EXHIBIT 10.2
 
FIRST AMENDMENT TO THE
AMENDED AND RESTATED CREDIT AGREEMENT
 
THIS FIRST AMENDMENT TO THE AMENDED AND RESTATED CREDIT AGREEMENT (this "First
Amendment"), dated and effective as of July 25, 2007 (the "First Amendment
Effective Date"), which amends that certain Amended and Restated Credit
Agreement dated as of April 2, 2007 by and among TXCO RESOURCES, INC. (formerly
named THE EXPLORATION COMPANY OF DELAWARE, INC.), a Delaware corporation (the
"Company"), OUTPUT ACQUISITION CORP., a Texas corporation ("Merger Sub"), TXCO
ENERGY CORP., a Texas corporation ("TXCOE"), TEXAS TAR SANDS INC., a Texas
corporation ("TTSI" and, together with Merger Sub, TXCOE, the "Original
Guarantors"), each of the Lenders party thereto, BANK OF MONTREAL, a Canadian
chartered bank acting through certain of its United States branches and
agencies, including its Chicago, Illinois branch, as administrative agent for
the Lenders (in such capacity, together with its successors in such capacity,
the "Administrative Agent"), and BMO CAPITAL MARKETS CORP., as arranger (as in
effect immediately prior to the First Amendment Effective Date, the "Credit
Agreement"), is by and among the Company, each of the Original Guarantors, OPEX
ENERGY, LLC, a Texas limited liability company ("OPEX" and, together with the
Original Guarantors, the "Guarantors"), each of the Lenders party hereto and the
Administrative Agent.
 
WHEREAS, the Company has advised the Administrative Agent and the Lenders that
the Company has requested that the Second Lien Term Loan Agreement be amended
and restated to provide for certain amendments, including an increase of the
amount of the term loans to be made available to the Company by $20,000,000 to a
total aggregate principal amount of $100,000,000 under an Amended and Restated
Term Loan Agreement, substantially in the form of Exhibit A attached hereto,
subject to effectiveness of this First Amendment and the other conditions
precedent provided for in such agreement;
 
WHEREAS, the Company has requested that the Credit Agreement be amended to
allow each of GUARANTY BANK, AMEGY BANK NATIONAL ASSOCIATION, NATIXIS, ALLIED
IRISH BANKS P.L.C. and CIT ENERGY USA INC. (the "New Lenders") to become
"Lenders" party to the Credit Agreement, as set forth herein;
 
WHEREAS, the Company has requested that the Credit Agreement be amended to make
certain other changes to the Credit Agreement on the terms and conditions set
forth in this First Amendment;
 
WHEREAS, as used herein, the term "Current Lenders" means the Lenders identified
as the Current Lenders on Schedule I hereto; capitalized terms used but not
otherwise defined herein shall have the meanings assigned such terms in the
Credit Agreement; and the rules of interpretation set forth in Section 1.2 of
the Credit Agreement are incorporated in this First Amendment as if set forth
herein; and
 

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WHEREAS, all of the Lenders (including the New Lenders) have agreed to such
amendments subject to the terms and conditions set forth in this First
Amendment.
 
NOW THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows.
 
Section 1.                      Lender Transactions.
 
(a)           Each Current Lender hereby sells, transfers and assigns to the
other Current Lenders and the New Lenders, and each other Current Lender and
each New Lender hereby purchases, assumes and undertakes from such Current
Lender, without recourse and without representation or warranty (except as
provided in this Section 1) a percentage equal to the percentage set forth
opposite such Lender's name on Schedule I hereto under the column "Pro Rata
Shares Purchased on the First Amendment Effective Date" of (i) the Maximum Loan
Amount of such Current Lender and (ii) all related rights, benefits,
obligations, liabilities and indemnities of such Current Lender under and in
connection with the Credit Agreement, as amended hereby, each Guaranty, the
Mortgages, each other Security Document and the other Loan Documents and all
Collateral and other security for the Obligations.
 
(b)           Upon the effectiveness of this First Amendment and by its
execution and delivery hereof, each of the New Lenders shall be  a party to the
Credit Agreement, as amended hereby, shall have all the rights and obligations
of a "Lender" under the Credit Agreement, as amended hereby, and the other Loan
Documents as if each were a signatory thereto, and shall agree, and does hereby
agree, to be bound by the terms and conditions set forth in the Credit
Agreement, as amended hereby, and the other Loan Documents to which the Lenders
are a party, in each case, as if each were a signatory thereto.
 
(c)           Each of the New Lenders hereby represents and warrants as
follows:  (i) such New Lender has fully reviewed the terms of the Credit
Agreement, this First Amendment and the other Loan Documents, copies of which,
together with copies of the documents which were required to be delivered as a
condition to the making of the initial Loans thereunder, have been delivered to
such New Lender by the Administrative Agent, and such New Lender has
independently and without reliance upon any other Lender or the Administrative
Agent, and based on such information as such New Lender has deemed appropriate,
made its own credit analysis and decision to enter into this First Amendment and
(ii) if such New Lender is not incorporated, formed or organized under the laws
of the United States of America or a state thereof, such New Lender has
contemporaneously herewith delivered to the Administrative Agent and the Company
such documents as are required by the Credit Agreement, including Section 10.10
of the Credit Agreement.  Each of the New Lenders hereby (x) appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Loan Documents as are
delegated to the Administrative Agent by the terms thereof, together with such
powers and discretion as are reasonably incidental thereto; and (y) agrees that
it will perform in accordance with their terms all of the obligations that by
the terms of the Credit Agreement, as amended hereby, or any other Loan Document
are required to be performed by it as a Lender.
 

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(d)           Each of the New Lenders and each of the Current Lenders hereby
advise each other party hereto that its respective address for notices and its
respective Lending Office(s) shall be as set forth below its name on its
respective signature page hereto.
 
(e)           In furtherance of the foregoing transactions, the Company agrees
that upon the request to the Administrative Agent by any Lender, the Company
will promptly execute and deliver to such Lender a Note evidencing the Loans of
such Lender with appropriate insertions as to date and principal amount;
provided, however, that delivery of Notes shall not be a condition precedent to
the occurrence of the First Amendment Effective Date.  The amount of principal
owning on any Lender's Note, if any, at any given time shall be the aggregate
amount of all Loans theretofore made by such Lender minus all payments of
principal theretofore received by such Lender on such Note.  Any Note shall be
issued in renewal, modification and extension but not novation and discharge of
indebtedness of the Company under, and evidenced by, that certain promissory
note dated April 2, 2007 in the principal amount of $125,000,000 executed by the
Company payable to Bank of Montreal.
 
(f)           As a result of the transactions effected by this Section 1, upon
effectiveness of this First Amendment, for purposes of Section 2.1(a) of the
Credit Agreement, as amended hereby, and for all other purposes of the Credit
Agreement, as amended hereby, each Lender's Maximum Loan Amount and Pro Rata
Share shall be as set forth in Schedule I hereto.
 
Section 2.                      Amendments.  The Credit Agreement is hereby
amended as follows:
 
(a)           The following definition of "First Amendment Effective Date" is
hereby added in its proper alphabetical order:
 
"First Amendment Effective Date" means, July 25, 2007.
 
(b)           The definition of "Commitment Letter" is hereby amended and
restated to read in its entirety as follows:
 
"Commitment Letter" means, collectively, (i) the commitment letter dated
February 13, 2007 by and among the Company, BMO Capital Markets Corp. and Bank
of Montreal and (ii) the Supplemental Commitment Letter dated July 19, 2007 by
and among the Company, BMO, Capital Markets Corp. and Bank of Montreal.
 
(c)           The definition of "Second Lien Term Loan Agreement" is hereby
amended and restated to read in its entirety as follows:
 
"'Second Lien Term Loan Agreement' means the Amended and Restated Term Loan
Agreement, dated as of July 25, 2007, among the Company, the guarantors party
thereto, the several lenders from time to time party thereto, Bank of Montreal,
as Administrative Agent, and BMO Capital Markets Corp., as Arranger, which
amends and restates that certain Term Loan Agreement dated as of April 2, 2007,
as the same may be further amended, amended and restated, supplemented or
otherwise modified in accordance with the terms hereof."
 

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(d)           Section 2.6(a) is hereby amended and restated to read in its
entirety as follows:
 
"(a) Scheduled Borrowing Base Determinations.  At all times prior to the
Termination Date the Company shall not permit the Effective Amount to exceed the
Borrowing Base then in effect and shall, in accordance with Section 2.7(f), cure
any Deficiency. The Initial Borrowing Base hereunder shall be $50,000,000 (the
"Initial Borrowing Base")."
 
(e)           The following new section for "Hedging Program" is hereby inserted
into the Credit Agreement as Section 7.16 thereof:
 
"7.16                      Hedging Program
 
.  Not later than the fifteenth (15th) day following the First Amendment
Effective Date, the Company shall, and shall cause its Subsidiaries to, enter
into, and shall maintain at all times thereafter during the relevant period,
Derivative Contracts for the purpose of hedging prices on the Oil and Gas
thereafter expected to be produced by the Company or any of its Subsidiaries,
which contracts shall (a) at all times through the third anniversary of the
First Amendment Effective Date cover not less than 50% of the Company's and its
Subsidiaries' aggregate Projected Oil and Gas Production anticipated to be sold
in the ordinary course of such Persons' business during such three-year period,
(b) thereafter, roll forward on a basis in order to cover not less than 50% of
the Company's and its Subsidiaries' aggregate Projected Oil and Gas Production
anticipated to be sold in the ordinary course of such Persons' business during
the ensuing twelve (12) fiscal quarters and (c) otherwise be in form and
substance reasonably acceptable to the Administrative Agent.  The Company shall
provide copies to the Administrative Agent of all Derivative Contracts then in
effect not later than the fifteenth (15th) day following the First Amendment
Effective Date, and thereafter contemporaneously with the delivery of each
Reserve Report as prescribed by Section 7.2(c)(i) beginning with the delivery of
the Reserve Report required to be delivered on or before October 1,
2007.  Delivery of such copies at such times shall be accompanied by delivery of
a certificate of a Responsible Officer, certifying that the Company is in
compliance with the requirements of this Section 7.16."
 
(f)           Section 8.1(e) is hereby amended and restated in its entirety to
read as follows:
 
"(e) Liens consisting of (i) pledges or deposits required in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other social security legislation; (ii) pledges and deposits in the ordinary
course of business not exceeding $500,000 in the aggregate securing insurance
premiums or reimbursement obligations under insurance policies, in each case
payable to insurance carriers that provide insurance to the Company or any of
its Subsidiaries; or
 

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(iii) obligations in respect of letters of credit or bank guarantees that have
been posted by the Company or any of its Subsidiaries to support the payments of
the items set forth in clauses (i) and (ii) of this Section 8.1(e);"
 
(g)           Section 8.5(b) is hereby amended and restated in its entirety to
read as follows:
 
"(b)  Indebtedness incurred pursuant to the Second Lien Term Loan Agreement in
an aggregate principal amount not to exceed $100,000,000;"
 
(h)           Section 8.10(a)(i) is hereby amended by replacing clause (ii)
thereof with the following:
 
"(ii) as of any date (the "Calculation Date") no such contract, when aggregated
with all Derivative Contracts permitted under this Section 8.10(a)(i), but
excluding Derivative Contracts described in clause (v) of this Section
8.10(a)(i), shall cover a notional volume in excess of the Applicable Percentage
of the total Projected Oil and Gas Production to be produced in any month from
the Proved Developed Producing Reserves reflected in the most recent Reserve
Report (unless and solely to the extent such an excess occurs in a month falling
within a period covered by a Derivative Contract entered into by the Company to
maintain compliance with Section 7.16);"
 
(i)           Section 11.27 (b) is hereby amended by replacing the first
sentence thereof with the following:
 
"Notwithstanding anything to the contrary contained herein or any other Loan
Document, when all Obligations have been paid or otherwise satisfied in full and
all Commitments have terminated or expired, but subject to Sections 5.1(e) and
5.4(e) of the Intercreditor Agreement, upon request of the Company, the
Administrative Agent shall (without notice to, or vote or consent of, any
Lender, or any Qualified Derivative Contract Counterparty) take such actions as
shall be required to release its security interest in all Collateral, and to
release all Guaranty Obligations provided for in any Loan Document; provided,
however, that in lieu of terminating and repaying any such Obligations arising
under any Qualified Derivative Contract, the Company may provide substitute
credit support under a standard form ISDA Credit Support Annex or other credit
support documents reasonably acceptable to such Qualified Derivative Contract
Counterparty to cover its then current exposure under such Qualified Derivative
Contract and such Qualified Derivative Contract Counterparty shall have provided
written notice to the Administrative Agent to the effect that such substitute
credit support has been provided to it and that such Qualified Derivative
Contract Counterparty no longer claims any right, title or interest in any
Collateral arising under the Loan Documents to secure any Obligations and
Indebtedness of the Company or any of
 

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its Subsidiaries arising under or related to such Qualified Derivative Contract,
whether then existing or thereafter arising."
 
Section 3.                      Amendment and Ratification.  Upon the
effectiveness hereof as provided in Section 4 of this First Amendment, this
First Amendment shall be deemed to be an amendment to the Credit Agreement, and
the Credit Agreement, as modified hereby, is hereby ratified, approved and
confirmed to be in full force and effect in each and every respect.  Except as
expressly provided by the amendments set forth in Section 2 of this First
Amendment, the execution, delivery and effectiveness of this First Amendment
shall neither operate as a waiver of any right, power or remedy of any Lender or
any Agent, nor constitute a waiver of any provision of any of the Loan
Documents.  All references to the Credit Agreement in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to the
Credit Agreement, as amended hereby.
 
Section 4.                      Conditions to Effectiveness.  The effectiveness
of this First Amendment is subject to the condition that, on or before the First
Amendment Effective Date, the Administrative Agent shall have received all of
the following, in form and substance satisfactory to the Administrative Agent:
 
(a)           Amendment.  This First Amendment, duly executed and delivered by
the Company and each of the Guarantors; and
 
(b)           Payment of Fees.  Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses owed pursuant to the Credit
Agreement, as amended hereby, or this First Amendment, including the Fee Letter
Agreement, in each case to the extent then due and payable at the First
Amendment Effective Date, including any such costs, fees and expenses arising
under or referenced in Sections 2.8 and 11.4 of the Credit Agreement.
 
Section 5.                      Representations and Warranties.  The Company and
each Guarantor hereby represents and warrants that, as of the First Amendment
Effective Date, after giving effect to this First Amendment:
 
(a)           Bring-Down of Representations and Warranties.  The representations
and warranties of the Company and each Guarantor contained in Article VI and
Section 4.5(b) of the Credit Agreement are true and correct in all material
respects on and as of the First Amendment Effective Date, as though made on and
as of such date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date).
 
(b)           No Default or Event of Default.  No event has occurred and is
continuing which constitutes a Default, an Event of Default or both.
 
Section 6.                      Governing Law.  THIS FIRST AMENDMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS FIRST AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
 

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Section 7.                      Costs and Expenses.  The Company shall pay all
reasonable costs and expenses incurred by the Administrative Agent, the Arranger
or any of their Affiliates in connection with the development, preparation,
administration and execution of this First Amendment, including Attorney Costs
incurred by any such Person with respect thereto, in each case in accordance
with Section 11.4 of the Credit Agreement.
 
Section 8.                      Counterparts.  This First Amendment may be
executed in any number of separate counterparts, no one of which need be signed
by all parties; each of which, when so executed, shall be deemed an original,
and all of such counterparts taken together shall be deemed to constitute but
one and the same instrument.  A fully executed counterpart of this First
Amendment by facsimile signatures shall be binding upon the parties hereto.
 
Section 9.                      Facsimile Transmission of Signature.  Any party
to this First Amendment may indicate its intention to be bound by its execution
and delivery of this First Amendment by its signature to the signature page
hereof and the delivery of the signature page hereof to the other parties or
their respective representatives by facsimile transmission or telecopy.  The
delivery of a party's signature on the signature page by facsimile transmission
or telecopy shall have the same force and effect as if such party signed and
delivered this First Amendment in person.
 
[Signature Pages Follow]

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IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
duly executed and delivered by their respective duly authorized officers as of
the date first set forth above, to be effective as of the First Amendment
Effective Date.
 

 
COMPANY:
     
TXCO RESOURCES INC.
     
By:    /s/ James E. Sigmon                                                
 
Name:   James E. Sigmon
 
Title:     President and Chief Executive Officer
     
GUARANTORS:
     
OUTPUT ACQUISITION CORP.
     
By:   /s/ M. Frank Russell                                     
 
Name:  M. Frank Russell         
 
Title:    Vice President and General Counsel
     
TXCO ENERGY CORP.
     
By:   /s/ P. Mark Stark                                                    
 
Name:  P. Mark Stark           
 
Title:    Vice President, Treasurer and Chief Financial Officer
     
TEXAS TAR SANDS INC.
     
By:   /s/ M. Frank Russell                                                
 
Name:  M. Frank Russell     
 
Title:  Vice President and General Counsel
     
OPEX ENERGY, LLC
     
By:   /s/ P. Mark Stark                                                     
 
Name:  P. Mark Stark         
 
Title:    Vice President, Treasurer and Chief Financial Officer
 
 
Address for Notice:
Principal Place of Business
and Chief Executive Office:
777 E. Sonterra Blvd., Suite 350
San Antonio, Texas 78258
Attention:  Chief Financial Officer
Facsimile No.:  (210) 496-3232

Signature Page to First Amendment to Amended and Restated Credit Agreement

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ADMINISTRATIVE AGENT AND
A LENDER:
 
 
BANK OF MONTREAL, acting through its U.S. branches and agencies, including its
Chicago, Illinois branch, as Administrative Agent and as a Lender

 
By:  
/s/ Joseph A. Bliss
Joseph A. Bliss
Managing Director

 
 
Address:        115 South LaSalle Street
11th Floor West
Chicago, Illinois  60603

Facsimile No.:  (312) 765-8078

Attention:        Terri Perez-Ford, Specialist

with copy to:

Bank of Montreal
Houston Agency
700 Louisiana Street
4400 Bank of America Center
Houston, Texas  77002

Facsimile No.:  (713) 223-4007

Attention:         Joseph A. Bliss

Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:

Address:        115 South LaSalle Street,
11th Floor West
Chicago, Illinois 60603

Facsimile No.:   (312) 765-8078

Attention:          Terri Perez-Ford, Specialist

Signature Page to First Amendment to Amended and Restated Credit Agreement

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A LENDER:

GUARANTY BANK

By:   /s/ David
Butler                                                                        
      Name:David Butler  
      Title:  Vice President

By:                                                                           
      Name:
      Title:

Address for Notices:

Address:                        333 Clay Suite 4400
Houston, TX 77002

Facsimile No.:                (713) 890-8868

Attention:                       David Butler

with a copy to:

Address:                        8333 Douglas
Dallas, TX 75225

Facsimile No.:                (214) 360-1938

Attention:                       Robert Lyons

 

Signature Page to First Amendment to Amended and Restated Credit Agreement

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A LENDER:

AMEGY BANK NATIONAL ASSOCIATION

By:   /s/ Mark A.
Serice                                                                       
      Name: Mark A. Serice   
      Title:   Vice President

By:                                                                           
      Name:
      Title:

Address for Notices:

Address:                    4400 Post Oak Parkway, 4th Floor
Houston, TX  77027

Facsimile No.:            (713) 561-0345

Attention:                   Mark A. Serice

with a copy to:

Address:                    1801 Main Street
Houston, TX 77002

Facsimile No.:            (713) 693-7467

Attention:                   Dana Chargois

 

Signature Page to First Amendment to Amended and Restated Credit Agreement

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A LENDER:

NATIXIS

By:   /s/ Timothy L.
Polvado                                                                        
      Name:    Timothy L. Polvado 
      Title:      Managing Director

By:  /s/ Louis P. Laville, III
      Name:   Louis P. Laville, III
      Title:     Managing Director

Address for Notices:

 
Address:  
Natural Resources & Related Industries

333 Clay Street, Suite 4340
Houston, TX 77002

Facsimile No.:            (713) 583-7745

Attention:                   Honi Gregory

with a copy to:

Address:                    Houston Energy Group
333 Clay Street, Suite 4340
Houston, TX 77002

Facsimile No.:            (713) 571-6167

Attention:                   Donovan Broussard
 

 

Signature Page to First Amendment to Amended and Restated Credit Agreement

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A LENDER:

ALLIED IRISH BANKS P.L.C.

By:    /s/ Edward M.
Fenk                                                                      
      Name: Edward M. Fenk
      Title:   Vice President

By:   /s/ Aidan
Lanigan                                                                  
      Name: Aidan Lanigan  
      Title:   Vice President

Address for Notices:

Address:                       Bankcentre,
Ballsbridge, Dublin 4, Ireland

Facsimile No.:              353 1 608-9815

Attention:                     Eimear O'Meara / Peter Garvey

with a copy to:

Address:                       Allied Irish Bank
- Corporate Operations
2nd Floor, Iona House,
Shelbourne Road
Ballsbridge, Dublin 4, Ireland

Facsimile No.:               353 1 641 6668

Attention:                      Eimear O'Meara / Peter Garvey

 

Signature Page to First Amendment to Amended and Restated Credit Agreement

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A LENDER:

CIT CAPITAL USA INC.

By:   /s/ Harold J.
Schroeder                                                                
      Name: Harold J. Schroeder  
      Title:   Senior Vice President

By:                                                                           
      Name:
      Title:

Address for Notices:

Address:                        505 Fifth Avenue, 10th Floor
New York, NY 10017

Facsimile No.:                (212) 771-9675

Attention:                       Peggy Dolan

with a copy to:

Address:                        11 West 42nd Street
New York, NY 10036

Facsimile No.:                (212) 461-7852

Attention:                       Maria McClung
 
 
Signature Page to First Amendment to Amended and Restated Credit Agreement

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SCHEDULE I
 
Lender
 
Pro Rata Shares on the First Amendment Effective Date
Maximum Loan Amount
CURRENT LENDER:
             
BANK OF MONTREAL
 
30%
$37,500,000
               
NEW LENDERS:
             
GUARANTY BANK
 
20%
$25,000,000
       
AMEGY BANK NATIONAL ASSOCIATION
 
20%
$25,000,000
       
NATIXIS
 
10%
$12,500,000
       
ALLIED IRISH BANKS P.L.C.
 
10%
$12,500,000
       
CIT ENERGY USA INC.
 
10%
$12,500,000
       
TOTAL:
 
100%
$125,000,000

 

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