attained.
SECTION 3.23
RESERVE REPORTS, IMBALANCES, MARKETING AND BORROWING BASE
MATTERS.
(A)
EXCEPT AS SET FORTH ON SCHEDULE 3.23, BORROWER AND EACH GUARANTOR
HAS DEFENSIBLE TITLE TO EACH MORTGAGED PROPERTY HAVING A BOOK COST IN EXCESS OF
$200,000 (EXCEPT TO THE EXTENT THAT (1) SUCH ASSETS HAVE THEREAFTER BEEN
DISPOSED OF IN COMPLIANCE WITH THIS AGREEMENT OR (2) LEASES FOR SUCH PROPERTY
HAVE EXPIRED PURSUANT TO THEIR TERMS), IN EACH CASE FREE AND CLEAR OF ALL LIENS,
EXCEPT (I) PERMITTED LIENS, (II) OBLIGATIONS OR DUTIES TO ANY MUNICIPALITY OR
PUBLIC AUTHORITY WITH RESPECT TO ANY FRANCHISE, GRANT, LICENSE OR PERMIT AND ALL
APPLICABLE LAWS, RULES, REGULATIONS AND ORDERS OF ANY GOVERNMENTAL AUTHORITY,
(III) ALL LESSORS' ROYALTIES, OVERRIDING ROYALTIES, NET PROFITS INTERESTS,
PRODUCTION PAYMENTS, CARRIED INTERESTS, REVERSIONARY INTERESTS AND OTHER BURDENS
ON OR DEDUCTIONS FROM THE PROCEEDS OF PRODUCTION, (IV) THE TERMS AND CONDITIONS
OF JOINT OPERATING AGREEMENTS AND OTHER OIL AND GAS CONTRACTS, (V) ALL RIGHTS TO
CONSENT BY REQUIRED NOTICES TO, AND FILING WITH OR OTHER ACTIONS BY GOVERNMENTAL
OR TRIBAL ENTITIES, IF ANY, IN CONNECTION WITH THE CHANGE OF OWNERSHIP OR
CONTROL OF AN INTEREST IN FEDERAL, STATE, TRIBAL OR OTHER DOMESTIC GOVERNMENTAL
OIL AND GAS LEASES, IF THE SAME ARE CUSTOMARILY OBTAINED IN CONNECTION WITH SUCH
CHANGE OF OWNERSHIP OR CONTROL, BUT ONLY INSOFAR AS SUCH CONSENTS, NOTICES,
FILINGS AND OTHER ACTIONS RELATE TO THE TRANSACTIONS PERMITTED BY THIS
AGREEMENT, (VI) ANY PREFERENTIAL PURCHASE RIGHTS, (VII) REQUIRED THIRD PARTY
CONSENTS TO ASSIGNMENT, (VIII) CONVENTIONAL RIGHTS OF REASSIGNMENT PRIOR TO
ABANDONMENT AND (IX) THE TERMS AND PROVISIONS OF OIL AND GAS LEASES, UNIT
AGREEMENTS, POOLING AGREEMENTS, AND OTHER DOCUMENTS CREATING INTERESTS
COMPRISING THE OIL AND GAS PROPERTIES, HYDROCARBONS AND HYDROCARBON INTERESTS;
PROVIDED, HOWEVER, THE EXCEPTIONS DESCRIBED IN CLAUSES (I) THROUGH (VIII)
INCLUSIVE ABOVE ARE QUALIFIED TO INCLUDE ONLY THOSE EXCEPTIONS IN EACH CASE
WHICH DO NOT OPERATE TO (A) REDUCE THE NET REVENUE INTEREST OF BORROWER OR ANY
GUARANTOR BELOW THAT SET FORTH IN THE RESERVE REPORT, (B) INCREASE THE
PROPORTIONATE SHARE OF COSTS AND EXPENSES OF LEASEHOLD OPERATIONS ATTRIBUTABLE
TO OR TO BE BORNE BY THE WORKING INTEREST OF BORROWER OR ANY GUARANTOR ABOVE
THAT SET FORTH IN THE RESERVE REPORT WITHOUT A PROPORTIONATE INCREASE IN THE NET
REVENUE INTEREST OF BORROWER OR SUCH GUARANTOR OR (C) INCREASE THE WORKING
INTEREST OF BORROWER OR ANY GUARANTOR ABOVE THAT SET FORTH IN THE RESERVE REPORT
WITHOUT A PROPORTIONATE INCREASE IN THE NET REVENUE INTEREST OF BORROWER OR SUCH
GUARANTOR, AND. PROVIDED FURTHER THAT THE FOREGOING DEFECTS, LIMITATIONS, LIENS
AND ENCUMBRANCES, WHETHER INDIVIDUALLY MATERIAL OR NOT, DO NOT IN THE AGGREGATE
CREATE A MATERIAL ADVERSE EFFECT (THE CATEGORIES OF EXCEPTIONS IN CLAUSES (I)
THROUGH (VIII), AS SO QUALIFIED AND AS ANY SUCH EXCEPTIONS MAY EXIST FROM TIME
TO TIME, BEING REFERRED TO AS THE "DESIGNATED TITLE EXCEPTIONS").
(B)
AFTER GIVING FULL EFFECT TO THE PERMITTED LIENS, EXCEPT AS SET
FORTH ON SCHEDULE 5.2, THE CREDIT PARTIES OWN THE NET INTERESTS IN PRODUCTION
ATTRIBUTABLE TO THE WELLS AND UNITS EVALUATED