereafter existing) to the full extent that such property
may be subject to the Uniform Commercial Code of the state or states where such
property is located, but expressly excluding any and all Equipment, Inventory
and Receivables (said Mortgaged Property, fixtures, contract rights,
instruments, general intangibles, deposit accounts, inventory, Hydrocarbons,
helium and/or other minerals, and equipment, together with any and all proceeds,
products, increases, profits,
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substitutions, replacements, renewals, additions, amendments and accessions of,
to and for the foregoing property, but expressly excluding any and all Excluded
Equipment, Inventory and Receivables, being hereinafter collectively referred
to as the "Collateral" for the purposes of this Article VIII). The lien and
security interest created by this Mortgage attaches upon the delivery hereof.
Debtor covenants and agrees with Secured Party that:
(a) In addition to and cumulative of any other remedies
granted in this instrument to Secured Party or to the Trustee, Secured Party
may, upon the occurrence and during the continuance of an Event of Default,
proceed under said Uniform Commercial Code as to all or any part of the
Collateral and shall have and may exercise with respect to the Collateral all
the rights, remedies and powers of a secured party after default under said
Uniform Commercial Code, including, without limitation, the right and power to
sell, at public or private sale or sales, or otherwise dispose of, lease or
utilize the Collateral and any part or parts thereof in any manner authorized or
permitted under said Uniform Commercial Code after default by a debtor, and to
apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and legal expenses thereby incurred by Secured Party, and toward
payment of the Indebtedness in accordance with Section 7.9 hereof.
(b) Upon the occurrence and during the continuance
of any Event of Default, Secured Party shall have the right (without limitation)
to take possession of the Collateral and to enter upon any premises where same
may be situated for such purpose without being deemed guilty of trespass and
without liability for damages thereby occasioned (other than damages arising
from the gross negligence, willful misconduct or bad faith of Secured Party) and
to take any action deemed necessary or appropriate or desirable by Secured
Party, at its option and in its discretion, to repair, refurbish or otherwise
prepare the Collateral for sale, lease or other use or disposition as herein
authorized. Debtor waives, to the maximum extent permitted by law, any and all
rights that it may have to a judicial hearing in advance of the enforcement of
any of the Secured Party's rights hereunder, including without limitation, its
rights following an Event of Default to take immediate possession of the
Collateral and to exercise its rights with respect thereto. To the extent that
any of the Indebtedness is to be paid or performed by a person other than
Debtor, Debtor waives and agrees not to insert any rights or privileges which it
may have under Section 9-112 of the Uniform Commercial Code.
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(c) To the maximum extent permitted by law, Debtor
expressly waives any notice of sale or other disposition of the Collateral and
any other right or remedies of a debtor or formalities prescribed by law
relative to sale or disposition of the Collateral or exercise of any other right
or remedy of Secured Party existing after default hereunder; and to the extent
any such notice is mailed, postage prepaid, to Debtor at the address shown with
Debtor's signature hereinbelow at least five (5) Business Days before the time
of the sale or disposition, such notice shall be deemed reasonable and shall
fully satisfy any requirement for giving of said notice. Such notice, in case of
a public sale or disposition, shall state the time and place fixed for such sale
or disposition and, in case of a private sale or disposition, shall state the
date after which such sale or disposition is to be made.
(d) Any public sale of the Collateral shall be
held at such time or times within ordinary business hours at such places as
Secured Party may fix in the notice of such sale. At any such sale, the
Collateral may be sold in one lot as an entirety or in separate parcels, as
Secured Party may determine.
(e) Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same shall be
so adjourned.
(f) In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall not incur any liability in case of the failure
of such purchaser to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may again be sold upon like notice.
(g) Upon the occurrence and during the continuance
of an Event of Default, Secured Party is expressly granted the right, at its
option, to transfer at any time to itself or to its nominee the Collateral, or
any part thereof and to hold the same as security for the Indebtedness, and to
receive the monies, income, proceeds or benefits attributable or accruing
thereto and to apply the same toward payment of the Indebtedness, whether or not
then due, in accordance with Section 7.9 hereof. All rights to marshalling of
assets of Debtor, including any such right with respect to the Collateral, are
hereby waived to the maximum extent permitted by law.
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(h) All recitals in any instrument of assignment
or any other instrument executed by Secured Party incident to sale, transfer,
assignment, lease or other disposition or utilization of the Collateral or any
part thereof hereunder shall be full proof of the matter stated therein, no
other proof shall be required to establish full legal propriety of the sale or
other action or of any fact, condition or thing incident thereto, and all
prerequisites of such sale or other action and of any fact, condition or thing
incident thereto shall be presumed conclusively to have been performed or to
have occurred.
(i) Upon the occurrence and during the continuance
of an Event of Default, Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party that is reasonably convenient to both parties. All expenses of
retaking, holding, preparing for sale, lease or other use or disposition,
selling, leasing or otherwise using or disposing of the Collateral and the like
which are incurred or paid by Secured Party as authorized or permitted
hereunder, including also all attorneys' fees, legal expenses and costs, shall
be added to the Indebtedness.
(j) Should Secured Party elect to exercise its
rights under said Uniform Commercial Code as to part of the personal property
and fixtures described herein, this election shall not preclude Secured Party,
Mortgagee or the Trustee from exercising the rights and remedies granted by the
preceding paragraphs of this instrument as to the remaining personal property
and fixtures.
(k) Secured Party may, at its election, at any
time after delivery of this instrument, sign one or more photocopies hereof in
order that such photocopies may be used as a financing statement under said
Uniform Commercial Code. Such signature by Secured Party may be placed between
the last sentence of this instrument and Debtor's acknowledgement or may follow
Debtor's acknowledgement. Secured Party's signature need not be acknowledged
and is not necessary to the effectiveness hereof as a deed of trust, mortgage,
assignment, pledge or security agreement.
(l) Except for Permitted Liens or as otherwise
permitted by the Loan Agreement, so long as any amount remains unpaid on the
Indebtedness, Debtor will not execute nor file in any public office any
financing statement or statements affecting the Collateral other than financing
statements in favor of Secured Party hereunder, unless the prior written
specific consent and approval of Secured Party shall have first been obtained.
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(m) Secured Party is authorized to file, in any
jurisdiction where Secured Party deems it necessary, a financing statement or
statements, and at the request of Secured Party, Debtor will join Secured Party
in executing one or more financing statements pursuant to said Uniform
Commercial Code in form satisfactory to Secured Party, and will pay the cost of
filing or recording this or any other instrument, as a financing statement, in
all public offices at any time and from time to time whenever filing or
recording of any financing statement or of this instrument is deemed by Secured
Party to be necessary or desirable. The addresses of Debtor and Secured Party
are those addresses set forth for Mortgagor and Mortgagee, respectively, on the
cover page of this Mortgage.
(n) Without in any manner limiting the generality
of any of the other provisions of this Mortgage: (i) some portions of the goods
described or to which reference is made herein are or are to become fixtures on
the Lands; (ii) the security interests created hereby under applicable
provisions of the Uniform Commercial Code of one or more of the jurisdictions in
which the Mortgaged Property is situated will attach to Hydrocarbons or the
accounts (other than Receivables) resulting from the sale thereof at the
wellhead or minehead located on the Lands; and (iii) this instrument is to be
filed of record in the real estate records as a financing statement.
(o) Debtor hereby irrevocably designates and
appoints Secured Party as its attorney-in-fact, with full power of substitution,
for the purposes of carrying out the provisions of this Mortgage and taking any
action and executing any instrument that Secured Party may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is effective without further action of Mortgagor or Mortgagee
upon the occurrence and during the continuance of an Event of Default (but the
determination of an Event of Default by Secured Party shall as to all parties
for the purposes hereof be conclusive as to the occurrence of an Event of
Default) and is irrevocable and coupled with an interest.
(p) Without limiting the generality of the
foregoing, Debtor hereby irrevocably authorizes and empowers Secured Party, upon
the occurrence and during the continuance of an Event of Default, at the expense
of Debtor, at any time and from time to time (a) to ask, demand, receive,
receipt, give acquittance for, settle and compromise any and all monies which
may be or become due or payable or remain unpaid at any time or times to Debtor
under or with respect to the Collateral; (b) to endorse any drafts, checks,
orders or other instruments for the payment of money payable to Debtor on
account of the Collateral
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(including any such draft, check, order or instrument issued by an insurance
company payable jointly to Debtor and Secured Party); and (c) in the discretion
of Secured Party, to settle, compromise, prosecute or defend any action, claim
or proceeding, or take any other action, all either in its own name or in the
name of Debtor or otherwise, which Secured Party may deem to be necessary or
advisable for the purpose of exercising and enforcing its powers and rights
under this Mortgage or in furtherance of the purposes hereof, including any
action which by the terms of this Mortgage is to be taken by Debtor. Nothing in
this Mortgage shall be construed as requiring or obligating Secured Party to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice, or to take any
action with respect to any of the Collateral or the amounts due or to become due
under any thereof, or to collect or enforce the payment of any amounts assigned
to it or to which it may otherwise be entitled hereunder at any time or times,
other than to account for amounts or Collateral received.
(q) Secured Party shall incur no liability as a
result of the sale of Collateral, or any part thereof, at any private sale.
Debtor hereby waives, to the extent permitted by applicable law, any claims
against Secured Party arising by reason of the fact that the price at which the
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Indebtedness, even if Secured Party accepts the first offer
received and does not offer such Collateral to more than one offeree.
(r) Without precluding any other methods of sale,
Debtor acknowledges that the sale of the Collateral shall have been made in a
commercially reasonable manner if conducted in conformity with reasonable
commercial practices of banks disposing of similar property. Secured Party
shall not be liable for any depreciation in the value of the Collateral.
ARTICLE IX
Other Agreements
9.1 Provisions Subject to Intercreditor Agreement.
Notwithstanding anything to the contrary herein, until such time as the "Senior
Obligations" (as defined in the Loan Agreement) are satisfied, discharged and
paid in full, the provisions of this Mortgage (including, without limitation,
Article V, Article VII and Article VIII hereof) are subject to the terms,
covenants, conditions and provisions of the "Intercreditor Agreement" (as
defined in the Loan Agreement). In the event of any inconsistency between the
terms and provisions of this Mortgage and the Intercreditor Agreement, the
terms, covenants, conditions and
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provisions of the Intercreditor Agreement shall prevail until such time as the
Senior Obligations are satisfied and discharged in full.
9.2 Loan Agreement Prevails. In the event of any conflict
or inconsistency between the terms, covenants, conditions and provisions set
forth in this Mortgage and the terms, covenants, conditions and provisions set
forth in the Loan Agreement, the terms, covenants, conditions and provisions of
the Loan Agreement shall prevail.
ARTICLE X
Miscellaneous
10.1 Pooling and Unitization. Mortgagor shall have the
right, and is hereby authorized, to pool or unitize all or any part of the
Leases and Lands, insofar as they are related to the Mortgaged Property, with
adjacent lands, leaseholds and other interests, when, in the reasonable judgment
of Mortgagor, it is necessary or advisable to do so in order to form a drilling
unit to facilitate the orderly development of that part of the Mortgaged
Property affected thereby or to comply with the requirements of any law or
governmental order or regulation relating to the spacing of wells or proration
of the production therefrom; provided, however, that any unit so formed for the
production of oil shall not substantially exceed 160 acres, and any unit so
formed for the production of gas shall not exceed 640 acres, unless a larger
area is required to conform to any applicable law or governmental order or
regulation relating to the spacing of wells or to obtain the maximum, allowable
production under any applicable law or governmental order or regulation relating
to the proration of production therefrom; and further provided that the
Hydrocarbons produced from any unit so formed shall be allocated among the
separately owned tracts or interests comprising the unit in proportion to the
respective surface areas thereof or in such proportion as is prescribed by
applicable law. Any unit so formed may relate to one or more zones or horizons,
and a unit formed for a particular zone or horizon need not conform in area to
any other unit relating to a different zone or horizon, and a unit formed for
the production of oil need not conform in area with any unit formed for the
production of gas. Upon the written request of Mortgagee, as to all such units
theretofore formed, and thereafter formed, immediately after formation of any
such unit, Mortgagor shall furnish to Mortgagee
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a true copy of the pooling agreements, declarations of pooling or other
instruments creating such units, in such number of counterparts as Mortgagee may
reasonably request. The interest in any such unit attributable to the Mortgaged
Property (or any part thereof) included therein shall become a part of the
Mortgaged Property and shall be subject to the lien hereof in the same manner
and with the same effect as though such unit and the interest of Mortgagor
therein were specifically described in Exhibit A hereto. Notwithstanding the
foregoing, Mortgagor may enter into pooling or unitization agreements not
hereinabove authorized only with the prior written consent of Mortgagee, which
consent shall not be unreasonably withheld.
10.2 Successor Trustees. The Trustee may resign in
writing addressed to Mortgagee or be removed at any time with or without cause
by an instrument in writing duly executed by Mortgagee. In case of the death,
resignation or removal of a Trustee, a successor Trustee or Trustees may be
appointed by Mortgagee from time to time by instrument of substitution complying
with any applicable requirements of law and, in the absence of any such
requirement, without other formality than appointment and designation in
writing. Such appointment and designation shall be full evidence of the right
and authority to make the same and of all facts therein recited, and, upon the
making of any such appointment and designation, this conveyance shall vest in
the named successor Trustee or Trustees all the estate and title of the prior
Trustee or Trustees in all of the Mortgaged Property, and such successor Trustee
or Trustees shall thereupon succeed to all the rights, powers, privileges,
immunities and duties hereby conferred upon the Trustee named herein. All
references herein to the Trustee shall be deemed to refer to the Trustees from
time to time acting hereunder.
10.3 Legal Proceedings by and against Trustee. The
Trustee shall not be required to take any action for the enforcement of this
instrument or the exercise of any rights or remedies hereunder or to appear in
or defend any action, suit or other proceeding in connection therewith, where,
in the opinion of the Trustee, such action will be likely to involve him in
expense or liability, unless the Trustee be tendered security and indemnity
satisfactory to him against cost, expense or liability in connection therewith.
10.4 Responsibilities of Trustee. It shall be no part of
the duty of the Trustee to see to any recording, filing or registration of this
instrument or of any instrument supplemental hereto or to see to the payment of
or be under any duty in respect to any tax or assessment or other governmental
charge which may be levied or assessed on the Mortgaged Property or against
Mortgagor or to see
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to the performance or observance by Mortgagor of any of the covenants or
agreements herein contained. The Trustee shall not be responsible for the
execution, acknowledgement or validity of this instrument or of any instrument
supplemental hereto or of the Note or for the sufficiency of the security
purported to be created hereby, and the Trustee makes no representation in
respect thereof or in respect of those rights of the holder of any of the Note.
The Trustee shall have the right to consult with counsel upon any matters
arising hereunder and shall be fully protected in relying as to legal matters on
the advice of such counsel. The Trustee shall not incur any personal liability
hereunder except for his own gross negligence, willful misconduct or bad faith,
and the Trustee shall have the right to rely on any instrument, document or
signature authorizing or supporting any action taken or proposed to be taken by
him hereunder which is believed by him in good faith to be genuine.
10.5 Advances by Mortgagee or Trustee. Each and every
covenant herein contained shall be performed and kept by Mortgagor solely at
Mortgagor's expense. If Mortgagor shall fail to perform or keep any of the
covenants of whatsoever kind or nature contained in this instrument, then, if
such failure is not remedied by Mortgagor within 30 days following notice
thereof by Mortgagee, the Trustee or any receiver appointed hereunder may, but
shall not be obligated to, make advances to perform the same in Mortgagor's
behalf, and Mortgagor hereby agrees to repay such sums upon demand plus
interest at an annual rate equal to the highest rate of interest from time to
time accruing on the Notes until paid or, in the event any promissory note
evidences such indebtedness, upon the terms and conditions thereof; provided,
however, that in no event shall such interest rate ever exceed the Highest
Lawful Rate. No such advance shall be deemed to relieve Mortgagor from any
default hereunder.
10.6 Defense of Claims. Mortgagor will notify the Trustee
and Mortgagee, in writing, promptly of the commencement of any legal proceedings
affecting the lien hereof or the Mortgaged Property, or any part thereof, and
will take such action as may be necessary to preserve Mortgagor's, the Trustee's
and Mortgagee's rights affected thereby, and should Mortgagor fail or refuse to
take any such action, the Trustee or Mortgagee may, upon giving prior written
notice thereof to Mortgagor, take such action on behalf of and in the name of
Mortgagor and at Mortgagor's expense. Moreover, Mortgagee, or the Trustee on
behalf of Mortgagee, may take such independent action in connection therewith as
they may in their discretion deem proper, Mortgagor hereby agreeing that all
sums advanced or all expenses incurred in such actions plus interest at an
annual rate equal to the highest rate of interest from time to time accruing on
the Notes will,
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on demand, be reimbursed to Mortgagee, the Trustee or any receiver appointed
hereunder; provided, however, that in no event shall such interest rate ever
exceed the Highest Lawful Rate.
10.7 Survival of Covenants and Liens. All of the covenants
and agreements of Mortgagor set forth herein shall survive the execution and
delivery of this Mortgage and shall continue in force until the Indebtedness is
paid in full. Accordingly, if Mortgagor shall perform faithfully each and all
of the covenants and agreements herein contained, then, and then only, this
conveyance shall become null and void and shall be released in due form, upon
Mortgagor's written request and at Mortgagor's expense; otherwise, it shall
remain in full force and effect. No release of this conveyance or the lien
thereof shall be valid unless executed by Mortgagee.
10.8 Renewals and Other Security. Renewals and extensions
of the Indebtedness may be given at any time, and Mortgagee may take or may now
hold other security for the Indebtedness without notice to or consent of
Mortgagor. The Trustee or Mortgagee may resort first to such other security or
any part thereof or first to the security herein given or any part thereof, or
from time to time to either or both, even to the partial or complete abandonment
of either security, and such action shall not be a waiver of any rights
conferred by this instrument, which shall continue as a perfected lien upon the
Mortgaged Property not expressly released until the Indebtedness secured hereby
is fully paid.
10.9 Instrument an Assignment, Etc. This instrument shall
be deemed to be and may be enforced from time to time as an assignment, chattel
mortgage, hypothecation, contract, deed of trust, mortgage, conveyance,
financing statement, real estate mortgage, pledge or security agreement, and
from time to time as any one or more thereof.
10.10 No Usury Intended. It is the intention of the parties
hereto to comply strictly with applicable usury laws; accordingly,
notwithstanding any provision to the contrary contained herein, in the Note, or
in any of the documents securing or relating to any Indebtedness, in no event
shall this instrument, the Note, or such documents require or permit the
payment, charging, taking, reserving, or receiving of any sums constituting
interest under applicable laws which exceed the maximum amount permitted by such
laws. If any such excess interest is contracted for, charged, taken, reserved,
or received in connection with this instrument or the Note or in any of the
documents securing or relating to any Indebtedness, or in any communication by
Mortgagee or any other person to
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Mortgagor or any other person, or in the event all or part of the Indebtedness
shall be prepaid or accelerated, so that under any of such circumstances or
under any other circumstance whatsoever the amount of interest contracted for,
charged, taken, reserved, or received on the amount of principal actually
outstanding from time to time under this instrument or the Note shall exceed the
maximum amount of interest permitted by applicable usury laws, then in any such
event it is agreed as follows: (i) the provisions of this Section shall govern
and control, (ii) any such excess shall be deemed an accidental and bona fide
error and canceled automatically to the extent of such excess, and shall not be
collected or collectible, (iii) any such excess which is or has been paid or
received notwithstanding this Section shall be credited against the then unpaid
principal balance hereof with the excess, if any, refunded to Mortgagor, and
(iv) the effective rate of interest shall be automatically reduced to the
maximum lawful rate allowed under applicable laws as construed by courts having
jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved,
or received in connection herewith which are made for the purpose of determining
whether such rate exceeds the maximum lawful rate shall be made to the extent
permitted by applicable laws by amortizing, prorating, allocating and spreading
during the period of the full term of the loan, including all prior and
subsequent renewals and extensions, all interest at any time contracted for,
charged, taken, reserved, or received. The terms of this Section shall be
deemed to be incorporated in every loan document, security instrument, and
communication relating to this instrument and the Notes. The term "applicable
usury laws" shall mean such laws of the State of Texas or the laws of the United
States, whichever laws allow the higher rate of interest, as such laws now
exist; provided, however, that if such laws shall hereafter allow higher rates
of interest, then the applicable usury laws shall be the laws allowing the
higher rates, to be effective as of the effective date of such laws.
10.11 Separability. If any provision hereof or of the Note
is invalid or unenforceable in any jurisdiction, the other provisions hereof or
of the Note shall remain in full force and effect in such jurisdiction, and the
remaining provisions hereof shall be liberally construed in favor of the Trustee
and Mortgagee in order to effectuate the provisions hereof, and the invalidity
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction.
10.12 Rights Cumulative. Each and every right, power and
remedy herein given to the Trustee or Mortgagee shall be cumulative and not
exclusive, and every right, power and remedy whether specifically herein given
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or otherwise existing may be exercised from time to time and so often and in
such order as may be deemed expedient by the Trustee or Mortgagee, as the case
may be, and the exercise, or the beginning of the exercise, of any such right,
power or remedy shall not be deemed a waiver of the right to exercise, at the
same time or thereafter, any other right, power or remedy. No delay or omission
by the Trustee or Mortgagee in the exercise of any right, power or remedy shall
impair any such right, power or remedy or operate as a waiver thereof or of any
other right, power or remedy then or thereafter existing.
10.13 Binding Effect. This instrument is binding upon
Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit
of the Trustee, his successors and assigns and Mortgagee and its successors and
assigns, and the provisions hereof shall likewise constitute covenants running
with the land.
10.14 Article and Section Headings. The article and
section headings in this instrument are inserted for convenience and shall not
be considered a part of this instrument or used in its interpretation.
10.15 Counterparts. This instrument may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all of which are identical except that, to facilitate recordation,
in any particular counterpart portions of Exhibit A which describe properties
situated in counties other than the county in which such counterpart is to be
recorded may have been omitted.
10.16 Notices. Except as otherwise provided in the Loan
Agreement or herein, any notice, request, demand or other instrument which may
be required or permitted to be given or served upon Mortgagor shall be
sufficiently given when made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested and
addressed to Mortgagor at the address shown below the signatures at the end of
this Mortgage or to such different address as Mortgagor shall have designated by
written notice received by Mortgagee or the Trustee.
10.17 Amendments, Modifications and Waivers, Etc. Except
as provided in Section 10.2, this instrument may be amended, modified, revised,
discharged, released or terminated only by a written instrument or instruments
executed by Mortgagor and Mortgagee. Any alleged amendment, revision,
discharge, release or termination which is not so documented shall not be
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effective as to any party. No waiver of any provision of this Mortgage nor
consent to any departure by Mortgagor therefrom shall in any event be effective
unless the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
10.18 Survival of Agreements. All representations and
warranties of Mortgagor herein and all covenants and agreements herein not fully
and finally performed before the effective date or dates of this Mortgage shall
survive such date or dates. All covenants and obligations in this Mortgage are
intended by the parties to be, and shall be construed as, covenants running with
the Lands.
10.19 Governing Law. This Mortgage shall be governed by
and construed in accordance with the laws of the State of Texas.
10.20 Subrogation. The Indebtedness represents funds
utilized to satisfy certain outstanding indebtedness and obligations secured by
liens, rights and/or claims against the Mortgaged Property or any part thereof,
and therefore Mortgagee shall be subrogated to any and all liens, rights,
superior titles and equities owned or claimed by the holder of any such
outstanding indebtedness or obligation so satisfied, regardless of whether said
liens, rights, superior titles and equities are assigned to the Mortgagee by the
holder(s) thereof or released. Mortgagee shall be subrogated to all covenants
and warranties heretofore given or made with respect to the Mortgaged Property.
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IN WITNESS WHEREOF, Mortgagor has executed or caused to be
executed this Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement on the date and year first set forth above.
The address of the MORTGAGOR:
Mortgagor/Debtor is:
TRANSTEXAS GAS CORPORATION,
1300 North Sam Houston a Delaware corporation
Parkway East, Suite 200
Houston, Texas 77032
By:
---------------------------------
Name:
Title:
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[ADD ACKNOWLEDGEMENT FORM]
45
<PAGE> 46
EXHIBIT A
LANDS AND LEASES
<PAGE> 47
EXHIBIT B
FEE INTERESTS EXCLUDED FROM LANDS
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<PAGE> 48
ACT OF MORTGAGE, SECURITY
AGREEMENT AND FINANCING STATEMENT
DATED AS OF JUNE 13, 1997,
BY
TRANSTEXAS GAS CORPORATION
(MORTGAGOR AND DEBTOR)
Taxpayer I.D. No.: 76-0401023
TO
TRANSAMERICAN ENERGY CORPORATION
(MORTGAGEE AND SECURED PARTY)
Taxpayer I.D. No.: 76-0441642
The mailing address of the above-named Mortgagee and Secured
Party is 1300 North Sam Houston Parkway East, Suite 310, Houston, Texas 77032,
Attn: Douglas J. Widlaski; and the mailing address of Mortgagor and Debtor is
1300 North Sam Houston Parkway East, Suite 200, Houston, Texas 77032, Attn:
Douglas J. Widlaski.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
ATTENTION OF RECORDING OFFICERS: This instrument is a
Mortgage of both immovable and movable property and is, among other things, a
Security Agreement and Financing Statement under the Uniform Commercial Code.
This instrument creates a lien on rights in or relating to lands of Mortgagor
which are described in Exhibit A attached hereto.
Recorded counterparts should be sent to:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
<PAGE> 49
ACT OF MORTGAGE, SECURITY
AGREEMENT AND FINANCING STATEMENT
BE IT KNOWN that on this ____ day of June, 1997, before me,
the undersigned Notary Public, duly commissioned and qualified in and for the
State of Texas, and in the presence of the undersigned competent witnesses:
PERSONALLY CAME AND APPEARED, TRANSTEXAS GAS CORPORATION, a
Delaware corporation ("Mortgagor"), appearing herein through and represented by
__________________________________, its _____________________________, duly
authorized by virtue of Resolutions of the Board of Directors of Mortgagor, a
certified copy of which is attached hereto and made a part hereof, who, being
duly sworn, did declare and say as follows:
RECITALS
Mortgagor and TransAmerican Energy Corporation, a Delaware
corporation (together with its successors or assigns, "Mortgagee"), are
entering into that certain Loan Agreement, dated as of June 13, 1997 (as
amended or modified and in effect from time to time, the "Loan Agreement").
Pursuant to and on the terms and conditions set forth in the
Loan Agreement, Mortgagee is making a loan to Mortgagor in the aggregate
principal amount of $450,000,000 (the "Loan").
Mortgagor is entering into this Mortgage pursuant to its
obligations under the Loan Agreement and for the purpose, among other things,
of securing and providing for the repayment of the Loan.
ARTICLE I
Definitions
1.1 Certain Defined Terms. Unless the context otherwise
requires, as used in this Mortgage and all amendments, extensions,
modifications, renewals, supplements or waivers hereof or hereto, the following
terms shall have the following meanings, which meanings shall be equally
applicable to both the singular and plural form of such terms:
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<PAGE> 50
"Business Day" shall have the meaning assigned to that term in
the Loan Agreement.
"Collateral" shall have the meaning set out in Article VIII of
this Mortgage.
"Debtor" shall have the meaning set out in Article VIII of
this Mortgage.
"Equipment" shall mean all of Mortgagor's now owned or
hereafter acquired Vehicles, drilling rigs, workover rigs, fracture stimulation
equipment, well site compressors, rolling stock and related equipment and other
assets accounted for as equipment by Mortgagor on its financial statements, all
proceeds thereof, and all documents of title, books, records, ledger cards,
files, correspondence and computer files, tapes, disks and related data
processing software that at any time evidence or contain information relating
to the foregoing; provided, however, that "Equipment" shall not include any
assets constituting a part of a natural gas pipeline or the compression or
dehydration equipment used in the operation of any such pipeline.
"Event of Default" shall have the meaning assigned to that
term in Section 6.1.
"Highest Lawful Rate" shall have the meaning ascribed thereto
in the Loan Agreement.
"Hydrocarbons" shall mean oil, gas, casinghead gas,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products separated, settled and dehydrated therefrom and all products refined
therefrom, including, without limitation, kerosene, liquified petroleum gas,
refined lubricating oils, diesel fuel, drip gasoline and natural gasoline and
all other minerals.
"Indebtedness" shall mean the following indebtedness,
obligations and liabilities of Mortgagor (and any extensions, renewals,
refundings, increases, substitutions, replacements, consolidations,
modifications or rearrangements of such indebtedness, obligations or
liabilities, whether or not Mortgagor executes any extension agreement or
renewal instrument):
(a) all amounts advanced or expended by Mortgagee in
its capacity as lender under the Loan Agreement or under or in connection with
this
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Mortgage, all reasonable costs and out-of-pocket expenses (excluding expenses
representing administrative overhead) at any time and from time to time
incurred by Mortgagee in connection with the administration and/or enforcement
of this Mortgage or the Loan Agreement (including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel employed by Mortgagee in
connection therewith), and all sums due or to become due to Mortgagee at any
time and from time to time hereunder or under the Loan Agreement;
(b) all principal, premiums, accrued interest and
any other sums now or hereafter owing on the Loan pursuant to the terms of the
Note; and,
(c) all other amounts payable by Mortgagor under the
Loan Agreement.
"Inventory" shall mean all of Mortgagor's now owned or
hereafter acquired casing, drill pipe and other supplies accounted for as
inventory by Mortgagor on its financial statements (excluding any Subject
Minerals), all proceeds thereof, and all documents of title, books, records,
ledger cards, files, correspondence and computer files, tapes, disks and
related data processing software that at any time evidence or contain
information relating to the foregoing.
"Lands" shall mean that immovable property referred to or
covered by the Leases described in Exhibit A hereto, or the description of
which is incorporated in Exhibit A by reference to any other instrument or
document.
"Leases" shall mean those Oil and Gas Leases described in
Exhibit A hereto, together with any and all other Oil and Gas Leases or
leasehold estates pooled or unitized therewith, in which, or in any portion of
which, Mortgagor has an interest, now owned or hereafter acquired, as well as
any extensions, renewals or replacements of or for any of the foregoing.
"Lobo Reserves" shall mean those reserves identified on the
Reserve Report as being located in the Lobo Trend Area Field.
"Material Production Sale Contracts" shall mean Production
Sale Contracts that, individually or in the aggregate, are material to the
conduct or value of Mortgagor's business.
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"Mortgage" shall mean this Act of Mortgage, Security Agreement
and Financing Statement, as same may from time to time be amended or modified
and in effect.
"Mortgaged Property" shall have the meaning set out in Article
II to this Mortgage.
"Mortgagee" shall have the meaning assigned to that term in
the recitals of this Mortgage.
"Mortgagor" shall have the meaning assigned to that term in
the introduction to this Mortgage.
"Note" shall mean that certain Promissory Note, dated as of
June 13, 1997, in the original principal amount of $450,000,000 by Mortgagor
payable to Mortgagee, as amended, modified, supplemented, restated, renewed,
extended or increased in amount from time to time.
"Oil and Gas Leases" shall include oil and gas leases and oil,
gas and mineral leases and shall also include subleases and assignments of
operating rights.
"Operating Equipment" shall mean Mortgagor's interest in all
movable property, surface or subsurface machinery, equipment, facilities,
supplies or other property of whatsoever kind or nature (excluding drilling
rigs, drill pipe, mud pumps, trucks, automotive equipment or other property
taken to the premises to drill a well or for other similar temporary uses) now
or hereafter located on or under any of the Lands or Leases or on a unit
including all or part of the Lands or Leases or now or hereafter used, held for
use or useful in connection with the exploration, development, operation,
production, treatment, storage, processing or transportation of Hydrocarbons,
helium and/or other minerals produced or to be produced from or attributable to
the Lands or Leases, including, but not by way of limitation, all oil wells,
gas wells, water wells, injection wells, casing, tubing, rods, pumps, pumping
units and engines, christmas trees, derricks, separators, gun barrels, flow
lines, tanks, tank batteries, gas systems (for gathering, treating,
compression, disposal or injection), chemicals, solutions, water systems (for
treating, disposal and injection), pipe, pipelines, boilers, meters, apparatus,
compressors, liquid extractors, connectors, valves, fittings, power plants,
poles, lines, cables, wires, transformers, starters and controllers, machine
shops, tools, machinery and parts, storage yards and
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equipment stored therein, buildings and camps, telegraph, telephone and other
communication systems, roads, loading docks, loading racks and shipping
facilities, fixtures and other appurtenances, appliances and property of every
kind and character, movable or immovable, together with all improvements,
betterments and additions, accessories and attachments thereto and replacements
thereof.
"Permitted Liens" shall have the meaning assigned to that term
in the Loan Agreement.
"Production Sale Contracts" shall mean all contracts now or
hereafter in effect, including, without limitation, any gas sales contracts,
entered into by Mortgagor, or Mortgagor's predecessors in interest, for the
production, sale, purchase, exchange or processing of Hydrocarbons, helium
and/or other minerals produced from or attributable to the Subject Interests.
"Receivables" shall mean any and all of Mortgagor's now owned
or hereafter acquired "accounts" as such term is defined in Article 9 of the
Uniform Commercial Code in the State of New York, all products and proceeds
thereof, and all books, records, ledger cards, files, correspondence and
computer files, tapes, disks or software that at any time evidence or contain
information relating to the foregoing.
"Reserve Report" shall have the meaning ascribed thereto in
Section 3.1 hereof.
"Secured Party" shall have the meaning set out in Article VIII
of this Mortgage.
"Subject Interests" shall mean each kind and character of
right, title, interest or estate, whether now owned or hereafter acquired,
which Mortgagor has in, under or to the Leases and all right, title, interest
or estate, whether now owned or hereafter acquired, which Mortgagor has in and
to the Lands, together with each kind and character of right, title, interest
or estate now or hereafter vested in Mortgagor in and to any and all overriding
royalty interests, mineral interests, leasehold interests, mineral rights,
royalty interests, net profits interests, oil payments, production payments,
carried interests and all other properties or interests of every kind or
character which relate to any of the Lands or Leases, whether such right,
title, interest or estate be under and by virtue of a Lease, a unitization or
pooling agreement, a unitization or pooling order, a mineral deed, a royalty
deed, an operating agreement, a revenue sharing agree-
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ment, a division order, a transfer order, a farmout agreement, a fee simple
conveyance or any other type of contract, conveyance or instrument or under any
other type of claim or title, legal or equitable, recorded or unrecorded, all
as the same shall be enlarged by the discharge of any payments out of
production or by the removal of any charges or encumbrances to which any of
same are subject.
"Subject Minerals" shall mean all Hydrocarbons, helium and/or
other minerals in, under, upon, produced or to be produced or which may be
produced, saved and sold from and which shall accrue and be attributable to the
Subject Interests, including, without limitation, all oil in tanks and all
rents, royalties, issues, profits, proceeds, products, revenues, and other
income arising from or attributable to the Subject Interests and Mortgagor's
interest therein.
"Vehicles" shall mean all trucks, automobiles, trailers and
other vehicles covered by a certificate of title.
ARTICLE II
Mortgage
2.1 Mortgage. To secure the full and punctual payment of the
Indebtedness and to secure the performance of the covenants, agreements and
obligations of Mortgagor contained herein, in the Loan Agreement and in all
other security documents executed in accordance therewith (collectively, with
the Indebtedness sometimes referred to herein as the "Obligations"), Mortgagor,
has mortgaged, pledged and hypothecated, and by these presents, except to the
extent that the same constitute Equipment, Inventory or Receivables, does
hereby mortgage, pledge, assign and hypothecate, unto Mortgagee, and further
grants a security interest to Mortgagee in, all of Mortgagor's rights, titles,
interests and estates in, to, under, derived from or with respect to all of the
following described property, whether now owned or hereafter acquired, namely:
(a) the Subject Interests;
(b) the Subject Minerals;
(c) the Production Sale Contracts;
(d) the Operating Equipment;
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(e) the Leases and the Lands;
(f) all unitization, communitization, operating
agreements, pooling agreements and declarations of pooled units and the
properties covered and the units created thereby (including all units formed
under orders, regulations, rules or other official acts of any federal, state
or other governmental agency providing for pooling or unitization, spacing
orders or other well permits and other instruments) which relate to or affect
all or any portion of the Subject Interests;
(g) all accounts receivable and other accounts,
contract rights, operating rights, general intangibles, chattel paper,
documents and instruments arising under any of the foregoing;
(h) all subleases, farmout agreements, assignments
of interests, assignments of operating rights, contracts, operating agreements,
bidding agreements, advance payment agreements, rights-of-way, surface leases,
franchises, servitudes, privileges, permits, licenses, easements, tenements,
hereditaments, improvements, appurtenances and benefits now existing or in the
future obtained and incident and appurtenant to any of the foregoing;
(i) all lease records, well records, production
records and accounting and other records and files which relate to any of the
foregoing, and all maps, data bases, manuals, information and data which relate
to any of the foregoing, including without limitation engineering, geological
and geophysical data;
(j) any liens and security interests in the Subject
Interests in favor of Mortgagor securing payment of proceeds from the sale of
the Subject Minerals including, but not limited to, those liens and security
interests provided for in the Louisiana Commercial Laws;
(k) all other rights, titles and interests of
Mortgagor in, to and under or derived from the Lands, the Leases, the
Production Sale Contracts and/or other properties described in Exhibit A
hereto;
(l) any property that may from time to time
hereafter, by delivery or by writing of any kind executed by or on behalf of
Mortgagor, be subjected to the lien and security interest hereof by Mortgagor
or by anyone
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authorized on Mortgagor's behalf, and Mortgagee is hereby authorized to receive
the same as additional security;
(m) all other property of every nature and kind and
wheresoever situated, now owned or hereafter acquired by Mortgagor or to which
Mortgagor is now or may hereafter be entitled at law or in equity; and
(n) any and all proceeds, returns, rents, royalties,
issues, profits, products, revenues and other income arising from or by virtue
of the sale, lease or other disposition of, or from any condemnation, eminent
domain or insurance payable with respect to damage, loss or destruction of, the
items described in subparagraphs (a) through (m) above;
together with any and all proceeds, products, increases, profits,
substitutions, replacements, renewals, additions, amendments and accessions of,
to and for all of the foregoing property. All the aforesaid properties, rights
and interests which are hereby subjected to the lien and/or security interest
of this Mortgage, together with any additions thereto which may be subjected to
the lien and/or security interest of this Mortgage by means of supplements
hereto or otherwise, other than Equipment, Inventory and Receivables, shall
hereinafter be referred to as the "Mortgaged Property."
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and to its successors
and assigns forever.
ARTICLE III
Particular Warranties and Representations of Mortgagor
Mortgagor hereby warrants and represents to Mortgagee, as of
the date hereof, as follows:
3.1 Leases. With respect to Leases covering all wells and
Lands to which value has been ascribed in that certain reserve report, prepared
as of February 1, 1997 (the "Reserve Report"), by Netherland, Sewell &
Associates, Inc., other than the Lobo Reserves: (a) the Leases are valid,
subsisting leases as to all such wells and Lands, and are superior and
paramount to all other Oil and Gas Leases respecting the properties to which
they pertain and all rentals, royalties and other amounts due and payable in
accordance with the terms of the Leases have been duly paid or provided for;
(b) the Leases are in full force and
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effect; and (c) except as disclosed in writing by Mortgagor to Mortgagee,
Mortgagor, and to the best of Mortgagor's knowledge all other parties to the
Leases, have performed in all material respects all obligations required to be
performed by them and are not in material default under nor in receipt of any
claim of material default under any Lease, and no event has occurred which,
with the passage of time or the giving of notice or both, would cause a
material breach of, or default under, any Lease, and Mortgagor has no knowledge
of any material breach or anticipated breach by the other parties to any Lease.
The references to Permitted Liens in this Mortgage are made for the purpose of
giving effect to the warranties of Mortgagor contained herein and are not
intended to limit or restrict the description of the Mortgaged Property, nor is
it intended that this Mortgage or the rights of Mortgagee hereunder shall be
subject to, or encumbered by, the Permitted Liens. The warranties made by
Mortgagor hereunder with respect to its title or interest in the Mortgaged
Property shall not in any manner limit the quantum of interest effected by this
Mortgage. It is intended that this Mortgage shall cover and affect Mortgagor's
entire present and future interest in the Mortgaged Property, without regard to
any recited warranted interest.
3.2 Documents. Each of the existing Material Production Sale
Contracts is valid, binding and enforceable in accordance with its respective
terms (except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or moratorium or other similar laws relating to
creditor's rights and by general equitable principles which may limit the right
to obtain equitable remedies (regardless of whether such enforceability is
considered in a proceeding at equity or at law), and except as rights to
indemnity thereunder may be limited by applicable law) and is in full force and
effect, and no material default on the part of any party thereto exists
thereunder. To the best knowledge of Mortgagor, all amounts due and payable in
accordance with the terms of each Material Production Sale Contract have been
duly paid or provided for and the obligations to be performed under each of the
Material Production Sale Contracts have been duly performed, in all material
respects in accordance with the terms of such contracts and any related
agreements, and in conformity with all applicable laws, rules, regulations and
orders of all courts and regulatory authorities having jurisdiction.
3.3 Title. Except for Permitted Liens, Mortgagor has (a)
good and marketable title to, and is possessed of, that portion of the
Mortgaged Property constituting real property, including, without limitation,
those referenced in Exhibit A (it being understood that marketable title as
used herein shall mean such title to real property as is customarily held in
the oil and gas business) and
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(b) good and sufficient title to the portion of the Mortgaged Property
constituting personal property. Except as disclosed in writing by Mortgagor to
Mortgagee prior to the date hereof, Mortgagor has obtained reconveyances or
reassignments of record title into Mortgagor of all production payments,
limited working interests or similar interests conveyed by Mortgagor or
Mortgagor's predecessor in title to various vendors and servicers with respect
to any drilling program that has "paid out," as that term is defined in the
respective drilling agreements, as may be necessary to vest in Mortgagor record
title to the working interests and net revenue interests as set forth in the
Reserve Report. Mortgagor owns, in the aggregate, net of Permitted Liens, not
significantly more than the amount of undivided working interests and not
significantly less than the amount of net revenue interests in the Leases set
forth in the Reserve Report. For purposes of this Paragraph 3.3, "working
interest" shall refer to Mortgagor's share of expense in the applicable Lease,
well or drilling and production unit shown on the Reserve Report, and "net
revenue interest" shall refer to Mortgagor's share of production from a Lease,
well or production unit after satisfaction of all royalties, overriding
royalties, production payments or similar non-operating interests. Each of the
Material Production Sale Contracts is free from any material credit, deduction,
allowance, defense, dispute, setoff, or counterclaim (other than current
charges provided for in such instruments but not yet due and payable), and
there is no extension or indulgence with respect thereto.
3.4 No Liens. Except for Permitted Liens, the Mortgaged
Property is free of any and all claims, liens, charges, encumbrances,
mortgages, security interests, contracts, agreements, options, preferential
purchase rights or other restrictions or limitations of any nature or kind.
3.5 Power and Authority. Mortgagor has the full power and
legal right to bargain, grant, sell, mortgage, assign, transfer, convey and
grant a security interest in all of the Mortgaged Property, all in the manner
and form herein provided and without obtaining the waiver, consent or approval
of any lessor, sublessor, governmental agency or entity or party whomsoever or
whatsoever, except as already obtained or to be obtained pursuant to the terms
of the Loan Agreement.
3.6 Contracts. Mortgagor is not obligated by virtue of any
prepayment under any Production Sale Contract or other contract providing for
the sale by Mortgagor of Hydrocarbons, helium and/or other minerals, which
contains a "take or pay" clause or under any similar prepayment agreement or
arrangement, including, without limitation, "gas balancing agreements" to
deliver
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Hydrocarbons, helium and/or other minerals (amounting to a material portion of
the Hydrocarbons, helium and/or other minerals covered hereby) at some future
time without then or thereafter receiving full payment therefor.
3.7 No Governmental Approvals. Mortgagor warrants that no
approval or consent of any regulatory or administrative commission or
authority, or of any other governmental body, is necessary to authorize the
execution and delivery of this Mortgage and that no such approval or consent is
necessary to authorize the observance or performance by Mortgagor of the
covenants herein contained.
3.8 Producing Wells. All producing wells located on the
Leases have been drilled, operated and produced in conformity in all material
respects with all applicable laws, rules, regulations and orders of all
regulatory authorities having jurisdiction and are subject to no material
penalties on account of past production, and such wells are, in fact, bottomed
under and are producing from, and the well bores are wholly within, the Lands.
3.9 Principal Place of Business; Tax Identification Number.
The principal place of business and chief executive office of Mortgagor is
located at 1300 North Sam Houston Parkway East, Suite 310, Houston, Texas
77032. The federal employer tax identification number of Mortgagor is
76-0401023.
ARTICLE IV
Particular Covenants and Agreements of Mortgagor
Mortgagor hereby covenants to and agrees with Mortgagee as
follows:
4.1 Payment of the Indebtedness. Mortgagor will duly and
punctually pay the principal of and interest on all of the Indebtedness,
including each and every obligation owing under the Note as the same shall
become due and payable under the Note and in accordance with the terms of the
Loan Agreement.
4.2 Performance of Other Obligations. Mortgagor shall duly
and punctually perform and keep all other Obligations required of Mortgagor
pursuant to the terms hereof, of the Loan Agreement and of any other documents
executed and delivered by Mortgagor in connection with the Loan Agreement.
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4.3 Operation of Mortgaged Property. So long as the
Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor
is the operator of the Mortgaged Property, Mortgagor shall, at Mortgagor's own
expense:
(a) do all things necessary to keep unimpaired
Mortgagor's rights and remedies in or under the Mortgaged Property and, except
as otherwise permitted hereby or in the Loan Agreement, shall not (i) abandon
any well or forfeit, surrender, release or default under (other than any
default that, individually or in the aggregate with all other such defaults,
would not have a material adverse effect on Mortgagor's business) any Lease or
any Production Sale Contract (except to the extent that any such Production
Sale Contract constitutes a Receivable), or in the event Mortgagor is not the
operator, shall use its best efforts to prevent any of the above, unless
undertaken in the ordinary course of business or (ii) abandon, sell, convey,
assign, lease or otherwise transfer any right, title or interest of Mortgagor
under the Production Sale Contracts (except to the extent that such Production
Sales Contracts constitute Receivables), or consent to any of the foregoing,
directly or indirectly;
(b) except as otherwise permitted in the Loan
Agreement, perform or cause to be performed, except where any failure to so
perform or cause to be performed would not, individually or in the aggregate
with all other such failures, have a material adverse effect or Mortgagor's
business, each and all covenants, agreements, terms, conditions and limitations
imposed upon Mortgagor or its predecessors in interest and expressly contained
in (i) the Leases, any Production Sale Contract, and any instrument or document
relating thereto, and (ii) any assignment or other form of conveyance, under or
through which the Leases or an undivided interest therein are now held, and
perform or cause to be performed all implied covenants and obligations imposed
upon Mortgagor in connection with the Leases, any Production Sale Contract or
any document or instrument relating thereto;
(c) cause, or in the event Mortgagor is not the
operator of the Subject Interests, use its best efforts to cause, the Subject
Interests to be maintained, developed, protected against drainage, and
continuously operated for the production of Hydrocarbons, helium and/or other
minerals, as applicable, in a good and workmanlike manner as would be operated
by a prudent operator and in compliance with all applicable operating
agreements and contracts, and all applicable federal, state and local laws,
rules and regulations, excepting those
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being contested in good faith in such a manner as not to jeopardize Mortgagee's
rights in and to the Subject Interests;
(d) except as otherwise permitted in the Loan
Agreement, cause to be paid, promptly as and when due and payable, except where
the failure to make any such payments would not, individually or in the
aggregate, have a material adverse effect on Mortgagor's business, (i) all
rentals, delay rentals, royalties and indebtedness payable in respect of the
Subject Interests, and all expenses incurred in or arising from the operation
or development of the Subject Interests, or, in the event Mortgagor is not the
operator, shall use its best efforts to cause each of the foregoing to be paid
and (ii) all amounts due and payable in accordance with the terms of each
Production Sale Contract;
(e) cause the Operating Equipment necessary for the
Mortgagor's business operations to be kept in good and effective operating
condition (reasonable wear and tear excepted), and all repairs, renewals,
replacements, additions and improvements thereof or thereto, needful to the
production of Hydrocarbons, helium and/or other minerals, as applicable, from
the Subject Interests, to be promptly made;
(f) except for Permitted Liens or as otherwise
permitted by the Loan Agreement, cause the Mortgaged Property or any part
thereof or the rents, issues, revenues, profits and other income therefrom to
be kept free and clear of all claims, liens, charges, mortgages, security
interests, encumbrances or other restrictions or limitations of any nature or
kind;
(g) maintain insurance for the Mortgaged Property in
accordance with the requirements of the Loan Agreement;
(h) comply with, or cause to be complied with, in
all material respects, or, if Mortgagor is not the operator of the Mortgaged
Property, use its best efforts to cause to be complied with, in all material
respects, all applicable and valid laws, rules and regulations of the United
States, the State of Louisiana or any other governmental body exercising
jurisdiction, with respect to the operation and development of the Lands and
the production and sale of Hydrocarbons, helium and/or other minerals, as
applicable, therefrom; and
(i) deliver, or cause to be delivered, to Mortgagee
a copy of any notice, demand or other communication from any other party to the
Leases or any Production Sale Contract, relating to any alleged, potential or
actual
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material breach thereunder or material breach of any of the covenants,
agreements, terms, or limitations thereof or purporting to terminate or in any
other way adversely affect the rights of Mortgagor thereunder.
4.4 Taxes. Subject to Mortgagor's right to contest same as
provided in the Loan Agreement, Mortgagor will pay or cause to be paid, before
delinquent, all lawful taxes, assessments and other charges of every kind and
character imposed upon this Mortgage or upon the Mortgaged Property or any part
thereof or upon the interest of Mortgagee therein (excluding taxes upon the
income of Mortgagee), or upon the income, rents, issues, revenues, profits or
other income from the Mortgaged Property, or incident to or in connection with
the production of Hydrocarbons, helium or other minerals therefrom, or the
operation and development thereof.
4.5 Recording, Etc. Mortgagor will promptly and at
Mortgagor's expense record, register, deposit and file this Mortgage and every
other instrument in addition or supplemental hereto in such offices and places
and at such times and as often as may be necessary to perfect, preserve,
protect and renew the lien and security interest hereof as a recorded lien on
the immovable property and fixtures now or hereafter comprising the Mortgaged
Property and perfected security interest on movable property and fixtures now
or hereafter comprising the Mortgaged Property as the case may be and the
rights and remedies of Mortgagee hereunder, and otherwise will do and perform
all matters or things necessary or expedient to be done or observed by reason
of any law or regulation of the State of Louisiana or of the United States of
America or of any other competent authority, for the purpose of effectively
creating, maintaining and preserving the lien and security interest created by
this Mortgage and the perfection and priority thereof.
4.6 Sale or Mortgage of Mortgaged Property. Except for
Permitted Liens and as otherwise permitted by the Loan Agreement, Mortgagor
will not sell, convey, mortgage, pledge, assign, abandon or otherwise dispose
of or encumber the Mortgaged Property nor any portion thereof, nor any of
Mortgagor's rights, titles, interests or estates therein without first securing
the express written consent of Mortgagee.
4.7 Records, Statements and Reports. Mortgagor will keep
proper books of record and account in which complete and correct entries will
be made of Mortgagor's transactions in accordance with generally accepted
accounting principles.
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4.8 Right of Entry and Inspection of Books. Mortgagee and
the agents of Mortgagee are hereby authorized (a) to the extent Mortgagor has
authority to do so, to enter upon the Lands, and all parts thereof, for the
purposes of investigating and inspecting the condition and operation thereof,
(b) to examine the books of account of Mortgagor, and (c) to discuss the
affairs, finances or accounts of Mortgagor and be advised as to the same by any
officer of Mortgagor, all at such reasonable times or intervals as Mortgagee
may desire.
4.9 Qualification to Do Business; Maintenance of Existence.
Mortgagor will (a) continue to be in good standing and duly qualified to
transact business in the State of Louisiana and (b) maintain its corporate
existence, except as otherwise permitted by the Loan Agreement.
4.10 Expenses. Mortgagor will promptly upon demand by
Mortgagee pay all reasonable costs and out-of- pocket expenses heretofore or
hereafter incurred by Mortgagee in connection with the enforcement of any of
Mortgagee's rights hereunder.
4.11 Further Assurances. Mortgagor will execute and deliver
such other and further instruments and will use its best efforts to do such
other and further acts as in the opinion of Mortgagee may be necessary or
desirable to carry out more effectively the purposes of this instrument,
including, without limiting the generality of the foregoing, (a) prompt
correction of any defect which may hereafter be discovered in the title to the
Mortgaged Property or any part thereof other than Permitted Liens or in the
execution and acknowledgment of this Mortgage, the Note or other document
executed in connection herewith, (b) prompt execution and delivery of all
division or transfer orders that in the opinion of Mortgagee are needed to
transfer effectively to Mortgagee the assigned proceeds of production from the
Subject Interests and (c) obtaining any necessary governmental approvals,
including, without limitation, those of the State of Louisiana.
4.12 Adverse Claim. Mortgagor will warrant and forever
defend, subject to the Permitted Liens, the title to the Mortgaged Property
unto Mortgagee against every person whomsoever lawfully claiming the same or
any part thereof, and Mortgagor will maintain and preserve as first priority
the lien and security interest created hereby so long as any of the
Indebtedness remains unpaid. Should an adverse claim be made against or a
cloud develop upon the title to any part of the Mortgaged Property, other than
Permitted Liens, or upon the lien and security interest created by this
Mortgage, Mortgagor agrees that it
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will immediately defend such adverse claim or take appropriate action to remove
such cloud at Mortgagor's expense, and Mortgagor further agrees that after
prior notice to Mortgagor, Mortgagee may take such other action as it deems
advisable to protect and preserve its interests in the Mortgaged Property, and,
in such event, Mortgagor will indemnify Mortgagee against any and all costs,
attorneys' fees and other expenses which it or they may incur in defending
against any such adverse claim or taking action to remove any such cloud.
4.13 Change of Taxpayer Identification Number; Relocation of
Offices. Mortgagor shall not change its taxpayer identification number or
relocate its principal place of business or chief executive office to a county
or state other than that specified in Section 3.9 of this Mortgage or otherwise
relocate any material portion of the movable property comprising part of the
Mortgaged Property to a county/parish or state other than that where it is
presently located or where, with respect to such property, Mortgagee has a
perfected security interest, unless, prior to such relocation, Mortgagor (a)
gives 30 days' prior written notice to Mortgagee, which notice shall include,
without limitation, the new taxpayer identification number or the name of the
county/parish and state into which such relocation is to be made and (b) prior
to such change or relocation, executes and delivers all such additional
documents and performs all additional acts (including causing filings of public
record and paying all related fees and costs) as may be necessary or advisable
in order to continue and maintain the existence and priority of Mortgagee's
security interest in the movable property comprising part of the Mortgaged
Property.
4.14 Notice of Pooling or Unitization. Except as otherwise
provided in Section 9.1 hereof, Mortgagor will promptly notify Mortgagee in
writing upon the first filing of any petition or request with any governmental
or regulatory agency regarding any pooling or unitization arrangement
pertaining to the Mortgaged Property or any part thereof, and any pooling or
unitization arrangement which is imposed or which Mortgagor learns may be
imposed on the Mortgaged Property or any part thereof, which would cause
Mortgagor to suffer a significant reduction in income on a monthly basis from
the Mortgaged Property.
4.15 Representations and Covenants Relating to Hazardous
Materials.
(a) Mortgagor is not in violation of any Federal,
state, local or foreign laws or regulations relating to pollution or protection
of human
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health or the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), including, without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants wastes toxic
substances, hazardous substances, petroleum or petroleum products ("Materials
of Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern (collectively, "Environmental
Laws"), which violation, as defined below would have a material adverse effect
on Mortgagor. "Violation," as used herein, includes, but is not limited to,
noncompliance with any permit or other governmental authorization required
under applicable Environmental Laws and noncompliance with the terms and
conditions of any such permit or authorization. In addition, (a) except as
previously disclosed in writing to Mortgagee, Mortgagor has not received any
communication (written or oral), whether from a governmental authority,
citizens' group, employee or otherwise, alleging that Mortgagor is not in full
compliance with any Environmental Laws or permit or authorization required
under applicable Environmental Laws where such failure to comply fully would
have a material adverse effect on Mortgagor and (b) there are no circumstances
that may prevent or interfere with such full compliance in the future, except
where such failure to comply would not have a material adverse effect on
Mortgagor's business.
(b) To the knowledge of Mortgagor, there is no
claim, action, cause of action, investigation or notice (written or oral) by
any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern at any location owned or operated by Mortgagor, or circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law (collectively, "Environmental Claims") pending or threatened against
Mortgagor, except where such an Environmental Claim would not have a material
adverse effect on Mortgagor.
(c) To the knowledge of Mortgagor there are no past
or present actions, activities, circumstances, conditions, events or incidents,
including without limitation, the release, emission, discharge, presence or
disposal or any Material of Environmental Concern, that could form the basis of
any Environmental Claim against Mortgagor, which Environmental Claim would have
a material adverse effect on Mortgagor.
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ARTICLE V
Assignment of Production
5.1 Pledge and Assignment. Subject to the rights of the
holders of any Permitted Liens prior to the lien of this Mortgage, as further
security for the payment and performance of the Indebtedness, Mortgagor has
pledged, transferred, assigned, warranted and conveyed and does hereby pledge,
transfer, warrant and convey to Mortgagee, effective as of the date hereof, all
of Mortgagor's rights, titles, interests and estates in, to and under the
following property, except to the extent that any of the same constitute
Equipment, Inventory or Receivables; all Hydrocarbons, helium and/or other
minerals which are thereafter produced and which accrue to the Subject
Interests, all products obtained or processed therefrom and all revenues and
proceeds now or hereafter attributable to said Hydrocarbons, helium and/or
other minerals and said products as well as any liens and security interests
securing any sales of said Hydrocarbons, helium and/or other minerals. All
parties producing, purchasing or receiving any such Hydrocarbons, helium and/or
other minerals or products, or having such Hydrocarbons, helium and/or other
minerals, products, or proceeds therefrom, in their possession for which they
or others are accountable to Mortgagee by virtue of the provisions of this
Article, are authorized and directed to treat and regard Mortgagee as the
assignee and transferee of Mortgagor and entitled in Mortgagor's place and
stead to receive such Hydrocarbons, helium and/or other minerals and all
proceeds therefrom, and said parties and each of them shall be fully protected
in so treating and regarding Mortgagee and shall be under no obligation to see
to the application by Mortgagee of any such proceeds or payments received by
it; provided, however, that, until Mortgagee or Mortgagor shall have instructed
such parties to deliver such Hydrocarbons, helium and/or other minerals and all
products, revenues and/or proceeds therefrom directly to Mortgagee (which such
instructions may be given only after the occurrence and during the continuance
of an Event of Default but the giving of such instructions shall as to all such
parties be conclusive as to the occurrence of an Event of Default), such
parties shall be entitled to deliver such Hydrocarbons, helium and/or other
minerals and all products, revenues and/or proceeds therefrom to Mortgagor.
Mortgagor agrees, subject to the rights of the holder of any Permitted Lien
prior to the lien of the Mortgage, to perform all such acts, and to execute all
such further assignments, transfers and division orders and other instruments
as may be required or desired by Mortgagee or any party in order to have said
revenues and proceeds so paid to Mortgagee and/or to have such Hydrocarbons,
helium and/or other minerals delivered to Mortgagee. Mortgagee is fully
authorized to receive and issue a receipt for said revenue and proceeds, to
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endorse and cash any and all checks and drafts payable to the order of
Mortgagor or Mortgagee for the account of Mortgagor received from or in
connection with said revenues or proceeds and apply the proceeds thereof in
accordance with Section 5.2 hereof, and to execute transfer and division orders
in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. In
the event that Mortgagee elects to take delivery of any such Hydrocarbons,
helium or other minerals in kind, Mortgagee shall have the right to sell such
Hydrocarbons, helium or minerals upon such terms as Mortgagee may desire, and
to apply the proceeds of such sale as provided in Section 5.2 below.
5.2 Application of Proceeds. Any and all payments and sale
proceeds received by Mortgagee pursuant to Section 5.1 hereof shall be placed
in a cash collateral account with Mortgagee and on the first day of each month
applied as follows:
First: to the payment and satisfaction of all costs and
expenses incurred in connection with the collection
of such proceeds (and in the event Mortgagee shall
have taken delivery in kind, to the costs and
expenses of the sale of such Hydrocarbons, helium or
other minerals); and
Second: then in accordance with the provisions of Section
7.9 below.
5.3 No Liability of Mortgagee in Collecting. Mortgagee is
hereby absolved from all liability for failure to enforce collection of any
proceeds so assigned and from all other responsibility in connection therewith,
except the responsibility to account to Mortgagor for funds actually received.
Mortgagee shall have the right, at its election, to prosecute and defend any
and all actions or legal proceedings deemed advisable by Mortgagee in order to
collect such funds and to protect the interests of Mortgagee and/or Mortgagor,
with all reasonable costs, expenses and attorneys' fees incurred in connection
therewith being paid by Mortgagor.
5.4 Assignment Not a Restriction on Mortgagee's Rights.
Nothing herein contained shall detract from or limit the absolute obligation of
Mortgagor to make payment in full of the Indebtedness, regardless of whether
the proceeds assigned by this Article are sufficient to pay the same, and the
rights under this Article V shall be in addition to all other security now or
hereafter existing to secure the payment of the Indebtedness.
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5.5 Status of Assignment. Notwithstanding the other
provisions of this Article V, Mortgagee or any receiver appointed in judicial
proceedings for the enforcement of this Mortgage shall have the right to
receive all of the Hydrocarbons, helium, and/or other minerals herein assigned
and the proceeds therefrom after the Note has been declared due and payable in
accordance with the provisions of Section 6.2 hereof and to apply all of said
proceeds as set forth in Section 5.2 hereof. Upon any sale of the Subject
Interests or any part thereof pursuant to Article VII hereof, the Hydrocarbons,
helium, and/or other minerals thereafter produced from the Subject Interests so
sold, and the proceeds therefrom, shall be included in such sale and shall pass
to the purchaser free and clear of the assignment contained in this Article V.
5.6 Indemnity. Mortgagor agrees to indemnify, defend and
hold Mortgagee harmless against all claims, actions, liabilities, judgments,
costs, attorneys' fees or other charges of whatsoever kind or nature (including
without limitation amounts paid in settlement, court costs and the fees and
disbursements of counsel incurred in connection with any investigation,
litigation or other proceeding) (all hereinafter in this Section 5.6 called
"claims"), other than claims arising from Mortgagee's own gross negligence,
willful misconduct or bad faith, made against or incurred by it as a
consequence, either before or after the payment in full of the Indebtedness, of
(i) the breach by Mortgagor of any covenant, representation or warranty
contained in this Mortgage, (ii) any violation of law by Mortgagor, or (iii)
the assertion that Mortgagee received Hydrocarbons, helium and/or other
minerals herein assigned or the proceeds thereof claimed by third persons.
Mortgagee shall have the right to defend against any such claims, employing
attorneys therefor, and unless furnished with reasonable indemnity, it shall
have the right to pay or compromise and adjust all such claims. Mortgagor will
indemnify and pay to Mortgagee any and all such amounts as may be paid in
respect of such claims or as may be successfully adjudged against Mortgagee.
The obligations of Mortgagor as hereinabove set forth in this Section 5.6 shall
survive the release of this Mortgage.
ARTICLE VI
Events of Default
6.1 Events of Default. It shall constitute an "Event of
Default" hereunder if an "Event of Default" occurs under the terms and
provisions of the Loan Agreement.
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6.2 Effect of Event of Default. If an Event of Default shall
occur and be continuing:
(a) Mortgagee may, subject to and in accordance with
the terms of the Loan Agreement, by notice in writing to Mortgagor, declare the
principal of and accrued interest on the Note and all other outstanding
Indebtedness secured hereby to be immediately due and payable, whereupon the
Note and all other outstanding Indebtedness shall become and be immediately due
and payable, in each instance without (except for any grace and notice
expressly provided for in the Loan Agreement) grace, demand, presentment for
payment, protest or notice of any kind to Mortgagor or any other person
(including, but not limited to, notice of intent to accelerate and notice of
acceleration), all of which are hereby expressly waived; and
(b) Mortgagee may proceed to enforce its rights
hereunder.
ARTICLE VII
Enforcement of Remedies
7.1 Event of Default; Confession of Judgment. Upon the
occurrence and during the continuance of an Event of Default, the Mortgagee may
at its option, without notice, demand, presentment or putting Mortgagor in
default, all of which hereby are waived expressly by Mortgagor, declare the
Indebtedness to be due and payable, without notice to Mortgagor, and may cause
the Mortgaged Property to be seized and sold by executory process, or, at
Mortgagee's option, Mortgagee may file suit in any court of competent
jurisdiction and obtain judgment immediately by virtue of the confession of
judgment herein contained, or, at Mortgagee's option, Mortgagee may proceed
with enforcement of this Mortgage in any other manner provided by law.
Mortgagor waives allotment, citation and all legal notices and delays and
consents that said judgment may be rendered, signed and executed immediately,
either in vacation or term time; in addition, Mortgagor waives the benefit of
any and all laws or parts of laws relative to the advertisement and the
appraisement of property seized and sold under executory or other legal process
and consents that in the case of any sale under any method of foreclosure
authorized by the terms of this Mortgage, the Mortgaged Property or any part
thereof, may be sold in globo or in separate parcels, at the election of
Mortgagee, at public auction or by private sale, to the highest bidder for cash
or on such other terms as Mortgagee may elect. Mortgagor hereby waives (i) the
benefit of appraisement provided for in Articles 2332,
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2336, 2723 and 2724 of the Louisiana Code of Civil Procedure and all other laws
conferring the same; (ii) the demand and three (3) days notice of demand as
provided in Articles 2639 and 2721 of the Louisiana Code of Civil Procedure;
(iii) the notice of seizure provided for in Articles 2293 and 2721 of the
Louisiana Code of Civil Procedure; (iv) the three (3) days delay provided for
in Articles 2331 and 2722 of the Louisiana Code of Civil Procedure; and (v) all
other laws providing rights of notice, demand, appraisement, or delay.
Mortgagor expressly authorizes and agrees that Mortgagee shall have the right
to appoint a keeper of such Mortgaged Property pursuant to the terms and
provisions of La. R.S. 9:5131 et seq., and La. R.S. 9:5136 et seq., which
keeper may be Mortgagee, any agent or employee thereof, or any other person,
firm or corporation. Compensation for the services of the keeper is hereby
fixed at five percent (5%) of the amount due or sued for or claimed or sought
to be protected, preserved, or enforced in the proceeding for the recognition
or enforcement of this Mortgage and shall be secured by the liens and security
interests of this Mortgage. Mortgagor acknowledges the Indebtedness and the
other Obligations secured hereby, whether now existing or to arise hereafter,
and confesses judgment thereon in favor of Mortgagee, if the Indebtedness or
any other Obligation secured hereby is not paid as and when due, whether by
acceleration or otherwise.
7.2 Rights of Mortgagee with Respect to Immovable Property
Constituting a Part of the Mortgaged Property. Upon the occurrence and during
the continuance of an Event of Default, Mortgagee will have all rights and
remedies granted by law, and particularly by the Louisiana Commercial Laws (La.
R.S. 10:1 - 101 et seq.), including, but not limited to, (i) the right to
proceed as to both the movable and the immovable property covered hereby in
accordance with Mortgagee's rights and remedies in respect of the immovable
property covered hereby and (ii) the right to take possession of all movable
property constituting a part of the Mortgaged Property, and for this purpose
Mortgagee may enter upon any premises on which any or all of such movable
property is situated and take possession of and operate such movable property
(or any portion thereof) or remove it therefrom. Mortgagee may require
Mortgagor to assemble such movable property and make it available to Mortgagee
at a place to be designated by Mortgagee which is reasonably convenient to all
parties. Unless such movable property is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Mortgagee will give Mortgagor reasonable notice of the time and place of any
public sale or of the time after which any private sale or other disposition of
such movable property is to be made. This requirement of sending reasonable
notice will be met if the notice is mailed by first-class mail, postage
prepaid, to Mortgagor at the address shown on
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the cover page of this Mortgage at least five (5) Business Days before the time
of the sale or disposition.
7.3 Rights of Mortgagee with Respect to Fixtures Constituting
a Part of the Mortgaged Property. Upon the occurrence and during the
continuance of an Event of Default, Mortgagee may elect to treat the fixtures
constituting a part of the Mortgaged Property as either immovable property
collateral or movable property collateral and proceed to exercise such rights
as apply to such type of collateral.
7.4 Judicial Proceedings. Upon the occurrence and during the
continuance of an Event of Default, Mortgagee, in lieu of or in addition to
exercising any power of sale hereinabove given, may proceed by a suit or suits
in equity or at law, whether for a foreclosure hereunder, or for the sale of
the Mortgaged Property, or for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, or for the appointment of a receiver pending any foreclosure hereunder
or the sale of the Mortgaged Property, or for the enforcement of any other
appropriate legal or equitable remedy.
7.5 Possession of the Mortgaged Property. It shall not be
necessary for Mortgagee to have physically present or constructively in its
possession at any sale held by Mortgagee or by any court, receiver or public
officer any or all of the Mortgaged Property, and Mortgagor shall deliver to
the purchaser at such sale on the date of sale the Mortgaged Property purchased
by such purchasers at such sale, and, if it should be impossible or
impracticable for any of such purchasers to take actual delivery of the
Mortgaged Property, then the title and right of possession to the Mortgaged
Property shall pass to the purchaser at such sale as completely as if the same
had been actually present and delivered.
7.6 Certain Aspects of a Sale. Mortgagee shall have the
right to become the purchaser at any sale held by Mortgagee or by any court,
receiver or public officer, and Mortgagee shall have the right to credit upon
the amount of the bid made therefor the amount payable out of the net proceeds
of such sale to it. Recitals contained in any conveyance made to any purchaser
at any sale made hereunder shall conclusively establish the truth and accuracy
of the matters therein stated, including, without limiting the generality of
the foregoing, nonpayment of the unpaid principal sum of, and the interest
accrued on, the Note after the same have become due and payable, advertisement
and conduct of such sale in the manner provided herein.
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7.7 Receipt of Purchaser. Upon any sale, whether made under
the Louisiana Commercial Laws or by virtue of judicial proceedings, the receipt
of Mortgagee, or of the officer making sale under judicial proceedings, shall
be sufficient discharge to the purchaser or purchasers at any sale for his or
their purchase money, and such purchaser or purchasers, his or their assigns or
personal representatives shall not, after paying such purchase money and
receiving such receipt of Mortgagee or of such officer therefor, be obliged to
see to the application of such purchase money or be in anywise answerable for
any loss, misapplication or non-application thereof.
7.8 Effect of Sale. Any sale or sales of the Mortgaged
Property or any part thereof, whether under the Louisiana Commercial Laws or by
virtue of judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever either at law or in equity, of Mortgagor
of, in and to the Mortgaged Property sold, and shall be a perpetual bar, both
at law and in equity, against Mortgagor, and Mortgagor's successors or assigns,
and against any and all persons claiming or who shall thereafter claim all or
any of the property sold from, through or under Mortgagor, or Mortgagor's
successors or assigns. Nevertheless, Mortgagor, if requested by Mortgagee so
to do, shall join in the execution and delivery of all proper conveyances,
assignments and transfers of the properties so sold.
7.9 Application of Proceeds. The proceeds of any sale of the
Mortgaged Property, or any part thereof, whether under Louisiana Commercial
Laws or by virtue of judicial proceedings, whose application has not elsewhere
herein been specifically provided for, shall be applied as follows:
First: to the payment of all expenses incurred by Mortgagee
incident to the enforcement of this Mortgage, the
Note or any of the Indebtedness including, without
limiting the generality of the foregoing, all
expenses of any entry or taking of possession, of any
sale, of advertisement thereof, and of conveyances,
and as well, court costs, compensation of agents and
employees and legal fees and expenses;
Second: to the payment of all other costs, charges, expenses,
liabilities and advances incurred or made by
Mortgagee under this Mortgage or in executing any
trust or power hereunder;
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Third: to the payment of the Note and any other Indebtedness
(other than Indebtedness described in "First" and
"Second" above), with interest to the date of such
payment, in such order and manner as set forth in the
Loan Agreement; and
Fourth: any surplus thereafter remaining shall be paid to
Mortgagor or Mortgagor's successors or assigns, as
their interests shall appear.
7.10 Mortgagor's Waiver of Rights of Marshalling, etc.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time insist upon or plead or in any manner whatever
claim the benefit of any stay, extension or redemption law now or hereafter in
force, in order to prevent or hinder the enforcement or foreclosure of this
Mortgage or the absolute sale of the Mortgaged Property or the possession
thereof by any purchaser at any sale made pursuant to any provision hereof, or
pursuant to the decree of any court of competent jurisdiction; but Mortgagor,
for Mortgagor and all who may claim by, through or under Mortgagor, to the
maximum extent that Mortgagor or those claiming by, through or under Mortgagor
now or hereafter lawfully may, hereby waives the benefit of all such laws.
Mortgagor, for Mortgagor and all who may claim through or under Mortgagor,
waives, to the maximum extent that Mortgagor or those claiming by, through or
under Mortgagor now or hereafter lawfully may do so, any and all right to have
any of the Mortgaged Property marshalled upon any foreclosure of the lien
hereof, or sold in inverse order of alienation, and agrees that Mortgagee or
any court having jurisdiction to foreclose such lien may sell the Mortgaged
Property as an entirety. If any law in this Section 7.10 referred to and now
in force, of which Mortgagor or Mortgagor's successor or successors might take
advantage despite the provisions hereof, shall hereafter be repealed or cease
to be in force, such law shall not thereafter be deemed to constitute any part
of the contract herein contained or to preclude the operation or application of
the provisions of this Section 7.10.
7.11 Costs and Expenses. All reasonable costs and
out-of-pocket expenses (including, without limitation, reasonable attorneys'
fees and excluding expenses representing Mortgagee's administrative overhead)
incurred by Mortgagee in protecting and enforcing its rights hereunder shall
constitute a demand obligation owing by Mortgagor to the party incurring such
costs and expenses and shall draw interest at an annual rate equal to the rate
of interest then accruing on the Note until paid, all of which shall constitute
a portion of the Indebtedness,
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provided, however, that in no event shall such interest rate ever exceed the
Highest Lawful Rate.
7.12 Operation of Property by Mortgagee. Upon the occurrence
and during the continuance of an Event of Default and in addition to all other
rights herein conferred on Mortgagee, Mortgagee (or any person, firm or
corporation designated by Mortgagee) shall have the right and power, but shall
not be obligated, to enter upon and take possession of any of the Mortgaged
Property, and to exclude Mortgagor, and Mortgagor's agents or servants, wholly
therefrom, and to hold, use, administer, manage and operate the same to the
extent that Mortgagor shall be at the time entitled and in his place and stead.
Mortgagee, or any person, firm or corporation designated by Mortgagee, may
operate the same without any liability to Mortgagor in connection with such
operations, except for its gross negligence or willful misconduct in the
operation of such properties, and Mortgagee, or any person, firm or corporation
designated by Mortgagee, shall have the right and power, but shall not be
obligated, to collect, receive and issue a receipt for all Hydrocarbons, helium
and/or other minerals produced and sold from said properties, to make repairs,
purchase machinery and equipment, conduit and power, to enter work over
operations, drill additional wells and to exercise every power, right and
privilege of Mortgagor with respect to the Mortgaged Property. When and if the
expenses of such operation and development (including costs of unsuccessful
work over operations or additional wells) have been paid and the Indebtedness
paid, said properties shall, if there has been no sale or foreclosure, be
returned to Mortgagor.
ARTICLE VIII
Security Agreement
Without limiting any of the provisions of this Mortgage, to
secure the Indebtedness and all other Obligations, Mortgagor, as Debtor
(referred to in this Article VIII as "Debtor"), hereby expressly GRANTS,
ASSIGNS, TRANSFERS and SETS OVER unto Mortgagee, as Secured Party (referred to
in this Article VIII as "Secured Party," whether one or more), a lien upon and
a security interest in all the Mortgaged Property, together with any and all
proceeds, products, increases, profits, substitutions, replacements, renewals,
additions, amendments and accessions of, to and for the Mortgaged Property,
insofar as such property consists of equipment, chattel paper accounts,
contract rights, instruments, general intangibles, inventory, Hydrocarbons,
helium and/or other minerals, fixtures and any and all other personal property
of any kind or charac-
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ter (including both those now and those hereafter existing) to the full extent
that such property may be subject to the Louisiana Commercial Laws, but
expressly excluding any and all Equipment, Inventory and Receivables (said
Mortgaged Property, fixtures, contract rights, instruments, general
intangibles, accounts, inventory, Hydrocarbons, helium and/or other minerals,
and equipment, together with any and all proceeds, products, increases,
profits, substitutions, replacements, renewals, additions, amendments and
accessions of, to and for the foregoing property, but expressly excluding any
and all Equipment, Inventory and Receivables being hereinafter collectively
referred to as the "Collateral" for the purposes of this Article VIII). The
lien and security interest created by this Mortgage attaches upon the delivery
hereof. Debtor covenants and agrees with Secured Party that:
(a) In addition to and cumulative of any other
remedies granted in this Mortgage to Secured Party, Secured Party may, upon the
occurrence and during the continuance of an Event of Default, proceed under
said Louisiana Commercial Laws as to all or any part of the Collateral and
shall have and may exercise with respect to the Collateral all the rights,
remedies and powers of a secured party after default under said Louisiana
Commercial Laws, including, without limitation, the right and power to sell, at
public or private sale or sales, or otherwise dispose of, lease or utilize the
Collateral and any part or parts thereof in any manner authorized or permitted
under said Louisiana Commercial Laws after default by a debtor, and to apply
the proceeds thereof toward payment of any costs and expenses and attorneys'
fees and legal expenses thereby incurred by Secured Party, and toward payment
of the Indebtedness in accordance with Section 7.9 hereof.
(b) Upon the occurrence and during the continuance
of any Event of Default, Secured Party shall have the right (without
limitation) to take possession of the Collateral and to enter upon any premises
where same may be situated for such purpose without being deemed guilty of
trespass and without liability for damages thereby occasioned (other than
damages arising from the gross negligence, willful misconduct or bad faith of
Secured Party) and to take any action deemed necessary or appropriate or
desirable by Secured Party, at its option and in its discretion, to repair,
refurbish or otherwise prepare the Collateral for sale, lease or other use or
disposition as herein authorized. Debtor waives any and all rights that it may
have to a judicial hearing in advance of the enforcement of any of the Secured
Party's rights hereunder, including without limitation, its rights following an
Event of Default to take immediate possession of the Collateral and to exercise
its rights with respect thereto. To the extent that any
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of the Indebtedness is to be paid or performed by a person other than Debtor,
Debtor waives and agrees not to insert any rights or privileges which it may
have under Section 9-112 of the Uniform Commercial Code.
(c) To the maximum extent permitted by law, Debtor
expressly waives any notice of sale or other disposition of the Collateral and
any other right or remedies of a debtor or formalities prescribed by law
relative to sale or disposition of the Collateral or exercise of any other
right or remedy of Secured Party existing after default hereunder; and to the
extent any such notice is mailed, postage prepaid, to Debtor at the address
shown with Debtor's signature hereinbelow at least five (5) Business Days
before the time of the sale or disposition, such notice shall be deemed
reasonable and shall fully satisfy any requirement for giving of said notice.
Such notice, in case of a public sale or disposition, shall state the time and
place fixed for such sale or disposition and, in case of a private sale or
disposition, shall state the date after which such sale or disposition is to be
made.
(d) Any public sale of the Collateral shall be held
at such time or times within ordinary business hours at such places as Secured
Party may fix in the notice of such sale. At any such sale, the Collateral may
be sold in one lot as an entirety or in separate parcels, as Secured Party may
determine.
(e) Secured Party shall not be obligated to make any
sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same shall be
so adjourned.
(f) In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall not incur any liability in case of the failure
of such purchaser to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may again be sold upon like notice.
(g) Upon the occurrence and during the continuance
of an Event of Default, Secured Party is expressly granted the right, at its
option, to transfer at any time to itself or to its nominee the Collateral, or
any part thereof and to hold the same as security for the Indebtedness, and to
receive the monies, income, proceeds or benefits attributable or accruing
thereto and to apply the
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same toward payment of the Indebtedness, whether or not then due, in accordance
with Section 7.9 hereof. All rights to marshalling of assets of Debtor,
including any such right with respect to the Collateral, are hereby waived to
the maximum extent permitted by law.
(h) All recitals in any instrument of assignment or
any other instrument executed by Secured Party incident to sale, transfer,
assignment, lease or other disposition or utilization of the Collateral or any
part thereof hereunder shall be full proof of the matter stated therein, no
other proof shall be required to establish full legal propriety of the sale or
other action or of any fact, condition or thing incident thereto, and all
prerequisites of such sale or other action and of any fact, condition or thing
incident thereto shall be presumed conclusively to have been performed or to
have occurred.
(i) Upon the occurrence and during the continuance
of an Event of Default, Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated
by Secured Party that is reasonably convenient to both parties. All expenses
of retaking, holding, preparing for sale, lease or other use or disposition,
selling, leasing or otherwise using or disposing of the Collateral and the like
which are incurred or paid by Secured Party as authorized or permitted
hereunder, including also all attorneys' fees, legal expenses and costs, shall
be added to the Indebtedness.
(j) Should Secured Party elect to exercise its
rights under said Louisiana Commercial Laws as to part of the movable property
and fixtures described herein, this election shall not preclude Secured Party,
Mortgagee from exercising the rights and remedies granted by the preceding
paragraphs of this Mortgage as to the remaining personal property and fixtures.
(k) Secured Party may, at its election, at any time
after delivery of this Mortgage, sign one or more photocopies hereof in order
that such photocopies may be used as a financing statement under said Louisiana
Commercial Laws. Such signature by Secured Party may be placed between the
last sentence of this instrument and Debtor's acknowledgement or may follow
Debtor's acknowledgement. Secured Party's signature need not be acknowledged
and is not necessary to the effectiveness hereof as a deed of trust, mortgage,
assignment, pledge or security agreement.
(l) Except for Permitted Liens or as otherwise
permitted by the Loan Agreement, so long as any amount remains unpaid on the
Indebtedness,
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Debtor will not execute nor file in any public office any financing statement
or statements affecting the Collateral other than financing statements in favor
of Secured Party hereunder, unless the prior written specific consent and
approval of Secured Party shall have first been obtained.
(m) Secured Party is authorized to file, in any
jurisdiction where Secured Party deems it necessary, a financing statement or
statements, and at the request of Secured Party, Debtor will join Secured Party
in executing one or more financing statements pursuant to said Louisiana
Commercial Laws in form satisfactory to Secured Party, and will pay the cost of
filing or recording this or any other instrument, as a financing statement, in
all public offices at any time and from time to time whenever filing or
recording of any financing statement or of this instrument is deemed by Secured
Party to be necessary or desirable. The addresses of Debtor and Secured Party
are those addresses set forth for Mortgagor and Mortgagee, respectively, on the
cover page of this Mortgage.
(n) Without in any manner limiting the generality of
any of the other provisions of this Mortgage: (i) some portions of the goods
described or to which reference is made herein are or are to become fixtures on
the Lands; (ii) the security interests created hereby under applicable
provisions of the Louisiana Commercial Laws of one or more of the jurisdictions
in which the Mortgaged Property is situated will attach to Hydrocarbons or the
accounts (other than Receivables) resulting from the sale thereof at the
wellhead or minehead located on the Lands; and (iii) this Mortgage may be filed
of record in the real estate records as a financing statement.
(o) Debtor hereby irrevocably designates and
appoints Secured Party as its attorney-in-fact, with full power of
substitution, for the purposes of carrying out the provisions of this Mortgage
and taking any action and executing any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is effective without further action of Mortgagor or Mortgagee
upon the occurrence and during the continuance of an Event of Default (but the
determination of an Event of Default by Secured Party shall as to all parties
for the purposes hereof be conclusive as to the occurrence of an Event of
Default) and is irrevocable and coupled with an interest.
(p) Without limiting the generality of the
foregoing, Debtor hereby irrevocably authorizes and empowers Secured Party,
upon the occurrence
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<PAGE> 79
and during the continuance of an Event of Default, at the expense of Debtor, at
any time and from time to time (a) to ask, demand, receive, receipt, give
acquittance for, settle and compromise any and all monies which may be or
become due or payable or remain unpaid at any time or times to Debtor under or
with respect to the Collateral; (b) to endorse any drafts, checks, orders or
other instruments for the payment of money payable to Debtor on account of the
Collateral (including any such draft, check, order or instrument issued by an
insurance company payable jointly to Debtor and Secured Party); and (c) in the
discretion of Secured Party, to settle, compromise, prosecute or defend any
action, claim or proceeding, or take any other action, all either in its own
name or in the name of Debtor or otherwise, which Secured Party may deem to be
necessary or advisable for the purpose of exercising and enforcing its powers
and rights under this Mortgage or in furtherance of the purposes hereof,
including any action which by the terms of this Mortgage is to be taken by
Debtor. Nothing in this Mortgage shall be construed as requiring or obligating
Secured Party to make any demand or to make any inquiry as to the nature or
sufficiency of any payment received by it or to present or file any claim or
notice, or to take any action with respect to any of the Collateral or the
amounts due or to become due under any thereof, or to collect or enforce the
payment of any amounts assigned to it or to which it may otherwise be entitled
hereunder at any time or times, other than to account for amounts or Collateral
received.
(q) Secured Party shall incur no liability as a
result of the sale of Collateral, or any part thereof, at any private sale.
Debtor hereby waives, to the extent permitted by applicable law, any claims
against Secured Party arising by reason of the fact that the price at which the
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Indebtedness, even if Secured Party accepts the first offer
received and does not offer such Collateral to more than one offeree.
(r) Without precluding any other methods of sale,
Debtor acknowledges that the sale of the Collateral shall have been made in a
commercially reasonable manner if conducted in conformity with reasonable
commercial practices of banks disposing of similar property. Secured Party
shall not be liable for any depreciation in the value of the Collateral.
(s) Debtor acknowledges the Indebtedness and the
other Obligations secured hereby, whether now existing or to arise hereafter,
and confesses judgment thereon in favor of Secured Party, if the Indebtedness
or
32
<PAGE> 80
other Obligations secured hereby are not paid as and when due, whether by
acceleration or otherwise.
ARTICLE IX
Other Agreements
9.1 Provisions Subject to Intercreditor Agreement.
Notwithstanding anything to the contrary herein, until such time as Mortgagor's
obligations under the "Senior Loan Documents" (as defined in the Loan
Agreement) are satisfied, discharged and paid in full, the provisions of this
Mortgage (including, without limitation, Article V, Article VII and Article
VIII hereof) are subject to the terms, covenants, conditions and provisions of
the "Intercreditor Agreement" (as defined in the Loan Agreement). In the event
of any inconsistency between the terms and provisions of this Mortgage and the
Intercreditor Agreement, the terms, covenants, conditions and provisions of the
Intercreditor Agreement shall prevail until such time as Mortgagor's
obligations under the Senior Loan Documents are satisfied and discharged in
full.
9.2 Loan Agreement Prevails. In the event of any conflict or
inconsistency between the terms, covenants, conditions and provisions set forth
in this Mortgage and the terms, covenants, conditions and provisions set forth
in the Loan Agreement, the terms, covenants, conditions and provisions of the
Loan Agreement shall prevail.
ARTICLE X
Miscellaneous
10.1 Pooling and Unitization. Mortgagor shall have the
right, and is hereby authorized, to pool or unitize all or any part of the
Leases and Lands, insofar as they are related to the Mortgaged Property, with
adjacent lands, leaseholds and other interests, when, in the reasonable
judgment of Mortgagor, it is necessary or advisable to do so in order to form a
drilling unit to facilitate the orderly development of that part of the
Mortgaged Property affected thereby or to comply with the requirements of any
law or governmental order or regulation relating to the spacing of wells or
proration of the production therefrom; provided, however, that any unit so
formed for the production of oil shall not substantially exceed 160 acres, and
any unit so formed for the production of gas shall not exceed 640 acres, unless
a larger area is required to conform to any
33
<PAGE> 81
applicable law or governmental order or regulation relating to the spacing of
wells or to obtain the maximum, allowable production under any applicable law
or governmental order or regulation relating to the proration of production
therefrom; and further provided that the Hydrocarbons produced from any unit so
formed shall be allocated among the separately owned tracts or interests
comprising the unit in proportion to the respective surface areas thereof or in
such proportion as is prescribed by applicable law. Any unit so formed may
relate to one or more zones or horizons, and a unit formed for a particular
zone or horizon need not conform in area to any other unit relating to a
different zone or horizon, and a unit formed for the production of oil need not
conform in area with any unit formed for the production of gas. Upon the
written request of Mortgagee, as to all such units theretofore formed, and
thereafter formed, immediately after formation of any such unit, Mortgagor
shall furnish to Mortgagee a true copy of the pooling agreements, declarations
of pooling or other instruments creating such units, in such number of
counterparts as Mortgagee may reasonably request. The interest in any such
unit attributable to the Mortgaged Property (or any part thereof) included
therein shall become a part of the Mortgaged Property and shall be subject to
the lien hereof in the same manner and with the same effect as though such unit
and the interest of Mortgagor therein were specifically described in Exhibit A
hereto. Notwithstanding the foregoing, Mortgagor may enter into pooling or
unitization agreements not hereinabove authorized only with the prior written
consent of Mortgagee, which consent shall not be unreasonably withheld.
10.2 Advances by Mortgagee. Each and every covenant herein
contained shall be performed and kept by Mortgagor solely at Mortgagor's
expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this instrument, then, if such failure
is not remedied by Mortgagor within 30 days following notice thereof by
Mortgagee, Mortgagee or any receiver appointed hereunder may, but shall not be
obligated to, make advances to perform the same in Mortgagor's behalf, and
Mortgagor hereby agrees to repay such sums upon demand plus interest at an
annual rate equal to the then rate of interest accruing on the Notes until
paid; provided, however, that in no event shall such interest rate ever exceed
the Highest Lawful Rate. No such advance shall be deemed to relieve Mortgagor
from any default hereunder.
10.3 Defense of Claims. Mortgagor will notify Mortgagee, in
writing, promptly of the commencement of any legal proceedings affecting the
lien hereof or the Mortgaged Property, or any part thereof, and will take such
34
<PAGE> 82
action as may be necessary to preserve Mortgagor's and Mortgagee's rights
affected thereby, and should Mortgagor fail or refuse to take any such action,
Mortgagee may, upon giving prior written notice thereof to Mortgagor, take such
action on behalf of and in the name of Mortgagor and at Mortgagor's expense.
Moreover, Mortgagee may take such independent action in connection therewith as
they may in their discretion deem proper, Mortgagor hereby agreeing that all
sums advanced or all expenses incurred in such actions plus interest at an
annual rate equal to the then rate of interest accruing on the Note will, on
demand, be reimbursed to Mortgagee or any receiver appointed hereunder;
provided, however, that in no event shall such interest rate ever exceed the
Highest Lawful Rate.
10.4 Survival of Covenants and Liens. All of the covenants
and agreements of Mortgagor set forth herein shall survive the execution and
delivery of this Mortgage and shall continue in force until the Indebtedness is
paid in full. Accordingly, if Mortgagor shall perform faithfully each and all
of the covenants and agreements herein contained, then, and then only, this
Mortgage shall become null and void and shall be released in due form, upon
Mortgagor's written request and at Mortgagor's expense; otherwise, it shall
remain in full force and effect. No release of this Mortgage or the lien
thereof shall be valid unless executed by Mortgagee.
10.5 Renewals and Other Security. Renewals and extensions of
the Indebtedness may be given at any time, and Mortgagee may take or may now
hold other security for the Indebtedness without notice to or consent of
Mortgagor. Mortgagee may resort first to such other security or any part
thereof or first to the security herein given or any part thereof, or from time
to time to either or both, even to the partial or complete abandonment of
either security, and such action shall not be a waiver of any rights conferred
by this instrument, which shall continue as a perfected lien upon the Mortgaged
Property not expressly released until the Indebtedness secured hereby is fully
paid.
10.6 Instrument an Assignment, Etc. This instrument shall be
deemed to be and may be enforced from time to time as an assignment, chattel
mortgage, hypothecation, contract, deed of trust, mortgage, conveyance,
financing statement, real estate mortgage, pledge or security agreement, and
from time to time as any one or more thereof.
10.7 No Usury Intended. It is the intention of the parties
hereto to comply strictly with applicable usury laws; accordingly,
notwithstanding any provision to the contrary contained herein, in the Note, or
in any of the docu-
35
<PAGE> 83
ments securing or relating to any Indebtedness, in no event shall this
Mortgage, the Note, or such documents require or permit the payment, charging,
taking, reserving, or receiving of any sums constituting interest under
applicable laws which exceed the maximum amount permitted by such laws. If any
such excess interest is contracted for, charged, taken, reserved, or received
in connection with this Mortgage or the Note or in any of the documents
securing or relating to any Indebtedness, or in any communication by Mortgagee
or any other person to Mortgagor or any other person, or in the event all or
part of the Indebtedness shall be prepaid or accelerated, so that under any of
such circumstances or under any other circumstance whatsoever the amount of
interest contracted for, charged, taken, reserved, or received on the amount of
principal actually outstanding from time to time under this Mortgage or the
Note shall exceed the maximum amount of interest permitted by applicable usury
laws, then in any such event it is agreed as follows: (i) the provi- sions of
this Section shall govern and control, (ii) any such excess shall be deemed an
accidental and bona fide error and canceled automatically to the extent of such
excess, and shall not be collected or collectible, (iii) any such excess which
is or has been paid or received notwithstanding this Section shall be credited
against the then unpaid principal balance hereof or refunded to Mortgagor, at
Mortgagee's option, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful rate allowed under applicable laws
as construed by courts having jurisdiction hereof or thereof. Without limiting
the foregoing, all calculations of the rate of interest contracted for,
charged, taken, reserved, or received in connection herewith which are made for
the purpose of determining whether such rate exceeds the maximum lawful rate
shall be made to the extent permitted by applicable laws by amortizing,
prorating, allocating and spreading during the period of the full term of the
loan, including all prior and subsequent renewals and extensions, all interest
at any time contracted for, charged, taken, reserved, or received. The terms
of this Section shall be deemed to be incorporated in every loan document,
security instrument, and communication relating to this Mortgage and the Note.
The term "applicable usury laws" shall mean such laws of the State of Texas or
the laws of the United States, whichever laws allow the higher rate of
interest, as such laws now exist; provided, however, that if such laws shall
hereafter allow higher rates of interest, then the applicable usury laws shall
be the laws allowing the higher rates, to be effective as of the effective date
of such laws.
10.8 Separability. If any provision hereof or of the Note is
invalid or unenforceable in any jurisdiction, the other provisions hereof or of
the Note shall remain in full force and effect in such jurisdiction, and the
remaining provisions hereof shall be liberally construed in favor of Mortgagee
in order to
36
<PAGE> 84
effectuate the provisions hereof, and the invalidity of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction.
10.9 Rights Cumulative. Each and every right, power and
remedy herein given to Mortgagee shall be cumulative and not exclusive, and
every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time and so often and in such order as
may be deemed expedient by Mortgagee, and the exercise, or the beginning of the
exercise, of any such right, power or remedy shall not be deemed a waiver of
the right to exercise, at the same time or thereafter, any other right, power
or remedy. No delay or omission by Mortgagee in the exercise of any right,
power or remedy shall impair any such right, power or remedy or operate as a
waiver thereof or of any other right, power or remedy then or thereafter
existing.
10.10 Binding Effect. This Mortgage is binding upon
Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit
of Mortgagee and its successors and assigns, and the provisions hereof shall
likewise constitute covenants running with the land.
10.11 Article and Section Headings. The article and section
headings in this instrument are inserted for convenience and shall not be
considered a part of this instrument or used in its interpretation.
10.12 Notices. Except as otherwise provided herein, any
notice, request, demand or other instrument which may be required or permitted
to be given or served upon Mortgagor shall be sufficiently given when made by
hand delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested and addressed to Mortgagor at the address
shown on the cover page of this Mortgage or to such different address as
Mortgagor shall have designated by written notice received by Mortgagee.
10.13 Amendments, Modifications and Waivers, Etc. Except as
provided in Section 9.2, this Mortgage may be amended, modified, revised,
discharged, released or terminated only by a written instrument or instruments
executed by Mortgagor and Mortgagee. Any alleged amendment, revision,
discharge, release or termination which is not so documented shall not be
effective as to any party. No waiver of any provision of this Mortgage nor
consent to any departure by Mortgagor therefrom shall in any event be effective
37
<PAGE> 85
unless the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
10.14 Survival of Agreements. All representations and
warranties of Mortgagor herein and all covenants and agreements herein not
fully and finally performed before the effective date or dates of this Mortgage
shall survive such date or dates. All covenants and obligations in this
Mortgage are intended by the parties to be, and shall be construed as,
covenants running with the Lands.
10.15 Governing Law. This Mortgage shall be governed by and
construed in accordance with the laws of the State of Louisiana.
10.16 Subrogation. The Indebtedness represents funds
utilized to satisfy certain outstanding indebtedness and obligations secured by
liens, rights and/or claims against the Mortgaged Property or any part thereof,
and therefore Mortgagee shall be subrogated to any and all liens, rights,
superior titles and equities owned or claimed by the holder of any such
outstanding indebtedness or obligation so satisfied, regardless of whether said
liens, rights, superior titles and equities are assigned to the Mortgagee by
the holder(s) thereof or released. Mortgagee shall be subrogated to all
covenants and warranties heretofore given or made with respect to the Mortgaged
Property.
10.17 Limit to Indebtedness and Other Obligations Secured
Hereby. The maximum amount of the Indebtedness or other Obligations that may
be outstanding at any time and from time to time that this Mortgage secures is
fixed at $490,000,000, and the maximum amount which Mortgagee may claim for
damages that Mortgagee may suffer from a breach of any obligation, covenant,
agreement, term or condition secured by this Mortgage (other than for the
payment of money) is fixed at $1,000,000,000.
10.18 No Paraph. The Note and all other evidences of the
Indebtedness or other Obligations have not been paraphed for identification
with this Mortgage.
10.19 Acceptance. The acceptance of this Mortgage by
Mortgagee is presumed, and this Mortgage is not signed by Mortgagee.
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<PAGE> 86
THUS DONE AND PASSED, on the date first written above and in
the presences of the undersigned competent witnesses, who hereunto sign their
names with Mortgagor and me, Notary, after due reading of the whole.
WITNESSES: MORTGAGOR:
TRANSTEXAS GAS CORPORATION,
- -------------------------------- a Delaware corporation
- --------------------------------
By:
-------------------------------------
Name:
Title:
- --------------------------------
NOTARY PUBLIC, in and for the
State of Texas
My Commission
Expires:
----------------
39
<PAGE> 87
EXHIBIT "A"
40
<PAGE> 1
EXHIBIT 4.7
================================================================================
TRANSTEXAS GAS CORPORATION
Issuer
and
BANK ONE, N.A.
Trustee
___________________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 2, 1997
___________________________
$117,573,000
13 3/4% Series C Senior Subordinated Notes due 2001
and
13 3/4% Series D Senior Subordinated Notes due 2001
================================================================================
<PAGE> 2
THIS FIRST SUPPLEMENTAL INDENTURE, effective as of September 2, 1997
("Supplemental Indenture"), is made and entered into by TRANSTEXAS GAS
CORPORATION, a Delaware corporation (the "Company"), and Bank One, N.A., (the
"Trustee"), under an Indenture dated as of June 13, 1997, by the Company and
the Trustee (the "Current Indenture"). All capitalized terms used in this
Supplemental Indenture that are defined in the Current Indenture, either
directly or by reference therein, have the meanings assigned to them therein,
except to the extent such terms are defined in this Supplemental Indenture or
the context clearly requires otherwise.
WHEREAS, Section 9.1 of the Current Indenture provides, among other
things, that the Company, when authorized by Board Resolutions, and the Trustee
may enter into an indenture supplemental thereto for the purposes of curing
any ambiguity, defect, or inconsistency, or to make any other provisions with
respect to matters or questions arising under the Current Indenture, provided
such action shall not adversely affect the Interests of any Holder in any
material respect;
WHEREAS, the Board of Directors of the Company has adopted resolutions
authorizing and approving proposed amendments to the Current Indenture in
accordance with Section 9.1 thereof and the Company and the Trustee are
executing and delivering this Supplemental Indenture in order to provide for
such amendments;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Supplemental
Indenture hereby agree as follows:
ARTICLE I
AMENDMENTS TO CURRENT INDENTURE
Section 1.01. Additional Definitions. The Current Indenture is
hereby amended to add the following definition to Section 1.1, which, although
the capitalized term is used in the Current Indenture, was inadvertently
omitted:
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with
all undertakings and obligations in connection therewith.
Section 1.02. Amended Definitions. The following definitions in
Section 1.1 of the Current Indenture are hereby amended, to correct immaterial
ambiguities, defects, or inconsistencies:
(a) Definition of TransTexas Intercompany Loan. The term "Restricted
Liens" used in the proviso to clause (b) of the definition of
Asset Sale in the Current Indenture is hereby corrected to read
"Permitted Liens."
(b) Definition of TransTexas Intercompany Loan. The dollar amount
($425 million) referred to in the definition of TransTexas
Intercompany Loan in the Current Indenture is hereby corrected to
read "$450 million."
(c) Definition of Permitted Liens. The term "Non-Recourse Debt" used
in clause (q) of the definition of Permitted Liens in the Current
Indenture is hereby corrected to read "Unrestricted Non-Recourse
Debt."
<PAGE> 3
ARTICLE II
GENERAL PROVISIONS
Section 2.01. Effectiveness of Amendments. The Supplemental
Indenture is effective as of the date first above written.
Section 2.02. Ratification of Indenture. The Current Indenture is
in all respects acknowledged, ratified and confirmed, and shall continue in
full force and effect in accordance with the terms thereof and as supplemented
by this Supplemental Indenture. The Current Indenture and this Supplemental
Indenture, shall be read, taken and construed as one and the same instrument.
Section 2.03. Certificate and Opinion as to Conditions Precedent.
Simultaneously with and as a condition to the execution of this Supplemental
Indenture, the Company is delivering to the Trustee
(a) an Officer's Certificate in the form attached hereto as Exhibit
A; and
(b) an Opinion of Counsel covering the matters described in Exhibit B
attached hereto.
Section 2.04. Effect of Headings. The Article and Section headings
in this Supplemental Indenture are for convenience only and shall not affect
the construction of this Supplemental Indenture.
Section 2.05. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 2.06. Counterparts. This Supplemental Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
the same instrument.
-2-
<PAGE> 4
IN WITNESS WHEREOF, the parties to this Supplemental Indenture have
caused this Supplemental Indenture to be duly executed as of day and year first
above written.
TRANSTEXAS GAS CORPORATION
Attest: By:
------------------------ ---------------------------------------
Tim Moore Ed Donahue
Assistant Secretary Vice President, Chief Financial Officer
and Secretary
BANK ONE, N.A.,
Trustee
By:
---------------------------------------
-3-
<PAGE> 5
EXHIBIT A
TRANSTEXAS GAS CORPORATION
OFFICERS' CERTIFICATE
The undersigned, Arnold Brackenridge, President, and Ed Donahue, Vice
President and Secretary of TransTexas Gas Corporation, a Delaware corporation
(the "Company"), do hereby certify pursuant to Section 2.03 of that certain
First Supplemental Indenture, dated as of September 2, 1997, between the Company
and Bank One, N.A., and Section 14.4 of that certain Indenture, dated as of June
13, 1997, between the Company and the Trustee (the "Indenture"), as follows:
1. The undersigned have read Section 9.1 of the Indenture.
3. In our opinion, we have made such examination and
investigation as is necessary to enable us to express an informed opinion as to
whether or not the conditions precedent in the Indenture requiring compliance
by the Company to or concurrently with the execution and delivery by the
Company of the First Supplemental Indenture have been complied with.
4. In our opinion, each of the conditions precedent in the
Indenture requiring compliance by the Company prior to or concurrently with the
execution and delivery by the Company of the First Supplemental Indenture have
been complied with, and the Trustee is authorized or permitted, pursuant to
Section 9.1 of the Indenture, to execute the First Supplemental Indenture.
IN WITNESS WHEREOF, we have executed this Certificate as of September
2, 1997.
--------------------------------------
Arnold Brackenridge, President
----------------------------------------
Ed Donahue, Vice President and Secretary
<PAGE> 6
EXHIBIT B
Matters to be Covered by Gardere & Wynne, L.L.P. Opinion
1. The First Supplemental Indenture has been duly
authorized, executed and delivered by the Company.
2. Each of the conditions precedent in the Current
Indenture requiring compliance by the Company prior to or concurrently
with the execution and delivery by the Company of the First
Supplemental Indenture has been complied with by the Company, and
Section 9.1 of the Current Indenture authorizes or permits the Trustee
to execute the First Supplemental Indenture.
<PAGE> 1
[GARDERE & WYNNE, L.L.P. LETTERHEAD]
(214) 999-3000
September 2, 1997
TransTexas Gas Corporation
1300 North Sam Houston Parkway East
Suite 310
Houston, Texas 77032-2949
Gentlemen:
We have served as counsel for TransTexas Gas Corporation, a Delaware
corporation (the "COMPANY"), in connection with the Registration Statement on
Form S-4 (the "REGISTRATION STATEMENT") filed with the Securities and Exchange
Commission in connection with the registration under the Securities Act of
1933, as amended (the "1933 ACT"), of $115,815,000 principal amount of the
Company's 13-3/4% Series D Senior Subordinated Notes due 2001 (the "NOTES") to
be offered in exchange for the Company's outstanding 13-3/4% Series C Senior
Subordinated Notes due 2001.
We have examined the Registration Statement, the Indenture between the
Company and Bank One, NA, as Trustee, pursuant to which the Notes are to be
issued (the "INDENTURE"), the form of the Notes to be issued and such other
documents and such questions of law as we have deemed necessary to render the
opinion expressed below.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as copies, and the authenticity of the originals of
such copied documents. We have also assumed that, with respect to all persons
and entities other than the Company, such persons or entities had the power
(corporate or otherwise) to enter into and perform all of their obligations
under the Indenture, the due authorization by all requisite action (corporate
or otherwise) on the part of such persons or entities, the due execution and
delivery by such persons or entities of such document, and the validity and
binding effect thereof. As to any facts material to the opinion expressed
herein that we did not independently establish or verify, we have relied upon
oral or written statements, certificates and representations of officers and
other representatives of the Company and others.
Based upon the foregoing, and subject to the qualifications set forth
below, we are of the opinion that when the Notes are executed and authenticated
in accordance with the terms of the Indenture and delivered in the manner and
for the consideration described in the Registration Statement, the Notes will
be binding and enforceable obligations of the Company.
<PAGE> 2
TransTexas Gas Corporation
September 2, 1997
Page 2
The opinion expressed above is subject to the following
qualifications:
A. The binding nature and enforceability of the Notes may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or transfer, and other similar laws affecting the enforcement of
creditors' rights generally and (ii) equitable principles of general
application and judicial discretion that may limit or affect the availability
or grant of certain equitable remedies in certain instances. In addition, the
binding nature and enforceability of certain of the remedial, waiver and other
provisions of the Notes, or of the Indenture for the Notes, may be restricted
by applicable state law, but such restrictions will not, in our opinion, render
the Notes invalid as a whole or substantially interfere with the realization of
the principal legal benefits purported to be provided by the Notes or by the
Indenture for the Notes (except to the extent of any procedural delay which may
result therefrom). Further, the binding nature and enforceability of the
indemnification provisions of the Indenture may be limited by public policies
embodied in or reflected by various state and federal securities laws.
B. The opinion expressed herein is limited to the laws of the
United States of America, the laws of the State of Texas, and the corporate
laws of the State of Delaware, and we assume no responsibility as to the
applicability or the effect of any other laws. We have assumed that the laws
of the State of New York, which purport to govern the Notes and the Indenture
are the same as the laws of the State of Texas with respect to the binding
nature and enforceability of the Notes.
We consent to the use of this opinion letter as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
under the heading "Legal Matters." Our consent, however, is not an admission
that we come within the category of persons whose consent is required under
Section 7 of the 1933 Act or the rules and regulations of the Securities and
Exchange Commission.
Very truly yours,
GARDERE & WYNNE, L.L.P.
By: /s/ C. ROBERT BUTTERFIELD
--------------------------------------
C. Robert Butterfield, Partner
<PAGE> 1
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: TransTexas Gas Corporation (the "Company")
Amendment No. 1 to Registration Statement on Form S-4
Ladies and Gentlemen:
We are aware that our report dated June 18, 1997 on our review of
interim condensed consolidated financial information of the Company for the
three month period ended April 30, 1997, which is included in the Company's
report on Form 10-Q for the quarter then ended, is incorporated by reference in
the Company's Amendment No. 1 to Registration Statement on Form S-4, filed with
the Securities and Exchange Commission on September 3, 1997. Pursuant to Rule
436(c) under the Securities Act of 1933, as amended (the "Act"), these reports
should not be a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of the Act.
COOPERS & LYBRAND, L.L.P.
Houston, Texas
September 2, 1997
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement of TransTexas Gas Corporation on Form S-4 as filed with
the Securities and Exchange Commission on September 3, 1997 of our report dated
May 1, 1997 relating to our audit of the consolidated balance sheet of
TransTexas Gas Corporation as of January 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year ended January 31, 1997, the six months ended January 31, 1996 and each
of the two years in the period ended July 31, 1995. We also consent to the
reference to our firm under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 2, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We consent to the incorporation by reference in the Registration Statement of
TransTexas Gas Corporation on Form S-4 as filed with the Securities and
Exchange Commission on August 15, 1997 of our reserve report dated February 1,
1997, and to the references to our name under the caption "Experts" and
elsewhere in the form and context in which it appears in such Registration
Statement.
NETHERLAND, SEWELL & ASSOCIATES, INC.
Houston, Texas
September 2, 1997
<PAGE> 1
EXHIBIT 99.1
TRANSTEXAS GAS CORPORATION
LETTER OF TRANSMITTAL
FOR
TENDER OF OUTSTANDING
13 3/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2001
IN EXCHANGE FOR
13 3/4% SERIES D SENIOR SUBORDINATED NOTES DUE 2001
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON OCTOBER 6, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE")
OUTSTANDING NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE
DELIVER TO THE EXCHANGE AGENT:
BANK ONE, NA
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight Courier:
Bank One, NA (614) 248-5088 Bank One, NA-OH1-0184
Attention: Lora Marsch Attention: Lora Marsch
P.O. Box 70184 Confirm by Telephone 100 East Broad Street
Columbus, Ohio 43271-0184 (614) 248-4856 Columbus, Ohio 43215
</TABLE>
---------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated September 4, 1997 (the "Prospectus") of TransTexas Gas Corporation, a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal"), which together describe the Company's offer (the
"Exchange Offer") to exchange its 13 3/4% Series D Senior Subordinated Notes due
2001 (the "Exchange Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which the Prospectus is a part, for a like principal amount of its issued and
outstanding 13 3/4% Series C Senior Subordinated Notes due 2001 (the
"Outstanding Notes"). Capitalized terms used but not defined herein have the
respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The Company
shall notify the holders of the Outstanding Notes of any extension by
announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a holder of Outstanding Notes
pursuant to the procedures set forth in the Prospectus under the caption "The
Exchange Offer -- Procedures for Tendering." Holders of Outstanding Notes whose
Outstanding Notes are not immediately available, or who are unable to deliver
their Outstanding Notes and all other documents required by this Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, must
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures." See Instructions 1 and 2.
The term "holder" with respect to the Exchange Offer means any person in
whose name Outstanding Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
<PAGE> 2
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Outstanding
Notes must complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space below is inadequate, list the registered numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) EXACTLY AS NAME(S)
APPEAR(S) ON OUTSTANDING NOTES
(PLEASE FILL IN, IF BLANK) OUTSTANDING NOTE(S) TENDERED
- -------------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL PRINCIPAL
REGISTERED AMOUNT REPRESENTED BY AMOUNT
NUMBER(S) NOTE(S) TENDERED*
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
* Unless otherwise indicated, any tendering holder of Outstanding Notes will be deemed to have tendered the entire
aggregate principal amount represented by such Outstanding Notes. All tenders must be in integral multiples of $1,000.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING:
Name(s) of Registered holder(s) of Outstanding Notes:
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
- --------------------------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
- -----------------------------------------------------------------
Account Number (if delivered by book-entry transfer):
- -----------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
<PAGE> 3
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Outstanding
Notes indicated above. Subject to and effective upon the acceptance for exchange
of the principal amount of Outstanding Notes tendered in accordance with this
Letter of Transmittal, the undersigned hereby exchanges, assigns and transfers
to the Company all right, title and interest in and to the Outstanding Notes
tendered for exchange hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent, the agent and attorney-in-fact of the undersigned
(with full knowledge that the Exchange Agent also acts as the agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Outstanding Notes with full power of substitution to (i) deliver such
Outstanding Notes to the Company and deliver all accompanying evidences of
transfer and authenticity, and (ii) present such Outstanding Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Outstanding Notes, all in accordance with
the terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the
Outstanding Notes tendered hereby and to acquire the Exchange Notes issuable
upon the exchange of such tendered Outstanding Notes, and that the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim,
when the same are accepted for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June
5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Exchange Notes issued in
exchange for the Outstanding Notes pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchased Outstanding Notes exchanged for such Exchange
Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act and (ii) an affiliate of the
Company), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders are not
participating in, and have no arrangement with any person to participate in, the
distribution of such Exchange Notes. The undersigned specifically represent(s)
to the Company that (i) any Exchange Notes acquired in exchange for Outstanding
Notes tendered hereby are being acquired in the ordinary course of business of
the person receiving such Exchange Notes, whether or not the undersigned, (ii)
the undersigned is not participating in, and has no arrangement with any person
to participate in, the distribution of Exchange Notes, and (iii) neither the
undersigned nor any such other person is an "affiliate" (as defined in Rule 405
under the Securities Act) of the Company or a broker-dealer tendering
Outstanding Notes acquired directly from the Company for its own account.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account pursuant to
the Exchange Offer, the undersigned acknowledges that it or such other person
will deliver a prospectus in connection with any resale of such Exchange Notes.
The undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the SEC in the Morgan
Stanley Letter and similar SEC no-action letters, and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes, in which case the registration statement must
contain the selling security holder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the SEC, and (ii) a broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Outstanding
Notes tendered hereby.
<PAGE> 4
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Outstanding Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any tendered
Outstanding Notes that are not accepted for exchange pursuant to the Exchange
Offer for any reason will be returned, without expense, to the undersigned at
the address shown below or at a different address as may be indicated herein
under "Special Delivery Instructions" as promptly as practicable after the
Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Outstanding Notes pursuant to the procedures described under the
caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer. The undersigned further acknowledges its obligations under the
Registration Rights Agreement as applicable to the Exchange Offer and the
Registration Statement of which the Prospectus is a part.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Outstanding Notes accepted
for exchange and return any Outstanding Notes not tendered or not exchanged, in
the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Outstanding Notes accepted for exchange and any
Outstanding Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both the "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the Exchange Notes
issued in exchange for the Outstanding Notes accepted for exchange in the
name(s) of, and return any Outstanding Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Outstanding Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the
Outstanding Notes so tendered for exchange.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6
To be completed ONLY if Outstanding Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Outstanding Notes accepted for exchange,
are to be issued in the name of someone other than the undersigned.
ISSUE EXCHANGE NOTES AND/OR OUTSTANDING NOTES TO:
NAME:
- ----------------------------------------------
(Please Type or Print)
- ------------------------------------------------------
ADDRESS:
- --------------------------------------------
- ------------------------------------------------------
(Include Zip Code)
- ------------------------------------------------------
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Outstanding Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Outstanding Notes accepted for exchange,
are to be mailed or delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the undersigned's
signature.
MAIL OR DELIVER EXCHANGE NOTES AND/OR OUTSTANDING NOTES TO:
NAME:
- -------------------------------------------------
(Please Type or Print)
- ---------------------------------------------------------
ADDRESS:
- -----------------------------------------------
- ---------------------------------------------------------
(Include Zip Code)
- ---------------------------------------------------------
(Tax Identification or Social Security Number)
<PAGE> 5
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
OUTSTANDING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature(s) of Registered Holders of Outstanding Notes)
Dated:
- --------------------------------------------------------------------------------
1997
(The above lines must be signed by the registered holder(s) of Outstanding Notes
as name(s) appear(s) on the Outstanding Notes or on a security position listing,
or by person(s) authorized to become registered holder(s) by a properly
completed bond power from the registered holder(s), a copy of which must be
transmitted with this Letter of Transmittal. If Outstanding Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders,
then all such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5 regarding the completion of this
Letter of Transmittal, printed below.)
Name(s):
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
- ----------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated:
- --------------------------------------------------------------------------------
1997
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Outstanding Notes. All
physically delivered Outstanding Notes, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. The method of delivery of the tendered Outstanding
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it is
recommended that the holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the Exchange
Agent before the Expiration Date. No Letter of Transmittal or Outstanding Notes
should be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their
Outstanding Notes and whose Outstanding Notes are not immediately available or
who cannot deliver their Outstanding Notes, this Letter of Transmittal or any
other documents required hereby to the Exchange Agent prior to the Expiration
Date, must tender their Outstanding Notes according to the guaranteed delivery
procedures set forth in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers Inc., a commercial bank or a trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have received from
the Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder of the Outstanding Notes, the
registration number(s) of such Outstanding Notes and the total principal amount
of Outstanding Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal (or facsimile hereof) together with
the Outstanding Notes in proper form for transfer and any other documents
required hereby, must be deposited by the Eligible Institution with the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date; and (iii) the certificates for all physically tendered Outstanding Notes,
in proper form for transfer and all other documents required hereby are received
by the Exchange Agent within three New York Stock Exchange trading days after
the Expiration Date.
Any holder of Outstanding Notes who wishes to tender Outstanding Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New York City time, on the Expiration Date. Upon request of the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender of Holder. Only a holder of Outstanding Notes may tender such
Outstanding Notes in the Exchange Offer. Any beneficial holder of Outstanding
Notes who is not the registered holder and who wishes to tender should arrange
with the registered holder to execute and deliver this Letter of Transmittal on
his behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his Outstanding Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in such holder's name or obtain a
properly completed bond power from the registered holder.
4. Partial Tenders. Tenders of Outstanding Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Outstanding Notes is tendered, the tendering holder should fill in the principal
amount tendered in the third column of the box entitled "Description of
Outstanding Notes Tendered" above. The entire principal amount of Outstanding
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Outstanding
Notes is not tendered, then Outstanding Notes for the principal amount of
Outstanding Notes not tendered and Exchange Notes issued in exchange for any
Outstanding Notes accepted will be sent to the holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, promptly after the Outstanding Notes are accepted for
exchange.
<PAGE> 7
5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) is signed by the record holder(s) of the Outstanding Notes tendered
hereby, the signature must correspond with the name(s) as written on the face of
the Outstanding Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Outstanding Notes listed and tendered hereby and
the Exchange Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Outstanding Notes is to be reissued) to the
registered holder, the holder need not and should not endorse any tendered
Outstanding Notes, nor provide a separate bond power. In any other case, such
holder must either properly endorse the Outstanding Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Outstanding Notes listed,
such Outstanding Notes must be endorsed or accompanied by appropriate bond
powers, in each case signed as the name of the registered holder or holders
appears on the Outstanding Notes.
If this Letter of Transmittal (or facsimile hereof) or any Outstanding
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, evidence satisfactory to the Company
of their authority to act must be submitted with this Letter of Transmittal.
Endorsements on Outstanding Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Outstanding Notes
tendered herein and the Exchange Notes are to be issued directly to such
registered holder(s) and neither the box entitled "Special Delivery
Instructions" nor the box entitled "Special Registration Instructions" has been
completed, or (ii) such Outstanding Notes are tendered for the account of an
Eligible Institution. In all other cases, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Outstanding Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer.
If, however, Exchange Notes or Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Outstanding Notes tendered hereby, or if tendered Outstanding Notes are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OUTSTANDING NOTES LISTED IN THIS LETTER
OF TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a holder
of any Outstanding Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual is his or her social
security number. If the Company is not provided with the correct TIN, the holder
may be subject to a $50 penalty imposed by Internal Revenue Service. (If
withholding results in an over-payment of taxes, a refund may be obtained).
Certain holders (including, among others, all corporations
<PAGE> 8
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Outstanding Notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number of Substitute Form W-9" for information on which
TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any conditions of the Exchange Offer or defects or irregularities
in tenders as to particular Outstanding Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agent nor any person shall be under
any duty to give notification of defects or irregularities with regard to
tenders of Outstanding Notes nor shall any of them incur any liability for
failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to waive,
in whole or part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of Outstanding Notes on transmittal of this Letter of
Transmittal will be accepted.
12. Mutilated, Lost, Stolen or Destroyed Outstanding Notes. Any holder
whose Outstanding Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OUTSTANDING NOTES) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR
THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR
TO THE EXPIRATION DATE.
